The Securities and Exchange Board of India (SEBI) on Thursday clarified that Related Party Transactions (RPTs) that have been approved by the Audit Committee and Shareholders before April 1, 2022, will not be required to obtain new shareholder approval.
However, the market regulator refused to extend the deadline for implementing the new RPT standards, dashing India Inc.’s hopes.
The Confederation of Indian Industry (CII) has asked SEBI to delay implementation of the RPT standards, announced in November 2021, for at least six months. She said the new rules, which will come into effect from April 1, 2022, will have a far-reaching impact on the conduct of business.
Sebi also said that RPT measures that become ‘substantial’ under the revised limit must be put before shareholders at the first general meeting after April 1, 2022.
The regulator has revised the materiality threshold whereby a listed entity will be required to obtain pre-approval from shareholders for all transactions in excess of Rs 1,000 crore, or 10 per cent, of the listed entity’s annual consolidated return, whichever is lower. Earlier, shareholder approval was required only if material transactions concluded with related parties exceeded 10 percent of the listed entity’s combined annual turnover.
CII said the Rs 1,000 crore threshold has been a nuisance to large-sized entities. “For conglomerates that have many subsidiaries including listed subsidiaries with high turnover, transactions worth Rs 1,000 crore may not qualify as ‘material’ or ‘material’ but still require shareholder approval as per the law. Average” Presentation for Sippy.
However, Sebi sees the new standards as necessary to improve corporate governance.
Transparency, accountability and empowering shareholders are the cornerstones of strong corporate governance. Therefore, listed entities shall ensure compliance with the spirit of the law and endeavor to provide relevant and detailed information to enable shareholders and enable them to make an informed decision.
The regulator urged India Inc to provide an explanatory statement while seeking shareholder approval for the RPT “so as to enable shareholders to have a look at whether the terms and conditions of the proposed RPT are unfavorable to the listed entity, compared to the terms and conditions, whether a similar transaction has been entered into between two parties Unrelated.”