The Securities and Exchange Board of India (Sebi) on Monday issued new rules on minimum information to be provided to the audit committee and shareholders for approval of related party transactions (RPT) in a listed firm, to comply with listing obligations and disclosure requirements (LODR).
Companies are required to explain why the transaction is in the interest of the listed entity, provide valuation or external reports if relied upon, indicate the percentage of the counterparty’s annual turnover and include any other relevant details for approval of a proposed RPT.
“India Inc. continues to falter in its battle for good governance because of abusive RPTs, inadequate disclosures, and diversion of funds of listed companies to closely-held promoter entities,” said Bharat Vasani, senior advisor – corporate laws, Cyril Amarchand Mangaldas, in a report.
The regulator had floated a consultation paper on this matter on August 4, following recommendations of the advisory committee on listing obligations and disclosures. It had received representation by the Industry Standards Forum, requesting relaxation from the applicability of the RPT industry standards.
For shareholder approval, the notice sent has to summarise information shared with the audit committee, justify how the transaction benefits the company, disclose details of any loans, advances, inter-corporate deposits or investments involved, and confirm that any valuation or external report will be accessible to shareholders.
Sebi addressed the circular to all listed entities, the stock exchanges and industry chambers.
This circular shall come into effect immediately. “Stock exchanges are advised to bring the circular to the notice of their listed entities,” said Vimal Bhatter, deputy general manager, corporation finance department at Sebi.