By Siddhant Mishra
The Securities and Exchange Board of India (Sebi) on Wednesday proposed corporate governance rules for related-party transactions (RPTs) in a high-value debt-listed entity (HVDLE) with an outstanding value of listed non-convertible debt securities of at least Rs 500 crore.
In its consultation paper, the regulator has proposed that bondholders be given a copy of any agenda item pertaining to RPTs planned to be taken up in general meetings by HVDLEs.
The proposal comes after Sebi received requests from HVDLEs regarding challenges faced by them in complying with the provision of the LODR (Listing Obligations and Disclosure Requirements) Regulations.
These entities told Sebi their shareholding is held by one or a few related-party shareholders. When these HVDLEs enter into RPTs, they are required to obtain the approval of the majority of the shareholders who are not related parties.
The debenture holders in question may submit their objection in writing within seven days of the date of despatch, which shall undergo scrutiny by a practising Company Secretary.
In case of objections received by bondholders holding 75% or more in value, the board of directors should withdraw the agenda pertaining to RPTs. If no response is received, it will be assumed the bondholder has no objection to the agenda.
The above proposal will be applicable to HVDLEs that either have only listed non-convertible debt securities, or those in which 90% or more shareholders are related parties.
The market regulator stated that the rationale behind such a proposal is to ensure RPTs in listed companies are regulated, as wrongdoings by companies in the past have stemmed from decisions being taken by persons with the ability to influence decisions.
It pointed out that shell companies controlled by such persons have been used to siphon off money, thus circumventing RPT norms. Besides, it said, firms have also diluted policies on RPTs by procuring approvals to continuously lend to group companies.
The regulator added that while the LODR norms require HVDLEs to comply with corporate governance norms even when the outstanding amount of listed non-convertible debt securities fall below `500 crore, there is no timeframe defined for which they shall continue to comply with such norms.
Consequently, it has been proposed that regulations, once applied to HVDLEs, shall continue to remain applicable till the outstanding value of its listed non-convertible debt securities reduces and remains below the specified threshold for at least three consecutive financial years.
Sebi has sought comments on the proposal by February 22.