Mandatory Obligations for specified listed entities for Disclosure of Related Party Transactions (RPTs)

The Securities and Exchange Board of India “SEBI” vide its Circular No. SEBI/HO/DDHS_Div1/P/CIR/2022/0000000006 dated 07.01.2022 introduces a new disclosure requirement for listed entities, which have listed their debt securities, in relation to related-party transactions (RPTs).

Applicability: The new requirement will apply to “high-value debt-listed entities”, High-value debt-listed entities are those entities that have listed non-convertible debt securities and an outstanding value of such securities are Rs 500 crore and above.

Key highlights related to the New Disclosure Requirement:

Under the new disclosure, there are certain requirements which need to be placed by high-value debt-listed entities before the audit committee for consideration of related party transactions (RPTs), which are listed as follows:

• A justification report to justify as to why the proposed RPTs is in the company’s interest with a copy of the valuation or other external party report.
• Information on the percentage of the counter-party’s annual consolidated turnover that is represented by the value of the proposed RPTs.
• Additional report disclosing following disclosure about the proposed RPTs:
  • Type of RPTs
  • material terms with the related party considering the proposed RPTs
  • particulars of the quantitative and financials details of the proposed transaction,
  • name of the RPT and its relationship with the entity or its subsidiaries, including nature of its concern or interest.

• Tenure as well as the value of the proposed transaction, the percentage of the listed entity’s annual consolidated turnover, for the immediately preceding financial year, which is represented by the value of the proposed transaction.

If the audit committee approves the proposed RPT then the notice is to be sent to the shareholders seeking approval for the proposed RPT which will include certain information as submitted to audit committee as a part of the explanatory statement for shareholders and post shareholders’ approval, the entities can execute the proposed RPTs and the same disclosures also need to be made to stock exchanges in the prescribed format.

The circular will come into force with immediate effect

Syed Aman, Audit Associate, SW India