SEBI notifies new disclosure obligations for listed entities in relation to Related Party Transactions (RPTs)

The Securities and Exchange Board of India “SEBI” vide Notification No. SEBI/LAD-NRO/GN/2021-55 dated 09.11.2021 has notified the SEBI (Listing Obligations and Disclosure Requirements) (Sixth Amendment) Regulations, 2021 wherein key amendments have been made to the definition of “Related party” and “Related party transactions”.

• Any person or any entity, directly or indirectly (including their relatives), holding equity shares – (i) of 20% or more or (ii) of 10% or more, w.e.f. April 1, 2023 will be considered as a related party.
• A transaction with a related party shall be considered material, if the transaction(s) exceeds Rs. 1000 crore or 10% of the annual consolidated turnover of the listed entity, whichever is lower.

Further, SEBI vide Circular No. SEBI/HO/CFD/CIR/P/2021/662 dated 22.11.2021 has prescribed the information that is required to be placed before the audit committee and the shareholders to reinforce and monitoring of Related Party Transactions (RPTs) for better governance practices. This Circular is effective from April 1, 2022.

Key changes:

• The listed entity shall provide the information, for review of the audit committee for approval of a proposed RPT like –
  • Type, material terms and particulars of the proposed transaction,
  • Name of the related party and its relationship with the listed entity or its subsidiary, including nature of its concern or interest (financial or otherwise),
  • Tenure and value of the proposed transaction, etc
  • Transactions related to Loans, Inter-corporate deposits, advances or investments requires detailed disclosure, for example: Details of source of funds, purpose and terms of loans etc.
• The entity shall also be required to disclose the purpose for which the funds will be utilized by the ultimate beneficiary of such funds according to the RPT and Justification as to why the RPT is in the interest of the listed entity.
• The audit committee shall also review the status of long-term (more than one year) or recurring RPTs on an annual basis.
• Transactions above the prescribed limits require the approval of shareholders.

Notice sent to shareholders seeking approval for any proposed RPT shall, in addition to the requirements under the Companies Act, 2013, include the information as a part of the explanatory statement like – A summary of the information provided by the management to the audit committee; Justification for why the proposed transaction is in the interest of the entity; A statement that the valuation or other external report, if any, etc.

Simran Sandhu, Associate, SW India