The Capital Market Regulator, vide notification in Official Gazette dated November 09, 2021, has notified Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Sixth Amendment) Regulations, 2021 which shall come into force with effect from April 01, 2022.
Vide these amendments, SEBI has made various amendments to the provisions pertaining to the Related Party Transactions (‘RPT’) under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘Listing Regulations’). The highlights of these amendments are as follows:
As per the erstwhile provisions, if any person or entity belonging to the promoter or promoter group of a listed entity hold 20% or more in such listed entity, are considered as ‘deemed to be a related party’.
Widening this definition, the Capital Market Regulator, has added the following entities/ persons as ‘deemed to be a related party’ in place of existing category:
- All persons or entities forming part of promoter or promoter group irrespective of their shareholding; and
- Any person/entity holding equity shares in the listed entity, either directly or on a beneficial interest basis at any time during the immediately preceding FY:
- To the extent of 20% or more;
- To the extent of 10% or more (applicable w.e.f. 01.04.2023).
Transaction entered between the following parties will now be covered within the ambit of Related Party Transaction:
- A listed entity or its subsidiary → Related party of such listed entity or its subsidiary;
- A listed entity or its subsidiary → Any other person or entity with the purpose and effect to benefit the listed entity or its subsidiary w.e.f., 01.04.2023.
Such transactions shall be considered as RPTs regardless of whether a price is charged or whether the transaction is a single transaction or a group of transactions.
Removing some major ambiguities, SEBI has excluded the following transactions from the definition of RPT:
- Issue of specified securities on preferential basis under the SEBI (ICDR) Regulations, 2018;
- Corporate actions which are uniformly applicable/offered to all the shareholders in proportion to their shareholding:
- Payment of dividend;
- Subdivision/ consolidation of securities;
- Rights issue/ bonus issue;
- Buy-back of securities
- Acceptance of fixed deposits by banks/ NBFCs at the terms uniformly applicable/ offered to all shareholders, subject to disclosure of such acceptance, and disclosure of RPT in every 6 months to the Stock Exchange.
Amending the current threshold of 10% of the annual consolidated turnover, any RPT, either individually or taken together with the previous transactions during a financial year, shall be considered ‘material’ if it exceeds Rs. 1000 Cr. or 10% of consolidated annual turnover of the entity, whichever is lower.
Audit Committee approvals will now be required for:
- All RPTs and subsequent material modifications. Further, the audit committee shall define such material modifications and disclose it as a part of policy on materiality of RPT;
- RPTs where subsidiary is a party but listed entity is not a party and where transaction whether entered into individually or taken together with previous transactions during a financial year exceeds 10% of the consolidated turnover of the listed entity, or 10% of standalone turnover of the subsidiary w.e.f. 01.04.2023.
- Audit Committee approval shall not be required for
- Transaction(s) entered into between the listed subsidiary and a related party, provided provisions of Regulation 23 and 15(2) are applicable on the listed subsidiary.
- Transaction(s) entered into between two wholly-owned subsidiaries of the listed holding company, whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval
Now, the requirement to review statement of significant related party transactions (as defined by the audit committee), submitted by management has been dispensed with.
All materials RPTs and subsequent material modifications basis threshold as defined by the Audit Committee, will now require prior approval of shareholders except where the transaction(s) is being entered into between a listed subsidiary and a related party and provisions of Regulation 23 and 15(2) are applicable on the listed subsidiary.
- Listed entity which has listed their non-convertible securities shall make disclosures in compliance with the Accounting Standard on “Related Party Disclosures”.
- Squeezing the Timelines: Listed entities to make disclosures of RPTs to stock exchanges every 6 months:
- Within 15 days [ earlier 30 days] from the date of publication of financial results; and
- Simultaneously with the financials results w.e.f. 01.04.2023.
- All listed entities except listed banks shall disclose details of loans and advances in the nature of loans to firms/companies in which directors are interested by name and amount, by the listed entity and its subsidiaries, in their CG report forming part of annual report.
For any discussions, feel free to contact:
Partner & Head – Capital Market Services
M: +91 9971673336