|
Particulars |
Existing Provisions |
Proposed Provisions |
Key Changes/Impact |
|
Definition of Related
Party widened:
|
“Related party” means a related party as defined under
sub-section (76) of section 2 of the Companies Act, 2013 or under the
applicable accounting standards: Provided that any person or entity belonging to the promoter or promoter group of the listed entity and holding 20% or more of shareholding in the listed entity shall be deemed to be a related party. Provided further that this definition shall not be applicable for the units issued by mutual funds which are listed on a recognised stock exchange(s); |
It is proposed to include the following as well in the definition of related party · All persons or entity belonging to the promoter (P) or promoter group (PG) will be regarded as related party, irrespective of its shareholding in the listed entity; · Any person or entity holding, directly or indirectly, 20% or more of the equity shareholding in the listed entity will be regarded as a related party w.e.f. April 1, 2022; · Any person or entity holding, directly or indirectly, 10% or more of the equity shareholding in the listed entity will be regarded as a related party w.e.f. April 1, 2023 |
Prior to the changes, only those persons/entities in the promoter category who owned 20 per cent or more stake were “related party. The new regime will lead to the classification of following also as “related party”: · All persons/entities in a promoter group (irrespective of shareholding · Non-promoter shareholders being classified as “related party” at a later stage, as the 20% or more clause comes into effect from April 1, 2022. Further, 10 per cent or higher clause kicks in from April 1, 2023. |
|
Transactions covered under the definition of RPT |
“Related party transaction” means a transfer of resources,
services or obligations between a listed entity and a related party,
regardless of whether a price is charged and a "transaction" with a
related party shall be construed to include a single transaction or a group
of transactions in a contract: Provided that this definition shall not be applicable for the units issued by mutual funds which are listed on a recognised stock exchange(s) |
Now RPTs are defined as being transactions between: ü The listed entity/its subsidiaries and a related party of the listed entity/its subsidiaries. üThe listed entity/its subsidiaries and any person/entity, the purpose and effect of which is to benefit a related party of the listed entity/its subsidiaries.
|
The definition of “related party
transactions” has been broadened to cover pacts beyond merely listed entities
and a related party. |
|
Regulation 23 of SEBI (LODR)- Related party transactions |
(1) The listed entity shall formulate a policy on materiality of related party transactions and on dealing with related party transactions[1] including clear threshold limits duly approved by the board of directors and such policy shall be reviewed by the board of directors at least once every three years and updated accordingly. (1A) Notwithstanding the above, with effect from July 01, 2019, a transaction involving payments made to a related party with respect to brand usage or royalty shall be considered material if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceed five percent of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity. (2) All related party transactions shall require prior approval of the audit committee. (3) Audit committee may grant omnibus approval for related party transactions proposed to be entered into by the listed entity subject to the following conditions, namely- (a) the audit committee shall lay down the criteria for granting the omnibus approval in line with the policy on related party transactions of the listed entity and such approval shall be applicable in respect of transactions which are repetitive in nature; (b)
the audit committee shall satisfy itself regarding the need for such omnibus
approval and that such approval is in the interest of the listed entity; (c) the omnibus approval shall specify (i) the name(s) of the related party, nature of transaction, period of transaction, maximum amount of transactions that shall be entered into; (ii) the indicative base price / current contracted price and the formula for variation in the price if any; and (iii) such other conditions as the audit committee may deem fit. Provided that where the need for related party transaction cannot be foreseen and aforesaid details are not available, audit committee may grant omnibus approval for such transactions subject to their value not exceeding rupees 1 crore per transaction. (d) The audit committee shall review, at least on a quarterly basis, the details of related party transactions entered into by the listed entity pursuant to each of the omnibus approvals given. (e) Such omnibus approvals shall be valid for a period not exceeding 1 year and shall require fresh approvals after the expiry of 1 year. (4) All material related party transactions shall require approval of the shareholders through resolution and no related party shall vote to approve such resolutions whether the entity is a related party to the particular transaction or not.[2] (5) The provisions of sub-regulations (2), (3) and (4) shall not be applicable in the following cases: (a) transactions entered into between two government companies[3]; (b) transactions entered into between a holding company and its wholly owned subsidiary whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval. (6) The provisions of this regulation shall be applicable to all prospective transactions. (7) For the
purpose of this regulation, all entities falling under the definition of
related parties shall not vote to approve the relevant transaction
irrespective of whether the entity is a party to the particular transaction
or not. |
Approval of the Audit
committee shall be required for : RPTs where subsidiary is a party but listed entity is not a party subject to threshold of 10% of the consolidated turnover of the listed entity, 10% of the standalone turnover of the subsidiary w.e.f. April 1, 2023 SEBI has also proposed
amending the definition of material to include RPTs that cross Rs 1,000 crore
or 10% of the consolidated annual turnover, whichever is lower.
|
SEBI has proposed that RPTs, where the subsidiary is a party but the listed entity is not, will require the approval of the listed entity's audit committee only if certain size thresholds are exceeded. Material RPTs
will need the prior approval of shareholders of the listed entity if they
cross Rs 1,000 crore or 10% of the consolidated annual turnover, whichever is
lower. This change expands the scope
of shareholder approval which earlier was needed only for transactions
exceeding 10% of annual consolidated turnover.
|
|
Disclosures |
The listed
entity shall submit within 30 days from the date of publication of its
standalone and consolidated financial results for the half year, disclosures
of related party transactions on a consolidated basis, in the format
specified in the relevant accounting standards for annual results to the
stock exchanges and publish the same on its website. |
Enhanced disclosure of information related to RPTs to be: a) placed before the audit committee, b) provided in the notice to shareholders for material RPTs, and c) provided to the stock exchanges every six months in the format specified by the Board with the following timelines: i. within 15 days from the date of publication of financials; ii. simultaneously with the financials w.e.f. April 1, 2023 |
Enhanced disclosures to be placed before the audit committee, provided in the notice to shareholders for material RPTs, and provided to the stock exchanges every six months. SEBI has proposed stricter timeline : With effect from April 1, 2022: Within 15 days from the
date of publication of standalone/consolidated financial results for the
half year. With effect from April 1,2023: Simultaneously along with
the financials |
[1] Explanation- A transaction with a
related party shall be considered material if the transaction(s) to be entered
into individually or taken together with previous transactions during a
financial year, exceeds 10% of the annual consolidated turnover of the listed
entity as per the last audited financial statements of the listed entity.
[2] Provided that the requirements
specified under this sub-regulation shall not apply in respect of a resolution
plan approved under section 31 of the Insolvency and Bankruptcy Code. 2016, as
amended (“Insolvency Code”), subject to the event being disclosed to the
recognized stock exchanges within one day of the resolution plan being
approved.
[3] Explanation-For the purpose of
clause (a), "government company(ies)" means Government company as
defined in sub-section (45) of section 2 of the Companies Act, 2013.
This Article has been Compiled by Charu Jhamtani (Associate)
You can direct your queries or comments to the author at charu@factumlegal.com
Disclaimer-
The contents of this article should not be construed as legal opinion. This article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. We expressly disclaim any financial or other responsibility arising due to any action taken by any person on the basis of this article.
No comments:
Post a Comment