Context:
SEBI has updated its minimum disclosure requirements for the approval of related party transactions by audit committees and shareholders. The revised norms are a result of consultations with industry bodies including Assocham, FICCI, and CII.
Related party transactions (RPTs)
Related party transactions (RPTs) are business deals between a company and its related parties, such as directors, key managers, or their family members. These transactions can involve sales, purchases, loans, or service agreements and are subject to specific regulations due to the potential for conflicts of interest. Transparency and proper disclosure are crucial to avoid issues related to fairness and potential financial implications.
Key Revisions:
- Certification Requirement Expanded:
- Now, Managing Directors (MDs), Whole-Time Directors, or Managers may also certify that an RPT is in the best interest of the listed company, in addition to the CEO or CFO.
- Certificate Content Standardized:
- SEBI has detailed the mandatory contents of the certificate to improve uniformity and accountability.
- Enhanced Information to Audit Committees:
- Disclosure of:
- All transactions undertaken with the related party in the current financial year
- Defaults made by the related party in the previous financial year
- Previous transactions, relationship nature, and ownership structure of the related party
- Additional disclosures in case of royalty payments
- Disclosure of:
- Audit Committee Oversight:
- The committee may seek additional documents (e.g., valuation reports).
- It must record rationale and comments for approval or rejection of RPTs in meeting minutes.
Objective
To enhance transparency, prevent abuse by promoters, and improve investor protection, especially in firms where promoters or executive directors may have conflicts of interest.
