RBI Grade BNABARD ESISEBI
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Context:
The Securities and Exchange Board of India (SEBI) has introduced enhanced disclosure norms for royalty payments to related parties, following concerns over excessive outflows and opaque contractual arrangements. The changes are aimed at ensuring informed oversight by audit committees and shareholders.
Key Highlights
Trigger for Reform
- A SEBI study in Nov 2024 found that 1 in 4 listed companies paid over 20% of net profits as royalties to related parties over FY14–FY24.
Key Disclosure Mandates
- Disaggregation of composite royalty agreements: Companies must disclose key components (brand, patents, tech, know-how) of composite IP agreements and explain why individual attributions aren’t possible.
- Peer comparison: Enhanced disclosures will allow material related-party royalty payments to be compared across firms.
- Sunset clauses: Mandatory disclosure of payment duration to prevent perpetual or one-sided agreements.
- Differentiation of fees: Professional fees, management support fees, or technical know-how charges must be disclosed, but not clubbed as royalties.
Parent-Subsidiary Transparency
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- If a parent entity receives non-uniform royalties from subsidiaries abroad, it must disclose the minimum and maximum rates, a move some experts consider operationally burdensome.
