All key related party deals need shareholder nod: SEBI

Following representations from companies and industry bodies, market regulator Securities and Exchange Board of India (SEBI) has established that all material related party transactions will need shareholder approval. The clarifications were issued in relation to recent amendments made in related party transactions guidelines by the markets regulator.

SEBI reiterated that the amendments will come into force from April 1, 2022. Any related-party transaction (RPT) already approved by both the audit committee and shareholders can be executed without any need for fresh approval from shareholders. The rest will have to be presented in the first general meeting after the new RPT rules come into play for their nod.

“...all existing material related party contracts or arrangements entered into prior to the date of notification of these regulations and which may continue beyond such date shall be placed for approval of the shareholders in the first general meeting subsequent to notification of these regulations,” SEBI said in its clarification.

“In accordance with the said regulation, an RPT that has been approved by the audit committee prior to April 1, 2022 which continues beyond such date and becomes material as per the revised materiality threshold shall be placed before the shareholders in the first General Meeting held after April 1, 2022,” it added.

SEBI maintained that RPTs which have received omnibus approval from the audit committee will also have to be placed before the shareholders if it is material in terms of Regulation 23(1) of the LODR Regulations.

“Transparency, accountability and shareholder empowerment are the bedrock of robust corporate governance. Listed entities, therefore, shall ensure to comply with the spirit of the law and endeavour to provide relevant and detailed information to enable and empower shareholders for taking an informed decision,” the regulator said in its clarification.

In their several representations, Indian corporate sector had called for a review of the RPT amendments. Companies had urged SEBI to increase the materiality threshold for RPTs from ₹1,000 crore to ₹10,000 crore, or allow the existing 10% turnover rule to continue rather than absolute value. They argued that the low threshold will cause them to go to the shareholders again and again for regular transactions, making it difficult to respond to the opportunities and threats in the market.

SEBI said the explanatory statement contained in the notice sent to the shareholders for seeking approval for an RPT shall provide relevant information so as to enable the shareholders to take a view whether the terms and conditions of the proposed RPT are not unfavourable to the listed entity, compared to the terms and conditions, had similar transaction been entered into between two unrelated parties.

The information so provided shall include but not be limited to the information specified in circular dated November 22, 2021 so as to enable to the shareholders to take an informed decision, it added.