SEBI tightens Related Party Transactions (RPT) norms

The Securities and Exchange Board of India (SEBI) has recently notified the SEBI (Listing Obligations and Disclosure Requirements) (Sixth Amendment) Regulations, 2021 (Regulations). These Regulations aim to improve transparency and promote fair disclosures by listed entities. The Regulations will be effective from April 01, 2022.

The key amendments are below

1. Changes in the definition of “related party” and RPT

The definition of related party has been expanded to include any person/entity forming part of the promoter or promoter group. Further, any person/entity holding equity shares of 20% or more (directly or beneficial basis) will be considered as a related party. This threshold will be reduced to 10% w.e.f April 01, 2023. Corporate actions by way of payment of dividends, subdivision/consolidation of securities, rights/bonus issue and buyback of securities, issue of specified securities on preferential basis under the SEBI (ICDR) Regulations, 2018 are excluded from the definition of a RPT. For banks and NBFCs, acceptance of fixed deposits at same terms

and conditions as offered to the public is also kept out of the ambit of RPT.

2. Purpose and Effect Test

Transactions between the listed entities/ its subsidiaries and any other person, the purpose and effect of which is to benefit a related party of the listed entity/ its subsidiaries will be considered as RPT.

3. Enhanced role of Audit Committee

A RPT to which the subsidiary of a listed entity is a party, but the listed entity is not a party, shall require prior approval of the audit committee of the listed entity if the value of such transaction whether entered individually or taken together with previous transactions during a financial year exceeds 10% of the annual consolidated turnover of the listed entity, or 10% of standalone turnover of the subsidiary w.e.f. April 01, 2023. In each case, the threshold is calculated as per the last audited

financials.

4. Disclosure Requirements

Listed entities will now have to submit RPT disclosures to the stock exchange and publish the same on its website. Periodic disclosures have also been mandated in specified formats.