Related Party Transactions by Listed Entities   

PUBLISHED ON: 16-11-2021

SEBI has amended the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”) and made the following key changes:

Definition of Related Party:

  • The following person or entity shall now be deemed to be a “related party”:
    • A person or entity forming part of the promoter or promoter group of the listed entity; or
    • A person or entity, holding equity shares in the listed entity equal to or more than 20% or 10% (with effect from April 1, 2023), either directly or beneficially, at any time during the immediately preceding financial year.

Materiality Threshold of Related Party Transactions (“RPTs”):

  • Earlier, the materiality threshold of an RPT was determined only based on percentage of the annual consolidated turnover as per the last audited financial statements.
  • Now, if a RPT exceeds Rs. 1000 crores or 10% of the annual consolidated turnover of the listed entity, whichever is lower, would be considered as a material RPT.

Definition of RPTs:

  • The definition of the term “related party transaction” has been widened to include the following transactions:
    • listed entity or any of its subsidiaries AND a related party of the listed entity or any of its subsidiaries; or
    • listed entity or any of its subsidiaries AND any other person or entity for the benefit a related party of the listed entity or any of its subsidiaries (with effect from April 1, 2023).
  • The following transactions that may be undertaken by a listed entity have been additionally excluded from the scope of RPT:
    • preferential issue of specified securities, subject to compliance of the relevant SEBI regulations.
    • corporate actions which are uniformly applicable/offered to all shareholders, namely the following: (i) payment of dividend; (ii) subdivision or consolidation of securities; (iii) issuance of securities by way of a rights issue or a bonus issue; and (iv) buy-back of securities.
    • acceptance of fixed deposits by banks or NBFCs, on terms uniformly applicable / offered to all shareholders or public, subject to compliance of disclosure guidelines by SEBI.

Audit Committee Approval for RPT:

  • Prior approval of audit committee of a listed entity, in relation to RPTs, is now required to be obtained in the following additional instances:
    • In case if any subsequent material modifications are made to an RPT.
    • In case only the subsidiary of listed entity is party to an RPT, and the listed entity is not a party; and if the value of the transactions, individually or taken together with previous transactions during a financial year, exceed 10% of annual consolidated turnover of the listed entity or (with effect from April 1, 2023) exceed 10% of the annual standalone turnover of the subsidiary.
  • Prior approval of audit committee of the listed entity is not required for an RPT in which the listed subsidiary is a party but the listed entity is not a party, subject to applicability of certain LODR Regulations. However, prior approval of audit committee of listed subsidiary is sufficient in case of RPT of its unlisted subsidiaries.

Shareholders’ Approval for RPT: Prior approval of shareholders of a listed entity in relation to RPTs is also required in case if any subsequent material modifications are made to the RPT.

Materiality Policy of RPT: Audit committee is required to define “material modifications” and disclose the same in the materiality policy of RPTs.

No Approval of Audit Committee or Shareholders of the listed company:

  • In case of transactions between 2 wholly-owned subsidiaries of listed company, whose accounts are consolidated with the holding company and placed before the shareholders for approval.

Persons permitted to vote to approve RPTs:

  • Earlier, all entities falling under the definition of related parties were not permitted to vote to approve the relevant RPT, irrespective of whether the entity is a party to the particular transaction or not. Now, this provision has been deleted.

Disclosures of RPT:

  • The timelines to make RPT disclosures by listed entities has been reduced to 15 days, instead of 30 days, from the date of publication and (with effect from April 1, 2023) on the date of publication of its standalone and consolidated financial results, for every 6 months.
  • A high value debt listed entity is required to submit disclosures along with the standalone financial results for every half year.
  • The listed entities which have its non-convertible securities are required to make RPT disclosures in the annual report in compliance with the accounting standards.