Corporates in India currently comply with the Indian Accounting Standards (Ind AS) and the Companies Act, 2013 (2013 Act) with respect to Related Parties Transactions (RPTs). Additionally, the Securities and Exchange Board of India (SEBI) (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations) provide regulatory framework for the listed entities to comply in case of RPTs.
In order to strengthen the regulatory norms in relation to RPTs undertaken by the listed entities in India, SEBI constituted a working group in November 2019 to review the provisions pertaining to RPTs. The working group submitted its report to SEBI on 22 January 2020. The SEBI had, subsequently issued the report for the public comments.
On 28 September 2021, SEBI, in its board meeting, inter alia, considered and approved amendments to Listing Regulations on RPTs. Recently, on 9 November 2021, the SEBI notified these amendments through SEBI (Listing Obligations and Disclosure Requirements) (Sixth Amendment) Regulations, 2021 (the amendments).
The amendments mainly pertain to the following areas:
- Definition of related parties and RPTs
- Audit committee’s approval
- Materiality threshold and shareholders' approvals for RPTs
- Enhanced disclosures.
These amendments will be applicable in a phased manner, with certain amendments coming into effect from 1 April 2023 and remaining amendments will come into effect from 1 April 2022.
Subsequently, on 22 November 2021, SEBI issued a circular specifying the disclosure obligations of listed entities in relation to RPTs (i.e. information to be placed before the audit committee and the shareholders for consideration of RPTs, and the format for disclosure of RPTs to stock exchanges on a six-monthly basis has also been provided). This circular is effective from 1 April 2022.
In this issue of First Notes, we aim to provide an overview of the key amendments made by SEBI in the Listing Regulations relating to related parties and RPTs.
To access the text of the SEBI notification on amendments to Listing Regulations, please click here.
To access the text of the SEBI circular on disclosure obligations in relation to RPTs, please click here.