By its notification dated November 9, 2021[1], SEBI amended the SEBI (Listing Obligations and Disclosure Requirements), Regulations 2015 (“LODR Regulations”) with respect to related party transactions (“RPTs”). These amendments were approved by SEBI in its board meeting dated September 28, 2021 and had been examined by us, in our earlier post linked here.

By its circulars dated November 22, 2021 and March 30, 2022, SEBI specified certain disclosure obligations for listed entities in relation to RPTs and has also provided certain clarifications in relation to the applicability of the amended LODR Regulations. Both circulars came into effect on April 1, 2022 and are explained below:

  1. November 22, 2021 Circular

This circular mandates that the following information should be provided by entities with listed ‘specified securities’[2] to the audit committee and shareholders when seeking approval of RPTs:

  • Audit committee
  1. Type, material terms, tenure and particulars of the RPT.
  2. Related party’s name and its relationship with the listed entity or its subsidiary, including nature of its concern or interest.
  3. Value of the RPT and percentage value of the RPT in relation to the listed entity’s annual consolidated turnover for the immediately preceding financial year, as well as percentage value based on the subsidiary’s annual turnover on a standalone basis if the RPT involves a subsidiary.
  4. Justification as to why the RPT is in the interest of the listed entity.
  5. Valuation or other external party report, if any such report has been relied on.
  6. Percentage of the counter-party’s consolidated turnover that is represented by the value of the proposed RPT (on a voluntary basis).
  7. If the RPT pertains to any loans, inter-corporate deposits, advances, or investments made or given to the listed entity or is subsidiary, additional details such as source of funds, nature of indebtedness, financial terms and purpose for which the funds will be utilized by the ultimate beneficiary of such funds, etc.
  8. Any other information that may be relevant.
  • Shareholders
  1. Summary of information provided to the audit committee.
  2. Statement that the valuation or other external report (if any) relied upon by the listed entity in relation to the proposed RPT will be made available through the registered email address of the shareholders.
  3. Information to be provided to the audit committee in paragraphs 4, 6, 7 and 8 of the above section.

 

  1. March 30, 2022 Circular

This circular issued the following clarifications:

  • Listed entities to ensure compliance with the spirit of the law and endeavor to provide relevant and detailed information to the shareholders for taking an informed decision. The explanatory statement to the notice being sent to the shareholders shall provide relevant information to enable the shareholders to take a view regarding whether the terms and conditions of the proposed RPT are unfavorable in comparison to similar transactions entered between two unrelated parties.
  • For an RPT that has been approved by the audit committee and shareholders prior to April 1, 2022, the listed entity will not be required to take a fresh approval from the shareholders in relation to such RPT. However, if an RPT has been approved by the audit committee prior to April 1, 2022 and which becomes material after April 1, 2022 based on the revised materiality threshold, shareholders’ approval will be required in the first general meeting held after April 1, 2022.
  • An RPT for which omnibus approval has been granted by the audit committee shall also require shareholders’ approval if it qualifies as a material RPT. If omnibus approval for a material RPT is obtained in a general meeting, the same shall be valid for a period of one year. However, if omnibus approval has been obtained in an annual general meeting (“AGM”), such approval shall be valid up to the date of the next AGM for a period not exceeding 15 months. [3]

Authored by Armaan Patkar, Principal Associate and Riya Gupta, Associate

This material and the information contained herein prepared by Algo Legal is intended to provide general information on a subject or subjects and is not an exhaustive treatment of such subject(s). Algo Legal is not, by means of this material, rendering professional advice or services. The information is not intended to be relied upon as the sole basis for any decision. Algo Legal shall not be responsible for any loss whatsoever sustained by any person who relies on this material.

  1. SEBI (Listing Obligations and Disclosure Requirements) (Sixth Amendment) Regulations, 2021 effective from April 1, 2022. ↑
  2. Equity shares and securities which are convertible into or exchangeable with equity shares of the issuer. ↑
  3. SEBI Circular No. SEBI/HO/CFD/CMD1/CIR/P/2022/47 dated April 8, 2022. ↑

 

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