In its board meeting on September 28, 2021, SEBI approved amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 relating to related party transactions (“RPTs”) and to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 relating to issue of superior voting rights (“SVR”) shares. Set out below is a summary of the key changes approved by SEBI.
A. CHANGES TO RPT FRAMEWORK
- Definition of Related Party
The following persons will also be deemed to be a related party going forward:
- all persons/ entities forming part of promoter or promoter group irrespective of their shareholding in the listed company;
- any person/entity holding equity shares in the listed entity, either directly or on a beneficial interest basis at any time during the immediately preceding financial year:
- to the extent of 20% or more;
- with effect from April 1, 2023, to the extent of 10% or more.
- Scope of RPTs
RPTs shall also include transactions between:
- the listed entity or any of its subsidiaries on one hand and a related party of the listed entity or any of its subsidiaries on the other hand;
- with effect from April 1, 2023, the listed entity or any of its subsidiaries on one hand, and any other person or entity on the other hand, the purpose and effect of which is to benefit a related party of the listed entity or any of its subsidiaries.
- Shareholder approval for material RPTs
Shareholders’ approval is currently mandatory for RPTs where the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceeds 10% of the annual consolidated turnover of the listed entity. Going forward, the threshold will be the lower of INR 1000 crore or 10% of the consolidated annual turnover of the listed entity.
- Audit committee approval
Audit committee approval will additionally be required for the following:
- subsequent material modifications in any related party transactions as defined by the Audit committee;
- RPTs where a subsidiary is a party but listed entity is not a party subject to a minimum threshold of:
- 10% of the consolidated turnover of the listed entity; and
- with effect from April 1, 2023, 10% of the standalone turnover of the subsidiary w.e.f. April 1, 2023.
- Enhanced disclosures
SEBI has approved enhanced disclosures with respect to RPTs to be:
- placed before the audit committee;
- including in the notice to shareholders for material RPTs; and
- provided to the stock exchanges every six months in the format specified by SEBI with the following timelines:
- within 15 days from the date of publication of financials; and
- with effect from April 1, 2023, simultaneously with the financials.
- Effective Date
Except as specified above, the proposed amendments will come into effect from April 1, 2022.
B. CHANGES RELATING TO SVR SHARES
- Eligibility Requirements
Companies with SVR equity shares held by promoters/ founders are allowed to undertake an IPO of equity shares if inter alia the SVR shareholder is not a part of the promoter group whose collective net worth is more than INR 500 crore. SEBI has changed this to require that the SVR shareholder, as an individual, should not have a net worth of more than INR 1000 crore.
- Filing of RHP
Instead of 6 months, the minimum holding period for SVR shares prior to filing a Red Herring Prospectus has been reduced to 3 months.
The text of the formal amendment notifications for the above changes relating to RPTs and SVR shares is awaited.
Authored by Abhinav Bhalaik, Partner, Armaan Patkar, Principal Associate and Chirag Shah, Senior Associate
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