Clarification on applicability of Regulation 23 of SEBI (LODR) Regulations, 2015 in relation to Related Party Transactions (RPTs)
SEBI vide notification dated 9th November, 2021 amended the provisions pertaining to ‘Related Party’ and ‘Related Party Transactions’ to strengthen the monitoring of Related Party Transactions and for better governance. Certain amendments shall come into force from 1st April, 2022 and remaining from 1st April, 2023.
However, these amended provisions in addition to being very detailed oriented and extensive in nature, demanded some guidance so that listed entities have clarity when it comes to practical implementation of the same.
To clarify such doubts, SEBI vide Circular dated 30th March, 2022 has now provided clarifications and guidance for smooth implementation of the amended Regulation 23 of the SEBI (LODR) Regulations, 2015 as follows:
(i) For an RPT that has been approved by the audit committee and shareholders prior to 1st April, 2022, listed companies will not be required to obtain fresh approval from the shareholders;
(ii) In accordance with Regulation 23(8), a RPT that has been approved by the audit committee prior to 1st April, 2022 and which continues beyond such date and becomes material as per the revised materiality threshold* shall be placed before the shareholders in the first General Meeting held after 1st April, 2022.
Thus, with this the market regulator clarified the view which many might have held i.e. getting long-term RPTs approved before 1st April, 2022 can avoid seeking shareholder approvals, hoping that the rules will be applicable only after the notification and rollout of the new regime, which is not the case as clarified above by SEBI.
(iii) A RPT for which the company’s audit committee has granted omnibus approval, should continue to be placed before the shareholders if it is material* in terms of the new norms.
*A transaction with a related party shall be considered material, if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceeds rupees one thousand crore or ten per cent of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity, whichever is lower. [Amended vide SEBI notification dated 9th November, 2021].
Therefore, listed entities are required to do an extensive working on this aspect of Related party Transactions. It is required to be ensured that all those transactions requiring shareholders’ approval as per the amended regulations are suitably identified and placed before the shareholders in the first General Meeting held after 1st April, 2022 with proper and complete disclosures in the Explanatory Statement to the Notice of such General meeting.
Accordingly, with the start of the new financial year, listed entities must have already started gearing up to face the ‘new normal’. All listed entities, their subsidiaries, their audit committee members and independent directors will have to be ready to comply with this extensive area of Related party Transactions with strong and effective systems in place to ensure effective implementation and meet the spirit of law.
As expected by SEBI, Listed entities, shall ensure to comply with the spirit of the law and endeavour to provide relevant and detailed information to enable and empower shareholders for taking an informed decision.
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Disclaimer: I, Ekta Agarwal hereby declare that the article, “Clarification on applicability of Regulation 23 of SEBI (LODR) Regulations, 2015 in relation to Related Party Transactions (RPTs)” has been written by me on the basis of legal facts and contents have not been copied from anywhere except legal provisions under various enactments. I further declare that this is my ‘original work’. Any resemblance to any other work/article/ book/ blog is purely coincidental. Although, I have made every effort to ensure that the information in this article was correct at the time of publication, I do not assume and hereby disclaim any liability to any party for any loss, damage, or disruption caused by errors or omissions, whether such errors or omissions result from negligence, accident, or any other cause.
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