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SEBI has amended provisions pertaining to ‘Related Party’ and ‘Related Party Transactions’ vide notification of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Sixth Amendment) Regulations, 2021 on 9th November, 2021 for better transparency, strengthening corporate governance practices and reporting of related party transactions.

They shall come into force with effect from April 1, 2022 unless otherwise specified in the respective provision of the regulation.

Compliances pertaining to Related Party Transactions

The key highlights and compliances pertaining to Related Party Transactions are:

Regulation Existing Amended Action Points
2(1)(zb)

“related party” means a related party as defined under sub -section (76) of section

2 of the Companies Act, 2013 or under the applicable accounting standards:

Provided that any person or entity belonging to the promoter  or  promoter group of the listed entity and holding 20% or more of shareholding in the listed entity  shall be deemed to be a related party.

“Provided that: (a) any person or entity forming a part of the promoter or promoter group of the listed entity; or (b) any person or any entity, holding equity shares: (i) of twenty per cent or more;

or

(ii) of ten per cent or more, with effect from April 1, 2023;

in the listed entity either directly or on a beneficial interest basis as provided under section 89 of the Companies Act, 2013, at any time, during the immediately preceding financial year; shall be deemed to be a related party:”

1. Substituted the first proviso

2.

3. 1) Amendment in definition of Related Party in RPT Policy to be taken in Audit and Board Meetings;

4.

2(1)(zc) “related party transaction” means a transfer of resources, services or obligations between

a listed entity

and

a related party,

regardless of whether a price is charged and a transaction”  with  a  related  party  shall  be  construed  to  include  a  single transaction or a group of transactions in a contract:

Provided that this definition shall not  be  applicable  for  the  units  issued  by  mutual funds which are listed on a recognised stock exchange(s)

“related party transaction” means a transaction involving a transfer of resources, services or

obligations between:

i) a 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;

or

(ii) a 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, with effect from April 1, 2023;

regardless of  whether  a  price  is  charged  and  a  “transaction”  with  a  related  party  shall  be construed to include a single transaction or a group of transactions in a contract:

Provided that the following shall not be a related party transaction:

a) the  issue  of  specified  securities  on  a  preferential  basis,  subject  to  compliance  of  the requirements   under  the  Securities  and  Exchange  Board  of  India  (Issue  of   Capital  and Disclosure Requirements) Regulations, 2018;

b) the following corporate actions by the  listed entity which are uniformly applicable/offered to all shareholders in proportion to their shareholding:

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.

c)  acceptance of fixed  deposits  by  banks/Non-Banking  Finance  Companies  at  the  terms uniformly applicable/ offered to all shareholders/ public, subject to disclosure of the same along with  the disclosure  of related  party transactions every  six  months to the  stock exchange(s), in the format as specified by the Board: Provided further that this definition shall not be applicable for the units issued by mutual funds which are listed on a recognised stock exchange(s)

Substituted the Reg. 2(zc)

1. w.e.f April 1, 2022:

To take prior approval* of Audit Committee for RPTs between:

The Company or Subsidiaries on one hand and Related Party of the Company or Related Party of Subsidiaries on other hand

(*w.e.f 1.1.2022 SEBI (LODR) Third Amendment – Provided that only those members of the audit committee who are independent directors shall approve RPTs. )

2) w.e.f April 1, 2023 onwards,

Prior approval of Audit Committee of the Company shall also be taken for RPTs between:

The Company or Subsidiary on one hand

and

any other person or entity on the other hand (purpose and effect of which is to benefit a related party of the Company or subsidiary).

3) Prepare list of related parties of subsidiaries.

4) To check nature and quantum of transactions of subsidiaries with the Related Parties of the Company.

23 (1) explanation 1) The listed entity shall formulate a policy on materiality of related party

Transactions and on dealing  with  related  party  transactions including  clear  threshold  limits  duly approved  by  the  board  of  directors  and  such  policy  shall  be  reviewed  by  the  board  of directors at least once every three years and updated accordingly:

Explanation-

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 ten percent of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity.

“Provided that 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.”

Explanation is substituted with proviso

To check RPTs between the Company and its RPs with the said threshold

To check RPTs between subsidiaries and its RPs

To check RPTs between subsidiaries and RPs of the Company with the said thresholds.

Reg. 23 (2)

All related party transactions shall require prior approval of the audit committee:

Provided that  only  those members  of  the  audit  committee,  who  are  independent directors, shall approve related party transactions.

All related party transactions and subsequent material modifications shall require prior approval of the audit committee of the listed entity

Words added in existing Regulation

1. To amend RPT Policy – to include definition of material modifications as approved by Audit Committee

Reg.23(2)

“Provided further that:

(a) the audit committee of a listed entity shall define “material modifications” and disclose it as part of the policy on materiality of related party transactions and on dealing with related party transactions;

(b) a related party transaction to which the subsidiary of a listed entity is a party but the listed entity is not a party, shall require prior approval of the audit committee of the listed entity if the value of such transaction whether entered into individually or taken together with previous transactions during a financial year exceeds ten per cent of the annual consolidated turnover, as per the last audited financial statements of the listed entity;

(c) with effect from April 1, 2023, a related party transaction to which the subsidiary of a listed entity is a party but the listed entity is not a party, shall require prior approval of the audit committee of the listed entity if the value of such transaction whether entered into individually or taken together with previous transactions during a financial year, exceeds ten per cent of the annual standalone turnover, as per the last audited financial statements of the subsidiary;

d) prior approval of the audit committee of the listed entity shall not be required for a related party transaction to which the listed subsidiary is a party but the listed entity is not a party, if regulation 23 and sub-regulation (2) of regulation 15 of these regulations are applicable to such listed subsidiary.

Explanation: For related party transactions of unlisted subsidiaries of a listed subsidiary as referred to in (d) above, the prior approval of the audit committee of the listed subsidiary shall suffice.”

Second proviso inserted

1) Amendment in RPT policy to include material modifications definition as above

23(4) All material related party transactions shall require approval of the shareholders through resolution and no related party shall vote to approve  such resolutions whether the entity is a related party to the particular transaction or not:

All material related party transactions and subsequent material modifications as defined by the audit committee under sub-regulation (2) shall require prior approval of the shareholders through resolution and

[no related party shall vote to approve] such resolutions whether the entity is a related party to the particular transaction or not:

Words added in existing Regulation

1) To amend RPT Policy – to insert the provision for prior approval of shareholders

First proviso of 23(4) Provided that the requirements specified under  this  sub-regulation  shall  not  apply  in respect of a resolution plan approved under section 31 of the Insolvency Code, subject to the event being disclosed to the recognized stock exchanges within one day of the resolution plan being approved; Provided that prior approval of the shareholders of a listed entity shall not be required for a related party transaction to which the listed subsidiary is a party but the listed entity is not a party, if regulation 23 and sub-regulation (2) of regulation 15 of these regulations are applicable to such listed subsidiary. New Proviso added
23(5)(c) transactions entered into between two wholly-owned subsidiaries of the listed holding company, whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval. New clause added
23(7) For the purpose of this regulation, all entities falling under the definition of related parties shall not vote to approve the relevant transaction irrespective of whether the entity is a party to the particular transaction or not. Omitted No effect as it is already covered in 23(4).
23(9)

The listed entity shall submit within 30 days from the date of publication of its standalone and consolidated financial results for the half year, disclosures of related party transactions on a consolidated basis, in the format specified in the relevant accounting standards for annual results to the stock exchanges and publish the same on its website.

Provided that a ‘high value debt listed entity’ shall submit such disclosures along with its standalone financial results for the half year.

The listed entity shall submit to the stock exchanges disclosures of related party transactions in the format as specified by the Board from time to time, and publish the same on its website:

Provided that a ‘high value debt listed entity’ shall submit such disclosures along with its standalone financial results for the half year:

Provided further that the listed entity shall make such disclosures every six months within fifteen days from the date of publication of its standalone and consolidated financial results:

Provided further that the listed entity shall make such disclosures every six months on the date of publication of its standalone and consolidated financial results with effect from April 1, 2023.

Entire Reg. 23(9) substituted.

♦ The Format of AS-18 will be replaced with SEBI format.

♦ The Disclosure will be required to be given within 15 days from publication of Result w.e.f. 1-4-2022.

♦ The disclosure of the RPT on the same day of result declaration w.e.f. 1-04-2023.

Author Bio

Qualification: CS
Company: Gujarat Alkalies & Chemicals Limited
Location: Vadodara, Gujarat, IN
Member Since: 14 Nov 2019 | Total Posts: 2

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