Cartload of disclosures for approving and reporting RPTs under LODR

SEBI accepts WG proposal for detailed review

Ajay Kumar K V | Manager (


Related Party Transactions (‘RPTs’) involve conflict of interest and may consist of a potential means to transfer funds under the smoke screen of an unrelated party, however, for the benefit of certain related persons. Taking this fact into cognizance, SEBI constituted a Working Group in November 2019 to review the policy structure and gaps pertaining to RPTs in the SEBI (Listing Obligations and Disclosure Requirements) Regulations (‘Listing Regulations’), 2015 vis-à-vis the Indian Accounting Standards and the Companies Act, 2013 (‘Act’).  The Working Group made recommendations on expanding the scope of RPs and RPTs, as well as enhancing disclosures before the audit committee (‘AC’), shareholders, and to the exchanges (‘SEs’).

Consequently, SEBI in its meeting held on 28th September 2021[1] considered and approved the amendments to Listing Regulations in line with the recommendations of WG. The decisions have been implemented vide two separate notifications.

SEBI, vide its notification dated November 9, 2021[2], amended Regulation 23 of the Listing Regulations thereby making significant changes in the definition of Related Parties (‘RPs’), RPTs including the approval mechanism for material RPTs, etc. A detailed analysis of the said amendment can be read here.

However, the provisions with respect to the information to be placed before AC and shareholders for seeking their approval, as well as half-yearly disclosures to stock exchanges were not made part of the aforesaid amendment. These amendments have been introduced vide SEBI circular SEBI/HO/CFD/CMD1/CIR/P/2021/662 dated 22nd November 2021[3] (‘SEBI Circular’).

The Circular broadly provides for the following –

  • Information to be placed before AC;
  • Information to be provided to shareholders for consideration of RPTs; and
  • Format of disclosure of RPTs on a half-yearly basis

The Circular takes effect from 1st April 2022 (while the disclosure is to be triggered in the first half-year of 2022-2023, i.e., for the half-year ended 30th September 2022.)

Various practical implications and considerations arising out of the prescriptions of the Circular are discussed in this write-up.


The Circular applies to listed entities which have listed their ‘specified securities’. Pursuant to the SEBI Listing Regulations 5th Amendment, a High Value Debt Listed Entity (‘HVDLEs’) is required to submit the disclosure on RTPs under Reg. 29(3) along with its standalone financial results for each half year.

HVDLEs are those listed entities which have listed its non-convertible debt securities and have an outstanding value of listed non-convertible debt securities of Rs. 500 crore and above as on 31st March 2021.

Thus, from the half-year ended 30th September 2022, HVDLEs are required to submit the disclosure of RPTs in the format prescribed in the SEBI Circular. Our detailed analysis of the amendments w.r.t HVDLEs can be read here.

Information to be provided to Audit Committee

The Act requires ‘relevant information’ to be placed before AC in case of omnibus approvals [refer, rule 6A of Companies (Meetings of Board and its Powers) Rules, 2014 (‘MPB rules’)]; however, relevant information has not been prescribed as such. While one may refer to section 188 read with rule 15 of the MPB rules which prescribes specific information to be placed before the board and shareholders for approval of RPTs. It would be counter-intuitive to say that the information which goes to the board for RPT approval would not go to AC. By obvious interpretation, all such information which rule 15 lists out, ought to be placed before AC as well.

SEBI Circular now specifically provides for minimum information to be placed before AC for consideration/approval of RPTs, including the items as listed below. The quantum of information to be placed before AC under the revised framework is more exhaustive than what is provided in rule 15. Also, while it is the obligation of the listed entity to place these information before AC, as a corollary, it appears equally incumbent on AC to demand such information from the entity.

It may also be important to note (as we discuss below), the notice sent to shareholders for seeking RPT approval shall consist of a “summary of information provided to the audit committee” as well. Hence, all such things which are placed before AC, shall also come before the shareholders, albeit in a summarised form.

Information to be provided to shareholders

The SEBI Circular has specifically listed out the details required to be placed before the Audit Committee and the Shareholders which has far-reaching impact on listed entities. It states that a summary of the information provided by the management of the listed entity to the Audit Committee while the RPT was placed before it for approval, shall also be given to the Shareholders while seeking their approval. The probable outcome of the same can be:

  • Where the Audit Committee seeks very limited information for approval of RPTs
  • Where the Audit Committee over-step into an enquiry state where information that may not be relevant to the transaction be placed before it, giving birth to thoughts of concerns in the mind of Shareholders

Another important change is that while placing information to the Shareholders, a statement that the valuation or other external report, if any, relied upon by the listed entity in relation to the proposed transaction will be made available through the registered email address of the Shareholders instead of making the same available for physical inspection at the registered office of the company which has been the existing practice.

The definition of RP as amended vide SEBI LODR Sixth Amendment Regulations, excluded acceptance of fixed deposits by Banks/NBFCs at the terms uniformly applicable/offered to all shareholders/public from the same, however, such transactions still require disclosure in the format specified by SEBI. This seems to be counter-productive as the intent of the law is to ensure that no transaction intended to benefit the RPs get away from the scrutiny of the Audit Committee and the Shareholders. To the paradox, even such transactions that have been executed 100% at par with public shareholders/customers of the company are also required to be disclosed by every listed company.

Snapshot of details requires to be placed before the AC & Shareholders

Some of the items are briefly discussed below:

  1. Type, material terms and particulars of the proposed transaction – By type, one means the kind of transaction – whether it is a purchase or a sale or a loan, etc. “Material terms” is a common expression meaning all such terms which might affect decision-making. Similar expression appears in rule 15(1)(c) as well.
  2. Source of funds for loans/ICDs, etc. in connection with the proposed transaction (clause 4(f)(i)).
  3. Financial indebtedness incurred (clause 4(f)(ii)) – This would indicate the financial burden which the listed entity/subsidiary might be bearing to enter into RPTs. Most entities will have Bank/Financial Institution borrowings (or even other borrowings) as their liabilities; however, it would be important to establish a ‘direct nexus’ between such borrowings and the proposed transaction. As to what constitutes ‘direct nexus’, is a function of various factors depending upon facts of each case. This aspect is also related to disclosure related to ‘source of funds’.
  4. Justification for RPT to be in interest of the listed entity (clause 4(g)) – This requirement is in consonance with the earlier requirement put forth by SEBI relating to the affirmation to be given by CEO/CFO of the listed entity on a half-yearly basis in Annex IV[4] of the Corporate Governance Report to the SEs.
  5. Ratio of proposed transaction to turnover (clause 4(e) read with clause 4(i))-The percentage of the listed entity’s annual consolidated turnover, for the immediately preceding financial year, is represented by the value of the proposed transaction, which is mandatorily (in case a subsidiary is a party, standalone turnover shall be considered) to be placed for approval.  Further, the listed entity may, on a voluntary basis, provide the percentage of the counter-party’s annual consolidated turnover that is represented by the value of the proposed RPT.
  6. Any other relevant information – This is the residual clause. While it enables the entity to put such other information as may be relevant’ notably, it is also open to AC to seek any other information, which in AC’s view is relevant.

Information to be placed for approval of RPTs under the Act

Information to be placed before Board as per Section 188 read with Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014

  • name of the related party and nature of relationship;
  • the nature, duration of the contract and particulars of the contract or arrangement;
  • the material terms of the contract or arrangement including the value, if any;
  • any advance paid or received for the contract or arrangement, if any;
  • the manner of determining the pricing and other commercial terms, both included as part of contract and not considered as part of the contract;
  • whether all factors relevant to the contract have been considered, if not, the details of factors not considered with the rationale for not considering those factors; and
  • any other information relevant or important for the Board to take a decision on the proposed transaction.

Information to be placed before shareholders as per Section 188 read sub-rule 3 of Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014

  • name of the related party;
  • name of the director or key managerial personnel who is related, if any;
  • nature of relationship;
  • nature, material terms, monetary value and particulars of the contract or arrangements;
  • any other information relevant or important for the members to take a decision on the proposed resolution

Though rule 15, as stated above, does not explicitly state the details to be placed before Audit Committee except in case of Omnibus approval of RPTs under rule 6A of MBP Rules , it can be construed that the details to be placed before the Board of directors of the Company for approval of RPTs should be placed before the Audit Committee while seeking prior approval for RPTs by the listed entity.

On a careful analysis of the above, it can be seen that the capital market regulator has made the regulatory framework of RPTs more water-tight as compared to the existing norms under the Act. The listed entities shall now place exhaustive details before the Audit Committee and the Shareholders as compared to the norms for unlisted companies in the country.

New format of disclosure of RPTs under Reg. 23(9) of Listing Regulations

The SEBI Working Group had in its report, provided a format for disclosure of RPTs on a half-yearly basis as specified under Reg. 23(9). So far, the listed entities have been preparing the disclosure as per the IND-AS 24 since the regulator had not specified a format for the disclosure of RPTs.

The SEBI has now prescribed a format for disclosure of RPTs as recommended by the Working Group. The notes to the disclosure format put forward significant questions on how listed companies will ensure compliance w.r.t RPTs.

The note 1 states, opening and closing balances, including commitments, to be disclosed for existing related party transactions even if there is no new related party transaction during the reporting period. This would mean that those transactions which are continuing in nature, even though there were no transactions during the reporting period shall be disclosed, including any commitments. The term ‘commitments’ would mean those arrangements where both the parties agree to perform their obligations under the contract.

In note 3, exemption has been granted to listed banks for disclosures with respect to related party transactions involving loans, inter-corporate deposits, advances or investments. However, the same has not been extended to listed NBFCs. This could lead to additional compliance burden for NBFCs even though they are engaged in the financial activities.

The note 9 states “Transactions such as acceptance of fixed deposits by banks/NBFCs, undertaken with related parties, at the terms uniformly applicable /offered to all shareholders/ public shall also be reported.”

SEBI had excluded acceptance of fixed deposits by Banks/NBFCs at terms uniformly applicable/offered to all shareholders/public from the definition of RPTs but had explicitly stated that such transactions shall be disclosed.

Having said that, one should interpret the said note in such a way that the requirement of disclosure is only for acceptance of deposits by Banks/NBFCs which have been excluded from the definition of RPTs and not any other transaction which have been availed by any related party at par with the general public.


The recent amendments to the Listing Regulations evidences the growing concern over the regulatory framework for RPTs. The definition of RPT has been widened to include a bunch of transactions that have never been in the radar when it comes to RPTs.

SEBI Circular also put forward new challenges for listed entities for ensuring absolute compliance of the revised regulatory framework for RPTs and few of the new requirements may bring concerns for NBFCs to ensure compliance. Furthermore, the disclosure requirements for RPTs under the Listing Regulations have been made more stringent and elaborative to enable enhanced public disclosure of RPTs.







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