FAQs on half-yearly disclosure of RPTs to the stock exchanges

– Team Corplaw | corplaw@vinodkothari.com

Table of Contents
Background	Disclosure of RPTs to which listed entity is a party
Applicability	Disclosure of RPTs to which the listed entity is not a party
Timeline for disclosure	Disclosure by Banks and NBFCs
Format of disclosure	Approval and disclosure matrix

Background

SEBI, vide its notification dated November 09, 2021 amended the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘Listing Regulations’) carrying out radical changes in the regulatory framework for the Related Party Transactions (‘RPTs’), including but not limited to the definition of Related Party (‘RP’), RPTs, its approval mechanism and disclosure requirements to the stock exchange. The amended provisions have been effective from April 01, 2022, except for the few provisions which will be applicable w.e.f. April 01, 2023. Information to be placed before the Audit Committee and shareholders (in case of material RPT) and the format of disclosure of RPTs to be filed with the Stock Exchanges (‘SEs’) has been separately prescribed vide SEBI Circular dated November 22, 2021. The circular was also made applicable to High Value Debt Listed Entities (‘HVDLEs’)[1] vide SEBI Circular dated January 7, 2022.

While the amendments resulted in substantial changes in the RPT framework, they also posed certain practical difficulties and additional compliance burden on the listed entities, raising several practical questions. Our analysis and articles on the revised RPT framework can be accessed at our Resource Centre on RPT. Further, our detailed FAQs on the same can be accessed here. 

As 6 months have elapsed subsequent to the revised RPT framework coming into effect, the listed entities, including HVDLEs are now required to report the RPTs to the SEs for the half year ended September 30, 2022 pursuant to provisions of Reg. 23 (9) of the Listing Regulations. In the FAQs below, we have analyzed and responded to several possible queries that are likely to arise in this regard.

Applicability

1. Who are required to submit the disclosure?

Companies having listed its specified securities and not covered under the exemption provided under Reg. 15 (2) are required to submit the disclosure. Additionally, HVDLEs are also required to submit disclosure.

2. What is the periodicity of the disclosure?

The disclosure is required to be submitted on a half-yearly basis.

3. Are the companies required to provide RPT disclosures for the second half year, on year-to-date basis or on six-months end basis? (BSE circular dated April 25, 2022)

As per the SEBI circular, the disclosure must be on six-month end basis for both, first half and second half year.

4. How is the exemption from RPT disclosure under reg. 15(2) interpreted? (BSE circular dated April 25, 2022)

The compliance with the provisions as specified in reg. 23 shall not apply, in respect of listed entity having paid up equity share capital not exceeding Rs. 10 crore and net worth not exceeding Rs. 25 crores, as on the last day of the previous financial year.

If any of the criteria (paid up equity share capital and net worth) is not satisfied, RPT disclosures shall be mandatory for the company.

For e.g.:

Paid up equity share capital	Net worth	Disclosure requirement
8 crores	25.01 crore	Mandatory
10.01 crores	25 crores	Mandatory
10 crores	25 crores	Not mandatory

Further, once the RPT regulations become applicable to a listed entity, it shall continue to remain applicable till such time the equity share capital or the net worth of such entity reduces and remains below the specified threshold for a period of three consecutive financial years.

For. E.g., RPT disclosures is mandatory for the FY 2021-22 (criteria as on March 31, 2021, paid up capital-Rs. 10 crores, net worth Rs. 25.01 crores). RPT provisions shall become applicable for the FY 2022-23 even if the specified threshold is reduced (paid up capital Rs. 10 crores and net worth-Rs. 25 crores) and continue to remain applicable for the FYs 2022-23 to 2024-25.

Timeline for disclosure

5. What is the revised timeline to disclose the RPTs to the SEs?

Pursuant to the present amendment, the RPTs are required to be disclosed to the SEs as per the following revised timelines:

1. W.e.f. April 1, 2022 – within 15 days from the date of publication of its standalone and consolidated financial results on a half-yearly basis;
2. W.e.f. April 1, 2023 – on the date of publication of its standalone and consolidated financial results on a half-yearly basis.

6. Whether the revised timelines are also applicable to HVDLEs?

SEBI has prescribed stricter timelines for HVDLEs to disclose the RPTs to the stock exchange. Pursuant to the SEBI (LODR) (Fifth Amendment) Regulations, 2021 effective from September 7, 2021 HVDLEs are required to disclose the RPTs along with the standalone financial results on a half-yearly basis.

7. What will be the timeline for an equity listed entity that is also an HVDLE?

The stricter of the requirement will apply. However, in case the HVDLE chooses to disclose as per the timeline available for an equity listed entity, it will have to explain for not complying. The option of comply or explain is available only till March 31, 2023.

8. Whether any penalty is attracted in case of non-submission?

Yes. The penalty of Rs. 5000 per day will be applicable.

Format of disclosure

9. Is there any format prescribed by SEBI for reporting the RPTs?

Yes. The format is provided as an Annexure to the SEBI circular dated November 22, 2021.

10. Whether all RPTs are required to be reported in the disclosure?

Yes. Reg. 23(9) states that “The listed entity shall submit to the stock exchanges disclosures of related party transactions…” Therefore, the following RPTs are required to be reported in the disclosure:

1. Between listed entity and its RP;
2. Between listed entity and RP of its subsidiaries;
3. Between subsidiary of the listed entity and its RP;
4. Between subsidiary of the listed entity and RP of the listed entity; and
5. Between subsidiary of the listed entity and RP of fellow subsidiaries (other subsidiaries of the listed entity).

11. Details of RPTs undertaken by listed subsidiary are also required to be disclosed?

Yes. Reg. 23 (9) mandates disclosure of all RPTs and does not provide any carve-out to listed entity from excluding the RPTs of listed subsidiaries. In those cases, the listed entity can procure the list of RPTs that the listed subsidiary itself will disclose under Reg. 23 (9) to the SE.

12. RPTs between listed entity and its subsidiary, whether both legs need to be reported?

No. As per Note 2, where a transaction is undertaken between members of the consolidated entity (between the listed entity and its subsidiary or between subsidiaries), it may be reported once. Accordingly, RPT will be disclosed only once.

13. What are the details that are required to be disclosed?

As per the revised format, the following matters are required to be reported to the stock exchange:

• General disclosures:
  • Name and PAN of the party (listed entity /subsidiary) entering into the transaction;
  • Name, PAN and relationship of the counterparty with the listed entity or its subsidiary;
  • Type of RPT;
    • Each type of RPT (for e.g., sale, purchase, loan, etc.) with a single party shall be disclosed separately and there should be no clubbing or netting of transactions of same type. However, transactions with the same counterparty of the same type may be aggregated for the reporting period. There should be no netting off for opposite transactions.
  • Value of RPT as approved by the AC;
    • In case of a multi-year RPT, the aggregate value of such RPT as approved by the AC shall be disclosed. 
  • Value of RPT during the reporting period;
    • In case of a multi-year RPT, the value of RPT undertaken in the reporting period shall be reported.
  • Opening and closing balance, in case monies are due to either party as a result of the transaction;
    • to be disclosed for existing RPT even if there is no RPT during the reporting period.

• Additional disclosure (applicable only in case the RPT relates to loans, inter-corporate deposits, advances or investments made or given by the listed entity/subsidiary. These details need to be disclosed only once, during the reporting period when such transaction was undertaken:
  • In case any financial indebtedness is incurred to make or give loans, inter-corporate deposits, advances or investments:
    a. Nature of indebtedness (loan/ issuance of debt/ any other etc.);
    b. Cost (cost of borrowed funds for the listed entity);
    c. Tenure;
  • Details of the loans, inter-corporate deposits, advances or investments
    a. Nature (loan/ advance/ intercorporate deposit/ investment;
    b. Interest Rate (%);
    c. Tenure;
    d. Secured/ unsecured;
    e. Purpose for which the funds will be utilised by the ultimate recipient of funds (end usage).

14. Whether the disclosure must be in standalone or consolidated basis? (BSE circular dated April 25, 2022)

As per the new format of SEBI, the column header is “Details of the party (listed entity /subsidiary) entering into the transaction”, therefore, the intent of SEBI is that the companies should disclose all the RPT transactions of itself and its subsidiaries. Therefore, the concept of disclosure on standalone or consolidated basis has been done away with and all the transactions must be disclosed.

15. As per Note 8, “PAN will not be displayed on the website of the Stock Exchange(s)”. How are the companies required to disclose the RPT in the new SEBI format? (BSE circular dated April 25, 2022)

In case companies are filing the RPT disclosures in PDF, PAN details should not be included in such PDF of RPT disclosure. In case companies are filing the RPT disclosures in XBRL, PAN details would have to be included as required in the new SEBI format of SEBI. SEs will ensure that PAN details are not disseminated on their website.

16. In case there are no RPTs, but there is an outstanding balance, whether the disclosure is required to be made?

Yes. As per Note 1, the details in this format are required to be provided for all transactions undertaken during the reporting period. However, opening and closing balances, including commitments, are required to be disclosed for existing RPTs even if there is no new RPT during the reporting period.

17. Whether RPTs of similar nature with multiple RPs can be clubbed?

No. As per Note 5, each type of RPT (for e.g., sale of goods/services, purchase of goods/services or whether it involves a loan, inter-corporate deposit, advance or investment) with a single RP is required to be disclosed separately. Clubbing or netting of transactions of same type is not permitted.

However, transactions with the same counterparty of the same type may be aggregated for the reporting period. For instance, sale transactions with the same party may be aggregated for the reporting period and purchase transactions may also be disclosed in a similar manner. There should be no netting off for sale and purchase transactions.

Similarly, loans advanced to and received from the same counterparty should be disclosed separately, without any netting off.

Disclosure of RPTs to which listed entity is a party

18. As per the format prescribed by SEBI, the listed entity will be required to disclose the details of loan given, investment made, etc. to the related party. Will such disclosure include availing of loan or receiving of investment from the related party?

The format of RPT stipulates additional disclosures to be made in case the listed entity or its subsidiary gives loan/ inter-corporate deposits/ advances or makes investments to/in its related parties.

However, this does not preclude the listed entity from making disclosure of RPT in which the listed entity has availed loan/ inter-corporate deposits or received investment from the related party. Such disclosure will be required to be made along with the other RPTs.

Disclosure of RPTs to which the listed entity is not a party

19. Where an RPT is entered by a subsidiary in which the listed entity is not a party, and the value of such a transaction is not exceeding the limits under Reg 23 (2) requiring the audit committee’s approval, will such RPT be required to be disclosed to the SE?

The definition of RPT includes transactions entered into by subsidiaries with its own related parties or with the related parties of the listed entity. Further, the thresholds prescribed under second proviso to Reg. 23(2) are applicable only where the approval of the audit committee of the listed entity is required. Therefore, all RPTs by the subsidiaries, whether crossing the threshold limits under second proviso to Reg. 23(2) or not, will be required to be disclosed to the stock exchange on a half yearly basis.

20. For RPTs, where the listed entity is not a party, exceeding the threshold of Reg. 23 (2), what should be mentioned in the column “Value of the related party transaction as approved by the audit committee”? Value of transactions approved by AC of listed entity or AC of subsidiaries.

Kindly refer the approval and disclosure matrix below.

Where the listed entity is not a party to the transaction, the significant RPTs of the subsidiaries (that are itself not required to comply with CG provisions) as per Reg. 23(2)(b) shall require prior approval of the listed entity. The RPTs which are to be placed before the audit committee of the listed entity should be approved and recommended by the audit committee of the said subsidiary. Further, the value of the transaction approved by the AC of the listed entity and the AC of the subsidiary would be the same amount and that will be reported in the disclosure.

21. For RPTs, where the listed entity is not a party, not exceeding the threshold of Reg. 23 (2), what should be mentioned in the column “Value of the related party transaction as approved by the audit committee”?

Kindly refer the approval and disclosure matrix below.

In case of listed subsidiary {where provisions of Reg. 15 (2) and Reg 23 are applicable} the “Value of the related party transaction as approved by the audit committee” will be the value as approved by the AC of the listed subsidiary. Where the requirement of AC approval is not applicable in terms of Reg. 23 (5) or Section 177, then “N.A.” to be stated along with a footnote that approval of the said RPT not applicable in terms of law applicable to the subsidiary.

In case of unlisted subsidiary or listed subsidiary [where provisions of Reg. 15 (2) and Reg 23 are not applicable], AC approval will be obtained as per the law applicable to the said subsidiary (for e.g., Section 177 of CA, 2013). Therefore, all transactions with RPs of the parent listed entities or fellow subsidiaries may not be required to be approved by its AC unless required under the law applicable. In those cases, where the AC of the said subsidiary has approved any value, the same should be reported. In other cases, “N.A.” to be stated along with a footnote that approval of the said RPT not applicable in terms of law applicable to the subsidiary.

22. In case of a RPT between two subsidiaries, not exceeding the threshold prescribed under Reg. 23 (2), in the column of amount approved by AC, which subsidiary’s amount should be mentioned?

In case of transactions between two subsidiaries, not requiring approval of the AC of the parent listed entity, but requiring approval of AC of respective subsidiary, the parent listed entity will have to determine among the details provided by both subsidiaries and accordingly, consider reporting only one. If one of the subsidiaries is a listed subsidiary ({where provisions of Reg. 15 (2) and Reg 23 are applicable}, then the said subsidiary would also have submitted same disclosure to the SE under Reg. 23 (9). In that case, same details should be reported by the parent listed entity as well in order to maintain consistency.

23. Where prior approval of AC of subsidiary was not obtained, what should be mentioned in the column “Value of the related party transaction as approved by the audit committee”?

In case approval of AC is mandatory as per law applicable to the subsidiary and the same has not been obtained, in that case the AC approval to be obtained prior to filing this disclosure as the said RPTs will also have to be reported. Otherwise, the same is ‘pending for ratification’ will have to be stated.

24. In case of new RPs identified for whom prior approval was not obtained, and shall now be obtained, what should be mentioned in the column “Value of the related party transaction as approved by the audit committee”?

In case approval of AC is mandatory as per law applicable to the subsidiary and is pending to be obtained for the transactions with the said RPs post identification, then the AC approval to be obtained prior to filing this disclosure as the said RPTs will also have to be reported. Otherwise, the same is ‘pending for ratification’ will have to be stated.

Disclosure by Banks and NBFCs

25. Listed Banks are not required to provide disclosures for loans, inter-corporate deposits, advances or investments. However, what about similar transactions undertaken by the subsidiaries where the Bank is not a party (e.g., Loan given by subsidiaries). Would such transactions undertaken by the subsidiaries required to be disclosed?

Note 3 of the disclosure format provides following:

“3. Listed banks shall not be required to provide the disclosures with respect to related party transactions involving loans, inter-corporate deposits, advances or investments made or given by the listed banks.”

The exemption provided in note no. 3 of the SEBI prescribed format is w.r.t. listed banks. Since, the said carve out does not apply to the subsidiary, being counterparty RP, the said subsidiary will be required to report the said transactions. Hence, the subsidiary has to disclose the transaction with third parties, to the Bank, which the Bank shall include in its half-yearly disclosure.

26. Whether loans, inter-corporate deposits, advances or investments made or given by listed entities that are NBFCs to its RPs required to be disclosed?

Yes. The exemption provided in note no. 3 of the SEBI prescribed format is w.r.t. listed banks and not NBFCs.

27. Banks/ NBFCs are required to report Fixed Deposits received from RPs by way of a declaration in the XBRL format. Whether the subsidiaries placing the said deposits with the Banks/ NBFCs are required to disclose?

As per the proviso to Reg. 2(1)(zc), only fixed deposits by Banks/NBFCs are exempt from the definition of RPTs. Further, the exemption is only w.r.t. approval requirements subject to the condition that the same are reported in the disclosure. As per the response to question no. 9 of the Guidance Note on disclosure of Related Party Transactions issued by BSE, the disclosure is to be given in the form of declaration (with respect to FDs).

In general, what is exempt for the Banks/ NBFCs will not be exempt for its subsidiaries. Therefore, the subsidiary will have to report placing of FD and consequently, it will reflect in the disclosures filed by the Bank/ NBFCs too being the parent listed entity.

28. Can the Income and expenses of the Bank/ subsidiaries be reported as “Sale/ Purchase of goods or Services” under the XBRL basis drop-down available? Or shall the same be reported under Any other transactions and then mention Income/ Expense?

Classification of the transactions will vary as per the nature of the individual transactions. If it is income towards rendering of service or expense for availing of service, it should be selected likewise in the dropdown. For example, receipt of banking charges, custodian charges, etc. are examples of ‘sale of services’; however, receipt of dividend is not covered under sale of service.

29. As per para 8(a) of RBI circular dated March 03, 2016, Scheduled Commercial Banks shall, at their discretion, allow additional interest of 1% p.a., over and above the rate of interest mentioned in the schedule of interest rates on savings or a term deposits of bank’s staff and their exclusive associations as well as on deposits of Chairman, Chairman & Managing Director, Executive Director or such other Executives appointed for a fixed tenure. How are they expected to disclose these deposits, at an additional interest of 1% p.a., to such categories of parties? (BSE circular dated April 25, 2022)

The disclosure is required as a declaration statement that “the scheduled commercial bank, as per RBI circular RBI/DBR/2015-16/19 dated March 03, 2016, has allowed additional interest of one per cent per annum, over and above the rate of interest mentioned in the schedule of interest rates on savings or a term deposits of bank’s staff and their exclusive associations as well as on deposits of Chairman, Chairman & Managing Director, Executive Director or such other Executives appointed for a fixed tenure”.

Approval and disclosure matrix

Sr. No.	Type of RPT	Whether approval of AC required	Value to be considered for half-yearly disclosure	Remarks
1	Where listed entity is a party
	RPT between listed entity and RPs of listed entity/ subsidiaries	Approval of AC of listed entity	Value approved by AC of the listed entity
2	Other cases where listed entity is not a party
2.1	Undertaken by a listed subsidiary (where Reg. 23 and Reg. 15 are applicable)
(a)	RPT with RPs of self	Approval of AC of listed subsidiary	Value approved by AC of listed subsidiary	Listed subsidiary which is required to follow reg. 23, is not required to take RPTs that are significant transactions* to AC of the listed parent.
(b)	RPT with RPs of parent listed entity	Approval of AC of listed subsidiary	Value approved by AC of listed subsidiary
(c)	RPT with RPs of fellow subsidiaries	Approval of AC of listed subsidiary	Value approved by AC of listed subsidiary
2.2	Undertaken by unlisted subsidiary or listed subsidiary (where reg. 23 is not applicable)
(a)	RPT with own RPs (as per law applicable to the subsidiary)
	– Cases requiring approval in terms of sec. 177/ 188
	Significant transactions*	Approval of AC of subsidiary + Approval of AC of parent listed entity.	Value will remain same. In case the AC of parent overrules the value approved by AC of subsidiary, then the limit approved by AC of parent listed entity should be considered.
	Non-significant transactions	Approval of AC of subsidiary only	Value approved by the AC of subsidiary.
	– Cases not requiring approval in terms of sec. 177/188
	Significant transactions*	Approval of AC of parent listed entity. Practically, may not be possible to place the transaction for approval of AC of parent listed entity without getting approval from own AC. As such, approval of own AC will also be required.	Value approved by both AC will remain same. In case the AC of parent listed entity overrules the value approved by AC of subsidiary, then the limit approved by AC of parent listed entity should be considered.
	Non-significant transactions	Not applicable	Can state “Not applicable” citing reasons in the note.
(b)	RPTs with RPs of parent listed entity (which are otherwise not RPs of the subsidiary as per applicable law)			These transactions are not required to be approved by AC of the subsidiary as per law applicable to the subsidiary.
	Significant transactions*	Approval of AC of parent listed entity. Practically, may not be possible to place the transaction for approval of AC of parent listed entity without getting approval from own AC. As such, approval of own AC will also be required.	Value approved by both AC will remain same. In case the AC of parent listed entity overrules the value approved by AC of subsidiary, then the limit approved by AC of parent listed entity should be considered.
	Non-significant transactions	Not applicable	Can state “Not applicable” citing reasons in the note.	Although approval is not required; however, ideally should be placed for information of AC of the subsidiary before the details are shared with the parent for disclosure to SE.
(c)	RPTs with RPs of fellow subsidiaries (which are otherwise not RPs of the subsidiary as per applicable laws)
	Significant transactions*	Approval of AC of parent listed entity. Practically, may not be possible to place the transaction for approval of AC of parent listed entity without getting approval from own AC. As such, approval of own AC will also be required.	Value approved by both AC will remain same. In case the AC of parent listed entity overrules the value approved by AC of subsidiary, then the limit approved by AC of parent listed entity should be considered.
	Non-significant transactions	Not applicable	Can state “Not applicable” citing reasons in the note.	Although approval is not required; however, ideally should be placed for information of AC of the unlisted subsidiary before the details are shared with the parent for disclosure.

*Significant transactions are those transactions which fall under second proviso reg. 23(2)(b)

W.e.f. April 1, 2022 – exceeding 10% of the annual consolidated turnover, as per the last audited financial statements of the listed entity;

W.e.f. April 1, 2023 – exceeding 10% of the annual standalone turnover, as per the last audited financial statements of the subsidiary

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[1] Our FAQs on LODR Amendment on HVDLEs can be accessed here.

Related Party Transactions- Resource Centre