Information Explosion for Related Party Transactions: Need of the hour or too much to handle?

– Team Corplaw | corplaw@vinodkothari.com

• Revised regulatory regime on RPT disclosures before Audit Committee & Shareholders
  • Reg 23 of LODR Regulations 
  • SEBI Circular dated 14th February, 2025 amending the SEBI Master Circular dated 11th November, 2024.
  • Industry Standards Note on Minimum information to be provided for review of the audit committee and shareholders for approval of a related party transaction
• Applicability 
  • For RPTs entered into on and after 1st April, 2025 –
    • Will apply to RPTs proposed to be taken for Omnibus Approval (‘OA’) for FY 25-26
    • What if OA already obtained FY 25-26 as on the date of this circular?
    • Whether a revised approval with the additional disclosures is required?
      • Whether 1st April, 2025 refers to the date of the approval granted by the AC/ shareholders, or it pertains to the date of entering into the transaction, is not clear from the language of the Standard. In fact, the Standard uses the following language: “These Standards shall be applicable in respect of RPTs entered into by the Listed Entity on or after 01st April, 2025”, from which one may infer that the reference is to the date of entering into the transaction. 
      • In our view, the proper interpretation of the applicability clause is that it pertains to the RPTs entered into on or after 1st April 2025, for which approval is being sought from either the AC or the shareholders on or after 1st April 2025. Relating the applicability date to the date of entering into the RPT will amount to rendering existing approvals redundant.

• Classification of RPTs 
  • MRPTs – Material RPTs under Reg 23(1) & (1A) of LODR 
  • ORPTs – Other non-material RPTs exceeding materiality thresholds under Reg 30(4) of LODR
    • Whether aggregation of all transactions or only similar nature of transactions for determination of ORPTs? 
      • All transactions (individually or taken together with previous transactions during a financial year) to be aggregated for determination of ORPTs, regardless of the nature of transactions.
  • RRPTs – Residual RPTs not falling under above 
• Classification of Disclosures 
  • Comprehensive Disclosures
    • All disclosures specified  in Para 4 of the Circular.
  • Limited Disclosures
    • All disclosures specified  in Para 4 of the Circular except certain line items.
  • Minimum Disclosures
    • All disclosures as specified in Rows A(1), A(2), A(4), A(5) and B(1) of Para 4 of these Standards, as applicable to relevant RPT

(as per the flow chart below)

• Information to be provided 
  • Management to provide information against each line-item
    • ~90 line-items on which disclosures required
      • However, the same is to be filled basis the nature and category of RPT
      • Indicate NA, where field is not applicable
      • Indicate NIL, where details are not provided 
  • Certificate to be provided 
    • From
      • CEO/ CFO/ any KMP and 
      • Every promoter director of the listed company
        • Where director does not provide, disclose to AC & S/h (in case of material RPTs)
      • Placed before the AC 
    • To the effect that
      • RPTs to be entered into are not prejudicial to the interest of public shareholders 
      • Terms and conditions of RPT are not unfavourable to listed entity 
      • Compared to terms and conditions, had similar transaction been entered into with unrelated party 
• Additional role of AC
  • Comments to be provided against applicable line-items only
    • To be recorded in minutes 
    • For MRPTs, disclose before shareholders in explanatory statement
    • Does not restrict the AC to give comments on other line items 
  • May approve redaction of commercial secrets and such other information that would affect competitive position of listed entity from disclosures to shareholders
  • Statement of assessment that relevant disclosures for decision-making were placed before them, and they have determined that the promoter(s) will not benefit from the RPT at the expense of public shareholders.
  • Disclose to shareholders that the certificate provided by KMP and promoter directors has been reviewed 
  • If comparable bids not invited –  state justification 
  • If comparable bids not available – specify basis for recommending that terms are beneficial to shareholders 

In view of the significance of the topic, we are collating our comprehensive FAQs on the same. Access the same below.

Read More:

FAQs on Standards for minimum information to be disclosed for RPT approval

Related Party Transactions- Resource Centre

LODR Resource Centre

Read more on RPT here.