News Summary
SEBI Updates

More stringent norms for RPT disclosure

CS. Ramaswamy Kalidas, an eminent Company Secretary and law practitioner, has critically analysed the amendments notified by SEBI w.r.t. RPT disclosures. The article titled “Law relating to related party transactions tweaked again by SEBI-Implications of the Changes brought about by Notification dated November,9, 2021” contains the insights of the Author on the topic.

Happy reading!!

A summary of the Amendments are as follows:

SEBI notified the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements)(Sixth Amendment) Regulations, 2021 (“the Amendment Regulations”) on 09.11.2021 which shall come into force form 01.04.2022. The Amendment Regulations tightens the RPT reporting norms. Highlights of the same are as follows:

  1. Definition of Related Party amended to include:
    • any person or entity forming a part of the promoter or promoter group of the listed entity; or
    • any person or any entity, holding equity shares 20% or more; or 10% or more (w.e.f. 01.04.2023)
      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 immediate preceding financial year; shall be deemed to be a related party.

    This would mean that promoters and promoter group would fall under the definition of Related Party irrespective of their shareholding. The decrease in the equity shareholding to 10% from 01.04.2023 is noteworthy.

  2. Scope of RPTs broadened by inclusion of following under the ambit of RPTs:
  3. A transaction involving a transfer of resources, services or obligations between:

    • 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
    • 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, (w.e.f. 01.04.2023)

    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.

    Certain corporate actions including payment of dividend, subdivision or consolidation of securities rights issue, bonus issue, buy back etc by listed entities uniformly to all shareholders, have been explicitly excluded from the definition of RPTs.

  4. Materiality of RPT – Threshold
  5. A transaction with a related party shall be construed as material if the transactions to be entered into individually or taken together with previous transactions during a financial year:

    • Is > INR 1,000 Crores or
    • 10% of the annual consolidated turnover as per the last audited financial statements whichever is lower.

  6. Role of AC in approval of RPTs – enhanced
    • Audit Committee (AC) to define “material modifications”. Such material modifications shall require prior approval of the AC.
    • RPTs where the subsidiary is a party but the listed entity is not will also require prior approval of AC if the value of the transaction exceeds 10% of annual consolidated turnover. W.e.f. 01.04.2023 any such transaction > 10% annual standalone turnover shall require prior approval of AC.
    • Approval of shareholders of the listed entity shall not be required for RPT transaction where the subsidiary is a party but the listed entity is not a party. Approval of the shareholders of the subsidiary shall suffice in such cases.
    • Approval of AC is not required for transactions between 2 wholly owned subsidiaries whose consolidated financials are presented at the AGM.

  7. Stricter disclosure timelines
    • W.e.f. 01.04.2022 the listed entity is required to make disclosures within 15 days of publication of half yearly standalone and consolidated financials
    • W.e.f. 01.04.2023 the disclosure is to be made on the same day
    • The current requirement is for the disclosures to be made within 30 days of publication.

  8. Additional disclosure in Corporate Governance Report
  9. The Corporate Governance Report of the Company to include a point on ‘Loans and advances in which directors are interested by name and amount’.

Open Article

Open Circular No. SEBI/LAD-NRO/GN/2021/55 dtd. 09.11.2021

Additional disclosure to AC and shareholders for RPTs

SEBI vide notification dated 09.11.2021 notified certain additional disclosure and approval requirement for RPT transactions. Vide Circular dated 22.11.2021, SEBI has prescribed the information required to be submitted to AC, shareholders and the Stock Exchange. The format for the half yearly disclosure on RPT can be found as an Annexure to the Circular.

The Circular shall come into force from 01.04.2022.

Open Circular No.: SEBI/HO/CFD/CMD1/CIR/P/2021/662 dtd. 22.11.2021

Additional disclosures w.r.t. filing of Scheme of Arrangement

Vide Circular dated 16.11.2021, SEBI has prescribed additional documents which need to be submitted to the Stock Exchange by the listed entity for filing of Scheme of Arrangement. The additional documents include:

  • Valuation Report along with undertaking from the listed entity stating that no material event impacting the valuation has occurred during the intervening period of filing the scheme documents with Stock Exchange and period under consideration for valuation.
  • Declaration on any past defaults of listed debt obligations of the entities forming part of the scheme.
  • No Objection Certificate from the lending scheduled commercial banks/financial institutions.

Open Circular No.: SEBI/HO/CFD/DIL2/CIR/P/2021/0000000657 dtd. 16.11.2021
MCA Updates

DINs disqualified from Nov 2016 de-flagged by MCA

MCA had flagged the DINs of Directors found to be disqualified pursuant to Section 164(2)(a) of the Companies Act, 2013 w.e.f. 01.11.2016 for a period of 5 years. MCA vide a Public Notice, informed the DIN holders whose DINs were so disqualified that the DINs eligible to be deflagged on expiry of the 5 years have been deflagged and the disqualification has been removed.

Open Public Notice

IEPFA (Accounting, Audit, Transfer and Refund) Second Amendment Rules, 2021

MCA vide Notification dated 09.11.2021 notified the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Second Amendment Rules, 2021. Highlights of the Amendment Rules include:

  • Requirement of Advance receipt from claimants claiming refunds from IEPF – removed
  • Requirement of Succession Certificate / Probate of Will / Will – relaxed for claims upto Rs. 5 lakhs from the existing Rs. 2 lakhs limit
  • Requirement of Notarisation of various documents to be submitted in case of loss of physical share certificate – replaced with self-attestation

  • Companies have been given flexibility w.r.t. documents to be accepted for transmission of shares i.e. companies can accept documents as per internal procedures put in place for the same

  • Revised Form IEPF – 5 – introduced

Open Notification No. G.S.R. 785(E).dtd. 09.11.2021