Sebi panel proposes sweeping changes to norms

New Delhi: A Sebi-appointed panel has proposed sweeping changes to strengthen the monitoring and enforcement of norms pertaining to related party transactions.

Tweaking the definition of Related Party and Related Party Transactions (RPTs) and revising thresholds for classification of such transactions as material, are among the recommendations. Also, the committee has proposed changes to the process followed by a company's audit committee for approval of RPTs that are material.

Further, a format for reporting of RPTs to the stock exchanges has been mooted. In November 2019, the markets watchdog constituted a Working Group to review the policy space pertaining to RPTs under the chairmanship of Ramesh Srinivasan, Managing Director and CEO of Kotak Mahindra Capital Company.

On January 22, the group submitted its 61-page report to the regulator. Public comments have been sought on the committee's recommendations by February 27.

Under the proposal, related party should be any person or entity belonging to the promoter or promoter group of the listed entity.

Besides, any person or any entity, directly or indirectly (including with their relatives), holding 20 per cent or more of the holding in the listed entity should also be considered as related party.

The panel recommended that prior approval of the audit committee of the listed entity should be mandatory for transactions carried out between the listed entity or any of its subsidiaries with a related party.

The materiality threshold should be amended to 5 per cent of the annual total revenues, total assets or net worth of the listed entity on a consolidated basis or Rs 1,000 crore, whichever is lower.

It further said the net worth criterion should not apply to companies with negative networth. Further, companies can specify a lower materiality threshold as per their RPT policies.