SEBI Working Group Proposes RPT Rule Changes

A Securities and Exchange Board of India (SEBI) working group has proposed changes to related-party transaction (RPT) rules. The proposals aim to reduce compliance requirements for routine transactions. At the same time, they seek tighter scrutiny of deals involving promoters, directors and key managerial personnel.

According to multiple sources familiar with the discussions, the recommendations cover the definition of a related party, Audit Committee approvals, ratification of transactions, omnibus approvals and half-yearly disclosures.

Changes To Related-Party Definitions And Routine Transactions

The working group has proposed retaining the existing threshold under which shareholders holding 20% or more of a listed company's equity or voting rights are treated as related parties.

However, shareholders holding between 10% and less than 20% would not automatically qualify as related parties. Instead, the Audit Committee could determine whether they should fall within the scope of the rules.

The committee could consider factors such as whether the investor is purely a financial investor or has additional rights. These could include board representation, information rights, veto rights or affirmative voting rights.

The proposal could reduce compliance requirements for passive institutional investors with sizeable holdings but limited influence over the company.

The working group has also proposed exempting certain routine transactions from RPT rules. These could include fixed deposits with banks and NBFCs, public deposits, and deposits in current and savings accounts.

Retail purchases and sales made on terms uniformly available to employees or the public could also be excluded.

Other proposed exemptions include the issuance of listed non-convertible securities through the Electronic Book Provider platform. Interest and redemption payments made according to the terms of issue could also be excluded.

Reimbursement of actual expenses between related parties is another proposed exemption. Such exempt transactions would also not be treated as RPTs for the counterparty.

Three-Month Ratification And Higher Omnibus Limit

The working group has proposed giving companies more time to ratify RPTs entered into without prior Audit Committee approval.

Instead of requiring ratification at the next Audit Committee meeting, companies could be allowed to seek approval within three months of the transaction.

The existing ₹1 crore limit for ratification could also be removed. However, the Audit Committee would have to record why prior approval was not obtained and why the transaction was subsequently accepted.

Ratified transactions would need to be presented to the Board at least once every quarter. Companies would also have to provide the reasons for ratification.

For unforeseen RPTs, the proposed omnibus approval limit could increase from ₹1 crore to ₹10 crore. The limit would apply to the total value of transactions with a related party during a financial year.

The group has also proposed that the Audit Committee should only ‘take note’ of these transactions rather than formally ‘review’ them, as they would already have received approval.

Lower Disclosure Burden Proposed

The working group has proposed a ₹1 crore threshold for half-yearly RPT disclosures.

The threshold would not apply to transactions involving promoters or promoter groups. These would continue to require disclosure regardless of their value.

For transactions involving subsidiaries where the listed company is not a party, only those placed before the listed company's Audit Committee for approval would need to be disclosed.

The panel has also proposed extending the filing deadline to seven days after Board approval of financial results. Currently, companies are required to make the filing on the day the results are published.

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