The Securities Exchange Board of India (“SEBI”) vide a circular dated November 22, 2021 (“November 22nd Circular”) notified the disclosure obligations of listed entities in relation to related party transactions (“RPT”).
By way of a gazette notification dated November 9, 2021 (“November 9th Notification”), regulation 23 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015, (“LODR Regulations”) was amended, inter-alia, mandating listed entities to submit disclosure of RPTs in the format specified by SEBI, to the stock exchanges.
The November 22nd Circular has prescribed the information that needs to be submitted before the audit committee and the shareholders for consideration of RPTs and these provisions shall apply to entities that have listed specified securities on a recognized stock exchange.
A) Information to be reviewed by the audit committee for approval of RPTs
The following information needs to be provided by the listed entity for review by the audit committee to approve a proposed RPT:
i) details of the source of funds in connection with the proposed transaction;
ii) where any financial indebtedness is incurred to make or give loans, intercorporate deposits, advances or investments, nature of indebtedness, cost of funds, and tenure;
iii) applicable terms, including covenants, tenure, interest rate and repayment schedule, whether secured or unsecured; if secured, the nature of security; and
iv) the purpose for which the funds will be utilized by the ultimate beneficiary of such funds pursuant to the RPT.
The committee shall also review the status of RPT with more than one year as a term (long-term) or recurring RPTs on an annual basis.
B) Information to be provided to shareholders for consideration of RPTs
The following information needs to be included, as a part of the explanatory statement, within the notice that is being sent to the shareholders seeking approval for any proposed RPT in addition to the requirements under the Companies Act, 2013:
C) Format for reporting of RPTs to the Stock Exchange
Listed entities are to make the RPT disclosures every six months in the format provided by SEBI, a copy of which can be found here.
These disclosure norms specified within the November 22nd Circular shall come into force with effect from April 1, 2022.
Please find a copy of the November 22nd Circular, here and a copy of the November 9th Notification, here.
This update has been contributed by Vinod Joseph (Partner) and Aishwarya Manjooran (Associate).
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