RELATED PARTY TRANSACTION UNDER SEBI (LISTING
OBLIGATION & DISCLOSURE REGULATION)
SEBI (LODR)
All the requirements and conditions to
be fulfilled in case of related party transactions have been altered to be in
line with the provisions of Companies Act, 2013.
“This is the provisions of SEBI (LODR), which are applicable with
immediate effect from 2nd September, 2015; Passing of ordinary resolution instead of special resolution
in case of all material related party transactions subject to related parties
abstaining from voting on such resolutions.“
A.
“RELATED PARTY”
means a related party as defined under sub-section (76) of section 2 of
the [1]Companies
Act, 2013 or under the applicable acc
ounting standards:
Not Applicable: This definition
shall not be applicable for the Units Issued by Mutual Funds which are
listed on a recognized stock exchange(s);
Condition-1
·
A transfer of Resources,
·
A transfer of Services or
·
A transfer of obligations
Condition-2: Between a Listed Entity and
a Related Party.
Condition-3: Regardless of whether a
price is charged and
Non Applicability: This definition shall not be applicable for the units issued by
mutual funds which are listed on a recognised stock exchange(s);
v These provisions shall be applicable to
all prospective
transactions.
Regulation (24)
I. POLICY OF
MATERIALITY:
Listed entities shall formulate a policy on [3]Materiality of Related Party Transaction
and on dealing with related party transactions.
Materiality of Related Party Transaction:
A transaction with a related party shall be considered
material,
o
if the transaction(s) to be entered into individually or
taken together with previous transactions during a financial year,
o
exceeds 10% of the annual consolidated turnover of the
listed entity
o
As per the latest Audited Financial Statements.
II. Condition
for Related Party Transaction:
a)
Prior
approval of the audit committee is required and omnibus
approval may be given.(sub regulation 2)
b)
All material related party transactions
shall require approval of the
shareholders through a resolution[4]. (sub regulation 4)
c)
Related parties shall abstain from voting
on such resolutions, whether the entity is a related party to the particular
transaction or not - Regulation 23(4). (sub regulation 4)
Abstain from Voting: For the purpose
of this regulation, all entities falling under the definition of related
parties shall abstain from voting irrespective of whether the entity is a party
to the particular transaction or not.
III. Related
Party Transactions already entered (Sub Regulation 8):
All existing material related party contracts or
arrangements
o Entered
into prior to the date of notification of these regulations and
o which
may continue beyond such date
Shall be placed for approval of the shareholders
in the first General Meeting subsequent to notification of these
regulations.
Non
Applicability:
The provisions of sub-regulations (2), (3) and (4)
shall not be applicable in the following cases:
(a) Transactions
entered into between Two [5]Government
Companies;
(b) Transactions entered into between a Holding
Company And Its Wholly Owned Subsidiary whose accounts are consolidated
with such holding company and placed before the shareholders at the general
meeting for approval.
Audit committee MAY grant omnibus approval
for related party transactions proposed to be entered into by the listed entity
subject to the following conditions, namely-
Conditions
for omnibus approval:
a) The
audit committee shall lay down the
·
Criteria For Granting the
omnibus approval in line with the policy on related party transactions of the
listed entity and
·
Such approval shall be applicable in
respect of transactions which are REPETITIVE in nature;
b) The
audit committee shall Satisfy Itself
regarding the need for such omnibus approval and that such approval is in the
interest of the listed entity;
c) the omnibus approval shall specify:
·
The name(s) of the
related party,
·
Nature of transaction,
·
Period of transaction,
·
Maximum amount of
transactions that shall be entered into,
·
The indicative base
price / current contracted price and
·
The formula for
variation in the price if any; and
·
Such other conditions
as the audit committee may deem fit:
Approval
of Omnibus transaction without fulfilling the above criteria:
Special
Condition: where the need for
related party transaction cannot be foreseen and aforesaid details are not
available, audit committee may grant omnibus approval for such transactions
subject to their value Not Exceeding
Rupees One Crore per Transaction.
DUTY OF AUDIT COMMITTEE:
The audit committee shall review,
at least on a Quarterly Basis, the details of related party
transactions entered into by the listed entity pursuant to Each of the
omnibus approvals given.
TERM OF OMNIBUS
APPROVAL:
Omnibus approvals shall be valid
for a period not exceeding one year and shall require fresh approvals
after the expiry of one year.
Compliance requirement: regulation 27(2):
Details of all material
transactions with related parties shall be disclosed in compliance report.
The listed entity shall submit a Quarterly Compliance Report on
corporate governance in the format as specified by the Board from time to time
to the recognized stock exchange(s) within 15 (fifteen days) from close of
the quarter.
Disclosure requirement:
i.
The listed entity shall
disseminate on its website policy on dealing with related party transactions.
regulation 46(2)(g)
ii.
The annual report of
the listed entity shall contain disclosures related party disclosures as
specified in Para A of Schedule V. regulation 53 (f)
Role of audit committee:
i.
The audit committee
shall mandatorily review statement of significant related party transactions
(as defined by the audit committee), submitted by management
CONCLUSION:
This regulation corresponds to Clause 49VI of the Listing
Agreement. The definition of related party in Listing Regulations 2015,
continues to define related party as a synthesis of Companies Act, 2013 and
Accounting Standard – 18.
Therefore, as per regulation 23(8), all the existing material
related party contracts or arrangements entered into prior to the date of
notification of these regulations and which may continue beyond such date shall
be placed for approval of the shareholders in the first General Meeting
subsequent to notification of these regulations. Now the ordinary resolution
will suffice the purpose of approval from shareholders instead of special
resolution in Listing Agreement.
Still the related parties are abstain from voting on such resolutions
whether they are related party to that particular transaction or not.
This point differs with Section 188 of the Companies Act, 2013
whereby the Ministry of Corporate Affairs clarified vide General Circular No.
30/2014 dated 17.07.2014, only the related party in the context of the contract
or arrangement were abstained from voting.
Related Party:
Definition of Related Party as per 2(76) of
Companies act, 2013 (DRAWINGS)
[1] Define at the end of the Article
[2] A "transaction" with a related
party shall be construed to include a single transaction or a group of
transactions in a contract.
[4] Ordinary Resolution.
[5] For
the purpose of clause (a), "government company(ies)" means Government
company as defined in sub-section (45) of section 2 of the Companies Act, 2013.
[7] As per Section 177(4)(iv) proviso of the Companies Act, 2013 the
Audit Committee may make omnibus approval for related party transactions
proposed to be entered into by the company subject to such conditions as may be
prescribed;
CS DIVESH GOYAL
csdiveshgoyal@gmail.com
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