Based on the representations received from listed entities and industry bodies, SEBI has issued clarifications and guidance for smooth implementation of Regulation 23 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”) vide its Circular No. SEBI/HO/CFD/CMD1/CIR/P/2022/40 dated March 30, 2022, which is addressed to: (a) all entities that have listed their specified securities; and (b) all the Recognized Stock Exchanges.
By way of background, on November 09, 2021, SEBI vide Notification No. SEBI/LAD-NRO/GN/2021/55 amended certain provisions relating to Related Party (RP) Definition (Regulation 2), Definition of Related Party Transactions (RPTs) (Regulation 2) and Related Party Transactions (Regulation 23).
The revised scope and framework of RPTs prescribed under these amendments is to be effective from April 1, 2022, Further to the aforesaid Notification, SEBI vide Circular No. SEBI/HO/CFD/CMD1/CIR/P/2021/662 dated November 22, 2021 issued clarification regarding Disclosure obligations of listed entities in relation to RPTs.
The new clarifications include: (i) For an RPT that has been approved by the audit committee and shareholders prior to April 1, 2022, no requirement to seek fresh approval from the shareholders. (ii) Regulation 23(8) of the LODR Regulations specifies that all existing material related RPT contracts or arrangements entered into prior to the date of notification of these regulations and which may continue beyond such date to be placed for approval of the shareholders in the first General Meeting subsequent to notification of these regulations. (iii) An RPT for which the audit committee has granted omnibus approval to continue to be placed before shareholders if it is material in terms of Regulation 23(1) of the LODR Regulations.
Further noting that transparency, accountability and shareholder empowerment are the bedrock of robust corporate governance, the SEBI has mentioned that:
1. The listed entities to ensure compliance with the spirit of the law and endeavor to provide relevant and detailed information to enable and empower shareholders for taking an informed decision.
2. The explanatory statement contained in the notice sent to the shareholders for seeking their approval for an RPT must provide relevant information so as to enable the shareholders to take a view whether the terms and conditions of the proposed RPT are not in any way unfavorable to the listed entity, compared to the terms and conditions, had similar transaction been entered into between two unrelated parties.
3. The information to be provided must include but not limited to the information specified in the Circular dated November 21, 2022 (link provided above) so as to enable the shareholders to take an informed decision.
4. The circular to come into force with effect from April 1, 2022.
For any further information, please contact Ms. Namrta Rai (firstname.lastname@example.org
) or Mr. Neeraj Dubey (email@example.com