Life of shareholders’ approval for material related party transactions | SEBI’s Clarification

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  • 2 Min Read
  • By Taxmann
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  • Last Updated on 12 April, 2022

related party transactions; SEBI Regulations 2021;

[2022] 137 taxmann.com 141 (Article)

It has been 5 months since notification of SEBI (Listing Obligations and Disclosure Requirements) (Sixth Amendment) Regulations, 2021 making major recast of the regulatory processes on related party transactions; the 8000 odd corporates consisting of the bulk of India’s financial as well as real sector continue to decode, interpret, and implement the revised framework. On the advocacy front, companies continue to make representations to, seek clarifications from SEBI ((including through stock exchanges). There is no doubt that SEBI, as a regulator, is open to interface with companies and is often receptive to useful suggestions.

Within a span of 10 days, the 8th April clarification is the second clarification on the approval for material related party transactions (‘material RPTs’). SEBI circular dated March 30, 2022 provided a one-time relaxation by allowing companies to seek prior approval for material RPTs at the first general meeting convened after April 1, 2022. This time the clarification vide SEBI circular dated April 8, 2022 pertains to the validity term of the prior approval of shareholders for material RPTs. The circular has been rolled out, clearly, in response to the representations made seeking clarity. The issue in hand is the insistence of the new RPT framework requiring prior approval of shareholders if the materiality threshold is crossed, which, now, has an absolute monetary frontier of Rs 1000 crores as well. So, when do companies seek shareholders’ approval, if they clearly estimate the value of the transactions with a related party crossing the frontier? The 30th March circular granted a time upto the first general meeting in FY 22-23, but what about the next financial year?

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