SEBI specifies disclosure obligations for listed entities concerning Related Party Transactions

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SEBI Related Party Transactions

Circular no. SEBI/HO/CFD/CMD1/CIR/P/2021/662, Dated 22-11-2021

The market regulator, SEBI has prescribed the information that is required to be placed before the audit committee and the shareholders to reinforce and monitoring of Related Party Transactions for better governance practices. This Circular shall come into force with effect from April 1, 2022.

The listed entity shall provide the information, for review of the audit committee for approval of a proposed RPT like – Type, material terms and particulars of the proposed transaction; Name of the related party and its relationship with the listed entity or its subsidiary, including nature of its concern or interest (financial or otherwise); Tenure of the proposed transaction, etc.

The listed entity shall also be required to disclose the purpose for which the funds will be utilized by the ultimate beneficiary of such funds according to the RPT and Justification as to why the RPT is in the interest of the listed entity. The audit committee shall also review the status of long-term (more than one year) or recurring RPTs on an annual basis. The listed entity shall make RPT disclosures every six months in the format prescribed by SEBI.

Related party transactions above the prescribed limits require the approval of shareholders. Notice sent to shareholders seeking approval for any proposed RPT shall, in addition to the requirements under the Companies Act, 2013, include the information as a part of the explanatory statement like – A summary of the information provided by the management of the listed entity to the audit committee; Justification for why the proposed transaction is in the interest of the listed entity; A statement that the valuation or other external report, if any, etc.

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