The Securities and Exchange Board of India (SEBI) has issued a circular dated February 14, 2025, introducing Industry Standards on “Minimum Information to be Provided for Review of the Audit Committee and Shareholders for Approval of a Related Party Transaction”.
Key Highlights of the Circular:
1. Strengthening SEBI (LODR) Compliance for RPTs
As per Regulation 23(2), (3), and (4) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, listed entities must obtain audit committee approval for all RPTs. If an RPT is classified as material, shareholder approval is also required.
SEBI’s Master Circular (dated November 11, 2024) already specifies certain disclosure requirements for RPTs. The new industry standards aim to further streamline and standardize the information presented to audit committees and shareholders.
2. Role of the Industry Standards Forum (ISF) and Stakeholders Involved
The Industry Standards Forum (ISF), formed under the aegis of stock exchanges, developed these new standards in consultation with SEBI.
The forum consists of representatives from ASSOCHAM, FICCI, and Confederation of Indian Industry.
The industry associations and stock exchanges will publish the finalized standards on their websites for public access.
3. Standardized Information Requirements for RPTs
To ensure uniformity, the circular modifies Section III-B of the SEBI Master Circular, mandating:
Audit Committee Review: Listed entities must submit RPT proposals to audit committees with details specified in the new Industry Standards.
Shareholder Explanatory Statements: Shareholder notices seeking RPT approval must include comprehensive details as per the new disclosure framework.
4. Compliance & Implementation by Listed Entities
Listed companies must adopt the new standards while submitting RPTs to their audit committees and shareholders.
Stock exchanges are responsible for ensuring compliance by listed entities and informing them of these changes.
5. Effective Date & Applicability
The circular will be effective from April 1, 2025.
This circular will enhance transparency and consistency in related party transactions by ensuring that audit committees and shareholders receive standardized and comprehensive information for decision-making. It will help prevent discrepancies and misinterpretations, leading to stronger corporate governance and better investor protection. By streamlining compliance requirements, the framework will make RPT approvals more efficient and reliable, fostering greater trust in the financial disclosures of listed companies.
Comments