Sebi streamlines minimum information rules for RPTs from September

Business Standard

5 days ago

The Securities and Exchange Board of India (Sebi) has revised the minimum information that companies must provide to their audit committees and shareholders for the approval of related party transactions (RPTs). The new standards will come into effect from September 1.
Sebi initially issued the minimum standards in February 2025. However, after consulting with industry players, the standards have been revised. The updates are based on feedback from industry associations such as Assocham, FICCI and CII.
Under the revised standards, company management will be required to provide a certificate confirming that the terms of RPTs are in the best interest of the listed company. Additionally, a valuation or other report from an external party will also be mandatory.
Gaurav Pingle, a company secretary, noted that the inclusion of the managing director, whole-time director or manager to certify that RPTs are in the company's interest is necessary, as many companies have promoters or executive directors on their boards. Previously, only the chief executive officer or chief financial officer were permitted to provide this certification.
Furthermore, Sebi has now prescribed the content of the certificate. The audit committee may seek additional information if needed. This will include details of previous transactions with the related party, as well as the relationship and ownership structure of the entity.
'Sebi has streamlined the information required from management on related party transactions and included relevant details for decision-making. Additional details for transactions involving royalty payments have also been rationalised,' said Pingle.
The 29-page document outlining the minimum information requirements also mandates the disclosure of the total amount of all transactions undertaken by the listed company or its subsidiary with the related party in the current financial year. Any defaults made by the related party during the last financial year must also be disclosed.
'The audit committee may, at its discretion, comment on the information provided by management. Such comments and the rationale for not approving an RPT shall be recorded in the minutes of the audit committee meeting,' the standards specify.
'This amendment, aligned with Clause 49 of the Listing Agreement and enforceable immediately with penalties under Section 11B of the SEBI Act, 1992, empowers audit committees and shareholders with enhanced transparency and accountability. It also strengthens corporate governance by fostering comparability and reducing the risk of manipulative transactions across the industry,' said Sonam Chandwani, managing partner at KS Legal & Associates.
The standards specify different sets of information required for different classes of RPTs, which have been classified into seven categories. The market regulator has also outlined a set of minimum information requirements for material RPTs.
The new standards will not apply to transactions entered into individually or those valued at less than ₹1 crore.