February , 2025Securities and Exchange Board of India (‘SEBI’) has issued a circular dated February 14, 2025, for Industry Standards on ‘Minimum information to be provided for Review of the Audit Committee and Shareholders for Approval of a Related Party Transaction (RPT)’ (‘RPT Industry Standards’).
The minimum information required to be placed before the audit committee and shareholders, wherever required, for approval of a related party transaction (‘RPT’) as covered in Section III-B of Master circular dated November 11, 2024 would be replaced with RPT Industry Standards for all the RPTs to be entered into, with effect from April 01, 2025.
Identification of Related Parties:
The listed entity shall identify the list of related parties as per the definition provided under Regulation 2(1)(zb) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘Listing Regulations’ of ‘LODR’) – No change in the definition of related parties.
Identification of Related Party Transactions:
The listed entity shall identify/ budget related party transactions as per the definition provided under Reg. 2(1)(zc) read with Reg. 23 of LODR – No change in the definition of related party transactions.
Classification of RPT for Understanding the Disclosure Requirement:
Post identification of RPT, the Company needs to classify/basket the related party transactions as follows:
1. Transactions falling under the definition of material RPT (as per Reg. 23(1) of LODR
2. RPTs (other than material RPT) to be entered into with promoter or promoter group or entity where promoter group is concerned or interested[1]:
a. Exceeding threshold[2] as specified.
b. Below the threshold[3]
3. Residual RPTs (other than RPTs identified in Point 1 and 2 above)
All such related party transactions covered in point no. 1, 2 & 3 above are required to be further bifurcated into balance sheet items or Profit/ Loss items (P&L items)[4].
Understanding Disclosure Requirements for RPTs:
Comprehensive Disclosures (All disclosures as specified in Para 4 of the RPT Industry standards):
- All material RPTs (both balance sheet and P&L items)
- RPTs (both balance sheet and P&L items) with promoter, promoter group and entities in which they are interested or concerned, and the amount exceeds the threshold limits.
- RPTs (only balance sheet items) with promoter, promoter group and entities in which they are interested or concerned, and the amount does not exceed the threshold limits.
Limited Disclosures (Thorough disclosures as specified in Para 4 of RPT Industry standards except few items as specified in the RPT Industry standards):
- RPTs (only P&L items) with promoter, promoter group and entities in which they are interested or concerned, and the amount does not exceed the threshold limits.
- Residual RPTs (both balance sheet and P&L items) exceeding Rs. 1 crore
Minimum Disclosures (Essential disclosure as specified in Rows A(1), A(2), A(4), A(5) and B(1) of Para 4 of the RPT Industry Standards):
- Residual RPTs (both balance sheet and P&L items) not exceeding Rs. 1 crore
Analysis of Disclosure Requirements of RPT Industry Standards:
Para 4 includes the disclosure requirements for the RPTs. You may refer an excerpt of the disclosure requirements in Annexure A.
Part A:
- Part A of the said para includes information with respect to each related party (irrespective of the number and value of transactions) out of which part A1 to A4 requires historic data of the said related party (like elaborate KYC) and the transactions entered into with the same, if any.
- Part A5 of the said para requires the aggregate value of proposed transactions (all the transactions taken together) to be mentioned including various other details with a particular related party.
Hence, the said information in A1 to A5 can be provided related party-wise.
Part B:
The details under this part are required to be provided transaction-wise.
- Part B(1) requires the basic details of each RPT to be entered into by the listed entity or its subsidiary with related parties for approval of audit committee.
This is the least information required for all kinds of RPTs.
- Part B(2) to B(8) includes additional details for specific types of RPTs as specified in the standards (e.g. purchase/ sale of goods, services/ transactions related to loans, advances, investments, borrowings, royalty/ sale, lease or disposal of unit/ division/ undertaking, etc.) which are required to be disclosed to the audit committee at the time of approvals. Depending on the nature of the transaction, the Company will have to choose which part of B2 to B8 is to be provided for that specific transaction.
All the disclosures are required to be provided by the listed entity without deleting any line item. The company may add ‘Nil’ or ‘NA’ against items which are not relevant.
Role of Management and Audit Committee:
- The management is required to provide comments or information against each such line item for the review and comments of the audit committee which are required to be captured in the minimum information disclosures placed before the audit committee.
- CEO or CFO and promoter directors are required to give certificate that the transactions are not prejudicial to the interest of the general public and the terms and conditions of these transactions are not unfavorable for the listed entity.
- Specific comments have been sought from the Audit Committee on specified occasions. Such comments must be recorded in the minutes of the Audit Committee.
Disclosure Requirement for Shareholders:
All the items relevant for each material RPT as per Para 4 are required to be mentioned in the explanatory statement contained in the notice of shareholders along with the comments of the board of directors and audit committee, if any.
The Audit Committee can approve the redaction of commercial secrets and other information that would affect the competitive position of the listed entity from disclosures to shareholders. Further, the Audit Committee shall certify that, in its assessment, the redacted disclosures still provide all the necessary information to the public shareholders for informed decision-making.
Approval Requirement:
All RPTs, irrespective whether they are specific or omnibus approvals or ratification, would warrant minimum disclosure/ information, to the audit committee and shareholders, wherever applicable, under the RPT Industry Standards.
The RPTs for FY 26 for which omnibus approval is already obtained before the notification of the RPT Industry Standards would not warrant submission of these information.
MMJC Remarks:
The advent of RPT Industry standard:
- Pushes the management for providing detailed information to the Audit Committee in collaboration with the Promoters (or their office), CEO, CFO, Business heads, finance team, etc.;
- More informed and mindful decision-making and record-keeping by the Audit Committee.
- Transparency for the shareholders for informed decision-making.
The Companies will have to revisit and upgrade the entire data collation and RPT budgeting process.
Annexure A
Minimum information to be provided as per ISF guidance is divided as follows:
| Part A | Details of related party and Details of transactions with related party (historic transactions). |
| Part B Details for specific transaction | |
| Part B(1) | Basic details of the transaction |
| Part B(2) | Transaction relating to sale, purchase, or supply of goods or services or any other similar business transactions |
| Part B(3) | Transactions relating to any loans, inter-corporate deposits or advances given by the listed entity or its subsidiary |
| Part B(4) | Relating to any investment made by the listed entity or its subsidiary |
| Part B(5) | transactions relating to any guarantee (excluding performance guarantee), surety, indemnity or comfort letter, by whatever name called, made or given by the listed entity or its subsidiary |
| Part B (6) | Transactions relating to borrowings by the listed entity or its subsidiary. |
| Transactions relating to sale, lease or disposal of assets of subsidiary or of unit, division or undertaking of the listed entity, or disposal of shares of subsidiary or associate. | |
| Part B (7) | Transactions relating to payment of royalty. |
| Point 5 | Standards for Minimum Information to be provided to the shareholders for consideration of RPTs |
[1] As defined in the Explanation below the Applicability Matrix
[2] As specified in Para 1, Point 2 of the RPT Industry Standards
[3] ibid
[4] As defined in the Explanation below the Applicability Matrix
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