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RPT Disclosure Standards: Regulator’s Ongoing Quest for Balance

Context

The law on related party transactions (“RPTs”) has been evolving since its inclusion in the Companies Act, 2013 (“the Act”), and the introduction of stricter regulations for listed companies by the Securities and Exchange Board of India (“SEBI” or “Regulator”) in the Listing Obligations and Disclosure Requirements Regulations, 2015 (“LODR”). Yet, India Inc. continues to falter in its battle for good governance because of abusive RPTs, inadequate disclosures, and diversion of funds of listed companies to closely held promoter entities through innovative structures and shell entities – exacerbated because promoters own or control 75 per cent of listed entities in India.Continue Reading RPT Disclosure Standards: Regulator’s Ongoing Quest for Balance

Increasing the role and relevance of ‘Proxy Advisory Firms’ in corporate governance

Until very recently, the recommendations of proxy advisory firms did not impact companies much, as it did not have the power to influence or fail/ stop a resolution from being passed. However now, the recommendations of proxy advisory firms are becoming increasingly relevant given that many institutional investors are basing their positions while voting on resolutions on such advice. This is evidenced from the fact that a proxy advisory firms have recently managed to prevent a resolution for granting employee stock options to employees of a group entity of a very large Indian bank from being passed due to the absence of “any compelling reasons”.[1] In another interesting case, a proxy advisory firm came very close to preventing a resolution pertaining to an increase in the remuneration of a director from being passed on account of this increase being “skewed” and “guaranteed”.[2]Continue Reading Impact of Proxy Advisory Firms: Turning tides and failing resolutions

FIG Paper - Navigating SEBI’s Definition of UPSI

Introduction:

The objective of the PIT Regulations is to prohibit insiders with access to Unpublished Price Sensitive Information (“UPSI”) from making illicit gains and to ensure timely, adequate and even disclosure of UPSI to the public. Hence, the determination of what constitutes as UPSI becomes necessary. In this regard, the Securities and Exchange Board of India (“SEBI”) has signalled a shift from a principle-based regime to a more prescriptive regime, which is likely to result in increased compliance obligations for the listed companies.Continue Reading FIG Paper (No. 26 – Series. 3): Navigating SEBI’s Definition of UPSI

RPT Regulations

Background

SEBI’s amendments to the regulatory architecture for related party transactions (“RPTs”) under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR”) came into force from April 1, 2022[1] (“RPT Regulations”), bringing about a paradigm shift in the RPT approval and disclosure requirements applicable to listed companies in India.[2]Continue Reading RPT Regulations – Some Suggestions for SEBI’s consideration

Regulatory overload on Audit Committees

Background

The regulatory architecture under the Companies Act, 2013 (“Act”), and the SEBI (LODR) Regulations, 2015 (“LODR”) places significant emphasis on the functioning of various committees of the Board of Directors (“Board”) of a listed company. While all Board committees have been entrusted with important responsibilities, a disproportionate amount of the regulatory burden has been placed on the Audit Committee. The Audit Committee has multifarious responsibilities under Section 177 and various other provisions of the Act, the LODR, and the SEBI (Prohibition of Insider Trading) Regulations, 2015 (“PIT Regulations”).Continue Reading Gatekeepers of Governance – Audit Committee