RPTs

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Purpose & Effect Test for RPTs – How should Audit Commitees navigate it?

Regulatory Context

The definition of ‘Related Party Transaction’ (“RPT”) under Regulation 2(1)(zc) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”), inter alia provides that with effect from April 1, 2023, a transaction involving transfer of resources, services or obligations between “a listed entity or any of its subsidiaries on one hand, and any other person or entity on the other hand, the purpose and effect of which is to benefit a related party of the listed entity or any of its subsidiaries,” will also be regarded as an RPT (referred to below as the “Purpose and Effect Test”).Continue Reading Purpose & Effect Test for RPTs – How should Audit Commitees navigate it?

Disenfranchising Majority Shareholders

Context

Even after the ‘right to property’ was abolished as a fundamental right by the 44th Amendment to our Constitution[1], it has continued as a ‘constitutional right’ by virtue of Article 300-A, which provides that – “No person shall be deprived of his property save by authority of law”.Continue Reading Disenfranchising Majority Shareholders – Is it Constitutionally Valid?

SEBI

Background

SEBI has been progressively tightening the regulatory regime surrounding transactions impacting listed entities – beginning with the implementation of the Kotak Committee recommendations on related party transactions (RPTs) through amendments to the LODR Regulations on May 9, 2018. Shortly thereafter, in November, 2019, SEBI constituted a Working Group (WG) to re-examine the RPT provisions of LODR Regulations, which resulted in the markets regulator notifying amendments on November 9, 2021, which took effect from April 01, 2022. These amendments brought about a paradigm shift by making the RPT approval and disclosure requirements applicable to listed companies in India very expansive and stringent.Continue Reading Proposed Amendments to LODR on Agreements Affecting Listed Companies – Swatting Flies with a Sledgehammer?

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

Revised threshold of Rs. 1000 Crore for ‘material’ RPTs under LODR – Does it pass the Article 14 test

Background

SEBI[1] has recently revised the materiality threshold for obtaining shareholder approval for related party transactions (“RPTs”) under Regulation 23(1) of the SEBI (LODR) Regulations, 2015 (“LODR”), to cover RPTs that exceed INR 1000 crore or 10% of a listed entity’s annual consolidated turnover (as per the last audited financial statements), whichever is lower.

The revised materiality threshold has come into effect on April 1, 2022, and this change assumes significance, as prior to April 1, 2022, there was no absolute numerical threshold for RPTs that require shareholders’ approval.

This also raises the question as to whether an absolute numerical threshold of INR 1000 crore could potentially be considered as violative of Article 14 of the Indian Constitution.

In this post, the authors aim to probe deeper into this constitutional aspect and examine some of the arguments that can be made from both sides of the spectrum.Continue Reading Revised threshold of Rs. 1000 Crore for ‘material’ RPTs under LODR – Does it pass the Article 14 test?