Sebi asks companies to give reasons, valuations for related party transactions in revised disclosures guidelines

Market regulator Sebi on Monday issued fresh guidelines on minimum information that listed companies are required to provide to their audit committees and shareholders to get related party transaction (RPT) approval.

Under this, companies are required to explain why the transaction is in the interest of the listed entity, provide valuation or external reports if relied upon, indicate the percentage of the counterparty’s annual turnover represented by the transaction (on a voluntary basis), and include any other relevant details for review by the audit committee for approval of a proposed RPT.

While seeking shareholder approval, the explanatory statement needs to summarise information shared with the audit committee, justify how the transaction benefits the company, disclose details of any loans, advances, or investments involved, and confirm that any valuation or external report will be accessible to shareholders via their registered email, Sebi said in its circular.

The companies are required to disclose this information to audit committees and shareholders while placing any proposal for review and approval of an RPT.

The circular would become effective immediately, it added.

Additionally, Sebi relaxed disclosure norms for smaller RPTs, those not exceeding 1 per cent of the company’s annual consolidated turnover or Rs 10 crore, whichever is lower — whether individually or combined with prior transactions in a financial year. These smaller transactions will be exempted from the detailed requirements.

This came after the board of Sebi in September approved a proposal for relaxation in the minimum information to be provided to the audit committee and shareholders for the approval of RPT.