The Securities and Exchange Board of India ("SEBI") vide circular dated February 14, 2025 ("Circular") inter alia introduced some amendments to certain parts of the Master Circular for compliance with the provisions of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 by listed entities ("SEBI Master Circular"), in relation to minimum information to be provided for review of the audit committee and shareholders for approval of a related party transaction(s) ("RPTs").
Regulations 23(2), (3) and (4) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("SEBI LODR Regulations") mandate that inter alia all RPTs must be approved by the audit committee of the listed entity (through approval of only those members of the audit committee, who are independent directors) subject to certain conditions and all material RPTs must be approved by its shareholders through resolution, wherein no related party shall be permitted to vote.
In addition to the above, Part (A) and Part (B) of Section III-B of the SEBI Master Circular lists down information to be provided to the audit committee and shareholders, as the case may be, for the evaluation of RPTs.
In line with the same, the Industry Standards Forum ("ISF"), comprising of representatives from ASSOCHAM, CII, and FICCI, under the guidance of the stock exchanges and in consultation with SEBI, has developed industry standards outlining the minimum information to be provided for the audit committee and shareholders, as the case may be, to review and approve RPTs ("Industry Standards"). Listed entities are required to follow the Industry Standards to ensure compliance with Part (A) and Part (B) of Section III-B of the SEBI Master Circular read with Regulations 23(2), (3) and (4) of SEBI LODR Regulations.
Consequently, certain amendments to paragraph 4 under Part (A) of Section III-B and paragraph 6 under Part (B) of Section III-B of the SEBI Master Circular are introduced vide the Circular, in line with the abovementioned understanding as follows:
- The listed entity shall now submit to the audit committee the information outlined in the Industry Standards when presenting any proposal for the review and approval of an RPT; and
- In addition to the requirements set forth under the Companies Act, 2013, the notice sent to shareholders seeking approval for any RPT must include the information as per the Industry Standards under the explanatory statement.
Author's view
The Industry Standards have been introduced to ensure uniformity and appropriate review and approval of RPTs by the audit committee and shareholders of a listed entity, based on adequate information. The Circular has been issued in conjunction with the launch of a dedicated RPT portal by SEBI, aimed at enhancing transparency and strengthening governance in corporate India. Thus, the introduction of the Industry Standards, launch of RPT portal, and the present amendments are vital steps toward enhancing corporate governance practices in India.
A copy of the Circular can be accessed here.
Please also find a copy of the SEBI LODR Regulations (amended till December 12, 2024) and the SEBI Master Circular, here and here, respectively.
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