Sebi asks companies to provide reasons and valuations for related party transactions in revised disclosure guidelines

Markets regulator Sebi on Monday issued new guidelines on the minimum information that listed companies must provide to their audit committees and shareholders to get approval for related party transactions (RPT).

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

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

The companies are required to disclose this information to audit committees and shareholders when submitting a proposal for review and approval of an RPT.

The circular would take effect immediately, it added.

Additionally, Sebi relaxed disclosure norms for smaller RPTs, not exceeding 1 percent of the company’s annual consolidated turnover or Rs 10 crore, whichever is lower – either individually or in combination with previous transactions in a financial year. These smaller transactions will be exempt from the detailed requirements.

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