Industry standards on minimum information for RPTs published | Notification of regulations for the procedure of making, amending and reviewing of SEBI regulations

In another set of changes to the governance of the securities market, SEBI has enforced certain key directives with the objective of increasing transparency among stakeholders:

Regulation 23 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”) inter alia requires related party transactions (“RPTs”) to be approved by the audit committee and by the shareholders, if material. In this regard, the SEBI Master Circular dated November 11, 2024 (“Master Circular”) specifies the information that is required to be placed before the audit committee and shareholders, respectively, for consideration and approval of RPTs, in particular Part A and Part B of Section III-B of the Master Circular.

With the objective of facilitating a uniform approach, the Industry Standards Forum (“ISF”)[1] , under the aegis of the stock exchanges, has formulated certain industry standards, in consultation with SEBI, for minimum information to be provided for review of the audit committee and shareholders for approval of RPTs (“Industry Standards”).

The Industry Standards are categorised as follows:

• Applicability of the Industry Standards to (a) material RPTs, (b) RPTs other than material RPTs but which is with promoter or promoter group or person/ entity in which promoter or promoter group has concern or interest, and (c) residual RPTs.
• Standards for minimum information to be provided to the audit committee for review and approval (including ratification) of RPTs, taking into account key details while collecting and collating information to be placed before the audit committee;
• Format for providing minimum information to the audit committee for its review which includes providing the following information:
  • Basic details of the related party and transaction with the related party which includes, (1) details of the related parties; (2) relationship and ownership of related parties; (3) financial performance of the related party; (4) details of previous transactions with the related party and (5) amount of the proposed transaction.
  • Details of specific transactions relating to (1) sale, purchase or supply of goods or services or any other similar business transaction, (2) any loans, inter-corporate deposits or advances given by the listed entity or its subsidiary (3) any investment made by the listed entity or its subsidiary (4) any guarantee (excluding performance guarantee), surety, indemnity or comfort letter, by whatever name called, made or given by the listed entity or its subsidiary (5) borrowings by the listed entity or its subsidiary (6) sale, lease or disposal of assets of subsidiary or of unit, division or undertaking of the listed entity, or disposal of shares of subsidiary or associate (7) payment of royalty.
• Standards for minimum information to be provided to the shareholders for consideration of RPTs

The Industry Standards have been published on the website of the stock exchanges (available here).

In light of the above, Paragraph 4 under Part A of Section III-B (Information to be reviewed by the audit committee for the approval of RPTs) and Paragraph 6 under Part B of Section III-B (Information to be provided to shareholders for consideration of RPTs) of the Master Circular which presently provide for  list of information that is required to be placed before the audit committee and shareholders, respectively, for their review, have been modified and the information as per Industry Standards will be required to be disclosed.

The aforementioned modifications have been made vide SEBI circular dated February 14, 2025 (link), which shall come into effect from April 1, 2025.

The above changes have been introduced to facilitate a uniform approach by all listed entities and new guidelines to this effect are expected to improve and streamline the quality of information being provided to the audit committee and shareholders for material related party transactions, thereby increasing transparency and accountability

In its board meeting dated December 18, 2024, SEBI discussed the need to formalize process for pre-legislative consultation, issuance and review of regulations in the securities market.

In continuation of the above discussion, in a gazette notification dated February 13, 2025 (link), SEBI notified the Securities and Exchange Board of India (Procedure for making, amending and reviewing of Regulations) Regulations, 2025 (“SEBI Procedure Regulations”) which provides for the process of regulation making and for mandating the public consultation and engagement of stakeholders in the interest of transparency and for matters incidental or connected therewith.

Significant provisions of the SEBI Procedure Regulations are provided hereinbelow:

By introducing a formalised process for pre-legislative consultation, there is now a codified framework to ensure uniformity in the process of issuing regulations, thus providing clarity to all stakeholders. This also reduces reliance on discretionary decisions of the SEBI departments.

We trust you will find this an interesting read. For any queries or comments on this update, please feel free to contact us at insights@elp-in.com or write to our authors:

Manendra Singh, Partner, Email – ManendraSingh@elp-in.com ;

Tanvi Goyal, Associate Partner, Email – tanvigoyal@elp-in.com

Aditi Ladha, Senior Associate, Email – aditiladha@elp-in.com

[1] The ISF comprises of representatives from three industry associations, viz. Associated Chambers of Commerce & Industry of India (ASSOCHAM), Confederation of Indian Industry (CII) and Federation of Indian Chambers of Commerce and Industry (FICCI).

[2] “Public comments” has been defined as “the feedback, suggestions or objections received on any proposal of the Board, from any person including investors, issuers, persons regulated by the Board, organizations, regulatory authorities and public interest groups, engaged directly or indirectly in the Indian securities market.”