SEBI New Related Party Transaction Framework
- On november 18, 2023, the Securities and Exchange Board of India (Sebi) announced a new framework for determining the materiality of Related Party Transactions (RPTs).
- The new norms aim to balance investor protection with the ease of doing business, operating within the Listing Obligations and Disclosure Requirements (LODR) norms.
- These thresholds determine when an RPT is considered 'material' and thus subject to stricter scrutiny and disclosure requirements.
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Published November 21, 2023
What Happened?
On november 18, 2023, the Securities and Exchange Board of India (Sebi) announced a new framework for determining the materiality of Related Party Transactions (RPTs). This framework is based on the annual consolidated turnover of listed entities. Sebi also revised approval thresholds for Audit Committees and simplified disclosure requirements for smaller RPTs.
Key Changes and Thresholds
The new norms aim to balance investor protection with the ease of doing business, operating within the Listing Obligations and Disclosure Requirements (LODR) norms. The materiality thresholds are tiered based on a company’s annual turnover:
| Annual Consolidated Turnover | Materiality Threshold |
|---|---|
| Up to Rs 20,000 crore | Exceeds 10% of annual consolidated turnover |
| Rs 20,001 crore – Rs 40,000 crore | Rs 2,000 crore + 5% of turnover exceeding Rs 20,000 crore |
| Above Rs 40,000 crore | Rs 2,000 crore + 5% of turnover exceeding Rs 20,000 crore |
These thresholds determine when an RPT is considered ‘material’ and thus subject to stricter scrutiny and disclosure requirements. the revised rules also simplify the process for smaller transactions, reducing the administrative burden on companies.
Why These Changes Matter: Investor Protection and Corporate Governance
Related Party Transactions have historically been a source of concern for investors, as they can be used to divert funds or benefit insiders at the expense of minority shareholders. By establishing clear, objective thresholds for materiality, Sebi aims to increase clarity and accountability in these transactions.
Previously,the determination of materiality was often subjective,leading to inconsistencies in submission and potential loopholes. The new framework provides a more standardized approach,