Highlights of the webinar
Webinar on “Overview of SEBI LODR Sixth Amendments” conducted by Mehta & Mehta Legal Advisory Services on 20th November 2021 at 11:00 AM
| Panelist | Designation |
| Mr. R Balakrishnan | Moderator |
| Ms. Dipti Mehta | Founder Partner- Mehta & Mehta |
| Presenter | Topic |
| Ms. Vanita Kanoi | Overview of SEBI LODR Sixth Amendments |
Introduction:
Mr. R Balakrishnan highlighted that SEBI has brought more stringent framework on Related Party Transaction (RPT) in the 6th amendment of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) [SEBI LODR] dated November 09, 2021. The said amendment is concentrating on bringing increased disclosures for the benefit of investors.
Ms. Vanita Kanoi started the presentation by explaining the definition of related party as per the new amendment.
Definition :-
Related party” means a related party as defined under sub-section (76) of section 2 of the Companies Act, 2013 or under the applicable accounting standards :
Provided that:
(a) any person or entity forming a part of the promoter or promoter group of the listed entity; or.
(b) (b) any person or any entity, holding equity shares:
(c) (i) of twenty per cent or more; or
(ii) of ten per cent or more (effective from April 1, 2023) in the listed entity either directly or on a beneficial interest basis as provided under section 89 of the Companies Act, 2013, at any time, during the immediate preceding financial year; shall be deemed to be a related party
Provided further that this definition shall not be applicable for the units issued by mutual funds which are listed on a recognized stock exchanges.
Earlier Related party transaction was limited to transfer of resources or services or obligation between listed entity and related party regardless of price charged, but now it includes circular transaction involving transfer of services between listed entity and subsidiaries or any other person or entity on another side.
Policy of related party transaction :-
The listed entity shall formulate the policy on related party transaction. Earlier a related party transaction will be considered material if if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceeds ten percent of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity.
Now as per new amendment, related party shall be considered material, if the transactions during a financial year, exceeds rupees one thousand crore or ten per cent of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity, whichever is lower. This change has ultimately widened the scope of materiality of related party transactions.
Provided that the following shall not be a related party transaction as per the amendment: – the issue of specified securities on a preferential basis, subject to compliance of the requirements under the SEBI
b) Acceptance of fixed deposits by banks/Non-Banking Finance Companies at the terms uniformly applicable/offered to all shareholders/public.
All related party transactions and subsequent material modifications shall require prior approval of the audit committee of the listed entity.
Exemption from prior approval of shareholders for material related party transactions
(a) transactions entered into between two government companies;
(b) transactions entered into between a holding company and its wholly owned subsidiary whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval;
(c) transactions entered into between two wholly-owned subsidiaries of the listed holding company, whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval.
SEBI has tightened norms for disclosure of Related party transactions:
Firstly, 30 days from the date of publication of standalone and consolidated financial results has changed to fifteen days w.e.f. 1st April, 2022 and later changed to simultaneous disclosure with the financial results w.e.f 1st April 2023.
Secondly, SEBI shall prescribe a format for the disclosure but currently listed entities adhere to the prescribed format of accounting standards.
Queries
1) If listed party is undertaking transaction with related party of subsidiary then it will be considered as related party of listed Company?
Answer :- Proviso 2 explains that a related party transaction to which the subsidiary of a listed entity is a party but the listed entity is not a party, shall require prior approval of the audit committee of the listed entity if the value of such transaction whether entered into individually or taken together with previous transactions during a financial year exceeds ten per cent of the annual consolidated turnover, as per the last audited financial statements of the listed entity.
2) Policy of audit committee can be modified by independent director?
Answer :- The Audit Committee may call for the comments of the auditors about internal control systems. The Audit Committee shall provide professional advice and have full access to audit report. The auditors of a company and the key managerial personnel shall have a right to be heard in the meetings of the Audit Committee when it considers the auditor’s report but shall not have the right to vote.
The Board’s report under sub-section (3) of section 134 shall disclose the compositionof an Audit Committee and where the Board had not accepted any recommendation of the Audit Committee, the same shall be disclosed in such report along with the reasons therefor.
3) Are there certain criteria that need to be kept in mind by the Audit Committee while framing the policy on material modifications?
Answer:- Regulation 23(1) of SEBI Regulations, 2021 requires a company to provide materiality thresholds for transactions beyond which the shareholders’ approval will be required by way of an Ordinary Resolution.The Company has to fix its materiality threshold as per new amendment.
Presentation got concluded at 01:28 pm
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