SEBI Clarifies Minimum Information to be provided to Audit Committee and Shareholders for Approval of Related Party Transactions [Read Circular]

SEBI Enhances Transparency in Related Party Transaction Approvals

In a move aimed at bolstering corporate governance and safeguarding investor interests, the Securities and Exchange Board of India (SEBI) has issued clarified guidelines regarding the information required for the approval of Related Party Transactions (RPTs). These guidelines will ensure that audit committees and shareholders have access to comprehensive data before approving such transactions.

What are Related Party Transactions (RPTs)?

Related Party Transactions refer to deals or arrangements between a company and its related parties, such as directors, key management personnel, or their relatives. Due to the potential for conflicts of interest, these transactions are subject to stringent regulatory scrutiny to ensure fairness and transparency.

Key Information Requirements for Audit Committees and Shareholders

SEBI’s circular mandates that companies provide detailed information to audit committees and shareholders, including:

• A clear explanation of the nature and purpose of the RPT.
• The terms and conditions of the transaction, including pricing, payment terms, and any associated risks.
• The materiality of the transaction and its impact on the company’s financials.
• Details of any potential conflicts of interest.
• Justification for the transaction, demonstrating its fairness and benefits to the company.

Promoting Compliance and Understanding

To further facilitate understanding and compliance, SEBI has also directed industry associations and stock exchanges to publish these standards, along with relevant Frequently Asked Questions (FAQs), on their respective websites. This will provide companies with easy access to guidance and resources.

This initiative is expected to improve the quality of disclosures related to RPTs, enabling stakeholders to make informed decisions and reinforcing confidence in the Indian corporate sector. The move aligns with SEBI’s ongoing efforts to promote robust corporate governance and protect investor rights.