Important clarifications on Related Party Transactions by listed company

✓ SEBI vide circular dated March 30, 2022 provided clarifications with respect to Related Party Transactions as follows:

✓ Related Party Transaction (RPT) already approved by the audit committee and shareholders prior to April 1, 2022, there shall be no requirement to seek fresh approval from the shareholders.

✓ Regulation 23(8) of the LODR Regulations specifies that all existing material related party contracts or arrangements entered into prior to the date of notification of these regulations and which may continue beyond such date shall be placed for approval of the shareholders in the first General Meeting subsequent to notification of these

regulations.

✓ In accordance with the said regulation, an RPT that has been approved by the audit committee prior to April 1, 2022 which continues beyond such date and becomes material as per the revised materiality threshold shall be placed before the shareholders in the first General Meeting held after April 1, 2022.

✓ It is reiterated that an RPT for which the audit committee has granted omnibus approval, shall continue to be placed before the shareholders if it is material in terms of Regulation 23(1) of the LODR Regulations.

✓ SEBI further added that listed entities, shall ensure to comply with the spirit of the law and endeavor to provide relevant and detailed information to enable and empower shareholders for taking an informed decision.

✓ The explanatory statement contained in the notice sent to the shareholders for seeking approval for an RPT shall provide relevant information so as to enable the shareholders to take a view whether the terms and conditions of the proposed RPT are not unfavorable to the listed entity, compared to the terms and conditions, had similar transaction been entered into between two unrelated parties.

✓ The information so provided shall include but not be limited to the information specified in SEBI Circular dated November 22, 2021 so as to enable to the shareholders to take an informed

decision.

✓ The provisions of this circular shall come into force with effect from April 1, 2022. 

✓ To refer SEBI Circular, please click here

SEBI Update: Automation of disclosure under SEBI SAST Regulations, 2011

✓ Earlier, SEBI through its various circulars implemented the System Driven Disclosures in phases viz. Circular dated 1.12.2015, 21.12.2016, 28.05.2018 and 23.09.2020.

✓ Subsequently, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 were amended vide Gazette Notification dated August 13, 202, doing away with manual filing for most of the transactions with effect from April 01, 2022. 

✓ Hence, transactions undertaken in the depository system under Regulation 29 and Regulation 31 of Takeover Regulations do not require manual filing except for the following transactions where manual disclosure shall continue to be filed:-

1. Listed companies who have not provided PAN of promoter(s) including member(s) of the promoter group to the designated depository or companies which have not appointed any depository as their designated depository.

2.Triggering of disclosure requirement due to acquisition or disposal of the shares, as the case may be, by the acquirer together with persons acting in concert (PACs).

3. Triggering of disclosure requirement in case the shares are held in physical form by the acquirer and/or PACs. 

∆ Disclosure of encumbered shares- Capturing ultimate lender

✓ Promoters are required to file disclosures on reasons for encumbered shares manually to the stock exchanges as specified by SEBI Circular dated 05.08.2015 and Circular dated 07.08.2019.

✓ In terms of the SEBI Circular dated 24.07.2020, the depositories have put in place systems for capturing and recording all types of encumbrances including non-disposal undertakings (NDUs), asspecified under Regulation 28(3) of Takeover Regulations.

✓ To streamline the capture and dissemination of the information related to “encumbrances” and thus bring in more transparency, in consultation with the stock exchanges and depositories, it has been decided that:

i. All types of encumbrances as defined under Regulation 28 (3) of Takeover Regulations shall necessarily be recorded in the depository system.

ii. The depositories shall capture details of the ultimate lender along with name of the trustee acting on behalf of such ultimate lender such as banks, NBFCs, etc. In case of issuance of debentures, name of the debenture issuer shall be captured in the depository system. 

iii. The depositories shall now capture the reasons for encumbrances in the depository system.

✓ The depositories shall also devise an appropriate mechanism to record all types of outstanding encumbrances in the depository system by June 30, 2022.

✓ Please click here to read SEBI Circular.