Sebi RPT Norms: Threshold-Based Framework Introduced

New Delhi, Nov 22 (PTI) Markets regulator Sebi has introduced a threshold-based framework to determine the materiality of related party transactions (RPTs), based on the annual consolidated turnover of the listed entity.

Also, the regulator has revised thresholds for approval by audit committees for RPTs undertaken by subsidiaries and simplified disclosure requirements for smaller related party transactions.

These new norms are aimed at addressing practical challenges, removing ambiguities, and striking a balance between investor protection and ease of doing business under the Listing Obligations and Disclosure Requirements (LODR) norms.

Under the new norms, entities with turnover up to Rs 20,000 crore, a transaction will be considered material if it exceeds 10 per cent of the annual consolidated turnover, Sebi said in a notification dated November 18.

In the case of entities with turnover between Rs 20,001 crore and Rs 40,000 crore, the threshold would be Rs 2,000 crore plus 5 per cent of the turnover exceeding Rs 20,000 crore.

For entities with turnover exceeding Rs 40,000 crore, the threshold will be Rs 3,000 crore plus 2.5 per cent of the turnover exceeding Rs 40,000 crore, or Rs 5,000 crore, whichever is lower.

In order to protect the interests of minority shareholders, an absolute threshold of Rs 5,000 crore as an upper ceiling has been notified for listed entities having a turnover above Rs 40,000 crore.

Earlier, under the LODR norms, a listed entity was required to consider an RPT as material if the transaction, either individually or taken together with previous transactions during a financial year, exceeded Rs 1,000 crore or 10 per cent of the entity's annual consolidated turnover, whichever is lower, as per its last audited financial statements.

The new norms came after stakeholders pointed out that the absolute materiality threshold of Rs 1,000 crore promotes a "one-size-fits-all" approach, as all listed entities are treated the same regardless of their turnover, operational scale, or business model.

Apart from the materiality threshold, Sebi has relaxed the minimum information required to be furnished to the audit committee and shareholders for RPT approvals.

Under this, if the total value of RPTs with a related party in a financial year (including ratified transactions) does not exceed 1 per cent of the listed entity's annual consolidated turnover or Rs 10 crore, whichever is lower, then a simplified set of disclosures would be submitted for approval.

This reduced information requirement will be less detailed than what is mandated under the current industry standards.

Further, Sebi said, "Omnibus approval granted by the shareholders for material related party transactions in an annual general meeting shall be valid till the date of the next annual general meeting (AGM)".

"In case of omnibus approvals for material related party transactions, granted by shareholders in general meetings other than AGM, the validity of such omnibus approvals shall not exceed one year from the date of such approval," it added.