More transparency, more trouble? Sebi’s revised disclosures rules divide experts
The Indian securities and the stock exchange Board received mixed answers from legal and governance professionals for explanations related to the relevant party transactions (RPT). Although the updated rules are seen as a step towards more transparency, experts have raised questions on the basis of legal basis and pointed to the complexity and administrative burden of additional compatibility they may contain.
The new disclosure regime was informed on a circular on June 26 and will be valid as of September 1.
In accordance with the regulation of Sebı’s listing obligations and disclosure requirements (LODR), the companies listed must obtain approval from the audit committees – and in material transactions, from the relevant party transactions from the shareholders.
Sebı now has brought a layered form of explanation under three categories: Chapter A covers all operations; Chapter B applies to seven defined species, including loans and guarantees; and section C requires additional explanations for material transactions.
Akshaya Bhansali, the partner of MindSpright Legal, questioned the legal processing of Sebı’s new framework, “Revised RPT industry standards increase significant legal and structural concerns aimed at increasing transparency,” he said.
“Existing frames within the scope of the Company Law and Additional Description Formats and an apartment La1 Crore threshold, which is not grounded in the legal text, “Bhansali added.
Bhansali also left the regulatory contract. “The risk here is the introduction of significant obligations through a circularly, by expressing the role played by industrial associations in the preparation of norms, without the necessary procedural measures under the 2025 regulation process of Sebı.
The new explanation regime has been developed in consultation with the Industrial Standards Forum, which consists of the Indian Industry Confederation (CII) and Indian Chambers of Commerce and Industry (FICCI) Federation.
Lock Inferences
- Sebı’s new explanation rules about the relevant Parties Transactions (RPTS) aims to increase transparency by making detailed, layered explanations, including price justification for audit committees and shareholders, past agreements and management certificate.
- Legal and compliance experts have increased concerns about the legal basis of the rules, arguing that a circular use of Sebi has introduced the legal uncertainty and contributes to the regulatory burden for companies.
- Although the rules are seen as investor friendly, especially for minority shareholders, for audit committees and senior executives, they may increase their workload, which may request better compensation and deeper understanding of work among governors.
‘It was caused by past abuse’
Review standards require comprehensive information for audit committees and shareholders, including the quality of the transaction, the historical agreements with the relevant party, the valuation details and the management certificate that the agreement has the interest of the company.
The audit committee is allowed to correct commercially sensitive details, provided that the decision will not be broken.
Some industrial professionals welcomed additional transparency.
Clarence Anthony, the founder of the law firm Clarence & Partners, represents more transparency and accountability for the relevant party transactions, ”he said. “The audit committee receives a certificate from the administration where the proposed transaction is at the interest of the company and that the past transactions with the relevant party are at the interest of the company.”
“Now, the shareholders will receive all the information provided to the audit committee (where they have only taken only one summary), which will cause any information to disappear in various stages of approval.”
Ketan Dalal, General Manager of Configuration and Consultancy Firm Katalyst Advisors, aims to protect the minority shareholders of reforms, said a handful of past abuse.
“Unfortunately, some contradictory situations in which the attention of promoters were wasted or fraudulent caused regulatory cholesterol,” he said. “Revised industrial standards are trying to achieve the reasonable balance between the interests of minority shareholders and the ease of doing business.”
Learn more about Sebı’s latest reforms and regulatory changes
Loads and exemptions
However, Dalal pointed out the areas where Sebi’s latest frame may be burdensome. “Some aspects still seem quite laborious – for example, the financial statements of the relevant party are not available for the previous year… The company will provide financial quotes approved by the relevant party.”
Nevertheless, he welcomed the basic exemptions. “Fortunately, the Circular has announced that it is not valid for the transactions between the listed company and the subsidiaries that are completely owned, because there was no leakage,” he said.
Dalal also appreciated the decision of Sebi to limit the application with Omnibus approval. “The reviewed provision will help save time to focus on other issues, especially the three -month results of the audit committees.”
However, Dalal warned that governance responsibilities have increased. “The members of the Audit Committee will have to have a tendency and time to better understand their business problems, because RPTs require a deeper commercial understanding. A concerned issue will need to compensate for them better, especially those in the audit committees.”
He also marked the increasing burden of senior executives. “The obligation to confirm that a key management personnel in the interest of the company will give a laborious responsibility and lead to better management.” He said. “However, CMPs (lock management personnel) may be extremely cautious.”
