SEBI Clarifies Applicability of ICSI Guidance Note on Exemptions for Related Party Transactions
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- Last Updated on 2 June, 2023
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Informal Guidance No. SEBI/HO/CFD/P/OW/2023/22380; Dated: 31.05.2023
The SEBI, in its reply to Informal Guidance, clarified that the validity of omnibus approval for Related Party Transactions (RPTs) given at the AGM shall not exceed 1 year. Further, any transactions specified by ICSI that are at variance with the express provision are not relevant for the purpose of granting an exemption.
Query raised by the Applicant Company
The Applicant Company sought informal guidance regarding the validity of Related Party Transactions approval taken a few years back in an Annual General Meeting (AGM) for a multiyear agreement conversion of money payables into preferential equity shares.
In addition, a query was raised regarding the applicability of the ICSI guidance note on exemptions of certain transactions with related parties.
Provisions specified in LODR regulations
Regulation 23 read as follows:
“23. (2) All related party transactions and subsequent material modifications shall require prior approval of the audit committee of the listed entity.
23. (3) Audit committee may grant omnibus approval for related party transactions proposed to be entered into by the listed entity subject to the following conditions, namely:
…e) Such omnibus approvals shall be valid for a period not exceeding one year and shall require fresh approvals after the expiry of one year
23 (4) All material related party transactions and subsequent material modifications as defined by the audit committee under sub-regulation (2) shall require prior approval of the shareholders through resolution and no related party shall vote to approve such resolutions whether the entity is a related party to the particular transaction or not.”
Clarifications in SEBI circulars
The SEBI vide circular no. dated April 8, 2022 on ‘Clarification on applicability of Regulation 23(4) read with Regulation 23(3)(e)’ provides guidance on the aforementioned issue. The same is appended below:
4. In order to facilitate listed entities to align their processes to conduct AGMs and obtain omnibus shareholders’ approval for material RPTs, it has been decided to specify that the shareholders’ approval of omnibus RPTs approved in an AGM shall be valid up to the date of the next AGM for a period not exceeding fifteen months.
5. In case of omnibus approvals for material RPTs, obtained from shareholders in general meetings other than AGMs, the validity of such omnibus approvals shall not exceed one year.”
SEBI’s observations and reply
The SEBI observed that as per the SEBI circular dated April 8, 2022, the validity of the omnibus approval for material-related party transactions shall not exceed 1 year. Further, the LODR Regulations clearly specified the types of transactions with related parties that are not to be considered related party transactions.
Therefore, any transactions specified by the Institute of Company Secretaries of India or any other authority in their suggested RPT policy, in so far as they are at variance with the express provision u/r 2 (1) (zc) of the LODR Regulations, are not relevant for the purpose of granting an exemption from the purview of Related Party Transactions.
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