SEBI tightens norms for related-party transactions

As part of its efforts to safeguard the interests of minority shareholders, capital markets regulator the Securities and Exchange Board of India (SEBI) has tightened the norms for related party trades as such transactions were, at times, used to circumvent the regulatory framework for siphoning of funds, among other things.

The board of the regulatory body, which met in Mumbai on Tuesday, amended the definition of a related party to include all entities that are part of the promoter or promoter group irrespective of their shareholding.  

Further, any person that holds, directly or indirectly, over 20 per cent in the preceding year – or 10 per cent or more with effect from April 1, 2023 – will also be considered to be a related party.

Meanwhile, related party transactions (RPT) would include any trade between a “listed entity or any of its subsidiaries on one hand and a related party of the listed entity or any of its subsidiaries on the other hand.”

More importantly, material RPTs subject to certain conditions will require prior approval of the shareholders.

SEBI chairman Ajay Tyagi, while addressing the media, said that related party transactions are misused by many entities in various ways, including for siphoning of funds, and hence there was a need to tighten the framework and safeguard the interest of the minority shareholders.

The capital markets watchdog has also approved the regulatory framework for a Gold Exchange and a Social Stock Exchange.

While a Gold Exchange will enable trading in digital gold by way of ‘Electronic Gold Receipt’, a Social Stock Exchange will allow social enterprises – both non-profit organisations and for-profit ones – to raise funds on the platform.

Among other things, the regulator amended the delisting norms while relaxing the norms for shares with superior voting rights.  

As per SEBI, the revised framework for delisting “aims to make M&A transactions for listed companies a more rational and convenient exercise, balancing the interest of all investors in the process.”

The capital market watchdog has also made certain amendments in the regulatory framework for Alternative Investment Funds (AIFs), Portfolio Managers and the manner for determining a ‘Fit and Proper Person’.

 The regulator has also given its go-ahead for the launch of silver exchange traded funds (ETFs).

Also read: Sebi approves framework for gold, social stock exchanges in board meeting

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