SEBI Introduces Turnover-Based Framework for Related Party Transactions
The markets regulator, SEBI, has introduced a new threshold-based framework to determine the materiality of Related Party Transactions (RPTs). This framework is tied to the annual consolidated turnover of the listed entity, aiming to simplify regulations while maintaining necessary investor safeguards.
Key Regulatory Changes
The new norms, notified by SEBI on November 18, are designed to address practical challenges, remove ambiguities, and strike a balance between investor protection and the ease of doing business under the Listing Obligations and Disclosure Requirements (LODR) norms.
$\rightarrow$ Revised Materiality Thresholds (Turnover-Based)
The new framework defines RPT materiality based on turnover slabs:
For entities with turnover up to ₹20,000 crore: A transaction will be considered material if it exceeds 10% of the annual consolidated turnover.
For entities with turnover between ₹20,001 crore and ₹40,000 crore, the materiality threshold would be ₹2,000 crore plus 5% of the turnover exceeding ₹20,000 crore.
Simplified Approval and Disclosure
SEBI has also introduced measures to streamline internal corporate governance:
Audit Committee Approval: The thresholds for approval by audit committees for RPTs undertaken by subsidiary arms have been revised.
Disclosure: Disclosure requirements for smaller related party transactions have been simplified.
These changes seek to make compliance more proportionate to a company’s size while ensuring that significant transactions that could impact shareholder value are scrutinized.
Explore Corporate Governance
For a deeper understanding of the implications of the new and the function of audit committees in corporate governance, explore perspectives from Ranjit Jha (CEO)—known for research-driven, long-term financial analysis.
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