MUMBAI: The Securities and Exchange Board of India (Sebi) has postponed the implementation of its circular on “Industry Standards for Minimum Information” regarding the approval of related party transactions (RPTs) by listed companies. Initially scheduled to take effect on April 1, the compliance deadline has now been extended to July 1.
The decision comes in response to concerns raised by stakeholders, who sought additional time to adapt to the new industry standards on related party transactions.
These standards specify the minimum information that audit committees and shareholders must review before approving related party transactions.
Recognising the need for a smoother transition, Sebi has directed the Industry Standards Forum (ISF) – which includes representatives from industry bodies such as ASSOCHAM, CII, and FICCI – to simplify the disclosure framework based on stakeholder feedback.
The ISF is expected to release revised guidelines before the new deadline.
Why Sebi focusing on related party transactions
Sebi’s heightened scrutiny of related party transactions (RPTs) stems from past concerns about corporate governance lapses and potential misuse of these transactions to divert funds, inflate earnings, or provide undue benefits to promoters and controlling shareholders.
Related party transactions involve dealings between a company and its promoters, subsidiaries, or entities controlled by key management personnel, which, if not properly disclosed, can lead to conflicts of interest and undermine shareholder trust.
Several high-profile corporate governance issues have highlighted the risks associated with opaque RPTs.
In the past, instances of promoters using subsidiaries or group companies to siphon off funds, inflate revenues, or engage in preferential deals have raised red flags.
Such practices can erode investor confidence and affect market integrity.
For instance, in cases involving companies like Zee Entertainment, IL&FS, and DHFL, concerns over undisclosed or questionable related party transactions have led to regulatory intervention and corporate restructuring.
To curb such practices, Sebi has been tightening its disclosure norms over the years, ensuring greater transparency and accountability in how companies conduct RPTs.
The new industry standards are part of Sebi’s broader push to strengthen governance and prevent potential misuse of related party transactions.
By standardising the information required for RPT approvals, the regulator aims to provide greater clarity to investors and ensure that such transactions are conducted in a fair and transparent manner.
With the revised deadline, companies now have three additional months to align with the new disclosure requirements, which are expected to enhance scrutiny over related party dealings and reinforce investor confidence in India’s corporate governance framework.
