NASSCOM’s submission to SEBI on the Report of Working Group on Related Party Transactions
Blog: NASSCOM Official Blog
Background:
Securities and Exchange Board of India (SEBI) constituted a Working Group in November 2019 to review the policy space pertaining to related party transactions under the Chairmanship of Mr. Ramesh Srinivasan, Managing Director & CEO, Kotak Mahindra Capital Company Limited.
With the aim of strengthening regulatory norms in relation to related party transactions undertaken by listed entities in India, SEBI released the Report of Working Group on related party transactions to seek public comments on the proposals. The Report sets out recommendations which include, inter alia, amendments to certain provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR”).
Overall Comments:
We welcome the intent of the government to overhaul the corporate governance regime for Related Party Transactions (RPTs) to avoid fraudulent transactions. However, the significantly enlarged scope of the definition of “related party” and “related party transactions” will encounter practical challenges in identifying such transactions and coming to the conclusion that the purpose and effect of such transaction is to benefit a related party. It would make the task of the audit committee onerous as increased number of such transactions would require approval of the committee, particularly when the listed entity has many subsidiaries in and outside India.
The proposal would also correspondingly increase the compliance burden and costs of listed entities and many legitimate transactions may get captured in the enlarged regulatory net.
Our detailed submission to SEBI is attached for your reference.
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