Industry bodies make representation to Sebi; plea to review related party norms – Times of India


MUMBAI: Industry bodies have made a representation to Sebi seeking changes in the new norms on related party transactions that will come into effect from April 1. They have argued that the norms will make it difficult for companies that are large financial investors like LIC and will need to frequently obtain shareholder approval for transacting with firms they have invested in.
The new related party transactions norms were introduced by Sebi last year to curb the diversion of funds by promoters. The norms were part of the listing and disclosure requirements and were aimed at improving corporate governance in companies.
The Federation of Indian Chambers of Commerce and Industry (FICCI) has called upon the markets regulator to make some changes. It has suggested that the definition of promoter group company should apply only to those entities holding more than 5% of the listed entity. Second, FICCI has said that institutional investors should be allowed to hold up to 20% against 10%, which is enough to trigger the norms from April 2022. It has also called for exclusions for investments made by financial investors. Top corporate houses are also understood to have made representation to Sebi on diluting the norms.
LIC would be particularly hit by these norms as it holds more than a 10% stake in several entities that are related parties under the new norms. This could be a challenge once the corporation would list as the new norms would require LIC to declare every related party transaction.
The industry body has also called for several exemptions. The exclusions suggested include the issue of preferential securities, tendering of securities under buyback, grant of employee stock options and employee share purchase plans, remuneration of key management personnel of the parent or subsidiary, CSR contribution and normal banking transactions by a bank.
In November 2021, Sebi notified amendments to its listing regulations incorporating changes recommended by a working group in 2020. The changes were proposed in light of the several high profile corporate failures that were an outcome of related party transactions that went undetected. These included the DHFL collapse and more recently the default at Cox & Kings.


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