Sebi Unveils New Thresholds for Related Party Transactions

Sebi has implemented a framework to determine related party transactions' materiality based on a company's turnover. New thresholds aim to address challenges and facilitate investor protection while simplifying disclosure for smaller transactions. The changes cater to diverse turnover scales, moving away from a one-size-fits-all approach.

The Securities and Exchange Board of India (Sebi) has rolled out a new threshold-based framework designed to evaluate the materiality of related party transactions (RPTs), taking into account the annual consolidated turnover of listed entities.

The newly introduced regulations revise the thresholds for audit committee approvals concerning RPTs executed by subsidiaries and streamline disclosure obligations for smaller transactions involving related parties. These amendments aim to resolve practical issues, eliminate ambiguities, and strike a balance between safeguarding investor interests and facilitating business operations in compliance with the Listing Obligations and Disclosure Requirements (LODR) norms.

According to a Sebi notification dated November 18, a transaction will be classified as material if it exceeds 10% of the annual consolidated turnover for entities with revenue up to Rs 20,000 crore. For entities earning between Rs 20,001 crore to Rs 40,000 crore, the transaction threshold is set at Rs 2,000 crore plus 5% of any revenue beyond Rs 20,000 crore. For companies exceeding Rs 40,000 crore turnover, the threshold is Rs 3,000 crore plus 2.5% of any revenue above Rs 40,000 crore, or Rs 5,000 crore, whichever is lower.