Move will benefit Suzuki, which plans to set up a wholly-owned car making subsidiary in Gujarat,and Vedanta, which is looking to merge subsidiary Cairn India with itself
The corporate affairs ministry has asked the Securities and Exchange Board of India (Sebi) to align its guidelines for related party transactions with the amended Companies Act, which will significantly ease the very strict rules for listed companies.
The move will benefit Suzuki, which plans to set up a wholly-owned car making subsidiary in Gujarat, and Vedanta, which is looking to merge subsidiary Cairn India with itself. The proposals have not gone down well with the minority shareholders of Maruti Suzuki and Cairn India.
To improve ease of doing business in India, the Narendra Modiled government had in the budget session relaxed Related Party Transaction (RPT) provisions in the Companies Act 2013 through an amendment, allowing an ordinary resolution with over 50% approval from minority shareholders for it to go through. Section 188 of the Act made it mandatory for companies with share capital of over `. 10 crore to get a special resolution with more than 75% minority shareholders approving for a related party transaction to go through.
The amendments to Section 188 of the Act, which came into force in May this year, remove the condition of special resolution, replacing it with an ordinary resolution.
Listed companies, however, still have to conform to the stricter listing agreements they sign with the stock exchanges. In respect of related party agreement, the listing agreement says: “All material Related Party Transactions shall require approval of the shareholders through special resolution and the related parties shall abstain from voting on such resolutions“.Experts say this is a very tough re quirement and that is why the gov ernment diluted it.
“Sebi's guide lines continue to prevail over the Companies Act as they're stricter,“ said Anshul Jain of Luthra & Luthra Law Offices. “It's difficult for large to conduct related stakeholders to conduct related party transactions because of the special resolution clause. Sebi should align its requirements with provisions of the Companies Act for ease of doing business.““Listed companies are governed by the Companies Act, 2013, as well as Sebi regulations. The two sets of contrary provisions complicate matters for them,“ said Lalit Kumar, partner at law firm J Sagar Associates. The corporate affairs ministry has already been receiving several representations from the industry on the issue.
The ministry's suggestion is likely to be taken up later this month by the Sebi board. “The regulator will take the view of industry representatives on its listing agreement and other provisions, which are inconsistent with the Companies Act,“ said a senior government official, who did not wish to be named.
Maruti Suzuki had deferred its decision to seek a vote on parent Suzuki's proposal to set up a 100%owned car manufacturing plant in Gujarat. Maruti Suzuki was to enter into a contract manufacturing arrangement with Suzuki Motor Gujarat Pvt Ltd.
Many shareholders had voiced their opposition to the plan, which has a better chance of getting passed at the lower threshold.
“The market regulator has been asked to make its stand clear, so that the objective of amending the related party provisions in the Act could be fulfilled,“ the official said.“The amendments made in the Companies Act, approved by Par liament in the last session, address the problems of large stakeholders, who are related party. There shouldn't be any confusion for the industry. We need to clarify RPT provisions at the earliest.“
The Economic Times, New Delhi, 9th July 2015
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