The Securities and Exchange Board of India (Sebi) on Thursday relaxed requirements imposed on companies for related-party transactions, to bring them in line with amendments made to the Companies Act that came into effect in 2014.
Following the Act’s provisions, the market regulator amended the listing agreement norms to allow companies to approve any material related-party transaction by passing an ordinary resolution instead of a special resolution, as was required so far. However, related parties have to abstain from voting on such resolutions.
So far, Sebi norms required a vote by two-thirds of minority shareholders on a special resolution before a related-party transaction could be passed. This will now be reduced to 50%, on the lines of the Companies Act. The move will make it easier for listed firms to clear such deals.
“This is definitely a step backward with respect to the interest and protection of minority investors,” said Shriram Subramanian, managing director at InGovern, a Bengaluru-based corporate governance advisory firm.
The latest change in related-party norms will be applicable with immediate effect, Sebi said in a release on Thursday.
The regulator has also aligned the listing agreement norms on re-classification of promoters as public shareholders with the new Companies Act norms.
Further, Sebi said the listing regulations will consolidate and streamline the provisions of existing listing agreements for different segments of the capital market, namely, equity (including convertibles) issued by entities listed on the main board of the stock exchanges, and small and medium enterprises listed on the SME Exchange and institutional trading platform. For instruments such as non-convertible debt securities, non-convertible redeemable preference shares, Indian Depository Receipts, securitized debt instruments and units issued by mutual fund schemes, too, the listing agreement norms will be streamlined, Sebi added.
However, in this regard, firms have been given 90 days to comply with the newly amended listing agreement norms.
A related-party transaction is defined as the transfer of resources, services or obligations between a company and a related party. For so-called material related-party transactions, Sebi directs that the proposal be cleared only if 75% of minority shareholders vote in favour of it so as to ensure that promoters don’t put their interests ahead of the shareholders’ interests.
The process of approving a resolution through a 75% vote from shareholders in favour is called special resolution and the process of approving a decision through a 50% vote from shareholders in favour is called an ordinary resolution.
A material related-party transaction is one whose value exceeds 10% of the annual revenue of the firm individually or together with its group firms, or exceeds 20% of the net worth of the company in the previous year.
On 19 August, Mint first reported that Sebi has agreed to the government request to align the listing agreement norms with the new Companies Act norms on related party transactions.
“As far as this voting threshold for related-party transactions is concerned, earlier also, Sebi had kept it in sync with the Companies Act that required a voting of over 75% from non-interested and minority shareholders to approve a related-party transaction,” according to a person, who had spoken on the condition of anonymity in the Mint report.
HT Mint, New Delhi, 04 September 2015
Following the Act’s provisions, the market regulator amended the listing agreement norms to allow companies to approve any material related-party transaction by passing an ordinary resolution instead of a special resolution, as was required so far. However, related parties have to abstain from voting on such resolutions.
So far, Sebi norms required a vote by two-thirds of minority shareholders on a special resolution before a related-party transaction could be passed. This will now be reduced to 50%, on the lines of the Companies Act. The move will make it easier for listed firms to clear such deals.
“This is definitely a step backward with respect to the interest and protection of minority investors,” said Shriram Subramanian, managing director at InGovern, a Bengaluru-based corporate governance advisory firm.
The latest change in related-party norms will be applicable with immediate effect, Sebi said in a release on Thursday.
The regulator has also aligned the listing agreement norms on re-classification of promoters as public shareholders with the new Companies Act norms.
Further, Sebi said the listing regulations will consolidate and streamline the provisions of existing listing agreements for different segments of the capital market, namely, equity (including convertibles) issued by entities listed on the main board of the stock exchanges, and small and medium enterprises listed on the SME Exchange and institutional trading platform. For instruments such as non-convertible debt securities, non-convertible redeemable preference shares, Indian Depository Receipts, securitized debt instruments and units issued by mutual fund schemes, too, the listing agreement norms will be streamlined, Sebi added.
However, in this regard, firms have been given 90 days to comply with the newly amended listing agreement norms.
A related-party transaction is defined as the transfer of resources, services or obligations between a company and a related party. For so-called material related-party transactions, Sebi directs that the proposal be cleared only if 75% of minority shareholders vote in favour of it so as to ensure that promoters don’t put their interests ahead of the shareholders’ interests.
The process of approving a resolution through a 75% vote from shareholders in favour is called special resolution and the process of approving a decision through a 50% vote from shareholders in favour is called an ordinary resolution.
A material related-party transaction is one whose value exceeds 10% of the annual revenue of the firm individually or together with its group firms, or exceeds 20% of the net worth of the company in the previous year.
On 19 August, Mint first reported that Sebi has agreed to the government request to align the listing agreement norms with the new Companies Act norms on related party transactions.
“As far as this voting threshold for related-party transactions is concerned, earlier also, Sebi had kept it in sync with the Companies Act that required a voting of over 75% from non-interested and minority shareholders to approve a related-party transaction,” according to a person, who had spoken on the condition of anonymity in the Mint report.
HT Mint, New Delhi, 04 September 2015
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