IS INVESTMENT IN MUTUAL FUNDS A RELATED PARTY TRANSACTION?
2 years ago
Is investment in mutual funds considered a related party transaction, post the latest amendment of the Listing Obligations & Disclosure Requirements (LODR)? Explain why or why not.
A.Dear Client,
SEBI has notified the SEBI (Listing Obligations and Disclosure Requirements) (Sixth Amendment) Regulations, 2021. Amendment has been made to the definition of ‘Related party’ and ‘related party transactions. The amendment provides that any person or entity forming a part of the promoter or promoter group of the listed entity, or any person or any entity, holding equity shares – (i) of 20% or more or (ii) of 10% or more, w.e.f. April 1, 2023, in the listed entity either directly or on a beneficial interest basis as provided u/s 89 of the Companies Act, at any time, during the immediate preceding FY, shall be deemed to be a related party.
The amendment provides that a transaction with a related party shall be considered material, if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceeds Rs. 1000 crore or 10% of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity, whichever is lower.
The regulations also provide that the audit committee of a listed entity shall define “material modifications” and disclose it as part of the policy on materiality of related party transactions and on dealing with related party transactions.
It further provides that the related party transaction to which the subsidiary of a listed entity is a party but the listed entity is not a party, shall require prior approval of the audit committee of the listed entity if the transaction exceeds the limit and such limit shall be reckoned of the listed entity but with effect from April 1, 2023, such transaction limits shall be of last audited financial statements of the subsidiary company, not the listed company. Also, the condition that a related party shall restrain itself from voting has been done away with.
Some mandatory disclosures have also been introduced which prescribes that listed entity shall submit to the stock exchanges disclosures of related party transactions, and publish the same on its website However, a ‘high-value debt listed entity’ shall submit such disclosures along with its standalone financial results for the half-year. However, the listed entity shall make such disclosures every six months on the date of publication of its standalone and consolidated financial results with effect from April 1, 2023.
Thank you
SEBI has notified the SEBI (Listing Obligations and Disclosure Requirements) (Sixth Amendment) Regulations, 2021. Amendment has been made to the definition of ‘Related party’ and ‘related party transactions. The amendment provides that any person or entity forming a part of the promoter or promoter group of the listed entity, or any person or any entity, holding equity shares – (i) of 20% or more or (ii) of 10% or more, w.e.f. April 1, 2023, in the listed entity either directly or on a beneficial interest basis as provided u/s 89 of the Companies Act, at any time, during the immediate preceding FY, shall be deemed to be a related party.
The amendment provides that a transaction with a related party shall be considered material, if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceeds Rs. 1000 crore or 10% of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity, whichever is lower.
The regulations also provide that the audit committee of a listed entity shall define “material modifications” and disclose it as part of the policy on materiality of related party transactions and on dealing with related party transactions.
It further provides that the related party transaction to which the subsidiary of a listed entity is a party but the listed entity is not a party, shall require prior approval of the audit committee of the listed entity if the transaction exceeds the limit and such limit shall be reckoned of the listed entity but with effect from April 1, 2023, such transaction limits shall be of last audited financial statements of the subsidiary company, not the listed company. Also, the condition that a related party shall restrain itself from voting has been done away with.
Some mandatory disclosures have also been introduced which prescribes that listed entity shall submit to the stock exchanges disclosures of related party transactions, and publish the same on its website However, a ‘high-value debt listed entity’ shall submit such disclosures along with its standalone financial results for the half-year. However, the listed entity shall make such disclosures every six months on the date of publication of its standalone and consolidated financial results with effect from April 1, 2023.
Thank you
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