The Securities and Exchange Board of India (SEBI) will soon introduce revised disclosure norms for related party transactions (RPTs) for publicly listed companies, Chairperson Madhabi Puri Buch said on Friday.
At the launch of a related party transactions (RPT) analysis portal, the SEBI Chief said that the industry standards forum (ISF), which includes industry associations ASSOCHAM, CII, and FICCI, has worked and approved the minimum disclosures that would be needed to be made by companies when they take an RPT for approval, both to the audit committee and shareholders.
RPTs refer to business deals between parties that have a pre-existing connection. These transactions are legal but could create conflicts of interest, requiring public companies to approve and disclose these transactions.
The portal, formed by advisory firms InGovern Research Services, Institutional Investor Advisory Services (IiAS), and Stakeholder Empowerment Services (SES), will be the single source of analysis for investors to benchmark and compare transactions across companies to assess their fairness.
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The RPT portal will ensure that all the relevant information is available to the investor, so that they can make an informed decision, the price discovery in the market for the company is appropriate and reflective of the true character of that company, Buch said.
“I would be quite happy to throw the entire LODR regulations into the bin, barring RPT. If there’s one thing that’s really important, it is looking at and ensuring the governance around related party transactions, as they have strategic importance to a company, but at the same time are highly vulnerable to fraud,” Buch said.
Comparing the portal to sunlight that exposes hidden dealings, Ashwani Bhatia, whole-time member of SEBI said, “This portal will bring that sunlight into corporate boardrooms, nudging companies towards higher governance standards.”
Integrity at stake
He said that the problem arises when RPT transactions are not conducted at arm’s length, and the price is not fair, and they benefit a select few at the cost of public shareholders, putting the integrity of markets at stake.
“Such practices not only shake investor confidence but also tarnish the reputation of the entire corporate sector… When markets are booming, governance lapses might go unnoticed, but when the tide turns, the truth emerges — and by then, it is often too late for investors,” he said.
The portal is expected to serve as a tool for mutual funds and other investors to demand better governance from the companies they invest in.