Indian markets regulator aims for fewer related-party deals being reported, needing investor nod

India’s markets regulator on Monday proposed that low-value transactions between interconnected entities, or “related parties”, no longer need to be disclosed and that only some of such high-value deals need shareholder approval.

These proposals are part of the Securities and Exchange Board of India’s (SEBI) relook at the required disclosures on labour, environment and other issues as it seeks “optimal regulations” under recently appointed chairman, Tuhin Kanta Pandey.

The regulator has now proposed that companies no longer need to disclose related-party transactions that have a value of less than 150 million rupees (about $1.70 million).

While they will still have to report transactions above this value, it has proposed a revenue-based graded approach to determine which of these deals will require approval from minority shareholders.

For instance, a company with an annual turnover of more than 300 billion rupees will need shareholder clearance for a related-party transaction worth more than 25 billion rupees ($285 million).

However, shareholders would need to clear every related-party transaction worth more than 50 billion rupees (about $570 million). That threshold, though, is five times higher than the current one of 10 billion rupees.

India’s markets regulator proposes to relax limits for approval, disclosure of related-party transactions

This increase would have meant 60% of the related-party deals among the top 100 listed firms on the National Stock Exchange in the last two fiscal years would not have needed shareholder approval, according to the SEBI’s calculations.

“This will ease compliance burden on listed entities, give some flexibility and reduce timelines for related-party transactions,” said Lalit Kumar, partner at J Sagar Associates.

He said this approach is departure from the previous SEBI regime when rules around related-party transactions were ‘only tightened’ and disclosure requirements were increased.

Since taking over as SEBI chairman in March, Pandey has sought to dial back the disclosure requirements, and opt for “honest” disclosures.