Securities market regulator SEBI has made a climbdown of sorts by allowing listed companies to enter into related-party transactions (RPTs) with an ‘ordinary resolution’ approval from shareholders.
Welcome departure This move will bring cheer to corporate India. Till recently, the thinking in SEBI was that ‘special resolution’ was a must to protect the interests of minority shareholders. Requiring just an ‘ordinary resolution’ for material RPTs is a departure from the earlier SEBI norm. For approval of an ordinary resolution, only 50 per cent voting in favour of the resolution by shareholders would suffice. However, for a special resolution, the required threshold is 75 per cent.
This new norm — which is seen as “facilitating” in nature — has come into effect, forming part of the new listing regulations notified by SEBI on September 2.
SEBI’s latest stance on RPTs has come as a relief for companies such as Maruti Suzuki, which saw the existing requirement of ‘special resolution’ as rather onerous for carrying out RPTs with its controlling shareholder Suzuki Motor Corporation. In the new listing regulations, only two norms — one on RPTs and the other on re-classification of promoters as public shareholders under various circumstances — have come into immediate effect. All the other norms in the new listing regulations will be implemented after 90 days.
By allowing ordinary resolution, SEBI has tried to align its norms on RPTs with that of the new company law, which too requires only ‘ordinary resolution’ for such transactions. However, the alignment seems only partial as SEBI has barred all related parties from voting on the RPTs, say securities market observers. The new company law does not prohibit participation of “all related parties”, but only those related parties who have an interest in the transaction. SEBI has stipulated that all related parties would have to abstain from voting on such resolutions, irrespective of whether the entity is a related party to that transaction or not.
Govt’s initiative The Modi-led Government had amended the new company law to change the requirement of special resolution for related-party transactions to ordinary resolution.
All eyes were on SEBI on whether it would change its norms in order to align itself with the new company law provisions relating to RPTs. However, SEBI has now moved, but with a condition and therefore can at best be seen as trying to align with the new company law.
“From the corporate governance point of view, SEBI’s stance that all related parties should abstain from voting is a good decision,” said a corporate governance expert.
Srivats.kr@thehindu.co.in