India Inc expresses concerns on SEBI's guidelines on related-party transaction rule

Several companies are worried that this numerical threshold of 1000 crore would put small and large companies on the same footing and for large companies to seek shareholder approval for transactions of 1000 crore would be a serious impediment in day-to-day contracts, execution of orders, access to supply chains, export markets and technology. This is also because every company with a turnover of 1000 crore or 1 lakh crore would have to seek shareholder approval for related party transactions and the process could take up to 45 to 60 days.

Dev Bajpai, executive director, legal & corporate affairs and company secretary, HUL, said, "Related Party Transactions (RPT) are covered under the SEBI Regulations as also under the Companies Act, 2013. In keeping with the government's stated policy of promoting ease of doing business & reducing the compliance burden, both regulations need to converge in terms of thresholds fixed for such transactions, exemptions available from such transactions in certain cases.

If there is consistency in this regard, it will help the industry with ease of doing business. Also, there have been frequent changes made to RPT provisions which makes it onerous to do business with the RPT regime-changing frequently. This should be avoided."

Vijay Iyer, EY India, said, "The Amendment requires audit committee and shareholder approval for transaction with the third party which ultimately benefits the related party. Due to lack of objective guidance on identifying such third-party transactions, it can lead to unnecessary controversy and violations of law. It is imperative to dilute these provisions and to provide for exemptions for transactions undertaken in the ordinary course of business to prevent unnecessary disruption."