New Delhi,Capital Market watchdog Sebi's new norms on related
party transactions could pose practical difficulties for listed companies,
according to consultancy KPMG. The
norms are part of a stringent corporate governance framework for listed
companies that would be effective from October 1. Under
the new corporate governance rules mooted by Sebi,
all material related party transactions require shareholders' approval through
special resolution. Besides, the related parties should abstain from voting on
such resolutions. "Requiring
approval from non-related party shareholders even for related party
transactions that are at arms length and in the ordinary course of business
would be burdensome and pose practical difficulties.
"This
is particularly excessive for transactions with the company's own
subsidiaries," KPMG's Global Head of Accounting Advisory Services Jamil
Khatri said in a statement. As per
Sebi, any transaction with a related party that exceeds 5 per cent of the
annual turnover or 20 per cent of the net worth of the company -- whichever is
higher -- on the basis of latest audited financial statement would be
considered "material". It
would be applicable for transactions entered with a related party individually
or taken together with previous transactions during a financial year. Khatri
noted that the provision is different from that present in the new Companes Act
where related party transactions require
shareholders' approval only if it is not at arms length or not in the ordinary
course of business. "Given
that the Companies Act has been recently enacted, differences between the
amendment and the Companies Act requirements in areas such as approval of
related party transactions and limits for independent directors should have
been avoided," he said.
Sai
Venkateshwaran, Partner and Head of Accounting Advisory Services, KPMG in India,
said that from merely placing related party transactions before the audit
committee under the old corporate governance code the requirement now is far
more elaborate on all fronts.
"All
existing material related party contracts or arrangements as on the date of
this circular which are likely to continue beyond March 31, 2015 shall be
placed for approval of the shareholders in the first general meeting subsequent
to October 1, 2014," the Securities
and Exchange Board of India (Sebi) said in its circular on April
17.
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