SEBI on Wednesday proposed corporate governance rules for related party transactions (RPTs) in a high-value debt-listed entity with an outstanding value of listed non-convertible debt securities of at least Rs. 500 crores.

The proposal comes after SEBI received requests from high-value listed debt entities (HVDLEs) regarding challenges faced by them in complying with the provision of the LODR Regulations.

Accordingly, SEBI felt the need to address the issues faced by HVDLEs. High-Value Debt Listed Entity (HVDLE) is a listed entity that has listed its non-convertible debt securities and has an outstanding value of listed non-convertible debt securities of Rs. 500 crores and above.

In its consultation paper, the Securities and Exchange Board of India (SEBI) has suggested the need to review the LODR Regulations, relating to such transactions. The market regulator also stressed upon the need for shareholders’ approval for related party transactions.

It is related to the composition of the board of directors, the minimum number of meetings to be held per year, framing and implementing risk management plans for listed entities, the constitution of various specialized committees, and stipulations related to Related Party Transactions (RPTs) among others.

In its presentations, entities told SEBI that their shareholding is substantially held by one or a few shareholders, which are related parties. When these HVDLEs enter into related party transactions (RPTs), they are required to obtain the approval of the majority of the shareholders who are not related parties.

Such shareholders, who are not related parties, either hold a negligible portion of the equity or none at all, in which case the entity will not be able to transact such RPTs because of the ‘impossibility of compliance’ with the provisions of LODR Regulations.

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