RELATED PARTY TRANSACTIONS LAW: WHETHER GOVERNANCE OR BURDEN ON LISTED ENTITIES AND ITS IMPACT ON EASE OF DOING BUSINESS
AUTHOR – AMIT CHAURASIA, COMPANY SECRETARY AT JK LAKSHMI CEMENT LIMITED
BEST CITATION – AMIT CHAURASIA, RELATED PARTY TRANSACTIONS LAW: WHETHER GOVERNANCE OR BURDEN ON LISTED ENTITIES AND ITS IMPACT ON EASE OF DOING BUSINESS, INDIAN JOURNAL OF LEGAL REVIEW (IJLR), 4 (1) OF 2024, PG. 168-181, APIS – 3920 – 0001 & ISSN – 2583-2344.
ABSTRACT
The concept of Related Party Transactions (“RPTs”) is not a subject matter that has attracted the minds of lawmakers for the first time under the Companies Act, 2013 (1 of 2013), hereinafter referred as “Act 2013” or under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR”). From time immemorial, across several jurisdictions world over, this subject has drawn significant attention. The provisions of RPTs indirectly in the form of “Interested Party Transactions” were present under the Companies Act, 1956 (1 of 1956), hereinafter referred as Act 1956 and directly in the Listing Agreement with the Stock Exchanges, both since repealed with Act 2013 and LODR respectively. Similarly, Accounting Standard (AS) 18 and Indian AS (IndAS 18) issued by the Institute of Chartered Accountants of India (‘ICAI’) also prescribes disclosure of Related Party and relationships with them coupled RPTs in the Financial Statements of the Company. This Article outlines the law relating to RPTs applicable to Listed Entities(i.e. whose Shares and/ or Debentures are listed on Indian Stock Exchanges) and whether such law is a step towards better Governance of the Indian companies or has become burden for such companies coupled with increase in compliance cost. Listed companies in addition the Act 2013 and Rules made thereunder are also required to comply the provisions of LODR and the relevant Circulars issued by Securities and Exchange Board of India (‘SEBI’) from to time. The recent amendments carried out in the LODR through SEBI (Listing Obligations and Disclosure Requirements) (Sixth Amendment) Regulations, 2021, with effect from 1st April 2022, no doubt is another step of the Market Regulator to improve the standard of Corporate Governance of Listed Entities, but such Entities at the same time are also facing the practical and interpretational issues to comply these amended norms and directly or indirectly becoming a challenge to comply the amended norms, thereby in some manner affecting the Government of India’s mission of improve the Indian’s rank in the world for ‘Ease of Doing Business’. Partially, these amendments have breached the boundaries of India and travelled beyond India to become applicable indirectly to the entities incorporated outside India and thus, raises a question whether these amendments are constitutional or not?