Sebi told to align related-party business norms with Companies Act

The corporate affairs ministry has asked the Securities and Exchange Board of India (Sebi) to align its guidelines for related party transactions with the amended Companies Act, which will significantly ease the very strict rules for listed companies.

In the Companies Act 2013 through an amendment, allowing an ordinary resolution with over 50% approval from minority shareholders for it to go through. Section 188 of the Act made it mandatory for companies with share capital of over Rs 10 crore to get a special resolution with more than 75% minority shareholders approving for a related party transaction to go through.

The amendments to Section 188 of the Act, which came into force in May this year, remove the condition of special resolution, replacing it with an ordinary resolution. Listed companies, however, still have to conform to the stricter listing agreements they sign with the stock exchanges. In respect of related party agreement.

Experts say this is a very tough requirement and that is why the government diluted it. “Sebi’s guidelines continue to prevail over the Companies Act, Listed companies are governed by the Companies Act, 2013, as well as Sebi regulations.

The corporate affairs ministry has already been receiving several representations from the industry on the issue.”The regulator will take the view of industry representatives on its listing agreement and other provisions, which are inconsistent with the Companies Act,”.

Many shareholders had voiced their opposition to the plan, which has a better chance of getting passed at the lower threshold. “The amendments made in the Companies Act, approved by Parliament in the last session, address the problems of large stakeholders, who are related party.