Joint venture partners of listed co arms
may come under SEBI's related party norms
A recent informal guidance by the market regulator
in the matter of Bajaj Allianz General Insurance Company (BA) could widen the
interpretation of what constitutes related party transactions (RPT) and impact
subsidiaries of listed companies that have joint venture partners.
Until now, a plain reading of the law suggested that
the applicability of RPT norms is restricted to related parties of listed
entities and does not include a transaction between a subsidiary of a listed
entity and a party which is not a related party of the listed entity.
This would mean that RPTs of unlisted subsidiaries
with their unlisted related parties do not fall under SEBI's regulatory ambit.
The matter
Bajaj Finserv has a 74 per cent stake in BA and the
remaining 26 per cent is held by Alliance SE. There was a reinsurance
transaction between BA and Alliance SE.
Alliance SE is not a related party of Bajaj Finserv.
This is a transaction between the latter's unlisted subsidiary and its related
party, and should not have constituted an RPT.
SEBI in its guidance, however, has ruled that RPT
norms will apply in this case as the materiality threshold of Rs 1,000 crore,
or 10 per cent of consolidated turnover, has been breached. And any
transaction, if material, will require the approval of shareholders of the
listed entity.
Impact
The informal guidance, although not a binding
precedent, will significantly impact listed companies with joint ventures
through their subsidiaries, particularly in sectors regulated by SEBI, RBI, or
IRDAI, where listed companies are often required to operate via separate
entities, said Binoy Parikh, Executive Director, Katalyst Advisors.
JV partners, being strategic investors with active
roles in subsidiary operations, are likely to engage in transactions with the
subsidiary.
When these subsidiaries engage in transactions with
their JV partners--whether capital transactions or those conducted in the
ordinary course of business--shareholder approval of the listed entity will be
required if materiality thresholds are breached. This will impact the timelines
and such transactions will be at the mercy of public shareholders, said
Parikh.
Unlisted subsidiary companies may now be required
to comply with SEBI's listing or LODR norms with respect to identifying
'related parties' and 'related party transactions' compliance, inspite of the
fact that only the Companies Act is applicable to such unlisted companies. This
would be practically difficult for foreign subsidiaries of Indian companies for
which neither the Indian Companies Act nor SEBI's listing norms are
applicable, said Gaurav Pingle, a practicing company secretary.
Pingle believes that the scope of related parties
under SEBI's listing regulations is already much wider than that under
Companies Act. Related parties defined under the latter are quite limited and
not subject to further legal interpretation. For ease of doing business and
compliance, the RPT regulations need to be aligned, he said.
Divay Rastogi, Counsel at DMD Advocates said the
guidance seeks to clarify that a transaction between a subsidiary of listed
entity and a related party of the subsidiary (which is not a related party of
the listed entity) will fall within the ambit of the proviso to Regulation
23(1) where the thresholds set out therein are breached.
www.thehindubusinessline.com,
dt. 30-10-2024