Will New Related-Party Regulations Protect Investors Or Stifle Business?

The rules raise compliances, and costs and slow down decision-making

- KETAN DALAL

The Securities and Exchange Board of India's (Sebi) latest regulations on related-party transactions (RPTs) are an exercise in regulatory overreach. Indian law already prescribes several regulations for RPTs, but regulators have been mandating more disclosures and greater levels of rigor that have made compliance extremely onerous.

The two core pillars of RPTs are that pricing be done at arm's length and that the transactions happen in the ordinary course of business. At a basic level, the Companies Act takes care of these: boards are required to approve such transactions; in some cases, shareholder consent is also mandated with additional provisions that the concerned related party abstains from voting. Listed companies have additional rules to comply with, such as formulating a policy for RPTs and updating it periodically.

Sure, minority shareholders need to be protected, but the ever-tightening regulations have become extremely onerous. Moreover, the extent of regulatory oversight and the one-size-fits-all approach badly need reorientation.