SAT UPHELD SEBI’ VIEW THAT ALL RELATED-PARTY TRANSACTIONS (RPTS) WITH A SINGLE ENTITY IN A FINANCIAL YEAR MUST BE AGGREGATED TO DETERMINE IF THEY CROSS THE MATERIALITY THRESHOLD REQUIRING SHAREHOLDER APPROVAL
FACTS OF THE CASE
The above ruling
was delivered in the case of Linde India Ltd. vs. SEBI, which involved Linde
India and Praxair India Pvt. Ltd. (PIPL), a related party after a global
merger.
All yearly related-party transactions must be added
together, not checked one by one. This stops companies from splitting big deals
into smaller ones to avoid shareholder approval SAYS SAT UPHOLDING SEBI’S STAND.
AGGREGATION IS MANDATORY:
SAT upheld the Securities and Exchange Board of
India's (SEBI) interpretation of Regulation 23 of the Listing Obligations and
Disclosure Requirements (LODR) Regulations, 2015.
It stated that the "aggregate value of
transactions" must be considered, not individual contracts, ensuring a
true picture of a company's related-party exposure is presented.
LINDE INDIA'S ARGUMENT
The tribunal rejected Linde India's argument that the
definition of RPTs under Regulation 2 allowed for a contract-by-contract
assessment.
SAT emphasized
that a purposeful reading of the regulation, aligned with corporate governance
principles, must prevail to protect shareholder interests.
MATERIALITY THRESHOLD:
A transaction is considered material if its value,
individually or aggregated with previous transactions during a financial year,
exceeds the lower of ₹1,000 crore or 10% of the company's annual consolidated
turnover. If this threshold is crossed, shareholder approval is mandatory, with
related parties unable to vote on the resolution.
DEFINITIONS CANNOT OVERRIDE REGULATION 23
The wording “single transaction or group of
transactions in a contract” in the rules is just a definition. It cannot
override or weaken the main rule in Regulation 23(1), which clearly says that
all related-party transactions in a year must be added together to check if
approval is needed.
VALUATION ORDERED
NSE will now appoint a registered valuer to compute
the value of business foregone and business received by Linde India under the
JV.
APPEAL DISMISSED
SAT dismissed Linde India’s appeal in full, reinforcing SEBI’s governance-centric approach.
LESSONS LEARNED
This verdict has closed long-debated interpretational
gaps and meaningfully strengthens minority shareholder safeguard. Listed
entities will now have to adopt a more transparent and holistic approach in
evaluating RPTs ensuring compliance in both letter and spirit.
R V SEKAR , FCS,LLB 79047 19295
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