Effective governance assures stakeholders on transparency, accountability, and improved decision-making for corporates. Related party transactions (RPT) are a normal feature of businesses that bring in efficiency by leveraging available resources within the group or affiliated entities.
Though RPT are beneficial for a company, they are often regulated by various regulatory bodies as there is an inherent ability for the transacting parties to not necessarily deal at arm’s length for a variety of considerations – business or otherwise. It is this underlying feature of RPTs that can often lead to a potential conflict with shareholders’ and other stakeholders’ interests. As mentioned, the regulatory environment requires extensive disclosures of RPT, approval mechanisms to be adhered to and above all, the stipulation that the RPTs be conducted at arm’s length price. Recent reported incidents of misgovernance in RPTs and the consequential impact on the financial statements reveal that mounting a regulatory driven governance framework around these transactions are yet to be stringently followed.
Key discussion points:
- What is the Regulatory framework around RPTs under various statutes such as Companies Act 2013, Securities and Exchange Board of India, Real Estate Investment Trust, Insurance Regulatory and Development Authority etc. – approval process, arm’s length pricing
- Why corporates need a rethink on how they view RPT governance, regulatory oversight and creation of robust transparent documentation
- Why a proactive and a comprehensive approach to RPT governance is inevitable now, more than ever before
- How to approach governance for unique RPT situations which may not have direct comparables
- How to develop and implement an RPT governance policy that meets transparency, documentation and disclosure requirements
Confederation of Indian Industry (CII)
PKF Sridhar & Santhanam LLP (Longtime Independent Director of Tata Group Companies)
Khaitan & Co LLP
Chartered Accountant, Bengaluru
Grant Thornton Bharat