 "IiAS slams vague resolutions on Related Party deals")
These resolutions literally provide no material information to shareholders and are disrespectful to shareholders, IiAS said in a report “Related Party Transaction Resolutions – Taking Shareholders For Granted?”. “While the regulations regarding related party transactions have changed to balance the ease of doing business, with the need to protect minority shareholders, companies have been disregarding the intended boundaries,” it said.
RPTs are transactions between entities connected through common shareholding, directorships or familial relationships.
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In India, several large companies have RPTs running into thousands of crores with private entities controlled by promoters and their relatives.
The new Companies Act and clause 49 of listing agreement had mandated restrictions and approvals by minority shareholders to make these transactions more transparent. However, companies have been lobbying to relax the conditions citing these to be against \"easing of doing business.\"
The government and market regulator Securities and Exchange Board of India (Sebi) have been exchanging views on aligning the Company law provisions with that of listing agreement provisions on RPTs.
The IiAS report referred to three recent examples where companies have put up opaque or vague resolutions for shareholder approvals. In one case, the resolution provided no details other than that the transactions need to be undertaken and must be approved – the resolution did not provide any quantum or value of the proposed transactions, nor a period for which the approval was being sought.
The multinational arm said in its notice that at that stage, it was “not possible to ascertain the monetary value of the transactions that may be undertaken pursuant to the said Contract during any financial year” and that “an approval of shareholders is being sought in order to ensure compliance with revised Clause 49”.
In another case an infrastructure company was trying to take a “blanket approval” for all transactions totaling over Rs 10,000 crore with related parties “that currently exist and those that may be formed in the future.” Institutional investors are wary of related party transactions – more importantly, the opacity surrounding them, IiAS said.
According to the proxy firm, that did not mean that RPTs should not be undertaken at all - only that shareholders should be comfortable with it. “The regulation is attempting to achieve just that, in asking companies to get shareholder approval. Therefore, instead of attempting to get around the requirements, companies should disclose more and build trust and comfort with investors.”
Presenting shareholders with ambiguous resolutions comes with the implied expectation that either shareholders are not discerning or that they must approve transactions in ‘good faith’. That is disrespectful to shareholders, the IiAS report said.