Vinod Kothari & Company

Kolkata | Mumbai | New Delhi | Bengaluru

FAQs on Standards for minimum

information to be disclosed for RPT
approval
Related party transactions require prior approval of the Audit Committee, including that of Shareholders
in case of material RPTs. Pursuant to the amendments in the RPT framework in November 2021, vide the
6th Amendment Regulations, 2021, SEBI had prescribed the contents of the minimum information to be
placed before the AC and shareholders for approval of RPTs, through a circular dated 22nd November,
2021 (‘2021 Circular’), subsumed in the LODR Master Circular dated November, 2024..
Vide a recent SEBI circular dated 14th February, 2025 (“Circular”), the information required to be
provided to the AC and shareholders as per the 2021 Circular has been substituted with the information as
specified in the Industry Standards on Minimum information to be provided for review of the audit
committee and shareholders for approval of a related party transaction (‘ISN’).
These FAQs cover questions around the ISN - its applicability and scope, disclosure requirements and
other related actionables under the same.

Contents
Contents........................................................................................................................................................ 1
Applicability of the ISN............................................................................................................................... 3
1. What is the rationale behind this Circular?......................................................................................... 3
2. Whether this Circular results in any change in RPT approval regime?...............................................3
3. Is the Circular applicable to all listed entities?....................................................................................3
4. When does the Circular come into effect?...........................................................................................3
5. Whether the Standards will apply only to approvals taken after April 1 or transactions undertaken
after the said date?................................................................................................................................... 4
6. Are the companies, which have already sought omnibus approval for FY 25-26 / shareholders
approval prior to the publishing of this Circular, required to seek the approval afresh in line with the
contents of the ISN?................................................................................................................................ 5
7. Whether it will have an impact on material RPTs already approved in AGM 2024 that will continue
till AGM 2025?........................................................................................................................................5
8. Whether the Circular amends the SEBI Master Circular dated November 11, 2024?........................ 5
9. Whether the same is applicable to only specific approvals or omnibus approvals are also covered
by the minimum information requirements?........................................................................................... 5
Applicability Matrix of the Disclosures......................................................................................................5
10. What are the categories of disclosures prescribed in the Standards?................................................ 5
11. Difference between Comprehensive, Limited and Minimum Disclosures?...................................... 6
Promoters/ Promoter Group (PG) / Entities where PG have concern or interest (PGIE).................... 6
 Vinod Kothari & Company
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12. Who shall be the promoters?............................................................................................................. 6

13. What constitutes a promoter group?.................................................................................................. 7
14. What constitutes an entity in which promoter or promoter group has concern or interest/ PGIE?...8
15. While promoter/PG is already a part of the definition of RP, whether the PGIE category will be an
addition to the definition of RP (and will, therefore, form part of RP List)?.......................................... 8
16. Is there any action point on the company with respect to RPTs with promoter / promoter group /
PGIE........................................................................................................................................................ 8
2-2-5 Limit.....................................................................................................................................................8
17. What is the 2-2-5 limit?..................................................................................................................... 8
18. How to determine whether a particular transaction is material or not?.............................................9
19. When is the limit of 2-2-5 required to be calculated for the purpose of omnibus approval?............ 9
Classification of transactions on the basis of thresholds and transacting party.................................... 9
20. What is the classification of transactions on the basis of thresholds?............................................... 9
21. How does the classification as above determine the extent of disclosures?......................................9
22. Whether the transactions are required to be aggregated together for the purpose of non-material
RPTs with promoter/ promoter group/ interest or concern?.................................................................. 10
23. What if a company is a professionally driven company?................................................................ 10
Balance Sheet (B/S) Items..........................................................................................................................10
24. What are the balance sheet items?................................................................................................... 10
25. For a financial sector entity, loans form a part of its P/L, and not B/S, how should the same be
treated?...................................................................................................................................................10
Profit & Loss (P/L) Items.......................................................................................................................... 10
26. What are the profit and loss items?................................................................................................. 10
Broad role of the management.................................................................................................................. 11
27. Whether the management is required to provide information against each line-item?................... 11
28. What all things the management is required to ensure in relation to the data points?.....................11
Certification requirements.........................................................................................................................11
29. What affirmations are required in the certificate?........................................................................... 11
30. Who is to certify?.............................................................................................................................11
31. Who is considered as a promoter director?......................................................................................11
32. Is it required from all promoter directors? Or only such promoter directors who are party /
interested in the transaction?..................................................................................................................11
33. In case the promoter is a body corporate and appoints one of its directors on the board of the
subsidiary, whether such director will be considered as a promoter director?...................................... 12
34. Who will furnish the certificate in case of significant RPTs covered under Reg. 23 (2) where the
listed entity is not a party to the transaction?........................................................................................ 12
35. Can the audit committee approve a transaction where the certificate has not been granted?......... 12
36. Whether the certificate is required to be placed before the audit committee and shareholders?.....12
37. What if any promoter director does not provide the certificate?..................................................... 12
Broad role of the Audit Committee.......................................................................................................... 12
38. Is the audit committee required to comment on each line item disclosed as part of minimum
 Vinod Kothari & Company
Kolkata | Mumbai | New Delhi | Bengaluru

information?...........................................................................................................................................12
39. What are the line items for which comments are mandatory to be provided by the AC?............... 13
40. Which line items are exempt for listed banks/ NBFCs?..................................................................16
# Earlier the line item was required to be furnished to the audit committee and was exempt only in
case of disclosure to shareholders for material RPT. Now the carve out has been streamlined............17
41. Whether the comments of the AC are required to be recorded in the minutes of the meeting of the
Audit committee in which a related party transaction is approved?......................................................17
Minimum disclosure to be provided to Shareholders............................................................................. 17
42. What information should be disclosed in the explanatory statement to the notice of the general
meeting for the consideration of material RPT?....................................................................................17
43. What specific certificate / statement of the audit committee is required to be placed before the
shareholders?......................................................................................................................................... 17
Dealing with commercial secrets and information compromising the competitive position...............18
44. How to deal with commercial secrets / information that compromises the competitive position of
the LE?...................................................................................................................................................18
45. Who informs the audit committee of the commercial secrets / information that compromises the
competitive position of the LE?.............................................................................................................18
Royalty Payment........................................................................................................................................ 18
46. What is the criteria specified from selection of Industry Peers for benchmarking of royalty
payments?.............................................................................................................................................. 18

Applicability of the ISN

1.​ What is the rationale behind this Circular?
In order to facilitate a uniform approach and standardize the format of minimum information to
be provided for review to the audit committee and the shareholders for approval. The Industry
Standards Note (‘ISN’/ ‘Standards’) aims to critically analyze the adequacy and clarity of the
information provided, ensuring that it meets the legal and regulatory requirements set forth under
the LODR Regulations and the SEBI Master Circular.
2.​ Whether this Circular results in any change in RPT approval regime?
No. The approval regime remains the same as prescribed in Reg. 23 of LODR Regulations. That
is to say, neither does the Circular amount to any change in the definition of “related party”, nor
does it in any way impact the meaning of “related party transaction”. The Circular only
prescribes minimum information to be placed for approval of RPTs.
However, given the granular classification based on whether the RP is a P/PG/PGIE, entities will
need to separately identify such RPs. Also, if the RP is a P/PG/PGIE, entities will have to further
classify whether the RPTs with the RP, during a financial year, on an aggregate basis, hit the
limit of being an ORPT. Further, distinction between Balance Sheet items and P/L items will
also be required in case of transactions with P/PG/PGIE. In that sense, the Circular involves
substantial additional work to be done by the compliance team of listed entities.
 Vinod Kothari & Company
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3.​ Is the Circular applicable to all listed entities?

The Circular is applicable to listed entities required to comply with Reg. 23 i.e. equity listed
entities and HVDLEs.
4.​ When does the Circular come into effect?
The Circular comes into effect from April 1, 2025.
5.​ Whether the Standards will apply only to approvals taken after April 1 or transactions
undertaken after the said date?
The Circular uses the following language: “This circular shall come into effect from April 1,
2025”.
Whether 1st April, 2025 refers to the date of the approval granted by the AC/ shareholders, or it
pertains to the date of entering into the transaction, is not clear from the language of the Standard.
In fact, the Standard uses the following language: “These Standards shall be applicable in respect
of RPTs entered into by the Listed Entity on or after 01st April, 2025”, from which one may infer
that the reference is to the date of entering into the transaction. However, such an interpretation
will be impractical for the following reasons:
(a)​ Most RPTs are approved by the AC and the shareholders on an omnibus basis, for a
financial year. To say that the transaction which has already been approved will come for
approval again does not seem to be the intent.
(b)​ The Standard very clearly pertains to the information to be placed for the purpose of the
approval, either to AC or shareholders, as the case may be. Therefore, the reference
ought to be the date of seeking such approval.
In our view, the proper interpretation of the applicability clause is that it pertains to the RPTs
entered into on or after 1st April 2025, for which approval is being sought from either the AC or
the shareholders on or after 1st April 2025. Relating the applicability date to the date of entering
into the RPT will amount to rendering existing approvals redundant.
Practically, OA is taken before the start of the financial year, and therefore, practically, the
Standard applies to approvals sought on or after 1st April, 2025. This gives sufficient breathing
space to listed entities, which, looking at the magnitude of the task involved, seems reasonable.
In view of the same, the following three scenarios arise:
(a)​ AC or shareholders’ approval has been granted before 15th Feb, 2025 for
transactions to be entered on or after 1st April, 2025:
Approval already taken need not be revisited with the disclosure requirements as
prescribed in the ISN.
(b)​ AC or shareholders’ approval has been granted on or after 15th Feb, 2025, but
before 1st April, 2025 for transactions to be entered on or after 1st April, 2025:
 Vinod Kothari & Company
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Omnibus approval granted by the AC or the shareholders’ approval granted for

material RPTs after notification of the circular and ISN, should not be required to
be revisited for placing the minimum information as enumerated in the ISN.
(c)​ AC or shareholders’ approval has been granted on or after 1st April, 2025, for
transactions to be entered on or after 1st April, 2025
In this particular case, all the applicable information required to be disclosed
pursuant to this ISN shall have to be placed before the AC or the shareholders, as
the case may be.
However, if entities take a literal view going by the language of the Standard, it amounts to
placing details to the AC and shareholders; no offence can be taken for such disclosures.
6.​ Are the companies, which have already sought omnibus approval for FY 25-26 /
shareholders approval prior to the publishing of this Circular, required to seek the approval
afresh in line with the contents of the ISN?
See above.
7.​ Whether it will have an impact on material RPTs already approved in AGM 2024 that will
continue till AGM 2025?
The Standards are applicable at the time of placing the RPTs for approval before shareholders. As
the existing approval continues to remain valid til AGM 2025, the Standards should apply in case
of Material RPTs or material modifications that will be taken for shareholders’ approval on or
after April 1, 2025.
8.​ Whether the Circular amends the SEBI Master Circular dated November 11, 2024?
Yes. Part A and Part B of Section III-B of the Master Circular dealing with minimum information
to be placed before the audit committee and shareholders respectively, stands amended to the
effect that the listed entities will be required to comply with the Industry Standards.
9.​ Whether the same is applicable to only specific approvals or omnibus approvals are also
covered by the minimum information requirements?
The information requirements as stated in the ISN apply to both specific approvals and omnibus
approvals. This is also clear from the format that requires disclosure of the following under ‘Basic
details of the proposed transaction’:
●​ Whether omnibus approval is being sought?
●​ Value of the proposed transaction during a financial year. In case approval of the Audit
Committee is sought for multi-year contracts, also provide the aggregate value of
transactions during the tenure of the contract.
If omnibus approval is being sought, the maximum value of a single transaction
during a financial year.
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Applicability Matrix of the Disclosures

10.​ What are the categories of disclosures prescribed in the Standards?
The Standards prescribe three categories of disclosures viz. Comprehensive, Limited and
Minimum Disclosures in relation to related party transactions classified as Balance Sheet items or
Profit and Loss items undertaken with-
(a) promoters, promoter group or entities where promoter or promoter group have
concern or interest or
(b) others that are -
(i) Material RPTs
(ii) Other non-material RPTs exceeding the threshold prescribed under Reg. 30
(4) of LODR Regulations [Limit of 2-2-5] and
(iii) Residual RPTs.

11.​ Difference between Comprehensive, Limited and Minimum Disclosures?

Comprehensive Disclosures comprise of all disclosures specified in Para 4 of the ISN.
Limited Disclosures means those specified in Para 4 of the Circular except certain line items.
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Minimum Disclosures comprise of all disclosures as specified in Rows A(1), A(2), A(4), A(5)
and B(1) of Para 4 of these Standards, as applicable to relevant RPT.

Promoters/ Promoter Group (PG) / Entities where PG have concern or interest

(PGIE)
12.​ Who shall be the promoters?
As per Reg. 2(1)(oo) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations
(“ICDR Regulations”), 2018, “promoter” shall include a person:
i) who has been named as such in a draft offer document or offer document or is identified by the
issuer in the annual return referred to in section 92 of the Companies Act, 2013; or
ii) who has control over the affairs of the issuer, directly or indirectly whether as a shareholder,
director or otherwise; or
iii) in accordance with whose advice, directions or instructions the board of directors of the issuer
is accustomed to act:
Provided that nothing in sub-clause (iii) shall apply to a person who is acting merely in a
professional capacity;
Provided further that a financial institution, scheduled commercial bank, foreign portfolio
investor other than individuals, corporate bodies and family offices, mutual fund, venture capital
fund, alternative investment fund, foreign venture capital investor, insurance company
registered with the Insurance Regulatory and Development Authority of India or any other
category as specified by the Board from time to time, shall not be deemed to be a promoter
merely by virtue of the fact that twenty per cent. or more of the equity share capital of the
issuer is held by such person unless such person satisfy other requirements prescribed under these
regulations;
13.​ What constitutes a promoter group?
As per reg. 2(1)(pp) of ICDR Regulations “Promoter group” includes:
i.​ the promoter
ii.​ an immediate relative of the promoter (i.e. any spouse of that person, or any parent,
brother, sister or child of the person or of the spouse); and
iii.​ in case promoter is a body corporate:
a.​ a subsidiary or holding company of such body corporate;
b.​ any body corporate in which the promoter holds twenty per cent. or more of the
equity share capital; and/or any body corporate which holds twenty per cent. or
more of the equity share capital of the promoter;
iv.​ In case the promoter is an individual:
a.​ any body corporate in which twenty per cent. or more of the equity share capital
is held by the promoter or an immediate relative of the promoter or a firm or
Hindu Undivided Family in which the promoter or any one or more of their
relative is a member
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b.​ any body corporate in which a body corporate as provided in (a) above holds
twenty per cent. or more, of the equity share capital; and
c.​ any Hindu Undivided Family or firm in which the aggregate share of the
promoter and their relatives is equal to or more than twenty per cent. of the total
capital;
v.​ all persons whose shareholding is aggregated under the heading "shareholding of the
promoter group"

Provided that a financial institution, scheduled bank, foreign portfolio investor other than
individuals, corporate bodies and family offices, mutual fund, venture capital fund,
alternative investment fund, foreign venture capital investor, insurance company
registered with the Insurance Regulatory and Development Authority of India or any
other category as specified by the Board from time to time, shall not be deemed to be
promoter group merely by virtue of the fact that twenty per cent. or more of the equity
share capital of the promoter is held by such person or entity:

Provided further that such financial institution, scheduled bank, foreign portfolio investor
other than individuals, corporate bodies and family offices, mutual fund, venture capital
fund, alternative investment fund and foreign venture capital investor insurance company
registered with the Insurance Regulatory and Development Authority of India or any
other category as specified by the Board from time to time shall be treated as promoter
group for the subsidiaries or companies promoted by them or for the mutual fund
sponsored by them;

14.​ What constitutes an entity in which promoter or promoter group has concern or interest/
PGIE?
As per the ISN, promoter or promoter group shall be deemed to be concerned or interested in any
person, if they in any way, whether directly or indirectly—
a.​ where the person is a body corporate, holds more than 2% shareholding or voting rights
of that body corporate, or is a promoter, managing director, manager, CEO of that body
corporate; or
b.​ where the person is a firm or other entity, the promoter(s) or the promoter group is a
partner, owner or member, as the case may be.

15.​ While promoter/PG is already a part of the definition of RP, whether the PGIE category
will be an addition to the definition of RP (and will, therefore, form part of RP List)?
No. The objective of the ISN is limited to specifying the information to be placed before the audit
committee and shareholders, respectively, for consideration of RPTs. The definition of ‘related
party’ is provided under Reg 2(1)(zb) of SEBI LODR, and the enhanced disclosures will be
applicable only when the related party under LODR Regulations, with whom the listed entity/
subsidiary proposes to enter into the transaction, is a PGIE.
In other words, what needs to be checked is whether a related party, as per the consolidated RP
list of the listed entity, qualifies as a PGIE, in which case, the comprehensive disclosure
 Vinod Kothari & Company
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requirements trigger if the aggregate value of transactions qualify as ORPT [lower of the 2-2-5%
limit] or if the RPT relates to balance sheet items.
In case the related party to the transaction is not a PGIE, then the disclosure requirement will
depend on other parameters i.e. whether it is a Material RPT requiring comprehensive disclosure
or a residual RPT requiring limited disclosure, if aggregate value of transaction during an FY is
exceeding Rs. 1 crore or minimum disclosure, if if aggregate value of transaction during an FY is
up to Rs. 1 crore.
16.​ Is there any action point on the company with respect to RPTs with promoter / promoter
group / PGIE
Yes, while preparation of the list of related parties, identification and classification w.r.t promoter/
promoter group and PGIE should be done to be able to calculate the 2-2-5 limit.

2-2-5 Limit
17.​ What is the 2-2-5 limit?
The materiality thresholds prescribed in the ISN is the same as provided in Reg. 30(4) of LODR
Regulations, which is as follows:
a.​ 2% of turnover, as per the last audited consolidated financial statements of the listed
entity;
b.​ 2% of net worth, as per the last audited consolidated financial statements of the listed
entity, except in case the arithmetic value of the net worth is negative;
c.​ 5% of the average of absolute value of profit or loss after tax, as per the last three audited
consolidated financial statements of the listed entity.

18.​ How to determine whether a particular transaction is material or not?

A particular transaction is to be tested for its materiality by aggregating the value of all previous
transactions entered into with the concerned related party, during a financial year, irrespective of
whether it is a B/S or a P/L item.
19.​ When is the limit of 2-2-5 required to be calculated for the purpose of omnibus approval?
The limit is required to be checked only for transactions with promoter / promoter group / PGIE.

Classification of transactions on the basis of thresholds and transacting party

20.​ What is the classification of transactions on the basis of thresholds?
RPTs have been classified into the following categories, based on thresholds:
(a)​ Material related party transactions (MRPTs) - exceeding the materiality threshold under
Reg 23(1) of SEBI LODR
(b)​ Other non material related party transactions (ORPTs) - exceeding the materiality
threshold provided in Reg. 30 (4) of SEBI LODR
(c)​ Residual related party transactions (RRPTs) - not falling into any of the above
 Vinod Kothari & Company
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21.​ How does the classification as above determine the extent of disclosures?
Based on the aforesaid classification, the extent of disclosures vary. Refer table below:

Sl. No. Classification of Nature of disclosure Contents of disclosure

transaction

(a)​ MRPTs Comprehensive disclosure All disclosures specified

in Para 4 of the ISN.

(b)​ ORPTs with Comprehensive disclosure As per (a)

P/PG/PGIE

(c)​ RRPTs with ●​ Comprehensive - for BS ●​ As per (a)

P/PG/PGIE items ●​ As per (d)
●​ Limited - for P&L items

(d)​ RRPTs exceeding Limited disclosure All disclosures specified

Rs. 1 Cr in Para 4 of ISN except
certain
transaction-specific line
items

(e)​ RRPTs less than Rs. Minimum disclosure All disclosures as

1 Cr specified in Rows A(1),
A(2), A(4), A(5) and
B(1) of Para 4 of ISN

22.​ Whether the transactions are required to be aggregated together for the purpose of
non-material RPTs with promoter/ promoter group/ interest or concern?
The ISN states the following:
“Transaction(s) with a related party, where the transaction(s) to be entered into individually or
taken together with previous transactions during a financial year, exceed the lower of the
following…”
The language used in the ISN is similar to the one used in Reg 23(1) for materiality assessment,
and hence, it is understood that all transactions entered into with a related party, irrespective of
the nature of transaction, are required to be aggregated for the purpose of determining ORPTs.
23.​ What if a company is a professionally driven company?
Where a company is a professionally driven company, that is, the company does not have an
identifiable P/ PG, the classification of ORPTs does not apply. In those cases, comprehensive
disclosure will be required only in case of MRPTs.
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Balance Sheet (B/S) Items

24.​ What are the balance sheet items?
Balance sheet items would mean transactions that impact the balance sheet. The indicative list
includes:
a.​ Loans, inter-corporate deposits or advances given by the listed entity or its subsidiary;
b.​ Investment made by the listed entity or its subsidiary;
c.​ Guarantee (excluding performance guarantee), surety, indemnity or comfort letter, by
whatever name called, made or given by the listed entity or its subsidiary;
d.​ Borrowings by the listed entity or its subsidiary; and
e.​ Sale, lease or disposal of assets of subsidiary or of unit, division or undertaking of the
listed entity, or disposal of shares of subsidiary or associate.

25.​ For a financial sector entity, loans form a part of its P/L, and not B/S, how should the same
be treated?
It is understood that the list of balance sheet items given is an indicative list, and the same may
vary for different kinds of entities. A common interpretation may be that RPTs affecting B/S or
P/L items will be treated accordingly.

Profit & Loss (P/L) Items

26.​ What are the profit and loss items?
Profit & loss items are revenue in nature, having an impact on the profit & loss statement of the
company. The indicative list includes:
a.​ Sale, purchase or supply of goods or services or any other similar business transaction;
and
b.​ Payment of royalty

Broad role of the management

27.​ Whether the management is required to provide information against each line-item?
Yes, the management is required to provide information against each line-item except in cases
where the same is not applicable. The management is required to explicitly indicate where a
disclosure is not applicable, and where no information is provided against a disclosure by
marking the same as ‘Not Applicable’ and ‘Nil’ respectively.
28.​ What all things the management is required to ensure in relation to the data points?
The management is required to ensure the following:
a.​ Certification requirements (refer below)
b.​ Placing copy of the valuation or other report of external party, if any;
c.​ Ensuring certification of the financial details by the related party, if audited financial
statements of the related party is not available for any financial year;
d.​ Disclosing the fact if the related party follows a different financial year;
e.​ Ensure furnishing requisite details in case of transaction for payment of royalty (refer
below);
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Certification requirements
29.​ What affirmations are required in the certificate?
Certificate from CEO/CFO or other KMP of the listed entity and from all the promoter directors
of the listed entity is required affirming that:
-​ the RPTs to be entered into are not prejudicial to the interest of public shareholders; and
-​ the terms and conditions of the RPT are -
-​ not unfavorable to the listed entity,
-​ compared to the terms and conditions, had similar transactions been entered into
with an unrelated party.

30.​ Who is to certify?

-​ CEO/ CFO / or other KMP and
-​ All promoter directors of the listed entity

31.​ Who is considered as a promoter director?

A director of the listed entity who is also the promoter of the company.
32.​ Is it required from all promoter directors? Or only such promoter directors who are party /
interested in the transaction?
The certificate is required from all promoter directors irrespective of whether the same is a party
to/ interested in a particular RPT or not.
33.​ In case the promoter is a body corporate and appoints one of its directors on the board of
the subsidiary, whether such director will be considered as a promoter director?
No. If the director only represents the promoter but is not himself/ herself the promoter, then such
a director cannot be identified as a promoter director.
34.​ Who will furnish the certificate in case of significant RPTs covered under Reg. 23 (2) where
the listed entity is not a party to the transaction?
In such cases, the CEO/ CFO or KMP of the subsidiary and the promoter director of the listed
entity and the subsidiary transacting should furnish.
35.​ Can the audit committee approve a transaction where the certificate has not been granted?
-​ By CEO / CFO / CS
-​ By uninterested promoter director
-​ By interested promoter director
The certificate serves as an assurance before the AC that the proposed RPTs are in the interest of
the listed entity and its public shareholders. The management of the listed entity is the source of
information supplied to the AC for providing its approval. Therefore, in absence of the relevant
certificate from the management and/ or promoter directors, the AC should not approve the
proposed RPT.
 Vinod Kothari & Company
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36.​ Whether the certificate is required to be placed before the audit committee and
shareholders?
The certificate is required to be placed before the audit committee. Further, in case of material
RPTs, the explanatory statement to the notice calling shareholders’ meeting shall contain a
statement to the effect that the audit committee had reviewed the certificate provided by the KMP
and promoter directors of the company.
37.​ What if any promoter director does not provide the certificate?
Where a promoter director does not provide the certificate, the same shall be disclosed to the
audit committee and, in case of material RPTs, to the shareholders of the listed entity.

Broad role of the Audit Committee

38.​ Is the audit committee required to comment on each line item disclosed as part of minimum
information?
There are approximately 100 plus line items referenced in the ISN:
●​ Details of related party and transactions with the related party (18)
●​ Details for specific transactions to be provided separately for each type of transaction
(88)
○​ Transaction specific basic details (12)
○​ Transaction specific additional details for transactions relating to
■​ Sale, purchase or supply of goods or services or any other similar
business transaction (5)
■​ Loans, inter-corporate deposits or advances given by the listed entity or
its subsidiary (16)
■​ Advances other than loan given by the listed entity or its subsidiary (2)
■​ Investment made by the listed entity or its subsidiary (9)
■​ Guarantee (excluding performance guarantee), surety, indemnity or
comfort letter, by whatever name called, made or given by the listed
entity or its subsidiary (6)
■​ Borrowings by the listed entity or its subsidiary (10)
■​ Sale, lease or disposal of assets of subsidiary or of unit, division or
undertaking of the listed entity, or disposal of shares of subsidiary or
associate (13)
■​ Payment of royalty (15)
It would be unreasonable to expect the AC to provide comments on each individual line item. In
any event, the ISN delineates the specific items on which AC is obligated to provide mandatory
comments.
39.​ What are the line items for which comments are mandatory to be provided by the AC?
Para 3(3) of the ISN clearly states that comments are required by the audit committee only for
applicable line items. Non-applicable line items may be left blank. The following line-items in
para 4 requires explicit comment of the audit committee:
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S. No. Particulars of the information Comments of the Audit Committee

1. A copy of the valuation or other external If any such report has been considered,
party report, if any, shall be placed before it shall also be stated whether the Audit
the Audit Committee. Committee has reviewed the basis for
valuation contained in the report and
found it to be satisfactory based on
their independent evaluation.

2. Number of bidders / suppliers / vendors / If the number is less than 3, Audit

traders / distributors / service providers from Committee to comment upon whether
whom bids / quotations were received with the number of bids / quotations
respect to the proposed transaction along received are sufficient
with details of process followed to obtain
bids.

3. Best bid / quotation received.​ Audit committee to provide

​ justification for rejecting the best bid
If comparable bids are available, disclose /quotation and for selecting the related
the price and terms offered. party for the transaction

4. Additional cost / potential loss to the listed Audit committee to justify the
entity or the subsidiary in transacting with additional cost to the listed entity or the
the related party compared to the best bid / subsidiary
quotation received.

5. Interest rate charged on loans / If the interest rate charged to the related
intercorporate deposits / advances by the party is less than the average rate
listed entity (or its subsidiary, in case of charged, then the Audit Committee to
transaction involving the subsidiary) in the provide justification for the low interest
last three financial years: rate charged.
• To any party (other than related party)
• To related party

Explanations: Comparable rates shall

be provided for similar nature of
transaction, for e.g., long term vis-avis long
term etc.

6. Latest credit rating of the related party If credit rating of the related party is
(other than structured obligation rating (SO not available, Audit Committee to
rating) and credit enhancement rating (CE comment on credit worthiness of the
rating)) related party

7. Interest rate paid on the borrowings by the If the interest rate charged to the related
related party from any party in the last three party is less than the average rate paid
financial years. by the related party, then the Audit
Committee to provide justification for
Explanation: Comparable rates shall be the low interest rate charged
 Vinod Kothari & Company
Kolkata | Mumbai | New Delhi | Bengaluru

S. No. Particulars of the information Comments of the Audit Committee

provided for similar nature of transaction,

for e.g., long term vis-avis long term etc.

8. Default in relation to borrowings, if any, In case of defaults by the related party

made during the last three financial years, over the last three financial years, in
by the related party from the listed entity or relation to which the Listed Entity or
any other person any of its subsidiary has previously
provided guarantee, indemnity or other
such obligation, the management has to
submit justification to Audit Committee
for the proposed transaction and the
capacity of the related party to service
the debt (loan, deposit or advance)
proposed to be given by the listed entity
or its subsidiary.

Audit Committee to comment on the

justification provided by Management.

9. Latest credit rating of the related party If credit rating of the related party is
(other than structured obligation rating (SO not available, Audit Committee to
rating) and credit enhancement rating (CE comment on credit worthiness of the
rating)) related party

Explanation: This shall be applicable in

case of investment in debt instruments.

10. Returns on past investments in the related In case of diminishing value of

party over the last three financial years investments (negative returns) over the
last three financial years, Audit
Committee to provide justification for
the proposed investment

11. Latest credit rating of the related party If credit rating of the related party is
(other than structured obligation rating (SO not available, Audit Committee to
rating) and credit enhancement rating (CE comment on credit worthiness of the
rating)), if guarantee, surety, indemnity or related party
comfort letter is given in connection with
the borrowing by a related party

12. Default on borrowings, if any, over the last In case of defaults by the related party
three financial years, by the related party over the last three financial years, in
from the listed entity or any other person. relation to which the Listed Entity or
any of its subsidiary has previously
provided guarantee, indemnity or other
such obligation, the management has to
submit justification to Audit Committee
 Vinod Kothari & Company
Kolkata | Mumbai | New Delhi | Bengaluru

S. No. Particulars of the information Comments of the Audit Committee

for the proposed transaction and the

capacity of the related party to service
the debt (loan, deposit or advance)
proposed to be given by the listed
entity.

Audit Committee to comment on the

justification provided by Management.

13. Number of bidders / suppliers / vendors / If the number is less than 3, Audit
traders / distributors / service providers from Committee to comment upon whether
whom bids / quotations were received with the number of bids / quotations
respect to the proposed transaction along received are sufficient
with details of process followed to obtain
bids.

14. Best bid / quotation received. Audit Committee to provide

justification for rejecting the best bid /
If comparable bids are available, disclose quotation and for selecting the related
the price and terms offered. party for the transaction

15. Additional cost / potential loss to the listed Audit committee to justify the
entity or the subsidiary in transacting with additional cost to the listed entity or the
the related party compared to the best bid / subsidiary
quotation received.

16. Purpose for which royalty was paid to the For companies with a composite license
related party during the last three financial agreement that includes a bundle of
years intellectual property rights (IPRs) such
as brands, patents, technology, and
knowhow, it is essential to understand
the key components of such agreements
and the reasons why these cannot be
disclosed separately

17. Dividend paid in last 3 FYs as % of Net Audit Committee to comment on the
Profits of previous FYs reasons for less dividend payment than
royalty payment, if so.

18. Details of in-house research & development, If no expenses were incurred, the Audit
if any: Committee shall provide justification or
comment on the same.
c. If any in-house R&D undertaken by the
listed entity or its subsidiary that will reduce
or eliminate the royalty currently paid for
any technology or technical know-how.
Additionally, the absolute value of R&D
 Vinod Kothari & Company
Kolkata | Mumbai | New Delhi | Bengaluru

S. No. Particulars of the information Comments of the Audit Committee

expenditure incurred by the listed entity or

its subsidiary on such in-house R&D, along
with the period required for completing the
research to achieve the reduction or
elimination of royalty, shall be disclosed to
the Audit Committee

40.​ Which line items are exempt for listed banks/ NBFCs?

S. No. Nature of transaction Information exempt for listed banks/ NBFCs

1. Loans, inter-corporate Exempt for listed banks/ NBFCs#

deposits or advances given by ●​ Source of funds in connection with the proposed
the listed entity or its transaction
subsidiary
●​ Details of financial indebtedness incurred to
2. Investment made by the listed loan, inter-corporate deposit or advance.
entity or its subsidiary

3 Borrowings by the listed Exempt for listed banks

entity or its subsidiary ●​ Debt to Equity Ratio of the listed entity or its
subsidiary based on last audited financial
statements

●​ Debt Service Coverage Ratio of the listed entity

or its subsidiary based on last audited financial
statements.
# Earlier the line item was required to be furnished to the audit committee and was exempt only in case of
disclosure to shareholders for material RPT. Now the carve out has been streamlined.
41.​ Whether the comments of the AC are required to be recorded in the minutes of the meeting
of the Audit committee in which a related party transaction is approved?
The comments of the AC are required to be recorded in the minutes of the AC meeting in which
the RPTs have been approved.

Minimum disclosure to be provided to Shareholders

42.​ What information should be disclosed in the explanatory statement to the notice of the
general meeting for the consideration of material RPT?
As per the ISN, the explanatory statement should contain the following information:
1.​ Information as placed before the Audit Committee, to the extent applicable
2.​ In case of redacted disclosure, Audit committee to certify that the redacted disclosure
provides all the necessary information to make an informed decision
3.​ Justification as to why the proposed transaction is in the interest of the company
 Vinod Kothari & Company
Kolkata | Mumbai | New Delhi | Bengaluru

4.​ Statement of Assessment by Audit committee

a.​ relevant disclosure placed before them; and
b.​ that the promoter(s) will not benefit from the RPT at the expense of public
shareholders.
5.​ Disclose the fact that Audit committee has reviewed
a.​ the certificate provided by the CEO or CFO or any other KMP and
b.​ the certificate provided by the promoter directors of the Listed Entity as required
under Para 3(2)(b) of these Standards
6.​ Valuation report or any other report considered by the Audit Committee
7.​ In case of sale, purchase, or supply of goods or services [as provided in B(2) in the format
as specified in Para 4 of these Standards], or the sale, lease, or disposal of assets of a
subsidiary, unit, division, or undertaking of the listed entity [as provided in B(7) in the
format as specified in Para 4 of these Standards], if the Audit Committee has reviewed
the terms and conditions of bids from unrelated parties then such fact shall be stated.
a.​ In case bids have not been invited, the fact shall be disclosed along with the
justification thereof, and
b.​ in case comparable bids are not available, the basis for recommending that the
terms of the RPT are beneficial to the shareholders is required to be stated.
8.​ Comments of Audit Committee or Board, if any
9.​ Any other relevant information.

43.​ What specific certificate / statement of the audit committee is required to be placed before
the shareholders?
-​ In case of redaction of commercial secrets / information compromising the competitive
position of the LE: a certificate of the audit committee that, in its assessment, the redacted
disclosures still provide all the necessary information to the public shareholders for
informed decision-making.
-​ Statement of assessment that relevant disclosures for decision-making were placed before
it, and it has determined that the promoter(s) will not benefit from the RPT at the expense
of public shareholders

Dealing with commercial secrets and information compromising the

competitive position
44.​ How to deal with commercial secrets / information that compromises the competitive
position of the LE?
The audit committee can approve redaction of commercial secrets and such other information that
would affect the competitive position of LE from disclosures to shareholders.
If the audit committee approves, it needs to further certify that, in its assessment, the redacted
disclosures still provide all the necessary information to the public shareholders for informed
decision-making.
 Vinod Kothari & Company
Kolkata | Mumbai | New Delhi | Bengaluru

45.​ Who informs the audit committee of the commercial secrets / information that compromises
the competitive position of the LE?
It is the duty of the management to inform the audit committee about such information. The audit
committee is not expected to identify and segregate such information from the heap of
information presented before it for each RPT.
However, while grating such approval, the audit committee is expected to fully satisfy itself about
the nature of such information.

Royalty Payment
46.​ What is the criteria specified from selection of Industry Peers for benchmarking of royalty
payments?
The Standards require substantial information for approval of royalty transactions. The criteria
may be understood by the diagram below:

In cases where less than 3 IP available, then appropriate disclosure that only one or two peers are
available for comparison.