Transactions between 2 govt firms exempt from prior nod requirements by audit committee for RPTs, says Sebi

Transactions entered into between two state-run companies are exempted from taking prior approval of the audit committee and shareholders for related-party transactions, markets regulator Sebi clarified on Wednesday. The clarification came after NTPC sought informal guidance about related party transactions (RPTs) under the LODR (Listing Obligations and Disclosure Requirements) rules.

The state-owned company has sought clarification on whether approval of an audit committee is required for transactions between NTPC and PTC India, and Energy Efficiency Services Ltd (EESL), where nominee directors are appointed by the Government of India.

Further, NTPC said it has invested in PTC India and holds a 4.05 per cent stake in the company. Besides, the same percentage of shares are held by three other promoters — NHPC, PFC, and PGCIL.

As per the shareholding pattern, promoters hold a 16.22 per cent stake and the remaining 84.78 per cent stake is with foreign institutions, mutual funds, financial institutions, and the general public.

EESL is a joint venture between four public sector undertakings (PSUs) — NTPC, PowerGrid, REC, and PFC.

Responding to the query, Sebi said that government nominee directors are appointed on the board of PTC and EESL. However, neither PTC nor EESL are government companies. Hence, exemptions are not applicable and prior approval of the audit committee would be required for RPTs with PTC or EESL as the case may be. Further, the regulator said that all RPTs and subsequent material modifications will require prior approval of the audit committee of the listed company. The committee may grant omnibus clearance for proposed RPTs and such approval would be valid for one year.

Providing informal guidance, the Securities and Exchange Board of India (Sebi) indicated that its views might differ on a case-to-case basis.