The NSE Centre for
Excellence in Corporate Governance has published its quarterly briefing on “Related Party
Transactions”, which has been authored by Professor Vikramaditya Khanna. The
executive summary is as follows:
Excellence in Corporate Governance has published its quarterly briefing on “Related Party
Transactions”, which has been authored by Professor Vikramaditya Khanna. The
executive summary is as follows:
– Related Party Transactions
(RPTs) are a topic of increasing interest around the world, especially as some
of them have been associated with quite well known frauds.
(RPTs) are a topic of increasing interest around the world, especially as some
of them have been associated with quite well known frauds.
– Boards, shareholders and
other governance actors can play an important role in preventing value-decreas-
ing RPTs while not dissuading many value-enhancing RPTs.
other governance actors can play an important role in preventing value-decreas-
ing RPTs while not dissuading many value-enhancing RPTs.
– Commonplace in India, RPTs
occur in varying ways, and can have a large impact on financial performance.
occur in varying ways, and can have a large impact on financial performance.
– Prior to 2013, India’s
regulatory regime focused primarily on disclosure of RPTs (although there were
some explicit limits on RPTs), but did not, by and large, require approval of
RPTs by disinterested or in- dependent parties.
regulatory regime focused primarily on disclosure of RPTs (although there were
some explicit limits on RPTs), but did not, by and large, require approval of
RPTs by disinterested or in- dependent parties.
– The Companies Act 2013
created a new regime that required disinterested or independent approval for
many RPTs bringing India into alignment with global standards.
created a new regime that required disinterested or independent approval for
many RPTs bringing India into alignment with global standards.
– There remain concerns with
the Companies Act 2013 – in particular, some RPTs are not covered by the new
law, the selection of independent directors may raise concerns, and enforcement
mechanisms are not very efficacious.
the Companies Act 2013 – in particular, some RPTs are not covered by the new
law, the selection of independent directors may raise concerns, and enforcement
mechanisms are not very efficacious.
– The success of the new RPT
regulation in India may also depend on the degree of shareholder activism in
India.
regulation in India may also depend on the degree of shareholder activism in
India.
