SEBI had constituted a Working Group in November 2019 to review the policy pertaining to related party transactions under the Chairmanship of Mr. Ramesh Srinivasan, Managing Director & CEO, Kotak Mahindra Capital Company Limited. The Working Group aims to strengthen regulatory norms in relation to related party transactions undertaken by listed entities in India.
There was an urgent need to review the regulatory framework of the related party transactions due to recent corporate frauds highlighted in relation to RPTs. The Working Group observed that one commonality in major corporate wrong doings was that they were allegedly carried out by persons with the ability to influence the decisions of the company. Shell or apparently unrelated companies, controlled directly or indirectly, by such persons were purportedly used to siphon off large sums of money through the use of certain innovative structures, thereby, circumventing the regulatory framework of RPT. The companies appear to have diluted or circumvented the requirements under their policy on RPTs by procuring approvals for continuous lending to group companies. Therefore, the Working Group through this report was requested to make recommendations on the following issues:
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