Sebi (LODR) Regulations, 2015 Flashcards
P Ltd., a company incorporated in India and listed on a RSE in India,
has entered into various RPT during the FY.
You are required to answer the following keeping in mind the LODR on Corporate Governance.
(i) Who should sign the report of material transactions with related parties?
(ii) What type of transactions and policy are required to be disclosed in relation to RPT?
(iii) Whether disclosures of related party transactions on CFS are required to be made? If yes, what are the guidelines?
Related Party Disclosures:
An Indian Company, P Ltd listed on Stock Exchange entered into various RPT.
Provisions related with Related Party Transactions are covered under regulations 23, 27, 46 and
Schedule V of SEBI (LODR) Regulations, 2015. Accordingly,
(i) As per Regulation 27 of SEBI (LODR) Regulations, 2015, report of material transactions with
related parties shall be signed either by the compliance officer or the chief executive officer of
the listed entity.
(ii)a. The company shall disclose the policy dealing with RPT on its website and a web link thereto shall be provided in the Annual Report.
b. As per Schedule V of SEBI (LODR) Regulations, 2015, listed entity shall disclose transactions of
the listed entity with any person or entity belonging to the promoter /promoter group which
hold(s) 10% or more shareholding in the listed entity, in the format prescribed in the relevant
accounting standards for annual results.
(iii) As per Regulation 23 of SEBI (LODR) Regulations, 2015, disclosures of related party transactions on
consolidated financial statements are required to be made. The listed entity shall submit within 30
days from the date of publication of its standalone and consolidated financial results for the half year,
disclosures of related party transactions on a consolidated basis, in the format specified in the
relevant ASs for annual results to the stock exchanges and publish the same on its website.
Provided that a ‘high value debt listed entity’ shall submit such disclosures along with its SFS for the half year.
D Ltd., a company incorporated in India has six members in its Audit Committee. Due to
recessionary conditions in India, the revenue of the company is going down and there is
slowdown in other activities of the company. Therefore, it is expected that there would not
be significant work for members of the Audit Committee.
Considering the overall recession in the company and the economy, the members of the
Committee decided unanimously to meet only once at the year end. They reviewed monthly
information system of the Company and found no errors
As an auditor of D Limited, would you consider the decision taken by the Audit Committee
to hold the meeting once in a year, in complying with Listing Obligation and Disclosure
Requirements (LODR)? Also state the quorum requirements for such meetings
One of the following additional requirement as stipulated under SEBI (Listing
Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”)
on which Section 177 of the Companies Act, 2013 (relating to audit committee) is
silent is : The Audit Committee should meet at least four times in a year and not more
than one hundred and twenty days shall elapse between two meetings. The quorum shall
be either two members or one third of the members of the audit committee whichever is
greater, but there should be a minimum of two independent directors present.
The Audit Committee shall mandatorily review the following information as per LODR
Regulations:
(i) Management discussion and analysis of financial condition and results of
operations;
(ii) Statement of significant related party transactions (as defined by the Audit
Committee), submitted by management;
(iii) Management letters / letters of internal control weaknesses issued by the statutory
auditors;
(iv) Internal audit reports relating to internal control weaknesses;
(v) The appointment, removal and terms of remuneration of the Chief internal
auditor shall be subject to review by the Audit Committee; and
(vi) Statement of deviations: (a) quarterly statement of deviations including report of
monitoring agency if applicable and (b) annual statement of funds utilized for
purposes other than those stated in the offer document/ prospectus/ notice.
In the instant case, due to recessionary conditions, slowdown in activities of the company
and not expecting the significant work for the members of the audit committee, D Ltd.
decided unanimously to meet only once at the year end. They also reviewed monthly
information system of the company and found no errors.
In view of above, decision taken by the audit committee to hold the meeting only once
at the year end is not correct as the Audit Committee should meet at least four times in a
year and not more than one hundred and twenty days shall elapse between two meetings.
Besides, there is a mandatory review requirement and to review only monthly information
system is not sufficient. Here the audit committee members reviewed only monthly
information system of the company and the same is not sufficient as per LODR
Regulations.
Mr. Suzain has been appointed as a director of CAC Ltd.
As an auditor, you are required to state the information to be provided to the shareholders of the company in accordance with Regulation 36 of the SEBI (LODR) Regulations, 2015.
Disclosure of Information to the Shareholders relating to Director’s Appointment:
As per Regulation 36 of the SEBI (LODR) Regulations, 2015,
in case of the appointment of a new director or re-appointment of a director, the shareholders must be provided with the following information-
(i) A brief resume of the director;
(ii) Nature of his expertise in specific functional areas;
(iii) Disclosure of relationships between directors inter-se;
(iv) Names of listed entities in which the person also holds the directorship and the membership of Committees of the Board; and
(v) Shareholding of non-executive directors.
The auditor should ascertain from the communications sent, whether in the case of appointment of a new director or re-appointment of a director, the shareholders have been provided with the information stipulated above.
Sambhav & Co., a Chartered Accountant Firm, is appointed as the principal auditor of a listed
company, Moksh Ltd.
Figures of income and net-worth of five out of seven components of Moksh Ltd., which are its
unlisted subsidiaries, is tabulated below for the immediate preceding financial year along with the
consolidated amount: (Rs in crore)
Particulars Consolidated Component Component Component Component Component
‘A’ ‘B’ ‘C’ ‘D’ ‘E’
Income 600 70 20 140 130 40
Net Worth 1,600 80 40 280 360 100
The remaining two components i.e., Component ‘F’ & Component ‘G’ of Moksh Ltd. were unaudited.
According to Mr. Sambhav, the engagement partner, Component ‘F’ is material to the consolidated
financial statements whereas Component ‘G’ is not material to consolidated financial statements
and this fact has also been discussed in writing with those charged with governance of Moksh Ltd.
Which of the components of Moksh Ltd. can be termed as “material subsidiary” and in the
Board of which of the unlisted subsidiaries at least one independent director of Moksh Ltd.
needs to be appointed or would be appointed?
As per Regulation 16(c) of the SEBI (LODR) Regulations, 2015, “material subsidiary” shall
mean a subsidiary, whose income or net worth exceeds ten percent of the consolidated
income or net worth respectively, of the listed entity and its subsidiaries in the immediately
preceding accounting year. [Explanation- The listed entity shall formulate a policy for
determining ‘material’ subsidiary.)
Regulation 24(1) of the SEBI (LODR) Regulations, 2015, provides that at least one
independent director on the board of directors of the listed entity shall be a director on the
board of directors of an unlisted material subsidiary, whether incorporated in India or not.
[Explanation- For the purposes of Regulation 24(1 ), notwithstanding anything to the contrary
contained in regulation 16, the term “material subsidiary” shall mean a subsidiary, whose
income or net worth exceeds twenty percent of the consolidated income or net worth
respectively, of the listed entity and its subsidiaries in the immediately preceding accounting
year]
On the basis of above provisions, following information is tabulated as below:
Particulars Share in Consolidated Income Share in Consolidated Net Worth
Component ‘A’ 11.67% 5%
Component ‘B’ 3.33% 2.5%
Component ‘C’ 23.33% 17.5%
Component ‘D’ 21.67% 22.5%
Component ‘E’ 6.67% 6.25%
It can be observed that Component ‘A’, Component ‘C’ and Component ‘D’, respectively, can
be termed as “material subsidiary” as their shares in either consolidated Income or net worth
exceeds 10%.
Further, at least one independent director from the board of directors of Moksh Ltd. shall be
appointed or would have been appointed on the board of Component ‘C’ and Component ‘D’,
respectively, as their shares in either consolidated income or net worth exceeds 20%.
