Virender Jain & Pavan Kumar Vijay
Disclosures & Transparency in Corporate Affairs              Concept & Need It is the responsibility of corporate houses t...
“Timely and Accurate Disclosure should bemade on all material matters regarding thecorporation, including the financial si...
   Increased access to external capital   Lower cost of capital   Improved operational performance   Reduced risk of c...
   Related Party Transactions    Under Companies Act, 1956    Under Accounting Standard – AS 18     Listing Agreement ...
Related Party Transactions &         Disclosures
Disclosures & Transparency in Corporate AffairsMeaning of Related Party Transaction“A business deal or arrangement between...
   Section 297: Approval of Contracts by Board of    Directors     Applicable to all Companies, Public & Private     Bo...
   Section 295: Loans to Director       applicable only on public companies       Both direct & Indirect Loans & Guaran...
   Section 299: Disclosure of Interest by Directors     Applicable to all Companies, Public & Private     Both direct &...
   Section 314: Directors & relatives not to hold Place    of Profits     In case of Director – any place of profit othe...
   Similar to International Accounting Standard 24 (IAS -    24)   Disclosures Required:    ◦ Name of the related party ...
Mandatory review of Related Party Transactions bythe Audit CommitteeDisclosures on materially significant Related Partytra...
Due Diligence Report by Merchant Banker to SEBIDisclosure in Prospectus of all related entities,promoters,     companies  ...
Disclosures & Transparency in Corporate Affairs           Insider Trading: Meaning“Act of subscribing, buying and selling ...
Disclosures & Transparency in Corporate Affairs                    Insider TradingIt is BAD because:  Used to make profit...
SEBI Prohibition of Insider Trading           Regulations  SEBI Prohibition of Insider Trading RegulationsProhibits Dealin...
SEBI Prohibition of Insider Trading               Regulations   Disclosures to be made: Initial disclosure by person who...
SEBI Prohibition of Insider Trading                Regulations    Other Obligations of Corporate: Creation of Model Code...
Listing Agreement – Cl. 36Disclosure of Price Sensitive Information   Change in the general character or nature of    bus...
Indian Scenario
Related Party Transactions            Indian Case Studies   Majority Companies are following the letter part of    Transp...
Insider Trading            Indian Case Studies   Majority Listed Companies (especially Regional    Listed) are complying ...
Suggestions for Better Disclosure &          Transparency
Related Party Transactions       Suggestions for Better Disclosure &                 TransparencyA.   Clear & Written poli...
Insider Trading      Suggestions for Better Disclosure &                TransparencyA.   Company‟s Insider Policy should b...
Satyam Vada Dharmam Chara            - Taittariya Upanishad
“Forever speak the truth and follow the dharma”
Truth : Disclosure of Actual State of Affairs   (Transparency in operations and transactions)
Dharma       : “Dharma is for the stability ofsociety, the maintenance of social order and thegeneral well-being and progr...
Corporates are also expected to use their    Capacity, Knowledge and Resources                 TOWARDS                    ...
Related party transactions   disclosure & transparency - virender jain and pk vijay
Related party transactions   disclosure & transparency - virender jain and pk vijay
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Related party transactions disclosure & transparency - virender jain and pk vijay

  1. 1. Virender Jain & Pavan Kumar Vijay
  2. 2. Disclosures & Transparency in Corporate Affairs Concept & Need It is the responsibility of corporate houses to keep thestake holders aware of all major corporate events to help them to take informed decisionsIt is the duty of directors to not to place themselves in a position when their fiduciary duties towards the company conflict with their personal interests
  3. 3. “Timely and Accurate Disclosure should bemade on all material matters regarding thecorporation, including the financial situation,performance, ownership, and governance ofthe company.”
  4. 4.  Increased access to external capital Lower cost of capital Improved operational performance Reduced risk of corporate crises, scandals Enhanced trust
  5. 5.  Related Party Transactions Under Companies Act, 1956 Under Accounting Standard – AS 18  Listing Agreement – Clause 49 – Audit Committee SEBI DIP Guidelines Insider Trading Prohibition of Insider Trading Regulations Listing Agreement with Stock Exchanges – Cl. 36
  6. 6. Related Party Transactions & Disclosures
  7. 7. Disclosures & Transparency in Corporate AffairsMeaning of Related Party Transaction“A business deal or arrangement between twoparties who are joined by a specialrelationship prior to the deal.”
  8. 8.  Section 297: Approval of Contracts by Board of Directors  Applicable to all Companies, Public & Private  Both direct & Indirect interests contracts for goods or services or underwriting are covered  Disclosure at Board & Approval of contracts  Prior approval of Central Government in case of Paid-up capital of more than Rs 1 cr.  Penalty – Fine upto Rs 5000 + Rs. 500 per day
  9. 9.  Section 295: Loans to Director  applicable only on public companies  Both direct & Indirect Loans & Guarantees are covered  Prior approval of Central Government is required;  Penalty – Fine up to Rs 50 Thousand or Imprisonment up to 6 months + Vacation of Office by the interested Director  Special Disclosure of outstanding amount & Maximum amount in Balance Sheet
  10. 10.  Section 299: Disclosure of Interest by Directors  Applicable to all Companies, Public & Private  Both direct & Indirect interests are covered  Disclosure of Nature of interests in Contracts and Arrangements to Board is required  Penalty – Fine upto Rs 50 Thousand or Imprisonment upto 6 months + Vacation of Office by the interested Director Section 300: Interested Directors not to participate in discussion & Vote Section 301: Company to Maintenance of Register of Contracts, Companies & Firms
  11. 11.  Section 314: Directors & relatives not to hold Place of Profits  In case of Director – any place of profit other than his office as Director  In case of any related party of Director – any office or place of profit with monthly remuneration exceeding  Rs. 10,000 : Special Resolution by General Meeting  Rs. 20,000 : Prior Approval by Special Resolution  Rs. 50,000: Prior Approval by Special Resolution + Prior approval of Central Government
  12. 12.  Similar to International Accounting Standard 24 (IAS - 24) Disclosures Required: ◦ Name of the related party and nature of the related party relationship where control exists should be disclosed irrespective of whether or not there have been transactions between the related parties. ◦ If there have been transactions between related parties, during the existence of a related party relationship, the reporting enterprise should disclose the following:  (i) the name of the transacting related party;  (ii) a description of the relationship between the parties;  (iii) a description of the nature of transactions;
  13. 13. Mandatory review of Related Party Transactions bythe Audit CommitteeDisclosures on materially significant Related Partytransactions that may have potential conflict with theinterest of Company at large
  14. 14. Due Diligence Report by Merchant Banker to SEBIDisclosure in Prospectus of all related entities,promoters, companies under the samemanagement, Other group companies, theirfinancial performance, pending litigations and riskfactors
  15. 15. Disclosures & Transparency in Corporate Affairs Insider Trading: Meaning“Act of subscribing, buying and selling or agreeing tosubscribe, buy, sell or deal in securities by an Insider,who is connected with the company and who isreasonably expected to have access to unpublishedprice sensitive information in respect of securities of (a)Company or who has received or has excess to suchunpublished price sensitive information “ - Reg. (d) & (e) of SEBI (Prohibition of Insider Trading ) Regulations
  16. 16. Disclosures & Transparency in Corporate Affairs Insider TradingIt is BAD because:  Used to make profit at the expense of other investors  Leads to loss of confidence of investor in stock market  The process corrupts the „Level Playing Field‟  It is easier to identify the beneficiaries of insider dealing. But the extent of losses occurred is impossible to calculate.
  17. 17. SEBI Prohibition of Insider Trading Regulations SEBI Prohibition of Insider Trading RegulationsProhibits Dealing, Communicating or Counseling in securities by any person having Unpublished Price Sensitive Information
  18. 18. SEBI Prohibition of Insider Trading Regulations Disclosures to be made: Initial disclosure by person who holds more than 5% shares/ voting rights Within 4 working days of receipt of information of allotment or the acquisition of shares/voting right Continual disclosure by person who holds more than 5% shares/ voting rights Disclosure of the number of shares held & any Change exceeding 2% The number of shares held & any Change exceeding Rs. 5 Lakh OR 25000 Shares OR 1% whichever is Lower
  19. 19. SEBI Prohibition of Insider Trading Regulations  Other Obligations of Corporate: Creation of Model Code of Conduct Pre-clearance of Certain Trades Restricted /Grey List of Securities Adaptation of “Chinese Wall “ & Need to Know Concept
  20. 20. Listing Agreement – Cl. 36Disclosure of Price Sensitive Information Change in the general character or nature of business Disruption of operations due to natural calamity. Commencement of Commercial Production/ Commercial Operations Litigations/ dispute with a material Impact. Revisions in Ratings
  21. 21. Indian Scenario
  22. 22. Related Party Transactions Indian Case Studies Majority Companies are following the letter part of Transparency but the Spirit is missing They are complying unavoidable provisions of Laws only & taking advantages of loop-holes Impractical Legal Provisions such as prior approval of Central Government even in case of Closely help Companies Long approval process & undue delay
  23. 23. Insider Trading Indian Case Studies Majority Listed Companies (especially Regional Listed) are complying on piece-meal basis or not at all complying There is no proper surveillance system & System of ascertaining the loss to investors Poor Implementation of Insider Code of Conduct in the Companies Improper protection of Whistle Blowers Implementation of Legal Provisions Vs. Sensitivity & Pre-mature disclosure
  24. 24. Suggestions for Better Disclosure & Transparency
  25. 25. Related Party Transactions Suggestions for Better Disclosure & TransparencyA. Clear & Written policy & Transparent Ownership Structure with respect of Related Party Transactions;B. Sufficient System of Internal ControlA. Disclosure of cost-benefits, urgency & need of all related party transactions;A. Role of Independent Directors with pre-defined format for actual benefit/loss to the CompanyA. Legal Provisions should be practical oriented & Time bound approvals should be granted
  26. 26. Insider Trading Suggestions for Better Disclosure & TransparencyA. Company‟s Insider Policy should be practical and not just the Rule Book;B. Effective protection of Whistle blowersC. Legal Provisions should be practical oriented (e.g. giving Public Announcement with in 4 days)D. Disclosures of Price Sensitive Information as given on Stock Exchanges web-sites should be prominent
  27. 27. Satyam Vada Dharmam Chara - Taittariya Upanishad
  28. 28. “Forever speak the truth and follow the dharma”
  29. 29. Truth : Disclosure of Actual State of Affairs (Transparency in operations and transactions)
  30. 30. Dharma : “Dharma is for the stability ofsociety, the maintenance of social order and thegeneral well-being and progress of humankind.” - Karna Parva of the Mahabharata. Verse-58 in Chapter 69
  31. 31. Corporates are also expected to use their Capacity, Knowledge and Resources TOWARDS DharmaMaximization of stakeholders’ value and well- being and progress of humankind THROUGH Truth Transparency, accountability and truthful disclosure of state of affairs
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