Module: | SEBI LODR & Corporate Governance Frameworks
Q37: Consider the following statements regarding the Omnibus Approval of Related Party Transactions (RPTs) by the Audit Committee:
1. The Audit Committee can grant an omnibus approval for repetitive RPTs, which shall be valid for a period not exceeding one financial year.
2. The maximum value of a single transaction granted under an omnibus approval cannot exceed Rupees 1 Crore under any circumstances.
3. Omnibus approval cannot be granted for transactions in respect of selling or disposing of the undertaking of the company.
Which of the above statements is/are incorrect?
2. The maximum value of a single transaction granted under an omnibus approval cannot exceed Rupees 1 Crore under any circumstances.
3. Omnibus approval cannot be granted for transactions in respect of selling or disposing of the undertaking of the company.
Which of the above statements is/are incorrect?
✅ Correct Answer: B
🎯 Quick Answer:
B. Only 2 is incorrect.Structural Breakdown: Statement 1 is correct; the validity of an omnibus approval is strictly capped at one financial year, requiring fresh approval annually.
Statement 2 is incorrect; the specific maximum limit per transaction is Rs 1 Crore ONLY in cases where the need for the RPT cannot be foreseen and details are not available.
The committee specifies the actual maximum value for foreseen transactions in the omnibus criteria itself.
Statement 3 is correct; critical structural transactions like selling an undertaking cannot bypass specific, granular scrutiny via omnibus approval.
Historical/Related Context: The omnibus provision was introduced to facilitate ease of doing business for conglomerates that have thousands of daily, routine transactions (like purchasing raw materials) with their subsidiaries.
Causal Reasoning: Limiting the approval to one financial year ensures that the Audit Committee regularly reviews the pricing and necessity of these ongoing relationships, preventing a permanent loophole for siphoning funds.