Module: | SEBI LODR & Corporate Governance Frameworks
Q5: Consider the following statements regarding Related Party Transactions (RPTs) and their materiality thresholds under current SEBI (LODR) Regulations:
1. A transaction with a related party is considered material if it exceeds Rupees 1000 Crore or 10 percent of the annual consolidated turnover, whichever is lower.
2. Prior approval of the shareholders through an ordinary resolution is required for all material RPTs, and no related party can vote to approve such resolutions.
3. Transactions entered into between a holding company and its wholly-owned subsidiary are entirely exempt from the requirement of shareholder approval.
Which of the above statements is/are correct?
2. Prior approval of the shareholders through an ordinary resolution is required for all material RPTs, and no related party can vote to approve such resolutions.
3. Transactions entered into between a holding company and its wholly-owned subsidiary are entirely exempt from the requirement of shareholder approval.
Which of the above statements is/are correct?
✅ Correct Answer: D
🎯 Quick Answer:
D. All statements 1, 2, and 3 are correct.Structural Breakdown: Statement 1 is correct; the absolute threshold is Rs 1000 Crore.
Statement 2 is correct; material RPTs require prior shareholder approval.
Statement 3 is correct; transactions with wholly-owned subsidiaries are exempt if accounts are consolidated.
Historical/Related Context: SEBI introduced the absolute Rs 1000 Crore threshold to capture large-value transactions in mega-corporations.
Causal Reasoning: Stringent RPT regulations prevent the siphoning of funds by promoters and ensure that all transactions are conducted at arms length.