Disclosures of PSUs on related-party transactions need to align with that of non-PSUs: IiAS' Hetal Dalal

IiAS' Hetal Dalal also said that executive compensation should be brought under RPT framework and that the Audit Committees need to scrutinise RPTs from a risk-management perspective.

The disclosures on related party transactions by public sector undertaking (PSUs) need to catch up with that made by non-PSUs, according to Institutional Investor Advisory Services' (IiAS') President and Chief Operating Officer (COO) Hetal Dalal.

"On disclosures related to RPTs for PSUs versus non-PSUs, PSUs have exemptions to a lot of things under regulations and the carve outs made in 2024 also make a lot of sense... but, from a disclosure perspective, we would like to see a degree of alignment (with non-PSUs)," she said, when speaking at the launch of a new portal that will track and analyse RPTs.

The portal, launched on February 14, will make information accessible to all stakeholders including retail investors to improve transparency and corporate governance. The portal will be managed by the three proxy advisories IiAS, InGovern Research Services and Stakeholder Empowerment Services (SES).

Dalal spoke about the history of RPTs and said that the Securities and Exchange Board of India (SEBI) has always been ahead of the curve when acknowledging the importance of transparency in these transactions.

Also read: Happy to bin all LODR norms barring those on related-party transactions: SEBI's Madhabi Buch at launch of new portal

When the Companies Act was evolving and discussions were being carried out by the working group, there was a lot of resistance to bringing RPTs under the regulations because there were various interested parties. Dalal pointed out that it was a senior SEBI official who wrote to Ministry of Corporate Affairs (MCA) saying that RPTs need to be regulated. She said, "So SEBI has had a role in bringing this in (in bringing RPTs under regulatory scrutiny) through and through."

In her speech, she also made crucial points regarding the aspects of governance around RPTs that need to improve.

She pointed out that executive compensation does not now come under RPTs, which means that promoters of companies can reward themselves handsomely without shareholder approval. She referred to a report that IiAS had released on January 15, 2025, in which the proxy advisory called for regulators to mandate that majority of minority voting on promoter remuneration.

The IiAS report said, "There has been steady and perceptible increase in compensation to promoters and their families. This can be seen in the both the absolute remuneration and in the ratio of remuneration paid to median pay."

The report added, "IiAS’ analysis of 893 remuneration resolutions for promoters presented between 1 January 2023 and 30 September 2024 shows that only 10 resolutions were rejected over these 21 months. Had these resolutions been subject to a majority of minority vote an additional 216 resolutions - 24.5% of the total - would have been rejected."

She also said that Audit Committees of companies should analyse RPTs not just from an arm's length metric but also check if the dependency on the promoter-related entity is justifiable.

"Why should promoters control the supply chain or the distribution? Why have these structures in the first place and is there a better way to handle this? These are the questions that Audit Committees are not asking and we want that to happen. The piece that they need to worry is not so much whether these (RPTs) are at arm's length or whether these are at market terms but whether these increase operational dependence on the promoter group. It's more a risk-management kind of question," she said.