RPTs and Arm's Length Principle

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Student
56 Points Posted on 07 May 2020

Under Section 188 of Companies Act, related party transactions done on arm's length basis, are exempted from the compliances under Section 188. If we look at SEBI LODR Regulations, 2015, it is silent on arm's length principle. Further, the definition of related party transactions under LODR Regulations, mentions "whether price is charged or not".

My question is: Is arm's length principle an exception to related party transactions under LODR Regulations? (If it is, approvals would not required to be taken for such RPTs under LODR Regulations).

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On 07 May 2020 at 18:02 Report
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This discussion clarifies the application of the arm's length principle to related party transactions (RPTs) for listed companies under SEBI LODR Regulations. While Section 188 of the Companies Act exempts arm's length RPTs for unlisted companies, LODR Regulations are silent on this specific exemption. For listed entities, Regulation 23 sets thresholds for general meeting approval, and all transactions with related parties typically require audit committee review, regardless of pricing, as LODR focuses on transactions with related parties rather than just RPTs.

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4 Points Posted on 07 May 2020
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On 07 May 2020 at 21:37
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Professional
1979 Points Posted on 11 May 2020
See, What's provided u/s 188 is applicable to Unlisted companies and not on listed companies, Regulation 23 already prescribes threshold limit (10% of annual consolidated turnover) if crosses require General Meeting approval, Also understand that 188 Talks about Related Party Transaction only , While LODR talks about Transcation with Related Party, reason being Listed entities have larger responsibility towards public at large.So understand it from Transction with Related party point of View, And every transaction with related party will go through Audit committee route ( exception is Omnibus approval) .Under LODR related party not only include as per section2(76) while we also need to look as per accounting Standards.
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On 11 May 2020 at 07:37
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Student
56 Points Posted on 11 May 2020

Thanks a lot Chirag!

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On 11 May 2020 at 14:08

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