1. Virender Jain & Pavan Kumar Vijay

2. Disclosures & Transparency in Corporate Affairs
Concept & Need
It is the responsibility of corporate houses to keep the
stake holders aware of all major corporate events to help
them to take informed decisions
It 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. “Timely and Accurate Disclosure should be
made on all material matters regarding the
corporation, including the financial situation,
performance, ownership, and governance of
the company.”

4.  Increased access to external capital
 Lower cost of capital
 Improved operational performance
 Reduced risk of corporate crises, scandals
 Enhanced trust

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. Related Party Transactions &
Disclosures

7. Disclosures & Transparency in Corporate Affairs
Meaning of Related Party Transaction
“A business deal or arrangement between two
parties who are joined by a special
relationship prior to the deal.”

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.  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.  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.  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.  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. Mandatory review of Related Party Transactions by
the Audit Committee
Disclosures on materially significant Related Party
transactions that may have potential conflict with the
interest of Company at large

14. Due Diligence Report by Merchant Banker to SEBI
Disclosure in Prospectus of all related entities,
promoters, companies under the same
management, Other group companies, their
financial performance, pending litigations and risk
factors

16. Disclosures & Transparency in Corporate Affairs
Insider Trading: Meaning
“Act of subscribing, buying and selling or agreeing to
subscribe, buy, sell or deal in securities by an Insider,
who is connected with the company and who is
reasonably expected to have access to unpublished
price sensitive information in respect of securities of (a)
Company or who has received or has excess to such
unpublished price sensitive information “
- Reg. (d) & (e) of SEBI (Prohibition of Insider Trading ) Regulations

17. Disclosures & Transparency in Corporate Affairs
Insider Trading
It 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.

18. SEBI Prohibition of Insider Trading
Regulations
SEBI Prohibition of Insider Trading Regulations
Prohibits Dealing, Communicating or Counseling in
securities by any person having Unpublished Price
Sensitive Information

19. 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

20. 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

21. Listing Agreement – Cl. 36
Disclosure 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

22. Indian Scenario

23. 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

24. 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

25. Suggestions for Better Disclosure &
Transparency

26. Related Party Transactions
Suggestions for Better Disclosure &
Transparency
A. Clear & Written policy & Transparent Ownership Structure with
respect of Related Party Transactions;
B. Sufficient System of Internal Control
A. 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 Company
A. Legal Provisions should be practical oriented & Time bound
approvals should be granted

27. Insider Trading
Suggestions for Better Disclosure &
Transparency
A. Company‟s Insider Policy should be practical and
not just the Rule Book;
B. Effective protection of Whistle blowers
C. 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

28. Satyam Vada Dharmam Chara
- Taittariya Upanishad

29. “Forever speak the truth and follow the dharma”

30. Truth : Disclosure of Actual State of Affairs
(Transparency in operations and transactions)

31. Dharma : “Dharma is for the stability of
society, the maintenance of social order and the
general well-being and progress of humankind.”
- Karna Parva of the Mahabharata. Verse-58 in Chapter 69

32. Corporates are also expected to use their
Capacity, Knowledge and Resources
TOWARDS
Dharma
Maximization of stakeholders’ value and well-
being and progress of humankind
THROUGH Truth
Transparency, accountability and truthful
disclosure of state of affairs