Wednesday, August 20, 2014

OECD Report on Related Party Transactions in India

The topic of related party transactions (RPTs) has acquired tremendous importance lately and has been the subject matter of intense discussion and debate both on this Blog (here) and elsewhere (here, here and here). The discussions focus on the specifics and the interpretation of the Companies Act and the Rules promulgated by the Ministry of Corporate Affairs (MCA) that deal with RPTs.

In the meanwhile, the OECD has issued a report entitled Improving Corporate Governance in India: Related Party Transactions and Minority Shareholders Protection (h/t: Corporate Law and Governance). The OECD report studies the current state of the law in India regulating RPTs, and makes some suggestions for reform. While the report takes into account the enactment of the Companies Act, 2013 and the reforms introduced thereunder, it does not deal with the nitty-gritties of the issues relating to rule-making and practical implications on companies as contained in the earlier mentioned literature. Nevertheless, it provides a macro-level perspective on the more significant reforms required to rein in RPTs given their prominence in the Indian context due to the presence of corporate groups and concentrated shareholdings.

The macro-level policy matters highlighted in the OECD report may help guide the resolution of some of the more specific issues that have arises in the Companies Act and the MCA Rules on RPTs.


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