NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Business and Governance
Which of the following related party transaction situations would most clearly require analyst scrutiny under SEBI LODR governance norms for a listed company?
A large below-market loan to a promoter-owned entity made without required audit committee or shareholder approval is the clear concern. Material related party transactions need such approvals, and skipping them can transfer value from minority shareholders to promoters.
- APurchase of raw material from an unrelated vendor at market prices
- BA large loan advanced to a promoter-owned entity at below-market interest without audit committee and shareholder approval where requiredCorrect
- CPayment of statutory audit fees to the auditor approved by shareholders
- DPayment of sitting fees to independent directors
Explanation
Related party transactions that are material need prior approval of the audit committee and, above materiality thresholds, of shareholders (related parties abstaining). A below-market loan to a promoter entity without approvals may divert value from minority shareholders. The other options are ordinary, arm's-length or approved payments.
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