Sebi wants no voting rights for company shareholders in related party transactions

Taking a leaf out of the Rs 14,000-crore Satyam fraud, Securities and Exchange Board of India (Sebi) will recommended to the Corporate Affairs Ministry not to provide voting rights to any person related to a company to guard against related party transactions.

Sebi will suggest the rider to be included in new Companies Bill, which is expected to be brought up for passage in Parliament in the Budget session, the market regulator's exiting chief C B Bhave said at a press conference Mumbai.

"Sebi will recommend to the MCA...to disallow interested shareholders from voting on the special resolution of the prescribed related party transaction. This will protect shareholders from abusive related party transactions. This view was taken based on the learnings from the investigation in the matter of Satyam Computer Services," Bhave said.

Related party transactions refer to dealings amongst subsidiaries, SPVs, sister concerns, individuals having an interest in the voting power, chairman and their relatives. These transactions are a cause of concern as a company can use it to evade tax or cheat investor, and require strict monitoring.

According to clause 166 of the Companies Bill 2009, shareholders are authorised to decide on contracts and arrangements with the related party on matters like sale, purchase or supply of goods and services and property; leasing property, and appointment of agents.

In December 2008, shareholders of Satyam Computer Services had opposed and blocked the buy out of infrastructure firms - Maytas Infrastructure and Maytas Properties - the two firms promoted by the kin of the then chief of the software firm B Ramalinga Raju.

Among other things, it was felt the transaction was overvalued.