Cracking down on secret profit sharing agreements between private equity funds and promoters of listed firms, Sebi has barred them from entering into any such pact without prior approval of board and public shareholders.
The restrictions will also apply to employees, including key managerial personnel and directors of listed companies, for themselves and on behalf of any other person, Sebi said in a notification dated January 4.
Besides, all such agreements entered during the past three years from the date of notification have to be communicated to the stock exchanges for public dissemination, including those which may not be currently valid.
Existing agreements entered prior to the date of notification and which may continue to be valid beyond such date have to be intimated to the bourses and approval will be required from public shareholders by way of an ordinary resolution in the forthcoming general meeting.
“Interested persons involved in the transactions shall abstain from voting on the said resolution,” Sebi said.
Several instances of private equity funds entering into compensation agreements with promoters, directors and key managerial personnel of listed investee companies, based on performance of such companies have recently come to light.
However, Sebi felt that when such reward agreements are executed without prior approval of shareholders, it could potentially lead to unfair practices.
Earlier in September last year, the Sebi board had discussed the concerns related to private equity funds incentivising promoters, directors and key managerial personnel of listed investee companies for personal gains.
Accordingly, it had approved the proposal for initiation of public consultation process in this regard. The consultation paper was issued on October 4 inviting public comments.
Based on the consultative paper and the comments received thereon, the Sebi board in November approved the proposal to amend Listing Regulations to enforce disclosures and shareholder approval for all such agreements, including existing agreements that extend beyond the date of the amendment.
“No employee including key managerial personnel or director or promoter of a listed entity shall enter into any agreement for himself or on behalf of any other person, with any shareholder or any other third party with regard to compensation or profit sharing in connection with dealings in the securities of such listed entity...,” Sebi said.