SEBI Board meeting - RPTs and exclusion of interested shareholders

SEBI in its 7th Feb Board meeting made an interesting recomendation to the Ministry of Corporate Affairs to in turn recommend amending the law (through modifying the pending Companies Bill) on shareholder vote on interested trasaction. Here is what the PR of SEBI states:

4.   Recommendation to MCA on related party transactions :  
SEBI will recommend to the Ministry of Corporate Affairs to suitably amend Clause 166 of the Companies Bill, 2009 to disallow interested shareholders from voting on the special resolution of the prescribed related party transaction. This will protect small and diversified shareholders in listed companies from abusive related party transactions. This view was taken based on the learning from the investigation in the matter of Satyam Computer Services Limited.

Prof. Umakanth's view in the Indian Corporate Law has a post on this with a comment by Prof. Balasubramanian who strongly supports this move. Prof. Umakanth's view is that: "This is a welcome move because it addresses the realities of Indian corporate ownership structures where RPTs are rampant. In the post-Satyam scenario, the issue of RPTs has perhaps received less attention than it deserves. Spotlight has been thrown on other matters of corporate governance such as board independence, and role and liability of auditors."

There seems broad support for the move to exclude interested shareholders particulary in Asian economies which have promoter dominated shareholding and thus a higher chance of misfeasance. CFA's "Related Party Transactions - Cautionary Tales for Investors in Asia" for instance supports such a move:

Material transactions—specifically those that involve transfers of assets and that could lead to dilution of the minority stake—should be subject to shareholder approval in a voting by poll, with the related parties abstaining from the vote.

Similarly OECD's 'Guide on Fighting Abusive Related Party Transactions in Asia' also recommends:

Where reliance is placed on shareholders’ approval, a voting system should be established with a majority of disinterested shareholders for the approval of related party transactions at Shareholders Meetings.

It also appears other jurisdictions have such bar of interested shareholder like Malasia and Hong Kong.

Coming back to India - there is some confusion why SEBI couldn't do this on its own and why it had to write to the Ministry of Corporate Affairs for amending the law. There are many precedents where SEBI mandates independent shareholder votes. To me the answer is clear - and it is not because SEBI wants this law to apply to unlisted companies. SEBI doesn't care about unlisted companies - in the least. The reason to my mind is that a statutory provision provides a far higher level of decisiveness and possible challenges. In fact, it has already been argued in articles and in cases that SEBI's insistence on independent shareholder vote (in delisting regulations and takeover regulations) contradicts the Companies Act, 1956 and should therefore be struck down.