NEW DELHI: The Securities and Exchange Board of India (SEBI) has postponed till July the implementation of new norms related to royalty payment by listed companies, following strong opposition from the Union finance ministry, which is likely to give its final recommendation on the restrictions by the end of June. “The ministry is not open to the idea of capping the royalty at 2 per cent.
There could not be a consensus so far, as both the sides feel more deliberations are required on the issue,” a senior finance ministry official told TNIE. Typically, Multi-National Companies (MNC) are known to pay high royalties to their overseas parents. Capping the royalty of listed MNCs was one of the 81 recommendations made by a panel headed by Uday Kotak, to improve governance standards of India Inc under the new corporate governance framework.
While the panel had proposed a 5 per cent cap, the SEBI board has decided to take more stringent action and go ahead with the 2 per cent cap. As per the SEBI modification, such payments will now require at least 50 per cent plus one vote of minority shareholders. In FY 2016-17, there were about 32 companies where royalty and brand payments exceeded 2 per cent of their consolidated turnover and 10 firms where royalty payments were in excess of 5 per cent.
SEBI is now awaiting the finance ministry’s report on the issue. “The general view is that there must be options of more than one threshold for royalty transfers. Many MNCs enjoy high royalty on old technologies. The ministry feels that royalty should depend on new technology transfers,” the official said.
THE IMPACT
The rule will impact firms like Maruti Suzuki, Nestle India and Colgate Palmolive among others.