The Securities and Exchange Board of India (SEBI) clarified on October 11, 2024 that the reinsurance agreement between Bajaj Finserv unit Bajaj Allianz General Insurance Company (BAGIC) and Allianz SE is considered a related party transaction.

SEBI said Bajaj Finserv was required to seek shareholder approval and make disclosures under the Listing and Disclosure Obligations Regulations (LODR).

Related to an unlisted subsidiary and related party to a holding company

Bajaj Finserv had approached SEBI for guidance on whether the transactions between BAGIC and Allianz SE would be considered related party transactions within the meaning of SEBI’s regulations. BAGIC is a significant unlisted subsidiary of Bajaj Finserv, which holds 74 per cent of its share capital. Allianz SE holds the remaining 26 percent. In its submission to SEBI in July 2023, Bajaj Finserv said that Allianz SE, a shareholder of BAGIC, is not considered a related party of Bajaj Finserv, but is a related party of BAGIC.

However, SEBI clarified that transactions between an unlisted subsidiary like BAGIC and a party related to that subsidiary such as Allianz SE would still be considered a related party transaction under the LODR regulations.

Related party transactions require shareholder approval

SEBI further noted that any significant related party transaction involving a subsidiary must receive prior approval from the shareholders of the listed holding company. It added that transactions between a subsidiary and the related party of the subsidiary or listed holding company fall under the definition of related party transactions, and Bajaj Finserv must ensure compliance with these regulations.

Regarding the reinsurance treaty between BAGIC and Allianz SE, which was part of the ordinary course of business of Bajaj Finserv, SEBI confirmed that the treaty involved the transfer of resources and should be treated as a related party transaction.

The guidance provided is based only on the specific facts presented by Bajaj Finserv, SEBI said, adding that different conditions could lead to different interpretations. Further, the letter does not represent a binding decision of SEBI but serves as a view of its financial department of the company.