Introduction

Related Party Transactions (RPTs) lie at the heart of corporate governance and financial transparency, touching on areas from board oversight to shareholder protection. Over the past year, regulators in India have introduced several key updates to streamline RPT approvals, enhance disclosures, and tighten materiality norms. These changes aim to strengthen transparency, governance, and regulatory oversight for related party dealings, especially in listed entities.

A Related Party Transaction (RPT) is a transaction between two entities or parties who share a pre-existing relationship, such as a parent and subsidiary, common ownership, or close familial or managerial connections. These transactions are carefully scrutinized because they carry inherent risks of conflicts of interest, potential financial misreporting, or unfair advantages. Regulatory frameworks, including SEBI regulations, the Companies Act, 2013, and Income Tax provisions in India, mandate detailed disclosures and independent approvals to ensure RPTs are conducted transparently and at arm’s length.

Key Regulatory Updates for RPTs

In India, the regulatory framework governing RPTs has been significantly revamped to improve disclosures, strengthen compliance, and safeguard shareholder interests. Below are the major regulatory changes that companies must take into account:

SEBI LODR (Amendment) Regulations, 2025

On March 27, 2025, SEBI notified the LODR Amendment Regulations, 2025, which came into force immediately upon notification. These amendments recalibrate the governance framework for RPTs under Regulation 23:

• Revised Materiality Thresholds

• • RPTs are now material if the aggregate value of transactions in a year exceeds ₹1000 crore or 10% of consolidated turnover of a listed entity’s, whichever is lower
  • Separate thresholds apply for SME-listed entities (transactions exceeding ₹50 crore or 10% of consolidated turnover of listed entity, whichever is lower).

• Enhanced Governance Committees

• • Audit Committees must now include at least two independent directors to approve all RPTs.
  • Nomination & Remuneration, Stakeholder Relationship, and Risk Management Committees must be consulted for high‑value RPTs.

• Subsidiary Oversight
  • Material RPTs entered into by a listed entity’s unlisted material subsidiary require review by the parent’s Audit Committee and periodic reporting of such transactions.

SEBI Industry Standards on “Minimum Information”

New SEBI Circular No. SEBI/HO/CFD/CFD‑PoD‑2/P/CIR/2025/18 (Feb 14, 2025) mandates uniform disclosure templates for RPT approvals in case of all listed entities:

• Scope of the Standards

• • There are three types of RPTs – Material RPT, other RPTs and Residual RPTs – based on threshold
  • Specifies three disclosure tiers—Comprehensive, Limited, Minimum—based on transaction value and complexity.

• Key Disclosure Elements

• • Nature and rationale of the transaction.
  • Detailed financial impact analysis, including comparative market rates.
  • Confirmation of arm’s‑length pricing and compliance with internal policy.

• Effective Date & Clarification
  • Initially new SEBI Circular for RPTs approval and disclosure was effective from on or after April 1, 2025. However, SEBI later clarified that the Industry Standards to be formally kick in on July 1, 2025, to accommodate industry feedback.

Amendments to the SEBI Master Circular

Part A and Part B of Section III‑B in the Master Circular dated November 11, 2024, have been updated to align with the new Industry Standards:

• Part A (Audit Committee Disclosures)
  • Entities must now furnish Audit Committees with all information as per the Feb 14, 2025, Industry Standards before approving any RPT.
• Part B (Shareholder Disclosures)
  • Shareholders must receive a streamlined set of disclosures in the notice of general meetings for material RPTs, ensuring consistency across listed companies.

Companies Act, 2013: Section 188 Framework

While SEBI’s regime targets listed entities, Section 188 of the Companies Act governs RPTs across all companies:

• Board & Shareholder Approvals
  • Any contract/arrangement with a “related party” (including sale/purchase of goods, leasing, remuneration agreements) requires prior Board approval by a resolution and, if above prescribed thresholds, shareholder approval.
• Threshold Limits
  • Shareholder approval is mandated for transactions exceeding 10% of net worth or turnover (as per Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014).
• Penalties for Non‑Compliance
  • Directors and the company can face penalties up to ₹25 lakh for contraventions of Section 188, reinforcing the gravity of governance lapses.

India Transfer Pricing Regulation

Under Indian Transfer Pricing regulations, all international and specified domestic RPTs must be conducted at Arm’s Length and thoroughly documented. Non-compliance can lead to hefty penalties and increased scrutiny from the tax authorities.

• Key Requirement
  • Filing of Form No. 3CEB & maintenance of robust TP documentation.
• Thresholds Matter
  • Local File: If value of all international transaction exceeds INR 1 crore.
  • Specified Domestic transaction: If the value of domestic transaction exceeds INR 20 crore and conditions mentioned in Section 92BA

Implications & Next Steps for Practitioners

With these regulatory updates, Audit Committees, Management, Chief Financial Officer (‘CFO’), and compliance teams must:

1. Revise RPT Policies to incorporate new materiality thresholds and committee structures under SEBI LODR.
2. Update Approval Templates in line with the Industry Standards’ disclosure tiers by July 1, 2025.
3. Train Governance Bodies (Boards, Audit Committees) on enhanced oversight responsibilities and reporting formats.
4. Align Secretarial & Financial Disclosures across annual reports, notice of meetings, and audit working papers to ensure consistency.
5. Monitor Ongoing Compliance via periodic internal reviews, leveraging checklists that map each RPT against SEBI and Companies Act requirements.

Conclusion

The landscape for Related Party Transactions in India is evolving rapidly, driven by SEBI’s focus on transparency and the Companies Act’s entrenched governance norms. By embracing these updates, particularly the granular disclosure standards and tightened materiality thresholds, companies can fortify stakeholder trust, minimize regulatory risk, and ensure their RPT frameworks remain robust in a dynamic regulatory environment.