Related Party Transactions (RPTs) increasingly sit at the very core of corporate governance and shareholder value. Recognizing their potential to create conflicts of interest in India, SEBI has introduced a fresh wave of amendments to the Listing Obligations and Disclosure Requirements (LODR), reshaping how companies may approach approval, disclosure and monitoring of RPTs.
These changes tighten governance fabric around related party transactions and put greater responsibility on boards, audit committees, and management teams. SEBI has now expanded the scope to ensure that all transactions that confer direct or indirect benefit to related parties are covered. This includes transactions through subsidiaries, or even unrelated parties if the purpose and effect of the transaction is to benefit a related party of the listed entity or any of its subsidiaries.
Sharper Thresholds for Materiality
Material RPTs must now pass a shareholder approval process if they cross Rs 1000 Cr or 10% of consolidated turnover, whichever is lower. This shift pulls a larger number of high-value transactions into the approval net and gives shareholders a greater role in determining which deals are justified.
Audit Committee as Gatekeepers
The audit committee’s role has been significantly reinforced. Instead of being a procedural stop, they now serve as active gatekeepers of fairness and transparency. Key responsibilities include:
- Prior approval of all RPTs before execution.
- Assessment of rationale – whether the transaction is conducted on arm’s length terms and in the ordinary course of business.
This makes the audit committees oversight both preventive and continuous.
Disclosure and Certification Requirements before Audit Committee
As per the amendments, following minimum information is to be provided to the Audit Committee for the approval of RPTs:
- The certificate that is to be provided by the Key Managerial Personnels to confirm that the terms of RPTs proposed to be entered into are in the interest of the listed entity.
- Basis for determination of transaction price and other material Terms and Conditions of the transaction.
- Web-link and QR Code of the valuation report or other reports of external party, if any, considered by the Audit Committee while approving the RPT.
- Total amount of all the transactions undertaken by the listed entity or subsidiary with the related party during the last financial year
- Disclosure of financial information (viz., turnover, net worth and net profits) of the related party
- Disclosures of ‘estimated’ financial year wise break-up where the transaction will be executed over more than one financial year for specific approvals
- For “Lending”, proposed interest rate, maturity/ due date, repayment schedule & terms, security details are to be declared.
Key Takeaways
The underlying message of SEBI’s latest amendments is clear: related party governance can no longer be treated as a formality. Companies must build systems that provide transparency, from expanding the definition of RPTs to adhering to lower materiality thresholds that bring more transactions under scrutiny. Audit committees now act as genuine custodians of shareholders interest, responsible for prior approvals and periodic reviews, while boards are expected to furnish detailed explanatory statements to shareholders. In practice, this means companies need to go beyond minimum reporting and adopt governance models where shareholders can see the rationale, fairness and impact of every significant transaction and use expert and dedicated software like Affinisio(RPT) for true automation with ERP integrations.
