SEBI Relaxes RPT Disclosure Rules With Tiered Thresholds and Exemptions

 

Introduction

The Securities and Exchange Board of India (SEBI) has moved to relax its disclosure and approval requirements for related-party transactions (RPTs) in a consultation paper released on 4 August 2025. Under proposals, listed companies would face higher thresholds for when RPTs are deemed “material” and would see exemptions for smaller transactions. The changes—aimed at reducing administrative burden—could result in a substantial reduction in deals requiring shareholder approval. Yet, the shift also raises questions about minority-investor protection.

 

Background / Context

Related-party transactions (RPTs) refer to deals between a company and its promoters, subsidiaries, key management personnel or entities connected to them. Due to their inherent risk of conflict of interest and potential for favouring insiders, RPTs have been the subject of tight regulatory scrutiny.

Under the current framework of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”), a listed entity must regard an RPT as “material” if it exceeds ₹ 1,000 crore or 10% of the annual consolidated turnover, whichever is lower. Once an RPT is material, the company typically needs:

• Audit-committee pre-approval;
• Shareholder approval (with related parties excluded from voting);
• Detailed disclosure of the transaction in the notice to shareholders.

The framework has evolved over the years with an aim to bolster corporate governance, especially in the context of promoter-driven business groups where channelled intra-group transactions can raise concerns. For instance, the regulatory regime introduced certification requirements, standardized disclosure formats (via Industry Standards), and detailed audit-committee agenda requirements.

Why is this current change important? Two principal pressures have pushed SEBI to review the rules:

• Compliance burden for large entities: The “one-size-fits-all” threshold (₹ 1,000 crore or 10%) has increasingly been viewed as inadequate for large turnover entities, where an RPT of ₹ 1,000 crore may represent a small fraction of business.
• Governance and efficiency trade-off: Regulators and industry bodies have argued that routine intra-group transactions (with low risk) should not attract the same level of regulatory scrutiny as high-value strategic transactions. SEBI’s consultation paper suggests that about 60 % fewer RPTs of the top 100 listed firms would have required shareholder approval under the proposed thresholds.

Thus, the consultation paper launched in August 2025 proposes a major shift: moving from fixed thresholds to a turnover-based tiered model, relaxing disclosure for smaller transactions, and introducing differential treatment for subsidiaries and omnibus approvals.

 

Detailed Explanation of the News

What SEBI has proposed

On 4 August 2025, SEBI issued a consultation paper on revising RPT norms under Regulation 23 of the LODR Regulations and related circulars. Key changes include:

1. Introducing scale-based materiality thresholds for listed entities
Instead of a flat threshold (₹ 1,000 crore or 10% of turnover), the proposed thresholds are tied to annual consolidated turnover:

• Up to ₹ 20,000 crore turnover → Material RPT if above 10% of annual consolidated turnover.
• Between ₹ 20,001 crore and ₹ 40,000 crore → Threshold = ₹ 2,000 crore + 5% of turnover above ₹ 20,000 crore.
• Above ₹ 40,000 crore → Threshold = ₹ 3,000 crore + 2.5% of turnover above ₹ 40,000 crore, capped at ₹ 5,000 crore.

2. Relaxation of disclosure/exemption for small-value RPTs

• Transactions below certain thresholds (for example, ₹ 150 million / ₹ 15 crore) may no longer require disclosure or shareholder approval.
• For example, SEBI proposes that RPTs less than ₹ 10 crore or 1% of the listed entity’s consolidated turnover, whichever is lower, could qualify for minimum disclosure only.

3. Proposals on subsidiary-transactions

• If an unlisted subsidiary of a listed entity enters into an RPT (and the listed entity is not a direct party), audit committee approval would be needed if transaction exceeds the lower of:
• 10% of the subsidiary’s standalone turnover; or
• The materiality threshold applicable to the holding listed entity.
• For subsidiaries without full-year audited financials, the threshold may be based on 10% of net worth (or paid-up capital + securities premium if net worth negative).

4. Validity of omnibus approvals

• Omnibus shareholder approvals (for repetitive RPTs) taken at an AGM may be valid up to the date of the next AGM (maximum 15 months) under the proposed regime.
• For general meetings other than AGM, the approval would continue to be valid for one year.

5. Disclosures / audit committee documentation

• The Industry Standards on “Minimum Information to be provided to the Audit Committee and Shareholders for RPT approval” (issued earlier) remain relevant.
• Under the proposed changes, listed entities must classify RPTs into: Material RPTs, RPTs with promoter/promoter-group or related parties above threshold, and residual RPTs (smaller value) with scaled disclosures.

Why the change?

In its consultation paper SEBI states the existing threshold “…does not reflect the scale of operations of large listed entities…” and the one-size-fits-all approach is inefficient. Back-testing across top 100 listed entities revealed the proposed thresholds would reduce the number of material RPTs needing shareholder approval by ~60 %.

What happens next?

• The consultation paper invites comments from stakeholders (companies, auditors, investors) by a specified date.
• Depending on feedback, SEBI will issue formal amendments to LODR Regulations (via Gazette notification) and relevant circulars.
• The proposed thresholds may come into effect after a transition period (to allow companies to adapt to revised RPT policies).

 

Impact Analysis

The proposed changes to RPT norms will have varying implications across stakeholder groups.

Benefits

For listed companies (especially large ones):

• Reduced compliance burden: With higher thresholds, fewer RPTs will need shareholder approval and extensive disclosure.
• Operational flexibility: Routine intra-group or low-risk transactions may not trigger cumbersome governance oversight, enabling efficient execution.
• Cost savings: Less legal/board time and audit-committee oversight for smaller transactions, lower meeting/notice costs.
• Aligns regulation to scale: Larger firms will not be penalised for their size by applying the same absolute threshold as smaller firms.

For auditors, CAs and internal governance teams:

• Better calibration: Risk-based thresholds allow focus on genuinely material transactions rather than non-strategic ones.
• Streamlined documentation: For smaller RPTs, documentation and disclosure requirements are lighter (minimum information tier) — freeing up resources.
• Improved clarity: Scale-based model offers clearer guidance for policies and board / audit-committee agendas.

Potential risks / losers

For minority shareholders / investor-protection advocates:

• Reduced oversight: Raising thresholds means more transactions may bypass shareholder approval and detailed disclosures — possibly lowering transparency.
• Governance concerns: Frequent but individually small RPTs may accumulate into significant amounts without heightened scrutiny; hence boards, audit committees need to remain vigilant.
• Risk of oversight gaps in subsidiaries: While subsidiaries are covered, their structuring and audit-history differences may result in lower thresholds of comparable scrutiny.

For compliance and internal-governance functions:

• Implementation effort: Companies will need to revisit their RPT policy, risk-assess their entire RPT universe, segregate transaction tiers, update board/audit-committee protocols, validate thresholds.
• Transition risk: If companies continue old practices until final rules are notified, there can be lapses in disclosures or approvals.
• Interpretation challenges: Determining what counts as “related” or “benefit” for RPT, and assessing the correct threshold, may require careful professional judgement.

Practical implications

• Business operations: Firms may expedite intra-group service/purchase contracts (previously requiring shareholder approval) under the relaxed regime, subject to arm’s-length pricing and board/audit committee oversight.
• Taxation and transfer-pricing: RPTs often overlap with transfer pricing and tax-compliance for pricing arm’s-length; relaxed disclosure regime doesn’t change tax obligations but documentation remains critical.
• Audit-committee / board practices: Boards will need to update their RPT-policy and segregate transactions by bucket (material, moderate, residual), set up processes for minimum/limited disclosures, and ensure independent directors remain alert to cumulative effects of smaller RPTs.
• Investor communication: Firms will need to articulate in their annual report and notice of meetings how RPT thresholds have changed, what transactions are exempted or subjected to limited disclosure, and how shareholder protection is still maintained.
• Compliance calendar: Companies must prepare for the formal notification of the rules, transition timelines, update internal controls, audit and secretarial systems, and decide how to handle transactions already in pipeline.

 

Common Misunderstandings

• “RPTs are now not regulated” — False. Only the threshold and disclosure tiers are changing; the need for arm’s-length pricing, audit committee review, and governance remains.
• “Any transaction below the new threshold is automatically exempt” — Not entirely. Even smaller transactions may still require minimum disclosures or audit-committee overview if specified.
• “This only benefits promoters” — Not correct. While promoters may see fewer approvals required, the change is aimed at aligning regulatory burden across sizes. Minority-investor risks remain a focus.
• “The new thresholds apply immediately” — Mistaken. These are proposals (consultation paper stage) and formal amendments will follow after stakeholder comments and SEBI notification.
• “Small companies listed do not need to worry” — Incorrect. Even smaller turnover listed entities will have to monitor any RPT exceeding 10% of turnover (for those up to ₹ 20,000 crore turnover) under the proposed slab.

 

Expert Commentary

From our perspective, this development is a pragmatic shift in corporate-governance regulation. The flat ₹ 1,000 crore/10% threshold regime failed to take into account the enormous variation in scale and complexity of listed entities. By introducing a tiered, turnover-linked model, SEBI signals that governance obligations must scale with business size.
That said, governance experts caution that higher thresholds do not mean less oversight. The real test will be how audit committees, independent directors and minority shareholders engage with transactions falling just below thresholds but possibly large in aggregate. The risk of “many small notch transactions” accumulating remains real. As one governance commentator put it:

“Raising the threshold should not mean turning a blind eye to frequent related-party dealings.”

Indeed, transparency and investor confidence must remain front-and-centre even as procedural burdens ease.

 

Conclusion / Action Steps

In summary, SEBI’s proposed revision of RPT disclosure rules marks a significant easing of compliance for listed companies, particularly the larger ones. By shifting to turnover-based thresholds, exempting smaller transactions from full shareholder approval, and refining subsidiary-transaction triggers, the regulator aims to reduce red tape without compromising on governance fundamentals. Once implemented, the number of RPTs requiring shareholder scrutiny for top firms could drop by up to 60 %.

For businesses and professionals, key action steps include:

• Revise RPT policy: Update the company’s RPT policy to reflect new slabs (once notified), and classify past and upcoming RPTs according to the new structure.
• Update board/audit committee processes: Segregate RPTs into buckets (material, moderate, residual), define disclosure tiers and timelines, prepare documentation templates.
• Train stakeholders: Educate audit-committee members, independent directors, CFO/finance team and secretarial function on the implications of new norms.
• Review existing RPTs: Identify ongoing or proposed RPTs that may fall under the new thresholds and assess whether approvals/disclosures need realignment.
• Communicate with investors: Include clear disclosure in annual reports and shareholder notices about how the transition to new RPT norms is being handled; reaffirm commitment to governance.

Looking ahead, once the formal rule-making is complete, companies should also monitor how SEBI and market participants interpret the new norms—especially in borderline cases and through SEBI’s future enforcement lens. While easier compliance awaits, governance vigilance remains non-negotiable.

 

FAQs

Q1. What is a related-party transaction (RPT)?
A: An RPT is any transaction between a company and its "related party" — e.g., a promoter, promoter-group entity, key management personnel, or an entity in which a promoter has interest. Under the LODR Regulations, such transactions are subject to scrutiny because of potential conflicts of interest.

Q2. What are the current thresholds for a material RPT under SEBI?
A: Presently, under Regulation 23(1) of the LODR Regulations, a listed entity must treat an RPT as material if it exceeds either ₹ 1,000 crore or 10% of the annual consolidated turnover, whichever is lower.

Q3. What are the key changes proposed by SEBI?
A: SEBI has proposed:

• A turnover-based, tiered threshold model for material RPTs (e.g., for entities with turnover > ₹ 40,000 crore, threshold up to ₹ 5,000 crore).
• Exemptions or minimal disclosures for smaller RPTs (e.g., under ₹ 150 million / ₹ 15 crore).
• Revised rules for subsidiary transactions and validity of omnibus approvals.

Q4. When will the new rules take effect?
A: At present the changes are in a consultation paper stage (August 2025). Final amendments will follow after stakeholder feedback and SEBI’s notification. Companies should monitor SEBI’s website for the final rules.

Q5. Will smaller companies listed on stock exchanges be affected?
A: Yes. While the threshold slabs benefit larger entities, smaller listed companies (with turnover up to ₹ 20,000 crore) will continue to apply the 10%-of-turnover test for material RPTs under the proposed model. Hence, they must continue diligence in RPT management and disclosures.

 

References / Source Links

1. “SEBI’s Updated Guidelines for Related Party Transactions: What Changes for Listed Entities?” – Acuity Law (11 June 2025)
2. “India’s Proposed Overhaul of Thresholds for Related Party Transactions” – Oxford OBLB Blog (September 2025)
3. “Indian markets regulator aims for fewer related-party deals being reported” – Reuters (4 Aug 2025)
4. “Sebi’s norms on related-party transactions may prove …” – ET CFO (recent)
5. “Relaxed Party Time?: RPT regime gets lot softer” – Vinod Kothari Blog (September 2025)
6. “Industry Standards on ‘Minimum information to be provided’ (PDF)” – ASSOCHAM (June 2025)
7. “SEBI Proposes Major Overhaul of RPT Norms: New Scale-Based Thresholds and Compliance Relaxations” – ELP Law (2 months ago)
8. “Related Party Transactions: Recent Regulatory Developments” – KNAV Insights (July 2025)
9. “SEBI proposes to relax limits for approval, disclosure of related-party transactions” – Moneycontrol (4 Aug 2025)
10. “Proposed Amendments to SEBI LODR Regulations on Related Party Transactions” – Finsec Law Advisors (Aug 2025)
11. “SEBI’s New Disclosure Norms for Related Party Transactions” – TLH Law (recent)