SEBI Proposes Overhaul of Related-Party Transaction Rules: What Companies and Investors Need to Know

 

 The regulatory landscape for corporate India is at an inflection point. On 4 August 2025, the Securities and Exchange Board of India (SEBI) released a consultation paper proposing significant revisions to related-party transaction (RPT) rules. The reforms aim to ease disclosure and shareholder approval requirements, especially for large listed companies, while igniting a debate on the balance between operational efficiency and investor protection.

If you’re a corporate professional, investor, or compliance officer, understanding these proposed changes is crucial. In this article, we break down the rules, explore their implications, and provide practical guidance—all with the authority and clarity that Manika TaxWise stands for.

 

Understanding Related-Party Transactions (RPTs)

Before diving into SEBI’s proposals, it’s worth revisiting what RPTs are and why they attract scrutiny.

A related-party transaction occurs when a company does business with entities connected to its promoters, subsidiaries, or key management personnel (KMPs). These dealings are sensitive because of the potential for conflicts of interest.

For example:

• A company purchasing goods from a promoter-owned entity at inflated prices.
• A key manager signing contracts with a family-owned supplier.

To prevent misuse, RPTs have historically been subject to strict disclosure, approval, and reporting requirements.

Currently, under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR):

• An RPT is considered “material” if it exceeds ₹1,000 crore or 10% of annual consolidated turnover, whichever is lower.
• Material RPTs require:
• Approval from the audit committee
• Shareholder approval (excluding related parties)
• Detailed disclosure in notices

These regulations were designed to strengthen corporate governance, particularly in promoter-driven firms where intra-group transactions are common.

 

Why SEBI Is Reviewing RPT Rules Now

Several factors prompted SEBI to rethink RPT regulations:

1. Compliance Burden for Large Companies

The flat ₹1,000 crore threshold doesn’t scale for India’s largest firms. For a company with ₹50,000 crore turnover, ₹1,000 crore is just a small fraction of business. Yet, the same rigorous approval process applies, creating unnecessary regulatory strain.

2. Balancing Governance with Operational Efficiency

Industry stakeholders argue that routine, low-risk transactions should not be treated the same as strategic, high-value deals.

SEBI’s consultation paper estimates that applying tiered thresholds could reduce RPTs requiring shareholder approval by roughly 60% for the top 100 listed firms.

 

SEBI’s Proposed Revisions: What’s Changing?

The consultation paper proposes several important changes. Here’s a breakdown:

1. Tiered, Scale-Based Materiality Thresholds

Instead of a flat figure, thresholds will vary based on company turnover:

Turnover Slab	Materiality Threshold
Up to ₹20,000 crore	10% of annual consolidated turnover
₹20,001–₹40,000 crore	₹2,000 crore + 5% of turnover above ₹20,000 crore
Above ₹40,000 crore	₹3,000 crore + 2.5% of turnover above ₹40,000 crore (capped at ₹5,000 crore)

This tiered approach ensures:

• Larger companies aren’t penalized for scale
• Smaller transactions are proportionately monitored

2. Relaxed Disclosure for Low-Value RPTs

• Transactions below ₹10 crore or 1% of turnover (whichever is lower) could require minimal disclosure only.
• This reduces repetitive reporting for routine transactions.

3. Subsidiary Transactions

RPTs involving unlisted subsidiaries will follow these rules:

• Audit committee approval required if transaction exceeds:
• 10% of subsidiary’s standalone turnover, or
• Materiality threshold of parent company
• If subsidiaries lack full-year audited financials, thresholds are based on 10% of net worth (or paid-up capital + securities premium if negative).

4. Omnibus Approvals

• At AGMs, approvals for repetitive RPTs remain valid until the next AGM (max 15 months).
• Other general meetings: approvals valid for 1 year.

5. Disclosure & Audit Committee Documentation

• RPTs will now be classified into:
• Material RPTs
• RPTs with promoter/related parties above threshold
• Residual RPTs (smaller, low-risk transactions)
• Smaller disclosures do not mean transactions go unmonitored.

 

Why These Changes Matter

SEBI’s rationale is clear:

“The old flat threshold does not reflect the scale of operations of large listed entities.”

By introducing turnover-linked thresholds, the regulator aims to:

• Reduce unnecessary approvals for minor transactions
• Maintain focus on genuinely significant deals
• Enable operational efficiency for large companies

Key insight: If applied retroactively to the top 100 listed firms, the number of RPTs requiring shareholder approval could drop by ~60%.

 

Stakeholder Impact: Who Wins and Who Needs to Watch Closely?

1. Listed Companies

Benefits:

• Reduced compliance burden
• Faster approval for routine transactions
• Cost savings in legal, audit committee, and shareholder meeting expenses
• Alignment with scale for large firms

2. Auditors, CAs, and Governance Teams

Benefits:

• Focused oversight on material transactions
• Streamlined documentation for smaller RPTs
• Clearer guidance for boards and audit committees

3. Minority Shareholders & Investors

Concerns:

• Reduced oversight for smaller transactions
• Accumulated risk if small deals are frequent
• Variability in subsidiary oversight may reduce scrutiny

4. Compliance Teams

Challenges:

• Revising policies and board procedures
• Transition risk during the rule change
• Determining “related” parties and appropriate thresholds

 

Practical Implications for Businesses

• Operations: Faster processing of intra-group contracts while maintaining board oversight.
• Tax & Transfer Pricing: Relaxed disclosure does not affect tax compliance; documentation remains essential.
• Board & Audit Committee: Categorize RPTs into material, moderate, and residual tiers; define disclosure levels and monitor cumulative effects.
• Investor Communication: Annual reports should clearly explain new thresholds, exempted transactions, and safeguards.
• Compliance Calendar: Companies must prepare for formal notifications, updates, and realign pending transactions.

 

Common Misunderstandings

• “RPTs are unregulated now.” False—rules are relaxed, not removed.
• “Small transactions are exempt.” Partially true—minimal disclosures may still apply.
• “Changes only benefit promoters.” Incorrect—thresholds align burden with company size, not party type.
• “New rules are immediate.” False—still under consultation.
• “Small listed companies are unaffected.” Wrong—they continue applying the 10% turnover rule.

 

Expert Commentary

Corporate governance experts describe the shift as pragmatic and realistic.

“The flat ₹1,000 crore threshold was outdated. A tiered, turnover-linked model reflects business realities while maintaining governance standards,” says a governance analyst.

Yet, vigilance is crucial: frequent small RPTs can accumulate into significant exposure, so audit committees and minority shareholders must remain attentive.

 

Recommended Steps for Companies

Once SEBI formalizes the rules, companies should:

1. Revise RPT policies: Update thresholds and classify transactions accordingly.
2. Update board procedures: Separate material, moderate, and residual RPTs; define timelines and disclosure tiers.
3. Educate stakeholders: Ensure audit committees, independent directors, CFOs, and secretarial teams understand the changes.
4. Review ongoing transactions: Align past and upcoming RPTs with new thresholds.
5. Communicate with investors: Reassure stakeholders about governance standards.

Pro tip: Monitor SEBI’s final notification carefully—interpretation may vary for borderline cases.

 

Conclusion: Balancing Efficiency and Governance

SEBI’s proposed RPT reforms signal a move toward efficient compliance without diluting governance.

• Turnover-linked thresholds
• Relaxed disclosure for smaller transactions
• Updated subsidiary and omnibus rules

Analysts estimate that top-listed firms could see up to 60% fewer RPTs requiring shareholder approval.

However, companies, boards, and investors must maintain vigilance to protect minority shareholders. Proper preparation and adaptation will be key once these rules are formalized.

At Manika TaxWise, we help corporate teams, auditors, and investors navigate such regulatory shifts, ensuring compliance is efficient, risk-aware, and investor-friendly.

 

FAQs: Related-Party Transaction Rules

Q1. What is an RPT?
A: A transaction between a company and its related party, including promoters, promoter-group entities, KMPs, or connected entities.

Q2. Current thresholds for material RPTs?
A: ₹1,000 crore or 10% of annual consolidated turnover, whichever is lower (Regulation 23(1), LODR).

Q3. Proposed SEBI changes?
A: Tiered turnover thresholds, minimal disclosure for smaller transactions, updated subsidiary rules, and extended omnibus approvals.

Q4. When will the rules take effect?
A: Consultation is ongoing (as of August 2025). Formal amendments will follow.

Q5. Are smaller listed companies affected?
A: Yes, those with turnover ≤ ₹20,000 crore still follow the 10% turnover threshold.

 

References

• SEBI Consultation Paper, August 2025
• “SEBI’s Updated Guidelines for Related Party Transactions” – Acuity Law, June 2025
• “India’s Proposed Overhaul of Thresholds for RPTs” – Oxford OBLB Blog, Sept 2025
• Reuters, “Indian markets regulator aims for fewer RPTs reported,” 4 Aug 2025
• Vinod Kothari Blog, “Relaxed Party Time?: RPT regime gets lot softer,” Sept 2025
• ASSOCHAM, “Industry Standards on Minimum information to be provided,” June 2025