Related Party Transaction Approval (SEBI)
SEBI's Related Party Transaction (RPT) framework under the LODR Regulations requires listed companies to obtain prior approval from the Audit Committee for all RPTs, and shareholder approval through an ordinary or special resolution for material RPTs, with enhanced restrictions introduced through 2021-2022 amendments that include omnibus approval ceilings and mandatory independent director approval thresholds.
Related party transactions involved dealings between the listed company and its promoters, directors, key managerial personnel, or entities in which these persons had significant interest. The risk associated with RPTs was the potential for insiders to use transactions with related entities to extract value from the listed company at the expense of public shareholders — a concern particularly acute in the Indian context given the prevalence of promoter-controlled conglomerates with complex group structures.
SEBI's initial RPT framework under Regulation 23 of LODR Regulations 2015 defined materiality thresholds above which shareholder approval was required: RPTs exceeding Rs 1,000 crore or 10% of annual consolidated turnover, whichever was lower, required shareholder approval through an ordinary resolution with related parties abstaining from voting. All RPTs required prior Audit Committee approval, and the Audit Committee could grant omnibus approval for repetitive transactions up to one year.
The 2021-2022 SEBI amendments significantly tightened the framework. From 1 April 2022, the materiality threshold for shareholder approval was revised to transactions exceeding Rs 1,000 crore or 10% of the listed entity's annual consolidated turnover, with the related parties and their associates required to abstain from voting. The definition of related party was expanded to include any person or entity holding 20% or more in the listed entity (reduced from 25%).
Further, transactions between a listed entity's subsidiaries and related parties (even if the listed entity was not directly a party) were brought under the framework if they were above the materiality threshold. This addressed structures where promoters transacted with subsidiaries of listed companies while technically avoiding the parent-level approval requirement.
The Audit Committee's role was strengthened: members had to be financially literate enough to evaluate RPT terms against market benchmarks. The company was required to demonstrate that each RPT was in the ordinary course of business and at arm's length — or if not, to obtain the higher level of approval required for non-arm's length transactions.
Continuous disclosure of RPTs in quarterly and annual filings, with detailed segmental information about counterparties, amounts, and nature of transactions, was mandated to enable shareholder and analyst scrutiny.