Related Party Transaction Committee
A Related Party Transaction (RPT) Committee is a sub-committee of the board, typically drawn from the audit committee, responsible for reviewing and approving transactions between a company and its related parties to prevent conflicts of interest and ensure fair dealing.
Related Party Transactions (RPTs) have long been a source of concern for minority shareholders in Indian listed companies, as promoter groups can potentially use RPTs to siphon value from the company. To address this, SEBI significantly strengthened the RPT framework through amendments to LODR Regulations in November 2021, which came into effect from 1 April 2022.
Under the revised framework, the audit committee must approve all RPTs. For material RPTs — those exceeding Rs 1,000 crore or 10% of the company's annual consolidated turnover, whichever is lower — shareholder approval through an ordinary resolution is required. Critically, the 2021 amendment extended this requirement to transactions entered into by subsidiaries as well, closing a significant loophole that had previously allowed value transfer through subsidiary entities without shareholder scrutiny.
The 2021 amendments also introduced a broader definition of related parties, capturing promoters and promoter group entities, and also covered transactions with entities in which a director or key managerial personnel (KMP) is interested. This expanded net makes it harder to structure transactions to avoid the RPT framework.
The audit committee, functioning in its RPT oversight role, is required to review the RPT policy of the company at least once every three years. The policy must be disclosed on the company's website. The audit committee can grant omnibus approval for recurring RPTs subject to certain conditions, but individual omnibus approvals cannot exceed one year.
For investors, RPT disclosures in the annual report and quarterly compliance reports are critical. Analysts often look at the quantum and nature of RPTs — particularly loans given to promoter entities, purchase of goods or services at above-market rates from promoter companies, or sale of assets below fair value — as warning signs of corporate governance risk. SEBI's enhanced RPT regime since 2022 has materially improved disclosures and accountability in this area.