1. INTRODUCTION
Related party transactions ("RPTs"), while legitimate, carry a heightened risk of conflict of interest. To ensure transparency and to protect the interest of stakeholders, securities regulators around the world, including the Securities and Exchange Board of India ("SEBI") have laid down specific disclosure and approval requirements for undertaking RPTs by listed entities. In India, the regulatory framework governing RPTs by listed entities primarily comprises of: (i) the Companies Act, 2013 ("Companies Act"); (ii) the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("SEBI LODR"); and (iii) the Master Circular for Compliance with the Provisions of the SEBI LODR by Listed Entities, dated November 11, 20241 ("Master Circular"), which consolidates applicable SEBI circulars, including those pertaining to RPT disclosures and approvals.
On February 14, 2025, SEBI introduced amendments to the Master Circular by way of a circular ("2025 RPT Circular").2 The 2025 RPT Circular requires listed entities to comply with the industry standards on 'Minimum information to be provided for Review of the Audit Committee and Shareholders for Approval of Related Party Transaction' ("Industry Standards")3, for undertaking an RPT. The Industry Standards were formulated by the Industry Standards Forum (a forum of ASSOCHAM, CII and FICCI) in consultation with SEBI.4 With the aim of facilitating informed decision making, the Industry Standards have significantly revamped the minimum information to be disclosed by the management before the audit committee and the shareholders.
The Industry Standards have been introduced as a natural extension to the recent amendments5 to the SEBI LODR in relation to RPTs, reflecting a consistent regulatory intent to strengthen the framework governing RPTs. This article summarizes and analyzes the key changes introduced by the 2025 RPT Circular for listed entities.
2. OVERVIEW OF THE INDUSTRY STANDARDS
2.1 Background
For listed entities to undertake an RPT, the Companies Act and the SEBI LODR mandate approvals at two levels – first, by the audit committee6, and second, in case of a 'material' RPT, by the shareholders.7 Under Regulation 23(1) of the SEBI LODR, an RPT is deemed material if the transaction individually or taken together with previous transaction(s) during a financial year exceeds the lower of: (i) INR 1,000 crores; or (ii) 10% of the annual consolidated turnover of the listed entity under the last audited financials.8 Further, each listed entity is required to formulate a materiality policy9, approved by its board of directors, setting out, among other things, the threshold for an RPT to be considered 'material' (subject to thresholds provided under the SEBI LODR), what constitutes 'material modifications', criteria for obtaining omnibus approvals, etc.
Previously, to obtain approvals for an RPT, listed entities were required to disclose limited information before the audit committee and the shareholders (as applicable) pursuant to the provisions set out in circular dated November 22, 2021 ("Original RPT Circular")10. Now, SEBI by way of issuance of the 2025 RPT Circular, has made an extensive and comprehensive regime applicable to listed entities as set out in the Industry Standards.
2.2. Legal Effect of the Industry Standards
The 2025 RPT Circular makes the Industry Standards binding, and accordingly, any violation of the Industry Standards will be a violation of the provisions of the SEBI Act, 1992. However, if the Industry Standards become inconsistent with subsequent changes in the SEBI LODR and/or the Master Circular, the provisions of the SEBI LODR and/or the Master Circular, as the case maybe, will prevail.
2.3 What do the Industry Standards provide?
The Industry Standards prescribe a uniform and exhaustive set of disclosures to be furnished by listed entities to their audit committees and shareholders for the purpose of seeking approval for consummation of RPTs. It is imperative to highlight that the Industry Standards do not alter the process for obtaining approvals, but only the information to be furnished to the audit committee and the shareholders11 for obtaining such approvals.
(a) Applicability
(i) Effective Date
The 2025 RPT Circular originally intended to come into effect on April 01, 2025. However, in view of large-scale implementation changes, SEBI has delayed the application of the Industry Standards, which shall now be effective as of July 01, 2025.12
(ii) Clarifications by the Industry Standards Forum13
The Industry Standards shall apply to all RPTs where approval or ratification is to be obtained on or after July 01, 2025 (irrespective of the effective date of such RPTs). However, if the approval for an RPT had been granted by the audit committee and the shareholders prior to July 01, 2025 (even if the effective date of such RPTs is on or after July 01, 2025), the Industry Standards shall not apply.14 If a material modification to an RPT which was approved prior to July 01, 2025 is being proposed, the Industry Standards will apply at the time of obtaining approval of the audit committee and shareholders (if applicable) for such modification.15 In cases where audit committee approval had been obtained prior to July 01, 2025, but notice for shareholders meeting was either sent before July 01, 2025 or is sent on July 01, 2025 or after July 01, 2025, the Industry Standards will not apply for obtaining shareholder approval16.
(iii) Types of RPTs and applicable disclosure requirements
The Industry Standards have classified RPTs under three categories based on various parameters and have outlined the disclosures to be made under each such category. The Industry Standards are applicable to: (i) material RPTs17; (ii) RPTs with 'Promoter' or 'Promoter Group' or persons with whom the 'Promoter' or 'Promoter Group' has a concern or interest18 exceeding or not exceeding the Specified Thresholds19; or (iii) residual RPTs.
Footnotes
1 SEBI Circular No. SEBI/HO/CFD/PoD2/CIR/P/0155, accessible here.
2 SEBI Circular No. SEBI/HO/CFD/CFD-PoD-2/P/CIR/2025/18, accessible here.
3 Industry Standards on "Minimum information to be provided for Review of the Audit Committee and Shareholders for Approval of Related Party Transaction (RPT)", accessible here.
4 Per the objective and purpose clause of the Industry Standards, any amendment to the Industry Standards shall be made only in consultation with SEBI.
5 These amendments led to the expansion of the definition of a 'related party' and 'related-party transactions', revision in threshold to determine materiality, and closer scrutiny of subsidiary-level transactions, among other aspects.
6 Regulation 23(2), SEBI LODR; Section 177, Companies Act.
7 Regulation 23(4), SEBI LODR.
8 For any companies listed on the SME Exchange, an RPT will be deemed material if the transaction individually or taken together with previous transaction(s) during a financial year exceeds the lower of: (i) INR 50 crores or (ii) 10% of the annual consolidated turnover of the listed entity, in each case, as per the last audited financials.
9 Regulation 23(1), SEBI LODR.
10 Disclosure obligations of listed entities in relation to Related Party Transactions, dated November 22, 2021, accessible here. The Original RPT Circular came into effect on April 01, 2022, and was consolidated into Section III-B of the Master Circular.
11 Shareholder approval is required to be obtained by way of an ordinary resolution. No related party shall vote to approve such resolutions whether the entity is a related party to the particular transaction or not.
12 Circular Ref. No. SEBI/HO/CFD/CFD-PoD-2/P/CIR/2025/37, accessible here.
13 The Industry Standards Forum released FAQs in relation to the Industry Standards, which were circulated among listed entities by the NSE (vide circular no. NSE/CML/2025/12) and BSE (vide circular no. 20250315-3). The clarificatory FAQs were issued by the Industry Standards Forum and circulated by the NSE and the BSE, the FAQs have been issued for the purpose of removing ambiguities.
14 Para II (1), FAQs on Industry Standards, accessible here.
15 Para II (2), FAQs on Industry Standards, accessible here.
16 Para II (4), FAQs on Industry Standards, accessible here.
17 Sub-para 2 of para 1 of the Industry Standards.
18 Promoter or promoter group shall be deemed to be concerned or interested in any person, if it, in any way, whether directly or indirectly: (a) where the person is a body corporate, holds more than 2% shareholding or voting rights of that body corporate, or is a promoter, managing director, manager, Chief Executive Officer of that body corporate; or (b) where the person is a firm or other entity, the promoter(s) or the promoter group is a partner, owner or member, as the case may be.
19 The transactions with a related party where the transaction(s) to be entered into individually or taken together with the previous transactions during a financial year exceeds the lower of: (i) 2% of turnover; or (ii) 2% of net worth (except where net worth is negative) (each as per last audited financials of the listed entity); or (iii) 5% of the average absolute value of profit or loss after tax, as per the last three audited consolidated financial statements of the listed entity ("Specified Thresholds").
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