SEBI's Updated Guidelines For Related Party Transactions: What Changes For Listed Entities?

Introduction

Regulation 23 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, (LODR Regulations) inter alia requires listed entities to obtain the approval of the audit committee and shareholders for related party transactions (RPTs). In relation to the same, Paragraph 4 of Part A and Paragraph 6 of Part B of Section III-B of SEBI Master Circular for "compliance with the provisions of the LODR Regulations by listed entities", dated 11 November 2024 (Master Circular) specifies the information required to be disclosed by the listed entities to the audit committee and shareholders, respectively, for approval of RPTs.

The Securities and Exchange Board of India (SEBI) vide circular no. SEBI/HO/CFD/CFD-PoD-2/P/CIR/2025/18 dated 14 February 2025 (Circular) (to access the circular click here) introduced the Industry Standards on "Minimum information to be provided for review of the audit committee and shareholders for approval of a related party transaction" (Industry Standards). The Industry Standards (to access the Industry Standards click here) have been formulated in consultation with SEBI by the Industry Standards Forum (ISF) which comprises ASSOCHAM, FICCI, and CII.

To ensure a uniform and standardized approach, and assist listed entities in complying with Regulation 23 of the LODR Regulations, the aforementioned paragraphs of Section III-B of the Master Circular have been amended vide Circular to state that the listed entities will now be required to comply with the Industry Standards for providing information to the audit committee and shareholders for approval of RPTs.

In this update, we discuss the Circular, key features of the Industry Standards and share our thoughts on it.

Key Features of the Industry Standards

The key features of the Industry Standards are as follows:

1. Classification of RPTs and disclosure requirements: The Industry Standards classify RPTs into the following:
   1. Material RPTs which is based on the listed entity's policy on materiality (as mentioned under Regulation 23(1) and 23 (1A) LODR Regulations);
   2. RPTs with promoter or promoter group or person/ entity in which promoter or promoter group has concern or interest, where such transactions are entered into individually or taken together with previous transactions during a financial year, exceed lower of the following thresholds:
      1. 2% of the turnover as per the last audited consolidated financial statements of the listed entity; or
      2. 2% of the net worth, as per the last audited consolidated financial statements, except where the arithmetic value of the net worth is negative ("net worth" here shall mean net worth defined under Section 2 (57) of the Companies Act, 2013); or
      3. 5% of the average of absolute value of profit / loss after tax, as per the last three audited consolidated financial statements of the listed entity;
   3. Residual RPTs i.e., any RPT that is not mentioned above and which entered into individually or taken together with previous transactions during a financial year exceeds INR 1,00,00,000 (wherein Limited disclosure is required) or is less than INR 1,00,00,000 (wherein Minimum disclosure is required).

Further, Industry Standards have provided for three levels of disclosure requirements i.e., (i) comprehensive; (ii) limited; and (iii) minimum disclosures, based on the type of RPTs and thresholds for the same, as provided below:

2. Standards for minimum information: The Industry Standards provide for:
   1. Standardized format (provided in Paragraph 4 of the Industry Standards) in which the minimum information has to be placed before the audit committee for approval (including ratification) of RPTs;
   2. Key details to be taken into account by the listed entity while collecting and collating the required information for audit committee's approval, such as, providing comments against each information as per the format, certificates from the CEO / CFO / KMP / Promoter Director mentioning the details as provided in Paragraph 3 of the Industry Standards, copy of valuation report, etc.; and
   3. In addition to requirements under the Companies Act, 2013, the standards for minimum information to be provided to the shareholders in the explanatory statement to the notice sent to the shareholders for consideration and approval of the RPTs, such as – justification for RPTs, information placed before the audit committee, statement of assessment by the audit committee, copy of valuation report, etc.

3. Brief overview of the disclosures: The Industry Standards inter alia provides for the disclosure requirements for the RPTs under paragraph 4, as follows:
   1. Part A requires disclosure of information with respect to each related party including the historic data of the said related party such as elaborate KYC details and the transactions previously entered into with such related party, if any, and the aggregate value of proposed transactions along with various other details with a particular related party.
   2. Part B requires basic details in relation to the proposed RPT, and specific details relating to the following RPTs:
      1. sale or purchase of goods / services, or other similar transaction;
      2. loans, inter-corporate, advances or investments made or given by the listed entity or its subsidiary;
      3. investment made by listed entity or its subsidiary;
      4. any guarantee (excluding performance guarantee), surety, indemnity or comfort letter, etc., made or given by the listed entity or its subsidiary;
      5. borrowings by the listed entity or its subsidiary;
      6. sale, lease or disposal of assets of subsidiary or of unit, division or undertaking of the listed entity, or disposal of shares of subsidiary or associate; and
      7. payment of royalty.

Accordingly, the disclosures in Part A are to be made in relation to the related party, and the disclosures in Part B are to be made in relation to the specific RPT.

Our Thoughts

The introduction of Industry Standards standardizes the minimum information required to be placed before the audit committee and shareholders for approval of RPTs, thereby ensuring that they have access to comprehensive and uniform data while considering RPTs. This will ensure informed decision making by the audit committee and shareholders.

Under the amended Part III-B of the Master Circular, the listed entities will now be required to adhere to a more comprehensive, detailed and graded (i.e., comprehensive, limited and minimum disclosures) disclosure mechanism for providing information to the audit committee and shareholders for RPTs as compared to the disclosures required under the erstwhile Master Circular.

Further, SEBI has also recently launched the RPTs analysis portal (to access the portal click here) providing the details of the RPT entered into by the listed entities. These changes enhance the overall accountability of the management and transparency for the shareholders of the listed entities. At the same time, the listed entities will now have to revisit the compliance and data collation requirements. In all, the above changes by SEBI are aimed at strengthening the corporate governance regime in India.

The Industry Standards will be applicable for RPTs entered by listed entities on or after 01 July 2025.

Footnote

1. Comprehensive disclosures: Includes all disclosures provided in Paragraph 4 of the Industry Standards as applicable to the relevant RPT;
Limited disclosures: Includes all disclosures as applicable in case of Comprehensive disclosures except certain details required for any (i) RPT relating to sale / purchase / supply of goods or services; (ii) RPT relating to any loans / inter-corporate deposits / advances by listed entity or its subsidiary; (iii) RPT relating to any investment made by listed entity or its subsidiary; and (iv) RPT relating to payment of royalty;
Minimum disclosures: Includes disclosures relating to only basic details of the (i) transaction and (ii) related party, along with the basic details of the proposed transaction (as provided in Paragraph 4 of the Industry Standards). ↩︎

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