To promote ease of doing business, in its consultation paper ("Consultation Paper") published on August 4, 2025, the Securities and Exchange Board of India ("SEBI") has inter alia proposed the following amendments to the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("LODR Regulations") pertaining to related party transactions ("RPTs") undertaken by listed entities and their subsidiaries:
Materiality of RPTs undertaken by listed entities
The current regulatory framework under Regulation 23(1) of the LODR Regulations, defines the materiality threshold for a RPT (either individually or taken together with previous RPTs during a financial year) as the lower of Rs. 1000 crore or 10% of the listed entity's annual consolidated turnover, i.e. even if the turnover of a listed entity exceeds Rs. 10,000 crore, there is a fixed threshold of Rs. 1000 crore.
In the Consultation Paper, SEBI has proposed the introduction of the following scale-based materiality thresholds:
1. For listed entities with an annual consolidated turnover of up to Rs. 20,000 crore, the materiality threshold will remain at 10% of such turnover;
2. For listed entities with an annual consolidated turnover between Rs. 20,001 crore and Rs. 40,000 crore, the threshold will be Rs. 2000 crore, together with 5% of the annual consolidated turnover of the listed entity exceeding Rs. 20,000 crore; and
3. For listed entities with an annual consolidated turnover exceeding Rs. 40,000 crore, the materiality threshold will be the lower of the following:
a. Rs. 3000 crore, together with 2.5% of the annual consolidated turnover of the listed entity exceeding Rs. 40,000 crore; or
b. Rs. 5000 crore.
Materiality of RPTs undertaken by the subsidiaries of listed entities
Under the second proviso to Regulation 23(2) of the LODR Regulations, for a RPT to which an unlisted subsidiary of a listed entity is a party, but the listed entity itself is not a party, a prior approval of the audit committee of the listed entity is required, if the value of the RPT (either individually or taken together with previous RPTs during a financial year) exceeds 10% of the annual standalone turnover of the subsidiary based on its latest audited financials.
In consonance with the changes proposed to the materiality threshold for RPTs by listed entities, SEBI has made the following proposals in the Consultation Paper with respect to the RPTs to be entered into by subsidiaries of listed entities:
1. Only an RPT of a value of more than Rs. 1 crore will be considered for determining the application of Regulation 23(2);
2. Audit committee approval will be required if the value of the RPT exceeds the lower of: the scale-based materiality threshold proposed for the listed entity in the Consultation Paper, or, the existing 10% of the annual standalone turnover of the subsidiary; and
3. For subsidiaries who do not have published financial statements for at least 1 (one) year, the approval threshold shall be set at 10% of the standalone net worth, calculated within 3 (three) months prior to the request for approval and certified by a practicing chartered accountant.
Additionally, the scale-based materiality threshold proposed for listed entities under Regulation 23(1) of the LODR Regulations may also apply, with the lower of the 2 (two) thresholds being considered for the audit committee approval. In cases of negative net worth of the subsidiary, the aggregate of share capital and securities premium would be considered instead of a percentage of net worth.
Relaxation in respect of disclosures for approval of RPTs
As per the SEBI circular dated June 26, 2025 ("SEBI Circular"), industry standard disclosures are required to be made for approval of RPTs to the audit committee and/ or shareholders, save and except for RPTs of a value of less than Rs. 1 crore (either individually or taken together with previous RPTs during a financial year).
As per the Consultation Paper, for RPTs of a value higher than this threshold of Rs. 1 crore, but less than (either individually or taken together with previous RPTs during a financial year): 1% of the listed entity's annual consolidated turnover as per its last audited financial statements, or Rs. 10 crore, whichever is lower, the listed entity is required to furnish certain minimal information to the audit committee or the shareholders as prescribed in the Consultation Paper.
Conclusion
It may be noted that presently as per the LODR Regulations, while all RPTs require audit committee approvals, however only material RPTs require shareholders' approval. By increasing the materiality thresholds as stated above, SEBI intends to reduce the number of RPTs for which shareholders' approvals will be required by listed entities, thereby promoting ease of doing business. Further, eliminating the need for approvals and disclosures for small-scale RPTs will allow cost-effective and quick closure of transactions.
Comments and suggestions on the Consultation Paper can be submitted by August 25, 2025.
Please find attached a copy of the Consultation Paper, here.
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