Calibrating Oversight: SEBI's Consultation Paper To Overhaul Related Party Transactions Under The LODR Regulations

I. Introduction

On 4^th August 2025, the Securities and Exchange Board of India (hereinafter referred to as"SEBI") released a Consultation Paper proposing a significant overhaul of the Related Party Transactions (hereinafter referred to as"RPT") regime under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (hereinafter referred to as"LODR Regulations"). The article seeks to balance ease of doing business with minority shareholder protection, particularly by revisiting materiality thresholds, disclosure triggers, omnibus approvals and the treatment of subsidiary-level transactions.

II. Propositions under the Consultation Paper

A. Scale-based materiality thresholds for shareholder approval

SEBI proposes replacing the present law of disclosure of RPT in case the transaction, individually or taken together with previous transactions during a financial year, exceeds Rs. 1,000 crore or 10% of consolidated turnover, whichever is lower¹ with a scaled-based threshold mechanism based on the turnover of the listed entity. Prior to the introduction of the amendment, the listed entities were obliged to report their RPT as material as soon as the threshold reached Rs. 1,000 crore, irrespective of the fact whether the RPT is substantial as compared to the turnover and scale of operations of the listed entity. Hence, the need to amend the criteria for determining material RPT has been presented.

The proposed ranges of turnover and the threshold for materiality of RPTs for listed entities are as follows-

The Rs. 5000 crore upper ceiling acts as a safeguard to ensure that RPTs not falling under the calculated threshold but sufficiently material to be reported cannot bypass shareholders' scrutiny.

B. Subsidiary-level transactions—tightening audit committee gates

The present legal framework under LODR Regulations requires a subsidiary of a listed entity, wherein the subsidiary is a party but the parent entity is not, to undertake the prior approval of the audit committee of the listed entity in case the transaction taken together with previous transactions during a financial year exceeds 10% of the standalone turnover of the subsidiary, as per the last audit financial statements of the subsidiary.²

SEBI has flagged gaps where a subsidiary's RPT may cross "material RPT" thresholds (triggering shareholder approval) but escape audit committee (AC) approval because it does not exceed 10% of the subsidiary's standalone turnover.

The proposal therefore requires the approvals to be taken in the following cases-

1. Subsidiary having audited financial statements – The transaction undertaken by a subsidiary of a listed company (where the listed company itself is not a party), must obtain prior approval from the audit committee of the listed entity if the transaction value, individually or in aggregate during a financial year, crosses the lower of:
   1. 10% of the subsidiary's annual standalone turnover based on its last audited financial statements, or
   2. the materiality threshold prescribed for related party transactions of the listed company under Regulation 23(1) of the LODR Regulations.
2. Subsidiary having audited financial statements for at least one year - The transaction undertaken by a subsidiary of a listed entity, where the listed entity itself is not a party and the subsidiary has not prepared audited financial statements for at least one year, shall require prior approval of the audit committee of the listed company if the value of such transaction, individually or in aggregate during a financial year, exceeds the lower of:
   1. 10% of the subsidiary's standalone net worth, or
   2. the materiality threshold prescribed for related party transactions of the listed entity under Regulation 23(1) of the LODR.
3. For this purpose, the net worth of the subsidiary must be computed on a date not older than three months prior to seeking audit committee approval and certified by a practicing chartered accountant. In case the net worth is negative, it shall be substituted with the aggregate value of paid-up share capital and securities premium of the subsidiary, similarly certified.

C. Disclosure framework for Audit Committee and Shareholders

The existing framework under SEBI circular dated 26.06.2025³ requiring RPT disclosures has been considered disproportionately onerous in the case of smaller-value transactions. At present, the exemption from detailed disclosures applies only to transactions not exceeding Rs. 1 crore in value.⁴ While workable for small and mid-cap companies, this threshold has proven too narrow for high-turnover listed entities, where even immaterial dealings can breach this limit.

While the exemption up to Rs. 1 crore is still applicable, the proposal now introduces a dual mechanism threshold for such disclosure to the Audit Committee and the shareholders. It states that if the individual or cumulative value of transactions with a particular related party in a financial year does not exceed 1% of the entity's consolidated annual turnover or Rs. 10 crore, whichever is lower, the listed entity will be required to furnish only a limited set of disclosures to the Audit Committee and the shareholders.

If the value exceeds this ceiling, the entity must continue to comply with the full disclosure standards prescribed under the "RPT Industry Standards" as per SEBI circular dated 26.06.2025.

1. Disclosure to be provided to the Audit Committee
   1. The type of transaction (sale, purchase, loan, investment, etc.), its material terms, and specified tenure.
   2. Name of the related party, relationship with the listed entity or its subsidiary, and nature of interest (financial or otherwise).
   3. The value of the transaction expressed not only in absolute terms but also as a percentage of the listed entity's consolidated turnover. In case of a subsidiary, percentage must also be computed against the subsidiary's standalone turnover.
   4. Where the transaction involves loans, deposits, or investments, the Audit Committee must be furnished with the source of funds, nature and cost of indebtedness, terms of repayment, security, and the intended end-use of funds by the beneficiary.
   5. A reasonable explanation of why the transaction is in the best interest of the company.
   6. Copies of external valuation reports or expert opinions, if relied upon.
   7. Percentage of the counterparty's turnover represented by the transaction, on a voluntary basis.
2. Disclosure to be provided to the Shareholders
   1. Where shareholder approval is required, the notice convening the meeting must contain, as part of the explanatory statement, a summary of the information reviewed by the Audit Committee.
   2. A clear justification for entering into the transaction.
   3. Full details of any loan, deposit, or investment involved (including source and cost of funds, tenure, and security), save that banks and NBFCs are exempt from disclosing source and cost of funds.
   4. Confirmation that valuation or expert reports relied upon by the company will be made available to shareholders via their registered email addresses.
   5. Optional disclosure of the counterparty's turnover percentage involved in the transaction.
3. It is important to note that the with the amendment in these regulations, the SEBI Master Circular dated 11.11.2024 and SEBI Circular dated 26.06.2025 stand amended.

D. Omnibus approval - codifying validity periods

The current legal framework pertaining to the omnibus approval, as provided by the Audit Committee, states that such approval shall be valid for a period of one year and shall require fresh approval at the time of expiry of the same.⁵ Similarly, shareholders' omnibus approval for RPTs obtained during an AGM shall be valid up to the period of the next AGM, and, in case the approval is obtained in a general meeting (not an AGM), the approval shall be valid for a period not exceeding one year.⁶

The proposition seeks to amend Regulation 23 of the LODR Regulations by expressly incorporating the above-stated rule w.r.t shareholders' approval as an addition to Regulation 23(4).

E. Harmonization of exemption in definition of RPT

As per the current standing of the LODR Regulations, the exemption from the definition of RPT has been extended to retail purchases from any listed entity or its subsidiary by its directors or its employees⁷. However, upon perusal of the definition of RPT under the LODR Regulations⁸, it can be noticed that the term "employees" are not included in the definition in the first place. Hence, the proposal stands to amend Regulation 2(1)(zc) by replacing the term "employees" with "key managerial personnel or their relatives".

F. Exemptions for transactions between wholly-owned subsidiaries

Regulation 23(5) of LODR provides certain exemptions from RPT approval requirements. In November 2021, clause (c) was added to exempt transactions between two wholly-owned subsidiaries of a listed holding company. However, queries have been raised regarding the scope of clause (b) of Regulation 23(5) as to whether the exemption for transactions between a holding company and its wholly-owned subsidiary applies only to listed holding companies or also extends to unlisted holding companies.

The proposal stands to provide a clarification w.r.t the same and states that exemption under Regulation 23(5)(b) should apply only to listed holding companies. The accounts of the subsidiary shall be consolidated with those of the listed holding company and placed before shareholders for approval at the general meeting.

III. Contemporary Context: Why This Matters Now

A. Materiality and the enforcement lens — The Linde India Precedent

In 2024, Linde India Ltd. entered into a series of intra-group RPTs. These included supply and service arrangements with affiliates. Although the financial value of these dealings was significant, the company classified them as "non-material" on the ground that they did not cross the quantitative thresholds under Regulation 23 of LODR Regulations.

The company attempted to take the route of splitting significant intra-group transactions into smaller tranches, thereby presenting them as falling below the prescribed materiality thresholds in order to avoid triggering the requirement of shareholders' approval.

The case exposed a gap in the RPT regime of SEBI. The flat materiality threshold of (10% of turnover or ₹1,000 crore, whichever is lower) did not adequately capture the scale and diversity of India's listed companies. For very large companies, even transactions of several thousand crores could technically be classified as "immaterial" under the flat test. This left room for interpretive arbitrage, allowing companies to argue that even economically significant transactions did not require shareholder approval.

The present proposal of introducing ranges of annual consolidated turnover for listed entities will assess materiality in proportion to company's size removing the fixed criteria-based judgement for every listed entity.

IV. Likely Market Impact of the Proposed amendments

A. For large-cap and mega-cap issuers

For issuers with turnover well above Rs. 40,000 crore, the scale-based thresholds (capped at Rs. 5,000 crore) will significantly reduce the number of transactions requiring shareholder approval. This rationalisation lowers transaction friction and avoids unnecessary votes of shareholders (to obtain shareholder approval) on intra-group or operationally routine transactions that are disproportionately captured under the current flat threshold of Rs. 1,000 crore. In practice, this should free up board and AGM bandwidth while still keeping material transactions within oversight.

B. For mid-caps and subsidiaries

The impact is more nuanced for mid-cap issuers and their subsidiaries. Under the proposed "lower of" rule, a transaction undertaken by a subsidiary must be escalated to the listed parent's Audit Committee if it exceeds either 10% of the subsidiary's standalone turnover or the parent's scale-based threshold. This dual test closes the regulatory gap highlighted in past practice, where high-value transactions could escape group-level scrutiny if they did not cross the subsidiary's standalone 10% turnover.

C. For investors/minority shareholders

The consultation paper makes it clear that not every small, day-to-day dealing should be dragged into the RPT framework and proposes exemptions for routine transactions that carry little risk. By cutting out these trivial disclosures, the amendments ensure that shareholder attention is directed to the transactions with a real potential to affect the company's finances and, ultimately, shareholder value.

Footnotes

1 Regulation 23(1) of the LODR Regulations.

2 Regulation 23(2)(b) of the LODR Regulations.

3 Industry Standards on "Minimum information to be provided to the Audit Committee and Shareholders for approval of Related Party Transactions", SEBI Circular No. SEBI/HO/CFD/CFD-PoD-2/P/CIR/2025/93, dated June 26, 2025.

4 Paragraph 3(c) of the SEBI Circular Industry Standards on "Minimum information to be provided to the Audit Committee and Shareholders for approval of Related Party Transactions", SEBI/HO/CFD/CFD-PoD-2/P/CIR/2025/93, dated June 26, 2025.

5 Regulation 23(3) of LODR Regulations.

6 Para (C)11, Section III, "SEBI Master Circular for Compliance with provisions of SEBI (LODR) Regulations, 2015", SEBI/HO/CFD/PoD2/CIR/P/0155, dated November 11, 2024.

7 Regulation 2(1)(zc) of LODR Regulations.

8 Regulation 2(1)(zb) of LODR Regulations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.