The Securities and Exchange Board of India (SEBI) has released a Consultation Paper inviting public feedback on proposed amendments to the provisions relating to Related Party Transactions (RPTs) under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (commonly known as LODR Regulations), along with associated circulars.
The objective of this initiative is to strengthen corporate governance, enhance transparency, and protect minority shareholders by addressing emerging concerns around RPTs and closing existing regulatory gaps.
Interested stakeholders are encouraged to submit their comments and suggestions through the provided link on SEBI’s website.
Why Are Related Party Transactions Under Scrutiny?
Related Party Transactions (RPTs) refer to dealings between a listed entity and parties that are related to it—such as promoters, group companies, or key management personnel. These transactions are not inherently problematic but carry the risk of conflict of interest and misuse of shareholder funds if not properly disclosed or monitored.
Over the years, SEBI has tightened RPT norms, especially after major corporate governance failures. However, with evolving business structures and increasing complexity in group-level transactions, SEBI is now looking to further refine and strengthen the framework.
The consultation paper suggests amendments and clarifications in key areas such as:
Expanded Definition of Related Parties and RPTs
SEBI proposes aligning the definition more closely with international best practices and accounting standards. This may include capturing indirect relationships and influence, and ensuring that even complex structures or transactions routed through intermediaries are brought under the RPT ambit.
Enhanced Disclosure Requirements
The paper seeks public input on increasing the frequency, scope, and detail of disclosures. This could involve stricter timelines for stock exchanges disclosures, better classification of RPTs, and more transparent reporting in the financial statements and annual reports.
Materiality Thresholds and Shareholder Approvals
SEBI may revise thresholds for determining whether an RPT is “material” and hence requires prior approval of shareholders, particularly disinterested ones. There is also consideration of aggregate thresholds over a financial year rather than transaction-wise assessments, to prevent circumvention.
Audit Committee Oversight
Proposals include mandating a more rigorous review of RPTs by the Audit Committee, including independent directors playing a more prominent role. Enhanced documentation and reasoning behind approvals may also become mandatory.
Exemptions and Safeguards
SEBI also seeks feedback on whether certain low-risk transactions, such as those between wholly-owned subsidiaries or in the ordinary course of business and at arm’s length, should continue to be exempt from the more stringent norms.
What Does This Mean for Listed Companies?
If the proposed amendments are implemented, listed entities will need to strengthen their internal processes, audit mechanisms, and governance structures to ensure compliance. It will also require close coordination between compliance officers, finance teams, and board committees to manage disclosures, approvals, and reporting timelines.
In keeping with its principle of transparent regulation-making, SEBI has invited public comments from all stakeholders, including companies, investors, professionals, and governance experts. This is an opportunity to shape a policy that balances regulatory oversight with ease of doing business.