Related party transactions attract SEBI's hardest questions — and in promoter-led companies, they are unavoidable. We run the full Reg 23 workflow: the materiality policy, audit committee approvals, omnibus approvals for recurring transactions, shareholder votes where the threshold demands it, and half-yearly disclosures to the exchanges.
A related party transaction is any transfer of resources, services or obligations between the listed company (or its subsidiaries) and a related party — regardless of price (Reg 2(1)(zc)). That last phrase matters: even transactions at market price, even transactions where no money changes hands, can be RPTs. If the counterparty is a promoter, a promoter-group entity, a director or their relative, or a subsidiary — assume it needs the Reg 23 process until proven otherwise.
The process has three gates. Every RPT needs prior approval of the audit committee (Reg 23(2)). Material RPTs — above Rs 1,000 crore or 10% of consolidated turnover, whichever is lower — additionally need shareholder approval with related parties barred from voting (Reg 23(4)). And every half year, all RPTs get disclosed to the stock exchanges (Reg 23(9)). We manage all three gates, plus the board-approved materiality policy that Reg 23(1) requires you to have in the first place.
Any listed company that does business with its own promoter group — which, in India, is most of them. Group procurement, shared services, inter-corporate loans, brand royalty payments, leases from promoter entities: all of it runs through Reg 23. Companies with brand or royalty arrangements need particular care because of the separate 5% shareholder-approval trigger in Reg 23(1A).
Pre-IPO companies should clean up RPTs before filing, not after — the DRHP's RPT disclosures get read line by line, and unexplained promoter-group dealings are where merchant bankers and SEBI both slow down. If your RPT register is a spreadsheet someone updates when they remember, start here.
RPT compliance runs on two clocks: the annual cycle (materiality policy review, omnibus approvals at the year's first audit committee meeting, quarterly reviews) and the transactional clock (each new RPT approved before it happens). A first-time setup — policy, register, omnibus framework — typically takes 3-4 weeks. Shareholder approval for a material RPT needs 4-6 weeks including notice periods.
Most clients fold RPT work into their governance retainer. Standalone, an annual RPT compliance mandate generally falls between Rs 1.5 lakh and Rs 4 lakh depending on transaction volume; individual shareholder-approval exercises are scoped separately. Against the cost of a SEBI enforcement action for an unapproved material RPT, it is not a close call.
Any transfer of resources, services or obligations between the listed entity (or its subsidiaries) and a related party — even with no price charged (Reg 2(1)(zc)). Sales, loans, guarantees, leases and royalties all qualify if the counterparty is related.
The lower of Rs 1,000 crore or 10% of annual consolidated turnover — counting the transaction together with previous transactions with the same related party in the financial year (Reg 23). Material RPTs need shareholder approval in addition to audit committee approval.
The audit committee approves every RPT in advance — there is no minimum threshold under LODR (Reg 23(2)). Material RPTs additionally need shareholder approval. The Companies Act's ordinary-course exemption does not carry over.
For all material RPTs under Reg 23(4), and for brand usage or royalty payments to a related party exceeding 5% of annual consolidated turnover (Reg 23(1A)). The approval must come before the transaction is entered into.
No. Reg 23(4) bars all related parties from voting to approve a material RPT — whether or not they are party to that particular transaction. Votes cast in breach are liable to be disregarded.
Under Reg 23(3), the audit committee can grant prior omnibus approval for repetitive RPTs against laid-down criteria — the practical route for recurring transactions like monthly service charges or inter-company sales.
One year. The omnibus framework must be reviewed by the audit committee each year, and every transaction under it is reported to the committee quarterly.
Half-yearly disclosure to the stock exchanges within 15 days of publishing financial results (Reg 23(9)), in SEBI's prescribed format on a consolidated basis — plus AOC-2 disclosure in the annual report under the Companies Act. The two must reconcile.
Yes. Reg 2(1)(zc) expressly includes transfers of resources, services or obligations even where no price is charged. Free services, interest-free loans and corporate guarantees from a related party all fall inside the definition.
SEBI can issue directions, impose penalties and restrict market access; exchanges fine disclosure failures under the SOP framework. An unapproved material RPT is also a governance red flag that investors and proxy advisors remember.
Largely yes. Reg 23(5) exempts transactions between a holding company and its wholly-owned subsidiary — and between two wholly-owned subsidiaries — provided their accounts are consolidated and placed before shareholders at the general meeting.
Where the need for the RPT cannot be foreseen and transaction details are unavailable, omnibus approval is capped at Rs 1 crore per transaction (Reg 23(3)). These are reviewed by the audit committee quarterly.
Place it before the audit committee immediately for review, disclose it as required, and fix the process so it cannot recur. An unapproved RPT discovered by auditors or SEBI reads far worse than one voluntarily corrected.
SEBI has been reviewing the RPT materiality framework, but as things stand the operative test remains Reg 23 — the lower of Rs 1,000 crore or 10% of consolidated turnover. We track SEBI's circulars closely and will realign thresholds the moment any revised framework is notified.
Yes. Reg 23(2) requires prior audit committee approval for RPTs to which the subsidiary is a party, and Reg 23(4) requires the listed entity's shareholders to approve the subsidiary's RPT if it crosses the materiality threshold measured on the listed entity's consolidated turnover.
Talk to a partner about your situation — no pitch, no obligation. If we're not the right firm for it, we'll tell you that too.
Request a consultation