SEBI rules for Related Party Transactions: What must be disclosed?
SEBI has clarified what listed companies must share with their audit committees and shareholders before approving Related Party Transactions (RPTs). This move aims to strengthen transparency and protect minority investor interests. If you’re a CFO, company secretary, or compliance officer, here’s what you need to know.
Why SEBI’s clarification matters
To ensure integrity in corporate governance, SEBI amended the LODR Regulations (Regulation 23) and issued a clarification circular on 8 July 2024.
📄 Official Source: SEBI Circular SEBI/HO/CFD/CFD-SEC-1/P/CIR/2024/111
What is a Related Party Transaction (RPT)?
As per SEBI and Companies Act, an RPT is a deal or arrangement between the company and a related party (like promoters, directors, relatives, group entities) involving transfer of resources, services, or obligations.
Examples:
- Sale of goods to a promoter-owned firm
- Rent payments to a director’s relative
- Loans or guarantees to group companies
Keyphrase Subheading:
Before granting approval, the audit committee must now be provided with:
- Details of the transaction: Nature, value, terms, duration
- Justification for why it is in the company’s interest
- Comparative pricing or benchmarking with similar transactions
- Valuation reports, if available
- Names of interested parties and their relationship to the company
- Conflict of interest declaration
- Past transactions with the same party
- Impact on company’s financials
✅ Expert tip: Always include an independent third-party opinion or benchmarking data. This shows arm’s length dealing and reduces regulatory risk.
What must be disclosed to shareholders?
- Name of the related party and relationship
- Nature of concern or interest of directors/KMPs
- Transaction value and tenure
- Rationale for entering the transaction
- Whether it is in ordinary course of business or not
- Approval route: audit committee, board, shareholders
⛳ Practical Tip: Ensure the explanatory statement is easy to understand, especially for minority shareholders. Avoid legalese.
Thresholds to watch (as per Regulation 23)
| Transaction Type | Shareholder Approval Required If: |
|---|---|
| Sale, purchase, supply of goods | Value > 10% of annual consolidated turnover |
| Transfer of resources/services | Value > ₹1,000 crore or 10% of turnover |
| Loans, guarantees | If not on arm’s length or not in ordinary course |
What this means for listed companies
- Template-based reporting is no longer enough.
- SEBI may question inadequate or vague approvals.
Legal Angle: Backed by SEBI LODR Regulations
- Regulation 23(2) and 23(4) of SEBI (LODR) Regulations, 2015
- SEBI Master Circular on LODR (6 July 2023)
- Latest SEBI Circular dated 8 July 2024 (linked above)
These have statutory force under Section 11(1) of SEBI Act, 1992, and violations can lead to penalties.
FAQs
Q1: Are all RPTs required to be disclosed to the audit committee?
Yes, unless exempt under SEBI regulations (e.g. wholly owned subsidiaries), all RPTs must be placed before the audit committee.
Q2: What happens if an RPT is approved without proper disclosure?
SEBI can also impose penalties or demand shareholder ratification.
Q3: Is valuation mandatory for every RPT?
Not always. But for high-value or non-ordinary course transactions, independent valuation is strongly recommended.
Summary
SEBI has clarified mandatory disclosures for Related Party Transactions. Listed companies must now submit detailed transaction info to the audit committee and shareholders for approval.
Final Thoughts
SEBI’s move will raise governance standards and reduce backdoor dealings. For companies, it’s time to revisit internal controls and board processes around RPTs. For compliance professionals, documentation is your best defence.
Need help drafting your audit committee or shareholder RPT documents?
👉 [Talk to Efiletax – Your Compliance Partner]
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