Related party transaction compliance and governance advisory
RPT identification, materiality assessment, audit committee and shareholder approval, arm length pricing, SEBI LODR Regulation 23 compliance and disclosure obligations.
RPT regulatory framework
- Companies Act Section 188: prescribed RPTs requiring board and (if material) shareholder approval.
- SEBI LODR Regulation 23 (as amended April 2022): RPT definition expanded to include transactions by subsidiaries.
- Material RPT threshold (Schedule XII, as amended in 2025): scales with annual consolidated turnover, from 10% of turnover for entities with turnover up to INR 20,000 crore to INR 3,000 crore plus 2.5% of turnover above INR 40,000 crore, capped at INR 5,000 crore, for larger entities.
- Transfer pricing documentation requirement for cross border related party transactions under Income Tax Act.
Approval and governance mechanism
- Audit committee omnibus approval framework: criteria, reporting and quarterly review.
- Shareholder approval: ordinary resolution with related parties excluded from voting.
- Board resolution and disclosure in Board Report under Section 134 and Form AOC 2.
- Circular resolution restrictions for RPT approval.
Arm length pricing and documentation
- Arm length pricing analysis for RPTs: comparable uncontrolled price, resale price, cost plus and transactional net margin methods.
- Transfer pricing documentation (local file, master file, CbCR) for cross border RPTs exceeding thresholds.
- SEBI RPT pricing norms for listed entities and fairness opinion requirements.
- Valuation report for RPTs involving capital transactions (equity, debt, assets).
How AMLEGALS assists
- RPT policy design, materiality threshold calibration and annual review.
- Audit committee advisory on omnibus approval framework.
- RPT compliance audit and disclosure review.
- Transfer pricing coordination for cross border RPTs.
What clients ask before they commit.
Short, direct, on the record.
01What transactions qualify as related party transactions under Indian law?
Under Companies Act Section 188: sale/purchase/supply of goods or materials, selling/buying property, leasing property, availing/rendering services, appointment to office, and remuneration to related parties. SEBI LODR Regulation 23 has a broader definition covering any transaction between a listed entity (or its subsidiary) and a related party involving transfer of resources, services or obligations.
02Who is a related party under SEBI LODR Regulations?
Related party includes: any person or entity forming part of the promoter or promoter group, any person or entity holding 20% or more (10% from April 2023) equity in the listed entity, and any person or entity as defined under Section 2(76) of the Companies Act (directors, KMPs, their relatives, and entities in which they have significant influence).
03What is the penalty for non compliance with RPT provisions?
Under Companies Act: contract is voidable at the option of the board, and the director or any other employee who authorised the transaction can be imprisoned up to 1 year and fined INR 25,000 to INR 5 lakh. Under SEBI LODR: non compliance attracts SEBI enforcement action including penalties under the SEBI Act.
04Can a wholly owned subsidiary RPT be exempted from shareholder approval?
Yes. SEBI LODR Regulation 23(5) exempts RPTs between a listed entity and its wholly owned subsidiary from the requirement of shareholder approval, provided the financial statements of the subsidiary are consolidated with the listed entity. The audit committee approval requirement still applies.
Related resources
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