Related-party transactions under Section 188 of the Companies Act and Regulation 23 of SEBI LODR require prior audit-committee approval, board approval and, for material transactions, shareholder approval. Non-compliance renders the transaction voidable and officers personally liable.
Related-party transactions are among the most regulated corporate actions in Indian company law. Section 188 of the Companies Act 2013 and Regulation 23 of the SEBI LODR Regulations 2015 together create a multi-layered approval framework: identification of related parties (Section 2(76)), determination of whether the transaction falls within the prescribed categories, prior audit-committee approval (Section 177(4)(iv)), prior board approval (Section 188(1)), and shareholder approval for transactions exceeding prescribed thresholds.
The SEBI LODR amendments effective from April 2022 expanded the definition of related party, tightened the omnibus-approval framework and increased disclosure requirements; the 2025 amendments replaced the flat materiality test with turnover-scaled thresholds. AMLEGALS advises listed entities and unlisted companies on RPT identification, approval protocols, omnibus-approval frameworks, policy drafting, annual disclosure and defence of SEBI and MCA enforcement actions for RPT violations.
Establishing systems to identify related parties and related-party transactions under Section 2(76) and Regulation 2(1)(zb) LODR.
Designing audit-committee, board and shareholder approval protocols with appropriate thresholds and documentation.
Structuring and monitoring omnibus approvals for recurring RPTs within the parameters prescribed by SEBI LODR.
Drafting and updating the RPT policy required under Regulation 23(1) LODR with arm’s-length pricing and materiality criteria.
Preparing RPT disclosures in the board’s report, financial statements and half-yearly submissions to stock exchanges.
Defending against SEBI and MCA proceedings for alleged RPT violations including voidability and officer liability.
Section 188 covers: (a) sale, purchase or supply of goods or materials, (b) selling or buying property, (c) leasing of property, (d) availing or rendering of services, (e) appointment of agents for purchase or sale, (f) related party’s appointment to any office or place of profit, and (g) underwriting the subscription of securities. The thresholds for shareholder approval are prescribed in Rule 15 of the Companies (Meetings of Board and its Powers) Rules 2014.
An RPT entered into without requisite approval is voidable at the option of the board (or of the audit committee in the case of listed entities). If the contract is with a related party to a director, or is authorised by a director, the director is liable to indemnify the company for any loss. Officers in default are liable to fine and, in case of fraud, to imprisonment. SEBI can impose additional penalties for listed entities.
Section 2(76) of the Companies Act defines related party broadly to include directors, KMPs, their relatives, holding/subsidiary/associate/fellow-subsidiary companies, firms and companies in which a director or manager holds directorship/membership. Regulation 2(1)(zb) of SEBI LODR expands this further to include any person or entity belonging to the promoter or promoter group and any entity in which a related party has significant influence.
Under Regulation 23(1) of SEBI LODR, as amended in 2025, a transaction with a related party is material if, individually or together with previous transactions in the financial year, it exceeds the Schedule XII threshold, which scales with annual consolidated turnover: 10% of turnover for listed entities with turnover up to ₹20,000 crore; ₹2,000 crore plus 5% of turnover above ₹20,000 crore for turnover between ₹20,001 crore and ₹40,000 crore; and ₹3,000 crore plus 2.5% of turnover above ₹40,000 crore, or ₹5,000 crore, whichever is lower, for larger entities. Material RPTs require prior shareholder approval by ordinary resolution, and related parties may not vote to approve them.
The audit committee can grant omnibus approval for repetitive RPTs that are in the ordinary course of business and at arm’s length. The omnibus approval must specify the maximum value, the duration (one financial year), the basis for determining arm’s length and the criteria for the transactions. The actual transactions must be reported to the audit committee for noting. Any transaction exceeding the omnibus parameters requires fresh specific approval.
No. No engagement is treated as accepted until conflicts, scope and terms are confirmed in writing.
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