SEBI Related-Party Transaction Rule Changes – New Compliance Model
SEBI Related-Party Transaction Rule Changes – New Compliance Model
Executive Summary / Key Highlights – SEBI Related-Party Transaction Rule Changes
- SEBI proposes scale-based thresholds for material related-party transactions (RPTs), replacing the current one-size-fits-all rule.
- Move expected to reduce compliance burden for large listed companies by up to 60% for routine intra-group transactions.
- Experts welcome reform but warn of subsidiary loopholes, deal routing, and regulatory arbitrage.
- New rules introduce proportional thresholds based on turnover and relaxed small-value deal reporting.
- Audit committee scrutiny remains for all RPTs; shareholder approval still required for truly material deals.
- Public consultation open; final rules could reshape India’s corporate governance landscape.
Definition and Scope – SEBI Related-Party Transaction Rule Changes
Related-Party Transaction (RPT): Defined under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (DoFollow), RPTs are transactions between a company and its related parties, including promoters, directors, subsidiaries, associates, and joint ventures.
Scope of SEBI’s Proposals:
- Apply to over 2,000 listed companies.
- Replace the flat ₹1,000 crore / 10% turnover threshold with a scale-based turnover-linked model.
- Adjust thresholds for parent and subsidiary companies differently, closing certain gaps but creating possible complexity.
- Relax reporting for small-value RPTs to reduce red tape.
Applicability of SEBI Related-Party Transaction Rule Changes
| Entity Type | Applicability |
|---|---|
| Top 100 Listed Companies by Market Cap | Significant compliance relief expected; up to 60% fewer shareholder approvals for routine intra-group deals. |
| All Other Listed Entities | New proportional thresholds apply. |
| Subsidiaries | Threshold based on lower of parent/subsidiary turnover; new subsidiaries to use net worth for calculation. |
| Small-Value Transactions | Exempt from detailed reporting if below 1% of turnover or ₹10 crore (whichever is lower). |
Step-by-Step Process – Compliance Under SEBI Related-Party Transaction Rule Changes
| Step | Action | Stakeholder |
|---|---|---|
| 1 | Identify potential RPTs for the financial year. | Company Secretary / Finance Dept. |
| 2 | Calculate applicable scale-based threshold based on turnover. | Finance Dept. |
| 3 | For subsidiaries, determine lower threshold between parent and subsidiary. | Consolidation Team |
| 4 | Obtain Audit Committee approval for all RPTs, regardless of materiality. | Audit Committee |
| 5 | If RPT is material, seek shareholder approval via special resolution. | Board / Company Secretary |
| 6 | Disclose approved RPTs in quarterly compliance reports and on company website. | Compliance Officer |
Eligibility Criteria & Required Documents – SEBI Related-Party Transaction Rule Changes
| Eligibility / Requirement | Supporting Documents |
|---|---|
| Turnover or net worth calculation for threshold setting | Audited financial statements |
| Related party identification | Board-approved related party register |
| Transaction details for Audit Committee | Board notes, agreements, valuation reports |
| Shareholder approval documentation (if applicable) | Special resolution, explanatory statement |
| Small-value RPT exemption | Calculation sheet showing threshold compliance |
Fees, Penalties & Timelines – SEBI Related-Party Transaction Rule Changes
| Aspect | Details |
|---|---|
| Implementation Timeline | After SEBI finalises consultation paper; transition period likely |
| Non-Compliance Penalties | Monetary fines, stock exchange penalties, possible investor lawsuits |
| Approval Timelines | Audit Committee before execution; shareholder approval before or within 3 months of transaction |
| Disclosure Timelines | Within 15 days of quarter-end for quarterly reports; immediate website update |
Case Studies – Impact of SEBI Related-Party Transaction Rule Changes
Case Study 1 – Large Conglomerate
A company with ₹50,000 crore turnover previously required shareholder approval for any RPT over ₹1,000 crore. Under the new model, the threshold rises to ₹3,250 crore, significantly reducing approval frequency for routine internal service arrangements.
Case Study 2 – Subsidiary Structuring Risk
A group routes a ₹500 crore deal through a subsidiary with a higher individual threshold, avoiding shareholder approval — illustrating the importance of aligning enforcement with anti-avoidance safeguards.
Regulatory Updates – SEBI Related-Party Transaction Rule Changes (2025)
- Turnover-Based Thresholds:
- Up to ₹20,000 crore: 10% of turnover.
- ₹20,001–₹40,000 crore: ₹2,000 crore + 5% of turnover above ₹20,000 crore.
- Above ₹40,000 crore: ₹3,000 crore + 2.5% of turnover above ₹40,000 crore (cap ₹5,000 crore).
- Small-Value RPTs: Exemption limit increased from ₹1 crore to ₹10 crore or 1% of turnover.
- Subsidiary Oversight: Lower of parent or subsidiary threshold applies; net worth used for new subsidiaries without financials.
Expert Insights – SEBI Related-Party Transaction Rule Changes
- Ketan Dalal (Katalyst Advisors): Applauds SEBI for easing business and aligning rules with economic scale; believes market valuation discipline deters unfair pricing.
- Shriram Subramanian (InGovern Research): Supports higher thresholds to reduce audit overload, but stresses transparency in disclosures.
- Apurva Kanvinde (Juris Corp): Warns against confusion and creative accounting risks from multiple threshold calculation methods.
- Sujoy Bhatia (Chandhiok & Mahajan): Calls this a “measured recalibration” in line with global best practices like UK proportionality rules.
Conclusion – Balancing Reform and Risk in SEBI Related-Party Transaction Rule Changes
SEBI’s proposals mark a significant shift towards proportionality in RPT regulation, reducing compliance drag for large corporates while retaining key safeguards. However, risk of deal routing through subsidiaries and interpretation loopholes means enforcement will be as important as the framework itself.
At Estabizz Fintech, we help listed companies and corporate groups:
- Interpret and apply scale-based RPT thresholds.
- Prepare disclosure-ready transaction documentation.
- Train Audit Committees for proportional oversight.
📞 Contact our governance advisory team for tailored compliance strategies under SEBI’s evolving RPT framework.
Disclaimer (Estabizz Fintech)
This article is published for informational purposes only and is not legal advice. Companies should seek professional guidance before implementing changes based on SEBI’s proposals.
Frequently Asked Questions (FAQs) – SEBI Related-Party Transaction Rule Changes
Section A – General Understanding
- What is a related-party transaction (RPT) under SEBI rules?
An RPT is a transaction between a company and its related parties, such as promoters, directors, subsidiaries, associates, or joint ventures, as defined in SEBI LODR Regulations. - Why is SEBI changing related-party transaction rules?
To move from a fixed threshold system to a scale-based compliance model that reduces procedural burden for large listed companies while retaining governance safeguards. - When were these proposals announced?
SEBI released the consultation paper on RPT rule changes in early 2025. - Do these changes apply to all companies?
They apply to all listed companies and their subsidiaries, with specific exemptions for small-value transactions. - Are these rules final?
No, they are still proposals open for public consultation before final notification.
Section B – Thresholds & Calculations
- What is the current threshold for material RPTs?
Any RPT exceeding ₹1,000 crore or 10% of annual consolidated turnover, whichever is lower, requires shareholder approval. - How will the new thresholds be calculated?
Based on a scale tied to company turnover, with higher thresholds for larger companies. - What is the threshold for companies with turnover up to ₹20,000 crore?
10% of annual consolidated turnover. - What about companies with turnover between ₹20,001 crore and ₹40,000 crore?
₹2,000 crore plus 5% of turnover above ₹20,000 crore. - What is the threshold for companies above ₹40,000 crore turnover?
₹3,000 crore plus 2.5% of turnover above ₹40,000 crore, capped at ₹5,000 crore.
Section C – Subsidiary Transactions
- How will materiality be calculated for subsidiaries?
Based on the lower of the parent company’s threshold or the subsidiary’s threshold. - What about new subsidiaries without financial data?
Threshold will be calculated based on net worth. - Why is there a risk of misuse in subsidiary thresholds?
Different threshold calculations could allow deal routing to avoid shareholder approvals. - Will wholly-owned subsidiaries be exempt from disclosures?
Yes, but only consolidated, wholly-owned subsidiaries get this exemption. - Are intra-subsidiary transactions covered under the rules?
Yes, unless specifically exempted by SEBI.
Section D – Disclosure Requirements
- Do all RPTs need Audit Committee approval?
Yes, Audit Committee scrutiny remains mandatory for all RPTs. - Will small-value RPTs require disclosure?
No, if they are below 1% of turnover or ₹10 crore, whichever is lower. - When must RPTs be disclosed to stock exchanges?
Within 15 days of the quarter-end as part of quarterly compliance reporting. - Can companies skip shareholder approval if Audit Committee approves?
No, material RPTs still require shareholder approval. - Do blanket approvals have validity periods?
Yes, SEBI proposes introducing validity periods for blanket approvals.
Section E – Compliance Implications
- How will this reduce compliance burden?
By raising thresholds for large companies, routine low-risk transactions won’t require shareholder votes. - Will it lower governance standards?
Not necessarily — Audit Committee review and disclosure obligations remain in place. - What’s the risk of gaming the system?
Deal routing through subsidiaries and selective structuring to avoid thresholds. - How can companies avoid compliance mistakes?
By standardising threshold calculations across group entities and keeping full disclosure records. - Will SEBI increase enforcement?
Yes, stricter enforcement is expected to prevent misuse.
Section F – Global Comparison
- Do other countries use turnover-based thresholds?
Yes, markets like the UK use proportionality principles for corporate governance compliance. - Will these changes align India with global practices?
Yes, they bring India closer to UK and OECD governance standards. - Are Indian thresholds stricter than global norms?
Historically yes, but the new model balances proportionality with oversight. - What is proportionality in governance?
Applying compliance obligations based on company size and risk exposure. - Is India unique in using subsidiary materiality rules?
Many jurisdictions assess materiality at both group and entity levels.
Section G – Small-Value Transactions
- What is the new exemption limit for small-value RPTs?
Below 1% of turnover or ₹10 crore, whichever is lower. - What was the earlier limit?
₹1 crore. - Why is this exemption important?
It reduces red tape for low-risk, routine transactions. - Could this exemption be misused?
Yes, by splitting transactions to remain under the limit. - How can regulators prevent misuse?
By monitoring transaction patterns and related party linkages.
Section H – Risk & Enforcement
- What are the risks if these rules are poorly enforced?
Dilution of shareholder rights and increased related-party conflicts. - Who enforces SEBI RPT rules?
Stock exchanges and SEBI itself. - What penalties apply for non-compliance?
Monetary fines, stock exchange sanctions, and potential investor litigation. - How often are companies audited for RPT compliance?
At least annually, plus periodic regulatory inspections. - Do investors have recourse for undisclosed RPTs?
Yes, they can file complaints with SEBI or approach NCLT.
Section I – Practical Guidance for Companies
- How should companies prepare for the new rules?
Review transaction patterns, adjust approval processes, and train Audit Committees. - Should companies unify thresholds across subsidiaries?
Yes, to reduce risk of confusion and regulatory questions. - What role does the Company Secretary play?
Coordinating disclosures, approvals, and compliance records. - Can technology help in RPT compliance?
Yes, governance dashboards can flag potential material transactions. - Should companies seek legal advice?
Yes, to interpret complex subsidiary rules and prevent unintentional breaches.
Section J – Investor Perspective
- How will these changes affect minority shareholders?
Potentially positive if transparency improves, but risk of reduced voting on key deals. - Will shareholders still be able to block questionable RPTs?
Yes, for material transactions above new thresholds. - What should investors watch for?
Large transactions routed through subsidiaries and sudden threshold changes. - Will transparency improve under the new rules?
Yes, if disclosures are consistent and timely. - When will investors see these rules in action?
Once SEBI finalises them after the consultation process.
