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Balancing ease and oversight: decoding India's RPT Reforms

by Anuja Agarwal, Research Head, Japan and India (edited by Dr. Helena Fung, Head of Research and Advocacy)

27 August 2025

Related Party Transactions (RPTs) are undertaken between a company and parties related to it, including subsidiaries, but also promoters ¹, key management personnel, or entities controlled by related parties. These transactions come in many forms including sales, purchases, loans, asset transfers, as well as guarantees and other financial arrangements.

In India, the significance of monitoring RPTs is particularly pronounced due to the high concentration of promoter ownership in listed companies ². Promoters often hold majority stakes and exercise substantial control, giving rise to the risk that RPTs may be used as tools for tunnelling—transferring value out of the company to benefit insiders at the expense of minority shareholders ³. High-profile corporate failures linked to RPT misuse in India and globally underline these risks; the Enron scandal in the U.S. and the Satyam Computer Services fraud in India serve as stark reminders ⁴. In Satyam’s case, the company engaged in suspicious RPTs with firms controlled by the promoters, which concealed the company’s true financial position and precipitated a collapse once the fraud was uncovered. Such cases highlight how RPTs, when misused, contribute to earnings mismanagement and loss of investor value and trust.

Evolution of RPT norms in India since 2013

The regulatory evolution of RPT norms in India has been marked by increasing stringency since 2013 as summarized in the table below (Table 1). The recent establishment of a dedicated open access portal for RPT analysis set up under SEBI guidance by domestic proxy advisory firms is both reflective of the prevalence and importance of RPTs in the Indian market and a welcome tool for investor awareness and analysis ⁵ .

Table 1: Evolution of RPT regulatory provisions since 2013

Research indicates the positive impact stemming from the introduction of stricter regulations in India. A study ⁶ analysing 78 non-financial companies showed a significant increase in the disclosed value of RPTs after the Companies Act 2013 came into effect, signalling improved compliance and transparency. The average annual value of RPTs reported during 2013-2015 was markedly higher than in the preceding period (2009-2012), reflective of both increased reporting and potentially better visibility of these transactions in financial statements. Group companies, characterized by concentrated ownership and multiple subsidiaries, not surprisingly reported higher values of RPTs compared with standalone firms.

The chart below provided by IiAS ⁷ (Institutional Investor Advisory Services) presents a sample of proposals rejected by shareholders during the 2024 proxy season, some of which relate to RPTs.

Even in instances where RPTs are approved by shareholders, recent high-profile cases in India involving companies such as Hyundai, Paytm and Linde India, have placed renewed attention on governance challenges. These transactions have been scrutinized for their scale, terms and impact on minority shareholders, reinforcing the necessity of robust frameworks which balance business efficiency with investor protection, demonstrating the importance of this topic for corporate India.

1) Hyundai Motor India RPTs (2025)

Hyundai Motor India (HMI) sought shareholder approval for RPTs worth over Rs 31,000 crore (approximately US$ 3.5 billion) ⁸, nearly 40% of its annual revenue. Major transactions included a Rs 12,525 crore (US$1.4 billion) deal with Mobis India, which has no clients other than HMI, raising concerns about transparency and whether the arrangements were of genuine benefit to shareholders. Another deal with Hyundai Engineering & Construction (HEC) India LLP, a small affiliate with minimal assets and employees, involved contracts worth Rs 3,000 crore (US$ 340 million). Proxy advisory firms questioned whether HEC had the financial capacity to manage this capital or was merely a pass-through entity and whether the transaction conflicted with shareholder interests. These transactions sparked intense scrutiny over pricing, independent valuation and governance practices at Hyundai India.

2) Paytm RPT scrutiny (2024)

SEBI issued an administrative warning to One 97 Communications Limited (Paytm’s parent company) after scrutiny of RPTs involving Paytm Payments Bank Ltd. This case demonstrates SEBI’s increasing regulatory oversight of RPT disclosures and approval processes, aiming to protect minority shareholders and promote transparency in listed companies’ dealings with related parties.

3) Linde India RPT controversy (2024)

Linde India faced regulatory challenges when shareholder approval was required for material RPTs but the company attempted to proceed with transactions despite shareholder opposition. SEBI reinforced strict compliance with RPT rules, emphasizing that shareholder approvals are critical and transactions cannot bypass these legal requirements. This situation indicates increased regulatory vigilance over RPT governance and the need for companies to align with shareholders via formal approval mechanisms.

SEBI consultation on RPTs and “Ease of doing business”

On August 4, 2025, SEBI released a consultation paper proposing amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, and related circulars. The proposals aim to streamline compliance for companies while strengthening the governance of Related Party Transactions (RPTs) and protecting minority shareholder rights. This initiative aligns with the regulatory focus on "Ease of Doing Business."

Given India’s concentrated corporate ownership and historical misuse of RPTs, which attract significant scrutiny from global investors, the consultation seeks to balance reduced administrative and compliance burdens with robust oversight. Insufficient oversight could limit minority investors' access to critical information, potentially hindering informed investment and voting decisions.

Below, we outline SEBI’s proposals and provide our perspective on the amendments.

Proposal 1: Materiality thresholds

Proposal: Introduce scale-based thresholds for material RPTs linked to a company’s annual consolidated turnover to replace the flat Rs 1,000 crore or 10% turnover threshold. The tiered thresholds are:

Up to Rs 20,000 crore (US$ 2.28 billion): 10% of turnover
Rs 20,001-40,000 crore: Rs 2,000 crore (US$ 230 million): + 5% of turnover above Rs 20,000 crore
Above Rs 40,000 crore: Rs 3,000 crore + 2.5% of turnover above Rs 40,000 crore, capped at Rs 5,000 crore (US$ 570 million)

Rationale: The current absolute threshold is onerous for large companies with high turnover and for whom Rs 1,000 Crore may not represent substantial transactions.

The proposed “scale-based materiality threshold” approach aligns materiality with company size and reduces compliance burdens. Back-tested data provided by SEBI indicates that the proposal would equate to a 60% reduction in material RPT approvals.

ACGA comments: Whilst this is a positive step towards proportionate regulation, ACGA has expressed concerns about using turnover alone as a measure of materiality as this metric alone may not reflect the financial impact of transactions accurately across industries. In 2020, a working group set up by SEBI to address RPTs had suggested a more nuanced multi-metric approach for determining materiality thresholds for related party transactions contrary to the single metric turnover-based materiality approach ⁹.

In India, Regulation 30 of the SEBI LODR already offers a principle based multi-metric approach based on various elements including net worth, turnover, absolute value of profit or loss after tax for determining materiality of transactions in listed companies ¹⁰. In our response to the consultation, we have proposed that SEBI consider extending this approach to RPTs rather than simply relying on turnover as a single metric to define materiality.

We have further advocated that the adoption of a multi-metric threshold system based on relative percentages rather than absolute values could obviate the need to create materiality tiers based on company turnover thresholds, reducing complexity. This would result in a significantly simpler regulatory framework that automatically scales with company size and would not require frequent recalibration. As we note above, this approach is consistent with existing materiality assessments under the LODR whilst providing protection for minority shareholders on a proportionate, exposure-adjusted basis.

In addition to existing precedent in the LODR, global best practice ¹¹ indicates that single-metric materiality thresholds may not be sufficient to capture the diversity of transaction types and corporate structures. Further, over-reliance on turnover as the sole determinant of materiality may give rise to potential under- or over-inclusiveness, particularly for asset-heavy firms or financial institutions where turnover is often decoupled from balance sheet size, net worth, or the economic substance of transactions.

A blend of financial ratios more accurately aligns regulatory oversight with risk and potential for abuse in RPTs, reduces manipulation of thresholds, and enables industry and transaction driven analysis. By way of example, Hong Kong Exchange Listing Rule 14A.76 follows a similar multi-metric approach, taking into account a number of financial ratios in determining the materiality of RPTs, including assets, revenues, consideration and equity capital.

We have therefore recommended that SEBI consider an RPT to be material, if the quantum exceeds 10% of consolidated revenues, assets, or net worth or Rs 5,000 crores, whichever is lower. This approach, we believe, would meet SEBI’s dual objectives of providing administrative relief to larger organisations whilst focusing shareholder attention on relevant transactions which merit further scrutiny.

We further propose that SEBI back test this framework for comparison with the data provided for the proposed tiered approach in the consultation document which indicates that the proposed changes would reduce material RPTs by 60% in disclosed transactions. We anticipate the results to be similar.

Proposal 2: Thresholds for subsidiary RPTs

Proposal: For subsidiaries, audit committee approval of RPTs should be required if transaction values exceed the lower of 10% of standalone turnover/net worth of the subsidiary or the materiality threshold of the parent company. A small-value exemption of Rs 1 crore (US$ 114,000) is maintained.

Rationale: The proposed amendment addresses gaps where subsidiary transactions material to the listed entity, might not breach subsidiary-level materiality thresholds (e.g., 10% of turnover), ensuring these transactions undergo audit committee review for enhanced oversight.

ACGA comments: Overall, the proposal bolsters audit committee oversight, aligning with principles of consolidated accountability while aligning with the principle of ease of business. The net worth provision is pragmatic for new entities, but frequent certifications may increase administrative complexity and cost relative to commercial benefit, potentially hindering efficient operation. SEBI may consider exemptions permitting annual or semi-annual rather than quarterly certifications.

Proposal 3: Relaxation in disclosure requirements for small-value RPTs

Proposal: For RPTs not exceeding the lower of 1% of annual consolidated turnover or Rs 10 crore, a simplified disclosure format is proposed, easing information requirements compared with the current Industry Standards Note (ISN) effective from September 2025.

ACGA comments: While ACGA appreciates the intent to reduce compliance burdens, even smaller RPTs can sometimes carry significant governance implications beyond their financial value. Particularly concerning are recurring low-value “phantom” RPTs which may seem immaterial individually but, in aggregate, could enable systematic value extraction, undermining minority shareholder interests. We therefore recommend that, even if SEBI adopts a tiered materiality approach, audit committees should retain and exercise the authority to request additional information when deemed necessary to ensure proper oversight.

Proposal 4: Validity of Shareholders’ Omnibus Approval for RPTs

Proposal: The omnibus approval granted by shareholders for material RPTs in an Annual General Meeting (AGM) shall be valid up to the next AGM or 15 months, whichever is earlier. For approvals by shareholders in other general meetings, the validity shall not exceed one year. This clarifies existing master circular provisions by embedding them in regulations.

ACGA Comments: We believe that the proposed amendment reflects a clarification of the existing rule rather than a variation or introduction of new regulation. Embedding these practical clarifications in regulations enhances legal clarity and facilitates compliance.

Proposal 5: Exemptions and Definitions

Proposal: Amend the exemption regarding retail purchases to explicitly include directors, key managerial personnel (KMPs), and their relatives, ensuring uniform treatment. Clarify that exemptions for transactions between holding companies and wholly owned subsidiaries apply only when the holding company is listed.

Comments: These amendments address inconsistencies in current wording and close existing loopholes.

ACGA’s further recommendations:

1. Specific consideration of royalty payments

Whilst we are broadly supportive of the proposals, subject to robust enforcement and relevant considerations outlined above, the consultation paper conspicuously omits a detailed discussion on RPT-related royalty payments, a critical issue in India. Historically, royalty payments to related parties—often involving promoters or holding companies—have been an avenue for value diversion, raising concerns over rates, rationale, and transparency. SEBI’s 2019 amendment ¹² mandated that royalty payments exceeding 5% of turnover qualify as material RPTs requiring shareholder approval. Yet, a recent study by SEBI revealed widespread inadequate disclosure on royalty rationale and rates, weakening governance safeguards ¹³. The study identified that such payments had doubled in the past decade to Rs 10,779 crores (approximately US$ 1.2 billion) in financial year 2023. A quarter of firms pay royalties exceeding 20% of net profits, raising concerns on transparency, governance, and shareholder value in relation to prioritisation of royalty payments.

Importantly, we note instances of shareholder dissent to royalty payouts in India, for example at Hindustan Unilever Limited (HUL) and Nestlè India. In an open letter to Indian regulators dated 22 April 2025, ACGA members advocated for the introduction of double materiality thresholds (covering both value and counterparty significance) for royalty payments.

2. Strengthening independent director oversight for RPT governance

In India, under Regulation 23(2) of the SEBI listing rules RPTs can only be approved by independent directors of the audit committee. However, the true independence of these directors is frequently questioned, raising concerns about their ability to provide effective oversight on whether RPTs are conducted on commercial terms or might negatively affect minority shareholders. Recently, statements have been made by SEBI’s chair, Tuhin Kanta Pandey calling for greater effectiveness of independent directors and strengthening governance mechanisms ¹⁴. It is important that shareholder oversight is not weakened on RPTs before SEBI has been able to put in place concrete efforts to improve the independence and effectiveness of audit committees.

Additionally, since audit committees meet three to four times a year and are required under LODR Regulation 23(2) to approve all RPTs, including those falling under the proposed threshold for shareholder approval, SEBI may consider imposing a cap on board positions for audit committee members to enable more effective oversight and strengthened review process.

Conclusion

In summary, ACGA recommends the following in relation to SEBI’s proposals to strengthen the overall governance of RPTs:

Adopt a multi-metric approach to identifying material transactions, incorporating the lower of 10% of turnover, net assets and net worth or Rs 5,000 crore, as a proportionate approach to shareholder oversight and transparency.
Strengthen audit committee independence and limit multiple board memberships.
Empowering audit committees to request more information for smaller exempt transactions even where these are within scope of the proposed thresholds.
Consider introducing a dual threshold for royalty payments.

The SEBI consultation paper proposes thoughtful reforms that respond to stakeholder concerns for easing compliance burdens, especially for larger entities, while striving to maintain robust investor protection frameworks. Whilst we welcome the pragmatism of the proposed changes, however, close scrutiny of RPTs remains essential. Constituting core shareholder protections, this is central to the regulatory process to maintain transparency, mitigate potential conflicts and avoid any unintended weakening of oversight mechanisms.

Footnotes

1. A term denoting controlling shareholders in an Indian context.

2. https://www.business-standard.com/markets/news/india-inc-promoter-holdings-continue-to-fall-but-experts-see-no-red-flags-125051300571_1.html

3. Aharony J., Wang J., Yuan H. (2010). Tunneling as an incentive for earnings management during the IPO process in China. Journal of Accounting and Public Policy, 29, 1–26. Crossref Google Scholar Auditors in on Satyam Fraud: CBI. (2009, December 7). Mint. https://www.livemint.com/Home-Page/jS33BnPzXSMnwbx9cFtplN/Auditors-in-on-Satyam-fraud-CBI.html. Google Scholar Berkman H., Cole R. A., Fu L. J. (2009). Expropriation through loan guarantees to related parties: Evidence from China. Journal of Banking & Finance, 33, 141–156.

4. https://www.scirp.org/journal/paperinformation?paperid=30220

5. https://rptanalysis.com/

6. (PDF) Analysis of related party transactions in India: A group and non-group company perspective

7. 2024 Shareholder Meetings Review Data

8. 1 crore rupees (which is Rs 10,000,000) equals about US$114,500. Rs 8.73 crore is US$1m at the current conversion rate.

9. SEBI | Report of the Working Group on Related Party Transactions

10. SEBI | Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 [Last amended on May 01, 2025]

11. OECD Corporate Governance Factbook 2023 (EN) , Flexibility and Proportionality in Corporate Governance (EN)

12. Regulation 23(1A) states that payments made to a related party for brand or royalty usage will be considered material, and thus require shareholder approval, only if such payments exceed 'five per cent of the annual consolidated turnover of the listed entity.

13. https://www.sebi.gov.in/reports-and-statistics/research/nov-2024/study-analysis-of-royalty-payments-by-listed-companies-to-related-parties_88517.html

14. Sebi Chief Advocates for Enhanced Roles of Independent Directors in Corporate Governance, ETCFO

About the Author(s)

Anuja Agarwal
Research Head, Japan and India, ACGA

Anuja Agarwal has joined ACGA to help in Advocacy and Research for Japan and India. Anuja finished her MBA from IIMA in 2004 and joined BoFA in Hong Kong. She worked successfully on sell side as a derivatives prop trader and made markets for vanilla and exotic derivatives. She had a break from Wall Street with three young kids and ran a small startup on financial literacy where she was featured on Forbes, SCMP, Radio HK. Since 2016 she joined a multimanager quant fund and since then has worked in senior buyside roles at funds. She is passionate about integrating ESG strategies with fundamental views and has experience in PRI Disclosures, Stewardship and Proxy voting. She has been a mentor for Amber Foundation, 100WF and a Board advisory for a reusable cutlery company Recube.hk. She is a ESG CFA certificate holder and a Talent4Impact Fellow. She is a fitness freak and has completed Greenpower (50k), Moon trekker (42k), UNICEF (20k) races.

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Balancing ease and oversight: decoding India's RPT Reforms

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