RPT Aggregation Irrespective of Common Contract: Implications of SAT’s Linde India Order

[Suditi is an advocate based in New Delhi and a graduate from the Faculty of Law, University of Delhi.]

In December 2025, the Securities Appellate Tribunal (SAT) upheld the regulatory mandate to aggregate all transactions with a related party during a financial year when assessing the materiality of related party transactions (RPTs), irrespective of whether or not such transactions have been executed under a common contract. Dismissing the appeal filed by Linde India Limited (Linde India), SAT clarified several issues of regulatory significance, which had attracted industry attention in Linde India Limited v. SEBI (SAT Order).

RPTs in India are governed by a combination of statutory provisions and regulations, including the Companies Act 2013 (Companies Act) and the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 (LODR Regulations). A ‘related party’ can be understood, reading together Section 2(76) of the Companies Act and Regulation 2(1)(zb) of the LODR Regulations, as an entity with the capacity to influence the decision-makers of a given company. These entities include the director or key managerial personnel of a given company, some other company wherein such director or manager is a member or director, as well as the holding, subsidiary or associate companies of a given company. 

An RPT itself is a transaction involving a ‘transfer of resources, services or obligations’ between a listed entity (or its subsidiary), and its related party, under Regulation 2(1)(zc) of the LODR Regulations. Recognizing that RPTs involve a relationship of influence between the decision-makers, which may not always be in the interest of public shareholders, Section 188 of the Companies Act imposes conditions upon RPTs. Correspondingly, Regulation 23 of the LODR Regulations lays down the procedural requirements and conditions applicable specifically to listed entities entering into RPTs. One such condition involves ‘materiality’: RPTs assessed as ‘material’, that is, exceeding a prescribed financial threshold, must receive the prior approval of shareholders.

In light of the above context, this article examines the SAT Order’s interpretation of the RPT framework with respect to materiality assessment, and delineates regulatory implications for industry stakeholders.

Factual Background

Linde India, a listed entity on the National Stock Exchange (NSE) since 1999, became a subsidiary of Linde AG in 2006. Following the 2018 global merger of Linde AG and Praxair Inc., Linde Plc. was formed, which acquired two subsidiaries in India: Linde India and Praxair India Private Limited (Praxair India). The Competition Commission of India approved the merger with directions to both subsidiary companies to divest from specific territories. 

Subsequently, Linde India and Praxair India formed a joint venture company, Linde South Asia Private Limited (LSASPL) under a Joint Venture and Shareholders’ Agreement executed on 24 March 2020. The agreement allocated territories and products to the two entities, with existing business subject to the incumbency principle, and new business determined geographically. At its 85^th Annual General Meeting (AGM), Linde India sought omnibus shareholder approval under Section 188 of the Companies Act for prospective RPTs with Praxair India and LSASPL. Public shareholders rejected this resolution. Thereafter, Linde India adopted an understanding of the RPT framework which allowed it to dispense with the requirement of shareholder approval altogether.

Following investor complaints, the Securities and Exchange Board of India (SEBI) initiated investigation in October 2023. While Linde India filed a writ petition before the Bombay High Court challenging the investigation, SEBI passed an interim ex parte order in April 2024, which was set aside by SAT in May 2024, with a direction to complete the investigation within 30 days. Subsequently, SEBI’s Whole Time Member passed an order on 24 July 2024 (SEBI WTM Order), which rejected Linde India’s interpretation of the relevant RPT provisions. Linde India appealed against the SEBI WTM Order before SAT.

Interpretation Settled: Aggregation Irrespective of a Common Contract

Regulation 23(1) of the LODR Regulations classifies RPTs into two categories on the basis of approval requirements: non-material RPTs requiring Audit Committee approval, and material RPTs requiring prior shareholder approval. It further stipulates that, for a transaction with a related party to be considered ‘material’, such “transaction(s)… individually or taken together with previous transactions during a financial year” must exceed the prescribed materiality threshold. Since Regulation 23(1) provides for aggregating multiple transactions with a related party when assessing materiality, Linde India had contended that there ought to be a nexus between such transactions.

In order to establish regulatory intent for such a nexus, Linde India relied upon a clarificatory limb of Regulation 2(1)(zc) of the LODR Regulations, which explains that ‘transaction’ with a related party is to be construed as including a ‘group of transactions in a contract'. It was argued that this limitation must be read into Regulation 23(1) of the LODR Regulations and thus, aggregation of transactions must be restricted to transactions under a single contract. Aggregating irrespective of such connection, it was suggested, could lead to situations where each transaction, however insignificant, would require shareholder approval once the prescribed threshold was reached, increasing compliance burden.

Rejecting this argument, SAT has emphasised that, in the face of clear regulatory mandates, literal interpretation is to be adopted. The phrase “in a contract” has been interpreted as protecting investors by ensuring that every transaction in a contract is treated in the same manner as is provided for RPTs, resolving remaining ambiguity. Noting that LODR Regulations already exclude certain transactions from materiality assessment, SAT has refused to permit any additional exclusion of one contract when calculating the materiality of another contract. SAT has noted that the alternate interpretation suggested by Linde India would allow entities to structure their transactions across several contracts to circumvent prescribed thresholds. Holding the fostering of such mischief to be inconsistent with the regulatory objective of protecting non-interested shareholders in high-value RPTs, a higher standard of disclosure for listed companies has been held necessary. 

When Business Allocation Amounts to RPT

For industry stakeholders, a crucial takeaway from the SAT Order will be the treatment of business allocation arrangements between related parties. Linde India had claimed that the business allocation between itself and Praxair India did not amount to transfer of ‘resources, services or obligations’ as defined by Regulation 2(1)(zc) of the LODR Regulations and could not be treated as an RPT. As per the agreement, business in the Southern, Central and select Western parts of India had been allocated to Praxair India, whereas Linde India had received business in the Northern, Eastern and remaining Western parts of the country. Linde India had retained the project engineering business, whereas Praxair India had been allocated business gas manufacturing. SAT has noted that both parties had been dealing independently in these regions and products before this business allocation, with their own facilities, goodwill and future business plans. In light of these facts, SAT has held that where there is a transfer of “profit making apparatus”, along with assets and liabilities such as goodwill, order books and future cash flow, such transfer amounts to a ‘transaction’ for the purpose of materiality assessment. 

Valuation of Future Business in the RPT Context

Future business- whether foregone or gained- has been held capable of valuation. Upholding the SEBI WTM Order’s direction for NSE-led valuation, SAT has noted that business allocations amounting to transfers between related parties should be preceded by valuation for informed decision-making. Rejecting the notion that such valuation is impossible, SAT has observed that prior independent valuation is a standard commercial practice in business transfers, mergers and acquisitions, with the Discounted Cash Flow Method being the most common method for estimating future cash flow. In holding that the same practice is applicable to RPTs as well, SAT has emphasized that withdrawing from existing geographies and product-range without compensation has a quantifiable value impact.

Additional Implications: Guidance Notes, Industry Practice and Prior Conduct

Linde India had relied upon a Guidance Note issued by the Institute of Company Secretaries of India (ICSI) dated 20 March 2019, to support its interpretation of LODR Regulations. On the other hand, the SEBI WTM Order had referred to an Informal Guidance issued on 31 May 2023 by SEBI, which had clarified that guidance given by an authority such as ICSI, where inconsistent with the express provisions of the LODR Regulations, cannot prevail over the regulatory mandate. Although the SAT Order does not specifically engage with this issue, the outcome, along with its emphasis on the “specialized nature” of LODR Regulations and the need for literal interpretation of express provisions, is indicative of the limited persuasive value of guidance notes issued by recognised professional bodies when they are at variance with regulatory obligations.

With respect to ‘industry practice’, the SEBI WTM Order had demonstrated how such practice may be assessed in the RPT context. To evaluate whether Linde India’s interpretation of Regulation 2(1)(zc) of the LODR Regulations aligned with the industry’s, eight listed companies were selected, in each of which, Linde India’s independent directors served on the board. All eight companies were found to have employed a uniform approach of aggregating all transactions when assessing materiality, regardless of a common contract. Linde India characterized this methodology as “insufficient” due to its “cherry-picking” approach. SAT’s non-engagement with this contention suggests that nothing manifestly erroneous was found in this approach of determining ‘industry practice’. 

Finally, SAT’s reliance on Linde India’s own prior conduct carries notable compliance implications. Linde India had convened its 85^th AGM to obtain omnibus shareholder approval for all likely RPTs with Praxair India and LSASPL, which had been denied. Observing that Linde India’s interpretation appeared to have changed thereafter, SAT has held that the entity could not subsequently ratify its non-compliance with the LODR Regulations.

Conclusion

The SAT Order has been issued at an interesting time- within a month of the notification of the SEBI (Listing Obligations and Disclosure Requirements) (Fifth Amendment) Regulations 2025, which have introduced scale-based RPT materiality thresholds. SEBI’s back-testing indicates that such thresholds could reduce the number of material RPTs requiring shareholder approval by 60%, easing compliance burden on listed entities. Amidst concerns regarding reduced oversight, the SAT Order reaffirms the principles of corporate governance by providing for shareholder protection and higher disclosure standards.