SEBI’s Revamped RPT Regime: Aligning Oversight With Scale and Transparency

[Ali is a student at National Law Institute University Bhopal.]

On 19 November 2025, the Securities and Exchange Board of India (SEBI) has introduced significant amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 (LODR). These amendments are made in lieu of the changing needs of corporate governance with growing complexity of body corporates and aims at strengthening the governance around related party transactions (RPTs) by reducing the scope of opaque or preferential dealings within corporate groups. These amendments reflect an approach with risk-based oversight, proportional regulation and safeguards for minority shareholders as well.

Regulating RPTs require an intricate approach as, RPTs lie somewhere in the middle of legitimate business needs and potential conflict of interest. These transactions involve any transfer of resources, services, or obligations between a company and persons or entities that are in a position to influence its decision-making such as promoters, directors, key managerial personnel, their relatives, or group companies. Body Corporates enter into RPTs out of commercial necessity and for a smooth functioning of operations. But these transactions can create opportunities for value diversion or unequal treatment of minority shareholders. To tackle such risks, the Companies Act 2013 and LODR prescribe layered controls through audit committee oversight, board scrutiny, and shareholder approval for material transactions.

This article examines the recent amendments made by SEBI to LODR framework governing RPTs, analyzing the substantive changes and their broader governance implications. It further explores whether SEBI’s revised framework adequately balances flexibility for companies with the need for robust protections against abusive RPT structures.

Key Amendments to LODR

Revision to the retail purchase exemption

The SEBI has revised the definition clause related to retail purchase by the insiders given under Regulation 2(1)(zc)(e) of the LODR. Earlier, the clause exempted retail purchase made by the directors or the employees of a listed entity or its subsidiaries, provided that the transaction did not establish a business relationship and the terms offered were uniform for all the employees and directors. The main aim for inclusion of such provision was to exclude ordinary consumer like transactions from the ambit of RPTs, such as buying a product of the company at a standard price set for employees.

With the amendments in place, SEBI has expanded and refined this exemption by extending the exemption to retail purchases by directors, key managerial personnel (KMP), and their relatives. While it has also narrowed down the category of individuals that are covered in the provision by removing employees from the list of primary purchasers. In addition to this, the condition pertaining to uniform term has also been widened. Earlier, the uniformity of price was required for directors and employees but post amendment, this has been extended to KMP and the relatives of directors and KMP.

The amendment recognises that KMP and their relatives may hold positions that potentially influence sensitive commercial decisions, therefore, a closer look will be required if such persons obtain benefits that are not generally available to others. At the same time, exempting employees from the main exemption will ensure that only those persons with actual potential influence over commercial decisions fall under the regulatory oversight, but not actual employee purchase transactions, which will continue to remain purely as consumer transactions. This will align this exemption with the original intention of avoiding indirect or disguised RPTs.

Introduction of a turnover-linked materiality framework

SEBI has introduced a new mechanism for determining whether a RPT is “material” and subject to the provisions of LODR. Until now, the LODR provided for a fixed benchmark under Regulation 23(1) i.e., an RPT was considered to be material if it exceeded one thousand crore rupees or ten percent of the listed entity’s annual consolidated turnover, whichever was lower. This approach, was simple and had a uniform application but it proved to be inadequate for a market where the scale of listed entities varies widely. Large corporate entities easily crossed the fixed monetary threshold, while relatively small entities could undertake large transactions without triggering the oversight.

This mismatch is now addressed by SEBI, by replacing the earlier test with a tiered, turnover-linked framework as set out in the new Schedule XII. Under this system, the threshold increases or

decreases proportionally as per the size of the company as reflected in the table below:

This approach focuses on the assessment of operational scale of a company and avoids the rigid fixed ceiling to prevent routine transactions in large corporations for being categorized as material solely based on their size. The amendment also maintains a check on excessively large transactions by introducing a cap for the highest turnover bracket. SEBI has attempted to create a flexible yet sensitive materiality threshold which is in consonance with the needs of present-day market involving diverse listed entities.

Refinement of audit committee approval requirements

Under Regulation 23(2) of the LODR, all RPTs and subsequent material modifications were required to be approved by the audit committee. SEBI through this Amendment has introduced thresholds that determine when the audit committee of listed entity must review transactions undertaken by its subsidiaries.

There was a consistent concern pertaining to the possibility of routing transactions through subsidiaries or special purpose vehicles (SPV) in a manner that avoided scrutiny at listed entity level. The pre-amendment proviso to Regulation 23(2) provided for approval by audit committee based on a single threshold tied either to the consolidated turnover of the listed entity or, after April 2023, to the subsidiary’s standalone turnover. This could not take into account, the small subsidiaries or SPVs with small operating history, where turnover figures could not provide a rationale for assessing materiality.

In order to address this, SEBI introduced a two-step test. First, an RPT at the level of subsidiary must cross a minimum value of one crore rupees before being considered for approval at the listed entity level. Second, beyond this threshold, the transaction must also exceed the lower of the two values i.e., ten percent of the subsidiary’s standalone turnover or the materiality threshold applicable to the listed parent under Schedule XII. This approach attempts to place even small transactions under scrutiny without burdening the audit committee.

For subsidiaries not having a full year of audited financial statements. The turnover-based test is replaced with a threshold link to value of capital. In such cases, the transaction must exceed ten percent of the aggregate of the paid-up share capital and securities premium of the subsidiary, subject again to the listed entity’s materiality threshold under Schedule XII. By relying on capital value, SEBI has closed the door for transactions that are executed by newly incorporated firms without triggering regulatory scrutiny.

Clarification on shareholder omnibus approvals

One of the safeguards to regulate material RPTs is approval by shareholders. The original framework of LODR under Regulation 23(4) provided that every material RPT shall require a specific shareholder resolution, and not related party shall vote in such resolution. The regulations provide for a strong oversight, but created a barrier for entities involved in recurring RPTs due to commercial necessity. Securing an approval for each transaction consumes time and impede legitimate business operations.

The recent amendment has inserted a new proviso to introduce a clearer mechanism for omnibus approval by shareholders. SEBI now permits shareholders to grant advance approval for material RPTs, subject to validity period depending on the type of meeting convened. In case of an Annual General Meeting (AGM), the validity of approval is until next AGM and in case the approval is obtained in a general meeting other than AGM, the validity lasts for a period of one year from the date of resolution.

This structure ensures that such transactions are reviewed and affirmed by the shareholders in a regular cycle, maintaining accountability without hindering the continuity of operations. The aim for introducing such provision is to strike a balance between flexibility and oversight by removing the hurdle of fresh approval for each transaction which is a part of business operation. This will also promote the ease of doing business (EODB) in India as foreign companies operating through subsidiaries can have smoother operations through omnibus approval.

Clarification on the holding wholly owned subsidiary exemption

The LODR includes a limited exemption for RPTs between a holding company and its wholly owned subsidiary (WOS) under Regulation 23(5)(b) provided that subsidiary’s accounts are consolidated with the holding company and placed before shareholders. The rationale for inclusion of this exemption is that the transactions between a holding company and its WOS generally do not give rise to conflict of interest as no shareholder’s stake is affected. But applicability of the exemption remained uncertain in complex group structures where multiple intermediate entities are included.

Through the recent amendment, the SEBI has added an Explanation to Regulation 23(5), clarifying that the term 'holding-company' under 23(5)(b) specifically refers to a listed holding company. Subsequently, the exemption cannot be invoked for transactions between unlisted intermediate holding companies and their subsidiaries, even when the ultimate parent company is listed. The exemption is further non-applicable to cases where the subsidiary is indirectly owned , or where the subsidiary is not wholly owned by the parent company.

Conclusion

The recent amendments by SEBI in the LODR aligns with the effort to maintain the governance standards in response to changing realities of the market. By introducing a turnover-linked materiality system, strengthening oversight in subsidiary level transactions and clarifying the application of omnibus approvals and holding subsidiary exemptions, the SEBI has moved towards a regime that is more effective and promotes proportionate regulation. 

The amendments address some long-standing concerns such as opaque transactions within an entity, value diversion and material RPTs being routed through subsidiaries without attracting regulatory oversight by SEBI. The new framework also seeks to ease business for entities such as large conglomerates, undertaking routine RPTs as a necessity for operation and who usually get caught in compliance with rigid monetary threshold. The new regime contributes to a more practical compliance environment, which supports EODB as well.

The revised regulations call for a closer coordination amongst group entities and stronger internal controls in areas relating to assessment of material transactions and process involving audit committees. The amendments promise a more transparent oversight over transactions affecting shareholder value. As the complexities of corporate structures continues to grow in India, SEBI’s approach offers a balanced model that supports operational flexibility while reinforcing essential safeguards against conflicts of interest and abusive RPT practices.