SEBI’s Turnover-Based RPT Thresholds: Balancing Regulatory Burden and Corporate Governance

[Shrijan is a student at Hidayatullah National Law University, Raipur.]

At a time where regulatory scrutiny concerning related party transactions (RPTs) has never been higher, the Securities and Exchange Board of India (SEBI) has yet again come up with a new proposal. In India, RPTs have long been seen as potential flashpoints of conflict of interest in corporate governance. The current SEBI (Listing Obligations and Disclosure Requirements) 2015 (SEBI LODR) rules state any RPT is ‘material’ if it exceeds INR 1,000 crore or 10% of a company’s consolidated turnover, triggering a mandatory shareholder vote. SEBI’s August 2025 consultation paper notes issues arising out of the one-size-fits-all threshold approach, forcing large corporations to route many routine intra-group deals through shareholder approvals, creating unnecessary red tape.

Current Materiality Thresholds under SEBI LODR

Under Regulation 23 of SEBI LODR, an RPT is “material” if it exceeds INR 1,000 crore or 10% of consolidated turnover (whichever is lower). This has meant that even very large firms must seek shareholder consent for substantial transactions simply because their overall revenue is so high. Many observers argued that this uniform threshold did not scale with company size, and ended up capturing routine deals that posed little real governance risk.

Proposed Scale-Based Thresholds

The core idea of the SEBI’s August 2025 consultation paper is to adjust the RPT approval threshold in steps based on a company’s turnover, while also introducing a scale-based materiality test so that larger firms only class truly large deals as “material". 

Under the draft framework, SEBI proposes up to INR 20,000 crore turnover to be a threshold for a RPT to be considered "material", if it exceeds 10% of consolidated turnover. For firms with turnover between INR 20,001– INR 40,000 crore, with the threshold suggested at INR 2,000 crore + 5% of the amount by which turnover exceeds INR 20,000 crore and for firms above INR 40,000 crore turnover, the threshold being INR 3,000 crore + 2.5% of the amount by which turnover exceeds INR 40,000 crore, subject to an absolute ceiling of INR 5,000 crore.

These tiered limits “ensure that [the] materiality threshold increases with the increase in turnover of the company,” SEBI explains. In effect, big groups would treat only very large deals as material. (For instance, a firm with INR 50,000 crore sales would need an RPT above roughly INR 5,000 crore to hit the cap.) By contrast, the current flat 10% / INR 1,000 crore rule can force even large transactions into shareholder ballots.

SEBI back-tested these proposals on actual data and found that they would slash the number of RPTs needing approval by about 60%. In one analysis of the top 100 listed firms, the count of material RPTs requiring votes fell by roughly 60% under the new scale-based formula. The consultation report notes that this would “facilitate ease for listed entities”. Notably, the draft retains safeguards: an absolute INR 5,000 crore cap was proposed “to safeguard the interests of minority shareholders,” and SEBI emphasizes that truly material transactions (especially those benefiting insiders) would still face full scrutiny.

SEBI also suggested finer points for subsidiaries and small transactions. For RPTs between a listed parent and its subsidiary, deals above INR 1 crore would require audit-committee approval if they exceed 10% of the subsidiary’s turnover or the parent’s materiality threshold, whichever is lower, given a subsidiary lacking annual accounts, the comparator then becomes 10% of its net worth. Separately, SEBI observed that the existing INR 1 crore exemption for small RPTs is a “minuscule amount” for large groups. It, therefore, proposed raising this floor: transactions up to 1% of turnover or INR 10 crore (whichever is lower) would require only minimal disclosure to the audit committee or shareholders. Finally, the draft makes omnibus RPT approvals valid until the next annual general meeting (up to 15 months), and clarifies that certain de minimis exemptions (e.g. retail purchases) should apply only to senior personnel of listed entities.

Impact and Stakeholder Views

Regulatory commentators generally welcome the move as a relief for large firms, but stress the need for continued vigilance. The shift is viewed as SEBI’s efforts towards finding a balance between investor protection and ease of doing business, since audit committees can then focus on large transactions rather than processing small ones.

At the same time corporate-governance experts emphasize that minority shareholders must not lose out. Practitioners emphasize that higher thresholds should not compromise shareholder protection, especially for minorities. Importantly, SEBI’s own analysis claims the 60% reduction in RPTs comes “without diluting shareholder protection”, suggesting the new limits are focused on excluding truly routine transactions to better focus scrutiny on instances of genuine risk.

A consideration for whether turnover alone is the best yardstick should also be taken into account. Revenue does not always correlate with a deal’s financial impact, for example, a capital-intensive firm or a low-margin business could have very different risk profiles. In theory, materiality might be measured by a mix of factors (assets, profits, cash flows) rather than just sales. SEBI’s turnover approach is a practical proxy, but critics argue the regulator should remain ready to adjust if sectoral disparities emerge.

To illustrate the impact of SEBI’s new turnover‐based materiality thresholds, consider Reliance Industries Limited's (RIL) FY2024 consolidated turnover of ~INR 10,00,000 crore and its subsidiary Reliance Retail Limited's (RRL) turnover of ~INR 3,06,848 crore. Under the proposed scale, both companies’ thresholds cap at INR 5,000 crore. RIL’s own disclosures show two RPTs (transactions with related leasing affiliates) totaling only INR 2,500 crore (INR 2,400 crore + INR 100 crore) – none exceeding INR 5,000 crore. In contrast, RRL disclosed three major RPTs: purchases of goods from Sanmina (INR 7,200 crore) and Neolync (INR 10,250 crore), and sale of telecom equipment to Jio Leasing (INR 18,000 crore). All three RRL deals greatly exceed INR 5,000 crore. In practical terms, none of RIL’s RPTs would require shareholder approval under the new rule, whereas all of RRL’s large‐value RPTs would still be “material” and need approval. 

International Comparison of RPT Thresholds

Regimes abroad vary widely in how they define material RPTs. In the United States, the SEC’s rules (Regulation S-K Item 404) use a fixed dollar threshold, any related‐party transaction over USD 120,000 in which a related person has a material interest must be disclosed in proxy or registration statements. US rules focus on disclosure and audit‐committee oversight (e.g. NYSE rules require independent review of any Item-404‐reportable deal), rather than turnover‐based scaling and thus, very small absolute values trigger disclosure (no higher threshold for larger companies). United State’s approach reflects its focus on rigorous investor protection through standardized disclosures.

By contrast, the United Kingdom relies on company law rather than a listing rule tiering by size. Under the UK Companies Act, any “substantial property transaction” with a director or connected person, generally a non-cash deal which is less than or equal to £100,000 or exceeding 10% of net assets must be approved by shareholders. Transactions under £5,000 are never “substantial,” and ones in £5k–£100k range are deemed material if over 10% of net asset value. The UK Corporate Governance Code likewise requires boards to scrutinize all related-party deals, but it is the statutory threshold (fixed by net-asset tests) that triggers shareholder votes. Unlike SEBI’s revenue‐based approach, the UK uses net‐worth criteria with relatively modest cut-offs, so that even small‐scale RPTs in absolute terms can be material, given the company is small. This regime aligns with the UK’s belief in parliamentary-enforced corporate statutes and direct shareholder democracy, rather than listing-rule micromanagement.

In Singapore, the SGX Listing Rules set thresholds tied to net assets. Issuers must disclose any interested‐person transaction greater than or equal to 3% of the group’s latest audited net tangible assets, and must obtain shareholder approval for any such transaction greater than 5% of net tangible assets. (There is a de minimis USD 100,000 exemption.) Thus, like SEBI’s proposal, SGX scales the test to company size, but uses balance‐sheet metrics (net assets) instead of turnover. In practice, a 5%‐of‐NTA rule often captures sizable deals for both small and large firms. While India’s new regime ties RPT materiality to turnover, other jurisdictions use either fixed values (US), net‐assets tests (UK, SGX) or a combination. By scaling materiality to net-asset size, SGX balances ease of doing business for larger issuers against the need to capture significant related-party deals at smaller companies. This model reflects Singapore’s policy goal of maintaining efficient, market-friendly exchanges while ensuring adequate shareholder safeguards through proportionality in disclosure and approval requirements.

SEBI’s tiered, revenue‐based threshold, aligns vaguely with Singapore’s scale approach (both ease rules for large groups), whereas the US and UK set thresholds that are largely independent of company size. Each system thus illustrates a different axis of “materiality” balancing regulatory burden against minority protection.

Conclusion 

Even as thresholds are relaxed, SEBI underscores that board oversight remains crucial. As one observer notes, once fewer transactions automatically trigger review, “the onus will remain on the companies’ boards and committees to maintain rigorous oversight” of related-party deals. Legal teams and corporate secretaries should therefore start reviewing RPT policies now, for instance, updating internal RPT registers, arm’s-length procedures, and disclosure checklists to reflect the new regime. The consultation was open for comment until 25 August 2025. If adopted carefully, the reforms can be exponential in easing procedural burden on India’s biggest listed firms while still safeguarding minority investors and market integrity.