Material Related Party Transactions: What Promoter-Owned Companies Must Know in 2025

Introduction

In the context of Indian corporate governance, Related Party Transactions (RPTs) have been the point of discussion. While it is true and definite for a company's interaction with its related parties, such as promoters, directors, etc., there can always be a possibility of a conflict of interest during business operations. Such conflicts tend to open the doors to unfair benefits at the expense of the company for its related parties. Post recognition of this issue, the Securities and Exchange Board of India (SEBI) is continuously endeavoring to pursue and bolster its regulatory regime. In doing so, the year 2025 becomes a milestone as SEBI has introduced stricter regulations on Material Related Party Transactions (MRPTs) w.e.f. September 1, 2025. For companies owned by promoters, these changes are significant as they are commingled with the interests of promoters and business activists. They require a deeper check to maintain robust corporate governance standards and ensure transparency. This blog dives into the deeper aspects of SEBI’s recent regulations that offer a comprehensive guide for companies to navigate the stricter regime.

Understanding Related Party Transactions (RPTs)

The key aspect of Related Party Transactions (RPT) is the transfer by any means of resources, services, or obligations, irrespective of pricing considerations, between the company and the related party. The terms "related party" and transaction with a "related party" are defined in regulation 2(1)(zb) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations); and Section 2(76) of the Companies Act, 2013. In these years, SEBI has sought to broaden the scope of these terms, and there is now a general understanding that a related party could be a director, a management executive, or any person who is part of the promoters of a company, or a group of promoters, without necessarily also having a shareholding. However, it would now include any person or entity holding equity shares of ten percent (10%) or more in the listed company. In effect, this means a much wider range of persons, entities, and investors, including large institutional investors and portfolio companies, are categorized as related parties.

For promoter-driven companies, typical types of Related Party Transactions (RPTs) would include transactions such as sale or purchase of goods, raw materials or finished products to or from a promoter-controlled supplier or distributor; or provision or receipt of services such as management consultancy, logistics, IT services from an entity controlled or taken by the promoter; RPTs will also often involve leasing of property, equipment or assets to or from related parties, extending or receiving loans, advances, guarantees or providing or receiving investments to or from group companies controlled by promoters, and brand usage or royalty payments to promoter-controlled entities for usage of their trademarks and intellectual property.

SEBI's approach toward RPTs has transformed from a (historically) disclosure-led paradigm to one of oversight and required approval (although this process began with less formal processes to get there). Historically, regulation was focused on disclosure. Realizing the potential for exploitation and identifying deficiencies with the disclosure-only focus, SEBI worked to create the Audit Committee approval process and ultimately transaction approval processes for material transactions that required shareholder approval for related parties (less any abstentions from votes). The 2025 amendments were meant to complete the process.

The Tata Sons Ltd. v. Cyrus Investments Pvt. Ltd. case, while being primarily focused on issues of corporate governance and shareholder rights, attached great importance to the uncertainty around RPTs in a board made up of mostly promoters. Allegations of RPTs that were allegedly not in the best interests of the company, and that independent oversight was lacking, brought to the forefront the necessity for rigorous processes regarding RPT transactions. In another case that specifically addressed RPTs, the regulatory failures identified by Sahara India Real Estate Corporation Ltd. as a result of reporting on opaque RPTs and inter-group transactions underscores the greater need for transparency as well as independent review of intergroup transactions and RPTs in the interests not of the in-house interests of related parties but in the interests of the public investors (if there are public investors).

What’s New in SEBI’s 2025 RPT Framework?

The new Industry Standards on RPTs, which come into force on September 1, 2025, have the potential to change the way promoters' owned companies understand their related party transactions in significant ways.

One of the major portions of the new Standards is the new meaning of a "material" RPT. Under the new Standards, an RPT by a public or private listed company will now be considered "material" if the amount of RPT exceeds the lesser of ₹1,000 crore (₹10 billion) or 10% of the annual consolidated turnover of the listed entity, from the last audited consolidated financial statements [1]. This dual threshold is specifically intended to address significant RPTs from conglomerates down to midsize promoter-controlled companies. For example, a promoter-controlled company with a consolidated annual turnover of ₹5,000 crore would discover that a ₹500 crore RPT would meet 10% of turnover, and thus be perceived to be "material", although being below the absolute ₹1,000 crore limit set in the new Standards. One intention of introducing materiality thresholds is to ensure that larger but still substantial RPTs, as a function of the enterprise's financial or spatial size, continue to be subjected to the most oversight and governance scrutiny so that a loss of value for minority shareholders is disrupted.

In order to support the arm's length principle for related party transactions, the new theory establishes a requirement for independent valuation in respect of material related party transactions. No, again, the new theory expands the expectations and disclosure. If the Audit Committee approves a material related party transaction based on the consideration of a valuation report or any other third-party report, companies must now provide the Audit Committee with a copy of the valuation report. Notably, all material related party transactions that require shareholder approval must include a web-link or QR code to the valuation reports in the explanatory statement provided to shareholders with the notice of general meeting [2]. This allows public shareholders to readily access valuation reports in order to directly assess the arm's length feature of a transaction as opposed to merely relying on management capability and quality of disclosures. The credibility and independence of the valuation firm are important aspects, since shareholders can now determine the value of the transaction and consider the results of the study.

PWC’s infamous role in the Satyam scam is a case in point of promoting laxity and collusive valuation.  It was not a related party transaction case, but rather, it highlighted how limitations in independent professional oversight led to wholesale corporate dishonesty and loss of investor value. In terms of RPTs, this highlights the need for truly independent and reputable valuation experts to mitigate any appearances of bias or manipulation, particularly since their reports are now publicly available.

The new certification obligation signifies a material change in accountability. The CEO, MD, Whole-time Director, Manager, and CFO of the listed entity are now obligated to certify that the Related Party Transaction being proposed is in the interest of the listed entity. Notably, this is a change from the earlier requirement for a promoter-director certification, and it extends the criteria for consideration in the earlier sponsor-director certification to a broader state of management obligation. This obligation reiterates that RPTs, from a governance perspective, should reflect the company’s objectives strategically and financially. The requirement to acknowledge that RPTs are not being considered solely in favour of public shareholder interests is a more comprehensive acknowledgment for management. This certification also requires adequate internal controls and due processes to be established in a company before RPTs can be cleared for consideration for approval.

The audit committee is bolstered as the key gatekeeper to RPTs. The amended regulation establishes that audit committee prior approval is mandatory in all RPTs regardless of their materiality. The amended Industry Standards provide a consistent minimum format for the information that is required to be presented to the audit committee to evaluate RPTs, including KYC details of the related party, historical transaction details, and information pertinent to each type of RPT [4]. The AC has clear power to seek further information, and they must also provide comments and reasons for their decisions, which must be accurately minute. The structure of the AC is very important, especially in the context of its independence and ability to review transactions potentially involving promoter interests. Normally, an AC must consist of a majority of independent directors, which is central to its independence. The Board, along with the AC, can approve the removal of sensitive commercial information from the shareholders' disclosures, but only when the Board and AC confirm that providing the commercial information would still provide all necessary information for public shareholders' informed decision-making.

For all material RPTs, it will still be required to obtain shareholder approval by ordinary resolution. An important part of this, again included in the 2025 framework, is that related parties shall not be able to vote to approve these resolutions, whether the organization is a related party to that specific transaction or not [5]. This requirement ensures that the decisions regarding material RPTs are made by a disinterested public shareholder. In addition, the notice to shareholders will have to provide detailed disclosures under the revised Industry Standards, including an overview of the nature, rationale, terms, and conditions of the transaction, the identity of the related party, and the financial or strategic implications of the transaction [5]. In addition, by including a web-link/QR code in the valuation report, shareholders are further strengthened and can independently verify the fairness of the transaction.

Implications for Promoter-Owned Companies

The new covered related party transactions (RPT) rules will have major consequences for promoter-led companies and will necessitate an upheaval of their governance approaches. The biggest immediate difference will be an increased compliance burden. Companies will now need more sophisticated systems to identify related parties to related transactions and monitor their dealings in real-time.

The increased documentation requirements, including rationales on why the price charged was correct and summaries of deliberation by the Audit Committee, will require a more robust approach to record-keeping. Companies will now be required to restructure their internal governance to ensure they are audit-compliant and that information can flow correctly and accurately to the Audit Committee and shareholders. For promoter-led companies, the rules are all the more difficult because there is a tension between wanting transparency, while at the same time wanting to maintain control over transactions with their other entities. Promoters will no longer be able to force through dealings with their other entities without some form of increased resistance or scrutiny, although even material RPT will still require independent valuation and formal shareholder approval. So, promoter-led companies will need to reconsider their internal transfer pricing policies and what they depend on from the promoter group, to ensure they are arm's length and stand up to scrutiny, and then it is only an afterthought to show they have performed a transaction, only that it is.

The 2025 framework greatly strengthens the rights of minority shareholders. By establishing direct access to valuation reports, requiring promoters to abstain from voting, and granting the Audit Committee additional authority, SEBI is preventing value leakage via promoter deals. Minority shareholders will have increased tools and knowledge to prevent unfair transactions; thus, increasing trust and confidence in the corporate governance of promoter-controlled entities. The increased protection can facilitate institutional and retail investment.

The Fortis Healthcare RPT incident (2018) raised substantial issues related to non-disclosure of related party loans and alleged manipulation. [1] The matter involved loans made on behalf of promoter-related parties to multi-relatives associated with the promoter, but ultimately, before the particular transaction, the loans were not disclosed or approved, and the issue became a major governance failure, with regulatory involvement. This demonstrated two additional relevant points: the challenges presented in identifying undisclosed related parties, and heightened demands for better scrutiny. Similarly, the DLF Ltd, SEBI Order (2014), related issues around misstatements and suppression of information in IPO documents and public filings, and elements of undisclosed related party engagements were highlighted. However, the SEBI Order was particularly significant for identifying that the potential impact of "non-disclosure" of engagement with related parties can mislead investors and result in severe penalties. Both orders demonstrate significant implications for RPT or similarly structured engagements, especially the need for all disclosures to be accurate and complete.

Recent developments with SEBI highlight that the regulator is willing to aim directors for a lack of disclosure, and with Premier Polyfilm Ltd, SEBI imposed a penalty on the on the failure to make mandatory Audit Committee and shareholder approvals regarding related party transaction, including one activity specific transaction that exceeded 10% of the turnover of the company, and for the relevant disclosures being inaccurate. [7]. SEBI rejected the defence that the company and its directors acted without awareness, indicating that listed entities have a level of prudence expected.

Another important example was the administrative caution issued by SEBI to One 97 Communications Limited (Paytm). SEBI found that the subsidiary of Paytm Payments Bank carried out transactions with the company over an approved amount, and the company's executive committee and shareholders were not informed. This shows that SEBI is also scrutinizing RPTs at the subsidiary level [8]. In another case, Linde India Limited was also brought to action by SEBI because it did not comply with the shareholder approval processes before entering into material RPTs. Specifically, the consolidated value of the company with a step-down subsidiary of its holding company far exceeded the materiality threshold, highlighting a strict interpretation of cumulative transactions [9]. All of these cases illustrate SEBI's zero-tolerance approach regarding non-compliance in RPT transactions, and the potentially dire consequences for being insufficiently approved, disclosed, or exercising due diligence.

Best Practices for Compliance in 2025

In order to successfully navigate the evolving RPT landscape, promoter-owned companies have an obligation to follow several best practices. These include, among others: maintaining an accurate, complete, and up-to-date RPT register that records all transactions (irrespective of value) promptly, regular Director training at the board level to ensure all relevant personnel are aware of new regulations and their responsibilities, and then obtaining independent valuations and legal opinions on any potential 'material' RPT, using experts far in advance, to structure the transaction (by compliance requirements) timely. To maintain a robust documentation for every RPT, but especially for material RPTs, the company should document the commercial rationale for each transaction, the process for approval of the transaction, the basis for pricing, and the basis for any statement made as to how the transaction is in the best interest of the listed entity. Having good internal controls to facilitate timely identification, recording, and approval of RPTs, and requiring proactive engagement and discussions between management, the Audit Committee, and the Board are also important for effective RPT governance.

Conclusion: Governance in the Era of Disclosure

To conclude, the SEBI's 2025 framework for Material Related Party Transactions (MRPTs) is a clear step forward towards establishing a more mature and transparent corporate governance regime in India. The days when promoter-owned and controlled companies could treat related party transactions (RPTs) as "business as usual" are essentially over. New materiality thresholds, requirements for third-party valuations, stricter certification obligations, and added oversight from Audit Committees and public shareholders will reinforce a strong set of safeguards against potential abuses.

At its essence, these new amendments seek to prioritize the values of transparency, fairness, and shareholder equality as foundational premises in all related party dealings. Companies that view these amendments only as another form of compliance will not gain the credibility and trust with their stakeholders that they will require for sustainable growth. SEBI's dedication to strong governance means that shareholders' interests will be protected, ultimately producing a more effective and equitable capital market. This work ahead will require patience, honesty, and a commitment to the highest standards of corporate behavior.

Author: Ishita Dhir, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

Endnotes

[1] KPMG in India. "Related party transactions – Minimum information for review." KPMG agentic corporate services, March 2025.                                 https://assets.kpmg.com/content/dam/kpmgsites/in/pdf/2025/03/related-party-transactions-minimum-information-for-review.pdf.coredownload.inline.pdf

[2] Vinod Kothari & Company. "Tailored to Fit Practically: Disclosure for RPTs under Revised Industry Standards." vinodkothari.com, June 27, 2025.                                                     

[3] ETCFO. "Unlocking SEBI's Revised RPT Norms: Top Compliance Insights for CFOs and Audit Committees." cfo.economictimes.indiatimes.com, July 16, 2025.                                                                      https://cfo.economictimes.indiatimes.com/news/governance-risk-compliance/unlocking-sebis-revised-rpt-norms-top-compliance-insights-for-cfos-and-audit-committees/122551183

[4] MMJC. "How to Read Minimum Information to be Provided for Review of the Audit Committee and Shareholders for Approval of a Related Party Transaction." mmjc.on February 18, 2025.                                                                                         https://www.mmjc.in/how-to-read-minimum-information-to-be-provided-for-review-of-the-audit-committee-and-shareholders-for-approval-of-a-related-party-transaction/

[5] KPMG International. "Related party transactions – SEBI notifies revised RPT Industry Standards." kpmg.com, July 14, 2025. https://kpmg.com/content/dam/kpmgsites/in/pdf/2025/07/firstnotes-sebi-notifies-revised-rpt-industry-standards.pdf.coredownload.inline.pdf

[6] Taxmann. "SEBI Revises RPT Disclosure Norms for Listed Firms from Sept 2025." taxmann.com, June 29, 2025. https://www.taxmann.com/post/blog/sebi-revises-rpt-disclosure-norms-for-listed-firms?amp

[7] Angel One. "SEBI Fines Premier Polyfilm for RPT Violations." angelone., December 10, 2024. https://www.angelone.in/news/sebi-fines-premier-polyfilm-for-rpt-violations

[8] S&R Associates. "Related Party Transactions: Recent SEBI Scrutiny." snrlaw. On August 13, 2024.https://www.snrlaw.in/related-party-transactions-recent-sebi-scrutiny/

[9] TaxTMI. "RELATED PARTY TRANSACTIONS WITHOUT TAKING PRIOR APPROVAL OF THE AUDIT COMMITTEE AND THE BOARD AS REQUIRED UNDER THE 'LODR REGULATIONS'." taxtmi.com, October 25, 2023. https://www.taxtmi.com/article/detailed?id=11983