1. Introduction
Related Party Transactions have always been an area of intense regulatory focus in India. These transactions, if not properly reviewed, can create conflicts of interest or result in misuse of corporate funds. The Securities and Exchange Board of India, commonly known as SEBI, has therefore tightened its norms under Regulation 23 of the SEBI Listing Obligations and Disclosure Requirements Regulations, 2015.
In the year 2025, SEBI issued a new set of guidelines that have redefined the framework of Related Party Transactions for listed entities. These guidelines were first issued on 14 February 2025 and later revised on 26 June 2025. The new standards will apply to all transactions entered into on or after 1 September 2025.
The objective of these new guidelines is to bring more transparency, uniformity, and fairness to the process of approving and reporting transactions involving related parties.
2. Applicability of the Guidelines
The SEBI framework on Related Party Transactions applies to all companies that have their securities listed on any recognized stock exchange in India such as the National Stock Exchange, Bombay Stock Exchange, or Metropolitan Stock Exchange.
In simple terms, these rules apply to every company whose shares, debentures, or any other securities are listed for public trading. This includes equity listed companies, companies with listed non-convertible debentures, and companies with listed preference shares.
The framework also extends to the subsidiaries of listed companies under certain conditions. If a subsidiary enters into a related party transaction that exceeds ten percent of its annual turnover or crosses the materiality threshold of the listed holding company, whichever is lower, then that transaction must be approved by the audit committee of the listed parent company.
Transactions between government companies and transactions between a holding company and its wholly owned subsidiary, where consolidated financials are presented, are generally exempted from these disclosure requirements.
3. Who is a Related Party
A related party is any person or entity that has a relationship with the listed company which could influence its financial or operational decisions. This includes promoters, promoter group entities, directors, key managerial personnel, their relatives, subsidiaries, associates, joint ventures, and any entity in which the promoter or director holds ten percent or more shareholding.
Even if the transaction is carried out through a third party but the benefit ultimately goes to a related party, it will still be treated as a related party transaction.
4. What Constitutes a Related Party Transaction
A related party transaction includes any arrangement involving transfer of resources, services, or obligations between the company and a related party. This includes sale or purchase of goods, property, or services, lease arrangements, loans or guarantees, corporate guarantees, reimbursement agreements, or any other financial arrangement that benefits a related party.
5. Disclosure and Approval Process
The SEBI guidelines prescribe a clear step-by-step process for approval and disclosure of related party transactions.
Step 1: Approval by the Audit Committee
Every related party transaction must first be placed before the audit committee for its prior approval. The company must provide all prescribed information such as the nature of the relationship, transaction value, commercial justification, valuation method, and a certification by the Chief Executive Officer or Chief Financial Officer confirming that the transaction is in the interest of the company.
Step 2: Approval by Shareholders for Material Transactions
When a related party transaction crosses the materiality limit, it must also be approved by the shareholders through an ordinary resolution. A transaction is treated as material if its value individually or combined with other transactions during a financial year exceeds ten percent of the company’s consolidated turnover or one thousand crore rupees, whichever is lower.
Step 3: Disclosure to Stock Exchanges
Every listed company must disclose all related party transactions to the stock exchange where its securities are listed. This disclosure must be made within fifteen days from the date of publication of quarterly financial results. If a material related party transaction is approved by shareholders, the details of that approval must be disclosed to the stock exchange within twenty-four hours of the conclusion of the meeting.
Step 4: Annual and Website Disclosure
All related party transactions approved during the year must be disclosed in the company’s annual report and financial statements in accordance with Indian Accounting Standard 24. The policy on related party transactions must also be uploaded on the company’s official website with a direct link provided in the annual report.
6. Consequences of Non-Compliance
Failure to comply with SEBI’s related party transaction requirements can result in serious consequences, including monetary penalties, trading restrictions, and reputational damage.
Penalties by SEBI
Under the SEBI Act, SEBI can impose monetary penalties up to one crore rupees for each instance of non-disclosure or up to three times the profit made from such non-compliance, whichever is higher. If SEBI determines that the violation involved misrepresentation or concealment, penalties may go up to twenty-five crore rupees.
Action by Stock Exchanges
Stock exchanges are authorized to enforce compliance with SEBI regulations. In case of default, they may impose a fine of five thousand rupees per day until the company rectifies the default. Continued default for more than one quarter can result in the freezing of the promoter’s shareholding. If the failure persists for two consecutive quarters, trading of the company’s securities may be suspended.
Consequences for Directors and Key Personnel
The directors and key managerial personnel of a listed company are responsible for ensuring compliance. Repeated or willful default can lead to disqualification of directors, removal from office, or even debarment from holding managerial positions in other listed companies. SEBI may also issue directions to reconstitute the board or audit committee if it finds that governance standards have been compromised.
Companies Act Consequences
Under Section 188 of the Companies Act, 2013, a related party transaction entered into without proper approval can be declared voidable at the option of the board or shareholders. The concerned director or officer must indemnify the company for any loss. The person responsible for the contravention can also face imprisonment up to one year or fine up to twenty-five lakh rupees or both.
Reputational and Market Impact
Investors and rating agencies closely track related party disclosures. Any delay or inaccuracy can reduce the company’s corporate governance rating, affect its market perception, and harm its ability to raise capital.
7. Practical Steps for Companies
Listed entities should take the following steps to ensure full compliance before the new rules take effect on 1 September 2025.
Review and update the related party transaction policy to align with SEBI’s latest guidelines. Update the audit committee charter and define approval thresholds clearly. Develop standardized templates for board and audit committee notes. Implement software-based monitoring systems to track related party transactions automatically. Train finance, legal, and secretarial teams to handle new certification and disclosure requirements. Communicate new compliance expectations to subsidiaries and associates.
8. Conclusion
SEBI’s new guidelines on Related Party Transactions represent a significant step toward strengthening corporate governance in India. The framework brings clarity, accountability, and proportional regulation to a critical area of financial integrity.
By requiring detailed disclosures, management certification, and independent oversight, SEBI ensures that transactions between related parties serve the genuine business interest of the company and not personal advantage.
The message is clear. Transparency and compliance are no longer optional; they are central to good governance and investor trust. For listed companies, proactive compliance with SEBI’s RPT framework is not merely a legal necessity but a reflection of responsible management.