Relaxed Party Time?: RPT regime gets lot softer

Team corplaw | corplaw@vinodkothari.com

SEBI board decision for doubling the materiality threshold and make it scalar; lesser RPTs to need ISN details, plus other relaxations 

Highlights:

Following  a 32-pager consultation paper proposing significant amendments to RPT provisions, towards ease of doing business, rolled out by SEBI on August 4, 2025, several amendments have been approved by SEBI in its Board Meeting on 12th September, 2025 and the same will become effective in due course upon notification of the amendment regulations. We briefly discuss the approved changes with our analysis of the same. 

Some of our comments on the proposals, as recommended to SEBI, have also been accepted in the approved decisions. Our comments on the Consultation Paper may be read here. 

1. Materiality Thresholds: From One-Size-Fits-All to several sizes for the short-and-tall

A scale-based threshold mechanism has been approved, such that the RPT materiality threshold increases with the increase in the turnover of the company, though at a reduced rate, thus leading to an appropriate number of RPTs being categorized as material, thereby reducing the compliance burden of listed entities. The maximum upper ceiling of materiality has been kept at Rs. 5,000 crores, as against the existing absolute threshold of Rs. 1000 crores. 

Materiality thresholds as approved in SEBI BM: 

Annual Consolidated Turnover of listed entity (in Crores)	Approved threshold (as a % of consolidated turnover)	Maximum upper ceiling (in Crores)
< Rs.20,000	10%	2,000
20,001 – 40,000	2,000 Crs + 5% above Rs. 20,000 Crs	3,000
> 40,000	3,000 Crs + 2.5% above Rs. 40,000 Crs	5,000  (deemed material)

Back-testing the proposal scale on RPTs undertaken by top 100 NSE companies show a 60% reduction in material RPT approvals for FY 2023-24 and 2024-25 with total no. of such resolutions reducing from 235 and 293, to around 95 to 119. The 60% reduction may itself be seen as a bold admission that the existing regulatory framework was causing too many proposals to go for shareholder approval.

Our Analysis and Comments 

With the amendments becoming effective, RPT regime is all set to be a lot relaxed, with the absolute threshold for taking shareholders’ approval to be doubled to Rs. 2000 crores. In addition, for larger companies, there will be a scalar increase in the threshold, rising to Rs. 5000 crores. A lot lesser number of RPTs will now have to go before shareholders for approval in general meetings.

In times to come, a multi-metric approach, depending on the nature of the transaction, may be adopted, drawing on a consonance-based criteria as seen in Regulation 30 of the LODR Regulations, thus offering a more balanced and effective approach. See detailed discussion in the article here.

2. Significant RPTs of Subsidiaries: Plugging Gaps with Dual Thresholds

Extant provisions vis-a-vis SEBI approved changes

Pursuant to the amendments in 2021, RPTs exceeding a threshold of 10% of the standalone turnover of the subsidiary are considered as Significant RPTs, thus, requiring approval of the Audit Committee of the listed entity. The following modifications have been approved with respect to the thresholds of Significant RPTs of Subsidiaries: 

• ‘Material’ is always ‘Significant’: There may be instances where a transaction by a subsidiary may trigger the materiality threshold for shareholder approval, based on the consolidated turnover of the listed entity, but still fall below the 10% threshold of the subsidiary’s own standalone turnover. As a result, such a transaction would escape the scrutiny of the listed entity’s audit committee. This inconsistency highlights a regulatory gap and reinforces the need to revisit and revise the threshold criteria to ensure comprehensive oversight in a way that aligns with evolving group structures and scale of operations. RPTs of subsidiary would require listed holding company’s audit committee approval if they breach the lower of following limits:
  • 10% of the standalone turnover of the subsidiary or 
  • Material RPT thresholds as applicable to listed holding company 

• Alternative for newly incorporated subsidiaries without a track record: For newly incorporated subsidiaries which are <1 year old, consequently not having audited financial statements for a period of at least one year, the threshold for Significant RPTs to be based on lower of:
  • 10% of aggregate of paid-up capital and securities premium of the subsidiary, or
  • Material RPT thresholds as applicable to listed holding company 

Our Analysis and Comments

For newly incorporated subsidiaries, the Consultation Paper proposed linking the thresholds with net worth, and requiring a practising CA to certify such networth, thus leading to an additional compliance burden in the form of certification requirements.  The SEBI BM refers to a threshold based on paid-up share capital and securities premium, and hence, certification requirements may not arise.  

Further, the Consultation Paper proposed a de minimis exemption of Rs. 1 crore for significant RPTs of subsidiaries, thus, not requiring approval of the AC at the listed holding company’s level. However, the SEBI BM does not specifically refer to whether or not the proposal has been accepted, and hence, more clarity on the same may be gained upon notification of the amendment regulations.

Having said that, there is a need to revise and revisit the list of RPs of subsidiaries that gets extended to the listed holding company, thus attracting approval requirements for transactions with various such persons and entities, where there is absolutely no scope for conflict of interest. A Consultation Paper issued some time back on 7th February 2025 proposed extending the definition of related party under SEBI LODR to the subsidiaries of the listed entity as well. See an article on the same here. However, in the absence of any specific approval of SEBI on the same till date, such proposal seems to have been withdrawn by SEBI.

3. Tiered Disclosures: Balancing Transparency and Burden

Existing provisions vis-a-vis SEBI approved changes 

The Industry Standards Note on RPTs, effective from 1st September, 2025 provides an exemption from disclosures as per ISN for RPTs aggregating to Rs. 1 crore in a FY. The amendments seek to provide further relief from the ISN, by introducing a new slab for small-value RPTs aggregating to lower of: 

• 1% of annual consolidated turnover of the listed entity as per the last audited financial statements, or 
• Rs. 10 crore

In such cases, the disclosures will be required as per the Circular to be specified by SEBI. The draft Circular, as provided in the Consultation Paper, specifies disclosures in line with the minimum information as was  required to be placed by the listed entity before its Audit Committee in terms of SEBI Circular dated 22nd November, 2021 ( subsumed in LODR Master Circular dated November 11, 2024), prior to the effective date of ISN. Upon the same becoming effective, disclosures would be required in the following manner as per LODR: 

Value of transaction	Disclosure Requirements	Applicability of ISN
< Rs. 1 crore	Reg 23(3) of SEBI LODR and RPT Policy of the listed entity (refer FAQs on ISN on RPTs)	NA – exempt as per ISN
> Rs 1 crore, but less than 1% of consolidated turnover of listed entity or Rs. 10 crores, whichever is lower (‘Moderate Value RPTs’)	Annexure-2 of CP (Paragraph  4  under  Part  A  of  Section  III-B of SEBI Master Circular dated November 11, 2024)	Exempt from ISN, upon notification of amendments
Other than Moderate Value RPTs but less than Material RPTs (specified transactions)	Part A and B of ISN	Yes
Material RPTs (specified transactions are material)	Part A, B and C of ISN	Yes
Other than Moderate Value RPTs but less than Material RPTs (other than specified transactions)	Part A of ISN	Yes

Our Analysis and Comments 

The approved changes provide further relief from the task of collating a cartload of information as required under the ISN, subject to the thresholds as provided. While the introduction of differentiated disclosure thresholds aims to rationalise compliance, care must be taken to ensure that the disclosure framework does not become overly template-driven. RPTs, by nature, require contextual judgment, and a uniform disclosure format may not always capture the nuances of each case. It is therefore important that the regulatory design continues to place trust in the informed discretion of the Audit Committee, allowing it the flexibility to seek additional information where necessary, beyond the prescribed formats.

ISN: Standardising the way information is presented to audit committees

The whole thrust of the ISN is to harmonise and streamline the manner of presenting information to AC/shareholders while seeking approval.

It is good as a guidance or goal post, but does it have to become a regulatory mandate?

Where the manner of servicing food on the table becomes a mandate, the quality and taste will give precedence to form and mannerism.

4. Clarification w.r.t. validity of shareholders’ Omnibus Approval 

Existing provisions vis-a-vis SEBI approvals 

The existing provisions [Para (C)11 of Section III-B of LODR Master Circular] permit the validity of the omnibus approval by shareholders for material RPTs as: 

• From AGM to AGM – in case approval is obtained in an AGM 
• One year – in case approval is obtained in any other general meeting/ postal ballot 

A clarification is proposed to be incorporated that the AGM to AGM approval will be valid for a period of not more than 15 months, in alignment with the maximum timeline for calling AGM as per section 96 of the Companies Act. 

Further, the provisions, currently a part of the LODR Master Circular, have been approved to be embedded as a part of Reg 23(4) of LODR. 

5. Exemptions & Definitions: Pruning Redundancies

Problem Statement

Proviso (e) to Regulation 2(1)(zc) of the SEBI LODR Regulations exempts transactions involving retail purchases by employees from being classified as Related Party Transactions (RPTs), even though employees are not technically classified as related parties. Conversely, it includes transactions involving the relatives of directors and Key Managerial Personnel (KMPs) within its ambit. Additionally, Regulation 23(5)(b) provides an exemption from audit committee and shareholder approvals for transactions between a holding company and its wholly owned subsidiary. However, the term “holding company” used in this context has remained undefined, leaving ambiguity as to whether it refers only to a listed holding company or includes unlisted ones as well.

Proposal in CP

The Consultation Paper proposed two key clarifications:

1. The exemption related to retail transactions should be expressly limited to related parties (i.e., directors, KMPs, or their relatives) to grant the appropriate exemption.
2. The exemption for transactions with wholly owned subsidiaries should apply only where the holding company is also a listed entity, thereby excluding unlisted holding structures from this relaxation

Our Analysis and Comments

Under the existing framework, retail purchases made on the same terms as applicable to all employees are exempt when undertaken by employees, but not when made by relatives of directors or KMPs. This has led to an inconsistent treatment, where similarly situated individuals receive different regulatory treatment solely on the basis of their relationship with the company. The proposed language attempts to streamline this by including such relatives within the exemption, but it introduces its own drafting concern.

• The phrasing – “retail purchases from any listed entity or its subsidiary by its directors or its employees key managerial personnel(s) or their relatives, without establishing a business relationship and at the terms which are uniformly applicable/offered to all employees and directors and key managerial personnel(s)” – would have created a potential loophole. As worded, the exemption could be interpreted to cover purchases made on favourable terms offered to directors or KMPs themselves, rather than being benchmarked against terms applicable to employees at large. The intended spirit of the provision seems to be to exempt only those transactions where the terms are genuinely uniform and non-preferential. A more appropriate construction would make it clear that the exemption is intended to apply only where such transactions mirror employee-level retail transactions, not privileged arrangements for senior management.

VKCO Recommendations: We had provided our comments to SEBI on the following lines: 

A minor drafting error has crept in the proposed language: retail purchases from any listed entity or its subsidiary by its directors or its key managerial personnel(s) or their relatives, without establishing a business relationship and at the terms which are uniformly applicable/offered to all directors and key managerial personnel(s). While the first part should refer to directors/ KMPs and their relatives, the second part should continue to refer to ’employees’, to ensure that the terms remain non-preferential, instead of introducing preferential treatment for senior management. 

Approved amendment: The approved amendment, as mentioned in the SEBI BM press release, refers to “terms which are uniformly applicable/offered to all employees” in line with our recommendation above. 

• Regarding the exemption under Regulation 23(5)(b) for transactions between a holding company and its wholly owned subsidiary, a clarification has been inserted to provide the interpretational guidance that the term ‘holding company’ refers to the listed entity. 

The relevance of the aforesaid clarification would primarily be in cases where the unlisted subsidiary of the listed entity enters into a significant RPT with its wholly owned subsidiary (step-down subsidiary of the listed entity). Pursuant to the aforesaid proposal, as approved, no exemption will be available in such a case. 

Conclusion

SEBI’s August 2025 proposals, largely aimed at relaxation, have been approved in the September BM. Though in some cases, the ability to think beyond the existing track of the law seems missing, the amendments seem more or less welcoming, relaxing the RPT regime for listed entities. With the new leadership at SEBI meant to rationalise regulations, it was quite an appropriate occasion to do so. However, at many places, the August 2025 proposals are simply making tinkering changes in 2021 amendments and fine-tuning the June 2025 ISN. In sum, SEBI’s iterative approach to RPT governance demonstrates commendable responsiveness but calls for a holistic RPT policy road-map, harmonizing LODR regulations, circulars, and guidelines. Only a forward-looking, principles-based framework, will deliver the twin objectives of ease of doing business and investor protection in the long run.

Our resources on the topic:

LODR Resource Centre