Insider Trading Safeguards: Sensitising Fiduciaries
– Team Corplaw | Corplaw@vinodkothari.com
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Open in new tab SEBI says SWAGAT to investors
– Team Corplaw | corplaw@vinodkothari.com
– Approves major proposals easing institutional investments in IPOs, minimum offer size for larger entities, AIF entry, increased threshold for related party transaction approvals etc.
Relaxed norms for Related Party Transactions
- Introduction of scale-based threshold for materiality of RPTs for shareholders’ approvals based on annual consolidated turnover of the listed entity
| Annual Consolidated Turnover of listed entity (in Crores) | Approved threshold (as a % of consolidated turnover) |
| < Rs.20,000 | 10% |
| 20,001 – 40,000 | 2,000 Crs + 5% above Rs. 20,000 Crs |
| > 40,000 | 3,000 Crs + 2.5% above Rs. 40,000 Crs |
- Revised thresholds for significant RPTs of subsidiaries
- 10% of standalone t/o or material RPT limit, whichever is lower.
- Simpler disclosure to be prescribed by SEBI for RPTs that does not exceed 1% of annual consolidated turnover of the listed entity or Rs. 10 Crore, whichever is lower. ISN disclosures will not apply.
- ‘Retail purchases’ exclusions extended to relatives of directors and KMPs, subject to existing conditions
- Inclusion of validity of shareholders’ approval as prescribed in SEBI circular dated 30th March 2022 and 8th April, 2022
- Rationale (See Consultation Paper)
- Read detailed article – Relaxed Party Time?: RPT regime gets lot softer
Relaxation in thresholds for Minimum Public Offer (MPO) and timelines for compliance Minimum Public Shareholding (MPS) for large issuers (issue size of 50,000 Cr and above)
- Reduction in MPO requirements for companies with higher market capitalisation
- Relaxed timelines for complying with MPS
- Post listing, the stock exchanges shall continue to monitor these issuers through their surveillance mechanism and related measures to ensure orderly functioning of trading in shares
- Applicable to both entities proposed to be listed and existing listed entities that are yet to comply with MPS requirements
- Following changes recommended in Rule 19(2)(b) of Securities Contracts (Regulation) Rules, 1957:
| Post-issue market capitalisation (MCap) | MPO requirements | Timeline to meet MPS requirements (25%) | ||
|---|---|---|---|---|
| Existing provisions | Post amendments | Existing provisions | Post amendments | |
| ≤ 1,600 Cr | 25% | NA | ||
| 1,600 Cr < MCap ≤ 4,000 Cr | 400 Crs | Within 3 years from listing | ||
| 4,000 Cr < MCap ≤ 50,000 Cr | 10% | Within 3 years from listing | ||
| 50,000 Cr < MCap ≤ 1,00,000 Cr | 10% | 1,000 Cr and at least 8% of post issue capital | Within 3 years from listing | Within 5 years from listing |
| 1,00,000 Cr < MCap ≤ 5,00,000 Cr | 5000 Cr and atleast 5% of post issue capital | 6, 250 Cr and 2.75% of post issue capital | 10% – within 2 years 25% – within 5 years | If MPS on the date of listing <15%, then15% – within 5 yrs25% – within 10 yrs If MPS >15% on the date of listing, 25% within 5 yrs |
| MCap > 5,00,000 Cr | 15,000 Cr and 1%of post issue capital, subject to minimum dilution of 2.5% | If MPS on the date of listing <15%, then15% – within 5 yrs25% – within 10 yrs If MPS on the date of listing >15%, 25% within 5 yrs | ||
- Rationale (see Consultation Paper):
- Mandatory equity dilution for meeting MPS requirement may lead to an oversupply of shares in case of large issues;
- Dilution may impact the share prices despite strong company fundamentals.
Broaden participation of institutional investors in IPO through rejig in the anchor investors allocation
- Following changes recommended in Schedule XIII of ICDR Regulations.
- Merge Cat I and II of Anchor Investor Allocation to a single category of upto 250 crores. Minimum 5 and maximum 15 investors subject to a minimum allotment of ₹5 crore per investor.
- Increasing the number of permissible Anchor Investor allottees for allocation above 250 crore in the discretionary allotment – for every additional ₹250 crore or part thereof, an additional 15 investors (instead of 10 as per erstwhile norms) may be permitted, subject to a minimum allotment of ₹5 crore per investor.
- Life insurance companies and pension funds included in the reserved category along with domestic MF; proportion increased from 1/3rd (33.33%) to 40%
- 33% for domestic MFs
- 7% for life insurance companies and pension funds
- In case of undersubscription, the unsubscribed part will be available for allocation to domestic MF.
- Rationale (See Consultation Paper)
- Increase in permitted investors:
- To ease participation for large FPIs operating multiple funds with distinct PANs, which currently face allocation limits due to line caps
- Given the recent deal size, most issuances fall within the threshold of Cat II or higher, limiting the relevance of Cat 1, therefore merge Cat 1 and Cat II
- Including life insurance companies and pension funds:
- Growing interest in IPOs, the amendment will ensure participation and diversify long term investor base.
- Increase in permitted investors:
Clarifications in relation to manner of sending annual reports for entities having listed non-convertible securities [Reg 58 of LODR]
- For NCS holders whose email IDs are not registered
- A letter containing a web link and optionally a static QR code to access the annual report to be sent
- Instead of sending hard copy of salient features of the documents as per sec 136 of the Act
- Aligned with Reg 36(1) (b) of LODR as applicable to equity listed cos
- Currently, temporary relaxation was given by SEBI from sending of hard copy of documents, provided a web-link to the statement containing the salient features of all the documents is advertised by the NCS listed entity
- A letter containing a web link and optionally a static QR code to access the annual report to be sent
- Timeline for sending the annual report to NCS holders, stock exchange and debenture trustee
- To be specified based on the law under which such NCS-listed entity is constituted
- For e.g. – Section 136 of the Companies Act specifies a time period of at least 21 days before the AGM.
Light touch regulations for AIFs that are exclusively for Accredited Investors and Large Value Funds
- Introduction of new category of AIFs having only Accredited Investors
- Reduction of minimum investment requirements for Large Value Funds (LVFs) from Rs. 70 crores to Rs. 25 crores per investor
- Lighter regulatory framework for AIs – only/ LVFs
- Existing eligible AIFs may also opt for AI only/ LVF classification with associated benefits
- Rationale: see Consultation Paper
Read detailed article: Proposed Exclusivity Club: Light-touch regulations for AIFs with accredited investors
Facilitating investments in REITs and InVITs
- Enhanced participation of Mutual Funds through re-classification of investment in REITs as ‘equity’ investments, InVITs to continue ‘hybrid’ classification
- Results in REITs becoming eligible for limits relating to equity and equity indices
- Entire limits earlier available to REITs and InVITs taken together now becomes available to InVITs only
- Rationale (see Consultation Paper)
- In view of the characteristics of REIT & InVITts and to align with global practice
- Expanding the scope of ‘Strategic Investor” & aligning with QIBs under ICDR
- Extant Regulations cover: NBFC-IFCs, SCB, a multilateral and bilateral development financial institution, NBFC-ML & UL, FPIs, Insurance Cos. and MFs.
- Scope amended to include: QIBs, Provident & Pension funds (Min Corpus > 25Cr), AIFs, State Industrial Development Corporation, family trust (NW > 500 Cr) and intermediaries registered with SEBI (NW > 500 Cr) and NBFCs – ML, UL & TL
- Relevance of Strategic Investors:
- Invests a min 5% of the issue size of REITs or INVITs subject to a maximum of 25%. Investments are locked in for a period of 180 days from listing
- Such subscription is documented before the issue and disclosed in offer documents
- Rationale: see Consultation Paper
- to attract capital from more investors under the Strategic Investor category
- to instil confidence in the public issue
SWAGAT-FI for FPIs: relaxing eligibility norms, registration and compliance requirements
- Registration of retail schemes in IFSCs as FPIs alongside AIFs in IFSC
- Both for retail schemes and AIFs, the sponsor / manager should be resident Indian
- Alignment of contribution limit by resident indian non-individual sponsors with IFSCA Regs
- Sponsor contributions shall now be subject to a maximum of 10% of corpus of the Fund (or AUM, in case of retail schemes)
- Overseas MFs registering as FPIs may include Indian MFs as constituents
- SEBI circular Nov 4, 2024 permitted Indian MFs to invest in overseas MFs/UTs that have exposure to Indian securities, subject to specified conditions
- SWAGAT for objectively identified and verifiably low-risk FIs and FVCIs
- Introduction of SWAGAT-FI status for eligible foreign investors
- Easier investment assess
- Unified registration process across multiple investment routes
- Minimize repeated compliance requirements and documentation
- Eligible entities (applicable to both initial registration and existing FPIs):
- Govt and Govt related investors: central banks, SWFs, international / multilateral organizations / agencies and entities controlled or 75% owned (directly or indirectly) thereby
- Public Retail Funds (PRFs) regulated in home jurisdiction with diversified investors and investments, managed independently: MFs and UTs (open to retail investors, operating as blind pools with diversified investments), insurance companies (investing proprietary funds without segregated portfolios), PFs
- Relaxation for SWAGAT-FIs
- Option to use a single demat account for holding all securities acquired as FPI, FVCI, or foreign investor units, with systems in place to ensure proper tagging and identification across channels
- Introduction of SWAGAT-FI status for eligible foreign investors
India Market Access – dedicated platform for current and prospective FPIs
To tackle the problem of global investors in accessing Indian laws and regulatory procedures across various platforms, citing the absence of a centralized and comprehensive legal repository.
Read More:
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:
- 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.
- 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
employeeskey managerial personnel(s) or their relatives, without establishing a business relationship and at the terms which are uniformly applicable/offered to allemployees anddirectors 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:
Demystifying Promoter & Promoter Group: A Compilation of FAQs
Pammy Jaiswal, Partner and Ankit Singh Mehar, Assistant Manager | Corplaw@vinodkothari.com
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SEBI alerts banks to realize fiduciary duties for insider information
Fiduciary duties of banks in maintaining insider trading controls for shares of borrower companies
– Pammy Jaiswal and Payal Agarwal | Partner | corplaw@vinodkothari.com
Background
The SEBI Insider Trading Regulations (‘PIT Regulations’) explicitly rolled out the responsibilities for fiduciaries by amending the regulations in 2015. Subsequrently a separate Schedule C was inserted vide the SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2018 effective from April 01, 2019 which further outlined the responsibilities for fiduciaries. In the context of PIT Regulations, the term ‘fiduciaries’ refers to all such persons who are get to handle clients’ unpublished information (UPSI) in course of their business operations, such as bankers, merchant bankers, auditors, , law firms, analysts and consultants [refer Para 3.1. of the Report of Committee on Fair Market Conduct].
While banks, because of their role and functions, are likely to have access to UPSI of borrower listed entities, listed banks have two distinct strands of responsibility when it comes to curbing and eliminating insider trading practices. In the first place, since their own securities are listed, the requirements of drawing up internal controls for their Designated Person(s) (‘DPs’) become applicable beside the framing of Code of Fair Disclosure for any sharing of UPSI in a fair and symmetrical manner. The second responsibility comes up as being fiduciaries for other listed entities, being their borrowers. In the course of its dealings with other listed entities, several price sensitive information are shared with a concerned group of employees of a bank which may be price sensitive and unpublished and hence, the list of such borrower entities, and the list of the bank’s officers dealing with such entities, needs to be drawn up for maintaining the restricted list.
In this article, we have pointed out the unique position of listed banks when it comes to handling UPSI of other listed clients, its relevance, global scenario, judicial precedents and what should be the take and approach for such listed banks while handling UPSI for other such clients.
Uniqueness for banks to have access to UPSI
Banks would usually have a more regular, frequent access of such information about its clients, which may likely be in the nature of UPSI. These may include, for instance, :
- Details of all major cash inflows or outflows of the listed entity, since the bank account through which such dealings are done is maintained with such banker
- Monthly turnover or performance data is usually shared
- Business projections are shared at the time of sanctioning, monitoring and renewal of financing facilities
- Any stress conditions in the financial position of the listed entity etc.
The dealing officer for the listed clients would have an early access to such information, and hence, may be considered as ‘insider’, pending a public disclosure of such information by the listed entity.
The Chairperson of SEBI in his recent speech has also highlighted some purposes for which unpublished information may be shared with banks such as:
- Sanctioning credit facilities – Before such financial entities sanction the credit facilities, it generally gets access to UPSI in the category of financial projections or any other relevant financial data.
- Debt restructuring & Settlements – During debt restructuring negotiations or repayment settlements, sensitive data on a company’s liquidity position becomes available to the listed financial institutions.
- Participation in the Committee of Creditors – When such financial institutions participate in the discussion of the Committee of Creditors for restructuring of stressed assets of other listed entities, they become aware of the strategic corporate decisions while they are unpublished.
The information asymmetry and access of UPSI with banks has also been indicated by the Sodhi Committee in the context of setting out principles for sharing of UPSI for due diligence purpose:
“45. In an ideal world, the information that is generally available about any listed company in the public domain ought to be adequate for any and every investment in its securities. However, that is neither a true position nor a correct expectation is evidenced by even listed companies having to write detailed offer documents and prospectuses for securities offerings such as rights issues and follow-on public offerings. Banks that lend for acquisitions would need to conduct due diligence on a company’s operations…”
While such sharing of UPSI is expected to be for legitimate purposes, however, having access to such information makes it imperative for the listed banks to have concrete and conscious lines of internal control so as to avoid any undue usage of UPSI of listed clients for the gain of such DPs in any manner.
Identification of Designated Persons while acting as fiduciary
The identification of DPs in a fiduciary capacity requires designating such persons, who may, on the basis of their function and role in the organization, may be considered to have the ability to or have access to UPSI in relation to the clients of such fiduciary. In the context of a bank in a fiduciary relationship with a listed entity, the select group of persons, identified as DPs, based on their relevant role and functions may involve, for instance:
- Project finance team
- Credit department
- Restructuring department
- Legal team etc.
This implies that all the DPs of the listed bank as identified in its own Code of Conduct for the purpose of its own internal controls need not be included in the list of DPs maintained by the bank against the securities listed out in the restricted list or the grey list. The latter is expected to be drawn up by the listed bank considering the outreach and access of UPSI by its concerned employees in the specific departments of the listed bank.
Bankers as fiduciaries: judicial precedents of putting liability
There have been a few recent instances of insider trading related adjudication by SEBI on listed banks of the country. However, these largely pertain to dealing in the listed scrips of the banks by their Connected Persons, and not necessarily on the failure of fiduciary duties of the banks. Having said that, much of the insider trading regulations in India are built upon its counterparts in other western countries, including the US, UK, Singapore, Australia, etc. The concept principally remains similar across jurisdictions, although the manner of putting controls may vary. Thus, in the context of fiduciary duties of bankers towards protection of inside information, reference may be made of the decisions of international courts.
In one of the orders passed by the Financial Conduct Authority addressed to Mr. Ian Charles Hannan, a senior investment banker at JP Morgan was found to have shared information of its client company which was listed on the London Stock Exchange.
In another matter of the Federal Court of Australia in ASIC v Citigroup Global Markets Australia Pty Ltd [2007] FCA 963, one of the employees of the investment bank was found to have dealt in the securities of its listed clients.
In Affiliated Ute Citizens v. United States, 406 U.S. 128, 146 (1972), the Bank was acting as a transfer agent for the sellers. The Bank employees (Gale and Haslem) induced the sellers of the UDC stock to dispose of their shares without disclosing to them material facts that reasonably could have been expected to influence their decisions to sell. Withholding of such information, used by the employees for their personal gains, was considered to be in violation of Rule 10b-5 of the SEC, which prohibits “any device, scheme, or artifice to defraud” in connection with securities transactions. The Court further held that the liability of the bank, of course, is coextensive with that of Gale and Haslem.
In SEC v. Cherif, 933 F.2d 403, 405 (7th Cir. 1991), the matter pertained to an ex-employee, employed in a department dealing with confidential information of the clients of the Bank, using his access card even post his termination of employment to deal in the securities of the listed clients on the basis of material non-public information. The department was engaged in providing financing for extraordinary business transactions such as tender offers and leveraged buy-outs and hence, in the possession of UPSI pertaining to the listed clients of the Bank. The SEC brought civil charges under Rule 10b-5 against Cherif for insider trading, and such charges were affirmed by the Court on the context that as a former employee, Cherif continued to owe the bank fiduciary duties, even after the Bank terminated his employment.
In United States v. Salman, 137 S. Ct. 420 (2016), the Court of Appeals, Ninth Circuit, affirmed the conviction by the jury trial on the grounds that the disclosure of inside information about the clients to the relatives constituted a breach of the fiduciary duty of the employee of Citigroup, acting as an investment banker for such clients The Court also cited the US SC in Dirks v. SEC, 463 U.S. 646 (1983), which states that:
The elements of fiduciary duty and exploitation of nonpublic information also exist when an insider makes a gift of confidential information to a trading relative or friend. The tip and trade resemble trading by the insider himself followed by a gift of the profits to the recipient.
Listed banks should get hyper or hiber(nate) over actionables?
Sensitisation of persons responsible for dealing with UPSI
SEBI Chairperson reiterated the importance of sensitizing the employees of listed banks on their roles and responsibilities as fiduciaries which shall give strength to the internal controls in the entity. In the absence of the above, drawing of internal controls by drafting a Code of Conduct or asking the DPs to seek pre-clerance or putting a trading window and a contra trade restriction, all of these will completely lose their relevance.
The importance of sensitisation and various means by which sensitisation can be done effectively has been discussed in Sensitization: The key to implementation of PIT Regulations. An effective sensitisation framework is not limited to creating awareness through training only, but extends to a follow-up exercise of evaluating the understanding towards such principles.
Relevance for fiduciaries to have a process for how and when people are brought ‘inside’ on sensitive transactions
As a part of the Code of Conduct, the fiduciaries are required to have a process for how and when people are brought ‘inside’ on sensitive transactions. This requires sensitising the recipients about their duties and responsibilities with respect to receipt of such information, the manner of dealing with the information and the liability that follows upon the misuse of such information. Further, the effective presence of Chinese walls in a bank also helps to restrict flow of information from one department to the other without having any legitimate purpose.
Concluding Remarks
In view of the far reaching negative impact of a breach of fiduciary’s duties under insider trading regulations on the capital markets, SEBI has tried to send out an alert call for over ambitious listed banks which may not realize the nature of flaws in this regard of failing as a fiduciary The requirement for a fiduciary to protect and uphold the confidentiality of its clients has been there under the PIT Regulations for approximately a decade. It has been seeking more and more attention by securing and exhibiting an exclusive mention under the PIT Regulations itself and getting listed companies including listed banks to draw up and implement robust internal controls.
Read More:
Decoding “Control” in Pooled Investment Funds: Manager, Investors, or no one?
– Sikha Bansal, Senior Partner and Payal Agarwal, Partner | corplaw@vinodkothari.com
Corporate relationships and hierarchies are prone to misuse and hence, there are regulatory prescriptions to ascertain and address the areas of conflict. This is usually done through identification of control and/or significant influence, if any, existing between the parties. If there is an element of control /significant influence, the parties may be required to follow a host of protocols – including but not limited to being identified as a promoter, to put in place related party controls, to disclose their transactions and even go for consolidation of accounts, etc.
While in simple structures, it is still possible to objectively conclude the existence of control/significant influence (or the absence of it); in certain complex structures, particularly where unincorporated entities are involved, the determination can be quite subjective and dependent on multiple factors. For instance, in the case of pooled investment schemes (called “funds” henceforth) like mutual funds, AIFs, ReITs, InVITs, etc., the entity would often be formed as a trust which would hold the common hotchpot of funds contributed by investors. Besides investors, there would be multiple parties involved, viz., the fund sponsor, fund manager, and the trustee. Mostly, the fund may not be a legal entity[1]; however, it is segregated from the funds of either the manager or trustees. If there is any element of control or even significant influence on the funds, by any of these investors/parties, it would necessitate treatment of such funds in accordance with regulatory protocols as discussed above. Further, at the next level, if there is any element of control by such funds on other entities, then there would be concerns around indirect control of investors/parties on such other entities as well, percolating through the fund. Therefore, whether the fund is being controlled or significantly influenced by any person, becomes a pertinent question.
In this article, we attempt to analyze the same and try to frame some guiding principles for ascertaining circumstances in which a fund would be said to be controlled or significantly influenced.
Meaning of control
Depending on the specific nature and characteristics, pooled investment funds in India are governed by distinct SEBI regulations, such as, SEBI (Alternative Investment Funds) Regulations 2012, SEBI (Infrastructure Investment Trusts) Regulations 2014, SEBI (Mutual Funds) Regulations 1996, etc. These regulations define the terms “control” or “change in control” in the context of either the sponsor or the manager or both, but not in the context of the fund. Hence, one will have to look towards accounting standards – namely IFRS 10 which sets out guidelines for the assessment of control in the hands of a fund manager. In India, Ind AS 110 replicates the guidance provided under IFRS 10. Detailed discussion on the principles discussed under IndAS 110 is as below.
Components of control
Ind AS 110 refers to three cumulative components of control, viz.,
- Power over the investee,
- Exposure or rights to variable returns from its involvement with the investee, and
- The ability to use its power over the investee to affect the amount of the investor’s returns.
As evident, the Standard assumes a relationship of investor and investee. In case of funds, while there would be investors; however, the asset manager too, may be required to hold a certain percentage in the fund as skin-in-the-game, pursuant to applicable regulations. Therefore, in the case of funds, the asset manager is also in the position of an investor, besides being in the position of a manager.
Here, it is significant to note that the “existence of power” or “exposure to returns” individually does not indicate an existence of control, unless there is a link between power and returns, that is, the power can be used to direct the relevant activities, which would affect the returns of the investee.
| Component of control | Test for existence |
| Existence of power over the fund | Ability to direct the relevant activities, i.e., activities that significantly affect the investee’s returns. |
| Exposure to or rights over variable returns | Potential to vary investor’s returns through its involvement as a result of investee’s performance |
| Link between power and returns |
Ability to use its powers (of directing relevant activities) to affect the investor’s returns from its involvement with the investee, i.e., the investor shall hold decision-making rights as a principal. Also, note that what matters is “ability”, whether there is actual use of such power or not, becomes irrelevant. |
As power arises from rights, the investor must have existing rights that give the investor the current ability to direct the relevant activities [para B14]. Such rights have been briefly discussed in the later part of this write-up.
Power to direct relevant activities of the Fund
In the context of a fund, the relevant activity would be the management of the asset portfolio of the fund. The said function is primarily performed by the fund manager, albeit, the same may be in the capacity of an agent to the unitholders. Hence, Para 18 of Ind AS 110 requires a decision-maker to determine whether it is a principal or an agent for the fund, since a delegated power cannot signify control.
Fund manager – a principal or an agent
IndAS requires that an investor with decision-making rights (called as “decision maker”), when assessing whether it controls the investee, shall determine whether it is a principal or an agent. An investor shall also determine whether another entity with decision-making rights is acting as an agent for the investor [para B58]. The investor shall treat the decision-making rights delegated to its agent as held by the investor directly [para B59].
Thus, in cases where the fund manager is acting as a mere agent of the investor (that is, the fund manager is under the control of the investor), the decision-making rights of the fund manager are treated as that of the investor itself, and control is assessed accordingly. Therefore, to say that an investor has control over the fund, it is important to establish that the investor has control over the fund manager, who in turn, is acting as an agent of the investor. Here, whether the fund manager itself is able to control the fund or not also becomes a pertinent point for determination.
Para B60 of Ind AS 110 specifies the factors that need to be considered in order to determine whether the fund manager in its capacity of a decision maker, is merely an agent to the principal (other investors) or exercises its decision-making rights in the capacity of a principal to the fund.
The primary factor, holding the highest weightage, in making such determination – is the kick-out rights available with other investors. However, where the same does not conclude fund manager as an agent, various other factors require consideration.
Determination of fund manager as a principal v/s agent
Determining ‘control’ of the investor
Various tests are relevant for determining the control of the investor over the Fund. A summary view of the same is given below:
The table below shows a detailed analysis of each relevant test for assessing the existence of control:
| Sl. No. | Test of control | Assessment Remarks |
| Power to direct relevant activities | ||
| 1. | Nature of rights | The nature of rights shall be substantive, i.e., providing an ability to direct relevant activities and not merely protective. Protective rights apply only to protect an investor from fundamental changes in the funds’ activities or in exceptional circumstances and do not imply power over the fund. |
| 2. | Majority voting rights |
An investor holding more than 50% of voting rights in the fund would generally be considered to have power over the fund, unless such voting rights do not signify substantive decision-making rights. Mention is also made of the SEBI Circular dated 8th October, 2024 that requires conducting due diligence for every scheme of AIFs where an investor, or investors belonging to the same group, contribute(s) 50% or more to the corpus of the scheme. |
| 3. | Ability to influence other investors into collective decision-making | Where a right is required to be exercised by more than one party, whether the investor has the practical ability to influence other rights holders into collective decision-making is relevant in assessment of control of the said investor over the fund. |
| 4. | Contractual arrangements with other investors | Voting rights as well as other decision-making rights may arise out of contractual arrangements giving an investor sufficient rights to have power over the fund. |
| 5. | Size of an investor’s holding relative to size of holding of other parties |
An investor holding substantially higher stake, where other investors are holding fragmented holdings, such that a large number of parties are required to outvote the investor, will give the first investor power over the other investors, even in the absence of majority voting rights. |
| 6. | Exercise of voting rights by other investors |
Where the stake held by an investor is relatively higher from other investors but not significantly higher to indicate existence of power, however, the other investors do not actively participate in the meetings – the same indicates the unilateral ability of the first investor to direct the relevant activities. |
| Exposure to, or right over variable returns | ||
| 7. | Dividend and distributable profits proportionate to holdings | This is directly proportional to the holding of an investor in a fund. Where the holdings of an investor does not comprise a sizable portion of the fund, the same does not indicate a significant exposure to variable returns earned by the fund. |
| 8. | Remuneration for servicing the assets and liabilities of the fund |
In the context of a fund, the fund manager provides services w.r.t. the management of its assets and liabilities. The remuneration may contain a fixed as well as a variable component, generally, a percentage based fees based on performance of the fund. However, the same does not indicate an existence of control, if the following elements are present:
|
| 9. | Returns in other forms | In addition, there might be returns available in other forms providing a right over variable returns of the Fund. |
Analysis of examples contained in Ind AS 110
Below, we discuss the examples explained under Ind AS 110 in the context of funds:
| Illustration | Facts | Analysis |
| 13 |
|
Fund manager is an agent, so question of holding control does not arise |
| 14 |
|
Fund manager is an agent, so question of holding control does not arise |
| 14A |
|
Fund manager is an agent, so question of holding control does not arise |
| 14B |
|
Decision-making rights are exercised by the fund manager in the capacity of principal. Variability of returns appears significant to conclude an existence of control. |
| 14C |
|
While variability of returns appears significant to indicate control with the fund manager, more weightage is given on substantive removal rights held by other investors. Hence, the fund manager is considered as an agent, and does not control the fund. |
| 15 |
|
Considering the significant level of exposure to variability of returns, the fund manager is considered principal and controls the fund. |
| 16 |
|
Considering the significant level of exposure to variability of returns, the sponsor is considered principal and controls the fund. The obligation to act in the best interests of the investors is not significant. |
The “trust” angle
Funds are usually constituted in the form of a trust, where there is an independent trustee. Further, the investment manager is under an obligation to act in a fiduciary capacity towards the investors of AIF, in the best interest of all investors and manage all potential conflicts of interest [Reg 20(1) of AIF Regulations r/w the Fourth Schedule]. In such a scenario, can it be argued that there can be no element of control over a fund, irrespective of who the contributor is?
In SREI Infrastructure Finance Limited vs Shri Ashish Chhawchharia, the NCLAT, in view of the specific facts and circumstances of the case, held the existence of control of the contributor of the AIF over the investee company of the AIF through the AIF. The matter pertained to identification of the appellant as a related party of the corporate debtor in the context of IBC. The surrounding facts and circumstances are briefly put forth as under:
Therefore, in a given set of facts and circumstances, it might be possible to contend that the fund is being controlled by an investor/group of investors.
Conclusion
In questions involving conflict of interest, control, and relationships, Courts have often adopted purposive interpretation in such cases rather than literal interpretation. As held in Phoenix Arc Private Limited v. Spade Financial Services Limited, AIRONLINE 2021 SC 36, albeit in the context of section 21(2) of IBC would still be relevant. Referring to an authoritative commentary by Justice G.P. Singh which states that the terms may not be interpreted in their literal context, if the same leads to absurdity of law, the Supreme Court held: “The true test for determining whether the exclusion in the first proviso to Section 21(2) applies must be formulated in a manner which would advance the object and purpose of the statute and not lead to its provisions being defeated by disingenuous strategies.” Therefore, whether the fund is being controlled by any person/entity is to be seen in the light of all facts and circumstances, and there can be no straight-jacket formula to arrive at a conclusion.
Other resources on AIFs:
[1] For example, it may be a trust. However, it is possible to envisage funds held in LLP or company format, in which case the fund becomes a separate entity. This article does not envisage a fund formed as a body corporate.
Exclusivity Club: Light-touch regulations for AIFs with accredited investors
– SEBI notifies light-touch regulations for AIFs in which only Accredited Investors are investors and flexibilities for Large Value Funds (LVFs)
– Payal Agarwal, Partner | corplaw@vinodkothari.com
This version: 20th November, 2025
Since its introduction in 2021, the concept of Accredited Investors (AIs) has been through some changes. A Consultation Paper was published on 17th June, 2025 to provide for certain flexibilities in the accreditation framework. Another Consultation Paper dated 8th August 2025 (‘AI CP’) proposed to bring light-touch regulations for AIF schemes seeking investments from only AIs, including extension of various exemptions to such schemes, that are currently available to Large Value Funds (LVFs).
Further, vide another Consultation Paper (‘LVF CP’), some relaxations were also proposed to be extended to Large Value Funds (LVFs) for AIs. Note that the LVFs are available only for AIs, and hence, the Amendment Regulations define the AIs-only schemes to include LVF.
The SEBI (Alternative Investment Funds) (Third Amendment) Regulations, 2025 has been notified on 18th November, 2025, thus introducing the concept of AI-only schemes in the regulatory framework. Note that, vide the 2nd Amendment Regulations, the angel funds have also been exclusively restricted to Accredited Investors only. See an article on the Angel Funds 2.0: Navigating the New Regulatory Landscape.
Accredited Investors – who are they?
An AI is considered as an investor having professional expertise and experience of making riskier investments. Reg 2(1)(ab) of AIF Regulations defines an accredited investor as any person who is granted a certificate of accreditation by an accreditation agency, and specifies eligibility criteria. The eligibility criteria is as follows:
Further, certain categories of investors are deemed to be AIs, that is, certificate of accreditation is not required, such as, Central and State Governments, developmental agencies set up under the aegis of the Central Government or the State Governments, sovereign wealth funds and multilateral agencies, funds set up by the Government, Category I foreign portfolio investors, qualified institutional buyers, etc.
‘Accreditation’ as a measure of risk sophistication
AIFs are investment vehicles pooling funds of sophisticated investors, and not for soliciting money from retail investors. The measure of sophistication, as specified in the AIF Regulations currently, is in the form of the ‘minimum commitment threshold’. Reg 10(c) of the Regulations require a minimum investment of Rs. 1 crore, except in case of investors who are employees or directors of the AIF or of the Manager.
There are certain shortcomings of considering the minimum commitment threshold as the metric of risk sophistication of an investor, such as:
- May not necessarily lead to an actual draw-down, thus exposing to the risk of onboarding investors with inflated commitments. As per the data available on SEBI’s website, out of the total commitment of Rs. 13 lac crores for the quarter ended 31st March 2024, only about Rs. 5 lac crores worth of funds were actually drawn down. Similarly, for the quarter ended 31st March 2025, the value of commitment vis-a-vis funds raised
- Does not consider the investor’s financial health (income, net worth etc), hence, a potential risk of the investor putting majority of its wealth in AIFs, a riskier investment class.
The concept of AIs, as proposed in February 2021, was to introduce a class of investors who have an understanding of various financial products and the risks and returns associated with them and therefore, are able to take informed decisions regarding their investments. Accreditation of investors is a way of ensuring that investors are capable of assessing risk responsibly.
The June 2025 CP indicated that it is being examined to move AIFs gradually in an exclusively for AIs approach, starting with investments in angel funds and in framework for co-investing in unlisted securities of investee companies of AIFs. Accordingly, the present CP has proposed a gradual and consultative transition from ‘minimum commitment threshold’ to ‘accreditation status’ as a metric of risk sophistication of an investor.
Flexibility for AIs-only schemes vis-a-vis other AIFs
The accreditation status is to be ensured at the time of onboarding of investors only. Therefore, if an investor subsequently loses the status of AI in interim, the same shall still be considered as an AI for the AI only scheme, once on-boarded. The following relaxations have been extended to AIs-only schemes, in order to provide for a light-touch regulatory framework, from investor protection viewpoint, considering that the AIs have the necessary knowledge and means to understand the features including risks involved in such investment products:
| Topic | Regulatory requirement for other AIFs | Our Comments |
| Differential rights of investors [reg 20(22)] | Shall be pari-passu, differential rights may be offered to select investors, without affecting the interest of other investors of the scheme in compliance with SEBI Circular dated 13th Dec, 2024 r/w Implementation Standards | This facilitates differential rights to different classes of investors within a scheme. |
| Extension of tenure of close-ended funds [reg 13(5)] | up to two years subject to approval of two-thirds of the unit holders by value of their investment in AIF | This facilitates a longer tenure extension to an existing close-ended scheme, if suited to investors. However, it is further clarified that the maximum extension permissible to such AI only schemes, inclusive of any tenure extension prior to such conversion, shall be 5 years. |
| Certification criteria for key investment team of Manager [reg 4(g)(i)] | Atleast one key personnel with relevant NISM certification | The investors, being accredited, the reliance on key investment team of the Manager is comparatively low. |
Further, in case of AIs-only Funds, the responsibilities of Trustee as specified in Reg 20 r/w the Fourth Schedule shall be fulfilled by the Manager itself. This is based on the premise that, the investors, being accredited, the reliance on Trustee for investor protection is comparatively low.
Large Value Funds: a sub-category of AIs only scheme
The concept of LVF was also introduced in 2021, along with the concept of AIs. An LVF, in fact, is an AIs only fund, with a minimum investment threshold. Reg 2(1)(pa) of the AIF Regulations defines LVF as:
“large value fund for accredited investors” means an Alternative Investment Fund or scheme of an Alternative Investment Fund in which each investor (other than the Manager, Sponsor, employees or directors of the Alternative Investment Fund or employees or directors of the Manager) is an accredited investor and invests not less than seventy crore rupees.
Since an LVF is included within the meaning of an AIs-only scheme, all exemptions as available to an AIs only scheme, are naturally available with an LVF, although the converse is not true.
Additional Exemptions available to LVFs (other than as available to AIs only scheme)
In addition to the relaxations extended to an AIs only scheme, there are additional exemptions available to an LVF. These are:
| Regulatory reference | Topic | Exemption for LVF |
| Reg 12(2) | Filing of placement memorandum through merchant banker | Not applicable |
| Reg 12(3) | Comments of SEBI on PPM through merchant banker | Not applicable, only filing with SEBI required |
| Reg 15(1)(c) | Investment concentration for Cat I and Cat II AIFs – cannot invest more than 25% of investable funds in an investee company, directly or through units of other AIFs | May invest upto 50% of investable funds in an investee company, directly or through units of other AIFs |
| Reg 15(1)(d) | Investment concentration for Cat III AIFs – cannot invest more than 10% of investable funds in an investee company, directly or through units of other AIFs | May invest upto 25% of investable funds in an investee company, directly or through units of other AIFs |
Reduction in minimum investment size for LVFs
The minimum investment threshold for investors in LVF has been reduced from Rs. 70 crores to Rs. 25 crores, based on the recommendations of SEBI’s Alternative Investment Policy Advisory Committee (AIPAC). The rationale is to lower entry barriers to facilitate improved fund raising, without compromising on the level of investor sophistication. The reduction of investment thresholds would also facilitate investments by regulated entities having a strict exposure limit, such as insurance companies.
Exemptions from requiring specific waivers for certain provisions
The extant regulations permitted that the responsibilities of the Investment Committee may be waived by the investors (other than the Manager, Sponsor, and employees/ directors of Manager and AIF), if they have a commitment of at least Rs. 70 crores (USD 10 billion or other equivalent currency), by providing an undertaking to such effect, in the format as provided under Annexure 11 of the AIF Master Circular, including a confirmation that they have the independent ability and mechanism to carry out due diligence of the investments.
The requirement of specific waiver has been omitted for LVFs considering that AIs are already required to provide an undertaking for the purpose of availing benefits of ‘accreditation’. The undertaking, as per the format given in Annexure 8 of the AIF Master Circular states the following:
(i) The prospective investor ‘consents’ to avail benefits under the AI framework.
(ii) The prospective investor has the necessary knowledge and means to understand the features of the investment Product/service eligible for AIs, including the risks associated with the investment.
(iii) The prospective investor is aware that investments by AIs may not be subject to the same regulatory oversight as applicable to investment by other investors.
(iv) The prospective investor has the ability to bear the financial risks associated with the investment.
Similarly, LVFs have been exempt from following the standard PPM template without the requirement of obtaining specific waiver from investors.
Migration of existing eligible AIFs
One of the proposals of the LVF CP is to permit eligible AIFs, not formed as an LVF, to convert themselves into an LVF and avail the benefits available to LVF schemes. The conversion shall be subject to obtaining positive consent from all the investors. Following the same, the modalities for such migration has been specified by SEBI vide circular dated 8th December, 2025.
Pursuant to such migration, the AIF manager shall ensure that:
- Name of the converted scheme contains ‘AI only fund’ or ‘LVF’ as the case may be
- Such conversion and change in name to be reported to SEBI within 15 days through dedicated email ID
- Such change in name to be reported to depositories within 15 days of conversion
Limit on maximum number of investors
Reg 10(f) puts a cap on the maximum number of investors in a scheme. Pursuant to the Amendment Regulations, the cap of 1000 investors shall not include the AIs.
In practice, the number of investors in an AIF is much lower than 1000, and hence, the amendment may not have much of a practical relevance.
Conclusion
The amendments are a step towards providing a lighter regulatory regime for AIFs, meant for sophisticated investors, capable of making well-informed decisions. The move is expected to witness more schemes focussed on AIs only, and thus, bring an AIs only regime for AIFs. In order to differentiate an AIs only scheme or an LVF from other AIF schemes, it is mandatory for the newly launched schemes henceforth to have the words ‘AI only fund’ or ‘LVF’ as the case maybe.
Our resources on the topic-
- Understanding the Governance & Compliance Framework for AIFs
- Round-Tripping Reined: RBI Rolls Out Relaxed Rules for Investments in AIF
- Regulatory landscape for AIFs: what’s new?
- FAQs on Specific Due Diligence of investors & investments of AIFs
- Angel Funds 2.0: Navigating the New Regulatory Landscape.
12 hours Certificate Course on Nuts and Bolts of Related Party Transactions
Listed and Restricted? Additional Compliances and Prohibitions for listing of SDIs by RBI regulated Originators
– Payal Agarwal & Dayita Kanodia (finserv@vinodkothari.com)
Securitisation Transactions in India are primarily governed by:
- The RBI Securitisation of Standard Assets Directions, 2021 (in case the originator is regulated by RBI)
- SEBI (Issue and Listing of Securitised Debt Instruments and Security Receipts) Regulations, 2008, which become applicable if the securitisation notes are listed.
Consequently, an RBI regulated originator will be required to adhere to both the SSA Directions as well as the SDI Framework in case it intends to go for listing of the securisation notes.
Here, we have discussed the additional prohinitions and compliance requirements for RBI regulated originators which becomes applicable in case of listing of securitisation notes.
| Additional Prohibitions under the SEBI SDI Framework for RBI Regulated Originators | |||
| Para Ref | Relevant Regulatory Provision | Our Comments | |
| Single Asset Securitisation not permitted | 19A(a) | “No obligor shall have more than twenty-five percent in asset pool at the time of issuance.” | An RBI regulated originator will not be able to undertake single asset securitisation if it intends to list the securitisation notes, though the same is permitted under the RBI regulations (proviso to para 5(s) of the SSA Directions). Comments: Single asset securitisation is not a very common practice, but this is explicitly permitted under RBI regulations |
| All assets to be homogenous | 19A(b) | “Assets comprising the securitisation pool shall be homogeneous.” | The RBI SSA Directions only require the assets to be homogeneous in case of simple, transparent, and comparable securitisation transactions (STC Transactions). STC transactions are currently not very common, and in any case, is an investor classification, not that of issuer.For non-STC cases, there is no such requirement. Therefore, originators will be required to ensure that the assets comprising the pool are homogeneous in case they intend to go for listing of the securitisation notes. Comment: Homogeneity may be subjective |
| SPV can only be constituted in the form of a trust | 9(1) | “The special purpose distinct entity shall be constituted in the form of a trust the constitutional document whereof entitles the trustees to issue securitised debt instruments.” | The RBI SSA Directions (para 5(w)) allow SPVs to be constituted in the form of a company, trust or other entity. Comment: Not a very big pain, as SPVs in India are almost always in the trust form. |
| Originator and Trustee not be under the same group or control. | 10(3) | “No special purpose distinct entity shall acquire any debt or receivables from any originator which is part of the same group or which is under the same control as the trustee.” | This requirement, although essential to maintain independence, is not a part of the RBI SSA Directions. Accordingly, the same will be required to be ensured. |
| Additional Compliances applicable to RBI regulated Originators under the SEBI SDI Framework | |||
| Para Ref | Relevant Regulatory Provision | Our Comments | |
| Registration of Trustees under the Securities and Exchange Board of India(Debenture Trustees) Regulations, 1993 | 4(b) | “(1) On and from the commencement of these regulations, no person shall make a public offer of securitised debt instruments or seek listing for such securitised debt instruments unless –XX(b)all its trustees are registered with the Board under 26[the Securities and Exchange Board of India(Debenture Trustees) Regulations, 1993];XX” | Accordingly, the trustees will be required to comply with the SEBI Debenture Trustee regulations. Comment: This is a useful provision, and mostly, the SPV trustees are registered debenture trustees. Hence, it is a useful regulatory requirement. |
| Contents of the Instrument of Trust | Schedule IV | Schedule IV of the SEBI SDI Framework prescribes the minimum contents of the instrument of trust. | The contents prescribed under the SDI Framework are more detailed as compared to the RBI SSA Directions, which only indicate the contents of the trust deed. Comment: Useful regulation, serving the purpose of proper disclosures. Notably, disclosures are the domain of the securities regulator. |
| Quarterly reports to the trustee about the performance of the underlying pool and auditor certificate | 10A(1) and (2) | “(1) The originator shall provide the periodic reports to the trustee regarding the performance of the underlying asset pool, at least on a quarterly basis. (2) The originator shall provide a certificate from its auditor (s) regarding the disclosures of underlying asset pool assigned to the securitization trust, as made by the originator, on quarterly basis.” | The RBI SSA Directions (para 114 and 115) require semi-annual disclosures to be made. Further, there is no requirement to provide an auditor’s certificate under the RBI Directions. Comment: Useful regulation, serving the purpose of investor information. These disclosures are typically part of the securities regulators’ domain. |
| Minimum Ticket Size for subsequent transfers | 30A(2)(i) | “The minimum ticket size for subsequent transfers of a securitised debt instrument shall be as follows:(i)for originators which are not regulated by the Reserve Bank of India, the minimum ticket size shall be rupees one crore.” | In case of public offer of SDIs, the minimum ticket size is Rs. 1 Crore even for subsequent transfers of SDIs. This requirement is more stringent as compared to the RBI SSA Directions (para 28), which only requires the minimum ticket size of Rs. 1 Crore to be seen at the time of issuance. Comments: The requirement has only been introduced for the public offer of SDIs. Public issue of SDIs is howe,ver not a common practice currently. Accordingly, this may not seem to be a major concern for RBI regulated originators. |
| Other miscellaneous provisions – offer period, allotment period, dematerialisation | 29, 31(1) | Offer Period: No public offer of securitised debt instruments shall remain open for less than two working days and more than ten working days. Allotment Period:The securitised debt instruments shall be allotted to the investors within five days of closure of the offer. Further, the securitises will need to be issued mandatorily in demat form. | Comments: These requirements are applicable only in case of public offers. |
| Facility to avail electronic bidding platform | Master Circular dated May 16, 2025 | On issue and listing of Non-convertible Securities, Securitised Debt Instruments, Security Receipts, Municipal Debt Securities and Commercial Paper and on Review of provisions pertaining to Electronic Book Provider (EBP) platform to increase its efficacy and utility | The facility of using EBP has been extended to SDIs too. Comment: This is an optional facility, and as of now, very limited issuers have made use of this. |
| LODR Requirements – Chapter III | |||
| Disclosure by KMPs, directors, etc | Reg 5 | 5. The listed entity shall ensure that key managerial personnel, directors, promoters or any other person dealing with the listed entity, complies with responsibilities or obligations, if any, assigned to them under these regulations 51[:]52[Provided that the key managerial personnel, directors, promoter, promoter group or any other person dealing with the listed entity shall disclose to the listed entity all information that is relevant and necessary for the listed entity to ensure compliance with the applicable laws.] | This requires the concerned officers of the Listed Entity (in this case, the SPV] to make requisite disclosures for the purpose of complying with the law. Comment: Does not seem to be practically relevant, as Originators’ KMPs mostly do not have interest in the SPV. However, where needed, it is a useful disclosure. |
| Compliance officer to be appointed. | Reg 6, Chap III | 6. (1) A listed entity shall appoint a qualified company secretary as the compliance officer Other provisions of the regulation | An issuer of SDIs is required to appoint a Compliance Officer. Comments: The requirement may be complied with at SPV level. |
| Share Transfer Agent | Reg 7 | (1)The listed entity shall appoint a share transfer agent or manage the share transfer facility in-house:Other requirements of the regulation | The requirement to appoint a share transfer agent is typically part of the securities regulators’ domain. Comment: Mostly not relevant as the securities are offered in demat form. |
| Information to intermediaries | Reg 8 | The listed entity, wherever applicable, shall co-operate with and submit correct and adequate information to the intermediaries registered with the Board such as credit rating agencies, registrar to an issue and share transfer agents, debenture trustees etc, within timelines and procedures specified under the Act, regulations and circulars issued there under:Provided that requirements of this regulation shall not be applicable to the units issued by mutual funds listed on a recognised stock exchange(s) for which the provisions of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 shall be applicable. | Requirement to share information with the information agencies. Comment: In case of listed SDIs, this is a part of the information eco system. |
| Policy for preservation of documents | Reg 9 | The listed entity shall have a policy for preservation of documents, etc. | Useful for preservation of documents. |
| Filing of reports, statements and other documents | Reg 10 | (1) The listed entity shall file the reports, statements, documents, filings and any other information with the recognised stock exchange(s) on the electronic platform as specified by the Board or the recognised stock exchange(s).Other provisions of the regulation | This is a general filing requirement for filing of information on the stock exchanges. |
| Scheme of arrangement to not violate, affect or override the provisions of securities law | Reg 11 | The listed entity shall ensure that any scheme of arrangement /amalgamation /merger /reconstruction /reduction of capital etc. to be presented to any Court or Tribunal does not in any way violate, override or limit the provisions of securities laws or requirements of the stock exchange(s):. | Mostly not relevant for SDIs |
| Use of electronic mode of payments | Reg 12 | The listed entity shall use any of the electronic mode of payment facility approved by the Reserve Bank of India, in the manner specified in Schedule I, for the payment of the following:(a) dividends;(b) interest;(c) redemption or repayment amounts: | Provides for mode of payments to investors. Not a cumbersome requirement as it refers to RBI-permitted payment systems to be used. |
| SCORES | Reg 13 | (1) 61[The listed entity shall redress investor grievances promptly but not later than twenty-one calendar days from the date of receipt of the grievance and in such manner as may be specified by the Board.]Other provisions of the Regulation | This relates to use of the SCORES mechanism for settling investor issues |
| Payment of Fees and charges | Reg 14 | The listed entity shall pay all such fees or charges, as applicable, to the recognised stock exchange(s), in the manner specified by the Board or the recognised stock exchange(s). | This mandates payment of listing fees. Usual provision for all listed securities |
| LODR Regulations – Chapter VIII | |||
| The entire Chapter is dedicated to listed SDI issuance. | Reg 81 | Applicability(1) The provisions of this chapter shall apply to Special Purpose Distinct Entity issuing securitised debt instruments and trustees of Special Purpose Distinct Entity shall ensure compliance with each of the provisions of these regulations.(2) The expressions “asset pool”, “clean up call option”, “credit enhancement”, “debt or receivables”, “investor”, “liquidity provider”, “obligor”, “originator”, “regulated activity”, “scheme”, “securitization”, “securitized debt instrument”, “servicer”, “special purpose distinct entity”, “sponsor” and “trustee” shall have the same meaning as assigned to them under [Securities and Exchange Board of India (Issue and Listing of Securitised Debt Instruments and Security Receipts) Regulations, 2008]555; | Specifies applicability of the Chapter and refers to meaning of relevant expressions |
| Intimation and filings with stock exchange(s) | Reg 82 | (1) The listed entity shall intimate the Stock exchange, of its intention to issue new securitized debt instruments either through a public issue or on private placement basis (if it proposes to list such privately placed debt securities on the Stock exchange) prior to issuing such securities.(2) The listed entity shall intimate to the stock exchange(s), at least two working days in advance, excluding the date of the intimation and date of the meeting, regarding the meeting of its board of trustees, at which the recommendation or declaration of issue of securitized debt instruments or any other matter affecting the rights or interests of holders of securitized debt instruments is proposed to be considered.(3) The listed entity shall submit such statements, reports or information including financial information pertaining to Schemes to stock exchange within seven days from the end of the month/ actual payment date, either by itself or through the servicer, on a monthly basis in the format as specified by the Board from time to time:Provided that where periodicity of the receivables is not monthly, reporting shall be made for the relevant periods.(4) The listed entity shall provide the stock exchange, either by itself or through the servicer, loan level information, without disclosing particulars of individual borrowers, in manner specified by stock exchange. | This regulation is equivalent of reg 29 in case of listed equities, and provides for prior intimation to investors for certain critical actions on the part of issuers. |
| Disclosure of information having bearing on performance/operation of listed entity and/or price sensitive information | 83 read with Part D of Schedule III | (1) The listed entity shall promptly inform the stock exchange(s) of all information having bearing on the on performance/operation of the listed entity and price sensitive information.(2) Without prejudice to the generality of sub-regulation(1), the listed entity shall make the disclosures specified in Part D of Schedule III.Explanation.- The expression ‘promptly inform’, shall imply that the stock exchange must be informed must as soon as practically possible and without any delay and that the information shall be given first to the stock exchange(s) before providing the same to any third party. | This regulation is to ensure the regular flow of information from issuers to investors, to maintain information symmetry. This is typical for all listed securities – for example, Reg 30 in case of listed equities, and reg 51 in case of listed non convertible debt securities. |
| Credit Rating to be periodically reviewed and any revision to be notified | Reg 84 | (1) Every rating obtained by the listed entity with respect to securitised debt instruments shall be periodically reviewed, preferably once a year, by a credit rating agency registered by the Board.(2) Any revision in rating(s) shall be disseminated by the stock exchange(s). | This Regulation requires a mandatory annual review of credit ratings on the SDIs by a SEBI-registered CRA, and intimation of any revision to the stock exchanges. |
| Information to Investors | Reg 85 | (1) The listed entity shall provide either by itself or through the servicer, loan level information without disclosing particulars of individual borrower to its investors.(2) The listed entity shall provide information regarding revision in rating as a result of credit rating done periodically in terms of regulation 84 above to its investors.(3) The information at sub-regulation (1) and (2) may be sent to investors in electronic form/fax if so consented by the investors.(4) The listed entity shall display the email address of the grievance redressal division and other relevant details prominently on its website and in the various materials / pamphlets/ advertisement campaigns initiated by it for creating investor awareness. | This clause requires certain pool level information; useful information for the poolComment: As in case of other jurisdictions, the disclosure requirements are typically laid by the securities regulations |
| Terms of Securitized Debt Instruments | Reg 86 | (1) The listed entity shall ensure that no material modification shall be made to the structure of the securitized debt instruments in terms of coupon, conversion, redemption, or otherwise without prior approval of the recognised stock exchange(s) where the securitized debt instruments are listed and the listed entity shall make an application to the recognised stock exchange(s) only after the approval by Trustees.(2) The listed entity shall ensure timely interest/ redemption payment.(3) The listed entity shall ensure that where credit enhancement has been provided for, it shall make credit enhancement available for listed securitized debt instruments at all times.(4) The listed entity shall not forfeit unclaimed interest and principal and such unclaimed interest and principal shall be, after a period of seven years, transferred to the Investor Protection and Education Fund established under the Securities and Exchange Board of India (Investor Protection and Education Fund) Regulations, 2009.(5) Unless the terms of issue provide otherwise, the listed entity shall not select any of its listed securitized debt instruments for redemption otherwise than on pro rata basis or by lot and shall promptly submit to the recognised stock exchange(s) the details thereof.(6) The listed entity shall remain listed till the maturity or redemption of securitised debt instruments or till the same are delisted as per the procedure laid down by the BoardProvided that the provisions of this sub-regulation shall not restrict the right of the recognised stock exchange(s) to delist, suspend or remove the securities at any time and for any reason which the recognised stock exchange(s) considers proper in accordance with the applicable legal provisions. | This requires prior approval of the stock exchange to be obtained for making any material modification to the structure of SDIs. It also requires the originator to ensure timely payments of interest and for the credit enhancement to be available at all times. |
| Record Date | Reg 87 | (1) The listed entity shall fix a record date for payment of interest and payment of redemption or repayment amount or for such other purposes as specified by the recognised stock exchange(s).(2) The listed entity shall give notice in advance of atleast seven working days (excluding the date of intimation and the record date) to the recognised stock exchange(s) of the record date or of as many days as the Stock Exchange may agree to or require specifying the purpose of the record date. | This is for fixation of record date for payouts; useful for investor decisions for entry or exit. |
| Disclosure of Information having bearing on performance/ operation of listed entity and/ or price sensitive information | Part D of Schedule III | Several disclosure requirements for significant events and developments | See comments under reg 83 |
Other Resources: Buy our book on Securitised Debt Instruments here.
Repetitive Overhaul: RPT regime to get softer
– Team Corplaw | corplaw@vinodkothari.com
SEBI rolls out Consultation Paper: Materiality threshold for RPTs to be scale-based, Industry Standard to get softer, de minimis exemptions
Since 2021, the RPT framework for listed entities has been witnessing repetitive changes, and the current year 2025 has seen SEBI on a regulatory fast track in relation to RPTs. Be it the launch of RPT Analysis Portal, offering unprecedented visibility into RPT governance data, or the Industry Standards Note (‘ISN’), requiring seemingly a pile of information w.r.t RPTs, both in the month of February, 2025. Originally scheduled to be effective from FY 25, the applicability of ISN was later pushed on to July 1, 2025, and while on the verge of becoming effective, on June 26, 2025, SEBI notified Revised RPT Industry Standards, prescribing tiered but somewhat simplified disclosure formats effective September 1, 2025.
Even before the ISN could become effective, a 32-pager consultation paper proposing further amendments to RPT provisions has been rolled out by SEBI on August 4, 2025.
Based on the “Ease of Doing Business” theme, the Consultation Paper proposes amendments in the RPT framework, based on recommendations from the Advisory Committee on Listing Obligations and Disclosures (ACLOD). The proposals aim to address practical challenges faced by listed entities while maintaining robust governance standards.
Below we present the proposed amendments and our analysis of the same.
1. Materiality Thresholds: From One-Size-Fits-All to several sizes for short-and-tall
Proposal in CP
A scale-based threshold mechanism is proposed through a new Schedule XII to LODR Regulations, 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.
Proposed materiality thresholds:
| Annual Consolidated Turnover of listed entity (in Crores) | Proposed 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 (as proposed) |
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 present framework is causing too many proposals to go for shareholder approval.
Historical Benchmark
The absolute threshold of Rs. 1000 crores, for determination of RPTs as material was brought pursuant to an amendment in November 2021, following the recommendations of the Working Group on RPTs. The proposal of WG was based on the data between the years 2015 to 2019, which showed that only around 70 to 91 resolutions were placed for material RPT approvals by the top 500 listed entities.
Our Analysis and Comments
- Turnover as a single metric is not a measure of materiality: Scale-based tests align materiality with turnover, introducing proportionality, but the question remains whether turnover itself is at all an appropriate yardstick to measure materiality.
Turnover is an inadequate metric for determining the materiality of RPTs. Materiality should reflect the likely financial impact of a transaction, which may have little or no correlation with turnover. For instance, transactions involving investments, asset acquisitions or disposals, or borrowings pertain to the balance sheet rather than the revenue-generating side of operations. Even if an item pertains to revenues, there are businesses where gross profits ratios are low, and therefore, turnover will be high. Globally, jurisdictions like the UK adopt a more nuanced, consonance-based approach [Refer Annex 1 of UKLR 7] using different parameters viz. gross assets test, consideration test, and the gross capital test for different transaction types to ensure relevance and proportionality. Section 188 of the Companies Act, 2013 also adopts a similar multi-metric approach, applying turnover and net worth, depending on the nature of the transaction.
It is also critical to recognise the wide disparity in asset-turnover ratio across industries. A trading company might turn its assets over 20 times annually, while a manufacturing entity with a 90-day working capital cycle may show a turnover approximately four times its assets. On the other hand, entities in the financial sector, such as NBFCs and banks, generate turnover largely through interest income, which is barely 6 to 10 percent of the asset base. Therefore, applying a turnover-based threshold to such entities results in thresholds being disproportionately low when compared to the actual scale of transactions, thereby distorting the materiality assessment.
Given these sectoral variations and the diversity of transaction types, a flat turnover-based threshold oversimplifies the assessment and may result in both overregulation and underreporting. A more calibrated, transaction-specific materiality framework, drawing on consonance-based criteria as seen in Regulation 30 of the LODR Regulations, would offer a more balanced and effective approach. SEBI may consider moving towards such a harmonised model to ensure that materiality thresholds meaningfully reflect the substance of transactions, rather than relying on a single yardstick.
- Regulatory Lag: It took SEBI almost 4 years, i.e., from 2021 to 2025, to conclude that the threshold of ₹1,000 crores is too small, and that it requires an upward revision, which is now proposed to be increased to ₹5,000 crores. In the context of India’s rapidly growing economy, where turnover figures are expected to rise steadily, even this upwardly revised absolute threshold may soon lose relevance. Frequent threshold shifts risk “chasing” market realities rather than anticipating them. SEBI’s decision to cap at ₹5,000 crore reflects caution but may quickly become outdated.
2. Significant RPTs of Subsidiaries: Plugging Gaps with Dual Thresholds
Existing provisions vis-a-vis Proposal in CP
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 CP proposes the following modifications 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
- Exemption for small value RPTs: The threshold for Significant RPTs is subject to an exemption for small value RPTs based on the absolute value of Rs. 1 crore. Thus, where a transaction between a subsidiary and a related party (of the listed entity/ subsidiary), on an aggregate, does not exceed Rs. 1 crore, the same is not required to be placed for approval of the Audit Committee of the listed entity, even if the aforesaid limits are breached.
- Net Worth Alternative: 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 determined as below:
- 10% of standalone net worth of the subsidiary (or share capital + securities premium, if negative net worth),
- as on a date not more than 3 months prior to seeking AC’s approval
- certified by a practising CA
Our Analysis and Comments
● De-minimis exemption for significant RPTs of subsidiaries
The exemption for RPTs up to Rs. 1 crore in absolute terms might provide some relief for the holding entities, particularly, entities having various small subsidiaries, which, on a standalone basis, may not be material for the listed entity at all – however, the RPTs being significant at the subsidiary’s level still required approval of the parent’s audit committee. However, still the exemption threshold may be further enhanced to a higher limit, as a de minimis exemption of Rs. 1 crore entails the subsidiary having a turnover of mere Rs. 10 crores, which, from the perspective of a listed entity is a not a very practically beneficial scenario.
For newly incorporated companies not having a financial track record, linking the significant RPT threshold with net worth brings additional compliance burden in the form of certification requirements from PCA. Net worth alternative introduces valuation and certification burdens for newly incorporated entities, in which case It may be considerable to extend a blanket first year exemption of upto Rs. 5 crore, to balance ease of doing business for newly incorporated subsidiaries, the very decision of which would be stemming from the management of the parent listed entity. In fact, insisting on the net worth certificate itself seems unnecessary, as the net worth is mostly based on paid up capital, which does not warrant certification.
● Need for easing inclusion of RPs of subsidiaries as RPs of listed entity
First of all, a statement of fact. The number of related parties of listed entities went for a significant explosion in November, 2021, where the definition of RP of a listed entity included RPs of subsidiaries. For any diversified group, there are typically several subsidiaries, each of them with their own independent boards.
While the proposals pertain to significant RPTs of subsidiaries, the most crucial component of the RPT framework lies in identification of RPs, which, under the current framework, covers RPs of subsidiaries as well. These RPs may be, many a times, companies in which the directors of the subsidiaries are holding mere directorships, often, an independent directorship. There is absolutely no scope of conflict of interests in dealing with companies where a person is interested, solely on account of his directorship where there is no direct or indirect shareholding or ownership interest. Such a situation has an explicit carve out under the Ind AS 24 as well, where an entity does not become a RP by the mere reason of having a common director or KMP [Para 11(a) of Ind AS 24]. While the Companies Act treats a company as an RP based on common directorship (in case of a private company), however, the extension of such definition to RPs of subsidiaries is pursuant to the provisions of SEBI LODR and hence, appropriate exclusions may be specified for under LODR.
3. Tiered Disclosures: Balancing Transparency and Burden
Existing provisions vis-a-vis Proposal in CP
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 proposal seeks 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 are proposed to be given in the Annexure-2 of the Consultation Paper. The disclosure as per the Annexure is in line with the minimum information as is currently required to be placed by the listed entity before its Audit Committee in terms of SEBI Circular dated 22nd November, 2021 (currently subsumed in LODR Master Circular dated November 11, 2024). In the event of 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 | 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) | Proposed to be exempt from ISN |
| 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 proposal would result in creation of multiple reference points with respect to disclosure requirements. As per the existing regulatory requirements, the disclosure requirements before the Audit Committee comes from the following sources:
- Rule 6A of Companies (Meetings of Board and its Powers) Rules, 2014 – for listed entities incorporated as a company
- Reg 23(3)(c) of SEBI LODR – for omnibus approvals
- SEBI Circular dated 26th June, 2025 read with Industry Standards Note on RPTs – effective from 1st September 2025, for all RPTs other than exempted RPTs (aggregate value of upto Rs. 1 crore)
The proposal leads to an additional classification of RPTs into moderate value RPTs where limited disclosures in terms of the draft Circular will be applicable. 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.
4. Clarification w.r.t. validity of shareholders’ Omnibus Approval
Existing provisions vis-a-vis Proposal in CP
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, are proposed 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 proposes two key clarifications:
- 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.
- 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
employeeskey managerial personnel(s) or their relatives, without establishing a business relationship and at the terms which are uniformly applicable/offered to allemployees anddirectors and key managerial personnel(s)” – creates 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. - Regarding the exemption under Regulation 23(5)(b) for transactions between a holding company and its wholly owned subsidiary, this clarification seeks to align the treatment under Regulations 23(5)(b) and 23(5)(c). While this provides helpful interpretational guidance, incorporating the word “listed” directly into the text of the Regulation itself could offer greater precision and eliminate the need for retrospective explanations. Since unlisted holding companies are not subject to LODR, they are unlikely to have interpreted the exemption as applicable in the first place. As such, a simple prospective clarification might serve the purpose more effectively.
Conclusion
SEBI’s August 2025 proposals are largely aimed at relaxation, though in some cases, the ability to think beyond the existing track of the law seems missing. 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.
Read More:
FAQs on Standards for minimum information to be disclosed for RPT approval
Tailored to Fit Practically: Disclosure for RPTs under Revised Industry Standards
