SEBI’s RPT Amendments: Governance Reform or Compliance Theatre ?

By - Arnav Sharma

Related party Transaction (RPTs) occupy a structurally precarious position in Indian corporate law. They are commercially necessary-group companies routinely transact with one another, yet they are the single most common channel through which controlling shareholders extract value from public companies at the expense of minority investors. The challenge for regulators has always been calibration: how much procedural oversight is enough to deter abuse without imposing costs that chill legitimate intra-group commerce ?

In January 2022, the Securities and Exchange Board of India (SEBI) notified sweeping amendments to the SEBI (Listing obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations), dramatically expanding the scope of RPT approval and disclosure obligations for listed companies. The amendments largely drawn from the recommendations of the SEBI Committee on Corporate Governance chaired by Uday Kotak – came into effect in tranches through April 2022 and April 2023.

This article argues that while SEBI’s 2022 RPT amendments represent a meaningful tightening of governance standards they suffer from two structural deficiencies: first, an over-reliance on shareholder approval as governance mechanism in a market where promoter concentration renders minority voting largely symbolic; and second, definition ambiguities that create regulatory arbitrage opportunities rather than closing them. A more durable solution would combine enhanced ex ante disclosure with robust ex post enforcement, anchored in a clearer statutory definition of “materiality”.

II. The Statutory and Regulatory Framework

RPTs in India are governed along a two-track framework. Under the Companies Act,2013, Section 188 requires board and, in certain cases, shareholders’ approval for specifies related party contracts. Listed companies are additionally subject to Regulation 23 of the LODR Regulations, which historically imposed stricter thresholds and audit committee oversight on top of Companies Act baseline.

Prior to the 2022 amendments, the RPT framework had several well-documented gaps. The definition of “ related party” under the LODR Regulations substantially tracked the Companies Act, definition, which excluded subsidiaries and did not adequately capture transactions routed through intermediate entities. The maturity threshold transactions exceeding ten percent of annual consolidated turnover was generous enough to permit significant value- sapping transactions without triggering minority shareholders’ approval. Additionally, the approval requirement applied only to the listed entity’s own transactions, not to RPT’s entered into by ius unlisted subsidiaries on its behalf. Prior to the 2022 amendments, the RPT framework had several well-documented gaps.

The 2022 qm3ndments addressed several of these concerns. SEBI broadened the definition of related party to include all entities falling withing the meaning of related party under applicable accounting standards (Ind AS 24), which captures a wider network of affiliates. More significantly, the amendments lowered the maternity threshold, extended RPT oversight to transactions of listed subsidiaries and to RPTs entered into by subsidiaries with third parties where the listed company is a direct or indirect beneficiary and strengthened disclosure and approval timelines.

III. Structural Gaps in the Reformed Framework

The Limits of shareholder Approval in Concentrated Markets

The centerpiece of the LODR RPT framework is the requirement for approval by a “majority of minority” shareholders-i.e., excluding investors approve a transaction, it is presumably priced fairly, the problem in India is the minority shareholders in listed companies are neither homogeneous nor consistently engages. Retail shareholders, who individually hold small stakes, rarely vote, foreign portfolio investors (FPIs) AND domestic institutional investors (diis) vote more consistently but may not independently evaluate RPT fairness.

The result is that majority-of-minority votes in Indian listed companies are in practice determined by a subset of sophisticated institutional holders. While institutional stewardship has improved following SEBI’s Circular on Stewardship Code of Mutual Funds and Insurance Companies, there is no systematic evidence that such investors reject RPTs they consider unfair. SEBI’s own data on voting patterns and RPT approvals has not been published in disaggregated form. Approval, in this environment, too often functions as a process formality rather than a substantive governance check.

Definitional Ambiguities and Regulatory Arbitrage 

A second, more technical problem lies in the interaction between the 2022 amendments and Ind AS 24 definition of related party. Ind AS 24 is an accounting standard designed for disclosure purpose; it was not drafted as a regulatory threshold for approval requirements. Its embedded judgement calls- particularly around “significant influence” and key management personnel import interpretive uncertainty into a compliance context where precision matters.

For example, the treatment of post-retirement benefits plan (such as gratuity trusts) maintained by listed companies. Ind AS 24 classifies these as related parties of the sponsoring entity. The 2022 amendments, by incorporating the Ind AS 24 definition wholesale, technically bring routine contributions to employee benefit trusts within the RPT approval framework. SEBI has not addressed this anomaly in any clarification circular, leaving companies to navigate the ambiguity through conversative interpretation of quit non-compliance.

Corresponding, the “beneficial interest” test for subsidiary RPTs- a transaction entered into by a subsidiary where the listed partner is the “beneficiary”- is not defined with sufficient precision. Whether the listed entity is the beneficiary I the economic sense, or both, remains unclear. Given the complexity of modern corporate group structures, this ambiguity is likely to generate inconsistent application across compliance departments and auditors.

IV. Judicial and Regulatory Precedents

The jurisprudence on RPTs under the LODR framework remains relatively thin, reflecting predominantly ex ante nature of the compliance obligation. However, SEBI’s enforcement orders provide instructive illustration, In SEBI v. Roofit Industries Ltd and subsequent orders, SEBI held that routing transactions through intermediate unlisted entities did not insulate the listed company from disclosure obligations where the economic substance pointed to a related party relationship. This functional approach to RPT identification anticipates, in a limited way, the direction of 2022 amendments.

More recently, SEBI’s adjudication orders have emphasized the obligation of audit committees to independently assess RPT terms rather than merely recording management certification. In SEBI v. Zee Entertainment Enterprise Ltd., SEBI’s order scrutinized inter-company transactions involving the promoter group and noted failures in audit committee oversight, underlining that procedural compliance is necessary but not sufficient. The substantive standard-whether the transaction was on arm’s length terms remains the ultimate measure.

V. Policy and Practical Implications

The 2022 amendments impose significantly higher compliance costs on listed companies, particularly large conglomerates with extensive intra-group transactions. SEBI has acknowledged this by providing a grace period a permitting omnibus approvals for repetitive transactions. However, the broader question whether the shareholder approval mechanism delivers commensurate governance benefits-deserves more sustained regulatory attention.

Three reform directions merit consideration. First SEBI should mandate and regulate pre-transaction disclosure with independently certified fairness opinions for material RPTs, rather than relying solely on audit committee approval. Fairness opinions, while imperfect, create a documentary record that facilitates ex post accountability. Second, the definition of “material” RPT should be standardized by SEBI through a dedicated circular, decoupled from IND AS 24 where accounting and regulatory purpose diverge. Third, SEBI’s enforcement division should build a stretchable public database of RPT disclosures to enable the kind to od empirical monitoring that informed the 2022 reforms

For companies, the practical implication is clear: the compliance burden of RPT management has increased substantially and will require dedicated governance infrastructure- not merely legal sign-off, but genuine audit committee engagement with pricing, commercial rationale, and disclosure quality.

VI. Conclusion

SEBI’s 2022 RPT amendments reflect a serious and long-overdue efforts to close governance gaps that permitted promoter tunneling through the corporate structure of listed entities. The expanded scope, lower materiality  threshold, and subsidiary coverage are genuine improvements. Yet the reforms are not self-executing. An approval mechanism that depends on minority shareholder engagement in a market characterized by retail passivity and institutional deference will produce mixed results at best. Combined with definition ambiguities that invite inconsistent application, the framework risks generating procedural compliance without substantive governance improvement.

The deeper lesson is that RPT regulation cannot be reduced to a voting requirement. Sustainable reform requires parallel investment in disclosure quality, independent fairness assessment, and enforcement credibility. SEBI willingness to act decisively in 2022 should be matched by equal willingness to evaluate whether the new framework is achieving its stated purpose and to refine it where it falls short.

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