SEBI Proposes Major Reforms to Related Party Rules to Ease Compliance for Large Corporates

In a significant development to improve the ease of doing business, the capital market regulator, the Securities and Exchange Board of India (SEBI) unveiled a proposal to revamp its framework for related party transactions (RPTs). SEBI’s consultation paper released on Aug 5 highlights sweeping reforms that could substantially reduce compliance burdens, by up to 60%, for India’s top listed firms.

Under the current rules, listed entities are required to obtain shareholder approval for RPTs exceeding ₹1,000 crore or 10% of their annual consolidated turnover, whichever is lower. SEBI, however, noted that this threshold places an undue burden on high-turnover companies, forcing them to seek shareholder approval for large but routine transactions that may not be truly significant.

Shift from Uniform Thresholds to Turnover-Based Scaling

To address this, SEBI proposes replacing the current “one-size-fits-all” model with a nuanced, tiered threshold system based on a company’s turnover:

• Turnover up to ₹20,000 crore: Threshold remains at 10% of annual consolidated turnover.
• Turnover between ₹20,001–40,000 crore: Threshold is ₹2,000 crore plus 5% of the amount exceeding ₹20,000 crore.
• Turnover above ₹40,000 crore: Threshold is ₹3,000 crore plus 2.5% of the amount above ₹40,000 crore, capped at ₹5,000 crore.

Also Read: SEBI Proposes to Reduce Retail Quota to 25% in IPO of Over ₹5,000 Crore

Additional Proposals on Subsidiaries and Smaller Transactions

The paper also tackles RPTs undertaken by subsidiaries. It proposes that transactions exceeding ₹1 crore must receive audit committee approval if they cross either 10% of the subsidiary’s turnover or the parent company’s threshold, whichever is lower. If a subsidiary lacks full-year financials, the comparison would shift to 10% of net worth or the parent’s applicable threshold.

For smaller transactions, SEBI suggests easing disclosure requirements. Transactions valued at up to 1% of turnover or ₹10 crore (whichever is lower) would only require limited disclosure to the audit committee or shareholders.

Clarifications and Validity of Approvals

The draft also formalises the validity of omnibus RPT approvals. If granted at an Annual General Meeting (AGM), such approvals would remain valid until the next AGM or for a maximum of 15 months. Approvals at any other shareholder meetings would be valid for one year.

SEBI further clarified that exemptions for retail transactions would apply solely to directors, key managerial personnel (KMPs), or their relatives, either of the listed entity or its subsidiaries. Additionally, exemptions for inter-company transactions are intended only for listed holding companies and their subsidiaries, not unlisted parents.

SEBI has invited public comments on the proposals until August 25, 2025, with final regulations to follow thereafter.

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