Industry Standards for Review and Approval of Related Party Transactions (RPTs) by Audit Committee and Shareholders (Effective 01 July 2025)

1. Introduction

To enhance transparency and governance, SEBI mandated minimum information requirements for the review of Related Party Transactions (RPTs) by the Audit Committee and shareholders. These requirements, originally applicable from 01 April 2025, have now been deferred to 01 July 2025 via SEBI Circular No. SEBI/HO/CFD/CFD-PoD-2/P/CIR/2025/372 dated March 21, 2025.

2. Applicability of Industry Standards

Parameter	Description
Effective Date	Now applicable to RPTs entered into on or after 01 July 2025
Applicability	Listed Entities entering into Material Related Party Transactions under: - Regulation 23(1) of SEBI (LODR), 2015 - Regulation 23(1A) (for Royalty Payments) - Regulation 30(4) (for Disclosure Materiality)

3. Definition of Material Related Party Transaction (RPT)

Under Regulation 23(1):

A Related Party Transaction is considered material if it exceeds the lower of:

?1000 crore, or
10% of the Annual Consolidated Turnover (as per last audited consolidated financial statements).

For Royalty Payments [Reg 23(1A)]:

A transaction involving royalty is material if it exceeds:

5% of the Annual Consolidated Turnover (as per last audited consolidated financial statements).

4. Materiality Threshold under Regulation 30(4) – Disclosure to Stock Exchanges

When assessing whether a transaction qualifies for disclosure under Regulation 30(4), compare the value of the transaction with the lower of the following three thresholds:

Criteria	Threshold
Turnover	2% of the last audited consolidated turnover
Net Worth	2% of the last audited consolidated net worth (if positive)
Profit/Loss	5% of the average of absolute values of PAT for the last 3 audited years

Note: Arithmetic value of Net Worth should be positive to consider 2% of Net Worth.

5. Classification of Transactions – Balance Sheet & P&L Based

A. Balance Sheet Items

Nature of Transaction	Examples
Loans, Inter-corporate deposits, Advances	Granted to or received from Related Parties
Investments	Equity, Debentures, Mutual Funds, etc.
Guarantees, Surety, Indemnity, Comfort Letters	Other than performance guarantees
Borrowings	Loans from Related Parties
Asset Transfers	Sale/lease/disposal of units, divisions, shares, or undertaking

B. Profit & Loss (P&L) Items

Nature of Transaction	Examples
Sale/Purchase/Supply	Goods, services, or any business transaction
Royalty Payments	License fee, trademark/brand usage fee, technical know-how, etc.

6. Minimum Information to be Provided to Audit Committee & Shareholders

As per the Industry Standards, the following minimum disclosures are required in the agenda/notice for approval:

Particulars	Details Required
Name of Related Party	Relationship with the listed entity
Nature of Relationship	Whether promoter, director, KMP, subsidiary, associate, etc.
Nature, Duration & Particulars of Transaction	Precise description, recurring or one-time
Material Terms	Including value, tenure, payment terms
Valuation/Justification	Independent valuation if any; pricing rationale
Percentage of Entity’s Turnover/Net Worth/PAT	Relative impact
If Arm’s Length & Ordinary Course of Business	Supporting basis
Details of Approval from Audit Committee/Board/Shareholders	Date and nature of approvals taken
Justification for Entering into Transaction	Business rationale, synergy, necessity
Any Other Relevant Information	Risk factors, conflicts of interest

7. Extended Timeline by SEBI

Circular Reference	SEBI/HO/CFD/CFD-PoD-2/P/CIR/2025/372
Issued On	March 21, 2025
Key Decision	Extension of implementation of Industry Standards from 01 April 2025 to 01 July 2025

8. Compliance Requirements

Listed Entities must:

Ensure Audit Committee is presented with comprehensive, detailed documentation for all material RPTs.
Disclose all material RPTs in the quarterly compliance report and annual corporate governance report.
Provide justification and impact analysis for shareholder approval under Reg 23(4).

9. Summary of Key Thresholds

Regulation	Type of Transaction	Materiality Threshold
Reg. 23(1)	General RPT	Lower of ?1000 Cr or 10% of annual consolidated turnover
Reg. 23(1A)	Royalty Payment	5% of annual consolidated turnover
Reg. 30(4)	Disclosure Materiality	Lower of: 2% turnover, 2% net worth, or 5% avg. PAT (3 yrs)

10. Conclusion

The implementation of Industry Standards on RPTs aims to curb undue influence, promote transparency, and safeguard shareholder interests. With the extended timeline to 01 July 2025, listed entities must strengthen their internal review mechanisms and ensure full compliance with the revised disclosure framework.

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