Related-party transactions (RPTs) are common in business structures where organisations engage with their group entities, such as holding companies, subsidiaries, associate concerns, joint ventures, or key management personnel, for various operational or financial purposes. While legitimate, these transactions can raise governance concerns if they are not conducted transparently, fairly, and at arm’s length. For example, a royalty or management fee paid by a subsidiary to its parent company without sufficient justification may be perceived as prejudicial to minority shareholders.

The Companies Act, 2013, serves as a regulatory backbone for RPTs, mandating prior board or shareholder approval for specified transactions to ensure they are conducted transparently and in the best interest of all stakeholders.

The Securities and Exchange Board of India (SEBI) proactively takes measures to strengthen the governance framework and oversight regarding RPTs. This includes the introduction of Industry Standards effective from 1 July 2025, which standardises the disclosure requirements for approval of RPTs by an audit committee and/or shareholders. The increased scrutiny by SEBI and extensive disclosure requirements have made it imperative for companies to reconsider their approach to RPT governance, regulatory oversight, and the creation of robust, transparent, and automated approval mechanisms.

At Grant Thornton Bharat, we support the review of RPTs, including documentation and related approval processes, and offer bespoke solutions to help you navigate RPT governance with ease. Our team of seasoned professionals assist companies across various sectors in undertaking RPT reviews, in addition to sharing best practices that help improve RPT governance systems and processes. 

Who is a related party?

The concept of a ‘related party’ (RP) is defined across various statutory and regulatory frameworks, including the Companies Act, 2013, Accounting Standard (AS) 18, Indian Accounting Standard (Ind AS) 24, and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI Listing Regulations). Each framework outlines specific criteria to determine whether a relationship qualifies as an RP in the context of a company’s financial and operational transactions. 

Companies Act, 2013* Accounting Standard-18* IND AS-24* SEBI Listing Regulations*
  1. Director or their relative. 

  2. Key managerial personnel (KMP) or their relative.

  3. A firm in which a director, manager, or their relative is a partner.

  4. A private company in which a director, manager, or their relative is a member or director.

  5. A public company in which a director or manager is a director and holds, along with their relatives, more than 2% of its paid-up share capital.

  6. Any body corporate whose Board of Directors, managing director, or manager is accustomed to act in accordance with the advice, directions, or instructions of a director or manager.

  7. Any person on whose advice, directions, or instructions a director or manager is accustomed to act.

  8. Any body corporate which is:
    • A holding, subsidiary or an associate company of such company.

    • A subsidiary of a holding company to which it is also a subsidiary.

    • An investing company or the venturer of the company.

  9. A director other than an independent director or key managerial personnel of the holding company or their relative with reference to a company shall be deemed to be an RP.
  • Control the other party.

  • Exercise significant influence over the other party in making financial and/or operating decisions.

‘Control’ includes:

  • Ownership of more than 50% of the voting power.

  • Control over the composition of the Board of Directors or Governing Body.

  • A substantial interest in voting power along with the power to direct, by statute or agreement, the financial and/or operating policies of the enterprise.

‘Significant influence’ refers to:

Participation in the financial and/or operating policy decisions of an enterprise, but no control over those policies.
  1. A person or a close member of that person’s family is related to a reporting entity if that person:
    • Has control or joint control of the reporting entity.

    • Has significant influence over the reporting entity.

    • Is a member of the KMP of the reporting entity or of its parent.

  2. An entity is related to a reporting entity if:
    • Entity and reporting entity are members of the same group, which means parent, subsidiary, and fellow subsidiary.

    • One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).

    • Both entities are joint ventures of the same third party.

    • One entity is a joint venture of a third entity, and the other entity is an associate of the third entity.

    • The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity.

    • The entity is controlled or jointly controlled by a person identified in (a).

    • A person identified in (a) (i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

    • The entity, or any member of a group of which it is a part, provides key management personnel services to the reporting entity or to the parent of the reporting entity .
  1. RP defined under Section 2(76) of the CA, 2013.

  2. RP defined under applicable accounting standards (AS 18 /IND-AS 24).

  3. Any person or entity belonging to the promoter or promoter group.

  4. Any person or any entity holding equity shares in the listed entity either directly or on a beneficial interest basis as provided under Section 89 of the 2013 Act at any time during the immediately preceding financial year: 
    • Of 20 per cent or more.

    • Of 10 per cent or more with effect from 1 April 2023.

What constitutes RP transactions?

Companies Act, 2013* Accounting Standard-18* IND AS-24* SEBI Listing Regulations*
  • Sale, purchase, or supply of any goods or materials. 

  • Selling or otherwise disposing of, or buying, property of any kind.

  • Leasing of property of any kind.

  • Availing or rendering of any services.

  • Appointment of any agent for purchase or sale of goods, materials, services, or property.

  • Such RP’s appointment to any office or place of profit in the company, its subsidiary company, or associate company.

  • Underwriting the subscription of any securities or derivatives thereof of the company
  • A transfer of resources or obligations between RPs, regardless of whether or not a price is charged.
  • An RPT is a transfer of resources, services, or obligations between a reporting entity and an RP, regardless of whether a price is charged.

A transaction involving a transfer of resources, services, or obligations between:

  1. A listed entity or any of its subsidiaries on one hand and an RP of the listed entity or any of its subsidiaries on the other hand.

  2. A listed entity or any of its subsidiaries on one hand and any other person or entity on the other hand, the purpose and effect of which is to benefit an RP of the listed entity or any of its subsidiaries, with effect from 1 April 2023.

Regardless of whether a price is charged, a ‘transaction’ with an RP shall be construed to include a single transaction or a group of transactions in a contract.

Note: There are certain exempted transactions which shall not be treated RPT and incudes:

  1. The issue of specified securities on a preferential basis, subject to compliance of the requirements under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018;

  2. The below corporate actions which are uniformly applicable/offered to all shareholders in proportion to their shareholding:
    • payment of dividend;

    • subdivision or consolidation of securities;

    • issuance of securities by way of a rights issue or a bonus issue; and

    • buy-back of securities. 
  3. Acceptance of fixed deposits by banks/Non-Banking Finance Companies at the terms uniformly applicable/ offered to all shareholders/public, subject to disclosure of the same along with the disclosure of related party transactions every six months to the stock exchange(s), in the format as specified by the Board:

  4. Acceptance of current account deposits and saving account deposits by banks in compliance with the directions issued by the Reserve Bank of India or any other central bank in the relevant jurisdiction from time to time:
    Explanation: For the purpose of clauses (c) and (d) above, acceptance of deposits includes payment of interest thereon.

  5. Retail purchases from any listed entity or its subsidiary by its directors or its employees, without establishing a business relationship and at the terms which are uniformly applicable/offered to all employees and directors.

Key legislation governing RPTs

  • The Companies Act, 2013.
  • SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI Listing Regulations).
  • Accounting Standard 18 (AS-18) and Indian Accounting Standard (Ind AS) 24 primarily outline the policies and compliance requirements for RPTs.
  • The Industry Standards act as a critical enabler of effective RPT governance by providing structured, risk-based disclosure and review frameworks that reinforce the overall integrity of corporate decision-making.
  • The Income-Tax Act covers RPT between two domestic RPs to the extent that either of the entities is availing tax. GST and special valuation law lay down requirements for RP supply.
  • Robust RPT policies formulated as per regulatory requirements. 

Industry Standards Forum (ISF) 

To strengthen RPT governance, SEBI has supported the creation of Industry Standards effective from 1 July 2025 - developed by the Industry Standards Forum (ISF), comprising representatives from ASSOCHAM, CII, and FICCI under the aegis of stock exchanges.

These standards mandate minimum disclosures and documentation for audit committee and shareholder review, aiming to improve clarity, consistency, and decision-making around material RPTs. Listed entities must assess their current processes and upgrade them to meet these standards effectively.

Lifecycle of RPT governance

Lifecycle of RPT governance

Next steps for listed entities

Provide training to relevant stakeholders on ISF standards

Revise SOPs and internal control mechanisms 

Bifurcate transactions into material, other, and residual categories

Standardise industry disclosures in line with new norms

Ensure proper identification of promoter group entities

Comply with certification and documentation requirements 

How Grant Thornton Bharat can support

Our bespoke solutions are designed to simplify RPT governance—covering end-to-end support from detailed reviews of RPTs, documentation, and approval workflows to strategic guidance on industry best practices. Our services include:

1.

Ensuring preparedness for ISF Industry Standards

2.

Assisting with RPT compliances and approval process

3.

Revamping SOPs and processes

4.

Performing arm's length review and validation

5.

Ensuring RPT documentation robustness

6.

Bifurcating RPTs into material, other, and residual categories

Regulatory alerts

SEBI circular on industry standard for RPT disclosures

These standards ensure transparent and fair approval processes for RPTs across listed entities.

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Regulatory alerts

RPT disclosures: FAQs on applicability of industry standards

The FAQs offer crucial guidance on the applicability of industry standards for RPT disclosures, effective from 1 July 2025.

 

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