On August 4, 2025, SEBI issued a consultation paper proposing key amendments to the rules on Related Party Transactions (RPTs) under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR). The reforms are designed to bring in scale-based thresholds, reduce unnecessary shareholder approvals, and streamline compliance for listed entities and their subsidiaries.
This paper builds on SEBI’s earlier February 7, 2025 consultation that suggested overhauling the Annual Secretarial Compliance Report (ASCR) format and setting clearer eligibility standards for statutory auditors. Taken together, these moves signal a two-pronged strategy: easing compliance where possible, while tightening accountability and oversight where it matters most.
The question is: are listed companies ready for the shift?
Key Proposals from SEBI
1. Scale-based thresholds for RPTs
Right now, Regulation 23(1) of the LODR defines an RPT as “material” if it crosses Rs. 1,000 crore or 10% of annual consolidated turnover, whichever is lower. This has drawn criticism for being a blunt rule—treating all companies alike regardless of their size.
SEBI now proposes a sliding scale tied to turnover:
| Consolidated Turnover | Proposed Materiality Threshold |
|---|---|
| Up to Rs. 20,000 Cr | 10% of turnover |
| Rs. 20,001 – 40,000 Cr | Rs. 2,000 Cr + 5% of turnover above Rs. 20,000 Cr |
| Above Rs. 40,000 Cr | Rs. 3,000 Cr + 2.5% of turnover above Rs. 40,000 Cr, capped at Rs. 5,000 Cr |
This structure should cut down unnecessary shareholder approvals for large companies while keeping oversight intact.
2. Revised rules for subsidiary transactions
Currently, if a subsidiary (unlisted) undertakes an RPT, audit committee approval is needed only if the deal exceeds 10% of the subsidiary’s standalone turnover. This has led to gaps—some large transactions bypass audit committee scrutiny but still need shareholder nods.
SEBI wants to fix this by aligning subsidiary thresholds with the parent company’s new materiality criteria. Key changes:
- Subsidiary RPTs above Rs. 1 crore will need audit committee approval if they cross the lower of:
(i) 10% of subsidiary’s standalone turnover, or
(ii) the parent’s materiality threshold. - For newly incorporated subsidiaries with no financial history, thresholds will be based on the lower of:
(i) 10% of net worth, or
(ii) the parent’s threshold.
This should bring consistency and close loopholes without overburdening smaller subsidiaries.
3. Simplified disclosures for smaller RPTs
At present, transactions below Rs. 1 crore are exempt from detailed RPT disclosures. But this exemption is too low for high-turnover companies.
SEBI now proposes that RPTs above Rs. 1 crore but within the lower of (i) 1% of consolidated turnover, or (ii) Rs. 10 crore, will only need a simplified set of disclosures. Larger transactions will still require full details.
4. Stronger ASCR requirements
Listed companies must currently file an ASCR within 60 days of year-end. SEBI plans to:
- Expand the ASCR to cover explicit confirmations from the PCS on compliance with key securities laws (insider trading rules, fund-raising under ICDR, director/KMP appointments and pay, subsidiary governance, and disclosure of material events under Regulation 30, among others).
- Consolidate various PCS certifications into one uniform ASCR, cutting duplication and making oversight more comprehensive.
This will make the ASCR a sharper tool for monitoring compliance across the board.
5. Auditor eligibility criteria
The LODR doesn’t currently spell out eligibility rules for statutory auditors of listed entities. SEBI wants to import a structure similar to Rule 3(1) of the Companies (Audit and Auditors) Rules, 2014, which requires boards or audit committees to match the auditor’s qualifications and experience with the company’s size and complexity.
What This Means for Listed Companies
If adopted, these reforms will reduce compliance clutter but also demand more targeted oversight. Companies should start preparing now by:
- Mapping their RPTs against the new thresholds.
- Revising audit committee processes to cover subsidiaries more effectively.
- Testing their internal controls and compliance systems against the expanded ASCR.
- Engaging early with auditors and company secretaries to align on new expectations.
Early preparation will not only smoothen the transition but also send a clear message to investors and regulators: the company takes governance seriously and is ready for the next phase of compliance reforms.