Capital Market and Securities Laws · Listing Obligations and Disclosure Requirements

Related Party Transactions and Governance under SEBI LODR

Updated 11 October 2026 · Fact-checked

Under SEBI LODR, a listed entity must get prior audit committee approval for every related party transaction. Material ones also need prior shareholder approval, with related parties abstaining from voting. Subsidiaries are tested for materiality, which triggers governance duties. Secretarial audit and an annual secretarial compliance report add further checks.

Understand Related Party Transactions and Other Governance Provisions

A related party transaction (RPT) is a deal between a listed entity and someone close to it, such as a promoter, director, key managerial person, relative or group company. The risk is that the terms may favour the insider and not the company or its minority shareholders. LODR therefore adds approval and disclosure layers on top of the Companies Act.

Regulation 23 is the core rule. Every RPT, and every material modification of one, needs prior approval of the audit committee. Only independent directors on the committee vote on it. If a transaction is material, the shareholders must also approve it by resolution before it is done. Related parties must abstain from voting on that resolution, whether or not they are a party to that particular transaction.

A transaction is material if, taken with earlier transactions with the same related party in the financial year, it exceeds the lower of ₹1,000 crore or 10% of the annual consolidated turnover of the listed entity as per its last audited financial statements. A lower 5% limit applies to payments for brand usage or royalty. SEBI has revised the limit for very large entities, so confirm the current figure in your updated study material.

The audit committee may grant omnibus approval for repetitive transactions, within conditions it must set. This approval is valid for one year at a time. Some transactions are exempt, for example certain dealings between a holding company and its wholly owned subsidiary whose accounts are consolidated. The listed entity also reports RPTs to the stock exchanges half-yearly, within 15 days of publishing its financial results, and puts its RPT policy on its website.

Regulation 24 governs subsidiaries. A material subsidiary is one whose income or net worth exceeds 10% of the consolidated income or net worth of the listed entity and its subsidiaries in the immediately preceding accounting year. Regulation 24A adds the secretarial audit by a practising company secretary and the annual secretarial compliance report filed with the exchanges.

Key rules to remember

Materiality of an RPT: Material if value of transactions with a related party > lower of ₹1,000 crore and 10% of annual consolidated turnover; Aggregate the transactions with that related party for the financial year. Brand usage or royalty payments use 5% of turnover. Check the latest revised limit for large entities.
Approval chain: Every RPT: prior audit committee approval (independent directors only). Material RPT: plus prior shareholder approval, related parties abstain; Omnibus approval is valid for one year at a time.
Material subsidiary test: Subsidiary income or net worth > 10% of consolidated income or net worth of listed entity and subsidiaries, in the immediately preceding accounting year; Either income or net worth is enough. You do not need both.
Governance of a material subsidiary: Independent director on the board of an unlisted material subsidiary; special resolution to sell or dispose of shares so as to cease control or fall to 50% or below, or to sell or lease substantial assets; Substantial assets means more than 20% of the material subsidiary's assets in a financial year. The exception is a sale under a scheme of arrangement approved by a court or tribunal.
Secretarial reports: Secretarial audit report: annexed to the board's report. Secretarial compliance report: filed with the exchanges within 60 days of the financial year end; A material unlisted subsidiary also needs a secretarial audit.

How to solve Related Party Transactions and Other Governance Provisions questions

Use the same sequence for any question on RPTs or subsidiary governance. It keeps your answer in provision, analysis, conclusion form.

1Identify who the counterparty is and decide if it is a related party. Check promoter group, directors, KMP, relatives and large shareholders.
2State the rule: Regulation 23 for RPTs, Regulation 24 for subsidiaries, Regulation 24A for secretarial audit and compliance.
3Test materiality. Compute the turnover limit and compare it with the aggregate value of transactions with that party in the year.
4Name the approvals needed: audit committee first, then shareholders if material, with related parties abstaining.
5Check for exemptions or omnibus approval, such as a wholly owned subsidiary transaction.
6List the disclosure duties: half-yearly RPT report to the exchanges and the website policy.
7For subsidiary questions, run the 10% income or net worth test and apply the independent director and special resolution rules.
8End with a one-line conclusion that answers the exact question asked.

Quickest way: Three-gate check for an RPT question

When to use it: Use this for short-answer or case-based questions when you have only a few minutes.

Gate 1: Is the counterparty a related party? If not, Regulation 23 does not apply.
Gate 2: Is the value above the lower of ₹1,000 crore and 10% of consolidated turnover? Add all transactions with that party for the year.
Gate 3: Write the approvals. Audit committee always. Shareholders only if material, with related parties not voting.
Add one line on half-yearly disclosure, then conclude.

Common mistakes in Related Party Transactions and Other Governance Provisions

Saying shareholder approval is needed for every RPT.
Students merge the audit committee rule with the material RPT rule.
Fix: Audit committee approval is needed for all RPTs. Shareholder approval is needed only for material ones.
Using ₹1,000 crore as the fixed limit.
The figure is easy to remember, so the 10% turnover alternative gets dropped.
Fix: Always compare both and take the lower. A small company can cross the limit well below ₹1,000 crore.
Allowing related parties to vote on the material RPT resolution.
Students think only the party to the transaction must abstain.
Fix: All related parties abstain, whether or not they are a party to that particular transaction.
Testing material subsidiary on both income and net worth.
Students read the test as cumulative.
Fix: Crossing 10% on either income or net worth makes it material. Use the preceding year's figures.
Mixing up the secretarial audit report with the secretarial compliance report.
Both are done by a company secretary and sound alike.
Fix: The audit report goes with the board's report. The compliance report is filed with the exchanges within 60 days of the year end.
Letting non-independent members vote in the audit committee on an RPT.
Students recall that the committee approves but forget who votes.
Fix: Only the independent directors on the audit committee approve RPTs.

Worked examples

Example 1

Meghdoot Industries Ltd, a listed company, has consolidated annual turnover of ₹6,000 crore as per its last audited accounts. During the year it plans transactions worth ₹700 crore in aggregate with Meghdoot Logistics Pvt Ltd, a promoter group company. Advise on the approvals required.

Show the solution

Provision: Regulation 23 of LODR requires prior audit committee approval of all RPTs. A material RPT also needs prior shareholder approval.
Related party: Meghdoot Logistics is a promoter group company, so it is a related party.
Materiality limit: 10% of ₹6,000 crore = ₹600 crore. The other limit is ₹1,000 crore. The lower is ₹600 crore.
Comparison: ₹700 crore exceeds ₹600 crore, so the transaction is material.
Approvals: prior approval of the audit committee, voted by independent directors only, and prior approval of shareholders by resolution. Related parties must abstain from voting.

Answer: The transaction is a material RPT because ₹700 crore exceeds the ₹600 crore limit. It needs prior audit committee approval and prior shareholder approval, with all related parties abstaining. It must also be reported to the exchanges in the half-yearly RPT disclosure.

Example 2

Konark Ltd is listed. Its consolidated income is ₹5,000 crore and consolidated net worth is ₹2,000 crore for the preceding year. Its unlisted subsidiary, Konark Foods Ltd, has income of ₹400 crore and net worth of ₹250 crore. Is Konark Foods a material subsidiary? If Konark Ltd now wants to sell 60% of its stake in it, what is required?

Show the solution

Provision: Regulation 16 and Regulation 24 of LODR. A subsidiary is material if its income or net worth exceeds 10% of the consolidated figure of the listed entity and its subsidiaries in the preceding year.
Income test: 10% of ₹5,000 crore = ₹500 crore. ₹400 crore is below it, so this test is not met.
Net worth test: 10% of ₹2,000 crore = ₹200 crore. ₹250 crore exceeds it, so this test is met.
Since either test is enough, Konark Foods is a material subsidiary.
Assume Konark Ltd holds 100% and sells 60%. Its holding falls to 40%, which is below 50%, and it ceases control. This needs a special resolution of shareholders, unless the sale is under a scheme of arrangement approved by a court or tribunal.
Other duties: an independent director of Konark Ltd must be on the board of Konark Foods, and Konark Foods needs a secretarial audit.

Answer: Konark Foods is a material subsidiary because its net worth is more than 10% of the consolidated net worth, even though its income is below 10%. The sale of 60% needs a special resolution of the shareholders of Konark Ltd, unless it is under a scheme of arrangement.

Exam tips

Start every RPT answer with Regulation 23, then give the two-level approval, audit committee and shareholders.
Show the materiality calculation with numbers. Examiners reward the working and the comparison with the lower limit.
Write 'related parties abstain from voting' explicitly in any material RPT conclusion.
Keep the three reports apart: half-yearly RPT disclosure, secretarial audit report and secretarial compliance report.
Use the Companies Act and LODR together. RPT approval also has a Companies Act side, so mention it if the question involves section 188.

Practice questions from Listing Obligations and Disclosure Requirements

Related Party Transactions and Other Governance Provisions in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Related Party Transactions and Other Governance Provisions: frequently asked questions

What is a material related party transaction under LODR?

It is a transaction, or a group of transactions with the same related party in a financial year, that exceeds the lower of ₹1,000 crore and 10% of annual consolidated turnover. A 5% limit applies to brand usage or royalty payments. Material RPTs need prior shareholder approval.

Who approves related party transactions in a listed company?

The audit committee gives prior approval to all RPTs, and only independent directors on it vote. If the transaction is material, shareholders must also approve it beforehand. Related parties cannot vote on that resolution.

What is a material subsidiary under SEBI LODR?

It is a subsidiary whose income or net worth exceeds 10% of the consolidated income or net worth of the listed entity and its subsidiaries in the immediately preceding accounting year. Meeting either test is enough. Governance rules in Regulation 24 then apply to it.

What is the secretarial compliance report under LODR?

It is an annual report by a practising company secretary on the listed entity's compliance with securities laws and SEBI rules. The entity files it with the stock exchanges within 60 days of the financial year end. It is separate from the secretarial audit report attached to the board's report.

Is omnibus approval allowed for related party transactions?

Yes. The audit committee may grant omnibus approval for repetitive RPTs, subject to the conditions it lays down. The approval is valid for one year at a time.