Raising the Bar on RPT Approvals: SEBI Implements Revised Disclosure Standards

The Securities and Exchange Board of India (SEBI), vide its circular dated June 26, 2025 (RPT Circular, which can be viewed by clicking on this link), has notified the revised ‘Industry Standards on “Minimum information to be provided to the Audit Committee and Shareholders for approval of Related Party Transactions”’ (RPT Industry Standards, which can be viewed by clicking on this link). The RPT Industry Standards have been developed by the Industry Standards Forum (ISF), which comprises representatives from the Associated Chambers of Commerce and Industry of India (ASSOCHAM), the Confederation of Indian Industry (CII), and the Federation of Indian Chambers of Commerce and Industry (FICCI), in consultation with SEBI.

The RPT Circular supersedes earlier circulars on the subject and will come into effect from September 1, 2025. The RPT Industry Standards aim to provide a standard format for minimum information to be provided to the audit committee and shareholders for review and approval of Related Party Transactions (RPTs) under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations).

The key aspects of the RPT Industry Standards are as follows:

1. Three-Part Disclosure Framework

The RPT Industry Standards introduces a structured, three-part format for disclosures to the audit committee:

• Part A: Contains the minimum information for all RPTs, including basic details of the related party, relationship and ownership of the related party, previous transaction details, the amount of the RPT, justification for why the RPT is in the interest of the listed entity, and details of key managerial personnel of listed entity who have interest in the RPT.
• Part B: Requires additional, transaction-specific information for seven categories of RPTs, such as loans, investments, guarantees, and royalty payments. For instance, when giving a loan, the listed entity must disclose the purpose for which the funds will be utilized by the ultimate beneficiary.
• Part C: Mandates further disclosures, in addition to disclosures in Part A and Part B, in case of ‘Material RPT’. This part focuses on detailed and extensive information, particularly, the financial health and creditworthiness of the related party.

2. Applicability and Key Exclusions

The RPT Industry Standards are applicable for all RPTs requiring approval from the audit committee or shareholders. However, they are not applicable to:

• Transactions exempted under Regulation 23(5) of the LODR Regulations;
• Quarterly review of RPTs by the audit committee in terms of Regulation 23(3)(d) of the LODR Regulations;
• Transactions with a related party during a financial year, whether individually or combined, do not exceed INR 1 crore.
• Enhanced Due Diligence for Material RPTs

For Material RPTs involving loans, investments, or guarantees, Part C of the standards mandates significant due diligence disclosures. The audit committee must be provided with the latest credit rating of the related party and details of any defaults on borrowings over the last three financial years. This includes information on whether the related party has been classified as a Non-Performing Asset or declared a ‘wilful defaulter’ by any of its bankers, or is undergoing insolvency proceedings.

3. Management Certification

A crucial procedural requirement introduced by the standards is that the management of the listed entity must provide a certificate from its Chief Executive Officer/Managing Director and Chief Financial Officer. This certificate must confirm that the terms of the proposed RPT are in the interest of the listed entity, thereby placing direct responsibility on senior leadership.

4. Information for Shareholders

For obtaining shareholder approval for Material RPTs, the explanatory statement in the notice must now include the detailed information provided to the audit committee in the prescribed format. Importantly, it must also provide a web link and QR code through which shareholders can access any valuation or external party reports that were considered by the audit committee.

Overall, the introduction of these standardized disclosure formats marks a significant step towards enhancing corporate governance and transparency in RPTs. By creating a uniform and comprehensive disclosure framework, SEBI aims to enhance the ability of audit committee and shareholders to make well- informed decisions, thereby strengthening the integrity of the approval process for such related party transactions.