SEBI To Loosen RPT Rules: What Changes For Promoters And Investors?

A Securities and Exchange Board of India (SEBI) working group has proposed a set of changes to related-party transaction (RPT) rules, seeking to reduce compliance requirements for routine transactions while strengthening scrutiny of deals involving promoters, directors and key managerial personnel, Moneycontrol reported.

The recommendations cover the definition of related parties, Audit Committee approvals, ratification of transactions, omnibus approvals and half-yearly disclosures.

The broader objective is to move towards a more risk-based RPT framework, with greater regulatory attention on transactions that carry a higher risk of conflicts of interest or value transfer.

SEBI Chairman Tuhin Kanta Pandey had indicated that the regulator was reviewing the RPT framework during an Institute of Directors event.

He said the proposed changes would seek to make the rules clearer and more workable for listed companies without weakening investor safeguards.

Shareholder Definition Could Change

Under the proposed framework, shareholders holding 20% or more of a listed company's equity or voting rights would continue to be classified as related parties.

However, investors holding 10% to less than 20% would no longer automatically fall under the definition. Instead, the Audit Committee could assess whether such an investor exercises significant influence based on factors such as board representation, information rights, veto powers or affirmative voting rights.

The change could reduce compliance requirements for passive institutional investors that hold substantial stakes but do not have strategic influence over the company.

A source cited by Moneycontrol said the Audit Committee would be better positioned to evaluate the specific circumstances and determine whether such investors have the ability to exercise meaningful influence or control.

Routine Deals May Be Exempt

The working group has also proposed removing certain standardised transactions from the RPT framework where there is little inherent conflict of interest.

These could include fixed deposits with banks and NBFCs, current and savings account deposits, public deposits and retail purchases or sales made on terms uniformly available to employees or the general public.

Other proposed exemptions include the issuance of listed non-convertible securities through the Electronic Book Provider platform, interest and redemption payments made according to the terms of an issue, and reimbursement of actual expenses between related parties.

The exemptions would also apply to the counterparty involved in such transactions.

More Time For Ratification

The proposals would give companies three months to obtain Audit Committee ratification for RPTs undertaken without prior approval.

This would replace the existing requirement to seek ratification at the immediately following Audit Committee meeting.

The current ₹1 crore ceiling for ratification would also be removed. However, the Audit Committee would have to document why prior approval was not obtained and explain its reasons for accepting the transaction.

Ratified transactions would subsequently have to be placed before the Board at least once every quarter, along with the reasons for ratification.

The threshold for omnibus approval of unforeseen RPTs could also rise from ₹1 crore to ₹10 crore per financial year, provided the transactions are not material RPTs.

Existing requirements for quarterly reporting and the one-year validity of omnibus approvals would remain.

Disclosure Rules May Be Eased

The working group has proposed a ₹1 crore threshold for half-yearly RPT disclosures. The threshold would not apply to transactions involving promoters or promoter groups, which would continue to require disclosure regardless of value.

For transactions involving subsidiaries where the listed company itself is not a party, disclosure would be required only when the transaction has been placed before the listed entity's Audit Committee for approval.

The proposed framework would also give companies more time to file RPT disclosures. Instead of requiring filings on the day financial results are published, companies could get seven days after Board approval of the results.

The working group said the existing deadline could increase the risk of governance and compliance errors, according to Moneycontrol.

Overall, the proposed changes seek to distinguish between routine, market-driven transactions and deals where related-party relationships could create meaningful conflicts of interest, while retaining stronger safeguards for promoter-linked transactions.