Changes In Related Party Transactions Regulations – Key Amendments

India has strong capital markets with growing interest from both domestic and international investors in the past few years. Considering such heightened interest, the Securities and Exchange Board of India (“SEBI”), the capital markets regulator in India, has been working to enhance corporate governance regulations to increase investor confidence and boost growth of the capital markets. According to the SEBI, while it is recognised that related party transactions (“RPTs”) can have sound economic rationale and can be value enhancing, there have been concerns about some of such transactions being questionable, against the interest of minority shareholders or even fraud or ill intent. The use by many conglomerates of complex group structures for RPTs particularly those involving unlisted entities have increased concerns of siphoning of funds, round tripping and money laundering.

In this background, the SEBI constituted a working group on related party transactions (“WGRPT”) to examine the regulatory framework of RPTs and to make recommendations. The recommendations of the WGRPT with some modifications were promulgated into law vide the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Sixth Amendment Regulations) dated 9th November 2021 (“Amendment Regulations”) which will come into force on April 1, 2022.

The changes brought about by the Amendment Regulations are as follows:

(1) Definitions

(i) Amendment to the definition of “related party”

“related party” means a related party as defined under sub-section (76) of section 2 of the Companies Act, 2013 or under the applicable accounting standards:

a. in clause (zb), the first proviso was substituted by the Amendment Regulations with the following:

“Provided that:

  1. any person or entity forming a part of the promoter or promoter group of the listed entity; or

  2. any person or any entity, holding equity shares:

  3. of twenty per cent or more; or

  4. of ten per cent or more, with effect from April 1, 2023;

in the listed entity either directly or on a beneficial interest basis as provided under section 89 of the Companies Act, 2013, at any time, during the immediate preceding financial year; shall be deemed to be a related party:”

In light of the aforesaid amendment, any person being a promoter or part of the promoter group or holding 20% or 10% or more (from April 1, 2023) will be a related party. The earlier provision before the amendment required both the entity/person to be part of the promoter group and holding 20% or more to be fulfilled in order for the entity/person to fall within the ambit of “related party”. Thus, the earlier regulatory framework required both the previously mentioned criteria to be satisfied before the entity/person would fall within the ambit of “related party”. The revised definition provides that either criteria can be satisfied for the entity to fall within the ambit of “related party”. Thus, the scope of the definition and consequently the applicability of the regulations has been widened considerably.

(ii) Amendment to the definition of “related party transaction”

The previous regulatory framework did not cover in its ambit transactions where a listed entity would transfer its asset/value to a subsidiary which subsidiary would then transfer such asset/value to its unlisted related parties thus moving the asset/value out of the consolidated entity.

Consequently, the definition of “related party transaction” was amended by the Amendment Regulations as under:

“(zc) “related party transaction” means a transaction involving a transfer of resources, services or obligations between:

  1. a listed entity or any of its subsidiaries on one hand and a related party of the listed entity or any of its subsidiaries on the other hand; or

  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 a related party of the listed entity or any of its subsidiaries, with effect from April 1, 2023;

regardless of whether a price is charged and a “transaction” with a related party shall be construed to include a single transaction or a group of transactions in a contract.”

The Amendment Regulations also provide for transactions which shall not be considered as “related party transactions”.

The following have been excluded from the purview of RPTs:

  1. the issue of specified securities on a preferential basis;

  2. the following corporate actions by the listed entity which are uniformly applicable/offered to all shareholders in proportion to their shareholding:

  3. payment of dividend;

  4. subdivision or consolidation of securities;

  5. issuance of securities by way of a rights issue or a bonus issue; and iv. buy-back of securities.

  6. acceptance of fixed deposits by banks/Non-Banking Finance Companies at the terms uniformly applicable/offered to all shareholders/public, subject to certain conditions.

(2) Materiality Thresholds For Approval Requirements of RPTs

The previous regulatory provisions pertaining to materiality thresholds of RPTs took only turnover into consideration for the purposes of determining materiality. In cases of listed entities with high turnovers, some RPTs may fall outside the purview of such a turnover threshold. In international jurisdictions, benchmarks other than turnover have been used to define the materiality threshold. Accordingly, the framework for determining materiality have been expanded.

Consequently, the Amendment Regulations substituted the previous Explanation to Regulation 23 (1) (which determines the materiality of RPTs) with the following:

“Provided that a transaction with a related party shall be considered material, if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceeds rupees one thousand crore or ten per cent of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity, whichever is lower.”


The Amendment Regulations have been deeply thought through and shows significant effort by the SEBI to enhance transparency in RPTs. They will have a deep impact on listed entities. They must now pass the test of time to determine whether the amendments do in fact enhance such transparency.