Rethinking transparency: Revised Industry Standards for disclosure of RPT information

Rethinking transparency: Revised Industry Standards for disclosure of RPT information

The Companies Act 2013 (as amended) as well as the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 (as amended) (hereinafter referred to as the ‘Regulations’ or the ‘LODR Regulations’) prescribe specific requirements for identification of related parties, related party transactions (RPTs) and their approval. In accordance with the LODR Regulations, all RPTs proposed to be entered into by a listed entity or its subsidiary as well as any subsequent modification thereto require prior approval of the Audit Committee where only independent directors can vote. In addition, all material RPTs and any material modification thereto need to be approved by the shareholders and no related party can vote to approve such transactions. The purpose of the above requirements is to ensure that all RPTs are conducted transparently, fairly and in the best interests of the listed entity and its public shareholders.

To facilitate informed decision-making, the SEBI Master Circular dated 11 November 2024 mandates listed entities to provide specific information on RPTs for review and approval by the Audit Committee and shareholders. The Master Circular requires basic information for the proposed RPT to be provided to the Audit Committee and shareholders.

To facilitate a uniform approach, help listed entities in improving compliance with RPT approval requirements and provide more relevant information to the Audit Committee as well as shareholders for decision making, the Industry Standards Forum (ISF) (comprising representatives from three industry associations, viz., ASSOCHAM, CII and FICCI), in consultation with the SEBI, in the month of February 2025, had issued “Industry Standards on ‘Minimum information to be provided for Review of the Audit Committee and Shareholders for Approval of Related Party Transaction (RPT).’” The SEBI, vide its circular dated 14 February 2025, had prescribed that from 1 April 2025, listed entities will comply with the requirements of the said Industry Standard for providing information to the Audit Committee/ shareholders and these requirements will replace the disclosure requirements of the Master Circular.

Post issuance of the Industry Standard, the SEBI received feedback from various stakeholders requesting extension of timeline for applicability of the Industry Standards. Accordingly, the SEBI decided to defer the effective date of the Circular to 1 July 2025. The SEBI also decided that the ISF will consider the feedback received for simplification of the Industry Standards and release the same in a time-bound manner. On 26 June 2025, the ISF issued a revised Industry Standards on “Minimum information to be provided to the Audit Committee and Shareholders for approval of Related Party Transactions” (hereinafter referred to as the “RPT Industry Standard”). The revised RPT Industry Standard has significantly amended/ simplified disclosure requirements on information that needs to be provided to the Audit Committee and shareholders, for approval of RPTs. Many disclosures which were required under the earlier RPT Industry Standard are not required under the revised RPT Industry Standard. For example, the revised RPT Industry Standard does not require disclosures such as Total number of bidders/ suppliers/ vendors, etc. from whom bids/ quotations have been received for RPT with details of process followed to obtain bids, Best bid/ quotation received, Potential loss in RPT compared to the best bid and justification thereof, which were required under the earlier RPT Industry Standard. Despite simplification and removal of information requirements which were considered to be more onerous from the revised RPT Industry Standard, the revised RPT Industry Standard still requires detailed information to be provided to the Audit Committee and the shareholders for informed decision making. This information required is significantly higher vis-à-vis those currently required and provided under the SEBI Master Circular.

Applicability

The SEBI Circular dated 26 June 2025 provides that the revised RPT Industry Standard will apply from 1 September 2025 onward. The Circular also provides that from the applicability date, the disclosure requirements of the Master Circular dated 11 November 2024 will not apply.

The revised RPT Industry Standard will apply to all RPTs requiring review/ approval by the Audit Committee and/or shareholders, in accordance with LODR Regulations. However, it will not apply in the following cases:

• Transaction(s) with a related party to be entered into individually or taken together with previous transactions during a financial year do not exceed INR1 crore
• RPTs exempt from approval requirements under the LODR Regulations such as transactions entered into between a holding company and its wholly owned subsidiary whose accounts are consolidated with the holding company, or transactions entered into between two wholly-owned subsidiaries of the listed holding company

The revised RPT Industry Standard is applicable for provision of information to the Audit Committee for review of transactions at the time of approval and not for subsequent quarterly review of transactions by the Audit Committee.

The requirements of the revised RPT Industry Standard are significantly different from the previous RPT Industry Standard, which was issued in February 2025. From an applicability perspective, the listed entities will move directly from information requirements of the Master Circular to the revised RPT Industry Standard. This article provides an overview of key requirements under the revised RPT Industry Standard considering the applicability and transition from Master Circular perspective.

Overview of minimum information to be provided to the Audit Committee

The management is responsible for providing information in accordance with the revised RPT Industry Standard. The information required to be provided to the Audit Committee is divided into three broad parts:

• Minimum information to be provided for all types of related party transactions such as basic details of the related party, relationship and ownership of the related party, details of previous transactions with the related party, amount of the proposed transaction(s) and basic details of the proposed transaction
• Information to be provided only if a specific type of RPT is proposed to be undertaken. This part covers separate information requirements for various types of RPTs such as sale/ purchase of goods or services or similar transactions and trade advances, loans and advances/ inter-corporate deposits given, investment made, guarantee (including performance guarantee) given /contractual commitment made, borrowings taken and royalty payment entered into by listed entities and/ or their subsidiaries. Such information needs to be provided for material as well as immaterial transactions.
• Additional information to be provided only if a specific type of RPT is proposed to be undertaken and RPT is a material RPT in accordance with the LODR Regulations. This part also provides separate information requirements for various types of transactions.

Some of the information requirements are relatively straightforward and/ or were required under the earlier Master Circular also. Other information requirements are new and considered relevant for informed decision making. Given below is an overview of some relevant additional disclosures required:

Information required in all cases

• Default, if any, committed by the related party in meeting its obligation under transactions or arrangements entered into in the last financial year.
• Proposed transaction value as a percentage of the related party’s turnover and details of financial performance (comprising turnover, profit after tax, and net worth) of the related party for the preceding financial year. This needs to be accompanied by audited financial statements of the related party for the preceding financial year. If such audited financial statements of the related party are not available, the entity will provide the financial extracts of the relevant / minimum information, duly certified by the related party.
• Justification as to why the proposed RPT is in the best interests of the listed entity. The listed entity also needs to provide a certificate from the Chief Executive Officer (CEO)/ Managing Director/ Whole Time Director/ Manager and Chief Financial Officer (CFO) confirming that the terms of RPTs proposed to be entered into are in interest of the listed entity.
• Details of promoters, directors, or key managerial personnel having a direct or indirect interest in the transaction, including names and their shareholding in the related party.
• A copy of the valuation or external report, if any, shall be provided to the Audit Committee.

Information required for specific transactions

Key information to be provided to the shareholders

Given below is an overview of key information to be provided to the shareholders:

• Information placed before the Audit Committee for the purpose of seeking approval of RPTs. However, the Audit Committee and Board of Directors can approve the redaction of commercial secrets and other information which would affect the competitive position of the listed entity. However, in case of redaction, the Audit Committee and Board of Directors will confirm that the redacted disclosures still provide all necessary information to the public shareholders for informed decision making.
• Justification as to why the proposed transaction is in the interest of the listed entity, basis for determination of price and other material terms of the RPT.
• Confirmation that the material RPT or any material modification thereto has been approved by the Audit Committee and the Board of Directors recommends the proposed transaction to the shareholders for approval.
• Provide a weblink and QR code for shareholders to access the valuation report and other external reports considered by the Audit Committee for the RPT.
• Any other information that may be relevant

Transitional provisions

As stated above, the revised RPT Industry Standard is applicable from 1 September 2025. Information as per the Standard will need to be provided wherever the Audit Committee approval of new transactions or material modification to previously approved transaction is sought on or after 1 September 2025. The revised RPT Industry Standard will not apply in the following cases:

• The Audit Committee and/or shareholders have granted approval before 1 September 2025 for RPTs to be executed on or after 1 September 2025.
• The omnibus approval has been granted before 1 September 2025 for RPTs for the financial year 2025-26.
• A material RPT is approved by the Audit Committee before 1 September 2025 and it will be approved by the shareholders on or after 1 September 2025. It also includes cases where the notice to shareholders is sent or on or after 1 September 2025.

However, any subsequent material modification or renewal occurring after 1 September 2025 will require provision of information as per the RPT Industry Standard.

How we see it

We complement the SEBI and the ISF for issuing the new RPT Industry Standard, considering feedback received from various stakeholders for simplification of the earlier RPT Industry Standards and removing information requirements that were considered to be more onerous. We expect that the revised RPT Industry Standard will be able to address genuine concerns raised by the listed entities on the earlier Standard and, at the same time, ensure that the Audit Committees and shareholders receive all the relevant information for making informed decisions with regard to approval of the RPTs.

From listed entities’ perspective, it may be noted that the revised RPT Industry Standard requires significant additional information to be provided vis-à-vis those required under the SEBI Master Circular. Considering some of the information indicated in the revised RPT Industry Standard, it is possible that the Audit Committees and/ or shareholders may require additional information from the entity before approving the RPTs. For example, in case of sale/ purchase of goods or services, the revised RPT Industry Standard requires management to mention bidding or other process, if any, applied for choosing the counterparty. It does not require the bidding process to be followed. However, it is possible that certain Audit Committee members/ shareholders may have specific requirements for the bidding process to approve the RPTs. It is imperative that the listed entity/ its subsidiaries align any such expectations with the Audit Committee/ shareholders upfront, to be duly compliant.

Further, for effective compliance and to provide information as per the RPT Industry Standard, listed entities must update their internal processes, enhance personnel training and integrate advanced document- sharing tools such as QR codes or links. They may also need to review and update their RPT policy disclosed on the website and/ or set up new internal controls or strengthen existing controls.

The revised RPT Industry Standard is applicable in cases where the Audit Committee approval of RPT with regard to FY 2025-26 is required on or after 1 September 2025. This may enable listed entities to plan Audit Committee approval with regard to RPTs for the financial year 2025- 26 in advance. However, the entities will need to provide information as per the revised RPT Industry Standard for seeking approval of transactions for FY 2026-27. Also, they will need to provide information as per the revised RPT Industry Standard for seeking approval of any subsequent material modification to RPT for FY 2025- 26. We believe these transitional provisions may provide listed entities with time to prepare for compliance with the new requirement. It is imperative that listed entities use such time effectively to prepare for the new information requirement.