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Informist, Monday, Aug. 4, 2025

 

--SEBI consultation paper moots changes to related party transaction norms 

--SEBI moots 10% related party threshold for cos with INR 200 bln turnover 

--SEBI moots scale-based threshold for related party disclosures

 

MUMBAI - The Securities and Exchange Board of India Monday proposed to implement a scale-based threshold to determine a related-party transaction. This will ease norms for companies with large turnover pertaining to the requirement of shareholder approval for related-party transactions, according to a consultation paper by the regulator.

 

Currently, listed companies are required to take shareholders' approval for a related-party transaction that exceeds INR 10 billion or 10% of the annual consolidated turnover of the company. With the consultation paper, SEBI has proposed to change the definition of such transactions and consider different thresholds for companies with large turnover.

 

SEBI wants to decide thresholds based on three scales – companies with annual turnover of up to INR 200 billion, firms with turnover between INR 200 billion and INR 400 billion, and those with turnover above INR 400 billion.  

 

It argued, based on feedback from stakeholders that the threshold of INR 10 billion may be low for companies with large turnover. "The listed entity has to place all such (related-party) transactions for the approval of shareholders in addition to Audit Committee approval, which makes it onerous for the listed entities," the consultation paper said.

 

SEBI proposed to do away with the absolute minimum threshold of INR 10 billion to determine related-party transactions. It plans to keep the threshold at 10% of annual consolidated turnover for companies with turnover up to INR 200 billion. For companies with turnover between INR 200 billion and INR 400 billion, it is proposed to calculate related-party transaction threshold after adding INR 20 billion and 5% of the company's annual turnover above INR 200 billion.

 

For example, the consultation paper explained if a company has a consolidated turnover of INR 300 billion, its related-party transaction threshold would be INR 25 billion. The threshold includes the absolute limit of INR 20 billion and 5% of INR 100 billion, i.e., INR 5 billion.

 

For companies with a turnover above INR 400 billion, it is proposed to calculate related-party transaction threshold after adding INR 30 billion and 2.5% of the company's annual turnover above INR 400 billion. Further, the regulator set INR 50 billion as the upper limit, which means the threshold in any case cannot be above INR 50 billion.

 

The regulator tested the proposed thresholds on related-party transaction data between 2023-24 (Apr-Mar) and FY25 for top 100 listed companies. It found that the proposed limits would have reduced the number of material related-party transactions requiring shareholders' approval by 60%. The study showed the biggest reduction in transactions requiring shareholders' approval was seen among companies with turnover of more than INR 400 billion.

 

To further reduce the compliance burden, SEBI proposed to ease the requirement for providing minimum information to audit committee under the related-party transaction industry standards. It plans to raise the threshold for providing information to INR 100 million or 1% of annual consolidated turnover of the company, whichever is lower. Currently, the threshold is INR 10 million.

 

SEBI proposed that a related-party transaction of over INR 10 million by a company's subsidiary, in which the holding company itself is not a party, will require the approval of an audit committee in some cases. The approval will be required if the value of the transaction exceeds 10% of annual standalone turnover of the subsidiary or the threshold for material related-party transaction of the listing holding company.

 

SEBI acknowledged that there might be a subsidiary which does not have audited financial statements of at least one year. In this case, the subsidiary's related-party transaction, in which the holding company itself is not a party, will require approval from an audit committee if the transaction value exceeds 10% of the standalone net worth of the subsidiary or the threshold for material related-party transaction of the listing holding company.

 

On related-party transactions, SEBI proposed to remove the word "employees" under the norms about exemption given on some retail purchases from the company or its subsidiary. It said such exemptions were for directors and key managerial personnel, along with their relatives, of the listed company or its subsidiary.

 

The regulator has asked for comments on the above proposals latest by Aug. 21.  End

 

Reported by Anshul Choudhary

Edited by Avishek Dutta and Deepshikha Bhardwaj

 

 

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