Material Subsidiary Under SEBI LODR: 10% Definition, 20% Board Test and Regulation 24 Checklist

A listed entity can have a subsidiary that is “material” for one SEBI LODR purpose but still does not cross the separate threshold used for the independent-director requirement under Regulation 24(1). That distinction is easy to miss because the regulations use a general 10% test in Regulation 16 and a special 20% test only for Regulation 24(1).

The current reference is SEBI’s consolidated Listing Obligations and Disclosure Requirements Regulations, 2015, last amended on 14 July 2026. SEBI also provides the official consolidated LODR PDF. Finance, secretarial and audit teams should use the live consolidated text because older checklists may still refer to “income”; the current definition uses turnover.

1. Start with the general 10% material-subsidiary test

Regulation 16(1)(c) defines a material subsidiary as a subsidiary whose turnover or net worth exceeds 10% of the consolidated turnover or consolidated net worth, respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year. The listed entity must also formulate a policy for determining material subsidiaries.

Two points matter in practice. First, turnover and net worth are alternative tests: crossing either one is enough. Second, the regulation says exceeds. A subsidiary exactly at 10% on one metric does not cross that metric, although it may still qualify through the other metric.

The wording was updated in December 2024 so that the definition now uses turnover instead of income. A compliance workbook copied from an older year can therefore produce the wrong answer if it still tests consolidated income.

2. Regulation 24(1) uses a special 20% test

Regulation 24(1) requires at least one independent director on the board of the listed entity to be a director on the board of an unlisted material subsidiary, whether incorporated in India or outside India. But the explanation to this sub-regulation overrides the general definition for this provision alone: the relevant subsidiary must have turnover or net worth exceeding 20% of the corresponding consolidated turnover or net worth.

This creates a two-layer analysis. A subsidiary may be material under the general 10% definition and therefore relevant for other LODR controls, but it may not trigger the Regulation 24(1) board-representation rule unless the special 20% test is crossed.

3. Do not limit every Regulation 24 control to material subsidiaries

Regulations 24(2), 24(3) and 24(4) use the broader term unlisted subsidiary. They therefore create governance duties that should not be screened only against the 10% or 20% materiality tests.

• The audit committee of the listed entity must review the financial statements, particularly investments, of the unlisted subsidiary.
• The minutes of board meetings of the unlisted subsidiary must be placed before the board of the listed entity.
• Management of the unlisted subsidiary must periodically bring significant transactions and arrangements to the notice of the listed entity’s board.

For this reporting purpose, a significant transaction or arrangement is an individual transaction or arrangement that exceeds, or is likely to exceed, 10% of the total revenues, total expenses, total assets or total liabilities of the unlisted subsidiary for the immediately preceding accounting year.

4. Material-subsidiary disposals have separate shareholder controls

Once a subsidiary is material under the general definition, Regulation 24(5) becomes important for share disposals. A listed entity cannot dispose of shares in a material subsidiary if the disposal would reduce its holding, either by itself or together with other subsidiaries, to 50% or less, or cause it to cease exercising control, without a special resolution in the listed entity’s general meeting, subject to the exceptions specified in the regulation.

Regulation 24(6) separately addresses asset disposals. Selling, disposing of or leasing assets amounting to more than 20% of the assets of the material subsidiary, in aggregate during a financial year, requires prior shareholder approval by special resolution, subject to stated exceptions. The current text also provides that this sub-regulation does not apply where the sale, disposal or lease is between two wholly owned subsidiaries of the listed entity.

5. Secretarial audit is another material-subsidiary checkpoint

Regulation 24A separately requires every listed entity and its material unlisted subsidiaries incorporated in India to undertake secretarial audit under the prescribed framework. This is another reason the general material-subsidiary identification exercise should be completed early in the annual compliance cycle rather than only when a transaction is proposed.

Worked example: why the 10% and 20% tests should be kept separate

Assume a listed group had consolidated turnover of ₹1,000 crore and consolidated net worth of ₹600 crore in the immediately preceding accounting year. The general Regulation 16 thresholds are therefore ₹100 crore of turnover and ₹60 crore of net worth. For Regulation 24(1) alone, the special thresholds are ₹200 crore of turnover and ₹120 crore of net worth.

Subsidiary A has turnover of ₹115 crore and net worth of ₹50 crore. It is a material subsidiary under Regulation 16 because turnover exceeds ₹100 crore. But it does not cross either 20% threshold, so the special Regulation 24(1) independent-director trigger does not arise on these facts. If it is unlisted, however, the broader Regulation 24(2) to 24(4) controls still need to be considered.

Subsidiary B has turnover of ₹190 crore and net worth of ₹130 crore. It is material under Regulation 16 and also crosses the 20% net-worth threshold of ₹120 crore. If it is unlisted, Regulation 24(1) requires at least one independent director of the listed entity to sit on its board.

Practical compliance checklist

1. Freeze the base figures. Use the immediately preceding accounting year’s consolidated turnover and consolidated net worth.
2. Calculate both 10% thresholds. Test every subsidiary separately on turnover and net worth.
3. Maintain a general material-subsidiary list. Use it for the LODR provisions that rely on Regulation 16’s definition and for the listed entity’s material-subsidiary policy.
4. Run a separate 20% screen. For unlisted subsidiaries, identify those crossing the special Regulation 24(1) turnover or net-worth threshold.
5. Maintain an all-unlisted-subsidiary control list. Do not apply the materiality filter to the audit-committee review, board-minutes and significant-transaction requirements in Regulations 24(2) to 24(4).
6. Flag disposal proposals early. Before a share or asset transaction, test the 50%/control trigger and the aggregate 20% asset-disposal trigger.
7. Check Regulation 24A. Identify material unlisted subsidiaries incorporated in India for secretarial-audit compliance.
8. Document the calculation. Retain the consolidated figures, subsidiary financials, calculation sheet and governance conclusion so the basis is reproducible.

Build one workbook, but keep the legal tests on separate tabs

The most reliable control is a linked workbook rather than one “material subsidiary” flag. A practical file can use six tabs:

1. Group denominator: lock the immediately preceding accounting year’s consolidated turnover and net worth, identify the audited source and record both 10% and 20% thresholds.
2. Subsidiary master: list every subsidiary with its turnover, net worth, listed/unlisted status, country of incorporation, group holding and control status.
3. General materiality: test whether turnover or net worth exceeds the Regulation 16 10% threshold and record the resulting material-subsidiary population.
4. Regulation 24(1): filter to unlisted subsidiaries, apply the separate 20% turnover/net-worth test and record the listed entity’s independent director serving on each qualifying board.
5. All-unlisted controls: track audit-committee review, board minutes and significant transactions under Regulations 24(2) to 24(4), without incorrectly applying the materiality filter.
6. Transaction and audit gates: monitor material-subsidiary share disposals, aggregate asset disposals and Regulation 24A secretarial-audit status.

How Subsidiaries A and B appear in the workbook

• Subsidiary A: “Yes” on general materiality because ₹115 crore turnover exceeds ₹100 crore; “No” on the special 20% board test because neither ₹115 crore turnover nor ₹50 crore net worth exceeds the applicable ₹200 crore/₹120 crore thresholds. If unlisted, it still remains on the all-unlisted control tab.
• Subsidiary B: “Yes” on general materiality and “Yes” on the special board test because ₹130 crore net worth exceeds ₹120 crore. If unlisted, the independent-director mapping must therefore be evidenced.

The formulas should test turnover and net worth independently and use a strict greater-than operator. A worksheet that rounds ₹99.96 crore to ₹100 crore before testing can produce the wrong result, so retain unrounded audited figures in the calculation layer.

Transaction approval memo before shares or assets move

For every proposed material-subsidiary transaction, attach a short memo to the workbook that states the pre- and post-transaction holding, whether control ceases, asset values already disposed of or leased during the financial year, the aggregate percentage, the applicable exception and the date of any required special resolution. This prevents the 50%/control and aggregate 20% asset tests from being checked only after documents are signed.

The three populations—general material subsidiaries, unlisted subsidiaries crossing the special Regulation 24(1) threshold, and all unlisted subsidiaries—serve different controls. Keeping them linked but distinct is the practical safeguard against applying one percentage across Regulation 24.