Related-party transactions for a listed entity are not governed only by accounting disclosure or the Companies Act. SEBI's Listing Obligations and Disclosure Requirements Regulations create a separate governance layer under Regulation 23. The practical question for finance, secretarial and audit teams is therefore not merely “is this a related party?” but also: does the transaction need prior audit committee approval, does it cross the materiality threshold, and is prior shareholder approval required?
The current starting point is SEBI's LODR Regulations, last amended on 14 July 2026. For operating procedures and disclosure material, listed entities should also read SEBI's January 2026 LODR Master Circular.
Step 1: Identify whether the arrangement is an RPT under LODR
The LODR definition is wider than a simple invoice between a listed company and a directly related counterparty. It covers a transfer of resources, services or obligations between a listed entity or any of its subsidiaries on one side and a related party of the listed entity or any of its subsidiaries on the other. It can also capture a transaction with another person or entity where the purpose and effect is to benefit a related party, subject to the exclusions in the regulations.
This means a compliance review should not stop at the legal name appearing on an invoice. Teams should understand the economic beneficiary, the group entities involved and whether a subsidiary is entering into the arrangement.
Step 2: Separate audit committee approval from shareholder approval
Regulation 23 uses two different approval gates. First, related-party transactions and subsequent material modifications require prior approval of the audit committee, subject to the detailed exceptions and subsidiary rules in the regulation. Second, a transaction that is material under the LODR framework moves to the shareholder-approval layer.
This distinction is important. A transaction does not become irrelevant merely because it is below the shareholder materiality threshold. A non-material RPT can still fall within the audit committee approval framework.
Step 3: Apply the current Schedule XII materiality thresholds
For listed entities covered by the main Schedule XII framework, materiality is now turnover-linked. The threshold is calculated using annual consolidated turnover from the last audited financial statements.
- Turnover up to ₹20,000 crore: the threshold is 10% of annual consolidated turnover.
- Turnover above ₹20,000 crore and up to ₹40,000 crore: the threshold is ₹2,000 crore plus 5% of the turnover above ₹20,000 crore.
- Turnover above ₹40,000 crore: the threshold is ₹3,000 crore plus 2.5% of the turnover above ₹40,000 crore, or ₹5,000 crore, whichever is lower.
SEBI's current consolidated LODR text includes illustrations. If annual consolidated turnover is ₹30,000 crore, the threshold is ₹2,000 crore plus 5% of the ₹10,000 crore excess, or ₹2,500 crore. The point of the calculation is to determine the material-RPT approval gate; it should not be confused with internal policy thresholds or other approval requirements.
Step 4: Test transactions with the same related party on an aggregate basis
The materiality test is not designed to be defeated by splitting a commercial arrangement into smaller invoices. The regulation looks at the transaction individually or together with previous transactions with the related party during the financial year. Finance teams should therefore maintain a live related-party tracker rather than testing each invoice in isolation.
A practical tracker should capture the related party, transaction type, approved amount, actual amount to date, proposed new amount, financial-year aggregate, relevant threshold and remaining headroom. This makes it easier to identify when a transaction is approaching the shareholder-approval boundary.
Step 5: Understand what happens when an RPT is material
Material related-party transactions and subsequent material modifications require prior shareholder approval under Regulation 23. The regulation also restricts related parties from voting to approve the relevant resolution, whether or not a particular related party is itself a party to that transaction, subject to the current regulatory text and applicable exceptions.
In practice, the approval file should be built before the general-meeting notice is finalised. The commercial rationale, transaction terms, relationship, value, materiality computation and supporting information should reconcile with the papers that were placed before the audit committee.
What information should go to the audit committee and shareholders?
SEBI has prescribed a structured information framework for RPT approvals. The current compliance material should be read together with SEBI's October 2025 circular on minimum information for RPT approvals and the current Master Circular. The objective is to give the decision-maker enough information to evaluate the transaction rather than approve a bare amount or generic description.
For finance teams, that means the approval note should normally explain what is being bought, sold, financed, guaranteed, licensed or otherwise transferred; who the counterparty is; the relationship; key commercial terms; the proposed value; prior transactions in the year; and why the arrangement is in the listed entity's interest. The exact information set should be mapped to the current SEBI requirements for the transaction.
Worked example: when does the shareholder gate arise?
Assume a listed entity has annual consolidated turnover of ₹30,000 crore. Its Schedule XII materiality threshold is ₹2,500 crore. During the financial year it has already entered into ₹2,100 crore of transactions with Related Party A that form part of the relevant aggregate. Management now proposes another ₹500 crore transaction with the same related party.
The post-transaction aggregate would be ₹2,600 crore. The team should not test only the new ₹500 crore proposal. It should evaluate the financial-year aggregate against the ₹2,500 crore threshold and map the required prior approvals before the transaction is entered into. Separately, it should confirm the audit committee requirements, any applicable material-modification policy and any special rule that applies to the facts.
Practical RPT control checklist
- Maintain a complete related-party universe. Reconcile legal, secretarial and accounting records rather than relying only on the vendor master.
- Identify subsidiary transactions. LODR can capture transactions entered into by subsidiaries, so group reporting is essential.
- Aggregate by financial year. Track previous transactions with the same related party before approving a new one.
- Calculate the current materiality threshold. Use the last audited annual consolidated turnover and the applicable Schedule XII slab.
- Do not confuse approval layers. Audit committee approval and shareholder approval answer different questions.
- Prepare approval information early. Build the commercial and financial support before the meeting papers are circulated.
- Track approved versus actual value. Escalate when utilisation approaches the approved amount or materiality threshold.
- Recheck the live SEBI text before execution. LODR regulations, circulars and prescribed information standards can be amended.
Common mistakes
- Testing only the value of the latest invoice instead of the financial-year aggregate.
- Assuming a below-materiality transaction needs no audit committee review.
- Looking only at the listed entity and missing transactions entered into by subsidiaries.
- Using an old ₹1,000 crore or 10% materiality formula without checking the current Schedule XII turnover slabs.
- Preparing shareholder papers that do not reconcile with the audit committee approval record.
Practical takeaway
Regulation 23 works best as a staged control process: first identify the RPT, then obtain the applicable prior audit committee approval, calculate the current materiality threshold on an aggregate basis, and obtain prior shareholder approval where the materiality gate is crossed. A live transaction tracker and early approval documentation are more reliable than a year-end retrospective review. Because SEBI's LODR framework evolves, the final transaction decision should always be checked against the current consolidated regulations and Master Circular.
