Related Party Transaction Policy (India)

A Related Party Transaction Policy in India lays down the policy the organisation applies, giving staff or users clear guidance on their responsibilities.

India's RPT governance framework reflects the Indian economy's distinctive ownership structure, in which concentrated promoter holdings (typically 40–70% of equity in listed companies) create a structural risk that controlling shareholders may cause listed companies to transact with related parties on terms that benefit promoters at the expense of minority shareholders. The SEBI RPT amendments of 2022 significantly strengthened the framework — broadening the definition of related parties to include entities in the promoter group, lowering materiality thresholds, requiring specific shareholder approvals for subsidiary RPTs, and mandating half-yearly disclosures in a standardised format.

For listed companies, an RPT Policy is a mandatory governance document under Regulation 23(1) of the SEBI LODR Regulations 2015 — the Board must approve and publish the RPT Policy on the company's website. The Audit Committee is the primary oversight body for RPTs, reviewing and approving all RPTs (including granting omnibus approval for repetitive transactions) before they are entered into.

An RPT Policy covers the definition of related parties (including the broader SEBI definition), the categories of transactions requiring approval, the approval procedure (Audit Committee, Board, Shareholders), arm's-length benchmarking methodology, conflict of interest management, and the disclosure obligations under SEBI LODR and the Companies Act 2013.

The legal framework governing the Related Party Transaction Policy (India) in India draws on several key statutes and regulatory bodies. Under Indian law, the Indian Contract Act 1872 governs contractual obligations, with Section 10 setting essential requirements for valid agreements. The Companies Act 2013 regulates corporate entities through the Registrar of Companies (ROC) and Ministry of Corporate Affairs (MCA). The Industrial Disputes Act 1947 and state labour commissioners govern employment disputes. The Information Technology Act 2000 and IT (Reasonable Security Practices) Rules 2011 protect personal data. The Income Tax Act 1961 and Goods and Services Tax Act 2017 govern tax obligations through the Central Board of Direct Taxes (CBDT) and GST Council. Parties executing a Related Party Transaction Policy (India) in India should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Indian Contract Act, 1872 sets the foundational requirements.

An RPT Policy is mandatory for listed companies under Regulation 23(1) of the SEBI LODR Regulations 2015. The Audit Committee is required by Regulation 18(3) and Schedule II of the SEBI LODR to grant approval for RPTs — implying that the Audit Committee must have an approved RPT Policy to guide its approvals. Non-compliance with the SEBI LODR RPT requirements can result in show cause notices, monetary penalties under the SEBI Act 1992, and adverse corporate governance ratings.

All companies that meet the Section 188 thresholds under the Companies Act 2013 need an RPT Policy to confirm that transactions requiring Board and shareholder approval are properly identified and processed in advance.

Companies with complex group structures — holding companies, subsidiaries, associate companies, and joint ventures — have a high volume of RPTs (intra-group service agreements, loans, guarantees, shared services) and need a structured RPT Policy to confirm that all group transactions are properly documented, approved at the appropriate level, and disclosed as required.

Foreign multinational company subsidiaries listed in India face a particular challenge — they routinely transact with their parent and affiliate companies (transfer pricing, shared services, brand licences, technology licences) that constitute RPTs under both SEBI LODR and the Companies Act 2013. An RPT Policy is essential to manage the approval and disclosure requirements for these transactions.

Companies preparing for an IPO need an RPT Policy as part of their pre-IPO governance readiness — SEBI requires disclosure of all significant RPTs in the IPO prospectus (DRHP), and having a formalised RPT Policy demonstrates that the company's board oversight of related party transactions meets the governance standards expected of a public company.

Parties in India should prepare a Related Party Transaction Policy (India) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under Indian law, the Indian Contract Act 1872 governs contractual obligations, with Section 10 setting essential requirements for valid agreements. The Companies Act 2013 regulates corporate entities through the Registrar of Companies (ROC) and Ministry of Corporate Affairs (MCA). The Industrial Disputes Act 1947 and state labour commissioners govern employment disputes. The Information Technology Act 2000 and IT (Reasonable Security Practices) Rules 2011 protect personal data. The Income Tax Act 1961 and Goods and Services Tax Act 2017 govern tax obligations through the Central Board of Direct Taxes (CBDT) and GST Council. Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.

A thorough RPT Policy for an Indian company must contain the following elements as required by the SEBI LODR Regulations 2015 (as amended 2022) and the Companies Act 2013.

Definition of Related Parties: The Companies Act 2013 definition (Section 2(76)) and, for listed companies, the broader SEBI LODR definition — including promoter group entities and entities holding 20% or more equity.

Categories of RPTs: The categories of transactions that constitute RPTs under Section 188 — sale/purchase of goods, services, property, leases, appointments, and other material transactions.

Approval Thresholds and Procedure: Tiered approval requirements — Audit Committee approval for all RPTs; Board approval per Section 188(1); and shareholder approval (ordinary resolution) for material RPTs meeting the SEBI LODR materiality threshold (₹1,000 crore or 10% of consolidated turnover, whichever is lower) or the Companies Act 2013 thresholds.

Omnibus Approval: Conditions under which the Audit Committee may grant omnibus (blanket) approval for repetitive RPTs, including value caps, arm's-length confirmation, and periodic review requirements.

Arm's-Length Benchmarking: The methodology for confirming that RPTs are on arm's-length terms — market quotes, independent valuations, industry rate cards, or transfer pricing documentation.

Conflict of Interest: Requirements for directors and KMPs to disclose interests in RPTs and recuse themselves from approvals — consistent with Section 184 of the Companies Act 2013.

Disclosure Obligations: Quarterly Audit Committee reporting, half-yearly SEBI LODR disclosures, Form AOC-2 Board Report disclosure, stock exchange disclosures for material RPTs, and Ind AS 24 accounting disclosures.

Policy Review: Annual review by the Audit Committee and Board, with Board approval of any changes and publication on the company website.

Additional compliance elements for a Related Party Transaction Policy (India) used in India include: Under Indian law, the Indian Contract Act 1872 governs contractual obligations, with Section 10 setting essential requirements for valid agreements. The Companies Act 2013 regulates corporate entities through the Registrar of Companies (ROC) and Ministry of Corporate Affairs (MCA). The Industrial Disputes Act 1947 and state labour commissioners govern employment disputes. The Information Technology Act 2000 and IT (Reasonable Security Practices) Rules 2011 protect personal data. The Income Tax Act 1961 and Goods and Services Tax Act 2017 govern tax obligations through the Central Board of Direct Taxes (CBDT) and GST Council. Forms-legal.com provides this template as a starting point for India-compliant documentation.