When Business Connections Make People Raise Their Eyebrows

Picture this: a publicly traded company quietly sells one of its most important assets to another company, only to find out later that the buyer is owned by the chairman's brother. What is the cost? A lot less than what it's worth on the market. Even though it was probably legal, investors are furious, and the stock drops overnight.

This situation may seem dramatic, but it gets to the heart of why Related Party Transactions (RPTs) are being watched so closely by regulators. If not watched, these deals can lead to favoritism, hidden profits, and bad governance. In India, where promoters have a lot of power over business decisions, the problem of openness in RPTs becomes even more important.

The Securities and Exchange Board of India (SEBI) has taken a bold step forward by changing the RPT Industry Standards. This could change the way Indian companies do business with each other. The new standards, which go into effect on September 1, 2025, are meant to find a balance between making it easier to follow the rules and making governance stronger. But what do these changes really mean for companies, boards, and shareholders? Let's go over this in detail.

The Regulatory Background: Why RPTs Are More Important Than Ever

RPTs are a double-edged sword when it comes to running a business. Some of these kinds of deals are legal and necessary for business, like a parent company giving a loan to a subsidiary. However, they can also hide deals that help insiders at the expense of minority shareholders.

The Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015, which SEBI has been using to build its framework for RPT disclosures, require Audit Committees and, in some cases, shareholders to give their approval before they can be made public. However, there hasn't been a consistent format or clear benchmarks until now to make sure that all listed companies are open and can be compared.

The SEBI Master Circular in November 2024 changed that by setting out broad expectations for disclosure. There was still some confusion. After talking to stakeholders, SEBI put out the Revised RPT Industry Standards on June 26, 2025. These will now be the best way to disclose RPTs.

What's New: From Confusion to Clarity

Simplicity with substance is at the heart of SEBI's new approach. The new rules divide disclosures into three groups: Part A, Part B, and Part C. This is based on how important and what kind of transaction it is. This structure takes the place of the old, confusing balance sheet vs. P&L-based classifications.

Let's look at some of the most important changes:

1. Disclose only what matters

Before, businesses had to give three years' worth of financial information about the related party, even for small deals. Now, they only have to show data from the most recent year. This change cuts down on unnecessary paperwork while keeping the important information.

Also, requirements like peer benchmarking for royalty payments and mandatory bidding processes for asset sales have been removed. Companies can now use management justification instead of following strict rules, which gives them more time to focus on deals that are either very risky or very valuable.

2. Things that are material vs. things that aren't: Finally, a Clear Line

With the new rules:

• If a transaction is worth more than INR 1,000 crore or 10% of the annual consolidated turnover, whichever is lower, it is considered material.

• For brand use or royalty payments, the bar is even lower: 5% of annual consolidated turnover.

SEBI has made a tiered compliance framework by making it clear which transactions are material and which are not. Shareholders must approve and fully disclose material RPTs; non-material ones have a simpler process. This is very important in a country like India, where promoter families control many listed companies, and even small deals can raise governance issues.

What this means for businesses: a reality check

These changes are more than just changes to the way things are done at India Inc.; they also show a change in the culture of how internal transactions are reviewed and approved. Let's look at how:

A. Boards and Audit Committees Should Do More

The Audit Committee and now the Board of Directors are very important. They have to do more than just look over and approve RPTs; they also have to make sure they are fair. They can now ask for more information, question valuations, or refuse transactions that don't meet shareholder expectations, which is a big deal.

This gives independent directors more power, makes checks and balances stronger, and makes decisions more objective.

B. Management Responsibility: No More Rubber Stamping

Now, the CEO, Managing Director, or CFO must say that the RPT is "in the interest of the listed entity." This is a small but important change from the old requirement of confirming arm's length pricing or no harm to shareholders. This new wording puts the responsibility on business judgment, not just following the law.

It also makes people think about the long term: Is this deal good for the whole company, not just one group or one quarter?

C. Better communication with shareholders

Companies now have to give shareholders standardized, easy-to-understand information, such as QR codes that let them see outside valuation reports. This shows that SEBI wants RPTs to be more than just a boardroom issue; they want shareholders to be able to look into them as well.

If information is redacted because it is sensitive to business, boards must certify that even the redacted version is enough for informed voting. This strikes a balance between openness and protecting competition.

Relief for Industry: Making Compliance Easier

The standards are both strong and useful. For example:

• Insurance companies and housing finance companies, which were not on the list of companies that could get an exemption before, can now get the same benefits for some RPTs as banks and NBFCs.

• Companies don't have to keep track of every trade advance or inter-corporate deposit in great detail anymore, unless they go over a certain amount.

• Some reasons, like explaining why investments lost money or why assets and liabilities don't match up, have been removed.

This makes it easier for companies to follow the rules, especially for big companies that have to deal with dozens of internal transactions every day.

Corporate Governance in Action: A Step Toward Growth

The main point of SEBI's new RPT standards is that the market is growing. They are based on global governance trends but are made to fit India's specific needs.

Think about this: around the world, regulators like the SEC in the U.S. and ESMA in Europe have had strict rules about how insiders can trade. But institutional investors and class-action risks give them more power to enforce. In India, promoter control is still the most important thing, and regulatory push is often the main reason for change.

SEBI has raised the bar with these standards, not just in terms of paperwork but also in terms of intent. The change pushes for a move away from compliance with rules to openness based on principles.

Why This Matters Now: The Corporate Reset After the Pandemic

The timing is important. As businesses get back on their feet after the pandemic and reorganize their supply chains, many are restructuring their companies through mergers, carve-outs, fundraising deals, and IP transfers. All of these may involve people who are related to the businesses.

There is a real risk of value leakage if there aren't strong RPT rules. The new standards protect everyone during this risky change by making sure that internal deals aren't too complicated or full of conflict.

In conclusion, this is a call to action for Corporate India.

The new RPT standards are more than just another set of rules; they are a sign. A sign that India is ready to ask its businesses to be more open. That governance can't be an afterthought anymore. Those deals must be not only legal but also fair, reasonable, and open.

As boards get ready to put these standards into place, the work ahead isn't just about formatting disclosures or checking boxes. It's all about trust. It's about proving to shareholders, regulators, and the public that honesty is a key part of the business model.

This is where corporate governance really matters. The question now is: Will businesses step up?

Conclusion: Governance Is Not a Burden; It's a Brand

People in business are starting to realize that being open and honest sells. Investors from all over the world are starting to factor in governance risk when they set prices. SEBI's decision to improve RPT standards is a good reason for businesses to review their internal rules again.

The new RPT standards make the process easier, focus on what's important, and give both boards and shareholders more power. This brings us closer to a time when related party transactions are seen as strong business decisions instead of red flags.

This is more than just following the rules for Indian companies. It's a chance to build trust, show maturity, and adopt a governance model that is not only world-class but also uniquely Indian.

It's time to act now if you're on a board, an audit committee, or a management team. Take another look at your RPT framework. Rebuild what you told people. Tell your story about how you run things again, but this time, make it believable.

Ways We Can Help

We are a small global transfer pricing advisory firm that makes sure that related party transactions, whether they happen in the same country or across borders, can stand up to scrutiny from regulators, businesses, and other stakeholders.

We help publicly traded companies with arm's length pricing because we are experts in it.

• Benchmark and explain transactions in order to follow SEBI's new RPT disclosure rules.

• Give Audit Committees clear, defendable information to help them make decisions.

• Follow Indian rules for intercompany transactions

• Help with valuation, materiality analysis, and paperwork to help with compliance and governance

We help you not only follow the rules but also build trust and openness into every transaction, whether it's a royalty agreement, an intercompany loan, a service charge, or an asset transfer.