A Look at the New Industry Standards for RPT Disclosures

Listed entities will soon have to follow the new industry standards that set out the information to be provided to the audit committee and shareholders for approval of related party transactions (RPTs).

These industry standards, prepared in consultation with the Securities and Exchange Board of India (SEBI), are procedural in nature. The substantive compliance requirements are covered under provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations).

As per Regulation 23(2) of the LODR Regulations, all RPTs and subsequent material modifications require prior approval of the audit committee of the listed entity. Omnibus approval may be granted subject to conditions prescribed under Regulation 23(3). Further, Regulation 23(4) mandates prior approval of shareholders for material RPTs and subsequent material modifications. SEBI’s master circular dated November 11, 2024, specifies the information to be provided for such approval under Part A and Part B of Section III-B.

To provide a standard format for the information to be furnished, certain industry standards were formulated earlier by the Industry Standards Forum (ISF) comprising ASSOCHAM, CII and FICCI, under the aegis of stock exchanges, in consultation with SEBI. These were subsequently revised based on stakeholder feedback seeking simplification, and the revised standards have now been incorporated into SEBI’s master circular.

Key highlights of the new industry standards:

• Effective Date: The new industry standards will be applicable w.e.f. September 1, 2025.
• Applicability: These standards apply to all RPTs placed for review and approval by the audit committee, and to material RPTs placed for approval of both the audit committee and shareholders. However, they are not applicable in certain specified circumstances. For instance, when transactions (such as those between two public sector companies) are exempt from the prior approval requirements,[1] the need to follow industry standards does not arise.
• Disclosure to the Audit Committee:
  • Guidelines: While providing information to the audit committee, the management has to follow certain guidelines. For instance, it has to provide a certificate from the CEO/Managing Director/Whole Time Director/Manager and CFO confirming that the terms of the RPTs proposed to be entered into are in the entity’s interests.
  • Minimum Information:
    • For all RPTs, information specified in Part A has to be furnished. This includes basic details of the related party, amount of the proposed transaction, etc.
    • For the seven specified types of RPTs (e.g., loans, investments), additional details under Part B must also be provided.
    • If any of the six specific types of RPTs outlined in Part C proposed to be undertaken is a material RPT, the information provided under said Part must also be disclosed (in addition to Parts A and B).

• Disclosure to Shareholders: The explanatory statement to the notice sent to the shareholders for seeking their approval for any material RPT should incorporate the information set out in Para 5 of the industry standards. This includes the information as placed before the audit committee in the format specified in the industry standards. Further, it is to be disclosed that the material RPT has been approved by the audit committee, and the board of directors recommends the proposed transaction to the shareholders for approval. It should also include a web link and QR code through which shareholders can access the valuation report or other reports of an external party, if any, considered by the audit committee.

[1] The industry standards, inter alia, do not apply to transactions exempted under Regulation 23(5) of the LODR Regulations.