BACKGROUND

Corporate Governance in Related Party Transactions (RPTs) across listed entities has always been a top priority for Securities and Exchange Board of India (SEBI). Ever since SEBI (Listing Obligations and Disclosure Requirements) 2015 regulations were introduced, SEBI has made various amendments through circulars so as to ensure that the framework keeps on getting more stringent leading to good corporate governance and transparency.

Recently, SEBI has issued a circular on Industry Standards for ‘Minimum information to be provided for review of the Audit Committee and shareholders for approval of Related Party Transactions’. These standards have been made effective from 1 April 2025, with an endeavour to ensure transparent and fair approval processes for RPTs across listed entities. We at BDO in India have analysed and summarised the key aspects of the said circular and provided our comments on its impact hereunder:

KEY INSIGHTS

Uniform approach
In order to facilitate a uniform approach and assist listed entities in complying with the requirements as prescribed under the SEBI LODR Regulations for approval of RPTs, SEBI in consultation with the Industry Standards Forum (ISF) comprising of representatives from three industry associations, i.e. the Associated Chambers of Commerce and Industry of India (ASSOCHAM), Confederation of Indian Industry (CII) and Federation of Indian Chambers of Commerce and Industry (FICCI), has formulated Industry Standards under the aegis of the Stock Exchanges. The listed entities shall follow the aforesaid Industry Standards to ensure compliance with the requirements as stated under the SEBI LODR Regulations.

Information requirements
As per these standards, while placing any proposal for review and approval of an RPT, the listed entities shall provide the Audit Committee and the shareholders with the information as specified in the Industry Standards on ‘minimum information to be provided for review of the Audit Committee and shareholders for approval of RPTs’. 
Specified formats have been prescribed for disclosing RPT details to the Audit Committee and shareholders. This includes nature of transactions, financial data, relationship specifications, justifications, etc. to ensure informed decision-making.

BDO IN INDIA COMMENTS

Issuance of Industry Standards marks a significant development and is a welcome step in ensuring corporate governance and transparency in RPTs disclosure requirements. While the standards provide a uniform framework, the dynamics of different industries still play their role in adding a layer of complexity in reporting the RPTs. The functional dynamics and regulatory aspects vary among different industries, which may have a direct impact on the information required for RPT reviews, leading to decision-making.

In order to address such challenges, SEBI’s approach allows for Industry Specific adaptations, keeping the core endeavour of transparency and disclosure principles at the forefront. This move re-emphasises the criticality of corporate governance in India’s evolving corporate landscape.