Description

SEBI notifies the Fifth Amendment to LODR Regulations 2015, introducing changes to related party transaction thresholds, definitions, and approval requirements for listed entities and their subsidiaries.

Summary

SEBI has issued the Fifth Amendment to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, published in the Official Gazette on November 18, 2025. The amendment introduces significant changes to related party transaction (RPT) definitions, approval thresholds, and compliance requirements for listed entities and their subsidiaries. Key changes include expanded definitions of related parties to include key managerial personnel and their relatives, revised transaction thresholds referenced to Schedule XII, and new audit committee approval requirements for subsidiary transactions.

Key Points

  • Amendment officially titled as SEBI (Listing Obligations and Disclosure Requirements) (Fifth Amendment) Regulations, 2025
  • Published in the Official Gazette on November 18, 2025 (Notification No. SEBI/LAD-NRO/GN/2025/273)
  • General effective date: Date of publication in the Official Gazette
  • Specific provisions under Regulation 3 (Sub-regulations I, III, and VII) effective from the third day after publication
  • Amends Regulations 2, 12, and 23 of the principal LODR Regulations 2015
  • Expands definition of related parties to include key managerial personnel and their relatives
  • Introduces reference to Schedule XII for materiality thresholds instead of fixed percentages
  • Modifies approval requirements for related party transactions involving subsidiaries

Regulatory Changes

Regulation 2 - Definitions Amendment

Amendment to the definition provisions expanding the scope of related parties:

  • Clause (yg): Expanded to include “key managerial personnel of the listed entity or its subsidiary, and relatives of such directors or key managerial personnel”
  • Terms and conditions must be uniformly applicable to “all employees, directors, key managerial personnel, and relatives of directors or key managerial personnel”
  • Previously limited to directors and employees only

Regulation 12 - Amendment

  • Existing first and second provisos deleted
  • Modified punctuation after clause (c) regarding redemption amount

Regulation 23 - Related Party Transactions

Sub-regulation (1) - Material RPT Threshold:

  • Previous threshold: Greater of ₹1,000 crore or 10% of annual consolidated turnover
  • New threshold: As prescribed in Schedule XII of the regulations
  • Applies to transactions requiring shareholder approval

Sub-regulation (2) - Subsidiary Transactions:

New clause (kh) introduced for subsidiary-level related party transactions:

Transactions exceeding ₹1 crore (individually or cumulatively in the financial year) where:

  • The listed entity’s subsidiary is a party, BUT
  • The listed entity itself is not a party

Require audit committee approval if the transaction value exceeds:

(i) 10% of the subsidiary’s annual standalone turnover (based on last audited financial statements); OR

(ii) The limit specified in Schedule XII

Such transactions shall be deemed material transactions between the listed entity and the related party.

Compliance Requirements

Immediate Actions Required

  1. Policy Updates: Listed entities must update their Related Party Transaction policies to incorporate new definitions and thresholds

  2. Process Implementation: Establish mechanisms to track and monitor subsidiary-level related party transactions exceeding ₹1 crore

  3. Audit Committee Procedures: Revise audit committee approval processes to include subsidiary transactions meeting the new criteria

  4. Schedule XII Review: Refer to Schedule XII of LODR Regulations for specific materiality thresholds (entities must obtain and review Schedule XII)

  5. Disclosure Framework: Update disclosure templates and processes to capture expanded definition of related parties including key managerial personnel and relatives

  6. Training: Conduct training for finance, secretarial, and compliance teams on new requirements

  7. System Updates: Modify internal tracking systems to identify transactions involving:

    • Key managerial personnel and their relatives
    • Subsidiary-level RPTs meeting new thresholds

Ongoing Compliance

  • Monitor all subsidiary transactions with related parties on a cumulative basis throughout the financial year
  • Ensure audit committee approval is obtained before execution of qualifying transactions
  • Maintain detailed records of all related party transactions for both parent and subsidiary level
  • Update materiality assessment frameworks based on Schedule XII thresholds

Important Dates

  • November 18, 2025: Publication date in Official Gazette
  • November 18, 2025: General effective date for most provisions
  • November 21, 2025: Effective date for Regulation 3 (Sub-regulations I, III, and VII) - third day after publication
  • Financial Year Basis: Cumulative transaction tracking to be done on financial year basis for subsidiary RPTs

Impact Assessment

Listed Entities

High Impact - All listed companies must immediately:

  • Review and revise RPT policies and procedures
  • Implement enhanced monitoring for subsidiary transactions
  • Expand internal controls to capture transactions involving key managerial personnel and relatives
  • Reference Schedule XII for updated materiality thresholds (replacing the previous ₹1,000 crore/10% turnover formula)

Subsidiaries

Significant Impact - Subsidiaries of listed entities face:

  • New reporting obligations for related party transactions exceeding ₹1 crore
  • Parent company audit committee oversight for transactions exceeding 10% of subsidiary’s standalone turnover
  • Enhanced documentation and approval requirements

Key Managerial Personnel

Medium-High Impact:

  • Transactions involving KMPs and their relatives now subject to stricter scrutiny
  • Enhanced disclosure requirements
  • Uniform terms and conditions requirements across all employee/director/KMP categories

Audit Committees

High Impact:

  • Expanded mandate to review subsidiary-level transactions
  • Additional meeting agenda items for subsidiary RPT approvals
  • Need for enhanced information systems to track multi-tier transactions

Market-Wide Implications

  • Transparency: Enhanced transparency in related party dealings at group level
  • Governance: Strengthened corporate governance framework for listed entities and their subsidiaries
  • Compliance Burden: Increased compliance and monitoring requirements, particularly for entities with multiple subsidiaries
  • Disclosure Quality: Improved quality of related party disclosures with expanded definitions
  • Risk Management: Better risk management through audit committee oversight of subsidiary transactions

Operational Considerations

  • Companies may need to upgrade IT systems to track cumulative transactions across subsidiaries
  • Increased coordination required between parent and subsidiary compliance teams
  • Potential delays in transaction execution due to additional approval layers
  • Legal and professional costs for policy updates and system implementations

Impact Justification

Major regulatory amendment affecting all listed entities' related party transaction framework, requiring immediate compliance and process updates for approval mechanisms and disclosure thresholds