Description

SEBI amends LODR Regulations 2015 introducing stricter related party transaction thresholds, expanding definition of related parties to include key managerial personnel and their relatives, and modifying disclosure requirements for subsidiary transactions.

Summary

SEBI has issued the fifth amendment to the LODR Regulations, 2015, introducing significant changes to related party transaction (RPT) provisions. The amendments expand the definition of related parties to include key managerial personnel and their relatives, modify materiality thresholds for RPTs, and introduce new approval requirements for subsidiary-level transactions. Most provisions become effective from the date of gazette publication, with certain provisions effective from the third day of publication.

Key Points

  • Expansion of related party definition to include key managerial personnel (KMP) and relatives of directors/KMP
  • Employee Stock Option Plans (ESOPs) must have uniform terms applicable to all employees, directors, KMP and their relatives
  • Removal of existing provisos in Regulation 12 related to redemption amounts
  • Introduction of Schedule XII thresholds replacing fixed ₹1,000 crore or 10% of annual consolidated turnover criteria
  • New approval requirements for subsidiary RPTs exceeding ₹1 crore where listed entity is not a party
  • Subsidiary RPT approval required if transaction value exceeds 10% of subsidiary’s standalone annual turnover or Schedule XII limits
  • Such subsidiary RPTs to be deemed material transactions between listed entity and related party

Regulatory Changes

Regulation 2(1)(yg) Amendment: The definition now explicitly includes “directors or key managerial personnel of that listed entity or its subsidiary, and relatives of such directors or key managerial personnel” in the scope of related party transactions. The uniformity requirement now extends to employees, directors, key managerial personnel and relatives of directors/KMP.

Regulation 12 Amendment: Existing first and second provisos deleted. The colon after clause (c) regarding redemption amount replaced with period, indicating structural simplification.

Regulation 23 Amendments:

  • Sub-regulation (1): The materiality threshold reference changed from “exceeding ₹1,000 crore or 10% of annual consolidated turnover (whichever is lower)” to “limits prescribed in Schedule XII of these regulations”
  • Sub-regulation (2), Second Proviso, Clause (kh): Introduces comprehensive framework for subsidiary-level RPTs exceeding ₹1 crore requiring audit committee pre-approval when:
    • Transaction value exceeds 10% of subsidiary’s standalone annual turnover as per last audited financial statements; OR
    • Transaction exceeds Schedule XII limits
    • Such transactions deemed material transactions between listed entity and related party

Compliance Requirements

For Listed Entities:

  • Review and update RPT policies to include KMP and their relatives in related party definition
  • Ensure ESOP schemes have uniform terms for all eligible participants including KMP and relatives
  • Adopt Schedule XII thresholds for determining material RPTs
  • Implement processes to monitor subsidiary-level RPTs for audit committee approval requirements

For Subsidiaries:

  • Report RPTs exceeding ₹1 crore to parent listed entity
  • Provide transaction details for audit committee review when thresholds breached
  • Maintain records of standalone annual turnover for threshold calculation

For Audit Committees:

  • Establish approval mechanism for subsidiary RPTs meeting criteria
  • Apply 10% of subsidiary standalone turnover test
  • Cross-reference Schedule XII limits for approval determination

Important Dates

  • Gazette Publication Date: November 18, 2025 - Most provisions effective from this date
  • Third Day After Publication: Sub-regulations I, III and VII of Regulation 3 become effective
  • Immediate Action Required: Listed entities should review existing RPT frameworks and subsidiary transaction monitoring systems

Impact Assessment

Regulatory Impact: Significantly expands regulatory oversight of related party transactions by including KMP relationships and introducing subsidiary-level monitoring. Creates multi-tier approval framework based on transaction size and entity level.

Operational Impact: Listed entities must enhance monitoring systems to track subsidiary transactions, implement new approval workflows for audit committees, and update RPT policies. Increased compliance burden for groups with multiple subsidiaries having significant RPT activity.

Market Impact: Enhanced transparency in related party dealings, particularly at subsidiary level where material transactions previously had limited parent-level oversight. Strengthens corporate governance framework and minority shareholder protection.

Scope Impact: Universal application to all listed entities regardless of size or sector. Particularly significant for corporate groups with complex subsidiary structures and those with active intra-group transactions involving KMP.

Impact Justification

Fundamental changes to related party transaction framework affecting all listed entities, expanding scope of related parties and introducing new thresholds for subsidiary-level RPTs requiring audit committee approval