Related Party Transaction (RPT) Compliance

Governed by Section 188, Companies Act 2013, read with Rule 15, Companies (Meetings of Board and its Powers) Rules 2014. Every related-party transaction requires Board approval, with any interested director abstaining from the vote at the meeting under the first proviso to Rule 15. Beyond Board approval, shareholder approval by ordinary resolution is additionally required — and any related member must abstain from voting on that resolution under the second proviso to Section 188(1) — where the transaction exceeds Rule 15's materiality thresholds: sale, purchase or supply of goods or materials exceeding 10% of the company's annual turnover; availing or rendering of services exceeding 10% of annual turnover; sale, purchase, lease or disposal of property exceeding 10% of net worth (or, for leasing, exceeding 10% of turnover); and appointment to any office or place of profit at a monthly remuneration exceeding ₹2.5 lakh. The flat ₹100 crore absolute-value alternative that previously capped several of these thresholds was omitted by the MCA notification dated 18 November 2019, leaving the percentage-of-turnover or percentage-of-net-worth test as the sole materiality measure under the current Rule 15. Companies with a constituted Audit Committee also require its approval under Section 177(4)(iv) before the transaction is entered into.

Related party transactions (RPT) compliance covers the regulation of the transactions between a company and its related parties under the Companies Act 2013 and the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015. Under Section 188 of the Companies Act, the related party transactions require the approval of the board or the members by ordinary resolution where they cross the thresholds the Rules prescribe, with the interested directors not voting, and the transactions with the specified persons require the prior approval of the audit committee and the members' approval by the special resolution where the thresholds under the Rules are crossed. For the listed companies, Regulation 23 of the LODR adds the materiality thresholds, the prior approval and the disclosures.

The RPT is where the company's dealings with its own people are tested — the transactions with the promoters, the directors, the subsidiaries and the associates — and the compliance is the machinery that keeps those transactions at arm's length and disclosed. The approval route, the thresholds, the disclosures and the valuation where the Rules require it are the boxes the auditors and the exchanges check.

The cost of a non-compliant RPT is the transaction itself being called into question: the RPT entered without the approvals under Section 188 is voidable at the option of the company, the disclosure failures attract the penalties, and the listed company's RPT breaches attract the regulatory action.

This service is for companies and listed entities with RPT exposure. We map the related parties and the transactions, determine the approval route under Section 188 and the Rules and Regulation 23 of the LODR, prepare the board, the audit committee and the members' approvals with the interested-party exclusions, manage the disclosures and the reporting, and review the RPT framework so the company's dealings with its related parties are compliant and disclosed.