SEBI Related Party Transaction Disclosure: When Shareholder Approval Is Required
Not every related party transaction needs shareholders to weigh in — but once a transaction crosses a specific materiality threshold, approval isn't optional, and the related parties themselves are barred from voting on their own deal.
The baseline: audit committee approval for all RPTs
Every related party transaction — regardless of size — requires prior approval of the audit committee. For repetitive, similar-nature transactions expected to recur, the audit committee can grant an omnibus approval for a defined category and value range, rather than approving each individual instance separately, provided the omnibus approval itself meets specified conditions (valid for a limited period, subject to value ceilings, etc.).
When it escalates to shareholder approval: the materiality threshold
A related party transaction is treated as "material" — and therefore requires prior shareholder approval via ordinary resolution, in addition to audit committee approval — where the transaction value exceeds a specified threshold tied to the company's turnover/net worth, subject to an absolute rupee ceiling. The exact numerical threshold has been revised by SEBI over time, so the current figure should be confirmed against the applicable regulation rather than assumed to be static.
Why this rule exists
Related party transactions are a well-documented channel through which controlling shareholders can extract value from a listed company at the expense of minority shareholders — overpriced asset sales to promoter-linked entities, underpriced sales of company assets to promoters, disproportionate management contracts, and similar structures. The materiality threshold plus mandatory minority-shareholder approval (with related parties excluded from voting) is specifically designed to give minority shareholders a genuine check on transactions above a size where the risk of value extraction becomes significant.
What counts as a "related party" in the first place
The definition draws on both the Companies Act's related party definition and SEBI's own, generally broader definition under LODR — covering promoters, promoter group entities, directors, KMP, their relatives, and entities in which these persons hold significant influence or control, among other categories. SEBI's definition has been progressively widened over successive amendments to capture indirect and less obvious related-party structures.
Disclosure to shareholders ahead of the vote
Where shareholder approval is sought, the notice must include specific disclosures about the transaction — the related party's identity and nature of relationship, the transaction's material terms, the rationale, and (depending on the nature of the transaction) supporting valuation or fairness opinion details — so that unrelated shareholders have a genuine informational basis to assess the transaction before voting, not just a bare resolution to approve or reject.