The markets regulator’s new related party transactions framework has adopted a scale-based thresholds mechanism. The reform, explains V Shunmugam, however does not replace discretion—it sharpens it, nudging auditors to combine rule-based certainty with principle-based vigilance
l How Sebi’s move reshapes scrutiny of related party transactions
THE SECURITIES AND Exchange Board of India’s (Sebi) latest board meeting signals a shift in philosophy: moving away from a uniform, rigid threshold for related party transactions (RPTs) to a scale-based approach that takes company size into account. Earlier, any RPT above Rs 1,000 crore or 10% of consolidated turnover automatically required shareholder approval. Now, thresholds vary with turnover, subsidiaries have clearer rules, and smaller RPTs enjoy simplified disclosure.
This reform is being positioned as part of Sebi’s broader agenda to ease doing business without compromising governance standards. This regulatory move aims to apply the principle of proportionality rather than uniformity. In the old model, even a routine transaction by a very large company could trigger full scrutiny simply because it exceeded a fixed limit. The new framework recognises that context matters: for smaller firms, even a modest transaction can affect shareholder value, so the threshold stays strict. But for larger companies, raising thresholds helps prevent ordinary business dealings from being repeatedly scrutinised, allowing boards to focus on genuinely important issues. Essentially, the regulator aims to filter out the noise, sharpen the focus, and make governance more efficient and smarter.
l What the framework means for auditors
ThIS MOVE, WHEN implemented, will provide auditors a clearer yardstick for deciding what counts as “material.” They no longer need to apply the same rule to a small firm and a conglomerate; this reduces the clutter of unnecessary reviews. Yet, this clarity comes with a reminder: numbers are not everything. Auditors must still use professional judgement to flag transactions that might be significant in substance, even if they fall below the regulatory bar. The reform, therefore, doesn’t replace discretion—it sharpens it, nudging auditors to combine rule-based certainty with principle-based vigilance.
l Real challenge is disclosure
FROM A COMPANY secretary’s perspective, the market regulator’s reforms are both empowering and demanding. Omnibus approvals, now enshrined in the Listing Obligations and Disclosure Requirements (LODR), ease the board’s burden of rubber-stamping routine RPTs, freeing them for strategic thinking. However, proportional thresholds linked to turnover mean compliance timelines must adapt each year. The real challenge? Disclosure. While smaller RPTs enjoy lighter reporting, the secretary’s role is to ensure transparency remains sharp, not sacrificed for simplicity. In this new landscape, the company secretary emerges not just as a compliance officer but as the guardian of efficiency and the vigilant conscience of investors.
l What’s in it for investors
FOR INVESTORS, THE real benefit is clarity. The old one-size-fits-all approach often buried them in disclosures that were either excessive or unclear. By adopting scale-based thresholds, Sebi ensures that what reaches investors is more precise, relevant, and proportional to the company’s size. Add to this, the clear stance that retail purchases by directors or key management persons qualify for exemption only if offered on the same terms as employees, and the confusion clears even more. These changes do not remove oversight—they enhance it. The advantage for investors is a framework that makes disclosures more meaningful and increases trust in governance.
l How other countries do it
THE US FOLLOWS a uniform disclosure model, requiring the disclosure of even small transactions involving directors or officers, because the relationship itself is considered material. The UK adopts a shareholder approval policy, where transactions above certain thresholds must be approved, ensuring that no deal goes unnoticed by investors. Singapore’s framework emphasises independent oversight, mandating shareholder approval and regular reviews for ongoing RPTs. India has now shifted to a proportionality approach, making its approach unique—moving away from uniformity, signalling to global markets that the country is both business-friendly and attentive to governance standards, while tailoring rules to fit its own market conditions.
l Why this matters
IT SIGNALS INDIA’S commitment to competing on the global stage with rules that are both efficient and credible. By simplifying thresholds and removing ambiguity, this regulatory move is telling international investors that India is open for business without sacrificing accountability. Companies experience smoother regulatory processes, investors receive clearer signals and increased trust, and governance professionals get a framework that combines flexibility with responsibility. In short, it’s not just about easing compliance but about positioning India as a serious, reliable, and competitive investment destination.
The writer is partner at MCQube