SEBI LODR (Fifth Amendment) Regulations, 2025: A Paradigm Shift in Related Party Transaction Governance

Corporate governance in India continues to evolve with an increasing emphasis on transparency, accountability, and the protection of minority shareholders. In furtherance of this objective, the Securities and Exchange Board of India (SEBI) has notified the SEBI (Listing Obligations and Disclosure Requirements) (Fifth Amendment) Regulations, 2025, introducing far-reaching changes to the regulatory framework governing Related Party Transactions (RPTs).

These amendments significantly recalibrate materiality thresholds, strengthen audit committee oversight, and close long-standing regulatory gaps concerning subsidiary-level transactions. For listed entities, boards, audit committees, and compliance professionals, the changes are not merely procedural but strategic in nature.

This article examines the key amendments and their practical implications for listed companies.

1. Redefinition of “Material” Related Party Transactions

Earlier Regulatory Position

Prior to the amendment, an RPT was considered material if it exceeded:

• Rs 1,000 crore, or
• 10% of the annual consolidated turnover of the listed entity,
  whichever was lower.

This uniform threshold often imposed disproportionate compliance obligations on large listed entities, irrespective of their scale of operations.

Revised Framework: Introduction of Schedule XII

SEBI has introduced a graduated, turnover-linked materiality framework through the insertion of Schedule XII, thereby aligning regulatory oversight with the economic size of the listed entity.

Significance:
This proportionate approach reduces unnecessary compliance for large entities while ensuring that economically significant transactions continue to receive enhanced scrutiny.

2. Strengthened Oversight of Subsidiary-Level RPTs

A critical governance concern addressed by the amendment is the practice of routing significant transactions through subsidiaries to avoid shareholder approval at the listed parent level.

Key Changes Introduced

• Prior approval of the Audit Committee of the listed entity is mandatory for subsidiary RPTs exceeding Rs 1 crore, where:
  • The subsidiary is a party to the transaction, and
  • The listed entity is not a direct party, and
  • The transaction value exceeds the lower of:
    • 10% of the subsidiary’s annual standalone turnover (based on last audited financial statements), or
    • The applicable materiality threshold of the listed entity under Schedule XII.
• Where the subsidiary does not have audited financial statements for at least one year, materiality is assessed with reference to:
  • 10% of the aggregate paid-up share capital and securities premium of the subsidiary, or
  • The Schedule XII threshold of the listed entity,
    whichever is lower.

Implication:
Audit Committees are now required to exercise group-wide oversight, significantly enhancing governance discipline across corporate structures.

3. Rationalisation of Shareholder Approval Validity

The amendment brings clarity and discipline to the validity of omnibus shareholder approvals for material RPTs:

• Omnibus approval obtained at an Annual General Meeting (AGM) is valid only until the next AGM, held within the timelines prescribed under the Companies Act, 2013.
• Omnibus approval obtained at any general meeting other than an AGM is valid for a maximum period of one year from the date of approval.

This ensures that shareholder consent remains current and informed, preventing perpetual reliance on outdated approvals.

4. Expansion of the Scope of Covered Persons

To eliminate ambiguity and strengthen governance safeguards, SEBI has expanded the scope of persons covered under relevant definitions to include:

• Directors
• Key Managerial Personnel (KMP)
• Relatives of directors and KMPs

of both the listed entity and its subsidiaries.

This change brings greater alignment between regulatory intent and practical enforcement.

5. Enhanced Disclosure and Reporting Requirements

The amendment also tightens disclosure obligations relating to annual reports:

• Any post-AGM modification to the annual report must be:
  • Filed with the stock exchanges,
  • Uploaded on the company’s website,
  • Accompanied by details and justification for such changes,
  • Within 48 hours of the AGM.
• For holders of non-convertible securities who have not registered their email addresses, listed entities must provide:
  • A direct web-link (with exact navigation path), and
  • Optionally, a static QR code for accessing the annual report.

6. Practical Implications for Listed Entities

In light of the amended framework, listed entities should proactively:

• Reassess RPT materiality thresholds under Schedule XII
• Update Audit Committee charters, policies, and standard operating procedures
• Strengthen group-level RPT identification and tracking systems
• Review shareholder approval strategies and timelines
• Conduct focused training for directors, KMPs, and compliance teams

Failure to adapt may expose entities to regulatory scrutiny, adverse audit observations, and reputational risk.