Related-party transaction (RPT)

RPTs include sales, purchases, royalties, rent, loans and guarantees. They are governed by Ind AS 24 (disclosure), Section 188 of the Companies Act and LODR Regulation 23. Every RPT needs prior audit committee approval, and material RPTs need shareholder approval, with related parties not allowed to vote in favour. Since November 2025, the materiality threshold scales with company turnover. RPTs are the most common route for value to leak from minority shareholders.

Who counts as a related party

The definitions in Ind AS 24, the Companies Act and SEBI's listing rules differ in detail, but together they cover the promoter and promoter group, directors and key managerial personnel and their relatives, subsidiaries, associates and joint ventures, and companies or firms that any of these people control. SEBI's definition is the widest, and also covers large shareholders above a set threshold.

What to look for

Not every RPT is a problem. A subsidiary buying from its parent, or a group sharing a brand, can be ordinary business. The questions are whether the terms are at arm's length, whether the amounts are large relative to the company, and whether they are growing. Red flags include loans and guarantees to promoter entities, royalty or brand fees rising faster than sales, purchases from promoter-owned suppliers above market prices, and sales to promoter-owned distributors below them. Track the totals as a share of revenue and net worth over five years, as the analysis of governance and financial risk suggests.

Where to find it

The related-party note in the annual report lists each related party and the value of transactions with them during the year. Form AOC-2, attached to the board's report, gives details of contracts with related parties. Listed companies also file a disclosure of their RPTs with the stock exchanges every six months, and the notice of a general meeting explains any material RPT put to shareholders.

Common mistakes

• Reading only the totals. A small RPT figure can sit next to a large loan or guarantee shown elsewhere in the note.
• Ignoring unlisted group companies. Value often moves to entities outside the listed company and outside its consolidated accounts.
• Treating approval as proof of fairness. An audit committee or shareholder vote checks the process, not the price.

Questions investors ask

Are related-party transactions illegal? No. They are allowed with the right approvals and disclosure. They become a problem when the terms favour the related party at the expense of other shareholders.

What makes an RPT material? Crossing SEBI's materiality threshold, which since November 2025 scales with the company's turnover. Material RPTs need prior shareholder approval, and related parties cannot vote in favour.