Related party transactions are the single most underread section of any Indian company’s annual report.
Bulk deals get tracked. Promoter pledging gets discussed. Quarterly results get dissected line by line. But the related party transaction disclosures — which sit right there in every annual report, every quarter, under notes to accounts — get skipped by most retail investors entirely.
That’s a significant oversight. RPTs are where promoter self-dealing happens. They’re how cash exits a listed company into privately held group entities. They’re how minority shareholders quietly get shortchanged while the stock trades normally and everything looks fine on the surface.
SEBI just completely overhauled the RPT disclosure framework in 2025 — mandatory new industry standards took effect September 1, 2025. Understanding why SEBI felt that overhaul was necessary tells you everything about why this topic matters to anyone holding Indian mid-cap or small-cap stocks.
What Related Party Transactions Actually Are
A related party is any entity or individual connected to the company’s promoters — group companies, subsidiaries, promoter family members, key managerial personnel, their relatives, companies where promoters hold significant stakes. Any transaction between the listed company and these parties qualifies as an RPT.
These transactions are not automatically bad. Large conglomerates genuinely need intra-group procurement, shared services, and inter-company loans to function efficiently. A listed FMCG company buying raw materials from a promoter-owned supplier at arms-length market prices is a legitimate business arrangement.
The problem is the “arms-length” part. Without rigorous disclosure, there’s no way for a minority shareholder to verify whether a ₹200 crore sale to a promoter-related entity happened at fair market price or at a discount that transferred value out of the listed company and into the promoter’s private pocket.
That verification gap is exactly what SEBI has been trying to close — and what its September 2025 mandatory standards now require.
What the New SEBI Framework Actually Changed
SEBI’s June 2025 circular — No. SEBI/HO/CFD/CFD-PoD-2/P/CIR/2025/93 — mandated all listed entities adopt revised Industry Standards Forum disclosure requirements for RPTs. These replaced the earlier format effective September 1, 2025.
The key changes that matter to investors:
Audit committees now must include at least two independent directors to approve all RPTs. Previously, audit committee composition was less rigidly defined for this purpose.
Related parties cannot vote on shareholder resolutions approving their own RPTs. This sounds obvious. It wasn’t legally enforced uniformly before.
Material RPTs — those exceeding ₹1,000 crore or 10% of consolidated turnover, whichever is lower — now require standardised minimum disclosures in shareholder notices. The previous regime allowed companies to bury RPT details in generic language that told minority shareholders almost nothing useful.
Transactions “for the benefit of” related parties now count as RPTs even if the direct counterparty is a third party. That closure matters enormously — it blocked a common structuring technique where promoters routed benefits to connected entities through nominally unrelated intermediaries.
SEBI also launched an RPT Analysis Portal giving investors a centralised view of RPT disclosures across listed entities. Most retail investors don’t know it exists.
The Red Flags That Actually Deserve Attention
Understanding the framework is one thing. Knowing what to look for in actual disclosures is different.
Loans to promoter group entities carrying below-market interest rates are the most direct form of value extraction. A listed company lending ₹500 crore to an unlisted promoter group company at 4% when commercial rates sit at 9-10% transfers hundreds of crore of annual interest income from minority shareholders to the promoter. The transaction appears legitimate on paper — an inter-company loan, properly disclosed — but the pricing destroys shareholder value quietly over years.
Procurement transactions with promoter-controlled suppliers at above-market prices work the same way in reverse. The listed company overpays for goods or services. The margin difference flows to the promoter’s private entity. Gross margins in the listed company compress without a clear explanation, earnings disappoint, the stock underperforms, and the RPT note buried in the annual report contains the actual explanation that nobody read.
Disproportionate management fees, brand royalties paid to promoter holding companies, and real estate lease agreements with promoter family members all follow the same structural pattern — a price that benefits the related party at the listed company’s expense.
Where to Actually Find This Information
Every listed company files quarterly shareholding data and annual reports on BSE and NSE. The notes to financial accounts section — specifically the related party disclosures note — lists every material RPT for that period.
SEBI’s RPT Analysis Portal aggregates this across companies. Screener.in shows RPT data for most listed companies and flags unusual transaction volumes. The annual report notes give the most complete picture including transaction descriptions, counterparty names, and amounts.
Three specific things to check on any mid-cap or small-cap stock:
Has the RPT volume as a percentage of company revenue increased year over year? Growing RPTs in a slowing revenue environment suggests value flowing out of the listed entity into group companies.
Do any RPT counterparties appear in the promoter group’s unlisted entity list that the company discloses separately? Opaque counterparty names deserve direct verification against the promoter’s other known interests.
Does the company pay royalties or brand fees to an unlisted promoter entity? This is one of the most common quiet value extraction mechanisms in Indian listed companies and one of the hardest to justify to minority shareholders.
Why SEBI’s 2025 Overhaul Still Leaves Gaps
The new framework is genuinely better. Standardised disclosures reduce the information asymmetry that previously let promoters obscure RPT economics in vague language.
But implementation quality varies. Independent directors on audit committees nominally approving RPTs while maintaining cordial relationships with promoter families is a governance reality SEBI cannot fully regulate through disclosure mandates alone. The disclosure improvement means more information reaches investors. Whether investors read and act on that information remains the bigger problem.
Related party transactions won’t stop being a risk just because SEBI tightened disclosure requirements. They’ll continue being a risk that informed investors can now identify more clearly — if they actually look.
This content is for educational purposes only and does not constitute financial or investment advice.