More transparency, more trouble? Sebi’s revised disclosures rules divide experts

The Securities and Exchange Board of India’s revised framework for disclosures related to related party transactions (RPT) has received mixed response from legal and governance professionals. While the updated rules are seen as a step towards greater transparency, experts have raised questions over its legal basis and pointed to additional compliance complexity and administrative burden it could involve.

The new disclosure regime was notified through a circular on 26 June and will be effective from 1 September.

Under Regulation 23 of Sebi’s Listing Obligations and Disclosure Requirements (LODR), listed companies must obtain approval from their audit committees—and in case of material transactions, from shareholders as well—for related party transactions.

Sebi has now introduced a tiered format of disclosures under three categories: Part A covers all transactions; Part B applies to seven defined types, including loans and guarantees; and Part C mandates additional disclosures for material transactions.

“The revised RPT Industry Standards, though aimed at improving transparency, raise important legal and structural concerns,” said Akshaya Bhansali, partner at Mindspright Legal, questioning the legal tenability of Sebi’s new framework.

“They overlay the existing frameworks under the Companies Act and Sebi’s LODR with additional disclosure formats and a flat ₹1 crore threshold that are not grounded in statutory text,” Bhansali added. “This creates a regulatory layering that risks confusion over which standard prevails in case of inconsistency.”

Bhansali also flagged a departure from regulatory convention. “The risk here is that substantive obligations are being introduced through a circular, without the procedural safeguards required under Sebi’s own 2025 regulation-making process,” she said, referring to the role played by industry associations in drafting the norms.

The new disclosure regime was developed in consultation with the Industry Standards Forum comprising the Associated Chambers of Commerce and Industry of India (ASSOCHAM), Confederation of Indian Industry (CII), and Federation of Indian Chambers of Commerce and Industry (FICCI).

‘Stemmed from past abuses’

The revised standards mandate extensive information for audit committees and shareholders, including the nature of the transaction, historical dealings with the related party, valuation details, and management certification that the deal is in the company’s interest.

Companies are permitted to redact commercially sensitive details, provided the audit committee affirms that decision-making will not be impaired.

Some industry professionals welcomed the added transparency.

“The new information requirements represent greater transparency and accountability for related party transactions,” said Clarence Anthony, founder of law firm Clarence & Partners. “The audit committee now receives a certification from management that the proposed transaction is in the company’s interest, along with robust price justification and details of past transactions, with such related party.”

He added: “Now the shareholders too will receive all information provided to the audit committee (where earlier they only received a summary), resulting in no information being lost through the various stages of approval.”

Ketan Dalal, managing director at structuring and advisory firm Katalyst Advisors, noted that while the reforms aim to protect minority shareholders, they stemmed from a handful of past abuses.

“Some outlier situations where promoters’ interest wasparamount or fraudulent, unfortunately led to regulatory cholesterol,” he said. “The revised industry standards seek to achieve that reasonable balance between interests of minority shareholders and relative ease of doing business.”

Read more on Sebi’s recent reforms and regulatory changes

Burdens and exemptions

Dalal, however, pointed to areas where Sebi’s latest framework may prove burdensome. “Some aspects still seem quite onerous—for example, where the related party’s financial statements are not available for the immediately preceding year… the company shall provide financial extracts certified by the related party.”

Still, he welcomed key exemptions. “The circular has fortunately clarified that it does not apply to transactions between the listed company and its wholly owned subsidiaries, since there is no leakage,” he said.

Dalal also appreciated Sebi’s decision to limit application to omnibus approvals. “The revised provision will help to save time for audit committees to focus on other matters, especially quarterly results.”

However, Dalal cautioned that governance responsibilities are rising. “Audit committee members would need to have the inclination and time to understand business issues better, since RPTs require more in-depth commercial understanding. A related aspect will be the need to compensate them better, especially those on audit committees.”

He also flagged the increased burden on top executives. “The requirement for a key managerial personnel to certify that RPTs are in the interest of the company will cast an onerous responsibility on them and should lead to better governance,” Dalal said. “However, KMPs (key managerial personnel) could become overly cautious.”