Regulation 23 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Related party transactions under LODR are stricter than under the Companies Act in four separate ways, and a company that runs its RPT process off Section 188 alone will fail all four.
LODR catches more parties, catches more transactions, requires approval regardless of arm's length pricing, and bars every related party from voting — not merely the interested one.
A transaction is material if, together with earlier transactions with that related party in the financial year, it exceeds the lower of ₹1,000 crore or 10% of annual consolidated turnover. Material RPTs need prior shareholder approval by ordinary resolution, and no related party may vote, whether or not it is a party to that transaction. Every RPT — material or not — needs prior approval of the audit committee, given by its independent directors only. Arm's length pricing is not an exemption.
Who is a related party here
Wider than the Companies Act, on three limbs:
- any person or entity that is a related party under Section 2(76) of the Companies Act, 2013 or under the applicable accounting standards;
- any person or entity belonging to the promoter or promoter group of the listed entity and holding 20% or more of its shareholding;
- any person or entity holding 10% or more of the equity shareholding of the listed entity, directly or on a beneficial interest basis, at any time during the immediately preceding financial year.
That third limb is the one that surprises people. It has nothing to do with the promoter group — a financial investor crossing 10% at any point in the previous year is a related party for the whole of the current one, and their exit does not undo it. It is also tested on beneficial interest, so a holding structured through nominees still counts.
What counts as a transaction
A transfer of resources, services or obligations between the listed entity or any of its subsidiaries on one side, and a related party on the other, regardless of whether a price is charged.
Two extensions matter:
Subsidiaries are inside the perimeter. A transaction between a subsidiary and a related party of the listed entity is an RPT of the listed entity.
Purpose-and-effect transactions are caught. A transaction between the listed entity or its subsidiary and any other person, where the purpose and effect is to benefit a related party, is an RPT — even though the counterparty is a complete stranger. This is the anti-structuring limb, and it defeats the interposed-intermediary arrangement that used to work.
A "transaction" includes a group of transactions in a contract, so splitting a single commercial arrangement into instalments does not create separate small transactions.
What is not an RPT: corporate actions uniformly applicable to all shareholders — dividend, subdivision or consolidation, rights issue, bonus issue, buy-back — and retail purchases from the listed entity or its subsidiary by a director or employee on the same terms available to any employee.
The approval path
| Step | Who | When |
|---|---|---|
| Every RPT | Audit committee, prior approval — voted only by the independent directors on it | Before the transaction |
| Material RPT | Shareholders, prior approval by ordinary resolution | Before the transaction |
| Subsidiary RPTs above the specified value | Audit committee of the listed entity | Before the transaction |
Arm's length pricing is not a defence. Under the Companies Act, a transaction in the ordinary course of business at arm's length escapes Section 188 approval. Under Regulation 23 it does not escape anything — the audit committee still approves it. Practitioners moving from unlisted to listed work get this wrong more often than any other point in the regulation.
No related party votes on a material RPT. Not just the counterparty — any related party. A promoter group with 60% of the capital sits out entirely, which means material RPTs are decided by the public shareholders and are genuinely capable of failing.
The materiality number
A transaction with a related party is material if the transaction, taken together with previous transactions with that related party during the financial year, exceeds:
the lower of ₹1,000 crore, or 10% of the annual consolidated turnover per the last audited financial statements.
"Lower of" means the percentage governs almost everywhere. For a company with ₹2,000 crore of consolidated turnover, the threshold is ₹200 crore, not ₹1,000 crore. Only above ₹10,000 crore of turnover does the absolute cap start to bind.
Royalty and brand payments have their own, lower test. A payment to a related party for the use of brand name or royalty is material where it exceeds 5% of annual consolidated turnover — a threshold set deliberately low, because these payments were the standard route for extracting value from a listed entity to a promoter vehicle.
And the test is cumulative across the year. The transaction that crosses the line is the one needing shareholder approval, even if it is small in itself. A company transacting steadily with one related party needs a running total, not a per-transaction check.
Omnibus approval, and its limits
The audit committee can grant omnibus approval for repetitive transactions, which is what makes ordinary group operations workable. The conditions are real:
- the committee lays down criteria for granting it, having regard to the repetitiveness and the entity's need;
- it satisfies itself that omnibus approval is in the interest of the listed entity;
- the approval specifies the name of the related party, nature and duration of the transaction, maximum amount, indicative basis of pricing and other material terms;
- where the details are not available, approval may be granted for transactions of value not exceeding ₹1 crore per transaction;
- the committee reviews the transactions entered into under the approval on at least a quarterly basis;
- the approval is valid for one year, and must be renewed.
Omnibus approval cannot cover the sale or disposal of an undertaking. That is not a repetitive transaction, and treating it as one is an obvious failure.
Exemptions, and where they stop
Regulation 23 does not apply to:
- transactions between two government companies;
- transactions between a holding company and its wholly-owned subsidiary whose accounts are consolidated and placed before shareholders at the general meeting;
- transactions between two wholly-owned subsidiaries of the listed holding company whose accounts are consolidated and so placed.
The wholly-owned subsidiary exemption is narrower than it looks. Wholly owned means exactly that — a single share held outside takes the transaction out of the exemption. And the consolidation-and-placement condition is part of the test, not a description.
Disclosure
RPT disclosures go to the exchange in the format specified by SEBI, on a consolidated basis, simultaneously with the financial results for the relevant period, and are placed on the website.
The format matters more than it sounds. It is designed so that transactions can be compared across periods and companies, which is precisely what a free-text note in the accounts prevented. Related party transactions under LODR →
Key takeaways
- A 10% shareholder in the previous year is a related party this year — promoter status is irrelevant.
- Subsidiaries are inside the perimeter, and purpose-and-effect transactions are caught.
- Arm's length pricing is not an exemption under LODR, unlike Section 188.
- The threshold is the lower of ₹1,000 crore or 10% of consolidated turnover — usually the percentage.
- Brand and royalty payments have a 5% test.
- Materiality is cumulative across the financial year.
- No related party votes on a material RPT, party or not.
- Only independent directors vote in the audit committee approval.
Read next
- Regulation 18: The Audit Committee of a Listed Entity
- Regulation 24: Material Subsidiaries and Their Governance
- Regulation 34: The Annual Report and BRSR
- Related Party Transactions Under SEBI LODR
Disclaimer: Positions stated as on 5 September 2026. Related party thresholds under LODR have stepped down in phases and are revised periodically — verify the current text on sebi.gov.in before relying on any number here.
Key Facts About Regulation 23
- Applies in: All states across India, under the relevant central law.
- Mode: Mostly online via the official government portal.
- Typical timeline: Ranges from a few days to a few weeks depending on the case.
- Non-compliance: May attract penalties, interest or late fees.
- Expert help: TaxClue completes the entire process end to end for you.
What is the materiality threshold for a related party transaction under LODR?
A transaction is material if, together with previous transactions with that related party during the financial year, it exceeds the lower of ₹1,000 crore or 10% of the annual consolidated turnover per the last audited financial statements.
Does an arm's length related party transaction need approval under Regulation 23?
Yes. Prior approval of the audit committee is required for every related party transaction, whether or not it is at arm's length and whether or not it is in the ordinary course of business.
Over 90% of compliance penalties in India arise from missed due dates — timely handling can save businesses thousands of rupees each year.
Regulation 23: a key compliance topic in Indian tax and corporate law that businesses and individuals must understand to remain compliant.