Regulation 24: Material Subsidiaries and Their Governance

Regulation 24 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.

A listed company can move value out of shareholders' reach simply by holding it one level down. Regulation 24 exists to stop that, and it does it in two ways: by putting a listed-entity independent director on the subsidiary's board, and by requiring shareholder approval before the subsidiary or its assets are sold.

The test that switches all of this on is easy to state and easy to get wrong at year end.

A material subsidiary is one whose income or net worth exceeds 10% of the consolidated income or net worth of the listed entity in the immediately preceding accounting year. At least one independent director of the listed entity must be on the board of an unlisted material subsidiary incorporated in India. Selling down below 50%, or ceasing control, needs a special resolution — and so does disposing of more than 20% of the material subsidiary's assets.

The 10% test

Material subsidiary — a subsidiary whose income or net worth exceeds 10% of the consolidated income or net worth of the listed entity and its subsidiaries in the immediately preceding accounting year.

Four points that decide the answer in practice:

It is "or", not "and". A subsidiary that is asset-heavy and revenue-light can be material on net worth alone.

The comparison is against consolidated figures. Not the parent's standalone numbers.

It is the immediately preceding accounting year. So materiality is determined once a year and holds for the year, rather than moving with quarterly results.

The policy must define it. The listed entity formulates a policy for determining material subsidiaries and discloses it on its website. The policy may set a stricter test; it cannot set a looser one.

Companies also apply a higher threshold in specific places — the requirement for shareholder approval on the disposal of shares uses a materiality lens of its own, and the definition can be tightened for particular purposes. Read the policy alongside the regulation rather than assuming one number does all the work.

The governance requirements

The "incorporated in India" qualifier on the independent director requirement is deliberate and is where a lot of unnecessary work gets done. A foreign material subsidiary does not need a listed-entity independent director on its board — the local corporate law governs its composition. The review, minutes and significant-transaction obligations still apply to it, because they operate at the listed entity's end.

The two shareholder approval gates

These are the provisions that actually stop transactions.

Selling down or losing control. The listed entity may not dispose of shares in its material subsidiary which would reduce its shareholding to less than 50%, or cause it to cease to exercise control, without a special resolution of its shareholders — unless the divestment is made under a scheme of arrangement duly approved by a court or tribunal, or under a resolution plan approved under the Insolvency and Bankruptcy Code and disclosed to the shareholders.

Selling the assets instead of the shares. Selling, disposing of or leasing assets amounting to more than 20% of the assets of the material subsidiary on an aggregate basis during a financial year requires prior shareholder approval by special resolution — subject to the same court, tribunal and resolution plan carve-outs.

The second gate exists because the first, standing alone, was avoidable. A parent could keep 100% of a subsidiary's shares and sell everything the subsidiary owned. Closing that route is what makes the pair effective, and it is the limb transaction teams most often miss when structuring a carve-out.

Where this intersects with related party rules

A transaction between a subsidiary and a related party of the listed entity is a related party transaction of the listed entity — it needs audit committee approval, and shareholder approval if material. Group structures that route transactions through subsidiaries do not escape Regulation 23. Related party transactions →

The audit committee's mandate joins the two: it reviews the investments made by unlisted subsidiaries, which is where value transfers tend to appear first — as an investment in an entity, rather than as a payment to one. Audit committee →

Key takeaways

• 10% of consolidated income or net worth — either limb, previous accounting year.
• Publish the material subsidiary policy on the website.
• An independent director on the board of unlisted Indian material subsidiaries only.
• Minutes and significant transactions of every unlisted subsidiary go to the board.
• Special resolution to sell below 50% or to cease control.
• Special resolution to dispose of over 20% of the material subsidiary's assets.
• Court, tribunal and IBC resolution plan routes are the carve-outs.
• Subsidiary transactions are still the listed entity's RPTs.

Read next

• Regulation 23: Related Party Transactions and the Materiality Test
• Regulation 24A: Secretarial Audit and the Annual Compliance Report
• Regulation 18: The Audit Committee of a Listed Entity
• Regulation 46: What Must Be on a Listed Entity's Website

Disclaimer: Positions stated as on 5 September 2026. Verify the current text of the Listing Regulations on sebi.gov.in before relying on any threshold here.