📘 Board Insights Episode 7: RPT Regulations & Disclosures 💡 Related Party Transactions (RPTs) can create value, but also raise red flags if not transparently handled.

Strong processes around approvals and disclosures are critical to protecting stakeholder trust and ensuring compliance.

In this episode, we unpack:

• ✅ Regulatory framework under Companies Act, 2013 & SEBI (LODR)

• 🎯 Roles of Audit Committee, Board, and Shareholders

• 📄 A practical format for RPT approval tailored to manufacturing companies

🔍 1. Audit Committee (AC): The Primary Approval Authority

As per Section 177 of the Companies Act, 2013 and Regulation 23 of SEBI (LODR):

• Audit Committee is the first line of approval for all Related Party Transactions.

• Prior approval is mandatory before entering into any RPT (except for omnibus approvals or exempted transactions).

• For Material RPTs:

  • Audit Committee grants initial approval.

  • Then, it recommends to the Board.

  • Final approval is by shareholders via special resolution.

🧭 2. Board of Directors: Strategic Oversight Role

The Board isn’t required to approve every RPT. Its role is critical when:

• RPT is not in the ordinary course of business or not at arm’s length.

• Company’s RPT policy or SEBI/Company Law requires Board oversight.

• RPT involves subsidiaries where the company is also a related party.

The Board ensures governance is upheld, and any strategic or reputational risks are evaluated.

🗳️ 3. Shareholders: Final Authority for Material RPTs

Under SEBI (LODR), Material RPTs (i.e., exceeding ₹1,000 crore or 10% of consolidated turnover, whichever is lower):

• Require shareholder approval via special resolution.

• All related parties must abstain from voting.

This ensures transparency and fairness in significant transactions.

Related Party Transaction – Audit Committee Approval Format

Company Name: [Insert Company Name]

Date: [Insert Date]

Place: [Insert Place / Video Conferencing]

Agenda Item: Approval of Related Party Transaction

Section A: Classification of RPT

Is this a Material Related Party Transaction?

☐ Yes     ☐ No

If Yes: Requires Board approval + Shareholder special resolution post AC recommendation.

Section B: Transaction Overview

1. Name of Related Party	[Insert details]
2. Relationship with the Company or its Directors/Promoters/KMP	[Insert details]
3. Nature of Transaction	[Insert details]
4. Duration of the Transaction	[Insert details]
5. Description of the Transaction:   • Type of goods/services   • Pricing	[Insert details]
6. Total Value of the Transaction (Indicate if recurring and annual expected value)	[Insert details]
7. Basis for Arm’s Length Pricing	[Insert details]
8. Rationale and Benefits	[Insert details]
9. In Ordinary Course of Business? ☐ Yes ☐ No	[Insert details]
10. At Arm’s Length? ☐ Yes ☐ No	[Insert details]
11. Interest of Directors/KMPs	[Insert details]
12. Audit Committee Approval Sought: ☐ Approval ☐ Omnibus ☐ Modification	[Insert details]
13. Other Relevant Information	[Insert details]