On August 4, 2025, the Securities and Exchange Board of India (“SEBI”) released a consultation paper proposing key amendments to the provisions governing Related Party Transactions(“RPTs”) under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”). The proposed changes, which invite public comments and suggestions, aim to introduce scale-based relaxation and ease of compliance for listed entities and their subsidiaries undertaking material RPTs.

This move follows SEBI’s February 7, 2025 consultation paper that sought to revise the format of the Annual Secretarial Compliance Report (ASCR) to secure explicit confirmation from Practicing Company Secretaries (PCS) on compliance with specific securities laws, while also specifying eligibility criteria for appointments of statutory auditors of listed entities. Together, these steps seem to operate with the dual aim of easing compliance for some entities while tightening scrutiny and increasing accountability overall. The real question, however, is whether listed companies are ready to align their practices before these reforms take effect.

Notable reforms proposed by SEBI:

1. Scale-based thresholds for listed entities:
   Regulation 23(1) of the LODR Regulations stipulates that a RPT shall be considered ‘material’ if its value (individually or clubbed with previous transactions during a financial year) exceeds the threshold of Rs. 1000 Crore or 10% of the annual consolidated turnover of the listed entity, whichever is lower (“Existing Threshold”). SEBI proposes to replace the Existing Threshold with a scale-based threshold system based on the listed entity’s consolidated turnover.This move comes in the wake of stakeholders raising concerns that the Existing Threshold is disproportionate and becomes onerous for listed entities with high turnover, effectively applying a “one size fits all” approach and treating all listed entities alike, irrespective of their turnover, scale of operations and nature of business. For instance, RPTs valued at Rs. 1,000 crores may not be substantive for listed entities with high turnover but as material RPTs, they are still subject to shareholder and audit committee approvals.S. NoAnnual Consolidated Turnover of Listed EntityProposed Threshold1.Up to Rs. 20,000 Crore10% of annual consolidated turnover of the listed entity2.Between Rs 20,001 - 40,000 CroreRs. 2,000 Crore + 5% of annual consolidated turnover of the listed entity above Rs. 20,000 Crore3.More than Rs. 40,000 CroreRs. 3,000 Crore + 2.5% of annual consolidated turnover of the listed entity above Rs. 40,000 Crore or Rs. 5,000 Crore, whichever is lower.This change is expected to significantly reduce the number of transactions requiring shareholder approval without compromising regulatory oversight.
2. Revised thresholds for subsidiary transactions:
   Under the current framework, the second proviso to Regulation 23(2) stipulates that if an unlisted subsidiary enters into a RPT and the listed parent company is not directly involved, the listed entity's audit committee must approve the transaction only if its value exceeds 10% of the subsidiary's standalone turnover. This means that significant RPTs by subsidiaries may cross the Existing Threshold for materiality but may still not exceed 10% of the subsidiary’s standalone turnover, therefore needing shareholders’ approval but bypassing audit committee review.To address this, SEBI recommended harmonizing the audit committee approval threshold with the scale-based materiality threshold applicable to listed entities. This approach ensures that transactions undertaken by subsidiaries are subject to consistent and reasonable governance standards.Therefore, subsidiaries with an established financial record undertaking RPTs exceeding Rs. 1 crore will require prior approval of the audit committee of the listed entity if the value of the transaction exceeds the lower of (i) 10% of the subsidiary’s annual standalone turnover as per the last audited financial statements of the subsidiary; or (ii) the listed entity’s own materiality threshold, thereby preventing unnecessary burden on companies with very small RPTs.In the event a subsidiary is newly incorporated and doesn’t yet have one year of audited financials, SEBI suggests using as threshold the lower of (i) 10% of the subsidiary’s standalone net worth or (ii) the listed entity’s materiality threshold, thereby ensuring oversight even in the absence of financial history.
3. Streamlined Disclosures:
   As per SEBI’s prescribed industry standards for minimum information to be provided to the audit committee and shareholders for approval of RPTs, transactions up to Rs. 1 Crore are exempt from the standard RPT disclosure requirements. However, this exemption threshold appears largely miniscule for listed entities having high turnover and does not offer objective support in ease of doing business. To address this, SEBI has proposed that RPTs exceeding Rs. 1 Crore but not exceeding the lower of (i) 1% of the listed entity’s annual consolidated turnover, or (ii) Rs. 10 crores may be required to furnish a simplified set of disclosures (as outlined in Annexure 2 of the consultation paper dated August 4, 2025).
4. Strengthening the ASCR of a listed entity:
   Regulation 24A (2) of the LODR Regulations mandates listed companies to submit an ASCR to stock exchanges within 60 days of the end of a financial year. In the wake of significant regulatory development, SEBI has proposed to revise the format of the ASCR to make it more comprehensive and to incorporate clear confirmations from the PCS regarding compliance with points under applicable securities laws such as compliance with provisions of SEBI (Prohibition of Insider Trading) Regulations, 2015, Fund raising compliances under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, appointment and re-appointment of directors, KMP and senior management, remuneration of directors, KMP and senior management, subsidiary related compliances, disclosure of material events and information under Regulation 30 of LODR Regulations etc. Additionally, SEBI also proposed to consolidate various certifications provided by a PCS under its regulations into single ASCR to bring in a more uniform framework and reduce compliance timelines for market participants.
5. Specifying eligibility criteria for appointment of statutory auditor:
   Presently, the LODR Regulations do not state a clear eligibility criterion for appointments of statutory auditors of listed entities. Consequently, it has been proposed by SEBI that a similar structure under Rule 3(1) of the Companies (Audit and Auditors) Rules, 2014 shall be incorporated in LODR Regulations, which require the audit committee or the board of directors to consider the qualifications and experience of the auditor to be commensurate with the size and requirements of the company.

Conclusion

SEBI’s proposed amendments aim to refine the regulatory framework by introducing scale-based thresholds for RPTs, harmonizing subsidiary-related approvals, and easing disclosure requirements for smaller transactions, and strengthening the ASCR. If implemented, the changes could alleviate the compliance burdens on listed entities and improve transparency and operational flexibility. Listed companies should prepare by aligning their RPT processes to the new thresholds, reviewing audit committee oversight for subsidiaries, and testing compliance readiness against the revised ASCR format. Early engagement with auditors and company secretaries, coupled with stronger internal controls, will help companies adapt smoothly and position themselves as well-prepared and aligned with evolving governance standards when the reforms take effect.

This content is originally posted here: https://www.ahlawatassociates.com/blog/sebi-secretarial-compliance-reforms-2025