Re-Engineering Transparency: NSE’s New Industry Standards on RPT Disclosures and Their Implications for Corporate Governance in India

Introduction

India’s corporate governance landscape has undergone continuous reform over the past decade, driven largely by persistent concerns surrounding opacity in Related Party Transactions (RPTs). These transactions, although legitimate and often essential for group entities, have historically been susceptible to misuse, tunnelling of resources, and conflicts of interest. In response, regulators have tightened disclosure norms, strengthened board oversight, and enhanced shareholder scrutiny. The latest development in this progression is the National Stock Exchange’s recent notification of comprehensive FAQs that operationalize the new Industry Standards on Minimum Information Required for Audit Committee and Shareholder Review and Approval of RPTs. Effective from 1 September 2025, these standards replace the earlier SEBI-prescribed disclosure formats. They are meant to harmonize market practice across listed entities, enhance the quality of information flowing to decision-makers, and thereby reinforce the integrity of RPT governance.

This blog examines the implications of these new standards, situating them within the broader regulatory framework and evaluating their potential to enhance transparency. It first sets out the problem the new framework seeks to address, followed by a structured analysis of its key features, its interaction with the SEBI LODR Regulations, and the significant compliance considerations for listed companies. The blog concludes with a discussion on how this sharper disclosure regime may ultimately shift corporate behaviour and strengthen investor confidence.

Understanding the Problem: Persistent Gaps in RPT Transparency

The regulation of RPTs under Indian securities law has been driven by the fundamental concern that such transactions create inherent conflicts between controlling shareholders and minority investors. SEBI’s Listing Obligations and Disclosure Requirements (LODR) Regulations, particularly the 2021 overhaul of RPT norms, sought to close loopholes by expanding the definition of related parties, broadening the scope of transactions requiring approval, and raising the standard of disclosure. However, despite these interventions, the quality and detail of information reaching Audit Committees (ACs) and shareholders frequently remained inadequate. Companies often complied with the letter of disclosure formats but failed to provide meaningful, decision-useful information.

The absence of standardized, uniform disclosure protocols also resulted in widely divergent practices among listed entities. Some companies adopted detailed formats, while others provided only skeletal disclosures. This variability undermined the capacity of ACs to critically scrutinize transactions and left shareholders with insufficient data during approval processes. Consequently, the RPT approval regime was procedural rather than substantive.

NSE’s new FAQ-backed Industry Standards seek to address this implementation gap. By prescribing minimum information requirements and clarifying grey areas, they aim to ensure that all listed companies follow a consistent and rigorous approach to RPT disclosure—before both the Audit Committee and shareholders—thus enhancing the substantive quality of review.

II. Key Features of the New Industry Standards: Scope, Thresholds, and Applicability

A central feature of the new framework is its broad applicability. The standards apply not merely to individual transactions but to all RPTs once the cumulative value of transactions with a related party exceeds INR 1 crore in a financial year. This threshold is crucial because it captures even modest but repeated transactions, preventing companies from structuring transactions in smaller tranches to avoid disclosure.

The standards also apply to transactions routed through both domestic and foreign subsidiaries. Importantly, subsidiaries are included whenever the transaction requires AC or shareholder approval, ensuring that transactions conducted at the group level do not escape scrutiny merely because they occur outside the parent entity’s books. This reflects SEBI’s broader shift towards a substance-over-form approach, recognizing the integrated operations of corporate groups.

The FAQs clarify operational aspects, including:

1. Uniform disclosure expectations for all listed entities, thus eliminating historical disparities in practice.

2. Expanded details on counter-party relationships, pricing methodology, and terms of the transaction to ensure that disclosures are not perfunctory.

3. Linkage with materiality thresholds, so that even if a transaction is below an entity’s materiality threshold under LODR, it still requires enhanced disclosure if the cumulative INR 1 crore trigger is crossed.

4. Mandatory presentation of comparative benchmarks and justification, particularly where transactions involve non-arm’s length pricing or where valuation methodologies differ from industry standards.

Overall, the framework significantly elevates the expectations of the quality and depth of information companies must provide.

III. Interaction with the SEBI LODR Framework: Harmonization and Hierarchy

Although NSE’s Industry Standards replace the older SEBI disclosure formats, the FAQs explicitly reiterate that in case of conflict between the standards and the SEBI LODR Regulations, LODR will prevail. This establishes a clear regulatory hierarchy and ensures consistency with statutory norms. However, the standards are designed to be complementary rather than conflicting.

The LODR provisions, particularly Regulation 23, set out broad principles governing RPT approvals, including definitions, thresholds for AC and shareholder approval, and disclosure requirements. The Industry Standards, by contrast, operationalize these requirements by specifying exactly what information must be placed before decision-makers. For example, while LODR requires ACs to “review all RPTs”, the standards delineate what constitutes adequate information for such review—terms of the transaction, commercial rationale, arm’s length justification, pricing mechanism, comparable market quotes, and potential conflicts of interest.

This relationship may be understood as one between substantive law (LODR) and procedural clarity (Industry Standards). By embedding the standards into market practice, regulators are attempting to ensure that the spirit of LODR—enhanced scrutiny and meaningful shareholder participation—is translated into practice.

IV. Governance Implications: Strengthening Oversight and Accountability

The most significant impact of the new standards lies in their potential to improve the quality of governance within listed companies. Meaningful RPT scrutiny requires that ACs and shareholders be provided with comprehensive, comprehensible, and comparable information. Historically, incomplete disclosures allowed opaque transactions to pass approvals without adequate independent assessment.

Under the new regime, ACs must evaluate transactions based on concrete benchmarks, valuation methodologies, and clear justifications. This enhances their ability to question management, demand modifications, or reject transactions that do not meet governance expectations. Similarly, shareholders—especially minority shareholders—benefit from richer disclosures that enable them to make informed decisions during approval processes.

The inclusion of foreign subsidiaries is particularly important in the context of multinational corporate groups. Cross-border RPTs often involve complex structures, varying regulatory standards, and transfer pricing considerations. By mandating consistent information norms irrespective of jurisdiction, the standards ensure that Indian shareholders are not disadvantaged due to geographic dispersion.

The broader message to companies is unmistakable: RPTs are no longer administrative formalities but transactions subject to heightened scrutiny and accountability.

V. Compliance Challenges and Practical Considerations for Listed Entities

While the new standards elevate governance expectations, they also introduce compliance challenges. Companies must develop internal systems capable of identifying cumulative RPTs exceeding the INR 1 crore threshold, including those occurring at the subsidiary level. This requires better group-wide reporting systems and real-time tracking mechanisms.

Additionally, preparing detailed transaction documents for every qualifying RPT may increase the administrative burden, especially for entities with frequent inter-company transactions. Ensuring the accuracy of benchmarking data and valuation methodologies may require specialized advisory support, adding to compliance costs. However, these burdens must be seen in the context of improved governance outcomes and reduced regulatory risk.

Companies will also need to train their internal teams and AC members to effectively understand and apply the new standards. Board evaluation processes may increasingly assess the competency of AC members in understanding complex RPT disclosures.