From Promoter Power to Boardroom Responsibility: Dissecting SEBI’s RPT Overhaul

[Suprava Sahu is a fourth year law student at Gujarat National Law University, Gandhinagar.]

Introduction

Corporate governance in India has long struggled with the challenge of ensuring fairness and accounting in transactions involving entities linked to company insiders. Among these, Related Party Transactions (‘RPTs’) have attracted regulatory scrutiny. RPTs are a deal between the company and its promoters, subsidiaries, or key management personnel. Not all RPTs are problematic; they pose significant risks in promoter-driven structures where the boundaries between the business and personal interests often blur. Such concerns have been validated through governance failures like those seen in the IL&FS crisis and DHLF collapse, where unfair RPTs played a contributing role.

The case for Reform

On 26^th June, 2025, the Securities and Exchange Board of India (‘SEBI’) issued a new circular which introduced a new disclosure framework[RK3]  for RPTsby listed companies.  

The SEBI’s 2025 reform package is not merely about expanding checklists. It is an attempt to improve the governance culture itself by mandating detailed disclosures, independent third-party valuations, and written certifications from senior management rather than promoters. these changes are reflective of, which is what the OECD calls a “substance-over-form” approach to corporate governance accountability. This is where legality alone is not enough, and ethical decision-making becomes a governance standard.

The blog aims to critically examine whether the new norms simply increase the burden of compliance or signal a genuine change in corporate India’s governance philosophy.

The Threefold Shift

The reforms try to recalibrate who holds power, who bears the responsibility and how transparency is expected to function in corporate decision-making. The changes unfold across three key dimensions:

1.     Shifting Accountability

One of the changes is the introduction of mandatory certification for RPTs by the CEO or Whole-time Director, along with the Chief Financial Officer. The new rule demands that management explicitly affirm that the RPT is in the best interest of the company. It aligns with global governance norms that treat fiduciary duty as managerial and not mere ownership-driven obligation. The certification also places legal liability on the signatories, pushing for due diligence. This raises the question of whether  Indian KMPs are sufficiently empowered to push back against promoter pressure? Without systemic board independence and whistleblower protections, this rule could become another checkbox.

2.     Audit Committees

The next change is structural. Audit Committees are now required to review RPT proposals with standardized information. These disclosures must include the nature and rationale of the transaction, pricing terms and history of previous dealings. Moreover, for material RPTs, companies are now required to obtain an independent valuation or fairness opinion from a third party before seeking approval. This echoes global practices where independent reviews are used to guard against self-dealing.

 The underlying assumption is that Audit Committees possess the necessary expertise, objectivity, and commitment to perform their roles effectively. But India has often faced criticism over the “independence deficit” on corporate boards. As per the SEBI – NSE CG Scorecard, only 63% of companies were found to have adequately empowered audit committees, as many lacked real-time data and independent counsel, however, the practical effectiveness of these changes will depend on prevailing boardroom culture and investor activism.

3.     Enhancing Shareholder Democracy

The norms also mandate that when shareholder approval is required for an RPT, the notice must contain detailed disclosures, including transaction rationale, terms, identity of the related party, and the financial impact of the deal. This makes informed shareholder voting possible. In a landscape where many investors have limited access to non-public information, standardized disclosures help level the playing field.

This transparency upgrade may only partially empower the minority shareholders. Voting power often rests with the promoters, institutional investors, and data overload without  analytical clarity may not lead to better decisions. Notably, SEBI has yet to mandate rationales by institutional investors to disclose voting rationale, unlike the framework such as the UK’s Stewardship Code or the US SEC regulations.

In sum, the 2025 RPT norms signify a deliberate shift from opaque, promoter-led approvals to structured, documented and board-managed governance. The actual  impact of these would depend on how they are implemented by the system in terms of practice, culture and boardroom behaviour.

Implications for Board Dynamics and Shareholder Democracy

The changes not only reshape the structure of compliance but also test the resilience of corporate boards and the depth of India’s shareholder democracy. These reforms presume that companies have proper checks and balances, but in reality, several concerns remain.

1.     Audit Committees

With the improved access to valuation reports, detailed disclosures, and the duty to approve all material RPTs, Audit committees have moved from being passive gatekeepers to a more active role. This is a step in the right direction: SEBI clearly intended to elevate the role of independent directors in safeguarding shareholder interest.

Audit Committees carry a more legal, financial and reputational role especially in cases where RPTs go wrong. Their effectiveness hinges on board independence, financial literacy and access to independent advice – criteria that many listed entities in India still struggle to meet. In 2023, an analysis by IiAS revealed that nearly 28% of Nifty 500 companies had at least one audit committee member with less than 3 years of board–level experience. This raises questions about whether the right people are being tasked with such high responsibilities. Moreover, the increased scrutiny may have unintended effects in the form of deterring experienced professionals from serving on the board due to fear from liability or reputational damage. SEBI could respond with safe harbor protections or board training mandates.

2.     Will minority Shareholders truly benefit?

On paper, the reforms empower minority shareholders by giving them greater access to decision-making around RPTs. The detailed disclosures in the shareholder notice should improve their ability to scrutinize related-party dealings and vote more meaningfully. In practice, the impact may be limited due to three structural challenges. Promoter control over voting outcomes. In many Indian companies, promoters holding more than 50% of the shareholding render the minority votes moot. There is low shareholder engagement. Many resolutions pass by default due to a lack of awareness among the shareholders. A study indicates that retail voting participation declined from 32% to 28% in 2022.  Unless this pattern changes, better disclosures won't lead to better outcomes

3.     Global Alignment: A Work in Progress

A closer look shows that there is significant convergence and also some areas where India still has ground to cover.

In the UK, the FCA Listing Rules require shareholder approval for material RPTs. They also require disclosure as per the specific nature, size and counterparty. The 2015 OECD Guidelines also emphasise principles of board independence, minority protection and real-time transparency in RPTs. India, by mandating CEO/CFO certification, valuation reports and expansion of disclosure requirements, reflects many of these global principles. This puts India on a structured path towards an OECD-aligned governance, which strengthens its credibility in the global investor landscape.

Despite the similarities in formal regulation, India’s demographic presents unique challenges. Promoters often hold significant voting power, which creates a situation of promoter dominance. This makes shareholder approval a formality rather than a filter in many RPT cases.  The norms prescribe independent boards, but board capture and conflict of interest remain a serious concern. Jurisdictions like the UK and Singapore have robust enforcement mechanisms, including director penalties and debarments. India, despite several improvements, still struggles with low conviction rates and delays.

Compliance Trade Off and Emerging Risks

The RPT norms represent a progressive step towards higher governance standards, but they are not without cost. These reforms create a new compliance environment which could pose operational and strategic challenges. The requirement of independent third-party valuations will likely increase the compliance expenditure for listed entities. The risk here is not merely financial. There is a hidden cost of delay. In time-sensitive strategic transactions, the cost of delay could be higher than the cost of documentation. Businesses may become overly cautious and avoid beneficial RPTs to sidestep red tape.

SEBI has introduced multiple compliance regimes ranging from ESG disclosures to stewardship codes. The RPT norms add another layer which could lead to regulatory fatigue, particularly for the mid-cap and small-cap companies with lean compliance teams. Companies may start seeing compliance as a check-the-box activity rather than a value-adding process. In 2021, Future Retail faced scrutiny from SEBI over misstatements, which is a reminder that the line between commercial decision-making and regulatory breach can be thin if oversight isn’t proper.

Whenever materiality-based thresholds are introduced, companies adapt. A key concern here is the possibility of transactional structuring to circumvent scrutiny. Firms may split transactions to remain below the threshold, use an intermediary to mask a relationship or redefine contractual terms to avoid triggering disclosures. The introduction of “history of past dealings” as a disclosure requirement is a good start, but will require analytical capacity at SEBI to identify pattern-based circumvention. Here, SEBI could consider conducting random audits or adding a requirement of an annual consolidated RPT compliance report to track behaviours and not isolated events.

From Reform to Responsibility

SEBI’s norms are timely and directionally sound, but the move from paper to practice requires a few strategic steps. There is a need for detailed implementation FAQs to resolve grey areas in disclosure scope, valuation standards, and certification language. Mandating institutional investors to disclose their voting rationale can be a step to enhance transparency and minority protection. SEBI can also start governance programs for independent directors.

Mainly, the reforms are not merely about compliance. By shifting the accountability to professionals, empowering audit committees, and promoting transparency in shareholder engagement, India is inching closer to a governance culture that values not legality but integrity. The test, as always, will lie in enforcement, board behaviour, and investor vigilance.