Fewer related-party deals will reach shareholders. Audit committees must know who is related.
SEBI's scale-based materiality thresholds took effect on 19 December 2025. For large listed groups, more transactions now stop at the audit committee, which makes identifying related parties the control that matters.
The SEBI (Listing Obligations and Disclosure Requirements) (Fifth Amendment) Regulations, 2025 replaced the single materiality test for related party transactions with effect from 19 December 2025. Until then a transaction was material if it exceeded ₹1,000 crore or 10% of annual consolidated turnover, whichever was lower. A new Schedule XII sets the threshold by size: 10% of turnover for listed entities with turnover up to ₹20,000 crore; ₹2,000 crore plus 5% of turnover above ₹20,000 crore for those up to ₹40,000 crore; and above that, ₹3,000 crore plus 2.5% of turnover above ₹40,000 crore or ₹5,000 crore, whichever is lower.
SEBI's own illustration shows the effect. A listed entity with consolidated turnover of ₹50,000 crore now has a materiality threshold of ₹3,250 crore. Under the old test it was ₹1,000 crore. Every related party transaction still needs the prior approval of the audit committee, where only independent directors may vote, and material ones also need shareholders. The difference is how many transactions go beyond the committee.
The amendment also changed the rule for transactions where a subsidiary is a party and the listed entity is not. Above ₹1 crore, these need the listed entity's audit committee approval when they exceed the lower of 10% of the subsidiary's standalone turnover or the Schedule XII threshold. For subsidiaries without a year of audited accounts, the test uses 10% of paid-up share capital and securities premium. Separately, a SEBI circular of 13 October 2025 sets the minimum information that must go to the audit committee and shareholders when they approve a related party transaction.
The test now sits with the audit committee
For larger groups the change means fewer shareholder votes and more decisions by independent directors, made on management's papers. Those papers can cover only the transactions that management has identified as related. The risk that matters most is the one nobody labelled: a vendor owned through a relative, a distributor run by a former employee who still answers to a promoter, a contractor whose directors overlap with the group's.
An audit committee approves the transactions it is shown. Diligence decides what it is shown.
Diligence that finds the unlabelled related party
- Map directors, promoters and key managerial personnel to every entity they or their relatives control or advise, using company registry, litigation and media records.
- Match vendor, customer and distributor masters against that map: shared addresses, phone numbers, email domains, bank accounts and directors.
- Test pricing and terms on high-value contracts with any counterparty close to the map, even if it is not formally a related party.
- Repeat the exercise when directors change, when a large counterparty is onboarded and before the annual review of the related party policy.
Questions for the audit committee
- How does management build the list of related parties, and when was it last tested against external records?
- How many of our counterparties share addresses, contacts or directors with promoters or key managerial personnel?
- Which approvals this year relied on a subsidiary's own turnover, and who checked the subsidiary's figures?
- Did the information we received for each approval meet the October 2025 circular?
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