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Understanding related party transactions limits as per Companies Act 2013 is essential for every Indian company, private, unlisted public or listed, that enters into contracts with its directors, key managerial personnel or their relatives. Section 188 of the Act, read with Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014, sets specific monetary thresholds that determine whether a transaction needs only board approval or must be escalated to shareholders. For listed entities, SEBI’s Listing Obligations and Disclosure Requirements (LODR) Regulations layer additional materiality tests and filing obligations on top of the Companies Act framework.
With the Corporate Laws (Amendment) Bill 2026, introduced in Parliament on 23 March 2026, prompting boards across India to revisit their approval matrices, this guide consolidates every threshold, approval step and disclosure obligation practitioners need in one place.
The answer depends on two variables: the type of transaction and the amount involved relative to your company’s turnover or net worth. As a rapid decision rule: if the aggregate value of a proposed transaction (together with all prior transactions of the same type with the same related party during the financial year) stays below the monetary ceiling prescribed by Rule 15, board approval at a duly convened meeting is sufficient under Section 188. The moment the aggregate crosses the applicable Rule 15 threshold, a resolution of the members is required, and at that shareholder meeting, the related party itself cannot vote.
For listed companies, the audit committee must approve every related party transaction regardless of value, and material RPTs require shareholder approval under Regulation 23 of the SEBI LODR Regulations.
The practical decision path runs as follows: Step 1, determine whether the counterparty falls within the definition of “related party” under Section 2(76). Step 2, classify the transaction type (sale of goods, leasing of property, rendering of services, etc.). Step 3, compare the aggregate value against the Rule 15 ceiling for that type. Step 4, if the threshold is crossed, obtain shareholder approval by ordinary resolution. Step 5, for listed entities, additionally check SEBI LODR materiality thresholds and audit committee requirements.
Section 2(76) of the Companies Act, 2013 defines “related party” with reference to a company. The definition captures directors, key managerial personnel (KMP), their relatives (as defined in Section 2(77)), and entities in which such persons hold prescribed control or interest. For listed companies, SEBI has expanded this definition further under Regulation 2(1)(zb) of the LODR Regulations to include any person or entity belonging to the promoter or promoter group that holds 20 per cent or more of the shareholding.
Section 2(77) defines “relative” by reference to the membership of a person’s immediate family. The prescribed list (set out in the Companies (Specification of Definitions Details) Rules, 2014) covers a finite group of family members.
| Term | Statutory scope (summary) |
|---|---|
| Related party, Section 2(76) | Director or KMP of the company; director or KMP of holding, subsidiary or associate company; relative of any such director or KMP; body corporate in which a director or manager and their relatives hold more than 2% shareholding; and other prescribed categories |
| Relative, Section 2(77) | Members of a Hindu Undivided Family; spouse; father (including step-father); mother (including step-mother); son (including step-son); son’s wife; daughter; daughter’s husband; brother (including step-brother); sister (including step-sister) |
| Related party transaction, Section 188(1) | Any contract or arrangement with a related party involving sale/purchase/supply of goods or materials; selling/disposing/buying/leasing property; availing/rendering services; appointment to office of profit; underwriting of securities; or any other transaction of the prescribed nature |
Section 188(1) provides that no company shall enter into any contract or arrangement with a related party in the categories listed (sale/purchase of goods, leasing of property, rendering/availing of services, appointment to office of profit, underwriting of securities) except with the prior approval of the board of directors given by a resolution at a duly convened board meeting. Every director who is interested in the transaction must disclose the nature of their concern or interest at the meeting and must not participate in the proceedings or vote on the item. These procedural safeguards apply to private companies, unlisted public companies and listed companies alike.
The first proviso to Section 188(1) states that where the value of a transaction (or a series of transactions, taken together during a financial year) exceeds the thresholds prescribed under Rule 15, the company must also obtain prior approval of the members by way of an ordinary resolution. Crucially, the second proviso prohibits any member who is a related party from voting on such a resolution, whether the resolution is put through at a general meeting or through postal ballot. MCA General Circular No. 30/2014 clarified that “related party” in this voting restriction refers to the related party to the particular transaction being approved, not every related party of the company.
Section 188(4) stipulates that any contract or arrangement entered into without proper approval under subsection (1) shall be voidable at the option of the board or shareholders, as the case may be. Additionally, Section 188(5) imposes penalties on any director or employee who enters into an RPT without requisite approvals: where the company has incurred a loss, the director or employee shall be punishable with imprisonment for a term which may extend to one year or with fine ranging from ₹25,000 to ₹5,00,000 (₹5 lakh), or both.
Section 189 requires every company to maintain a register of contracts or arrangements in which directors are interested. Particulars of every contract or arrangement under Section 188 must be entered into this register. The register must be kept at the registered office and must be open for inspection by members during business hours. Failure to maintain the register attracts penalties under the Act.
Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014 (as substituted by subsequent MCA notifications) prescribes the monetary ceilings above which shareholder approval by ordinary resolution becomes mandatory. The rule operates on a “whichever is lower” basis, comparing a percentage of turnover or net worth against a fixed rupee amount. The thresholds below reflect the position as currently in force.
| Transaction type (Section 188(1) category) | Threshold, shareholder approval needed if value exceeds | How calculated |
|---|---|---|
| Sale, purchase or supply of goods or materials | 10% of turnover or ₹100 crore, whichever is lower | Aggregate value of all transactions of this type with the same related party during the financial year |
| Selling or otherwise disposing of, or buying, property of any kind | 10% of net worth or ₹100 crore, whichever is lower | Aggregate value during the financial year |
| Leasing of property of any kind | 10% of turnover or ₹100 crore, whichever is lower | Aggregate value during the financial year |
| Availing or rendering of any services | 10% of turnover or ₹50 crore, whichever is lower | Aggregate value during the financial year |
| Appointment to any office or place of profit | Monthly remuneration exceeding ₹2.5 lakh | Per-appointment basis |
| Remuneration for underwriting the subscription of securities | 1% of net worth | Per-transaction basis |
Turnover and net worth are determined from the audited financial statements of the immediately preceding financial year. Where the company has not completed its first financial year, the figures are taken from the projections certified by a practising chartered accountant or company secretary.
A critical compliance point: Rule 15 thresholds are tested on an aggregate basis. Every transaction of the same type with the same related party during the financial year must be added together. If the running total crosses the threshold at any point during the year, the next transaction (and all subsequent transactions of that type in the year) requires shareholder approval. Companies must therefore maintain a live RPT tracker rather than evaluating each transaction in isolation.
Listed entities face a parallel, and in several respects more stringent, regime under Regulation 23 of the SEBI LODR Regulations. SEBI has progressively tightened RPT governance through a series of circulars issued between 2021 and 2025, and the framework has been consolidated in SEBI’s Master Circular on LODR.
Under Regulation 23(2), all related party transactions of a listed entity require prior approval of the audit committee, regardless of the value involved. There is no de minimis exemption at audit committee level. The SEBI circular on industry standards (March 2025) specifies the minimum information that must be placed before the audit committee for each RPT, including the nature and terms of the transaction, arm’s-length justification, and a statement of whether the transaction is in the ordinary course of business.
A “material related party transaction” under SEBI’s framework is one that exceeds the materiality threshold prescribed in Regulation 23(1). The SEBI (LODR) Amendments of 2021–2022 brought the definition of material RPT to transactions exceeding ₹1,000 crore or 10% of the annual consolidated turnover as per the last audited financial statements, whichever is lower. Material RPTs require prior approval of shareholders, and no related party can vote on the resolution approving such transaction.
| SEBI requirement | Where filed / disclosed | Timing |
|---|---|---|
| Disclosure of RPTs in corporate governance report | Stock exchange, annual compliance report | Within stipulated time after end of financial year |
| Half-yearly disclosure of RPTs | Stock exchange filings | Within 15 days from the date of publication of standalone and consolidated financial results |
| Audit committee review of RPTs | Audit committee minutes + quarterly compliance certificate | At each audit committee meeting (typically quarterly) |
| Event-based disclosure of material RPTs | Stock exchange, under Regulation 30 (material events) | Promptly (within 24 hours of occurrence) |
| Policy on RPTs | Company website + annual report | Ongoing; updated as required |
Industry observers expect that continued SEBI activity through 2026, including consultation papers on further granularity in audit committee information packs, will reinforce the regulatory trend toward more detailed, more frequent RPT disclosure for listed entities operating in India.
The approval path for a related party transaction depends on the entity type. The table below summarises the requirements across private companies, unlisted public companies and listed companies, addressing one of the most commonly asked questions about related party transactions limits as per Companies Act 2013.
| Entity type | Approvals required | Disclosure / who cannot vote |
|---|---|---|
| Private company | Board approval under Section 188; shareholder approval by ordinary resolution if aggregate value exceeds Rule 15 thresholds | Generally less external disclosure; related parties are excluded from shareholder vote on the approving resolution where applicable |
| Unlisted public company | Board approval + Audit Committee approval (where an audit committee is constituted); shareholder approval where Rule 15 thresholds are crossed | Register of contracts (Section 189) must be maintained; related party shareholders excluded from voting as required by second proviso to Section 188(1) |
| Listed company | Audit Committee approval for all RPTs (mandatory); Board and shareholder approval as per Section 188/Rule 15 thresholds; additional shareholder approval for material RPTs under SEBI LODR | Related parties cannot vote on shareholder resolutions; SEBI requires stock exchange disclosures, corporate governance report entries and periodic RPT filings |
For listed companies, the SEBI industry standards circular (March 2025) prescribes that the following minimum information be placed before the audit committee when seeking approval for an RPT:
The following checklist maps the key compliance actions a company secretary or in-house counsel should complete before, during and after an RPT:
“RESOLVED THAT pursuant to Section 188(1) of the Companies Act, 2013, read with Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014, and subject to such other approvals as may be necessary, the consent of the Board of Directors be and is hereby accorded to enter into a contract/arrangement with [Name of Related Party], being a related party within the meaning of Section 2(76) of the Act, for [describe transaction], on the terms and conditions set out in the draft agreement placed before this meeting, the aggregate value of which is estimated not to exceed ₹[amount] during the financial year [year].”
IND AS 24 (Related Party Disclosures), which applies to companies following Indian Accounting Standards, requires disclosure in the financial statements of related party relationships, outstanding balances and transactions during the period. The accounting standard’s definition of “related party” is broader in certain respects than Section 2(76), for example, it captures post-employment benefit plans and entities with joint control. However, IND AS 24 is a disclosure standard: it mandates what must appear in the notes to the financial statements but does not prescribe approval procedures. The statutory regime under Section 188 and SEBI LODR, by contrast, governs process, who must approve and when.
Companies subject to IND AS 24 must therefore comply with both regimes simultaneously: obtain the approvals required under Section 188 (and, if listed, SEBI LODR) and then disclose the resulting transactions in the financial statements in accordance with IND AS 24.
Company A has audited turnover of ₹850 crore for FY 2025–26. The Rule 15 threshold for sale of goods is 10% of turnover or ₹100 crore, whichever is lower. Ten per cent of ₹850 crore = ₹85 crore. Since ₹85 crore is lower than ₹100 crore, the applicable threshold is ₹85 crore. If Company A’s aggregate sales to a related party during FY 2026–27 reach ₹85 crore, every subsequent sale to that party in the same financial year requires shareholder approval by ordinary resolution.
Company B renders IT support services to a KMP’s private entity under three separate contracts signed in April (₹12 crore), August (₹18 crore) and December (₹25 crore). Company B’s turnover is ₹600 crore; 10% = ₹60 crore. The Rule 15 threshold for services is 10% of turnover or ₹50 crore, whichever is lower, here ₹50 crore. After the August contract, the aggregate is ₹30 crore (below the threshold). After the December contract, the aggregate reaches ₹55 crore, crossing the ₹50 crore ceiling. The December contract (and any further service transactions with the same party in the year) must be backed by shareholder approval.
Regulatory scrutiny of RPTs typically focuses on three areas: whether the company obtained the correct level of approval before the transaction was executed, whether interested directors and related-party shareholders were properly excluded, and whether the register of contracts is complete and up to date. Common pitfalls include failing to aggregate transactions with the same related party across the financial year, treating arm’s-length transactions as automatically exempt without documenting the arm’s-length basis, and not updating the RPT policy to reflect SEBI’s evolving disclosure requirements.
When the Registrar of Companies (ROC) or SEBI raises queries, the company should be able to produce a contemporaneous paper trail: board minutes showing disclosure and abstention, the audit committee’s recorded approval (for listed entities), the arm’s-length justification and, where applicable, the ordinary resolution along with the voting exclusion record. Early identification of a threshold breach during the year, through a live aggregation tracker, is far more defensible than retroactive remediation. Where a transaction has been entered into without proper approval, Section 188(3) allows the board or shareholders (as the case may be) to ratify it within three months from the date on which the contract was brought to the notice of the board.
Boards and company secretaries should treat the related party transactions limits as per Companies Act 2013 not as a static checklist but as a dynamic compliance exercise that requires quarterly recalibration. The likely practical effect of continued regulatory activity, including proposals in the Corporate Laws (Amendment) Bill 2026 (as introduced on 23 March 2026), will be to further tighten governance and documentation expectations around RPTs. As an immediate action plan, compliance teams should update their RPT tracker and aggregation models for the current financial year, refresh audit committee information packs to meet SEBI’s 2025 industry standards, and confirm that the register of contracts under Section 189 is complete.
Companies seeking jurisdiction-specific guidance can consult the Global Law Experts lawyer directory for qualified corporate practitioners in India.
This article was produced by Global Law Experts. For specialist advice on this topic, contact Shuva Mandal at Anagram Partners, a member of the Global Law Experts network.
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