SEBI RPT materiality threshold tightened: the new 5% rule effective May 30, 2026 and audit committee implications

SEBI's amendment to Regulation 23 of the Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015, notified on May 25, 2026 and effective May 30, 2026, lowers the materiality threshold for related party transactions from 10 percent of consolidated turnover to 5 percent. This is the most significant tightening of the RPT regime since the post-Satyam reforms, and it has immediate operational implications for every listed company's audit committee, company secretary, and board of directors.

Under the new threshold, an RPT is material, and therefore requires prior shareholder approval by ordinary resolution, if it exceeds 5 percent of the listed entity's consolidated annual turnover. The 5 percent test applies on an aggregate basis to all transactions with the same related party in a financial year. A listed company with consolidated turnover of ₹20,000 crore that previously had a ₹2,000 crore RPT headroom now has only ₹1,000 crore before shareholder approval is triggered. For mid-cap and large-cap companies with active group-company transaction flows, this is a material constraint.

The audit committee workflow change is equally consequential. Audit committees can continue to grant omnibus approval for routine RPTs, but each individual omnibus-approved transaction cannot exceed ₹1,000 crore or 5 percent of consolidated turnover, whichever is lower. This is a tightening from the previous omnibus framework which had a higher ceiling. The 5 percent test under omnibus is per-transaction, in addition to the aggregate 5 percent test that triggers shareholder approval. Audit committees should re-examine all standing omnibus approvals at their June 2026 meeting to confirm continued eligibility and to recalibrate the per-transaction caps where needed.

The forward-looking nature of the amendment is important. RPTs entered into before May 30, 2026 continue under the existing 10 percent threshold. Modifications, renewals, or extensions of pre-existing RPTs after May 30 are tested against the new 5 percent threshold. This creates a planning incentive for companies to firm up pending RPT decisions before May 30, particularly for large group-company arrangements that would otherwise face shareholder approval friction under the new regime.

The shareholder approval mechanics also tighten. The explanatory statement accompanying the special notice under Section 102 of the Companies Act must now include not just the standard RPT disclosures but also the audit committee's reasoned opinion on arm's-length pricing and the independent valuation report where the transaction value exceeds ₹500 crore. The 5 percent threshold combined with the additional disclosure requirements raises the bar for what companies must prepare before going to shareholders.

For India-side group companies of multinational parents, the amendment has a particular bite. Intra-group service charges, royalty arrangements, and management fee allocations often cluster near or above the new 5 percent threshold. Pricing benchmarking, transfer pricing documentation, and the audit committee opinion on arm's-length nature must be ready in a tighter timeline than the previous regime allowed.

KAMRIT's secretarial and SEBI compliance desk handles RPT mapping, audit committee workpaper preparation, valuation report coordination, and the shareholder approval explanatory statement drafting under the new Regulation 23 framework.