A related party transaction is a deal between a company and someone close to it, such as a director, a relative or a group company. Two sets of rules apply. Section 188 of the Companies Act asks for Board and sometimes shareholder approval, and for listed companies Regulation 23 of SEBI LODR adds prior audit committee approval and a shareholder vote for material deals.
Last reviewed: 17 October 2026. Facts checked. We opened the Regulation 23 text as reproduced on ca2013.com (marked valid as on 16 October 2026) and a TaxGuru article on section 188, and ran web searches on Rule 15 thresholds. The ca2013.com section 188 page returned a 404 error, and India Code returned a 403 error, so we did not read the statutes at source. The Rule 15 rupee limits are left out because the sources conflicted, and we did not confirm whether the section 188 shareholder resolution is ordinary or special. The brand and royalty percentage is unsettled across the sources we saw (2 percent versus 5 percent), so we do not state it. The ₹1 crore omnibus and ratification limits come from the ca2013.com copy only and were not cross-checked. We did not open the SEBI circular on minimum information. The ca2013 page is a compiled copy, so check the SEBI notification.
Looking for the verification process? See related party verification checklist under Ind AS 24. This article covers approvals and disclosure.
Part 1: Companies Act
Section 188: what it covers
The TaxGuru article lists seven transaction types: sale, purchase or supply of goods or materials; selling, buying or disposing of property; leasing property; availing or rendering services; appointing an agent for any of those; appointing a related party to an office or place of profit; and underwriting the company's securities. Each has a limit set by the rules, based on turnover or net worth. We do not state the amounts. Check Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014.
Approvals
| Step | What the sources say |
|---|---|
| Board | A Board resolution for transactions covered by section 188 |
| Shareholders | A resolution at a general meeting when the rule limit is crossed |
| Audit committee | Where the company must have one, prior approval under section 177(4) |
| Ratification | If approval was missed, ratification within 3 months of the contract, per TaxGuru |
The ordinary-course exemption
The sources agree that transactions that are both in the ordinary course of business and at arm's length need no section 188 approval. They may still need audit committee approval and disclosure. Both conditions must hold.
Voting
Search results said related party members do not vote on the shareholder resolution, subject to exemptions. The TaxGuru article also says shareholder approval is not needed between a holding company and its wholly owned subsidiary.
Disclosure
Search results said approved contracts are disclosed in the Board's report in Form AOC-2, and recorded in a register. Check the current form and rules.
Part 2: SEBI LODR Regulation 23
This applies to listed entities. From the ca2013.com copy:
- The company needs a policy on materiality and on dealing with related party transactions.
- Every related party transaction needs prior audit committee approval, given only by independent directors on the committee.
- A transaction is material if it exceeds ₹1,000 crore or 10 percent of annual consolidated turnover, whichever is lower. Brand usage or royalty payments have a separate, lower percentage-of-turnover test; sources we saw give 2 percent and 5 percent at different dates, so read the current Regulation 23 for the figure.
- Material transactions need shareholder approval. Related parties abstain from voting, whether or not they are party to that deal.
- Transactions are aggregated within a financial year.
- A different, lower figure applies to entities listed only on an SME exchange.
Omnibus approval
The audit committee can approve repetitive deals in advance if it has set criteria and is satisfied the approval serves the company. The approval names the party, the nature, the period, the maximum amount and the pricing basis. The committee reviews quarterly. For unforeseeable deals the cap is ₹1 crore per transaction. Approvals expire after one year.
Ratification
Independent members of the audit committee can ratify a deal within three months or at the next committee meeting, whichever is earlier. The page limits this to deals that are not material and within ₹1 crore a year. If not ratified, the deal is voidable at the committee's option.
Subsidiaries
Where a subsidiary is a party and the listed entity is not, the page says the listed entity's audit committee approves above a threshold tied to the subsidiary's turnover.
Exemptions
Examples on the page include deals between two government companies, and between a holding company and its wholly owned subsidiary where the accounts are consolidated and placed before shareholders.
Disclosure
Listed entities disclose related party transactions to the stock exchanges every six months, in the specified format. The page's wording on timing was inconsistent, so check the SEBI text.
A working checklist
- Keep a live list of related parties, refreshed each quarter.
- Tag each transaction: related or not, ordinary course or not, arm's length or not.
- Route to the audit committee, then the Board, then members, as needed.
- For listed companies, test materiality against Regulation 23 before signing.
- Keep minutes that show who abstained. Use the board meeting minutes template.
- Collect the declarations with the related party verification template.
- Run the section 188 RPT threshold calculator.
- Draft the disclosure note and give it to the auditor.
Frequently Asked Questions
Do all related party deals need shareholder approval?
No. Under section 188 it depends on the rule limit and whether the deal is in the ordinary course at arm's length. For listed companies, Regulation 23 asks for shareholder approval of material deals.
Who approves related party deals in a listed company?
The audit committee, through its independent directors, approves all of them in advance. Material ones also go to shareholders.
What is omnibus approval?
A standing approval from the audit committee for repetitive deals, valid for one year.
Can a missed approval be fixed?
Section 188 ratification within 3 months per TaxGuru. Regulation 23 allows limited ratification by independent audit committee members.
Who cannot vote?
Related parties abstain on the shareholder resolution for material deals under Regulation 23.
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Statutory facts on this page are checked against their sources, and the page says where it relied on secondary reporting. How we verify · Report an error