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Section 188 RPT Threshold Calculator.

Test Related Party Transactions against Section 188 thresholds. Get board / shareholder approval routing in 30 seconds. SEBI LODR Reg 23 layer for listed entities.

Inputs (₹ in crore)

Transaction type (Section 188(1))

Transaction value (₹ cr)

Annual turnover (₹ cr)

Audited turnover of preceding FY.

Net worth (₹ cr)

Listed entity?

Result

Section 188 threshold₹20.00 cr

Threshold basis10% of turnover

Board approval (Sec 177)✓ Required (Audit Committee for prescribed companies)

Special Resolution (Sec 188)✗ Not required — ordinary-course / arm's-length carve-out may apply

How Section 188 works.

Section 188 of the Companies Act 2013 governs Related Party Transactions (RPTs). The basic rule: board approval is always required; special resolution is required if the transaction exceeds the prescribed threshold (Rule 15 of Companies (Meetings of Board) Rules 2014) AND the transaction is not in the ordinary course of business at arm’s length.

For listed entities, an additional SEBI LODR Reg 23 layer applies — “material” RPTs (10% of consolidated turnover or ₹1000 cr, whichever lower) need prior shareholder approval regardless of arm’s-length status.

On CORAA

RPT identification, Sec 188 threshold testing and CARO clause (xiii) reporting are automated in CORAA — see the Scrutiny hub for transaction-level RPT detection and the Related Party Verification template.

Section 186 Loan Cap Calculator CARO clause (xiii)

How Section 188 Related Party Transactions work

Section 188 of the Companies Act 2013 regulates seven categories of Related Party Transactions (RPTs) — sale or purchase of goods, sale or purchase of property, leasing, services, appointment of an agent for any of these, appointment to an office or place of profit in the company / subsidiary / associate, and underwriting subscription of securities.

The rule has two layers. The first: every RPT in these categories needs board approval, with Audit Committee approval as a precondition for companies covered by Section 177(4). The second: when the transaction exceeds the thresholds prescribed in Rule 15 of the Companies (Meetings of Board and its Powers) Rules 2014, prior approval by special resolution of shareholders is required — unless the transaction is in the ordinary course of business AND on arm's-length terms (the carve-out in Section 188(1) proviso).

Listed entities have an additional SEBI LODR Regulation 23 overlay — RPTs deemed "material" (10% of consolidated turnover or ₹1000 crore, whichever is lower) need prior shareholders' approval regardless of whether they're at arm's length.

Worked example — sale of goods to a related party

An unlisted private company is proposing to sell goods worth ₹25 crore to a sister concern. Audited turnover for the preceding financial year was ₹200 crore.

Inputs

Transaction typeSale of goods (Sec 188(1)(a))

Transaction value₹25 Cr

Annual turnover₹200 Cr

Threshold (10% of turnover)₹20 Cr

Output

Board approvalRequired

Special resolutionRequired — exceeds threshold

CARO clause (xiii) impactReportable

The transaction exceeds the Rule 15 threshold of 10% of turnover (₹20 Cr). Even though the carve-out for ordinary-course / arm's-length transactions may apply, document the basis: signed transfer-pricing study, comparable third-party prices, or the company's standard published price list. CARO 2020 clause (xiii) requires the auditor to comment on Section 177 / 188 compliance.

Common mistakes

Treating the arm's-length carve-out as automatic

The carve-out applies only when the transaction is both (a) in the ordinary course of business and (b) at arm's length. Document both with evidence — a signed transfer pricing analysis, comparable uncontrolled prices, or board minutes recording the basis.

Ignoring SEBI LODR Reg 23 for listed entities

For listed entities, even arm's-length RPTs above the material-RPT threshold (10% of consolidated turnover or ₹1000 cr) need shareholder approval. The Companies Act carve-out does NOT override SEBI LODR.

Aggregating wrong basis

Section 188 thresholds for sale / purchase of goods are tested against turnover, but for purchase of property the basis is net worth. Underwriting uses 1% of net worth. Always check the right base in Rule 15.

Missing the omnibus vs specific approval distinction

Audit Committee can grant an omnibus approval for repetitive RPTs (Rule 6A of Companies (Meetings of Board) Rules 2014), but each specific transaction above the threshold still needs a separate special resolution if applicable.

Frequently asked questions

What is a Related Party Transaction under Section 188?+

Section 188 covers seven specified transactions (sale/purchase of goods, sale/purchase of property, leasing, services, agent appointments, office or place of profit, underwriting) entered into with a related party as defined in Section 2(76) — directors, key managerial personnel, their relatives, holding/subsidiary/associate companies, etc.

When is a special resolution required for an RPT?+

A special resolution is required when (a) the RPT exceeds the Rule 15 threshold (10% of turnover / 10% of net worth / 1% of net worth, depending on the transaction type), AND (b) the transaction is not in the ordinary course of business at arm's length. Both conditions are needed to trigger shareholder approval.

What is the SEBI LODR Regulation 23 material RPT threshold?+

For listed entities, an RPT is "material" if it exceeds 10% of the annual consolidated turnover of the listed entity as per the last audited financial statements, OR ₹1000 crore, whichever is lower. Material RPTs need prior approval of shareholders by an ordinary resolution under SEBI LODR Reg 23(4).

Are RPTs reportable in CARO 2020?+

Yes. CARO 2020 clause (xiii) requires the auditor to report whether all transactions with related parties are in compliance with Section 177 (Audit Committee) and Section 188 (Board / shareholder approval), and whether the details have been disclosed in the financial statements as required by applicable accounting standards (Ind AS 24 / AS 18).

What is the penalty for non-compliance with Section 188?+

Section 188(5) — any director or employee who has entered into or authorized an RPT in contravention is liable to (a) for listed company: penalty of ₹25 lakh; (b) for any other company: penalty of ₹5 lakh. Additionally, the contract is voidable at the option of the Board / shareholders.

Does Section 188 apply to wholly-owned subsidiaries?+

No. The fourth proviso to Section 188(1) provides that the requirement of special resolution does not apply to transactions entered into between a holding company and its wholly-owned subsidiary whose accounts are consolidated and placed before shareholders for approval.

How is "ordinary course of business" determined?+

There is no statutory definition. Indicators include: frequency and regularity, consistency with stated business activities in the MoA, alignment with internal business policies, and similarity to transactions with unrelated parties. Document the basis in the Audit Committee / Board minutes.

Authoritative sources

Section 188 + Rule 15 — Companies Act 2013 / Companies (Meetings of Board and its Powers) Rules 2014 — Read alongside SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 — Regulation 23 for listed entities.

Always confirm against the latest version of the source. Regulations evolve and amendments are common.

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Last reviewed: 2026-05-28 · For informational purposes only — not professional advice.