Organisations often leverage available resources and transact within the group or affiliated entities. This arrangement between the two parties is termed as related-party transaction (RPT). Some common examples of related parties include holding companies, subsidiaries, branch offices, shareholder groups, associate group entities, key management personnel etc.

Provisions pertaining to the RPT are governed by Section 188 of the Companies Act, 2013, which came into force from 1 April 2014 and the SEBI (LODR) Regulations, 2015. These provisions lay down the approval process and mandate the disclosure of RPTs that can provide stakeholders with necessary information to substantiate the impact of RPTs.

The regulatory environment requires extensive disclosures of RPT, approval mechanisms to be adhered to and above all, the stipulation that the RPTs be conducted at arm’s length price. Notwithstanding the regulatory framework around RPTs, there may be many reasons challenging the governance and ensuring transparency around them. It could be either the uniqueness of the transaction or lack of substantial policy and/or maintenance of robust supporting documentation.  Therefore, making it inevitable for the companies to rethink on how they view RPT governance, regulatory oversight and creation of robust transparent documentation.