Regulation 23 is the single most important governance rule an Indian-equity analyst must know cold, because it defines which RPTs get shareholder scrutiny and therefore how a determined promoter structures around it.
The materiality gate. A transaction with a related party is material if it exceeds a gate set on the annual consolidated turnover of the listed entity per the last audited financials. Since the SEBI LODR (Fifth Amendment) Regulations, 2025 (notified 18 November 2025, in force thirty days after publication; Schedule XII), the gate is 10% of turnover up to ₹20,000 crore; ₹2,000 crore plus 5% of turnover above ₹20,000 crore, up to ₹40,000 crore of turnover; and ₹3,000 crore plus 2.5% of turnover above ₹40,000 crore, capped at ₹5,000 crore (as of October 2026). Before that amendment the gate was the lower of ₹1,000 crore or 10% of turnover (the ₹1,000 crore cap dated from 1 April 2022), so read an older RPT disclosure against the rule of its year. The bands are the whole game:
- A company with consolidated turnover of ₹5,000 crore: 10% = ₹500 crore, the same under both rules; the percentage governs every company up to ₹20,000 crore of turnover.
- A company with consolidated turnover of ₹40,000 crore:
2,000 + 0.05 × (40,000 − 20,000)= ₹3,000 crore, three times the ₹1,000 crore the old cap gave; the gate keeps scaling, more slowly, until it reaches ₹5,000 crore at ₹1,20,000 crore of turnover.
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How does Regulation 23 work in practice?
The aggregation clause (why salami-slicing fails). The test applies to transactions "entered into individually or taken together with previous transactions during a financial year." So ten payments of ₹50 crore each to the same related party, each a harmless ~1% of a ₹5,000 crore turnover and each individually below the ₹500 crore gate, aggregate to ₹500 crore and become material. The "1% structuring" trick (keep every single transaction tiny) is defeated by aggregation the moment you sum the year's dealings with a party.
Your job as analyst is to do the summing the company hopes no one does.
Who approves what. All RPTs (any size) need prior audit-committee approval (Regulation 23(2)); the committee may grant omnibus approval for repetitive transactions subject to conditions and an annual cap. Material RPTs need prior approval of shareholders by resolution (Regulation 23(4)), and, crucially, no related party may vote to approve, whether or not that party is a party to the particular transaction. That abstention rule is what gives minority shareholders a real veto over the largest self-dealing.
The widened definition (the net got bigger). Amendments extended "related party" to include any person/entity holding 20% (from 1 April 2022) and then 10% (from 1 April 2023) of the listed entity, and extended RPT coverage to transactions where a related party is a beneficiary even if the listed entity is not a direct party (from 1 April 2023), closing the "route it through a third party" loophole. Half-yearly RPT disclosures to the exchanges (Regulation 23(9)) give you a running, structured feed of the web.
How do the Companies Act and US rules compare?
Companies Act parallel. Section 188 of the Companies Act runs alongside LODR, with its own thresholds for board/shareholder approval of specified RPTs (e.g., 10% of turnover for sale/purchase of goods; and a narrow 1% of net worth limb for underwriting-commission RPTs). Where both apply, the stricter controls. For the exam and for practice, anchor on the LODR gate (10% of consolidated turnover up to ₹20,000 crore, banded above it to a ₹5,000 crore cap) and treat the Companies Act thresholds as a second net.
US contrast. No percentage-of-turnover gate and no mandated abstention vote; the US uses the $120,000 Item 404 disclosure threshold plus independent audit-committee review plus the deterrent of shareholder litigation. The Indian regime is, on paper, more prescriptive; the US regime leans on disclosure and courts. Both fail when the board is captured, which is why you read the transactions yourself.