Who is a related party? Under Ind AS 24 (and the older AS 18), related parties include the parent, subsidiaries, associates and joint ventures; key management personnel (KMP) and their close family members; and entities controlled or jointly controlled by KMP or their relatives. SEBI LODR then widens the net for its own purposes (see SEBI LODR Regulation 23). The practical universe you care about is every entity through which the controlling family can transact with the listed company.
The nine leakage channels (the catalogue). Value leaves a listed company to its ecosystem through a small, recurring set of doors. Learn them as a checklist:
- Off-market sales or purchases: the company sells goods/services to a promoter entity below fair value, or buys above it. Leakage = the price gap × volume.
- Soft loans and advances: interest-free or below-market "advances" to promoter/group entities. Leakage = the forgone interest (opportunity cost).
- Royalty / brand / technology fees: payments to a promoter holding company for the brand or "know-how," often as a percentage of revenue. Leakage = the excess over an arm's-length rate.
- Corporate guarantees: the listed company guarantees a promoter entity's borrowing, taking the risk for free. Leakage = the guarantee commission it should have charged (and the contingent liability it now carries).
- Asset transfers: buying assets (land, a plant, a brand, a loss-making group business) from promoter entities at inflated prices, or selling crown jewels cheaply.
- Lien-marked deposits: the listed company's fixed deposits pledged as collateral for a group entity's loan. The asset is on the balance sheet but is not the company's to use, and can be appropriated by the lender (the Zee/Yes Bank pattern).
- Management / consultancy fees: recurring fees to a promoter entity for services of uncertain substance.
- Investments in group entities: equity or debt "investments" in promoter ventures that never earn a return.
- Revenue that is really a loan: billing an associate that never pays, so a growing receivable is an unsecured advance wearing revenue's clothes, later written off as "exceptional" (the Zee/CG-adjacent pattern).
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How do you measure related party leakage?
Quantifying the leakage. The analyst's product is a single number: total annual leakage as a share of PAT and of net worth. You do it channel by channel: price gap here, forgone interest there, excess royalty, forgone guarantee fee. Sum them, and express the total against reported profit. When the answer is "leakage equals two-thirds of PAT," you have converted a vague governance unease into a quantity a portfolio manager can act on. Worked example 1 does exactly this.
The residue. RPT leakage leaves the same balance-sheet residue you learned to read in M2.08: "loans and advances to related parties" creeping up as a share of net worth, receivables from associates growing faster than the revenue they supposedly arise from, contingent liabilities (guarantees) swelling, and "other" non-current assets absorbing cash. The RPT note plus the loans-and-advances schedule plus the contingent-liabilities note are the three you read together.
How does the US regulate related party transactions?
US contrast. The US files RPTs through Regulation S-K Item 404: any transaction over $120,000 in which a director, officer, 5%-holder, or their immediate family has a material interest must be disclosed in the proxy/10-K, and the audit committee (per NYSE/Nasdaq rules) must review it. There is no single materiality gate forcing a shareholder vote as under India's Regulation 23; the US relies on disclosure plus independent-director review plus litigation. Adelphia Communications is the canonical US RPT-leak case: the Rigas family used the public company as a private bank through undisclosed co-borrowing and self-dealing: the same nine channels, filed (or hidden) through a different regime.