Markets Glossary
Related-Party Transaction (RPT)
A deal between a listed company and its promoters, group entities, or key managers — legal and common, but the main channel through which value leaks to insiders.
By Amit Tyagi, Fitoor Capital · AletheiaAI Glossary
Definition
A related-party transaction is any transaction between a company and parties connected to it — promoters and their relatives, group companies, subsidiaries, or key managerial personnel. Examples: buying goods from a promoter-owned supplier, lending to a group entity, paying royalties or rent to family members.
RPTs are legal and often operationally sensible. The risk is pricing: transactions done off-market terms transfer value from public shareholders to insiders. That is why disclosure and approval rules exist, and why the RPT note is a core part of any governance read on a company.
India Context
Under SEBI's LODR regulations, RPTs need audit committee approval, and material RPTs — those exceeding the lower of ₹1,000 crore or 10% of consolidated turnover — require shareholder approval with related parties barred from voting. Companies disclose RPTs half-yearly to the exchanges and in the annual report. Recurring patterns worth checking in Indian companies: loans and advances to group entities, escalating royalty payments, and purchases from promoter-owned vendors.
Example
A listed company's annual report shows ₹300 crore of “advances” to a promoter-group real-estate entity, rolled over each year and disclosed as fully recoverable. Revenue and profit look clean; the RPT note is where the cash is actually going. Whether the audit committee's rationale is convincing is the governance question.
Frequently Asked Questions
Are related-party transactions illegal?
No — they're legal with proper approvals and disclosure. The concern is whether terms are at arm's length. Undisclosed or off-market RPTs are where governance failures typically live.
Where do I find a company's RPTs?
In the annual report's related-party note (mandated by Ind AS 24), the half-yearly RPT disclosures filed with exchanges under SEBI LODR, and shareholder resolutions for material RPTs.
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