Module: | SEBI LODR & Corporate Governance Frameworks
Q31: Consider the following statements regarding the scale-based threshold proposals for material Related Party Transactions (RPTs) under SEBI guidelines for late 2025:
1. SEBI proposed shifting from a flat absolute threshold for material RPTs to a scale-based mechanism linked directly to the annual consolidated turnover of the listed entity.
2. Under the scale-based system, a listed entity with a turnover exceeding Rupees 40,000 Crore has an absolute upper ceiling of Rupees 5,000 Crore for determining a material RPT.
3. This scale-based threshold was introduced to aggressively increase the volume of RPTs classified as material, ensuring that shareholders must vote on every minor subsidiary transaction in mega-corporations.
Which of the above statements is/are incorrect?
2. Under the scale-based system, a listed entity with a turnover exceeding Rupees 40,000 Crore has an absolute upper ceiling of Rupees 5,000 Crore for determining a material RPT.
3. This scale-based threshold was introduced to aggressively increase the volume of RPTs classified as material, ensuring that shareholders must vote on every minor subsidiary transaction in mega-corporations.
Which of the above statements is/are incorrect?
✅ Correct Answer: C
🎯 Quick Answer:
C. Only 3 is incorrect.Structural Breakdown: Statement 1 is correct; the proposal moves away from the flat Rs 1000 Crore rule to a multi-tiered scale.
Statement 2 is correct; the top tier (>Rs 40,000 Cr turnover) caps the materiality trigger at Rs 5,000 Crore.
Statement 3 is incorrect; the explicitly stated purpose of the amendment was "ease of doing business"—specifically to prevent "information overload" for shareholders by ensuring minor transactions in massive conglomerates are not unnecessarily flagged as material.
Historical/Related Context: The Rs 1000 Crore flat rule introduced a few years prior proved too restrictive for India's largest conglomerates (like Reliance or Tata), where Rs 1000 Crore could represent a routine operational transaction rather than a systemic risk.
Causal Reasoning: By scaling the threshold to the size of the company, the regulator ensures that only transactions large enough to genuinely impact the financial health of that specific enterprise are brought to a shareholder vote, streamlining operational efficiency.