Director Notes India: Regulation of Related Party Transactions in India

Concentrated ownership of Indian companies and the use of complex group company structures create the potential for abusive related party transactions (RPTs) that erode value for minority shareholders. India’s substantive legal framework for regulating RPTs has slowly converged toward international standards. While previously there was considerable emphasis only on disclosures, other mechanisms such as board or audit committee monitoring and approval of RPTs or independent shareholder approval are now part of the Indian legal framework on RPTs. The real import of the new standards will depend on the extent to which minority shareholders, including institutional shareholders, participate in the evaluation and voting rights they have been afforded.