A related-party transaction (“RPT”) ordinarily appears to be a question of identification: if a listed entity enters into a transaction with a person or entity falling within the definition of a related party, the transaction is subjected to the approval, disclosure and oversight requirements prescribed under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”). The difficulty begins, however, when the related party does not appear anywhere in the contractual chain. A listed entity may, for instance, enter into a transaction with an apparently unrelated company, while the economic benefit of that transaction ultimately reaches an entity connected with the listed entity's promoter. The contract may therefore look arm's length even where the economic arrangement is not.

It is precisely this possibility that Regulation 2(1)(zc)(ii) of the LODR Regulations⁠ seeks to capture. The provision extends the definition of an RPT to a transaction between a listed entity or its subsidiary and “any other person or entity” where the purpose and effect is to benefit a related party, with this expanded limb applying from April 1, 2023.  

The provision consequently raises a deceptively narrow question with considerable implications for corporate governance and compliance: when does a transaction with an unrelated party become an RPT because of its underlying purpose and economic effect? The answer requires regulators, audit committees and listed entities to look beyond the identity of the immediate counterparty, while avoiding the equally problematic assumption that every transaction from which a related party derives some benefit is necessarily an RPT.

From the Identity of the Counterparty to the Purpose of the Transaction

The present provision marks an important departure from a purely formal conception of an RPT. The SEBI (Listing Obligations and Disclosure Requirements) (Sixth Amendment) Regulations, 2021⁠ expanded Regulation 2(1)(zc) to include transactions with an unrelated person or entity where the purpose and effect was to benefit a related party. SEBI has subsequently described this amendment as a substantive expansion of the RPT regime and emphasised that the provision was given deferred prospective effect, allowing listed entities a “glide path” to reorganise their affairs before the expanded requirement became applicable.  

The regulatory concern is apparent. If the applicability of the RPT regime depended exclusively upon the identity of the immediate contractual counterparty, a listed entity could potentially place an unrelated intermediary between itself and a related party and thereby preserve the appearance of an independent commercial transaction. The economic substance of the arrangement could remain unchanged while its formal legal structure would fall outside the traditional definition of an RPT.

At the same time, Regulation 2(1)(zc)(ii) cannot reasonably be interpreted to mean that every transaction involving an unrelated party that produces some incidental benefit for a related party automatically becomes an RPT. Related parties will inevitably derive incidental benefits from transactions undertaken in the ordinary course of a company's business. The statutory formulation instead requires an examination of the transaction's purpose and effect, making the circumstances surrounding the arrangement central to the regulatory inquiry.

The distinction may therefore be understood as follows:

The significance of the third category is that the regulator is no longer confined to asking who contracted with the listed entity. It may have to examine why the transaction was structured in that manner, what function the intermediary actually performed and where the economic benefit ultimately travelled.

The Substance-over-Form Question

This distinction received considerable attention in SEBI's September 2025 final order in the Adicorp Enterprises matter⁠, arising from allegations concerning transactions involving Adicorp Enterprises Private Limited and Adani Group entities. In examining the scope of the amended RPT definition, SEBI noted that, following the 2021 amendment, transactions between a listed entity or its subsidiary and an otherwise unrelated person or entity could fall within the definition where their purpose and effect was to benefit a related party, with the enlarged limb becoming applicable from April 1, 2023. SEBI treated this as a substantive and prospective expansion rather than a clarification of the pre-existing position. The more difficult question, however, is evidentiary: the mere presence of an unrelated intermediary does not establish that an RPT has occurred, just as the intermediary's formal independence cannot by itself immunise a transaction where the surrounding circumstances indicate that it was used to confer a benefit upon a related party. The inquiry may therefore require consideration of the commercial rationale for the arrangement, the intermediary's actual role, the terms and circumstances of the transaction, the movement of funds or assets and any connected transactions. This is where the statutory expression “purpose and effect” assumes significance: while “effect” directs attention to the economic consequence of the arrangement, “purpose” requires an examination of why it was structured and undertaken in the first place. The question is consequently not whether the transaction appears independent on the face of the contract, but whether, viewed in its commercial context, the arrangement was in substance designed to benefit the related party.

Why the Question Matters for Compliance

The issue is particularly relevant because SEBI has continued to refine the RPT framework. In February 2025, SEBI issued a consultation paper on aspects relating to secretarial compliance reports, appointment of auditors and RPTs of listed entities⁠, including proposals concerning the implementation of RPT approvals undertaken by subsidiaries and clarifications regarding the applicability of RPT provisions.  

This was followed by SEBI's August 2025 consultation paper on amendments to provisions relating to RPTs under the LODR Regulations and the circulars issued thereunder⁠. Among other proposals, SEBI considered thresholds for determining material RPTs, the information required to be furnished to audit committees and shareholders, the validity of omnibus shareholder approvals and clarifications concerning the applicability of RPT provisions.  

The emphasis on information is particularly relevant to the “purpose and effect” inquiry. In February 2025, SEBI introduced Industry Standards prescribing minimum information for review of RPTs⁠. Following stakeholder feedback, these standards were revised in June 2025, with the June 2025 circular⁠ requiring listed entities to provide specified information to the audit committee and shareholders while placing RPT proposals for approval.  

The regulatory direction is therefore increasingly towards informed substantive scrutiny rather than a mechanical identification exercise. For an audit committee, the relevant question may no longer end with whether the proposed counterparty appears on the company's list of related parties. Where an unrelated intermediary is involved, the committee may need to understand the commercial rationale for the structure, the identity of the ultimate beneficiary and whether the transaction would make commercial sense independently of the related party's involvement.

The expansion of the RPT definition under Regulation 2(1)(zc)(ii) reflects a broader movement in securities regulation from formal compliance towards a more substantive scrutiny of economic reality. A listed entity cannot necessarily avoid the RPT regime merely by interposing an unrelated intermediary between itself and the ultimate related-party beneficiary; equally, the mere existence of an indirect benefit cannot, without more, transform an otherwise legitimate commercial arrangement into an RPT. The real regulatory difficulty therefore lies in distinguishing genuine commercial structuring from arrangements designed to circumvent the safeguards applicable to related-party transactions. This distinction assumes particular significance as SEBI continues to refine the RPT framework through amendments, consultation papers and increasingly prescriptive information requirements for audit committees and shareholders, placing greater emphasis on the circumstances in which a transaction is conceived, structured and ultimately implemented. For listed entities, this makes RPT compliance less a matter of identifying the name of the contracting party and more an exercise in understanding the transaction's commercial rationale, economic destination and surrounding circumstances. Ultimately, the critical question under the expanded regime may be whether, had the related party been removed from the arrangement altogether, the transaction would still have been undertaken in substantially the same form and for substantially the same commercial reasons; where the answer is no, the apparent independence of the intermediary may provide little protection against scrutiny under Regulation 2(1)(zc)(ii).

Author is an Advocate practicing at Delhi High Court. Views are personal.