🔍 How to Detect Defaults / Red Flags: Secretarial Audit Checklist for Related Party Transactions (RPTs) 2025
- Transaction with known RP not in RPT register or disclosures.
- High-value fund movement without specific resolutions.
- No benchmarking documents for “arms-length”.
- Audit Committee resolution vague or post-facto.
- Website or financial note disclosures inconsistent with actual board records.
- No interest or collateral for group company loans.
- Delayed or missing SEBI filings.
Table of Contents
🛠️ Consultant Recommendations (Solutions)
| Problem | Practical Solutions as Consultant |
|---|---|
| Incomplete RP list | Conduct internal audit and board disclosures (MBP-1) validation annually |
| Loan to LLP without terms | Recommend formal loan agreement + interest benchmarking |
| Arms’ length claimed but not documented | Suggest benchmarking reports or CA-certified fair pricing certificate |
| Missed shareholder approval | Guide for postal ballot resolution + SE filing with justification |
| Website not updated | Coordinate with IT/compliance team to update RPT policy and disclosures promptly |
| No fund utilization tracking | Implement internal SOP for fund flow audit trail |
| Over-reliance on related group entities | Advise on risk exposure and recommend policy for internal limits on RPTs |
RPT Audit Checklist for Secretarial Auditor – Listed Company
| S. No. | Checklist Point | Reference Law / Source | Audit Procedure / How to Check | Common Mistakes / Defaults | Suggested Remedies / Consultant Advice |
|---|---|---|---|---|---|
| 1 | Identification of Related Parties | Sec 2(76) of Companies Act, Rule 3 of RPT Rules, IND AS 24 | Obtain list of related parties (individuals/entities) from: • MGT-7/MGT-9 • Board disclosures • Financials • IND AS 24 Note in Balance Sheet | Related parties not fully disclosed or updated | Recommend board resolution ratifying complete updated list. Maintain a Related Party Master Register. |
| 2 | Approval of RPT by Audit Committee | Reg. 23(2) of SEBI LODR | Verify minutes of Audit Committee meetings where RPTs were approved | Backdated approval or post-facto ratification | Ensure pre-approval for all material and non-material RPTs. Recommend internal control SOP. |
| 3 | Approval by Board of Directors | Sec 188(1) of Companies Act | Cross-check Board minutes & resolutions for transactions exceeding thresholds | Board not aware / No detailed resolution passed | Recommend standard board resolution format for each RPT, with value, rationale & arm’s length justification |
| 4 | Shareholders’ Approval (if applicable) | Sec 188(1) Proviso, Reg. 23(4) of SEBI LODR | Check if any RPT exceeded materiality threshold (10% of consolidated turnover or ₹1000 Cr, whichever lower as per SEBI (LODR) Amend. Reg. 2023) | Missed shareholder approval for material RPTs | Recommend special resolution via postal ballot if required. Issue addendum notice to rectify. |
| 5 | Disclosure in Financials | IND AS 24 | Verify whether nature, value, relationship and terms are properly disclosed | Missing disclosures or vague terms (e.g. “loan to group”) | Recommend full disclosure in Notes to Accounts in prescribed format |
| 6 | Reporting in Corporate Governance Report | Reg. 23(9) SEBI LODR | Verify quarterly CG Report and annual submission to NSE | Incorrect / incomplete filing on NSE portal | Recommend rectified XBRL filing; educate compliance team on correct format |
| 7 | Review Loan / Advances to RPs | Sec 186, Sec 185 (where applicable) | Examine loan agreements, interest rate, security, terms of repayment; check ROC Form MBP-1, MGT-14 if applicable | Loans at concessional rate, or without repayment schedule | Recommend interest benchmarking, formal loan agreement, Board justification for terms |
| 8 | Check for Arms’ Length Basis | Sec 188(1) | Compare transaction terms with market benchmarks, independent valuation | Declared as arms’ length but no benchmarking or backup | Recommend third-party valuation reports or benchmarking documentation |
| 9 | ROC Filings (if required) | MGT-14 for Sec 179/188 approvals | Review if any required forms like MGT-14 filed for Board resolutions | Filings missed or delayed | Recommend late filing with additional fees. Ensure compliance calendar maintained |
| 10 | Review LLP Transactions | LLP Act + Companies Act | Examine LLP Agreement, nature of control by company, % of stake; see if LLP is covered u/s 2(76) | Treating LLP as unrelated entity wrongly | Classify LLP as RP based on control/shareholding pattern; include in disclosures |
| 11 | Secretarial Standards Compliance | SS-1 (Board), SS-2 (GM) | Check if agenda, explanatory statement, and minutes captured RPTs as per Secretarial Standards | No justification in minutes, resolution not as per SS-1 format | Recommend re-issuance or supplementary notes; compliance SOP for CS office |
| 12 | Internal Audit Trail for Funds Flow | As best practice | Ask for bank statements, approval chain, fund utilization reports | Funds moved without documented purpose or tracking | Suggest SOP for fund release, approval flow, and utilization monitoring |
| 13 | Material Subsidiary RPTs | Reg. 24 SEBI LODR | Check if RPT is done through or with material subsidiary and whether Audit Committee/Board approved it | Misclassification of subsidiary’s materiality | Recommend periodic review of subsidiary classification; keep updated materiality chart |
| 14 | Website Disclosures | Reg. 46(2)(h) SEBI LODR | Check if policy on RPT is uploaded and updated | Outdated or no RPT policy on website | Upload updated RPT policy; ensure same is referred in board minutes |
📄 Template: Audit Committee Resolution for RPT
[On the letterhead or minutes of the Audit Committee of the Company]
Resolution No. ___ / FY 2024-25
Date: [Insert Date]
Place: [Insert City]
Subject: Approval of Related Party Transaction with [Name of Related Party]
“RESOLVED THAT pursuant to the provisions of Regulation 23 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and other applicable provisions, if any, the Audit Committee of the Company hereby approves the Related Party Transaction between the Company and [Name of Related Party] for [Nature of Transaction – e.g., loan/advance/purchase/sale/provision of services] as detailed below:
| Particulars | Details |
|---|---|
| Name of Related Party | [e.g., ABC LLP / XYZ Pvt Ltd] |
| Nature of Relationship | [e.g., Sister Concern, Promoter Group Entity] |
| Nature of Transaction | [e.g., Loan, Investment, Purchase, Sale, Services, etc.] |
| Transaction Value | ₹ [Amount] |
| Tenure of Transaction | [e.g., One Time / Ongoing for FY 2024-25 and FY 2025-26] |
| Terms & Conditions | [Interest rate, security, pricing, payment terms, etc.] |
| Whether at Arm’s Length | [Yes/No — with basis of benchmarking, if available] |
| Justification / Commercial Rationale | [Short explanation of business need] |
RESOLVED FURTHER THAT [Name, Designation] of the Company be and is hereby authorized to finalize, sign, execute and file such agreements, papers, documents or deeds and to take all necessary steps in this regard.”
📄 Template: Board Resolution for RPT
Certified True Copy of the Resolution passed at the Meeting of the Board of Directors of [Company Name] held on [Date] at [Place]
Resolution No. ___ / FY 2024-25
Date: [Insert Date]
Subject: Approval of Related Party Transaction with [Name of Related Party]
“RESOLVED THAT pursuant to the provisions of Section 188 of the Companies Act, 2013 read with Rule 15 of Companies (Meetings of Board and its Powers) Rules, 2014, Regulation 23 of SEBI (LODR) Regulations, 2015, and other applicable provisions, if any, the Board hereby approves the proposed transaction between the Company and its related party [Name of Related Party], as per the details given below:
| Particulars | Details |
|---|---|
| Name of Related Party | [e.g., ABC LLP / XYZ Pvt Ltd] |
| Relationship with Company | [e.g., Common Promoter / Subsidiary / Sister Concern] |
| Nature and Value of Transaction | [e.g., Loan of ₹10 Cr with 9% p.a. interest] |
| Period / Duration | [One-time / Ongoing] |
| Terms and Conditions | [Interest rate, repayment period, commercial terms, etc.] |
| Whether Arm’s Length & Ordinary Course | [Yes / No — basis for justification] |
| Justification for entering into transaction | [e.g., Business need, strategic alignment] |
RESOLVED FURTHER THAT in case the transaction falls under the category of material RPT as per Regulation 23(1) and 23(4) of SEBI (LODR), the same shall be subject to shareholders’ approval by way of a resolution.
RESOLVED FURTHER THAT [Name & Designation of Officer] be and is hereby authorized to execute all necessary agreements, documents, and forms, and to take all necessary actions in this regard.”
📌 Optional Add-on in Board Resolution (if transaction is not at arm’s length):
“RESOLVED FURTHER THAT the Company shall seek approval of the shareholders through [postal ballot/general meeting] as the said transaction is not in the ordinary course of business or not at arm’s length, and exceeds the threshold prescribed under Section 188 of the Companies Act, 2013.”