Related-party transactions pose a governance risk in India's corporate sector. Examine the adequacy of SEBI's LODR framework in addressing this risk.

Related-party transactions (RPTs) — dealings between a listed company and entities linked to its promoters — are legitimate in commerce but easily turned into channels for diverting value from minority shareholders. SEBI's LODR Regulations, 2015 build a strong disclosure architecture around them, yet recent enforcement outcomes expose gaps in detection and deterrence.

Why RPTs are a governance risk

• Tunnelling through conduits: SEBI's order in the Adicorp matter records funds moving between group entities via a conduit firm on the same or next day, allegedly structured to conceal the real related party from the audit committee and shareholders [1].
• Concentrated promoter control and pyramided group holdings make such abuse structural, not exceptional — the board that must approve an RPT is often nominated by its beneficiary.
• Gatekeeper failure: audit and limited-review reports were filed by auditors lacking valid Peer Review Certificates, defeating the quality check that sits between a company's numbers and the investor [1].

Where the LODR framework is adequate

• Regulation 23 mandates prior audit committee approval, shareholder approval for material RPTs, and bars related parties from voting on such resolutions [2].
• Periodic RPT disclosure in a standardised format plus quarterly corporate governance reports to exchanges create an auditable trail [2].
• The definition has been progressively widened to capture transactions with subsidiaries and with third parties whose purpose is to benefit a related party [3].

Where it falls short

• It is disclosure-centric and form-based; layered, conduit-routed transfers pass the form test while defeating its substance [1].
• Delayed adjudication — lapses dating to FY2012-13 were closed only in orders issued from 2025 onwards, by when the harmed shareholder base has changed [1].
• Weak deterrence in settlement: amounts follow a published formula, computable in advance via SEBI's Settlement Calculator, and settle "without admitting or denying" findings — yielding no precedent for the next company [4][5].

The framework's design is sound; its weakness lies in enforcement speed and economic bite. Strengthening audit-committee independence, forensic substance-testing of fund trails, and SEBI's own 2025 review of RPT provisions [3] can convert disclosure into accountability — aligning capital-market regulation with the transparency that sustains investor trust.