Related Party Transactions: When "Approval" in the Minutes is Not Enough

During statutory inspections and secretarial audits, one recurring oversight continues to draw severe regulatory scrutiny:

The gap between an omnibus approval granted by the Audit Committee and the actual commercial execution trail.

Under Regulation 23 of SEBI (LODR), 2015 and Section 188 of the Companies Act, 2013:

• An omnibus approval is not a blanket authorization - it mandates verifiable justification for transactions where need cannot be foreseen.

• The arm’s length basis cannot merely be an assertion; it requires objective benchmarking documentation contemporaneous with the contract.

• Aggregation across subsidiaries: Evaluating whether transactions entered into by an unlisted subsidiary with a related party of the listed holding company inadvertently breach statutory materiality thresholds.

Regulatory enforcement today does not stop at asking "Did the Committee approve?"

Regulators ask: "On what verifiable data did the Committee determine arm’s length pricing?"

An independent RPT audit tests this approval trail before the statutory auditor or regulator questions it.

Fellow directors and CFOs: Are your current RPT approval memos supported by documented transfer pricing benchmarks or internal parity studies?