Related-party transactions in an annual report: where the note sits and what the LODR approval rules say

This article does something most related-party explainers do not: it opens one real annual report and shows where the related-party note, the audit committee approval statements and the Companies Act form sit in it, and then reads the approval and threshold rules from the current regulation text rather than from summaries. It describes documents. It says nothing about whether any company’s transactions are good or bad.

For where the annual report fits among a company’s filings, see the guide to company filings. For the overall structure of the report, see how to read an annual report.

Why there are two layers

A “related party” transaction is a deal between a listed company and someone connected to it, such as a parent, a subsidiary, a director or a key manager. Two separate things apply to these deals:

1. Accounting disclosure. The financial statements list the related parties and the amounts. This is the note.
2. Listing-rule approval. SEBI’s listing regulations decide who must approve such a deal, and when shareholders must vote. This is Regulation 23.

The note tells you what happened. Regulation 23 tells you what process the deal was supposed to go through. The annual report carries both, in different places.

Where it sits in one real report

The example is the Integrated Annual Report 2025-26 of Hindustan Unilever Limited, a large listed company with a foreign parent. It is used only to show where things are. Page numbers below are the printed page numbers in that report.

What you are looking for	Where it was in this report
The related-party note	Note 44 to the standalone financial statements, printed pages 343 to 346
The company’s statement on approval and policy	Corporate governance report, printed pages 234 and 235
The Companies Act form for related-party contracts (Form AOC-2)	An annexure to the Board’s report, printed pages 106 and 107
The auditor’s comment on related-party compliance	Auditor’s report, the statutory-matters paragraph (clause xiii), printed pages 268 and 269
Related-party shares of purchases, sales, loans and investments	The sustainability reporting section, printed pages 156 and 157

Other companies lay the same material out differently, but the same five places are a reasonable checklist.

Inside the note

In this report the note has a fixed order, which is common:

• A list of the related parties, grouped by relationship. The groups here are the holding company, subsidiaries and a joint venture, subsidiaries of the holding company that dealt with the company, entities where a director or a relative has significant influence, post-employment benefit plans, a trust, and key management personnel, senior management and non-executive directors. Dates such as “with effect from” show who joined or left a group during the year.
• A table of transactions and year-end balances, by group. Each group has its own block with the current year and the previous year side by side, in rupees crore. For the holding company, for example, the table shows rows such as dividend paid and expenses for services received, then trade payables outstanding at year end. Subsidiaries of the holding company have rows such as purchases of goods, royalty expense and fees for central services.
• Key management compensation. Pay is split into short-term benefits, post-employment benefits and share-based payments, with a separate line for dividends paid.
• A short terms paragraph. It states how the company describes the dealings (ordinary course, arm’s length), that balances are unsecured and settled in cash, and whether guarantees or impairments exist.

Two reading habits help. First, the note groups amounts by relationship, so one counterparty’s total is not always visible; many rows are sums across several named entities. Second, a row name is the company’s own label. Whether a row is a “royalty” or a “service fee” is the company’s classification, and the regulation treats royalty and brand payments with a separate threshold (see below).

The statements around the note

• The governance report in this example says that details of all related-party transactions go to the audit committee quarterly, that all members of that committee are independent directors, that the company has a policy on related-party transactions, and that the audit committee gives omnibus approval for repetitive transactions and reviews them each quarter. These are the company’s statements; the regulation text below shows the rule they correspond to.
• Form AOC-2 is a Companies Act form. In this report it says there were no non-arm’s-length transactions and no “material” contracts in the Companies Act sense. That is a different test from the listing-rule threshold below, so the two should not be read as one conclusion.
• The auditor’s report includes a line that related-party transactions complied with sections 177 and 188 of the Companies Act where applicable, and that the details are disclosed under Ind AS 24.

What Regulation 23 says (text amended up to 14 July 2026)

The points below are from the consolidated text of the SEBI listing regulations as published on sebi.gov.in, amended up to 14 July 2026. Rules change by amendment, so check the date on any copy you rely on.

Policy. The listed company must have a policy on what counts as material and on dealing with related-party transactions, with clear threshold limits approved by the board. The board must review the policy at least once every three years.

Audit committee. All related-party transactions, and later material modifications to them, need the prior approval of the audit committee. Only the independent directors on the committee approve. The committee must define “material modification” in the policy.

Omnibus approval. The audit committee may approve a group of repetitive transactions in advance, if it sets criteria, and the approval states the related party, the nature and period of the transactions, the maximum amount, and the base price or pricing formula. The regulation gives a limit of ₹1 crore per transaction where the need could not be foreseen and the details are not available. The committee must review transactions done under the approval at least quarterly, and an omnibus approval lasts no more than one year.

Ratification. Independent members of the audit committee may ratify a transaction after the fact, within three months or at the next committee meeting, whichever is earlier, only if the ratified value with that party in the year does not exceed ₹1 crore, the transaction is not material, the reason prior approval was not sought is put before the committee, and the ratification is disclosed with the regulation’s half-yearly disclosures. Without ratification the transaction is voidable at the audit committee’s option.

Shareholders. A material related-party transaction, and a material modification, needs prior approval of shareholders by resolution, and no related party votes on it, whether or not it is a party to that particular deal. Omnibus shareholder approvals given at an annual general meeting run until the next annual general meeting held within the Companies Act timeline. Those given at other general meetings run for no more than one year.

Exceptions. Audit committee and shareholder approval do not apply to some cases, including deals between two public sector companies, between a listed holding company and its wholly owned subsidiary whose accounts are consolidated, between two wholly owned subsidiaries of a listed holding company, and payment of statutory dues to the Central or a State Government. The regulation also lets a listed subsidiary’s own approvals stand in some cases where the listed parent is not a party.

Subsidiaries. For a deal between a subsidiary and a third party, where the listed parent is not a party, the regulation sets a prior audit committee approval requirement for the parent above ₹1 crore, if the value exceeds the lower of 10% of the subsidiary’s annual standalone turnover and the Schedule XII threshold. A different base applies to a subsidiary without a year of audited accounts.

Disclosure to exchanges. Under Regulation 23(9) the listed company must submit related-party disclosures to the stock exchanges in the format SEBI specifies and publish them on its website. The regulation text says these are made every six months, on the date the standalone and consolidated results are published. The format itself is set outside the regulation, so it is not covered here.

What “material” means now

Until recently the test was one number: the lower of ₹1,000 crore or 10% of annual consolidated turnover. The current text shows that this wording was replaced with effect from 19 December 2025 by a sliding scale in Schedule XII. The thresholds apply to the transaction or transactions with a related party in a financial year taken together, measured against consolidated turnover in the last audited financial statements:

Annual consolidated turnover	Materiality threshold
Up to ₹20,000 crore	10% of that turnover
More than ₹20,000 crore up to ₹40,000 crore	₹2,000 crore plus 5% of turnover above ₹20,000 crore
More than ₹40,000 crore	₹3,000 crore plus 2.5% of turnover above ₹40,000 crore, or ₹5,000 crore, whichever is lower

Illustrative arithmetic, using hypothetical figures:

• A company with ₹5,000 crore of consolidated turnover: 10% is ₹500 crore.
• A company with ₹30,000 crore: ₹2,000 crore plus 5% of ₹10,000 crore (₹500 crore) gives ₹2,500 crore. This matches the example in the regulation itself.
• A company with ₹1,50,000 crore: ₹3,000 crore plus 2.5% of ₹1,10,000 crore gives ₹5,750 crore, which is capped at ₹5,000 crore. The regulation’s own example reaches the same answer.

Two further rules sit beside the main test:

• Brand usage and royalty. Payments to a related party for brand usage or royalty are material if, taken together in a financial year, they exceed 5% of annual consolidated turnover. That is separate from Schedule XII.
• SME-listed companies. For companies listed on an SME exchange, a transaction is material above ₹50 crore or 10% of consolidated turnover, whichever is lower, with effect from 1 April 2025.

The earlier test was 10% of consolidated turnover alone before April 2022; that history is given in the regulation’s footnotes. Older guides and older annual reports may quote any of these versions, so match the version to the year of the report.

A practical reading path

1. Open the related-party note and read the groups first. Note which groups carry the largest rows.
2. Find the governance report statement on how transactions were approved.
3. Check Form AOC-2 and the auditor’s related-party line, remembering they use the Companies Act.
4. For a company you are interested in, look up its consolidated turnover and the Schedule XII band. Whether a figure in the note is “material” under the listing rule depends on that company’s own turnover and on how the company groups transactions with each party, which the note often does not show line by line.
5. Check the notice of the general meeting for any related-party resolution put to shareholders. This article did not open that notice for the example report.

Basis of these figures

Regulatory rules and thresholds are from the consolidated text of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 amended up to 14 July 2026, Regulation 23 and Schedule XII, retrieved 2 October 2026. The earlier consolidated copy (amended up to 22 January 2026) was compared and its Regulation 23 and Schedule XII text is identical. The walk-through of locations and the descriptions of the note are from the Hindustan Unilever Limited Integrated Annual Report 2025-26, retrieved the same day. Illustrative turnover figures are hypothetical and are not any company’s. The Regulations can be amended after the date of the copy used, so confirm against the current text. This article is general information and not advice or a view on any company.