One Size, Many Fits? Rethinking SEBI’s 2025 RPT Overhaul for Debt Market Realities

By Akanksha Sharan and Sejal Sahu

Introduction

In March 2025, the Securities and Exchange Board of India (SEBI) introduced a landmark amendment to the Listing Obligations and Disclosure Requirements (LODR) Regulations,  ushering in a paradigm change in how corporate governance is perceived and enforced in Indian capital markets. Triggered by controversies surrounding opaque promoter-led transactions and investor angst, the amendment focuses expressly on High Value Debt Listed Entities (HVDLEs), a previously under-regulated segment. SEBI has introduced Chapter VA, hence extending governance responsibility outside equity markets and holding capital accountable and not in control.

The core of the amendment is a more aggressive regime for controlling Related Party Transactions (RPTs). RPTs are not per se illegal, but their susceptibility to abuse either via indirect benefits, inflated valuations, or intra-group transfers poses risks to transparency and minority interests. Theoretically, the reform seems to fill regulatory loopholes, give greater capacity to debenture trustees and extend greater disclosure to unlisted subsidiaries. In practice, however, it is its one-size-fits-all approach that puts at risk the more varied issuers with equity-style compliance regimes that do not fit its current operational realities. The challenge, therefore, is not in the intent-since the need for cleaner RPTs is acknowledged. The real test is in the implementation, which has to find a balance between investor protection and reasonable proportionality, administrative practicability and the market vigor.

In this article, the authors firstly examine the evolution of India’s RPT regime, particularly by considering the primary changes brought about by the SEBI (LODR) Amendment 2025 and assesses the impact of the reforms on HVDLEs. Secondly, it identifies implementation challenges and outcomes affecting the beneficiaries falling under it. Thirdly, the global practices comparison is being done, concluding to the inconsistencies it bears even after similarities. Lastly, recommendations to ensure the reform goes beyond formal compliance to promote genuine accountability are being given. 

Core Reforms and Their Impact: Dissecting SEBI’s 2025 Governance Overhaul

The SEBI (LODR) Amendment 2025 marks a watershed in India’s corporate governance architecture vis-a-vis HVDLEs. For the first time, SEBI extends rigorous governance beyond equity-listed companies, and sends out the message that high-value debt exposure carries equal governance risk. Among the various reforms, four stand out as particularly transformative.

Foremost is the introduction of Chapter VA, SEBI’s first move beyond market capitalisation to regulate entities based on debt exposure. Since most HVDLEs lack equity listings and hence fall outside the standard governance norms, Chapter VA fills critical regulatory void. It imposes board composition norms, audit committee requirements, and RPT rules, requiring firms with large debt burdens to uphold transparency and accountability akin to equity-listed firms. This aligns stakeholders’ treatment across asset classes, extending investor protection to debenture holders and creditors.

Another major reform requires a NOC from debenture trustees for material RPTs, giving debt investors a voice historically denied in governance. While Shareholder resolutions have traditionally been the main instrument for RPTs approval, this provision empowers debt financiers to influence critical financial decisions affecting their investment risk, recognizing governance as a shared mandate across all capital tiers. 

The amendment also sharpens policy-based approach on RPTs materiality. Boards must not only set materiality thresholds but also formalise policies on how RPTs are to be managed. In TSC Industries v. Northway, the Court determined that a fact is material if a reasonable investor would likely consider it important in decision-making. This aligns with the judicial understanding that materiality cannot be confined to arithmetic thresholds. This institutionalizes consistent decision making and turns the internal compliance culture from a reactive oversight one. Likewise, SEBI has expanded its ambit to include brand usage and royalty payments as part of the material RPTs (if they exceed 5% of turnover), reflecting SEBI’s attention to intangible value transfers, which were often neglected under older frameworks. 

Finally, the phased extension of governance norms to unlisted material subsidiaries of HVDLEs, is recommended, given their historically regulatory neglect. As an initial threshold, the top five material subsidiaries (based on turnover or asset value) can be brought under compliance from the next financial year, expanding the top ten thereafter, having all subsidiaries covered over a set period. This phased implementation is administratively feasible and provides the companies with time for building the governance infrastructure. As a result, SEBI will require independent directors, oversight of audits, and shareholder approval for important actions in these subsidiaries to curb regulatory arbitrage.

These changes not only plug regulatory loopholes, but they also rebalance governance power, so that both equity and debt stakeholders are protected. However, the success of this regime will turn on how well it is implemented.

Structural Strains: A Critical Look at SEBI’s 2025 Governance Mandate

The recent amendments, though aimed at enhancing transparency and accountability, have certain loopholes. They point out structural issues and outcomes that were not planned may affect the beneficiaries in the following manner.

Many HVDLEs, such as state infrastructure networks and public sector undertakings, are essential public agencies with stable, regulated revenues and limited corporate complexity.  However, these recent governance requirements demanding equity-style norms, such as board restructuring, multiple committees, and secretarial audits, may not yield proportionate governance benefits. Imposing uniform governance norms on fundamentally different entities may delay critical public projects and increase the public debt burden. It may also confuse investors by blurring the distinction between public infrastructure bonds and high-risk corporate debt.

Another issue is that the debt listing requirements now stand at ₹1,000 crore but still capture numerous mid-sized companies, which typically do not have the governance infrastructure of large enterprises. For instance, out of 812 debt listed entities as of March 2024, about 66% (538) are only debt listed and do not include equity listed companies. This means the full burden of new governance norms completely falls on only debt listed.

Due to stringent disclosure and auditing norms, many mid-sized issuers may avoid debt listing, preferring bank loans and private placements that offer faster and lenient compliance requirements. In contrast, Singapore’s Securities and Futures Act 2001 grants tiered exemptions from disclosure requirements according to both issue size and public engagement significance, which India lacks. A drop in the corporate bond market size stands as one of the results. Even a small issuer withdrawal from regulated debt listings could undermine transparency and force funding into opaque channels in a market where Indian companies raised a record ₹9.9 trillion in corporate bonds in 2025.

Finally, Chapter VA introduced a multi-layered approval process for RPTs. However, this mechanism, designed to create transparency, can become cumbersome, especially for companies with a wide investor base. Further aggravating the issue, there is no streamlined dispute resolution mechanism in place, especially when the transactions involve parent and subsidiary entities.

Converging with the World: India’s RPT Reforms in a Global Context

India’s 2025 amendment to RPTs aligns more closely with global best practices but hinges on consistent enforcement. In the U.S., Regulation S-K, specifically Item 404 mandates listed companies to disclose material RPTs above $120,000 and justify their arm’s length relying on transparency, shareholder activism, and penalties for misreporting. It has been made clear by the courts that arm's length is a substantive criterion whereby transactions should be in the form of transactions between independent parties. In CIT vs Glaxo SmithKline Asia Pvt Ltd., the Supreme Court of India held that the arm's length price was determined by the independent market conditions. Whereas, the U.S courts in Weinberger v. UOP, Inc. linked it with fair process and price in conflicted deals. 

 The UK’s Companies Act 2006 imposes stricter procedural safeguards, including criminal liability for non-compliance with approval by disinterested shareholders. This removes promoter influence from the approval process and ensures accountability at both corporate and personal levels. Similarly, Singapore’s SGX listing rules mandate pre-transaction disclosure, shareholder approval, and abstention by interested parties for RPTs above a low threshold. The disclosure must be undertaken immediately of transactions that exceed 3% of available net tangible assets of a company, and the 5% should be approved by the shareholders with the approval of the interested parties. This proportionality ensures routine transactions are not overburdened while still subjecting significant transfers to scrutiny. 

Unlike its counterparts, India continues to grapple with inconsistent enforcement, institutional limitations, and a corporate culture dominated by promoters. The mechanics of these global structures are the reasons why they matter: tiered triggers create proportionality, pre-transactions disclosures are necessary to avoid ex-post rationalisation, and disinterested approvals eliminate conflicts. For India, embedding such mechanics along with stronger trustee powers and consistent enforcement would bridge the gap between formal compliance and substantive investor protection.  So, while the reform is progressive in substance, its success will hinge on the creation of a culture of accountability and the implementation of rules that are not just put in place but enforced with equal zeal.

Governance That Fits: Flexible Rules for a Diverse Debt Market

To ensure effective implementation of the amendment, the authors propose a more tailored and pragmatic approach. 

Firstly, the governance obligations of listed debt entities should not be standardized but should have differences based on the peculiar nature of issuers. Governance risk is easily managed by organizations operating in stable, regulated environments where cash flows are predictable and are under public oversight. In such cases, a simplified disclosure regime is probably appropriate, with regular financial updates and with audited reports. A similar customized approach is adopted by the U.S.A., where certain issuers that are serving public needs do not need corporate style governance. Adoption of this flexibility increases regulatory efficiency and safeguards the interests of investors without generating unnecessary regulatory burdens. 

Secondly, to increase the accessibility for mid-sized enterprises in the bond market, which are not small but also not large enough to absorb compliance costs, a collective approach can be a powerful solution. By uniting under one umbrella, these firms can collectively issue bonds and ease the load of high compliance charges and management complexities. With pooled resources, they can split legal, audit, and trust services, making the process more streamlined and less costly. A centralized system can monitor credit assessments and reporting requirements, and thus, one will be required to pay slightly less in such individual obligations, and overall transparency will be achieved. Similar models have been applied by countries like the USA has pooled municipal bond programmes for smaller public utilities. This strategy provides a pragmatic compromise between strict regulation and informal borrowing, allowing more firms to tap bond markets safely.

Lastly, to minimize unnecessary complexity in dealing with RPT, particularly when there is low-risk, companies should be able to pre-declare and register such dealings based upon simple conditions such as transaction size, frequency or compliance with valuation norms. This will make governance easier and avoid delays disrupting the business operations. Regulators such as Europe allow simplified approvals for low-risk related transactions, recognising the undue burden that full approval processes may impose on operational efficiency. Adoption of this model provides better transparency as well as keeps the governance rules in proportionate terms.

Conclusion

SEBI’s 2025 reforms are a step to take to even greater accountability, but the journey doesn’t stop there. For these rules to properly work, they should be smartly applied, i.e., be strong where it’s needed, but flexible where risk is lower. A one-size-fits-all model can delay actual progress, particularly in the case of public utilities and mid-sized enterprises. Going forward, from now one ought to concentrate on fair governance, which will protect investors without alienating the market participants. Simplified rules for low-risk entities, support to collective bond platforms, and improved dispute mechanisms can transform compliance from a burden into a strength. If well achieved, this can construct a more open, inclusive, and trusted market.

Disclaimer

The views expressed in this article are solely those of the author(s). This article is intended for educational/information purposes only. The source of this article is publicly available information, and under no circumstances should the contents of the article be construed to be professional advice by the authors.