The Securities and Exchange Board of India (SEBI) has announced plans to initiate audits of related-party transactions (RPTs) involving subsidiaries of listed companies, as part of a broader push to strengthen corporate governance and enhance transparency in financial dealings. This decision comes amid growing concerns about the misuse of intra-group transactions to divert funds, manipulate earnings, or avoid regulatory scrutiny. SEBI’s audit initiative will focus on evaluating the arms-length nature, disclosure accuracy, and shareholder approval compliance of such transactions.

Under the revised framework, listed parent companies will be required to maintain comprehensive records of all transactions with their subsidiaries, including service agreements, fund transfers, loans and guarantees, and intellectual property licensing. These records must demonstrate that each transaction is conducted fairly and transparently, with proper documentation and board oversight. SEBI has also directed that all material related-party transactions involving subsidiaries must be disclosed in quarterly filings and approved by independent shareholders, excluding interested parties.

Legal experts note that SEBI’s enhanced scrutiny reflects a growing regulatory emphasis on group-level accountability, especially where subsidiaries play a significant role in business operations or financial reporting. The audits are expected to identify potential conflicts of interest, misstatements, and governance lapses, prompting companies to revisit their internal controls and inter-company transaction policies. As SEBI moves toward greater enforcement, listed firms and their subsidiaries must ensure strict compliance alignment, transparent reporting, and robust audit trail mechanisms to avoid penalties and preserve investor trust.