Published Online:October 2025
Product Name:The IUP Journal of Law Review
Product Type:Article
Product Code:IUPLR051025
DOI:DOI: 10.71329/IUPLR/2025.15.4.56-64
Author Name:Kaushiki Brahma
Availability:YES
Subject/Domain:Law
Download Format:PDF
Pages:56-64
Literature in the past has raised concerns about the detrimental implications of related party transactions (RPTs). Under RPTs, resources are often transferred from companies with strong growth potential to those that are fundamentally weak. In a concentrated ownership structure, RPTs are undertaken for transferring assets to the advantage of the dominant controller. In concentrated or complex concentrated ownership structures, it is exceedingly difficult to identify the ultimate controller of the company. To prevent RPTs, regulators have strengthened monitoring and disclosure procedures through independent directors’ appraisal, audit committee oversight and comprehensive RPT disclosure requirements. Corporate governance structure provides controls and balances to guarantee informed decision-making and corporate integrity. Despite these measures, there have been instances of abusive RPTs in various promoter companies. Recent corporate governance failures due to abusive RPTs (siphoning of funds) were linked to Inter-globe Ltd, United Spirits, Religare Enterprise Ltd, and Ricoh India. This paper seeks to analyze RPTs in the context of corporate governance and identify legislative gaps requiring reform.
Related party transactions (RPTs) take place between a reporting company and another entity or individual that is related to it,such as a director, a managing director, a controlling shareholder or a group company. The related parties in RPTs may be holding company or subsidiary company, or its associates. The major concern with RPTs is a conflict of interest between related parties of the reporting company and other stakeholders in a company.