With the increasing regulatory scrutiny around Related Party Transactions (RPTs), ensuring that such transactions are undertaken at arm’s length and in compliance with applicable laws has become a key area of focus for corporates. The Companies Act, 2013, lays down a robust governance framework requiring appropriate approvals, detailed disclosures, continuous monitoring and adherence with fair market value or Arm’s Length Principle in case of RPTs. SEBI (LODR) Regulations, 2015, in addition to the Companies Act cast further legal obligations and governance measures in case of listed entities. While the Arms Length Principle takes centre stage in RPT documentation and adherence with requirements, however, the absence of a prescribed computational mechanism for determining arm’s length outcomes often presents practical challenges for companies. 
 
In this context, we are pleased to share our note on “Arm’s Length Price for Related Party Transactions (RPT) - Regulatory and Practical Considerations”
 
The attached note provides an overview of:
• The regulatory framework governing RPTs, including the identification of related parties and the scope of covered transactions
• Approval thresholds and key compliance obligations and disclosure requirements under the Companies Act and SEBI LODR Regulations
• The concept of arm’s length principle and practical considerations in its application
• The relevance and application of transfer pricing methodologies as a structured and defensible approach for benchmarking RPTs
• Illustrative approaches and industry practices for benchmarking key categories of RPTs
 
The note also highlights important practical considerations around documentation, governance, and the need for a proactive (ex-ante) approach to benchmarking. Establishing a well-supported arm’s length position not only strengthens decision-making at the Audit Committee and Board level but also serves as a critical risk mitigation tool, particularly in the context of increasing regulatory oversight, enforcement actions, and stringent penalty provisions.
 

We trust you will find this note insightful and useful in navigating the evolving regulatory landscape around RPTs.

Click here to download - RSM India Newsflash - Related Party Transactions - Note on Regulatory and Practical Considerations