A related-party transaction (RPT) is an arrangement between two parties having a preexisting business relation, regulated in India under the ambit of Companies Act, 2013.
While some of these have the potential for creating a conflict of interest, misuse of related-party transactions, if left unchecked, can lead to fraud and financial catastrophe for all parties involved. The Act also defines "arm's length transactions" as an exception to such transactions, which is conducted between two related parties as if they are unconnected. The notion was included in the legislation to ensure that both parties in a transaction behave in their own best interests and are not influenced by the other. This article thereby attempts to examine the regulatory framework of RPTs from the perspective of promoter driven companies in India, and makes note of recent amendment in the regime by the Securities and Exchange Board of India (SEBI) as a way forward.