Related Party Transaction
A transaction between a company and a person or entity connected to it, such as a promoter, director or group company.
How it is identified
Test: the counterparty meets the definition of a related party, requiring disclosure and, above thresholds, audit committee and shareholder approval
Unit
qualitative
In depth
Related party transactions are not improper in themselves — group companies trade with each other for legitimate reasons — but they are the primary channel through which value is extracted from minority shareholders, so they receive disproportionate regulatory attention. India requires disclosure in the notes, audit committee approval, and for material transactions a shareholder resolution on which related parties cannot vote. The specific patterns to examine are loans and advances to related parties, purchases at above-market prices, and guarantees given for group entities. The notes to accounts, not the press release, are where these appear.
Worked example
A company advances ₹240 crore to a promoter-owned entity at 6% while borrowing at 9%. The 3-point spread on ₹240 crore is ₹7.2 crore a year transferred out of the listed company each year it stands.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Related Party Transaction” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.