Related Party Transactions in Promoter-Dominated Firms: Assessing the Effectiveness of Minority Shareholder Protection in India

Abstract

Related Party Transactions (RPTs) represent one of the most significant corporate governance challenges in jurisdictions characterized by concentrated ownership and promoter control. In India, while RPTs may facilitate legitimate business efficiencies, they also create substantial risks of tunnelling, value diversion, and expropriation of minority shareholders. Against the backdrop of recent amendments to the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, this article critically examines whether the existing regulatory framework adequately safeguards minority shareholder interests in promoter-dominated firms. The study is undertaken in response to concerns that increasing reliance on audit committee oversight, evolving materiality thresholds, and procedural compliance mechanisms may weaken substantive investor protection. Using a doctrinal research methodology, the article analyses statutory provisions, regulatory developments, judicial precedents and corporate governance literature. The study finds that despite significant regulatory evolution, the Indian RPT framework remains predominantly procedural, emphasizing disclosure and approval requirements rather than substantive fairness. The absence of clear standards governing ordinary course of business, arm’s length transactions, and materiality enables regulatory arbitrage and limits the effectiveness of existing safeguards for minority shareholders. The article argues that meaningful protection of minority investors requires a shift towards a fairness-based governance model incorporating independent valuation, stronger audit committee independence, enhanced shareholder participation, and more robust enforcement mechanisms. Such reforms are essential to ensure that corporate efficiency is balanced with accountability and equitable treatment of minority shareholders.