A related-party transaction is not evidence of wrongdoing. Business groups routinely buy, sell, lend, borrow, license brands and share services across parents, subsidiaries, associates and other related entities; Ind AS 24 exists precisely because those relationships are a normal feature of commerce but can affect a company's financial position and profit.
For an investor, the important question is not “Does this company have RPTs?” It is “Are the terms, purpose, approval process and cash outcomes consistent with the interests of the listed company and its minority shareholders?”
What Indian investors can actually inspect
Ind AS 24 requires disclosures about related-party relationships, transactions and outstanding balances, including commitments, in applicable financial statements. For listed companies, SEBI's LODR Regulations as amended to January 22, 2026 add a governance layer: Regulation 23 requires audit-committee approval for RPTs and shareholder approval for material RPTs, subject to the regulation's detailed conditions and exemptions.
SEBI has also prescribed minimum information to be placed before the audit committee and shareholders for approval of RPTs, including through its October 2025 circular. That gives investors several places to investigate the same transaction: the annual-report note, exchange RPT disclosures, shareholder notices and explanatory statements.
The strongest analysis compares all of them rather than reading one table in isolation.
A real governance case: Nestlé India's royalty vote
Nestlé India's 2024 royalty process is a useful example because it shows that the existence of an RPT is less informative than its terms and governance. The company's annual-report filing with NSE records that a proposal sought to increase the general licence fee paid to Société des Produits Nestlé S.A. from the then-current 4.5% of net sales, with gradual increases toward a maximum 5.25%.
The shareholder resolution did not receive the requisite majority in the May 2024 e-voting. The filing then says the company sought approval to continue the royalty at the existing 4.5% rate, which was subsequently placed before members.
This is a better lesson than simply declaring “royalty payments are a red flag”. A serious RPT analysis asks what is being paid, how the rate changed, what economic benefit is claimed, what the board and audit committee considered, and how shareholders responded.
Ten signals that deserve deeper scrutiny
Instead of treating all RPTs as suspicious, use the following signals to decide where your research time should go.
| Signal | Why it matters |
|---|---|
| 1. RPT sales grow much faster than third-party sales | Reported growth may be increasingly dependent on the promoter/group ecosystem |
| 2. Related-party receivables keep rising | Revenue may be recognised faster than cash is collected |
| 3. Large unsecured loans or advances to related entities | Capital can leave the listed company without appearing as an immediate expense |
| 4. Corporate guarantees for group entities | Risk can exist even before any cash outflow occurs |
| 5. Asset purchases or sales with related parties | Valuation and strategic rationale become critical |
| 6. Royalty or brand fees rise faster than sales/profit | More operating economics may be transferred to the licensor |
| 7. Material transactions are described vaguely | Investors cannot properly assess commercial substance |
| 8. Repeated write-offs of related-party balances | Earlier recognised assets or revenue may not convert into cash |
| 9. Closing balances rise faster than annual transaction values | The problem may be collection, not transaction volume |
| 10. Approval, voting or disclosure history is unusual | Governance process can be as important as the accounting entry |
None of these proves abuse. Their purpose is to identify transactions where the economic explanation needs to be stronger.
Closing balances often tell more than annual transaction totals
Annual reports can show huge gross transaction values in groups that move goods or services internally every day. The more revealing figure is often the amount still outstanding at year-end.
Suppose related-party sales increase from ₹100 crore to ₹150 crore, while the related-party receivable rises from ₹20 crore to ₹110 crore. Sales grew 50%, but the unpaid balance increased more than five times; the investor now needs to know the credit terms, ageing profile and subsequent collections.
This is where RPT analysis overlaps with the trade receivable ageing analysis. If a promoter-linked customer is both a major source of sales and a major source of old receivables, the quality of that revenue deserves much more attention.
Loans and guarantees require a capital-allocation test
A loan to a subsidiary or associate can make commercial sense. The subsidiary may be building a plant, funding working capital or executing a project that benefits the consolidated group.
The investor should nevertheless ask what interest rate is charged, whether the loan is secured, when it is repayable, whether interest is actually collected and whether the borrowing entity is financially capable of repayment. A listed company with surplus cash has many alternatives—debt reduction, capex, dividends or external investments—so a large related-party loan should have a clear economic rationale.
Guarantees deserve similar treatment. They may create no immediate P&L expense or cash outflow, but they can expose the listed company if the guaranteed entity cannot meet its obligations.
Royalty should be analysed as a rate, not only as a rupee amount
A royalty payment can rise simply because sales increased. Looking only at the absolute rupee number can therefore create a false alarm.
Calculate:
Royalty Rate = Royalty / Relevant Sales Base × 100
Then compare the rate over time, read the licensing agreement or shareholder notice and identify what the company receives in return—brand access, technology, know-how, trademarks, product support or other services.
The Nestlé example shows why this matters. The governance debate was not about whether a global parent could ever charge a licence fee; it was about the proposed rate and the terms on which that fee would evolve.
Standalone accounts can reveal flows that consolidation removes
Intragroup sales, loans and balances can be eliminated in consolidated financial statements, which is appropriate for group reporting but can hide how cash and economics move between individual legal entities. For RPT work, the standalone accounts can therefore be as important as the consolidated accounts.
Compare the related-party note in both sets of statements and identify where the listed entity sits in the flow. A transaction that disappears on consolidation can still matter greatly to minority shareholders of the listed legal entity if it affects cash, assets, guarantees or pricing at that company.
The pattern is more important than one transaction
A single large RPT with clear terms, independent valuation, strong cash collection and appropriate approvals can be economically ordinary. A web of smaller transactions can be much more concerning if it is accompanied by weak disclosure, rising receivables, repeated loans, guarantees and poor operating cash flow.
That is why RPT analysis should be connected to broader earnings-quality work. Credivant's fake growth framework is useful when related-party revenue grows alongside weak cash conversion or unusual profit composition.
The best question is deliberately simple: Would this transaction still make commercial sense if the counterparty were unrelated? You may not always have enough public information to answer it, but the question tells you what evidence to search for.
How to investigate an RPT in ten minutes
Start with the annual report and search “Related Party Disclosures”. Record the largest revenue transactions, expense transactions, loans, guarantees and closing balances, then compare them with the previous year.
Next, search NSE/BSE announcements for the company's related-party disclosure and any shareholder notice approving a material transaction. Read the explanatory statement for the pricing basis, purpose, tenure and approval history.
Finally, trace the cash outcome. If the RPT generated sales, check the receivable; if it was a loan, check repayment and interest; if it was a royalty, calculate the rate; if it was an asset transfer, look for an independent valuation and the resulting gain or loss.
Frequently Asked Questions
Are related-party transactions illegal?
No. RPTs are common and can be completely legitimate. The disclosure and approval rules exist because conflicts of interest can arise when connected parties transact with each other.
Where are related-party transactions disclosed?
Look in the financial-statement notes, exchange RPT disclosures and shareholder notices. Standalone statements can be especially useful because some intragroup transactions are eliminated on consolidation.
Is a promoter-linked sale automatically low-quality revenue?
No. The key issues are commercial terms, pricing, collection, customer economics and whether the balance is ultimately realised in cash.
Bottom Line
Related-party analysis should not become a hunt for scandal. It is a test of whether the listed company appears to transact with connected parties on understandable commercial terms, with transparent approvals and cash outcomes that make sense.
The most useful signals are often not the largest transaction values but the rates, closing balances, ageing, guarantees and changes over time. When those measures are combined with shareholder voting and audit-committee disclosures, an RPT note becomes a powerful corporate-governance tool rather than a box to tick.
Disclaimer: This article is for educational and informational purposes only. It does not allege wrongdoing by any company or person and is not investment advice or a recommendation to buy, sell or hold any security.
