“RELATED PARTY TRANSACTIONS: EVALUATING AUDIT COMMITTEES’ ROLE AND ARM’S LENGTH APPLICATION IN THE ORDINARY COURSE OF BUSINESS”

AUTHOR – VIJAY PUJAR, STUDENT AT NATIONAL LAW SCHOOL OF INDIA UNIVERSITY BENGALURU

BEST CITATION – VIJAY PUJAR, “RELATED PARTY TRANSACTIONS: EVALUATING AUDIT COMMITTEES’ ROLE AND ARM’S LENGTH APPLICATION IN THE ORDINARY COURSE OF BUSINESS”, INDIAN JOURNAL OF LEGAL REVIEW (IJLR), 5 (11) OF 2025, PG. 170-176, APIS – 3920 – 0001 & ISSN – 2583-2344

ABSTRACT:

This paper critically examines the legal framework surrounding Related Party Transactions (RPTs) in India, particularly focusing on the provisions of the Companies Act, 2013 Related Party Transactions (RPT) is defined as a ‘transaction which could be a business deal, a single or series of financial contracts, or an arrangement between two parties who are joined by a special relationship prior to the transaction would be a related party transaction’. The paper discusses the regulatory challenges posed by such transactions, highlighting their potential for exploitation and the risk they pose to minority shareholders. A key focus of this paper is on the role of audit committees, their legal mandate, and the practical challenges they face in overseeing RPTs, particularly when conflicts of interest arise due to the involvement of promoters or their families in the committee. In addition to this, the paper tries to address the ambiguity in defining “arm’s length transactions” and “ordinary course of business,” which creates loopholes that may lead to misuse. The paper also draws inference from a data driven study which highlighted the Audit risk attached to RPTs. By critically evaluating these provisions, the paper suggests reforms aimed at improving transparency, accountability, and corporate governance in India.