Mint Explainer: What are related party transactions and why do they run into controversies

Hyundai Motor India Ltd’s plans to enter into seven transactions with group companies—or related parties—stirred controversy when prominent proxy advisory firm Stakeholders Empowerment Services recommended that investors vote against six of those. Proxy advisory firms Institutional Investor Advisory Services and InGovern Research Services did not raise any objections to Hyundai Motor India's proposed transactions, which add up to more than ₹31,500 crore. Hyundai Motor India's board resolutions for the seven transactions will pass even if all institutional and retail investors vote against them, given that its South Korean parent controls over 82% of the company’s shares. It is a commonly accepted practice among companies, especially ones that are part of large groups, to enter into related-party transactions for sourcing raw materials and parts and for availing certain services.