The Corporate & Commercial Law Society Blog, HNLU

Author: HNLU CCLS

  • The Insolvency Blind Spot: Why India Needs a Tailored Resolution Framework for Cooperative Banks

    The Insolvency Blind Spot: Why India Needs a Tailored Resolution Framework for Cooperative Banks

    SOMESH RAI, FIFTH- YEAR STUDENT AT DBRANLU, SONEPAT

    INTRODUCTION

    The Insolvency and Bankruptcy Code (‘IBC’) was brought in the year 2016. The IBC brought in speed, certainty, and transparency, and for a while, it seemed that India had finally bridged the gaps in its insolvency regime. However, the events of 2020 exposed a critical blind spot in this seemingly comprehensive framework. Even as the IBC extended its ambit to corporate entities, partnerships, and individuals, cooperative banks, an important financial institution and integral part of India’s credit system, remained outside its scope. The fall of the Punjab & Maharashtra Cooperative Bank revealed the blind spot of IBC and its inadequacy to deal with the insolvency of cooperative banks, leaving depositors highly vulnerable and regulators constrained. The problem is not only historical but a persistent threat, underscored by more recent incidents of co-operative banks like the New India Co-operative Bank in early 2025. The core blind spot remains in the failure of a framework to handle the failure of co-operative bank is still dangerously absent.

    COOPERATIVE BANKS IN INDIA

    Cooperative Banks are community-driven financial institutions that work on a democratic principle different from commercial banks. Commercial banks, which are typically incorporated under the Companies Act, 2013, are ideally profit-driven enterprises. They are financial institutions that are owned by shareholders, managed by professionals, and driven by a primary objective, which is maximizing the profit for their investors. At their core, commercial and cooperative banks are built on different philosophies.

    The fundamental difference lies in who holds the power. While commercial banks are owned by shareholders, cooperative banks are owned and managed by their members, who control the institution through a democratic process based on the “one person, one vote” principle. This democratic governance, where members elect their own board of directors, is the cornerstone of the cooperative model.

    THE TWO CAPTAIN SHIP

    Imagine a single ship with two captains steering it, each with their own set of maps and responsibilities. This is, how a cooperative bank is regulated. The two captains here are the Reserve Bank of India (‘RBI’) and the Registrar of Cooperative Societies (‘RCS’). The RBI is responsible for the bank’s “banking and financial” functions. This includes issuing licenses to a new cooperative bank under Section 22 of the Banking Regulation Act 1949, setting prudential norms like the capital to risk-weighted asset ratio and non-performing asset classification, and regulating its core banking operations under the Banking Regulation Act, 1949. RCS is a state-level authority (or central, for multi-state societies) that governs the bank’s “cooperative” character. The RCS is in charge of incorporation, registration, management, board elections, and, most critically, the audit and liquidation under Section 86 of the Multi State Cooperative Societies Act, 2002, (or winding up) of the society under the respective State Cooperative Societies Act. Cooperative Banks are formed either under acts of the state legislature, depending on their coverage in a state, or under the Multi-State Cooperative Societies Act of 2002, an act of the Parliament of India, if they provide their services in multiple states. The Multi-State Cooperative Societies Act governs the cooperative character of banks. In contrast, the Banking Regulation Act, 1949, grants the Reserve Bank of India certain powers related to the financial functioning of banks.

    This bizarre split originates from the Constitution of India itself. Under the Union List, the Central Government has exclusive power to legislate on “Banking” as per Entry 45, List I. In contrast, under the State List, the state governments have power over “Co-operative societies” as per Entry 32, List II. This constitutional division is the legal bedrock of the dual control problem.

    This split establishes a no-man’s land when it comes to regulatory oversight, giving a chance for malpractices to occur. The Punjab & Maharashtra Cooperative Bank crisis is the textbook example of this two-captain system failing catastrophically. This meant that the RBI, the country’s financial watchdog, could see the major red flags in PMC’s lending practices through its false balance sheets and fake entries showing NPA’s as standard assets But even when it spotted these problems, its hands were tied. Under the Banking Regulation Act of 1949, it simply didn’t have the direct power to punish the managers responsible for the fraud.  

    On the other hand, there was the Registrar of Cooperative Societies. This was the authority in charge of the bank’s management and board, but they often lacked the specialized financial expertise to really understand the complex risks involved in modern banking. This created a perfect catastrophe. PMC’s board, which answered mainly to the registrar, was able to manipulate records and hide its massive, fraudulent exposure to Housing Development & Infrastructure Limited for years, knowing that no single authority had complete and effective oversight. It was a classic case of shared responsibility becoming no one’s responsibility, where each regulator could just assume the other was watching, allowing the fraud to grow unchecked until the bank imploded.

    THE INSOLVENCY BLINDSPOT

    When any big company in India goes down, we immediately hear three letters: IBC. The Insolvency and Bankruptcy Code, 2016, is our country’s modern and powerful tool for addressing corporate failure. So, when a cooperative bank fails, the most logical question is, why can’t we just use the IBC?

    The answer is buried in the legal provisions of the IBC itself, and it is the primary reason cooperative bank depositors are left vulnerable. IBC’s main tool is the Corporate Insolvency Resolution Process initiated against a “corporate debtor“.

    This is where the legal trail begins-

    1. Who is a “Corporate Debtor”? The IBC defines it under section 3(8) as a as a “corporate person” who owes a debt to someone.
    2. Who is a “Corporate Person”? Under Section 3(7) of the IBC, it is defined as a “corporate person” as a company, a Limited Liability Partnership (LLP), or any other body with limited liability explicitly excluding any financial service provider.
    3. What is a “Financial Service Provider”? The IBC then defines a “financial service provider” in Section 3(17) as any entity engaged in the business of providing “financial services” under a license from a financial sector regulator. The definition of “financial services” in Section 3(16) is broad and includes activities like “accepting of deposits”.

    A cooperative bank, by its very nature, accepts deposits from the public and is partially regulated by the RBI. This makes it a “financial service provider” under the IBC’s definition. Because financial service providers are excluded from the definition of a “corporate person,” hence a cooperative bank is not considered a “corporate debtor.” Therefore, the entire machinery of the IBC, designed for swift and efficient resolution, cannot be applied to it, which creates a legal loophole, a blind spot of the Insolvency and Bankruptcy Code 2016.

    It was a deliberate attempt by The Bankruptcy Law Reforms Committee, which drafted the IBC, to keep the financial institutions out of the standard Corporate Insolvency Resolution Process(‘CIRP’) for particular reasons, such as

    1. Systemic Risk: A bank is deeply interconnected with the rest of the financial system. Its failure can trigger a domino effect, causing a “contagion” that could destabilize other healthy institutions and the economy as a whole.
    2. Nature of Creditors: The creditors of a bank are thousands, sometimes millions, of ordinary depositors whose life savings are at stake unlike commercial creditors. A standard insolvency process is not designed to handle this kind of widespread public impact.
    3. Need for a Specialized Framework: Due to these unique risks, lawmakers believed that financial firms required their own specialized framework for resolution. Section 227 of the IBC empowers the union government to create special rules for the insolvency of financial service providers.

    The problem is that while the government did use this power to notify a special framework for certain large Non-Banking Financial Companies, cooperative banks were left out. They were excluded from the primary IBC process but were never included in a viable, alternative one. They were left stranded in a legal grey zone, subject only to the old, slow, and inefficient winding-up processes under the control of State Registrars. This deliberate, yet incomplete, legislative action is the ultimate reason why the failure of a cooperative bank becomes a prolonged nightmare for its depositors.

    FIXING THE BLIND SPOT: IS THERE A WAY FORWARD?

    The 2020 amendment to the Banking Regulation Act was a good first step, but it didn’t go far enough. While it tightened the rules to help prevent future failures, it left the fundamental insolvency gap wide open. The real nightmare for depositors isn’t just a bank failing but the broken, slow-motion, and completely uncertain resolution process that follows. Recognizing this, the RBI constituted an Expert Committee on Urban Co-operative Banks, chaired by former Deputy Governor N. S. Vishwanathan. Its key recommendations included A Four-Tiered Regulatory Framework The idea was to classify Urban Cooperative Banks into four different tiers based on the size of their deposits. It recommended the creation of a national-level apex body for Urban Cooperative Banks, now established as the National Urban Co-operative Finance and Development Corporation (‘NUCFDC’) to provide capital, liquidity support, technological infrastructure, and fund management services.

    Nevertheless, even these vital reforms do not fix the insolvency blind spot. They are a preventative medicine, and not a surgical process. They aim to keep the patient healthy but offer no new procedure if the patient suffers a catastrophic failure.

    The ultimate solution must be legislative. The government needs to either amend the Insolvency and Bankruptcy Code to bring cooperative banks under a special, tailored version of the CIRP or create an entirely new, parallel resolution regime for them. The “two captain ship” must now be decommissioned and a new law must establish a single, empowered resolution authority. The RBI can be the sole authority with all financial oversight, supervision and resolution power vested in it limiting RCS to its cooperative governance. This new framework must be time-bound unlike the traditional slow liquidation process to both preserve the bank and protect depositors. A tier-based framework should be brought in where smaller banks in tier 1 should have a simplified process for swift amalgamation or mandatory payout of insured deposits within 15-20 days. And for larger banks a bridge bank can be established to ensure uninterrupted service to depositors during the liquidation process. Further in cases where a cooperative bank is showing signs of financial distress (but is not yet collapsed), the RBI could trigger a “Supervised resolution period.” During this time, the banks management will be statutorily required to prepare a pre-packaged merger or sale plan with a healthy institution like the pre-packed resolution process given for MSMEs under IBC. If the bank’s health deteriorates past a certain point, this pre-approved plan can be activated instantly which will prevent the post collapse chaos. Until these legal loophole in the IBC are closed, the money of millions of Indians will remain exposed to the very paradox that brought PMC Bank to its knees, the paradox of a bank that is not entirely a bank when it matters most.

  • Expanding The Meaning of Sufficient Cause under Section 58 (1)

    Expanding The Meaning of Sufficient Cause under Section 58 (1)

    BY PRIYAM MITRA, THIRD- YEAR STUDENT AT NLSIU, BANGALORE

    INTRODUCTION

    Through judicial pronouncements and legislative clarifications, the seemingly unbridled power of free transferability of public companies is constrained by two clauses: one stating that any contract between two or more persons would be enforceable as a contract (proviso to Section 58(2)) and; secondly, the public company may refuse to register this transfer of shares by showing sufficient cause (Section 58(4)).

    There is considerable literature on why employee stock option schemes are introduced in various different ways. Specifically in firms where there are capital constraints, which is often the case in unlisted public companies, these strategies are often deployed for the purposes of “employee retention and sorting”. It is also well established that after the lock-in period of these schemes, these shares are to be treated in the same way as other equity shares; this means that for public companies this would lead to principles of free transferability being applicable thereon upon such shares given to employees.

    It is the argument of the paper that in this context, the meaning given to the term “sufficient cause” under section 58(4) must be read in an expansive manner so as to cover instances where allowing further transfer of these allotted shares would be perverse to the interests of the company. To do this, the NCLAT judgement of Synthite Industries Limited v. M/s Plant Lipids Ltd. (2018), which emphasises directors’ duties under Section 166(2) would be relied on.

    FOUNDATIONS OF EMPLOYEE STOCK OPTION PROGRAMS AND POSSIBLE ROADBLOCKS

    A. Reasons for ESOP Schemes

    As mentioned before, there has been a growing trend in industries where rather than providing incentives to employees to work, ESOPs are used for sorting and selection of those who are optimistic about the future of the company. This is why it makes sense for even public companies to get the benefit of ESOPs even though traditionally there should have been no restrictions on the transferability of public company shares. However, what is often overlooked in analysis is then how do those who receive these options exercise them and whether these transactions can be restricted in view of other important consideration as out lined later (namely whether there is sufficient cause to believe that the transfer would result in harming the interest of all shareholders).

    B. Nominee Directors

    Before the enactment of the Company Act 2013, there had been academic concerns expressed with respect to independent directors receiving stock options. The reason for this was rooted in the fact that independent directors, by the nature of their role, had to be independent of any pecuniary interest in order to perform their function. Stock options in this context would dampen this independence and rightfully, Indian law averted this error through the SEBI (Share Based Employee Benefits) Regulations, 2014. The rules define “employees” as explicitly not including “independent directors” (Rule 2(1)(f)(ii)).

    However, inadvertently, the category of nominee directors has been categorically excluded from the category of independent directors under Section 149(6) of the Companies Act, 2013, and this means that they are covered under the definition of employee for the purpose of stock option schemes. To understand why this is a possible roadblock to achieving the purpose of stock option schemes, the peculiar role of nominee directors has to be analysed.

    Nominee directors have become a regular part in corporate structures in India. Due to them owing their duty to the nominator but sitting on the board of directors. There is always a speckle of concerns related to conflict of interest. Indeed, it has been observed in decisions that in a situation where these two interests are at conflict, they would be placed in an “impossible position”. Coming back to why this is an issue in the context of ESOPs, it must be understood that while the ESOPs cannot be transferred to any third party (the option to buy (Rule 9)), the shares issued to nominee directors pursuant to ESOPs, however, may be transferred to the nominating institutions. This conspicuously places the nominee directors in such a position where the nominating institutions may meddle in the functioning of these directors pushing for transfer of these lucrative shares.

    There could be an argument that there is a solution already implicit in the rules. That is, the companies may choose any period as the lock-in period (the period during which these shares cannot be transferred). However, unlike the provisions on sweat equity (3 years), there is no such minimum lock-in period prescribed. It is difficult for companies to deploy one single lock-in period for all kinds of employee and having such a strict period would be prejudicial to the employees’ interests. Therefore, it is argued, in exceptional circumstances Section 58(4) must be used to restrict transactions on a case-to-case basis.

    SUFFICIENT CAUSE UNDER 58(4)

    To solve the issues identified in the previous section, this paper proposes an expansive reading of sufficient cause under Section 58(4) as a possible solution. To understand the contemporary legal position, analysis must start from before the introduction of the Companies Act in 2013. Section 58(4) of the 2013 Act clarifies the position established by Section 111A of the Companies Act, 1956. Section 111A (3) provided an exhaustive list of instances (contravention of and law in India) wherein such refusal would be upheld. It was consistently held by the Courts that sufficient cause had to be read in this narrow manner.

    The recent line of cases starting from Mackintosh Burns v. Sarkar and Chowdhury Enterprises, recognise the wider ambit of sufficient cause under the Companies Act 2013. Mackintosh’s reasoning was based on simple facts of a competitor trying to buy shares in a company, a simple case of conflict of interest, hence, the Supreme Court concluded that at least in such cases, sufficient cause would entail something more than mere contravention of law. Synthite goes further and provides more robust reasoning even though the fact scenario here was very similar to Mackintosh. The court accepts the appellants arguments and holds the wisdom of the Board of Directors in high regard by forming a link between their fiduciary duty (Section 166(2)) to act in a bonafide manner and advance the company’s interests, to their refusal of registration of transfer (under Section 58(4)) (paras [10],[16],[22]). This effectively means that their refusal to register shares in this case was deemed reasonable because the board acted in a bonafide manner to advance the interests of the shareholders.

    In fact, a recent case heard by the Delhi High Court in Phenil Sugars Ltd. v Laxmi Gupta, was decided in a similar vein as that of Synthite (though the NCLT decision is not cited) wherein the Court held that registration of shares can be restricted where:

    “[27]There is an apprehension that the transfer is not in the best interest of the company and all its stakeholders including the shareholders;

    ii. The said apprehension is reasonable and there is material on record to support the apprehension.”

    The case is a monumental step forward. Till now, the cases primarily dealt with the transfer being done to a competing company, however, in this case, the court considered the refusal to be reasonable as the transferees had a history of meddling in the corporate affairs of the company through constant complaints. On the twin test laid down, the High Court considered the cause to be sufficient.                                                                                           

    CONCLUSION: RESTRICTING TRANSFER OF ESOP SHARES THROUGH SECTION 58(4)

    Realising the purpose behind ESOPs, that is, rewarding and more importantly retaining employees and shares within the company, leads to the conclusion that the board must be given the power to refuse registration of transfer. This is solidified by the emerging jurisprudence in India with respect to the ambit of sufficient cause under Section 58. It is argued that this determination would vary greatly with the unique facts and circumstances of each case.

    In case of nominee directors transferring the shares to their nominating institutions, one must look at the standard put forth by Synthite (invoking the directors’ fiduciary duty in making this decision)and the courts should not be constrained by the restrictive interpretation that sufficient cause would exist only when shares are transferred to competing companies (Phenil Sugars). It must be accepted that “deferring to the Board’s wisdom” would surely encompass such situations where a transfer would defeat the purpose of ESOPs and indirectly derogate the interests of all stakeholders. If nominee directors transfer shares to their nominating company, then they would be put in a precarious situation caught in between conflicts on interests.

    However, this does not mean that all ESOP receivers would be estopped from transferring their shares, this determination has to be made considering all the terms of the ESOP and the relationship that the company shares with the employee. What this paper has argued is that sufficient clause has to be interpreted in a wide way so as to restrict any transaction that would be prejudicial to the interests of all shareholders. Transfer of ESOP shares (usually) at a lower price needs to be maintained within the company and its employees, specifically when it is at a nascent stage; this should surely constitute sufficient cause.

  • India’s Basel III Paradox: Failure of Mechanics Not Morals

    India’s Basel III Paradox: Failure of Mechanics Not Morals

    BY SMARAK SAMAL, LL.M STUDENT AT NLSIU, BANGALORE

    INTRODUCTION

    It is significant to write down a paradox that openly and dauntingly exists in the Indian banking system, and it should not be reduced to a conflict between strict regulations and lax implementation. There have been multiple occurrences in the Indian system, where white-collar actors have been able to get around the procedural flaws in banking regulations without having to go for deceptive techniques because these safety nets work well as a tool. Yes Bank, Infrastructure Leasing & Financial Services (‘IL&FS’), and Punjab National Bank’s (‘PNB’) crises are indications that they were not just typical governance failures but rather savage attacks on particular systemic underpinnings. The article’s main focus is the willful breach of Basel III regulations, which clarifies topics outside the typical crisis history and improves comprehension of system convergence. To give certain clarity, Basel III relies on 3 core Pillars. Pillar 1 ensures that banks have sufficient capital to absorb market, credit and management risks and hence sets up minimum capital requirements. Whereas supervisory guidance compelling regulators to measure bank’s internal risk control mechanisms and inducing concrete steps when defaults are recognized are acknowledged in Pillar 2. Lastly, Pillar 3 integrates market discipline by warranting public disclosures, permitting market participants and investors to judge a bank’s risk portfolio.

    PNB: THE CIRCUMVENTION OF PILLAR 1 OPERATIONAL RISK CAPITAL

    To start with the PNB scam, which was made possible by Letters of Undertaking (‘LoUs’), was both dramatic and a prime example of the inherent flaws in the Basel III methodology. The Basic Indicator Approach (‘BIA’) is being used by Indian banks to model operational risk in capitalisation. According to the BIA, banks must have capital that is equivalent to 15% of their average gross earnings over the previous three years.The true deception of the scheme lay in avoiding this exact calculation.

    Basically, the fabricated LoUs were exchanged through the Society for Worldwide Interbank Financial Telecommunication (‘SWIFT’) mechanism but never really entered into PNB’s Core Banking Solutions (‘CBS’). Since the official books of the bank were never made aware of these transactions, they never fed into the gross-income figure upon which the BIA is calculated.Thus, PNB’s reported operational-risk capital appeared adequate on paper but was derived from data that unobtrusively sidestepped multi-billion-dollar exposure. Theoretically, there was nothing technically wrong with the BIA formula except that its inputs were corrupted, rendering the compliance meaningless.

    This indicates that Pillar 1’s strict capital ratios come into play only when the bank’s data generation processes are maintained rigorously. The collapse of Pillar 2 calls for Supervisory and Evaluation Process (‘SREP’), which is marked at this juncture. Since 2016, the Reserve Bank of India has issued warnings regarding the dangers of handling SWIFT outside of the CBS.These cautions went unheeded and hence, PNB’s non-compliant “compliance reports” were approved during inspections.  This further suggests that, Pillar 2 supervision can’t be a mere ministerial exercise. It requires digging into the technical details of the Bank’s system since even one missing integration can render the entire Pillar 1 capital framework useless.

    IL&FS: SUBVERTING PILLAR 1 CREDIT RISK VIA A CORRUPTED PILLAR 3

    On the other side, the crisis of IL&FS highlights how  failure in market discipline can directly poison the foundation of Pillar-1’s credit risk calculation. The failure in market discipline can be attributed to violation Pillar 3. Referring to the Basel III Standardised Approach, rating a corporate borrower according to its external credit rating enables Indian banks to establish the corresponding risk weight. For instance, a borrower with a credit rating of “AAA” only attracts a risk weight of 20 percent, and thus, a bank is only required to set aside a tiny amount of capital to cover such an exposure. With an unmanageable debt load exceeding ₹91,000 crore in origin, IL&FS maintained the highly sought-after “AAA” rating from the establishment of Indian rating agencies till a few weeks prior to its default. In fact, the agencies damaged all banks holding IL&FS assets since they failed to raise an alarm in their purported Pillar 3 role of market discipline. The Standardised Approach forced lenders to classify what was effectively a ticking time bomb as a low-risk asset, making their reported capital adequacy levels misleading and needless.

    The distinctive lesson is that the credibility of credit rating organisations closely correlates with the effectiveness of a standardised methodology. In addition to the active supervision of rating agencies and knowledge of conflicts of interest inherent in the issuer-pays model, the self-correcting nature of market forces is a myth. In the absence of trustworthy ratings, Pillar 1’s capital calculations will be a wasteful exercise that will give the financial system a false sense of security.

    YES BANK: GAMING CREDIT RISK NORMS THROUGH ASSET MISCLASSIFICATION

    The bedrock of credit risk management’s honest asset classification was hit hard by the Yes Bank debacle. Evergreening, or lending to problematic borrowers to pay off the interest on past-due obligations, was the fundamental strategy used by the bank. According to the RBI’s Prudential Norms on Income Recognition, Asset Classification, and Provisioning (‘IRAC’), any loan that is past due by more than ninety days must be recorded as a non-performing asset (‘NPA’).

    The connection to Basel III is rather straightforward. The classification of a loan determines the risk weight that is allocated to it under Pillar 1. The risk weight of a corporate loan is typically 100%. However, the risk weight rises to 150 percent and the provision requirements dramatically increase resulting in poor NPA levels. Yes Bank overstated its capital adequacy ratio and negated the need for the Pillar 1 framework by concealing problematic loans under a “standard” classification, understating both its provisioning and its Risk-Weighted Assets (‘RWAs’).

    This only adds to the troubles past this case because under the regulator’s Pillar 2 supervision, the bank showed massive NPA divergences, meaning banks’ reported bad loans and practically a margin higher by regulators. In FY19, as per RBI’s report the gross NPA stood at Rs.11,159 Crore against the declared Rs.7,882 Crore, revealing glaring disparity of 41%. However, strong action from the central bank was delayed, allowing CEO Rana Kapoor’s evergreening to become systemic. Hence, after the RBI finally stepped in, it forced his resignation and arranged the rescue.

    The takeaway is straightforward, though details concerning the classification of assets create credit risk and capital rules. The supervisors who willfully ignore the innocent misreporting don’t simply look the other way; they knowingly participate in the manipulation of Basel requirements, pushing systemic risk under the cover of compliance.

    THE INEFFECTIVE LEGAL BACKSTOP

    When regulation and supervision collapse, the legal system is supposed to provide the last remedy, but in Indian banking the legal backstop has not been able to fulfil this role effectively. The Insolvency and Bankruptcy Code, 2016 was designed to give time-bound resolution and has indeed changed promoter behaviour, but in practice most cases have crossed statutory deadlines, and by the time resolution occurs, the asset value is already diminished. The haircut problem therefore reflects not the defect of IBC alone but the failure of governance and supervision before insolvency. Nevertheless, law as a mechanism of providing remedy, loses its efficacy when procedural timelines are disregarded and asset value is diminished.

    The legal backstop that would have been the ultimate means of holding to account has turned out to be the weakest link. Instead of introducing speed of action, it introduces filters of postponement and ambiguity. Systematic risks continue to be exist even with Basel III plus in action due to lack of effective deterrence which results in further intensifying the paradox and calling for effective solutions.

    These financial crises highlight the necessity to strengthen the Basel Pillars through structural, technological and supervisory reforms. To prevent breakdown of Pillar 1 operational risk safeguards, regulators shall make any manipulation technologically undoable by compulsory, forensic system-integration audits under the RBI’s Pillar 2 ‘SREP’. It will further enable Straight Through Processing (‘STP’) between SWIFT and CBS, supported by verifiable automated reconciliation and alerts for accurate entries. Failure of Pillar 3 market discipline and disputes in Credit Rating System (‘CRA’) was exposed in IL&FS crisis and situations like this could be avoided if RBI adopts a supervisory veto by imposing higher risk weights when external ratings hide stress. Further, by enforcing penalties on auditors and CRA’s for negligence to secure integrity and accountability implementation.

    CONCLUSION: FORGING A CULTURE OF CONSEQUENCE

    The study is also looking at the main bank frauds from the Basel III perspective, within the framework of an analytical grouping with a goal at its limits. In the end, they show that the primary flaw in the Indian banking system is not laws or regulations that take on complicated shapes, but rather how they are applied. This seems to be a recurring theme: the supervisory review in Pillar 2, as covered in more detail in this section, has not adequately evaluated the procedural integrity of Pillar 1 and Pillar 3 processes. Capital ratios are regarded as final measures since they focus entirely on quality of inputs such as credit ratings, asset classification and transactional data acting as key quantitative benchmarks and headline indicators.

    India’s Basel paradox therefore is not about rules but about accountability. It is only when consequence is enforced swiftly and firmly that Basel norms can function as real protection rather than a symbolic framework. Cultivating this culture of consequence is essential if the integrity of the financial system is to be preserved.

    In the long run, this involves more than just anticipating when the banks will file their compliance reports. Supervisory oversight must shift to real time analytics from retrospective assessment, alerting instant identification of evergreening and misclassification through integrated monitoring mechanism .

    The integrity of the systems themselves as well as the integrity of the gatekeepers engaged need to be examined more thoroughly. Bank audits with a technological bent, credit rating agencies’ accountability, and the heightened examination of the misclassified asset class. Systemic integrity will be a regulatory fantasy but not an institutional reality unless India adopts the mechanical foundations of the Basel framework.

  • The Digital Dilemma: Reimagining Independent Directors’ Liability under Companies Act, 2013

    The Digital Dilemma: Reimagining Independent Directors’ Liability under Companies Act, 2013

    BY SVASTIKA KHANDELWAL, THIRD- YEAR STUDENT AT NLSIU, BANGALORE

    INTRODUCTION

    The 2025 breach compromising the personal data of 8.4 million users of Zoomcar underscores the growing prevalence of digital risks within corporate governance. Such incidents raise pressing concerns regarding the oversight obligations of boards, particularly independent directors (‘IDs‘), and call for a critical examination of S.149(12), Companies Act, 2013 (‘the Act’), which limits ID liability to instances where acts of omission or commission by a company occurs with their knowledge, attributable through board processes and with their consent or connivance, or where they have not acted diligently.

    This piece argues that S.149(12) has not kept pace with the digital transformation of corporate operations and requires legislative reform to account for the dual challenges of digitalisation: the increasing integration of digital communication in corporate operations, and its growing impact on digital corporate governance failures like data breaches and cybersecurity lapses.

    Firstly, the piece traces the evolution of the IDs’ liability regime. Further, it examines the knowledge and consent test under the first part of S.149(12), arguing it fails to address accountability challenges in the digital-era. Subsequently, it analyses the diligence test as a more appropriate standard for ensuring meaningful oversight.  Finally, the article explores how S.149(12) can be expanded to effectively tackle the liability of IDs for digital governance failures.

    UNDERSTANDING S.149(12) OF THE ACT: SCOPE AND DEVELOPMENT

    In India, the emergence of ID has evolved in response to its ‘insider model’ of corporate shareholding, where promoter-driven concentrated ownership resulted in tensions between the majority and minority shareholders. This necessitated safeguards for minority shareholders and independent oversight of management. Before the 2013 Act, the duties of directors were shaped by general fiduciary principles rooted in common law. This lacked the specificity to address the majority-minority shareholder conflict effectively. A regulatory milestone came when SEBI introduced Clause 49, Listing Agreement 2000, requiring listed companies to appoint IDs. However, it offered limited guidance on the functions and stakeholder interests these directors were expected to protect. A more detailed approach was followed in the 2013 Act, which explicitly defined the role of IDs in S.149(6), S.149(12), and Schedule IV. This marked a transition from treating IDs as general fiduciaries to assigning them a more distinct role. IDs facilitate information symmetry and unbiased decision-making. Furthermore, they are essential for raising concerns about unethical behaviour or breaches of the company’s code of conduct. Significantly, they must safeguard the interests of all stakeholders, especially minority shareholders. By staying independent and objective, they help the board make informed decisions.

    This article focuses on S.149(12) of the Act, which contains two grounds for holding IDs liable. First, if the company’s actions occurred with the ID’s knowledge and consent or connivance, provided such knowledge must be linked to board processes. Secondly, liability arises due to the lack of diligence. Since the provision uses “or,” both grounds function independently; failing either can attract liability. While knowledge must relate to board proceedings, the duty of diligence extends beyond this. It is an autonomous and proactive duty, not confined to board discussions.

    REASSESSING THE KNOWLEDGE AND CONSENT TEST

    The piece argues that S.149(12)’s knowledge and consent standard is inadequate in the context of digital governance, where risks emerge rapidly and information is frequently acquired through digital channels.

    Firstly, courts have tended to apply S.149(12) narrowly, often solely focusing on the knowledge and consent test. They fail to go a step further to assess the duty of diligence. This incomplete approach weakens accountability and overlooks a key aspect of the provision. This narrow interpretation was evident in  Global Infratech, where the IDs were cleared of liability due to insufficient evidence indicating their participation in board proceedings. Interestingly, while SEBI held executive directors to a standard of diligence and caution, it imposed no such obligation on IDs. The decision emphasised that an ID can escape liability solely on the ground of not having knowledge acquired through board processes, without demonstrating that he exercised diligence by actively seeking relevant information. A similar restricted interpretation was evident in the Karvy decision, where SEBI absolved IDs of liability as they had not been informed of ongoing violations in board meetings, without addressing their duty to proactively seek such information through due diligence.

    Further concern arises from the judiciary’s conflation of the knowledge test with involvement in day-to-day functioning. In MPS Infotecnics and Swam Software, IDs were not held liable because they were not involved in the day-to-day affairs of the company. This finding was grounded in the belief that the ID lacked knowledge of the wrongdoing. Such a reasoning exposes a critical flaw in the knowledge test, which lies in treating an ID’s absence from daily affairs as proof that they were unaware of any misconduct, thereby diluting the ID’s duty to exercise informed oversight over core strategic decisions and high‑risk domains, including cybersecurity.

    This interpretation is especially problematic in view of digital governance failures. Various grave catastrophic corporate risks like data breaches and ransomware attacks arise from routine technological processes. Storing user data, updating software, and managing cybersecurity are daily activities that are central to a company’s operations and survival. The “day-to-day functioning” standard creates a perilous loophole. It allows an ID to escape liability by remaining willfully ignorant of the company’s most critical area of risk. An ID can simply claim they lacked “knowledge” of a cybersecurity flaw because it was part of “day-to-day” IT work. Thus, this piece argues that the judiciary’s narrow reading of S.149(12), which applies only the knowledge test, is inadequate in the digital domain. IDs need not be technology experts. Still, they must ask the right questions, identify red flags and ensure appropriate governance mechanisms are in place, including cybersecurity, thus reinforcing the need to apply the diligence test more robustly.

    Another shortcoming of this test is its over-reliance on attributing ID’s knowledge only to matters in formal board processes. In the digital era, this approach overlooks the reality that board decision-making and oversight increasingly occur outside the confines of scheduled meetings. The integration of real-time digital communication channels such as Gmail and WhatsApp highlights crucial gaps. It creates an evidentiary vacuum, since highly probative indications of negligence, like the dismissal of a whistleblower’s alert or a decision to ignore a cybersecurity risk, may be discussed within informal digital communications. Limiting knowledge to board meetings enables plausible deniability. IDs may engage in and even influence critical decisions through private digital channels, omit these discussions from the official record, and later easily escape liability under the knowledge standard, despite having complete awareness of the wrongdoing. Cyber crises unfold without warning, long before the next board meeting is convened. Their rapidity and opacity require IDs to act through digital channels. The exclusion of these communications from the liability framework offers an easy shield from responsibility.

    Compounding this issue, the requirement of “consent or connivance” fails to capture digital corporate environment nuances. Consent is no longer limited to clear, documented paper trails, but is often expressed by various digital cues in businesses. A “thumbs up” emoji in a WhatsApp group could signal agreement, acknowledgement, or simply receipt, therefore giving IDs room to deny intent and escape liability. This problem is exacerbated by end-to-end encryption and disappearing messages features on some instant-messaging applications. It allows erasing potential evidence. Moreover, connivance or covert cooperation can now take subtler digital forms, like an ID editing a cloud-sharing Google Document, replacing “imminent risk” with “need routine system check” in an audit report, intentionally downplaying a serious breach warning. The current wording of the provision is silent on whether this would make an ID accountable.

    Therefore, it is evident that the knowledge and consent test is insufficient in the face of pervasive digitalisation and warrants a wider interpretation in light of the foregoing developments in corporate operations.

    THE DILIGENCE TEST: A STRONGER STANDARD

    While ID liability has often been confined to the narrow ‘knowledge test,’ SEBI’s order in Manpasand Beverages Ltd. reasserts the importance of diligence. On 30 April 2024, SEBI held the company’s IDs responsible, noting that although they claimed a lack of access to vital documents, they made no effort to obtain them. This ruling signals a renewed commitment to holding directors accountable beyond mere knowledge.

    This is beneficial in the context of digital governance failures, as the diligence test provides a stronger framework for ensuring accountability; it imposes an obligation on IDs, as highlighted in Edserv Soft systems, where it was observed that due diligence requires questioning irregular transactions and following up persistently with uncooperative management. The Bombay Dyeing case held that IDs in audit committees are expected to question the presented information and actively uncover irregularities, even if deliberately hidden. It emphasised that IDs must question accuracy and demand clarity without relying solely on surface-level disclosures. The same heightened duty must apply to digital governance, where concealed cyber risks like breaches or ransomware pose equally serious threats and require equally proactive investigation.

    Therefore, the diligence test is more effective for tackling digital corporate governance failures as it replaces passive awareness with active oversight. Since these digital threats often remain hidden until too late, waiting for information is insufficient. It is not a tool for operational meddling but for high-level strategic scrutiny, like questioning a cybersecurity budget marked below industry benchmarks for a data-intensive organisation.

    CONCLUSION: CHARTING THE WAY FORWARD

    As shown, S.149(12) of the Act, in its current form, appears ill-equipped to tackle the realities of digital corporate governance failures. This concern may be addressed through an evolved interpretation of the existing framework, potentially supplemented by a clarificatory Explanation to S.149(12), specifically tailored to digital threats.

     A logical starting point for this evolution is a broader reading of “knowledge.” It can be expanded to include not only information attributable to formal board meetings but also any material information communicated to, or reasonably accessible by, the ID through any mode, including digital means. Additionally, a rebuttable presumption of “consent or connivance” can be inserted where IDs, after gaining such knowledge, fail to record objection or dissent within a reasonable time, especially when the matter involves a material risk to the company or a breach of law. This approach does not set a high threshold; it merely shifts the onus and strengthens timely oversight, encouraging IDs to speak up. Given the potential severity of cyberattacks, such an approach aligns with the need for heightened vigilance in digital governance.

    Further, the timeless duty of due diligence may be interpreted to include a baseline level of digital literacy. While they need not be technology professionals, they must understand enough to ask relevant questions and assess whether management has adequately addressed digital risks. Without this foundational competence, IDs cannot meaningfully engage with cybersecurity, data governance, etc, leaving oversight dangerously superficial.  Embedding this requirement under S.149(12) makes it a statutory duty, ensuring that failure to acquire or apply such skills can directly trigger liability. In the modern corporate landscape, technology is not optional; rather, essential and enduring. Therefore, IDs must be equipped to fulfil their duties in this environment.  

  • Contesting The ‘Big Tech’ Tag: India’s Digital Competition Bill At A Turning Point

    Contesting The ‘Big Tech’ Tag: India’s Digital Competition Bill At A Turning Point

    BY UJJWAL GUPTA AND BHAVISHYA GOSWAMI, SECOND- YEAR STUDENTS AT RMLNLU, LUCKNOW

    INTRODUCTION

    With India’s digital economy being nearly five times more productive than the rest of the economy, technological​‍​‌‍​‍‌​‍​‌‍​‍‌ companies have become central economic actors of a rapidly digitalising India, which prompted the need for a digital competition law to prevent the build-up of market power before it materialises. The Digital Competition Bill, 2024 (‘DCB’), aims at introducing ex-ante oversight to ensure competition in digital markets, thus complementing the already existing ex-post regime under the Competition Act, 2002. The DCB envisages a regime to identify Systemically Significant Digital Enterprises (‘SSDE’) and to impose conduct obligations on them.

    However, the draft has sparked discussion about whether its design manages to achieve the proper balance between restraining potential gatekeepers and protecting the growth of India’s tech ecosystem. While industry players and policy-makers generally agree on the necessity to control highly concentrated digital power, they are still worried that this tag may negatively affect rapidly growing Indian companies. The emerging proposal to allow companies to contest their SSDE designation reflects this balance-seeking approach. It indicates that the balance between protecting competition and giving the regulated entities fair treatment is not lost, i.e. the control does not hamper the innovation, investment, and the rise of domestic digital ​‍​‌‍​‍‌​‍​‌‍​companies.

    The SSDE DESIGNATION DEBATE

    One​‍​‌‍​‍‌​‍​‌‍​‍‌ of the key ideas of the DCB is SSDEs, which are entities that, due to their scale, reach, or market interlinkages, require ex-ante regulatory oversight. Under section 3 of the draft Bill, a company may be designated as an SSDE if it meets certain financial and user-based criteria. For example, a turnover in India of ₹4000 crore, global market capitalisation of USD 75 billion, or at least one crore end users. Besides, the Competition Commission of India (‘CCI’) can also identify an enterprise as an SSDE, even if it does not meet these quantitative criteria, by using qualitative factors like network effects, market dependence, or data-driven advantages. This allows the CCI to take preventive measures by identifying “gatekeepers” before their dominance becomes monopoly power.

    However, the Parliamentary Standing Committee and industry associations have pointed out that India’s comparatively low user threshold (one crore end users) might inadvertently prematurely rope in rapidly growing domestic firms, like Zomato or Paytm, that are still in the process of consolidating their market positions. By equating India’s digital scale with that of smaller Western markets, the Bill could act as a silent killer of innovation, deterring investment and freezing the entrepreneurial spirit. The concern is that the Bill’s broad definition of “systemic significance” could lead to a growth penalty and disincentivize the very growth India seeks to encourage under its “Digital India” and “Startup India” programs.

    Globally, the DCB draws clear inspiration from the European Union’s Digital Markets Act, 2022 (‘DMA’) and the UK’s Digital Markets, Competition and Consumers Act, 2024 (‘DMCC’). Each of their aims is to control the gatekeeping power of big tech companies. However, the implementation of the measures varies. The DMA is limited to ten defined “core platform services”, and it has already identified seven gatekeepers: Alphabet, Amazon, Apple, Booking, Byte Dance, Meta, and Microsoft. Moreover, it permits rebuttals under exceptional circumstances, a measure that is not in the current draft DCB. The DMCC creates the concept of “strategic market status” for dominant firms and thus puts more focus on tailor-made conduct rules. As per Schedule I, the draft DCB identifies nine “Core Digital Services”, similar to the DMA, excluding “virtual assistants”, and introduces “Associate Digital Enterprises”, defined under section 2(2), an Indian innovation to ensure group-level accountability.

    III. The Case for a Rebuttal Mechanism

    As established earlier, a ‍​‌‍​‍‌major concern of technology firms about the DCB is the lack of a mechanism to challenge a designation as an SSDE. These firms see such a designation as bringing problems of high compliance costs and of reputational risk to them, thus potentially labelling them as monopolistic even before any wrongdoing is established.

    The Twenty-Fifth Report of the Standing Committee on Finance recognised this problem. It stated that the current proposal has no provision for rebutting the presumption of designation based on quantitative thresholds, i.e., the Committee suggested referring to Article 3(5) of the DMA by implementing a “rebuttal mechanism in exceptional cases”. This would allow companies that meet or exceed quantitative criteria to demonstrate that they do not possess the qualitative features of gatekeepers, such as entrenched dominance or cross-market leveraging.

    Article 3(5) of the DMA is a good example in this case. Under it, companies can show “sufficiently substantiated arguments” which “manifestly call into question” their presumed gatekeeper status. In ByteDance v. Commission, the General Court of the European Union set a high standard for the issue and demanded that the companies bring overwhelming evidence and not mere technical objections. Firms like Apple, Meta, and Byte Dance have used this provision as a ground to challenge their identification; however, the evidentiary burden is still significant, and market investigations go on despite the fact that compliance with obligations is expected within six months after designation. Yet, the EU’s model illustrates that a rebuttal does not weaken enforcement; rather, it enhances it by allowing for flexibility in rapidly changing markets without compromising the regulator’s intention.

    The implementation of a similar mechanism in India would be beneficial in several ways. It would enhance the predictability of regulation and discouraging the over-designation of large but competitive firms, and also send a signal of institutional maturity consistent with international standards. In this context, the Centre is reportedly considering the introduction of an appeal mechanism that would allow firms to contest their designation after a market study on the digital sector is completed. However, the government still needs to deal with the possible disadvantages, such as the delay of enforcement against dominant players, the procedural burden on the CCI and the risk of strategic litigation by well-funded ​‍​‌‍​‍‌​‍​‌‍​‍‌corporations.

    IV. Dynamic vs. Fixed Metrics: Rethinking ‘Big Tech’

    The biggest challenge in DCB lies in the criteria for identifying SSDE as choosing between fixed quantitative metrics and dynamic qualitative assessments will shape administrative efficiency and long-term success. DCB follows primarily fixed metrics based on the DMA , having fixed quantitative criteria such as valuation or turnover for SSDE designation.

    The biggest advantage of fixed metrics is its speed and legal certainty. It becomes very simple vis-à-vis the administrative screening process when one has clear numerical boundaries, which then allows CCI to quickly identify the potential firms that pose competitive risks. However, this approach has attracted a lot of criticism. Industry stakeholders opine that the thresholds in DCB are “too low” and oversimplistic in the wage of a unique economic context and population scale of India.

    Another limitation is the risk of arbitrariness; if the benchmark were solely based on numerical terms, it could disconnect from the regulatory framework in finding a genuine entrenched competitive harm. For instance, in a market as large as India, having a high user database may only reflect the successful scaling and effective service delivery rather than having the real ability to act as an unchallengeable bottleneck. This challenge, where restriction is just imposed because a firm is successful irrespective of conserving if that firm has demonstrated any specific harmful market power, has led to a widespread demand that SSDEs forms should be allowed to contest this designation, and this tag should be revoked if they prove not to be harmful in the competitive or entrenched market power.

    On the other hand, the dynamic criteria are recognised in the DMCC, where the firm must possess ‘substantial and entrenched market power’. Through this, the UK regime can put conduct requirements based on qualitative and contextual market analysis, rather than quantitative analysis. However, its effective application requires resources vis-à-vis institutional capacity and legal justification while imposing terms on powerful firms.

    The dynamic criteria have been recognised by the CCI itself and provided a roadmap, which highlights the challenges arising out of the structural control that the big players have across the entire AI value chain and AI ecosystems, especially the control over data, computing resources, and models. The definition of the “significant presence” shall expand beyond turnover and should incorporate the firm’s control over the proprietary and high-quality resources, such as high-end infrastructure.

    V. The Road Ahead: Regulation without Stifling Growth

    The DCB will have a significant responsibility to manage the compliance needs of such a large country in its evolving shape. For that, the government is considering the establishment of a dedicated Digital Markets Unit within the CCI. It will be responsible for communicating with industry, academia, regulators, government, and other stakeholders, and facilitating cross-divisional discussions. It will avoid any structural damage caused by delays in the above-mentioned things.

    Yet another challenge is the very limited capacity of Indian regulators compared to other jurisdictions, which leads to the execution of prescriptive and technically complex regulations being extremely challenging. This deficiency in terms of specialised economists, data scientists, and technology lawyers would be the deciding factor in this fast-changing world, and India needs to cope with this as soon as possible.

    India’s number one priority is job creation through rapid growth, so that we can achieve sufficient wealth for all age groups. In the present scenario, policy experts have criticized the DCB, saying that it is “anti-bigness and anti-successful firms” that discourage Indian firms from expanding globally. Therefore, the DCB should maintain a balance that gives a fillip to competitiveness in the market while upholding the digital scale and innovation of one’s country.

    The DCB overlaps with the recently implemented amendments to the Competition Act, 2002. The Competition (Amendment) Act, 2023, has introduced the Deal Value Threshold, which makes it compulsory for any merger and acquisition that exceeds INR 20 billion to be notified prior. The problem would be the friction between the conduct control that the DCB would govern through its conduct rules and prohibitions, and structural control, because the mergers and acquisitions are subject to DVT clearance under the Competition (Amendment) Act.

    This dual scrutiny increases the legal complexity and transactional costs. Thus, if the proposed Digital Markets Unit under DCB lacks clear guidelines as to harmonise the existing inconsistencies between the conduct requirements and merger clearance conditions. This would lead to nothing but slowing down essential acquisitions imperative for scaling of the firm, and would contradict the overall aim of promoting efficient market dynamics.

  • India’s Social Stock Exchange: How Compliance Strains Impact NPOs and Social Impact Assessors?

    India’s Social Stock Exchange: How Compliance Strains Impact NPOs and Social Impact Assessors?

    BY DHARSHAN GOVINTH R AND SIDDHARTH VERMA, FOURTH- YEAR AT GNLU, GANDHINAGAR

    INTRODUCTION

    India’s Social Stock Exchange (‘SSE’) is a trend-setting initiative introduced by the Securities and Exchange Board of India (‘SEBI’) in 2022, which by aiming to align capital markets and philanthropic purposes intended to give a fund-raising ground for non-profit organizations (‘NPO’) and other social entities. But this initiative is displaying some strains especially after the SEBI circular issued in late September 2025 which made some modifications in SSE’s compliance framework bringing forth the credibility-capacity paradox, which would be examined in this research work.

    This article explores this paradox of credibility and capacity, by first outlining the recent modification brought out by SEBI. Secondly it is followed by a thorough analysis of the modified compliance architecture is done to assess as to what makes this framework problematic. Thirdly, an analysis of SSEs in different countries is done to highlight upon potential modifications which can be done in India.  Finally, it gives some ideas of reform to balance the rigor and inclusivity in the present framework.

    THE MODIFIED FRAMEWORK AND ITS FAULTLINES

      The circular of SEBI has established a compliance framework, where the modifications as follows are of significance. The circular mandates 31st October of each year as the deadline to submit a duly verified Annual Impact Report (‘AIR’) by all fundraising non-profits. It also mandates those non-profits which have been registered on SSE but haven’t listed their securities to submit a self-reported AIR covering 67% of the program expenditure. Then, there is a mandate that all the above AIRs need to be assessed by Social Impact Assessors (‘SIA’).

      Although initially these modifications may show that there is a sense of strengthened transparency, three problems emerge upon implementation. Firstly, the dual-track approach—which creates unequal degrees of credibility by having separate compliance requirements for two types of NPOs. Secondly, there is a problem of supply-demand as the limited supply of SIAs (approximately 1,000 nationwide) is insufficient to meet demand as hundreds of NPOs enter the SSE. Finally, smaller NGOs with tighter finances are disproportionately affected by compliance expenses, such as audit fees and data gathering. These concerns need to be analyzed further inorder to determine whether the SSE can provide both accountability and inclusivity.

      HOW THE PRESENT COMPLIANCE ARCHITECTURE LEADS TO CREDIBILITY-CAPACITY PARADOX?

        The present modification of the compliance framework by SEBI has in its core, the aim to grow the trust of the investors by means of mandating independent verifications. Nevertheless, this framework exhibits inconsistencies which need to be undone. The first gap that is visible is the problem of credibility. This modification proposes a dual-track SEBI’s modification institutes a dual-track compliance: NPOs that raise funds must file an auditor-verified AIR, whereas SSE-registered entities that have not listed securities (mostly smaller NPOs) may submit a self-verified AIR. This distinction creates a clear credibility gap where investors and donors will reasonably rely on audited AIRs, effectively privileging well-resourced organisations and marginalising smaller, self-reporting grassroots NPOs that lack access to auditors or the capacity to procure independent verification. Another issue is the mandatory coverage of 67% of the program expense in the AIR by the non-listed NPOs , which on one hand may lead to extensive coverage of the financials of those NPOs, but on the other hand pose a heavy operational burden on these NPOs which manages diverse programmes.  The expenses of fulfilling this duty may be unaffordable for NPOs without baseline data or technological resources.

        Moving from the issue of credibility, the challenge of capacity—stemming from the scarcity of SIAs—presents a more significant concern. The industry faces a supply-demand mismatch as there are only around 1,000 qualified assessors across India in self-regulatory organizations (‘SRO’) like ICAI, ICSI, ICMAI, etc., who are selected through qualification examinations conducted by National Institute of Securities Market. The problem is that compliance becomes contingent not on the diligence of NPOs but on the availability of auditors.

        Financial strain completes the triad of challenges. Impact audits are resource-intensive, requiring field verification, outcome measurement, and translation of qualitative change into quantifiable indicators. These tasks incur substantial fees, particularly in rural or remote contexts. Unlike corporations conducting corporate social responsibility activities (‘CSR’), which under Section 135 of Companies Act 2013 caps impact assessment costs at 2% of project outlay or ₹50 lakh, SSE-listed NPOs do not enjoy any such relief. The absence of stronger fiscal offsets weakens the fundraising advantage of SSE listing, making the cost-benefit calculus unfavorable for many small organizations.

        These dynamics create what may be described as a credibility–capacity paradox. The SSE rightly seeks to establish credibility through rigour, but the costs of compliance risk exclude the very grassroots non-profit organizations it was designed to support. Larger, urban, and professionalized NPOs may adapt, but smaller entities operating at the community level may find participation infeasible. Nevertheless, it would be reductive to see the SSE’s framework as wholly burdensome. Its emphasis on independent audits is a landmark reform that aligns India with global best practices in social finance. The challenge is to recalibrate the balance so that transparency does not come at the expense of inclusivity.

        LEARNING FROM GLOBAL SSES: AVOIDING EXCLUSIONS, BUILDING INCLUSION

          India’s SSE is not the first of its kind. Looking at examples of abroad helps us see what works and what doesn’t. For instance, Brazil’s SSE, established in 2003 raised funds for about 188 projects but mostly attracted larger NPOs, leaving smaller groups behind. In the same way, the SSE of UK, established in 2013 favored professional entities as it operated more as a directory than a true exchange, raising €400 million. Both examples show how heavy compliance rules can narrow participation leaving small NPOs and eventually these SSEs failed to be in the operation in due time.

          The SSEs of Canada and Singapore, both established in 2013 also set strict listing criteria but unlike the above, paired them with direct NPO support, including capacity-building and fundraising assistance, especially for small scale NPOs. This made compliance more manageable. India can learn that it can prevent these exclusions of certain non-profits and create an SSE that is both legitimate and inclusive by combining strict audit regulations with phased requirements and financial support.

          BRIDGING GAPS THROUGH REFORM: MAKING INDIA’S SSE MORE EQUITABLE

          A multi-pronged reform agenda can address these tensions. Firstly, SEBI could ease compliance costs for small NGOs by creating a centralized digital platform with standardized reporting templates and promoting shared auditor networks to spread expenses. Further, in order to breakdown entry barriers to smaller NPOs, a phased-tier system of compliance could be implemented to the requirements for audits in the initial years. This phased tier system can be achieved for instance by first mandating 40-50% of coverage of expenditures in the audit in the initial years and then gradually rising the threshold to the 67% requirement as per the recent modification to ease compliance.

          Secondly, the creation of a SSE Capacity Fund, which could be funded by CSR allocations would be a viable step for reducing the burden of compliance and to preserve the resources of NPOs which are already limited. These subsidies and grants through these funds could maintain both financial stability and accountability of NPOs.

          Third, SROs have to develop professional capacities in a short time, which could be done by the increase in accelerated certification programmes among people who have pertinent experience. In addition, in order to protect credibility, the SROs must require the auditors to undergo rotation and then make sure that the advisory and auditory functions are never combined. Lastly, expenditure on digital infrastructure will help diminish compliance costs greatly. This could be done for instance by establishing a common platform of data collection and impact reporting which might allow small NPOs to be prepared to comply effectively. These systems could assist in bridging the gap between the professional audit requirements and the small capacity of smaller NPOs.

          CONCLUSION

          India’s SSE has undoubtedly increased the credibility of the social sector by instituting mandatory audits and transparent reporting for listed social enterprises, thereby strengthening the confidence of investors and donors. This is a significant achievement in formalizing social finance. However, this audit-driven transparency also illustrates a “credibility–capacity paradox”: rigorous accountability measures, while necessary, impose high compliance burdens on smaller grassroots nonprofits with limited resources. If there is no support or mitigation mechanisms, the SSE may inadvertently narrow the field of participants and undermine its inclusive mission. In contrast, international peers show more balanced regulatory models, thereby showing a way forward for India as well. For instance, Canada’s SSE combines stringent vetting with tailored capacity-building programs, and Singapore’s SSE employs a social-impact framework and supportive ecosystem to enforce accountability while nurturing small social enterprises. Ultimately, a mature SSE should balance oversight with inclusivity and support. If India implements this balance, which it lacks, its SSE could be an equitable, inclusive, digitally integrated and resource-efficient platform in the coming decade. Such an SSE would leverage digital reporting to cut costs and uphold rigorous transparency standards, while genuinely empowering grassroots impact.

        1. The CCI’s Nod for Resolution Plans: The 2025 Amendment Strikes the Right Note

          The CCI’s Nod for Resolution Plans: The 2025 Amendment Strikes the Right Note

          BY VAISHNAV M, THIRD- YEAR STUDENT AT NUALS, KERALA

          INTRODUCTION

          The Insolvency and Bankruptcy Code, 2016 (‘IBC’) ensconces a mechanism known as the Corporate Insolvency Resolution Process (‘CIRP’) that attempts to revive the Corporate Debtor (‘CD’) through restructuring and strategic resolution of debts. With the CD managed by a Resolution Professional (‘RP’), the Resolution Applicants (‘RA’) can propose restructuring plans to resolve debts and sustain the CD as a going concern.

          Where the plan involves acquisition, merger or amalgamation (collectively, ‘Combination’), it is important that the restructuring does not distort the competition in the market. This is where merger control and the Competition Commission of India (‘CCI’) step in. The Supreme Court in Independent Sugar Corporation Ltd. v. Girish Sriram & Ors (‘ISC’)dealt with the procedure to seek the CCI’s approval for combination during the insolvency process.

          The piece is not a general comment on the decision; instead, it aims to examine a particular point in the judgement that has not received the critical attention it deserves. That is, the particular stage at which the CCI-nod for the combination is to be obtained. This question is especially pertinent in the context of the recently introduced IBC (Amendment) Bill, 2025 (‘2025 Amendment’), which proposes to relax the timeline for the CCI’s approval for resolution plans.

          THE ISC CASE AND THE STATUS QUO

          In the ISC case, one of the RAs challenged the CIRP, citing many procedural laxities. One of the grounds was failure to seek approval of the CCI before placing the resolution plan before the Committee of Creditors (‘CoC’) for voting. According to Section 31(4) of the IBC, an RA has one year from the approval of the Adjudicating Authority (‘AA’) to obtain necessary clearances under other laws. But the proviso clarifies that the approval of the CCI for the combination is to be obtained before the approval of the CoC.

          Hitherto, the position was that this proviso is directory and not mandatory in nature, as laid down by the decision of the National Company Law Tribunal (‘NCLAT’) in Arcellor Mittal v Abhijit Guhakartha & Ors. The Supreme Court (‘SC’), in the ISC case, reversed the position by holding that the proviso is to be read literally, and treating it otherwise would render it obsolete. However, the proviso does not specify who seeks approval and at what stage before the CoC nod. In the scheme of CIRP, the stages preceding the CoC approval are:

          • Stage 1: Invitation for expression of interest from prospective RAs
          • Stage 2: Request for resolution plans from prospective RAs
          • Stage 3: Examination and confirmation of the plans by the RP
          • Stage 4: Voting by the CoC on the plans

          The SC in ISC clarified that the RA need not wait till submission of the plan to the RP before sending a notice to the CCI for approval. In effect, the approval of the CCI can be sought at any time, even in Stage 1 during the invitation for expression of interest at any point before Stage 4. The next section shall discuss the workability of the same.

          DETERMINING THE TRIGGER POINT FOR CCI NOTICE

          When to send the notice?

          According to Section 6 of the Competition Act, 2002, (‘the Competition Act’) an enterprise must send a notice of combination to the CCI when it executes any agreement or document for acquisition, or when the Board of Directors (‘Board’) of the enterprises involved approves the proposal for a merger or amalgamation.

          As held in ISC, an RA can send a notice to the CCI much before it submits its resolution plan to the RP. But is the requirement of an agreement or a decision for acquisition or the Board’s approval for merger met at Stages 1 and 2?

          An ‘agreement’ to acquire is a broad and liberal construct, and includes an arrangement of understanding or even an action in concert. Such an arrangement or understanding can be reflected in a formal or written form, and it need not have been formulated with the intent legal enforceability. In the case of the CIRP, the RP is tasked with managing the CD, including entering into contracts on behalf of the CD, courtesy Section 23 read with Section 20 of IBC. Resultantly, an agreement or understanding for the purpose of acquisition has to be between the RA proposing the combination on one side and the RP on the other side.

          But such an understanding or arrangement is absent at Stage 1. An agreement requires a meeting of minds of at least two parties, which is lacking when the RA is yet to share their proposal with the RP. Similarly, Stage 2 only marks a point where the RAs have prepared the plan. That does not signify an agreement as it is yet to be examined and understood by the RP.  

          At Stage 3, the RP examines the resolution plans proposed by the RAs and confirms whether they comply with the minimum essentials mandated by the law. This confirmation implies an agreement or an understanding, making Stage 3 and onwards the appropriate trigger for notice.

          Now, in the case of a merger or amalgamation, the notice is triggered only after the proposal is approved by the Board of both parties.[i]  In the case of a CD, the interim RP (‘IRP’) or the RP steps into the shoes of the management. Resultantly, the approval would have to be sought from the RP himself. Therefore, a notice for merger or amalgamation cannot be sent to the CCI before the plan is submitted to the RP and confirmed by them, which is Stage 3. So, the same conclusion follows – it is at Stage 3 that the notice is triggered.

          Who should send the notice?

          In the case of acquisition, the acquirer sends the notice.[ii] Generally, the successful RA submitting the plan acquires the target CD company, as was seen in the case of ISC. Therefore, it is the RA who is required to send the notice to the CCI. For merger or amalgamation, notice must be sent jointly by the RA and the RP.[iii]

          Suppose there are RAs intending to propose an acquisition in Stages 1 and 2, then all those RAs must send the notice to the CCI with the requisite fees,[iv] even before the plan is seen and examined by the RP. So, even RAs whose plan might not be voted in later would have to bear the cost at an early stage. Quite similarly, in the case of merger or amalgamation, the RP and the respective RA have to send the notice and pay the fees, jointly or severally.[v]Whether the RA or the RP handling the stressed CD would want to take the liability to pay the fees amid relative uncertainty is doubtful.

          WELCOMING THE 2025 AMENDMENT

          The 2025 Amendment has been appreciated for many desirable introductions, from the new ‘creditor-initiated insolvency resolution process’ to ‘group insolvency’. Clause 19(d) amends the proviso to Section 31(4), allowing the RA to obtain the CCI approval before submission to AA. So, the approval process can be deferred till the CoC votes on the plan and the Successful Resolution Applicant is identified. The minor change resolves the above-discussed problem of redundancy, while leaving room for seeking approval at an earlier stage.

          There are certain concerns regarding the amendment as well, but these can be addressed duly. One of the concerns is regarding compliance with the CIRP timeline of 330 days under Section 12 of the Code. However, 330 days is a general rule. The Court has already held, previously as well as in ISC, that the breach of the time-limit can be condoned in exceptional circumstances where any blame for such a delay cannot be attributed to any of the parties.

          In case the plan approved by the CoC is rejected by the CCI, it must be modified to address those objections. However, the successful RA cannot make any change at its own behest. So, once changes are made, the CoC must approve it again. Essentially, such a rejection need not be fatal to the CIRP, though it may elongate the process. In any case, Clause 19(b) of the 2025 Amendments allows the AA to return back the plan to the CoC for correcting any defects. What it reflects is that alterations made post first CoC approval is not doctrinally unacceptable. When CCI recommends changes, the CoC is well-equipped to accommodate it then and there. 

          Therefore, the proposed amendment to the procedure for CCI approval of the resolution plan is a pragmatic improvement as it spares the RA and the RP from the additional paperwork and costs that are characteristic of the existing position.

          CONCLUDING REMARKS

          The current position as settled in the ISC case does not gel well with reality. Even though it seems to make available a broad period for sending the notice, starting from Stage 1, it is generally not possible to send a notice until Stage 3 when the trigger for the notice under the Competition Act is activated. In rare cases with only one RA and mutual certainty as to the terms of the combination, this proposition in ISC might be of some use. Such cases are rare in the typically uncertain flow of business in the CIRP.

          The proposed change in the 2025 Amendment reflects the reality. The RAs and the RP can even wait till the CoC approval to send the notice. This improves ease of doing business and provides more leeway for the stakeholders to ensure compliance.

          [i] Competition Commission of India (Combinations) Regulations, 2024, Reg. 5(7).

          [ii] Id., Reg. 9(1).

          [iii] Id., Reg. 9(3).

          [iv] Id., Regs. 10, 11.

          [v] Id., Regs. 10(2), 9(3).

        2. Insolvent Airlines, Invisible Assets: India and Global Norms

          Insolvent Airlines, Invisible Assets: India and Global Norms

          BY AADITYA VARDHAN SINGH AND MANYA MARWAH, THIRD- YEAR STUDENTS AT IIM, ROHTAK

          INTRODUCTION

          The insolvency of the jet airways has impacted the economy of India and has it slowed down. The resolution plan of Jet Airways could only realise nearly Rs. 400 crores whereas the claims of the financial creditors amounted to almost Rs. 8000 crores. While the physical assets such as upside on Aircraft sales, ATR inventory, etc. were well taken into account, the intangible assets that the airline held, failed to serve the interests of the creditors and could not reap the return of the money lent.

          What went unrealised were almost 700 intangible assets in the form of airport slots which could have satisfied a significant amount of the creditors’ claims. These intangible assets are the airport slots: which are powerful operating rights, defined as a permission granted by the airport operator to use their infrastructure essential to arrive or depart at a level 3 airport on a specific date and time.
          The standard mechanism for allocating slots in India partially follows the Worldwide Airport Slot Guidelines (‘WASG’) developed by global aviation bodies like Airports Council International (‘ACI’), International Air Transport Association (‘IATA’), and Worldwide Airport Coordinators Group (‘WWACG’). Slots are assigned twice yearly, for the summer and winter seasons, and few airlines are reassigned their historical slots, primarily known as “Grandfather rights”. Airlines that utilise 80% of the slots keep it for the next season, famously known as “Use-it-or-Lose-it” rule. If the airline fails to comply with the 80% threshold, the slot goes back into the pool available to other airlines to apply and use.

          This article aims to analyse the current position of the Indian insolvency framework in the event of airline administration and how the status of airport slots in India as being untransferable has impacted the interest of stakeholders and undermined the assets recovery from airlines during insolvency.

          NATURE OF AIRPORT SLOTS: REGULATORY PERMISSIONS OR MONETIZABLE ASSETS

          Understanding Airport Slots and Their Regulation

          Airport slots are limited and therefore highly regulated by the Directorate General of Civil Aviation (‘DGCA’), an office attached under the Ministry of Civil Aviation (‘MoCA’). The existing framework is governed by the MoCA Guidelines for Slot Allocation, 2013, which restricts the transfer of airport slots, except in cases involving mergers and acquisitions or temporary rearrangements approved by the Airport Coordinator.

          This present framework that governs the allocation of airport slots deems them to merely be regulatory permissions granted by the airport coordinators rather than monetizable and transferable assets. India has witnessed multiple airline collapses, including Jet Airways, Kingfisher Airlines, and Go First. Each of these had substantial slot holdings at major domestic and international airports, which could have been of great help in reducing the financial burden on the airlines to some extent. Still, unfortunately, our insolvency framework doesn’t recognise them as an asset.

          CLASH WITH IBC OBJECTIVES

          The Insolvency and Bankruptcy Code, 2016 (‘IBC’) was designed to maximize the value of assets of insolvent companies, aiming to preserve and rescue viable businesses. According to the Code’s objectives, it seeks:

          “…to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons…for maximization of value of assets…in a time-bound manner.”

          However, ignoring slots, holding immense monetary value as assets, undermines this purpose of the IBC. The current guidelines issued in 2013 do not align with the code which was enacted in 2016 with an intent to prioritize the interests of the creditors in the event of insolvency, For example, when Jet ceased operations in April 2019, it had some of the most lucrative slots at Heathrow, Mumbai, and Delhi. However, since Indian aviation law doesn’t recognize slots as assets, the Resolution Professional couldn’t monetize them under the IBC.

          Despite multiple representations, the DGCA and MoCA refused to reallocate the historic slots to the resolution applicant, the Kalrock-Jalan Consortium, stating in an affidavit:

          “On the date of moratorium, Jet had no slots and had also lost the right to claim historicity.”

          The inability to treat slots as tradable assets meant Jet’s potential revival lost steam. The resolution applicant had no assurance of getting the airline’s most critical operating assets i.e. its airport slots. However, the DGCA reallocated Jet’s slots to rival airlines, creating further complications and deterring a clean resolution.

            In India, slots can neither be transferred nor exchanged for monetary benefits. In the event of airline insolvency, the DGCA, the authority regulating the allocation of slots in India, throws back the slots owned by airlines into the slot pool, depriving the original airline of something that could have generated millions of dollars if recognized as assets.

          GLOBAL PRACTICES: RECOGNITION AND MONETIZATION OF SLOTS

          Understanding the approach followed by other major jurisdictions towards slot trading during insolvency events is imperative to ensure proper policy formulation.

          European Union: Monetizing Slot Transfers

          The European Union (‘EU’) slot allocation is governed by EU Regulation 95/93. Article 8(4) of this document provides for airlines to transfer or exchange airport slots, with or without monetary compensation, subject to the approval of the airport coordinator. The intent behind such a liberal approach is to protect the financial interest of airlines’ creditors during insolvency proceedings and allow airlines to realize economic interest by exchanging their high-value airport slots with other airlines for their less valued airport slots and monetary benefits for the balance. Through such structured transfers, the value of these assets is not wasted but utilized to recover some part of the value for the stakeholders.

          United Kingdom: Judicial Recognition of Slot Rights

            Through the significant ruling of the United Kingdom (‘UK’) Court of Appeal (‘the court’) in Monarch Airlines Ltd v Airport Coordination Ltd (2017), the judiciary reinforced the recognition of airport slots as intangible assets holding crucial economic value. Even though the UK ceased to be part of the EU, it still holds some of the principles and regulations followed earlier, and this is one of them. In this case, Monarch Airlines had entered administration, lost its operating license, and all the aircraft on lease were returned. When the airline lost the slots, it possessed under ‘grandfather rights’, the court upheld its right over the historic slots, dismissing the argument of future slot allocation purely based on current operational status, and declared such practice as arbitrary and contrary to the regulatory framework. Even though the court explicitly declined the outright sale of slots, it permitted structured exchange and transfers involving monetary consideration.

            IATA Worldwide Airport Slot Guidelines (WASG)

            India’s currently followed guidelines reflect partial adherence to the IATA WASG. Under clauses 8.11 and 8.12 of these guidelines, transparent and coordinated Slot transfer and slot swapping are allowed with or without monetary consideration. These international practices promote liquidity in the aviation market, especially during airline insolvency.

            India aims to transform itself into a global aviation hub, which is impossible without aligning its domestic rules and regulations with those of globally adopted practices. Some Indian airports like Delhi and Mumbai have massive passenger traffic, and slots at these airports carry significant economic value. However, the insolvency event of Go First, where the slots held by the airline were reallocated in the slot pool by DGCA, providing other airlines the opportunity to avail themselves, reflected the restriction imposed on slot trading in the secondary market by existing guidelines. Therefore, recognizing slots as transferable assets and enabling their regulated transfer or exchange becomes of prime importance to improve market liquidity, protect creditors’ interests, and encourage investment in the aviation sector.

            PROPOSED SLOT TREATMENT IN INSOLVENCY

            Post the shift of treatment of slots from ‘regulatory permissions’ to ‘intangible monetizable and transferrable assets’, there is a need for complete overhaul in the framework regarding the treatment of slots as soon as an airline is declared insolvent. As per Chapter 9, Coordination after Final Slot Allocation, Section 8 Part (i) slots can only be held by an airline with a valid operating licence – “Aircraft Operators Certificate (‘AOC’)” When an insolvency proceeding is initiated against an airline, it does not automatically become inoperative and hence still has the power to hold the slots. The airline in this time period shall be entitled to either transfer the slots and monetize them until the airline holds the AOC, subject to the final approval by the DGCA, or since the status of ‘Airport Slots’ is an asset, therefore the Resolution Applicant may initiate a ‘free and transparent’ bidding process which shall be regulated by DGCA for final approval. The bidding process shall be completed within a reasonable time as determined by the authorities concerned.

            CONCLUSION

            Indian laws have developed considerably ensuring liberal behaviour and balancing it with reasonable regulatory oversight. However, the challenge of monetizing slots in India presents a critical void in the current insolvency framework, particularly in the aviation sector. The case of Jet Airways depicts the failure of legal framework in realising the rights of airline of its historic airport slots holding immense commercial value.

            Learnings from international regimes such as EU and UK reflect that a liberal and structured approach towards slot trading can protect the creditors’ interests during financial distress and improve liquidity in the market enhancing investor’s confidence. Though the threat of potential monopolization persists, well planned and formulated policies and regulations can mitigate these concerns. So, the real question is: Can India truly afford high-value assets like airport slots in insolvency proceedings, or is it time to rethink our legal definitions of value before subsequent airline bankruptcy costs us more than grounded planes?

          1. Beyond Arbitrage: The High-Speed Scandal That Shook Dalal Street

            Beyond Arbitrage: The High-Speed Scandal That Shook Dalal Street

            PRIYANSHI JAIN, FOUTH-YEAR STUDENT AT INSTITUTE OF LAW, NIRMA UNIVERSITY

            INTRODUCTION

            India’s ₹4,844 crore Jane Street case was not just about fraudulent trading; it attacked the very credibility of India’s securities market. It is about whether the world’s largest derivatives market is built on a settlement system that can easily be manipulated.

            On July 2025, the Securities Exchange Board of India (‘SEBI’) passed an interim order against the Jane Street group, an American proprietary trading firm, for its alleged manipulation of the Bank Nifty index derivatives during expiry-day trading. The order seized nearly ₹4,844 crore and barred the firm from accessing Indian markets while proceedings continue. It was SEBI’s largest enforcement action of its kind and immediately drew attention across financial and legal circles.

            The case matters because it highlights the structural flaws in India’s market framework. Unlike the United States (‘US’) and European Union (‘EU’), which use closing auctions, or Singapore, which employs randomized settlement windows, India continues to rely on a 30-minute Volume-Weighted Average Price (‘VWAP’) to settle expiries. VWAP, an indicator derived from price and volume that represents the average price of a security, is increasingly outdated. Entity-level surveillance misses group strategies and doctrinal standards under the Prohibition of Fraudulent and Unfair Trade Practices Regulations, 2003 (‘PFUTP’), which remain unclear. SEBI’s order looks powerful in the headlines, but in reality, its durability before tribunals is far less certain.

            EXPIRY-DAY MECHANICS AND VULNERABILITIES

            To understand why SEBI’s order matters, it is necessary to see how expiry in India works. When Bank Nifty future options expire every Thursday, their final settlement value is not taken from the last traded price. Instead, it is computed using the VWAP of the index in the last half-an-hour before trading closes. The problem lies in VWAP as it can be influenced. Large, well-timed trades placed near the close can push the average up or down, even if only slightly. This practice is known as “marking the close”, and it can tilt the expiry settlement in a direction favourable to those who hold large options positions. In theory, these trades appear genuine; however, in reality, they are buy or sell orders, and their purpose is to manipulate the benchmark rather than reflect true supply and demand.

            The stakes are high as Bank Nifty is India’s most heavily-traded derivatives contract. As per SEBI’s own analysis, nearly 9/10 of retail derivatives traders lost money, with Bank Nifty options driving much of this activity. Even a slight change in VWAP can result in major retail losses. Unlike the US or EU, where expiry markets are dominated by institutions with hedging strategies, India’s market is retail-driven. This implies that structural fragilities like VWAP distortions inflict disproportionate harm on individuals who are least equipped to hedge risk. What looks like a technical flaw in design is a transfer of wealth from small investors to sophisticated firms.

            VWAP was chosen to avoid the distortions of last-trade settlement, but in practice, it creates a different vulnerability: it concentrates risk in a short window that sophisticated traders can target. The Jane Street episode illustrates that the vulnerability is not in one firm’s strategy but in the structure of the expiry system itself.

            LEGAL FRAMEWORK AND DOCTRINAL STANDARDS

            PFUTP Regulations, 2003

            SEBI’s case against Jane Street rests mainly on the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations, 2003. Regulation 3 prohibits the use of fraudulent or deceptive devices, and Regulation 4(1) bans trading practices that create a false or misleading appearance of trading or manipulate prices.

            Indian tribunals have consistently required a high threshold for providing manipulation. In Ketan Parekh v. SEBI (2006), (‘Ketan Parekh’), the Securities Appellate Tribunal (‘SAT’) held that a case must show the creation of an artificial price backed by intent, not merely aggressive or opportunistic trading. In Nirma Bang Securities v. SEBI (2004), the SAT emphasised that trades must produce a false appearance; if the orders are real and executed transparently on an exchange, they may not qualify as fraud. In DSQ Software Ltd. v. SEBI (2002), (‘DSQ Software’), expiry-day manipulation was penalised, but the case turned on circular trades and matched orders, not exploitation of settlement mechanics.

            Under Ketan Parekh, influencing VWAP may not amount to an “artificial” price at all, since VWAP is the legally prescribed benchmark. Under the Nirmal Bang case, Jane Street’s trades were genuine, transparent, and on-exchange, which made it difficult to argue that they created a “misleading appearance”. And unlike DSQ Software, where sham trades propped up expiry values, here the trades were economically real, albeit timed strategically. SEBI must therefore stretch precedent to fit behaviour that exploits design flaws rather than violates market integrity in the conventional sense.

            SEBI ACT, 1992

            The SEBI Act, 1992, grants the regulator broad powers to act in the interest of investors. Section 11 establishes SEBI’s mandate, while Sections 11B and 11D allow it to issue interim directions, including barring firms from markets. Section 12A prohibits manipulative conduct, and Section 24 provides for criminal sanctions.

            Interim orders under these provisions are often passed ex-parte, which enables SEBI to act quickly. Yet their durability is fragile. On appeal before the SAT or the Supreme Court, regulators must present evidence that meets the strict doctrinal tests of “artificial price” or “misleading appearance”. As past jurisprudence shows, SEBI’s broad preventive powers are constrained by how tribunals interpret manipulation, and orders that appear stringent at first glance often face dilution when they are tested against precedent.

            FPI REGULATIONS, 2019

            SEBI also cited breaches of the Foreign Portfolio Investor Regulations, 2019 (‘FPIRegulations’). Regulation 20(4) restricts intraday netting of trades across affiliates. The logic is to prevent one entity from using multiple arms to take offsetting positions. However, India’s surveillance remains entity-based, not consolidated. If affiliates or sub-accounts operate in coordination, their trades may escape detection unless positions are aggregated at the group level.

            This creates a structural blind spot. SEBI can penalise one entity, but coordinated strategies across multiple offshore vehicles may remain invisible. The Jane Street episode underscores how global trading firms can exploit the limits of surveillance architecture rather than simply breaching the letter of the law.

            SEBI’S INTERIM ORDER: STRENGTHS AND LIMITS

            SEBI’s interim order against Jane Street was notable for its speed and scale. Within days of the expiry, SEBI had impounded nearly ₹4,844 crore and imposed a trading ban. The sheer size of the disgorgement sent a deterrent signal not only to foreign portfolio investors but also to domestic proprietary desks that expiry-day strategies would be scrutinized closely. By framing the order around retail investor protection, SEBI strengthened its optics: Bank Nifty is retail-heavy, and positioning the case as a defence of small investors bolstered regulatory legitimacy. SEBI’s action is depicted as forceful yet legally fragile, because proving manipulation under PFUTP technically requires showing an artificial or misleading price, and Jane Street’s on-exchange, economically significant trades may be viewed as lawful VWAP exploitation unless regulators prove the trades lacked any legitimate economic purpose, a stance appellate bodies like the SAT have taken in narrowing “manipulation” in past cases. The order also highlights a surveillance gap: by focusing on entity-level positions, current systems may miss coordinated strategies run across affiliates or sub-accounts, implying that without group-level oversight enforcement can become piecemeal, penalizing one entity while broader structure remains unaddressed. The upshot is a recurring cycle where headline penalties signal resolve, but fragile legal footing leads to dilution or reversal on appeal unless settlement frameworks and surveillance architectures are overhauled to withstand scrutiny and capture cross-entity orchestration at scale.

            COMPARATIVE INSIGHTS AND REFORM DIRECTIONS

            India should pivot from a 30-minute VWAP expiry to transparent closing auctions or hybrid windows to curb benchmark tilts and concentrate integrity where liquidity is deepest. Sequencing pilots on F&O names and phasing towards auctions aligns with global practice and SEBI’s active consultations, while guarding liquidity optics. At the same time, regulators should mandate group-level disclosures and beneficial ownership look-through, operationalized via standardized, trigger-based reporting and a lead-regulator model. Cross-border Memorandum of Understandings with explicit timelines and data schemes should backstop enforcement against SPVs and secrecy regimes. Finally, the pair auction closes with AI-assisted surveillance under human oversight, restrained on labelled expiry datasets to manage false positives.

            CONCLUSION

            The Jane Street episode underlines that India’s episode underlines that India’s expiry framework itself is vulnerable. VWAP-based settlement concentrates risk in a narrow window, while entity-level surveillance misses coordinated strategies across affiliates. These are not flaws of one case but of the market’s design.

            Doctrinally, SEBI also faces hurdles. Under the PFUTP Regulations, tribunals have demanded proof of “artificial prices” or “misleading appearances”. Jane Street’s trades, though large and well-timed, were real and visible. This ambiguity may weaken SEBI’s case before appellate forums, showing how difficult it is to stretch the old standard to new trading strategies.

            The policy lesson is straightforward: in the absence of change, SEBI will continue to act reactively, making headlines by penalizing people after the fact while running the risk of legal reversals. Reliance on VWAP and fragmented oversight leaves India exposed in ways other major markets have already addressed through auctions, randomization, and consolidated monitoring.

            For the world’s largest derivatives market, with millions of retail traders, the demand is simple that India’s framework should be at least as robust as that of the US or EU. Anything less risks repeating the same cycle.

          2. Sustainable Finance: Deconstructing SEBI’s Framework for ESG Debt Securities

            Sustainable Finance: Deconstructing SEBI’s Framework for ESG Debt Securities

            VIDUSHI AND AADARSH GAUTAM, FIFTH -YEAR STUDENTS AT NLUD, NEW DELHI

            INTRODUCTION

            On June 5, 2025, the Securities and Exchange Board of India (‘SEBI’), in its Circular titled “Framework for Environment, Social and Governance (ESG) Debt Securities (other than green debt securities)” (‘Circular’) has come out with an operational framework Circular for issuance of social bonds, sustainability bonds and sustainability-linked bonds, which together will be known as Environment, Social and Governance (“ESG”) debt securities. Before this amendment and the introduction of the ESG Framework, SEBI had formally recognised only green bonds. While the regulatory landscape in India was initially focused solely on green bonds, market practices had already begun embracing broader ESG categories. This Circular is significant as it will help issuers to raise money for more sustainable projects, assisting in closing the funding gap for the Sustainable Development Goals.

            The Circular is part of a larger regulatory trajectory that began with SEBI’s consultation paper released on August 16, 2024. The consultation paper had proposed to expand the scope of the sustainable finance framework in the Indian securities market, recognising the growing global demand for capital mobilization to achieve the 2030 Sustainable Development Goals (“SDGs”). It had set the stage for subsequent amendments to the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 through the SEBI (Issue and Listing of Non-Convertible Securities) (Third Amendment) Regulations, 2024, which formally introduced the definition of ESG Debt Securities under Regulation 2(1)(oa). This blog analyses how the Circular operationalises these regulatory intentions to create a structured ecosystem for the issuance and listing of a broader class of ESG debt instruments in India.

            UNDERSTANDING ESG DEBT SECURITIES

            ESG Debt Securities in their definition include green debt securities (“GDS”), social bonds, sustainability bonds, and sustainability-linked bonds. While GDS have already been defined under Regulation 2(1)(q) of NCS Regulations, with effect from date of release, SEBI’s new Circular governs the issuance and definition of ESG Debt Securities, excluding GDS. The definition is deliberately wide to encompass advancements in international standards encompassing the International Capital Market Association (ICMA) Principles, the Climate Bonds Standard, and the ASEAN Standards among others. This permit the incorporation of additional categories of ESG Debt Securities as designated internationally and by SEBI periodically. Thus, if any activity qualifies internationally to ESG Standards, it will be able to secure the tag in India, too. These international standards are also relevant for issuers for adherence to initial and continuous disclosures for issuance of ESG Debt Securities as will be discussed later in this blog.

            This Circular provides the definition of social bonds as a way for firms to gain finances for initiatives that positively benefit society. For example, governments may involve projects aimed at improving water supply, supplying necessities like medical care and education, ensuring food security, and improving fundamental infrastructure. Similarly, sustainability bonds are defined as made for the purpose of financing green and social projects. They acknowledge the convergence of environmental and social goals. For instance, in 2020, Alphabet Inc., Google’s parent organisation, made the prominent move of offering a USD 5.75 billion bond in support of sustainability. Part of these bonds went to finance green buildings and electric transport, demonstrating how sustainability bonds can be multipurpose.

            Besides, under this framework, sustainability-linked bonds (“SLBs”) are very different from bonds tied to the use of funds. They do not depend on a single project but are based on the issuer’s continuous ESG achievements. The issuers make forward-looking commitments to enhance their sustainability by using Key Performance Indicators (“KPIs”) and comparing their outcomes with their agreed-upon Sustainability Performance Targets (“SPTs”). Even though the proceeds from these bonds are flexible, the issuance process is only credible if the issuer is able to accomplish the set goals.

            As ESG bonds are distinct in their manner of use of investment obtained, separate obligations and requirements are laid down by the Circular for these bonds as will be explored next.

            THE PROPOSED REGULATORY FRAMEWORK

            At the outset, an issuer desirous of issuing these social bonds, sustainable bonds or SLBs have to comply with initial disclosure requirements, continuous disclosure obligations and appoint independent third-party certifiers as per the Circular. The issuance of social and sustainable bonds requires adherence to requirements as per Annexure A and for SLBs as per Annexure B. The primary aim behind the requirements remains transparency and investor protection. For instance, as per Annexure A, the initial disclosure regarding how the project benefits the public put an end to the raising of money for projects without adequate information and instil trust in investors. Significantly, the Circular provides for the qualification of a third-party reviewer by mandating independence, expertise and lack of any conflict of interest. It is to be highlighted that while the presence of third-party reviewers remains essential and a step forward in right direction, the regulations governing ESG credit rating agencies are still evolving to enhance clarity and transparency and are at a comparatively nascent stage. The ability of reviewers to provide accurate and tailored reviews rather than template ones remains untested and the Circular does not provide guidelines that could ensure it.

            In addition to the above requirements, as per Annexure B, SLBs need to comply to certain unique requirements due to the forward-looking, performance-oriented characteristics of these instruments. During the issuance phase, issuers must furnish exhaustive information on chosen KPIs, encompassing definitions, calculation benchmarks, while elucidating the justification for picking such KPIs. Similar to the framework for social and sustainable bonds, an independent third-party need to be appointed to verify the credibility of the selected KPIs and SPTs. If there is any change in the method by which the company sets or measures KPIs or SPTs, this information has to be examined and notified. This strict structure guarantees that SLBs are both ambitious and transparent, providing investors with a reliable means to evaluate issuers’ ESG performance over the course of time.

            ACTION MEETS AMBITION: ELIMINATING PURPOSE-WASHING

            One of the significant change brought by the framework is to ensure that the instruments are “true to their labels”. The issuer is not allowed to use any misleading labels, hide any negative effects or choose to only highlight positive outcomes without informing negative aspects. Herein, to prevent purpose washing, that is misleadingly portraying of funds as impact investments, the regulator mandates that the funds and their utilisation to meet the agreed ESG objectives are continuously monitored. Any misuse of the allocated funds has to be immediately reported and the debenture holders’ have the right to early redemption.

            The mandatory nature of impact reporting by the issuer ensures to provide clear and transparent assessments of the outcomes of their ESG labelled initiatives. Such report shall include both qualitative (explaining narratives, approaches, case studies and contexts of social impact) and quantitative indicators (specific metrics and measurable data, such as carbon emissions reduced, of the social impact) and should be supplemented by third party verification. As a result, SEBI ensures to create a culture of responsibility that extends beyond initial issuance and to the complete lifecycle of the management. These mechanisms ensures a comprehensive framework of safeguards aimed at protecting investors and maintaining the integrity of India’s sustainable finance ecosystem.

            THE WAY FORWARD

            SEBI’s ESG Debt Securities Framework is a relevant and progressive regulatory advancement that broadens India’s sustainable finance repertoire beyond green bonds to encompass social, sustainability, and sustainability-linked bonds. The Circular enhances market integrity and connects India’s ESG debt landscape with global best practices by incorporating stringent disclosure standards, and protections against purpose-washing. The industry has welcomed Larsen & Toubro’s announcement of a Rs 500 crore ESG Bond issue, marking it as the first Indian corporation to undertake such an initiative under the newly established SEBI ESG and sustainability-linked bond framework. With the need to strengthen certain aspects including third-party reviews, as implementation progresses, strong enforcement, market awareness, and alignment with international standards will be essential to realising the framework’s full potential.