The Corporate & Commercial Law Society Blog, HNLU

Author: HNLU CCLS

  • CONSOLIDATION WITHOUT SAFEGUARDS: ANALYSING THE SEBI FPI MASTER CIRCULAR

    CONSOLIDATION WITHOUT SAFEGUARDS: ANALYSING THE SEBI FPI MASTER CIRCULAR

    BY KHUSHI JAIN AND UJJWAL GUPTA, SECOND – YEAR STUDENT AT DR. RAM MANOHAR LOHIYA NATIONAL LAW UNIVERSITY, LUCKNOW

    INTRODUCTION

    On 5 December 2025, the Securities and Exchange Board of India (‘SEBI’) issued a Consultation Paper on Review of Master Circular for Foreign Portfolio Investors (‘FPIs’) and Designated Depository Participants (‘DDPs’) (‘Consultation Paper’) proposing the consolidation of the existing consultation paper. This paper aims to streamline hitherto fragmented regulations by consolidating multiple circulars and guidelines into a single instrument. Through the Consultation Paper, efforts are made to revise disclosure and compliance for FPIs and DDPs, beneficial ownership norms, compliance obligations and the role of intermediaries.

    This piece first sets out the key changes introduced through the consolidation. Second, the impact of these changes is analysed on various stakeholders including FPIs and DDPs. Third, key concerns arising from the proposed structure are identified. Towards the end, the Indian approach within a comparative cross-jurisdictional regulatory perspective is discussed. The piece is concluded by offering plausible reforms to address the aforementioned concerns so as to preserve efficiency and accountability.

    KEY PROPOSED CHANGES

    The regulations of FPIs are governed by a layered statutory framework under the SEBI Act 1992, SEBI (Foreign Portfolio Investors) Regulations, 2019 (‘2019 Regulations’) and SEBI Master Circulars and Operational Guidelines. The Consultation Paper would reshape the enforceability provisions of FPI regulation.

    Prominently, the Consultation Paper proposes a comprehensive consolidation of multiple circulars, FAQs, and interpretative notes into a single revised Master Circular governing FPIs and DDPs. It operates as de facto subordinate legislation. Building on this, Regulation 4(c) of the 2019 Regulations mandates FPI to disclose beneficial ownership in accordance with the Prevention of Money Laundering Act, 2002 and Financial Action Task Force Recommendations. The Consultation Paper strengthens look-through obligations and identifies natural persons exercising “ownership or control” in a multi-layered investment structure.

    Substantiating on the above provisions, DDPs are provided with registration-related functions and limited ongoing oversight through Regulation 12 of the 2019 Regulations. The Consultation Paper rather shifts their role to frontline regulatory gatekeepers. It inculcates their responsibility for continuous validation of their compliance, enhancing due diligence on FPIs. They are supposed to develop Standard Operating Procedures (‘SOPs’) for validation, real-time monitoring of validation tools such as corporate group repositories, and freeze codes, straining systems under tight timelines like 7-Day Type I change notification.

    This fundamentally extends the disclosure, reporting, and compliance requirements for FPIs by way of more frequent reporting, monitoring and verification of investor information on a continuous basis, and ongoing compliance certification requirements.

    STAKEHOLDER IMPACT ANALYSIS

    There will be asymmetric effects of the proposed changes among the different groups of stakeholders. The changes redistribute regulatory risks and operational burden, having several unintended effects regarding market depth and stability.

    The compliance architecture model can disproportionately affect the passive institutional investors like pension funds and sovereign wealth funds because their investment approach is long-term and non-controlling in essence. Lack of any provision on punitive measures for transitional non-compliance can create considerable legal and commercial uncertainty for market participants. This could result in sudden FPI exits, higher cost of capital for Indian issuers, and higher volatility in the secondary markets, thereby violating Section 11 of the SEBI Act, 1992.

    The Consultation Paper enhances the supervisory authority of SEBI, that could earlier detect concentrated or opaque market positions. However, it also increases institutional dependence on delegated supervision by DDPs, raising coordination and accountability challenges. SEBI may face allegations of inconsistent enforcement or excessive discretion.

    Lastly, the framework may influence volume, composition and stability of foreign capital flows from a market-wide perspective. It relaxes International Financial Services Authority-based FPIs, allowing up to 100% Non-resident Indians/ Overseas Citizens of India/ Resident Indian  participation under strict conditions like pooling, diversification (e.g., no more than 20% in one Indian entity), and independent managers. Foreign institutional investments in the long term may be discouraged due to increased complexities in complying with the debt and equity portions that are expected to be supported by foreign investments. Foreign passive institutional investors may decrease the overall efficiency of the market as a result of less participation in the secondary markets.

    KEY CONCERNS

    Consolidation would result in the conversion of interpretative guidance into mandatory compliance and the expansion of enforceable obligations without any amendment to the 2019 Regulations. It dilutes the effect of delegated legislation principles. Many provisions function as soft law and are not binding rules under Section 30 of the SEBI Act. Thus, the consolidation would make them a binding compliance standard, transforming advisory norms into enforceable duties.

    Moreover, unlike regulations, circulars are not subject to safeguards like legislative scrutiny. Consolidation would thus advance the power of SEBI to alter the compliance structure without any amendment. Consequently, it would also amend the scope of provisions through drafting techniques. Conditional, context-specific, or risk-based obligations are inculcated into general obligations that are to be applicable across the FPI ecosystem. The Consultation Paper could result in omission of caveats and qualifiers. It would broaden the regulatory net without re-examining the substantive framework set out in Regulations 4 and 22 of the 2019 Regulations.

    Furthermore, the Consultation Paper fails to address the doctrine of regulatory equivalence for entities domiciled in jurisdictions that are FATF-compliant. Contradicting the proportionality test, already regulated foreign investors can duplicate and disproportionate disclosure burdens.

    The expansion of the ambit of DDPs leads to regulatory outsourcing. However, it neither ensures any statutory immunity nor delineates liability in erroneous determinations or misclassification of risk. It raises pertinent concerns regarding liability attribution.

    Concerns about constitutional guarantees under Article 19(1)(g) and 19(6) are also raised. Serious concerns about ex post facto interpretation can also exist due to the absence of procedural safeguards of supervisory discretion. It may implicate the principles of audi alteram partem and predictability of the rule of law in financial regulation under the capital regime in India.

    For measures that limit market access, the SEBI Act has laid down a specific procedure to be followed. This includes the requirement that the actions under Section 11B, penal measures under Section 15-I, and suspension or cancellation under Section 12(3) all need a well-reasoned order, prior hearing, adherence to principles of natural justice, and can be challenged in the SAT under Section 15T. As opposed to this, the draft Master Circular for Foreign Portfolio Investors (FPIs) and Designated Depository Participants (DDPs)  (‘Master Circular’) allows trading restrictions via intermediary-led SOPs, without SEBI adjudication, hearing, or an order that can be appealed, and thus sidesteps essential safeguards given in law.

    CROSS-JURISDICTIONAL ANALYSIS

    In the United Kingdom (‘UK’), disclosure or Anti-Money Laundering (‘AML’) failures of foreign investment entities are dealt with by the Financial Conduct Authority through a formal enforcement procedure. Usually, non-compliance leads to supervisory engagement and, if necessary, formal enforcement proceedings initiated by a warning notice. The impacted entities can make representations before an adverse decision is taken against them, and the final decisions are made by the independent Regulatory Decisions Committee. Market access restrictions or licence limitations only arise from a reasoned decision that is subject to appellate review by the upper Tribunal. Unlike as contemplated under the Master Circular, coercive market access restrictions in the UK cannot be imposed by intermediaries and remain exclusively within the Financial Conduct Authority’s (‘FCA’) adjudicatory enforcement process.

    The European Union (‘EU’) framework for portfolio investment compliance operates through MiFID II and anti-money laundering directives. MiFID II does not prescribe automated investor account blocking for Know Your Costumer (‘KYC’) non-compliance; rather, it gives national competent authorities supervisory and investigatory powers, whilst any limitation on market participation must be derived from national law or the trading venue rules. The AML system requires customer due diligence and allows firms to suspend transactions as part of their internal compliance controls. Moreover, when a public authority orders a restriction, the measure is governed by the national procedural law which transposes EU directives and is further guaranteed fundamental procedural safeguards, such as the right to challenge administrative measures before an independent body, and not outsourced to intermediaries.

    In Singapore, the Monetary Authority of Singapore (‘MAS’) supervises AML and disclosure compliance under the Securities and Futures Act through a risk-based supervisory framework. MAS deals with KYC or disclosure breaches by means of supervisory engagement, directions, penalties, or license-related action after the determination of the breach. Automatic trading suspensions or market access suspensions are not usual, and any such coercive restrictions follow well-reasoned decisions to guarantee proportionality and centralised enforcement. Importantly, MAS does not give coercive enforcement powers to market intermediaries, unlike the expanded role that has been considered for DDPs.

    Viewing these jurisdictions collectively, it can be observed that greater transparency and AML compliance can be achieved without having to rely on automated market exclusion mechanisms that bypass prior notice or independent assessment. In this context, the Master Circular delineates a stricter model of regulation than what is necessary, as shown by international practice.

    CONCLUSION AND SUGGESTIONS

    Based on lessons drawn from frameworks discussed above, it is possible that India could prescribe regulatory and procedural safeguards. The following developments can work in tandem for coherent enforcement. 

    Primarily, SEBI should expressly draw a distinction that consolidation of circulars does not transform interpretive guidance or FAQs into binding compliance requirements unless issued under the 2019 Regulations or Section 30 of the SEBI Act. Along with, any provision extending substantive requirements should be brought about only through formal regulatory amendment, following the prescribed legislative safeguards.

    Second, SEBI should desist from retaining conditionality, context-specific qualifiers and risk-based caveats in existing circulars. The Master Circular should operate as an operational guide rather than a source of new general obligations, ensuring that Regulations 4 and 22 of the 2019 Regulations remain the primary substantive framework.

    Third, the consolidated framework must specifically acknowledge the concept of regulatory equivalence applicable to FPIs incorporated in FATF-compliant and well-regulated countries. The requirement of disclosure and KYC must be customized in terms of risks associated with each jurisdiction and type of investor and system significance.

    Fourth, concerning the absence of any measures to shield FPIs from penalties for non-compliance in the transition period, SEBI should provide a definite period for existing FPIs during which non-compliance resulting solely from the newly consolidated obligations shall not be penalised. This will ease both uncertainty and avert sudden market exits.

    Finally, SEBI must clearly define the scope of DDPs’ authority, provide statutory protection for bona fide actions and specify liability allocation in cases of erroneous determinations or misclassification. Coercive or market-access-restrictive decisions should remain exclusively within SEBI’s domain.  Additionally, any restriction on trading, account operations or market access must be preceded by notice, opportunity of hearing, and a reasoned order passed by SEBI under Sections 11B, 12(3), or 15-I of the SEBI Act. Intermediary-led SOPs should not substitute statutory adjudication or appellate remedies under Section 15T.

    The Consultation Paper is veritably an important step towards simplifying the regulation of foreign portfolio investment through consolidation. However, as the authors point out, said consolidation should not weaken statutory protections, proportionality, accountability, or procedural fairness under the SEBI Act and the 2019 Regulations. If there are no adequate safeguards, the draft Master Circular may, in fact, increase the compliance and enforcement burdens and consequences beyond its legal basis. Whether or not this consolidation will ultimately strengthen India’s capital markets depends on the degree of care SEBI exercises in reconciling efficiency and legality in the final framework.

  • Balancing Act: Sebi’s Angel Fund Reforms For Inclusive Startup Growth

    Balancing Act: Sebi’s Angel Fund Reforms For Inclusive Startup Growth

    BY AADIT SHARMA, SECOND – YEAR STUDENT AT DR. RAM MANOHAR LOHIYA NATIONAL LAW UNIVERSITY, LUCKNOW

    INTRODUCTION

    India’s startup ecosystem plays a crucial role in economic growth, with angel funds providing essential early-stage investment and mentorship bridging the gap between early seed financing and seed financing. angel investors typically commit between USD 10,000 which can go upto USD 1 million (₹10 lakh to ₹ 8 crore), with greater amounts often provided by syndicates. Despite tighter capital markets and cautious investor sentiment, there were 103 registered angel funds in India holding commitments totalling ₹10,138 crores by Q1 2025. Although early-stage investments declined to approximately $3 billion across 1,500 deals in H1 2025, this sector remains vital for economic development. Recognising this, SEBI introduced reforms via the Alternative Investment Funds (Second Amendment) Regulations and two other circulars in the month of September and October, focusing on revised regulations and relaxed compliance timelines. Key changes introduced include mandating accredited investors, flexible lock-in periods and broadening permissible investments. These reforms aim to modernise angel investing in India.

    However, questions remain whether they will enhance startup funding accessibility or create barriers, especially in underserved regions. This analysis explores the implications of the amendments on the domestic startup funding cycle, offers a comparative analysis with global practices and proposes strategies to improve investment accessibility in India.

    REFRAMING SEBI’S REGULATORY APPROACH TO ANGEL FUNDS

    The 2025 amendments to Securities Exchange Board of India (‘SEBI’)’s Alternative Investment Fund Regulations,2012, (‘AIF’) together with the accompanying circulars, represent a substantive development in the regulatory framework for early-stage investment in India. The regime moves decisively from a primarily prescriptive model to a hybrid approach combining mandatory requirements with enhanced outcome-based flexibility. A pivotal reform is the institution of mandatory investor accreditation  for angel funds, an accredited investor in India is an investor with annual income of Rs. 2 crore or net-worth of Rs. 7.5 crore with 3.5 crore in financial assets, replacing the previous system based solely on financial thresholds.

    This aligns the angel fund framework of India with global regulatory approaches with like that of US SEC Regulation D­ that limits participation on objective accreditation criteria, thereby limiting access to investors who meet specified financial and net-worth thresholds. These investors are presumed to be capable of independently assessing and bearing early-stage investment risk. The minimum investment per portfolio company has been lowered from ₹25 lakh to ₹10 lakh; minimum corpus and commitment thresholds have also been abolished easing fund formation. Notably, changes to the lock-in period will provide greater liquidity, permitting exits within six months in specific cases.

    Angel Funds must now onboard at least five accredited investors before their first close, a measure designed to streamline entry and strengthen fund discipline. The scope of eligible investments has expanded, including Limited Liability Partnerships (‘LLPs’), thereby supporting broader entrepreneurial participation.  Measures such as mandatory investor accreditation, lock-in periods, fund-level investment structures and strict compliance protocols are retained to guard against speculative behaviour. Enhanced transparency is mandated through allocation methodology disclosure in the Private Placement Memorandum (‘PPM’) with additional annual audit requirements for larger funds. The phased compliance timeline reflects SEBI’s intent to balance regulatory rigor with market adaptability. Collectively, these reforms embody SEBI’s model of ‘guided liberalisation’ aiming for a flexible yet robust capital formation environment anchored in transparency and governance.

    STRUCTURAL AND PRACTICAL CONCERNS IN SEBI’S ANGEL FUND REFORMS

    A careful reading of SEBI’s recent circulars indicates that while the reforms appear progressive, they also carry certain structural concerns. The introduction of mandatory accreditation for investors in angel funds, though intended to promote investor protection and align with global practices, may inadvertently restrict the flow of capital by excluding non-accredited investors such as traditional/ legacy angels. This change effectively shifts investment power towards  high-net-worth individuals and institutional syndicates that possess greater organisational structure, compliance capacity and financial depth. Such concentration of investment capacity could lead to capital elitism, gradually marginalising semi-professional angels who, despite lacking formal accreditation, often contribute crucial sectoral knowledge and mentorship to startups. The circular further restricts angel funds from offering units to more than 200 non-accredited investors until September 2026, thereby narrowing the investor pool available to early-stage business ventures and  discouraging investors. Additionally, SEBI’s mandate requiring at least five accredited investors before declaring the first close reverses the conventional practicein angel investing. Traditionally, fund managers identify promising startups first, then attract investors based on those opportunities. The circular imposes the opposite sequence, wherein investors must be secured before any startup is identified, which may slow fund launches, increase opportunity costs and discourage new fund managers. This requirement could also give rise to behavioural distortions where managers bring in passive backers merely to satisfy the regulatory threshold, making compliance formalistic rather than actual. Moreover, regional disparities may intensify as managers outside major hubs such as Bengaluru, Mumbai or Delhi may struggle to attract accredited investors, leading to capital concentration in established business ecosystems.

    Finally, while the reduction in the lock-in period enhances liquidity, it disproportionately benefits institutional syndicates with rapid fund rotation strategies. Thereby placing traditional angel networks whose investment model relies on longer holding periods and sustained founder engagement with the startup at a relative disadvantage as compared to institutional syndicates which are better positioned to benefit from accelerated exit timelines due to their portfolio-based and time bound strategies.

    INTERNATIONAL PARALLELS AND DIVERGENCES

    The statutory framework of the United States (‘U.S.’) and the United Kingdom (‘U.K.)’ have been chosen for comparison as they represent leading common-law jurisdictions with advanced angel investment frameworks that balance investor protection with capital access and whose regulatory models have guided international best practices in early-stage financing and angel investing.

    In the United States early-stage investment is regulated by the US Securities and Exchange Commission,(‘US SEC**’**), particularly Regulation A, Regulation D and Regulation Crowdfunding (‘Reg. CF’). Rule 501 of Regulation D defines an accredited investor, determining eligibility for participation in early-stage investing. Rule 506(b) permits no limit on accredited investors and up to 35 sophisticated non-accredited investors, but prohibits general solicitation, while Rule 506(c) allows general solicitation solely for accredited investors with verified status. Rule 504 limits offerings at $10 million over twelve months and without general solicitation. Regulation A ‘Mini-IPO’ broadens access by allowing non-accredited investors who are subject to investment limits based on income or net worth.

    The 2012 JOBS Act significantly expanded access through Regulation Crowdfunding (‘Reg. CF’) enables startups to solicit investments from non-accredited individuals within statutory caps of a certain income threshold, thereby democratising angel investment and mitigating the concentration of opportunities among only high-net-worth and institutional investors. Reg. CF says that if an investor’s annual income or net worth is below USD107,000 they can invest only a small capped amount in crowd-funding each year. If both are above USD 107,000 they are allowed to invest more but still within a fixed annual limit.

    In the United Kingdom, angel investments fall under the Financial Conduct Authority (‘FCA’) framework, which requires investors to qualify as either high-net-worth or sophisticated investors. The UK distinguishes itself through strong fiscal incentives under the Seed Enterprise Investment Scheme (‘SEIS’) and Enterprise Investment Scheme (‘EIS’), offering income tax relief and loss offset mechanisms to mitigate early-stage risk in investment. Its private placement regime further supports AIFs under controlled conditions, balancing accessibility with investor protection. Viewed against the U.S. and U.K. frameworks, SEBI’s 2025 reforms represent a cautious convergence with global best practices, particularly in investor accreditation, disclosure and governance-led oversight. Similar to the U.S. Regulation D and the UK FCA’s sophisticated investor regime, India’s accreditation model embeds financial competence within regulatory prudence. However, unlike these jurisdictions, India’s approach remains comparatively cautious  lacking fiscal incentives such as the U.K. SEIS/EIS or the participatory openness promoted under the U.S. Reg. CF.

    At national level this cautious approach has been tried to partially offset by recent policy measures aimed at improving the investment climate. The union government announced in the Union Budget 2024 the abolition of  ‘angel tax’ for all classes of investors with effect from the financial year 2025-26, thereby reducing tax-related frictions for early-stage capital formation. In parallel, certain States have introduced sub-national incentives to encourage angel investment. For instance the state of Bihar’s startup policy provides for a ‘success fee’ payable to startups that successfully mobilise investment from registered angel investors. Other states have also adopted broader startup support frameworks through grants, seed funding, incubation support and reimbursement-based incentives, although few have explicitly linked such incentives to angel investment outcomes. These developments suggest that while SEBI’s regulatory architecture remains institutionally cautious, complementary fiscal and state-level interventions are gradually emerging to mitigate the exclusionary effects of accreditation-centric regulation.

    Recent data from the market suggests that the entry level barriers such as mandatory investor accreditation have led to contraction in the angel fund investing. In H2 2025, angel investment rounds dropped nearly 60% to 265 deals, compared with 671 deals a year earlier while funding fell 46% to USD 1.48 billion, from USD 2.73 billion.

    FORWARD OUTLOOK

    The angel funding regime in India comprises diverse investors, including traditional angels and institutional investors with traditional investors more prevalent and institutional ones being at a fast developing stage with a growth of 69% in the last two years, necessitating regulatory frameworks that accommodate their varied investment behaviours, risk tolerances and operational structures. SEBI’s 2025 reforms attempt to align the regime with international practices by enhancing investor protection, transparency and market discipline through mandatory accreditation and flexibility in investment terms. To further optimise these reforms, policy should focus on balancing investor accreditation with inclusivity, incorporating differentiated criteria for underrepresented regions to democratize access to angel funding beyond established business hubs.

    The sharp contraction in angel investment activity observed in H2 2025 highlights the need for dynamic regulatory calibration rather than static compliance thresholds. SEBI could consider a tiered accreditation framework that differentiates between institutional syndicates, experienced legacy angels and first-time investors based on experience, ticket size and risk exposure. In parallel, region-specific pilot relaxations, implemented in coordination with State startup agencies may help address capital access constraints beyond major metropolitan hubs. Periodic post-implementation impact assessments linked to deal flow and regional dispersion would further ensure that investor protection objectives do not inadvertently suppress early-stage capital formation.

    Strengthening capacity-building for emerging angel networks and instituting impact assessments will ensure adaptive and equitable regulation. Additionally introducing fiscal incentives in the tax regime similar to those in the U.K. could incentivize broader participation and retain traditional angels which are important to the startup ecosystem. Though the government scrapped the angel tax and also provides tax exemption under section 54GB of the Income Tax Act, to along with specific relaxations and incentives as introduced by the states, the investors through capital gain exemptions but these exemptions are moderate in nature and limited in scope.  Phased compliance combined with empirical monitoring of fund flows and startup outcomes will support regulatory refinement aligned with India’s diverse entrepreneurial landscape, fostering a resilient and accessible financing environment conducive to innovation a­nd economic growth.

  • Judicial Shift in Treaty Taxation: The Tiger Global Judgment

    Judicial Shift in Treaty Taxation: The Tiger Global Judgment

    BY CHEENAR SHAH, VANSHIKA BANSAL, THIRD- YEAR STUDENT AT GUJARAT NATIONAL LAW UNIVERSITY

    The Supreme Court (‘the Court’) on January 15, 2026, delivered a landmark judgment in the case of The Authority for Advance Rulings (Income Tax) and Others v. Tiger Global International II Holdings (‘Tiger Global case’). The Court determined that the General Anti-Avoidance Rule (‘GAAR’) can supersede treaty benefits and ‘grandfathered’ investments if the exit arrangement lacks any commercial substance. By ruling that a Tax Residency Certificate (‘TRC’) is no longer a conclusive proof of eligibility, the judgement breaks down the classic Mauritius Route and investors must now demonstrate real economic control and management to claim benefits under the India- Mauritius Double Taxation Avoidance Agreement (‘DTAA’).

    BACKGROUND

    Tiger Global invested in Flipkart, Singapore, between October 2011 and April 2015. Flipkart generates a significant part of its revenue through assets in India. In 2018, Tiger Global sold its stake to Walmart Inc. as part of a bigger acquisition of a majority stake in Flipkart.  

    Tiger Global sought to obtain a capital gains tax exemption under Article 13(4) of the DTAA, as it held a valid TRC of Mauritius, and accordingly, filed an application under Section 197 of the Income Tax Act, 1961 (‘IT Act’) to issue a nil withholding tax certificate. However, the Indian tax authorities stated that the exemption cannot be claimed, as Tiger Global lacked independent decision-making control and management.   

    Aggrieved by the decision, the Appellant approached the Authority for Advance Rulings (‘AAR’), which ruled in favour of the Tax Authorities’ decision. However, the decision was overturned by the Delhi High Court on grounds of arbitrariness. The matter was thereafter challenged before the Supreme Court.  

    JUDICIAL PERSPECTIVE

    The Court determined on three major issues: firstly, whether the GAAR could supersede capital gains exemptions under the treaty despite grandfathering of investments made before 2017; secondly, whether the Limitation of Benefits (‘LOB’) provision of the DTAA precluded application of the GAAR; and thirdly, whether the possession of a TRC continued to be appropriate evidence of entitlement to claim relief under the treaty in the post-GAAR regime.  

    The Court deviated from the deferential approach and placed Indian tax adjudication under the post Base Erosion and Profit Shifting (‘BEPS’) international anti-abuse standards that emphasise on the economic substance of a treaty rather than the form. The advantages under the treaties were recharacterized as qualified privileges that depend on commercial presence and control rather than mere residence.

    ANALYSIS

    Why ‘Grandfathering’ is Not a Shield 

    The core of the legal dispute hinges on the interpretation of the GAAR, codified in Chapter XA of the IT Act. Tiger Global argued that their investments were protected by the ‘grandfathering’ provisions of Rule 10U(1)(d), which excludes income from the transfer of investments made before April 1, 2017. They contended that since their shares were acquired between 2011 and 2015, the gains were immune from GAAR scrutiny. Nevertheless, the Court took a more sophisticated mode of analysis and made a distinction between an investment and an arrangement. While the investment occurred prior to the cut-off date, the arrangement of the specific share-sale transaction took place in 2018. The result of Rule 10U (2) is that the provisions of GAAR will apply to an arrangement regardless of the date of its entering into, provided the tax benefit will be obtained on or after April 1, 2017. 

    This points to the fact that grandfathering is not an anti-tax avoidance license. In case the Revenue can show that an arrangement does not have commercial substance or the arrangement was entered into with a major purpose of receiving a tax benefit, then the age of the original investment will not rescue the arrangement as an impermissible avoidance arrangement. Over the years, international investment has been flowing into India, thinking that any old investments were not subject to modern anti-avoidance regimes through grandfathering. The Court, however, found that GAAR could be used in relation to exits that could be regarded as impermissible avoidance arrangements under Section 96 of the IT Act.  

    Such a jurisprudential change will presumably require the re-pricing of Indian assets, with investors now having to add a treaty risk premium to the assets to reflect latent capital gains liabilities. This shift also demonstrates that domestic anti-abuse provisions have become more prevalent than treaty concessions. Additionally, the ruling exposes prevailing offshore investments to the risk of long litigation. The onus of proof has changed, and when the Revenue proves a prima facie case that the investor is engaged in tax avoidance, it is incumbent upon the latter to prove that the motive was genuine. Tax neutrality in this new environment cannot be considered an unchanging part of an investment strategy. 

    The Coexistence of SAAR and GAAR 

    The DTAA 2016 Protocol added a LOB provision that specifically targets so-called shell or conduit companies. This clause provides a quantitative threshold where a company is not considered a shell if its total expenditure on operations in Mauritius is at least 1.5 million Mauritian Rupees. Tiger Global argued that because they satisfied these objective LOB criteria, the Revenue was precluded from invoking GAAR. 

    This either-or analysis was opposed by the Court, and it was held that Specific Anti-Abuse Rules (‘SAAR’), like the LOB clause, and GAAR can and do coexist. LOB clause is a transitional objective filter, but GAAR is a supervening subjective code that is meant to address aggressive tax planning. It may also be disqualified under GAAR, even when an entity meets the spending requirements of the LOB, the primary purpose of the arrangement being to claim a tax benefit. 

    This change has far-reaching consequences for international tax planning. Through its focus on the main purpose of the test, the Court has indicated that even transactions which technically meet all the requirements of SAAR may be disqualified in case their purpose is mainly tax-oriented. This causes a shift of emphasis from box-ticking compliance to the creation and documentation of an effective, authentic business point behind each tier of an investment structure. 

    Substance over Form and Piercing of the Corporate Veil 

    Further, the Court emphasised on the reality of the corporate structure under the tax system in India rather than the formal adherence to the treaty. The legislative effect of the Central Board of Direct Taxes (‘CBDT’) Circular No. 789 of 2000, which considered a TRC as adequate evidence of residence to claim benefits, was further emphasized in Union of India v. Azadi Bachao Andolan. However, the present case recalibrates on that jurisprudence in the light of the contemporary legislative framework and limits its application. The court affirmed that the circulars are binding on the tax authorities, but it is important to note that they are supposed to be applied within the legal environment in which they are issued. The amendments implemented by the Finance Act, 2012, Chapter X-A GAAR incorporation, and changes to Rule 10U have essentially changed this situation by mandating an evaluation of effective control and management. Therefore, the Court ruled that though a TRC is a requirement, it is not a conclusive requirement under Section 90(4) of the IT Act. 

    Additionally, the doctrine of substance over form as applied in the case of McDowell and Co. Ltd. v. Commercial Tax Officer was referred to emphasize that colourable instruments that aim to evade tax cannot be justified as tax planning and that cross-border structure should be evaluated based on the actual economic nature of the arrangement and not the legal structure. 

    The Court affirmed the findings of the AAR and approved functional piercing of the corporate veil, observing that the real control and power of decision-making of Tiger Global was not in Mauritius, but in the United States. The use of the ‘Head and ‘Brain’ test,  along with the Place of Effective Management described the Mauritian entities as a see-through structure, which did not have an independent existence. This decision, therefore, confirms that real commercial substance is required of treaty benefits and tax authorities are permitted to ignore intervening corporate levels where control is evidently exercised in other areas. 

    CONCLUSION

    The case of Tiger Global is an important judgment that indicates India’s attitude towards how the advantages of the tax treaty can be construed concerning the cross-country corporate arrangements. The Court not only simplified confusion about the India- Mauritius DTAA but also suggested a gradual change in the attitude to rely only on the formal treaty residence to the tactical review of the investment and control structure of the corporate management. It demands a change in the box-ticking compliance to ex-ante accounting of the presence of a strong commercial justification. In addition, the Court has distinguished investments and arrangements, which means that the exit structuring will now be evaluated irrespective of the entry date; even the grandfathered investments made before April 2017 will be taxed according to GAAR when the exit arrangement is defined as a tax avoidance measure. Thus, PE/VC frameworks must clarify their geography of control and verify expenditure limitations as per the LOB provision.

  • Bridging the Gap in Indian Group Insolvency: Integrating Planning Proceedings

    Bridging the Gap in Indian Group Insolvency: Integrating Planning Proceedings

    BY KRITI MEHTA, THIRD- YEAR STUDENT AT NIRMA UNIVERSITY, AHMEDABAD

    INTRODCUTION

    The world has witnessed the prevalence of enterprise groups with the advent of globalisation and market integration. Particularly in India, as of March 2020, companies which are listed in the NIFTY 50 Index reported having an average of 50 subsidiaries. Despite restrictions by the Ministry of Corporate Affairs on subsidiary layers, complex corporate structures persist, creating challenges like operational linkages, group disintegration, and loss of synergies. In the absence of a comprehensive framework for resolution, it results in reduced value of the asset, inefficient treatment of creditors of solvent entities within the enterprises, prolonged delays, among others. Therefore, a holistic framework for group insolvency becomes pertinent to prevent inconsistent adjudication and erosion of collective enterprise value.

    Firstly, the blog evaluates the pre-existing international approaches to group insolvency and examines the legislative response of the UK to the same. Secondly, the blog argues that India’s current insolvency framework is inadequate for group insolvency and adopting the procedure for planning proceedings as proposed in the United Nations Commission on International Trade Law (‘UNCITRAL’) will enable coordinated restructuring. Against this backdrop, it is imperative to acknowledge that the present discussion is confined to the domestic dimension of group insolvency only

    INTERNATIONAL FRAMEWORK ON GROUP INSOLVENCY  

    Internationally, two remedies address complexities arising in group insolvency. These are procedural coordination and substantive consolidation.  Procedural coordination preserves the principle of separate legal existence as laid down in Salomon v. Salomon. Additionally, it also streamlines procedural elements like the filing of cases, timelines of submissions, and coordination among key stakeholders like insolvency professionals and creditors. Conversely, substantive consolidation dispenses with the legal principle of separate legal entity by pooling all the assets and liabilities of the entities for insolvency resolution. This approach leads to the equitable treatment of creditors, particularly where the management of corporate entities is intertwined and meaningful disentanglement is not probable.

    However, this approach has drawn significant criticism from scholars worldwide as it undermines corporate autonomy. These companies have separate legal existence, but they are a single economic unit; therefore, the court has to lift the corporate veil and give precedence to the single economic entity principle. Consequently, its application is an exceptional remedy, invoked only when a separate legal existence will frustrate the principle of equitable distribution during resolution. While these approaches are developed in other jurisdictions, their legal adoption in India remains limited, necessitating judicial innovation. In the Indian insolvency regime, the doctrine of a separate legal entity is deeply rooted. This necessitates the adoption of procedural coordination between the corporate entities, since the substantive coordination will lead to pooling of assets and liabilities. This undermines the principle of separate legal existence. Thereby, procedural co-ordination aligns with the Indian jurisprudential analysis without unsettling the settled doctrines of separate legal existence and single economic entity principle.

    LEGAL FRAMEWORK IN INDIA

    The Insolvency and Bankruptcy Code, 2016 (‘IBC’), lacks a legal framework governing group insolvency. Judicial interpretation has played a pertinent role in filling the legislative vacuum. In Embassy Property Developments Private Ltd v. State of Karnataka, the Court acknowledged the jurisdiction of the National Company Law Tribunal (‘NCLT’) to consolidate insolvency proceedings of entities that form part of the same corporate group under 60(5)(c) of IBC, 2016. Further, in State Bank of India v. Videocon Industries, the NCLT Mumbai bench evolved the twin test to determine the necessity of consolidation. The test examined certain ingredients, viz, common control, common liabilities, pooling of resources, interlacing of finance, intricate link of subsidiaries, singleness of economic units, and common pooling of resources. The court underscored that consolidation should be denied only if it is prejudicial to the stakeholders or violates the objectives of the code.

    The judiciary further shed light on the operational difficulties inherent in the group insolvency process through the Jet Airways case. The Apex court highlighted operational challenges in group insolvency, including intertwined assets and liabilities among the entities, a lack of coordination between authorities and the resolution professional (‘RP’), which leads to procedural delays. While the ad hoc measures are employed by the adjudicating authorities, the absence of codification impedes the successful resolution of group insolvency proceedings.

    Recognising these challenges, the 2025 Insolvency and Bankruptcy Code (Amendment) Bill 2025 (‘Bill’) attempted to introduce a robust framework for group insolvency by including Chapter V-A. However, these efforts are not immune to criticism as the Bill does not incorporate planning proceedings, as introduced by the UNCITRAL on Enterprise Group Insolvency (‘MLEGI’) under section 2(g).

    GROUP INSOLVENCY AND PLANNING PROCEEDINGS

    Planning proceedings are a specialised process under group insolvency resolution designed to develop a combined plan for restructuring or liquidation. This concept of planning proceeding is envisaged under MLEGI. Under Article 2(g), for proceedings to qualify as a planning proceeding in a domestic dispute, two conditions must be satisfied:

    1. The proceedings must involve the participation of more than one group member for implementing the group insolvency solution; and
    2. A group representative must be appointed, who will facilitate coordination among the group members.

    This indicates that the planning proceeding is an insolvency proceeding of one of the group members in which one or more groups of the enterprise voluntarily participate. A group insolvency solution is the objective of these proceedings. It may pertain to the reorganisation, sale or liquidation of assets or operations of the companies to protect and enhance the combined value of the group.

    The distinction between planning and the main group insolvency proceeding is conceptual as well as functional. A main group insolvency proceeding is initiated in the jurisdiction where the debtor has its Centre of Main Interest, and its scope is confined to the default of a corporate debtor only. Under the Indian insolvency regime, there is no parallel regulatory framework like Article 2(g) of MLEGI that addresses procedural coordination during insolvency. Recently, through judicial intervention, there have been group insolvency proceedings, but the efforts remain constrained.

    ANALYSIS

    Under the Indian insolvency regime, the rigid distinction between the parent and the subsidiaries, coupled with the exclusion of the related entities from participation in the insolvency process, undermines the revival of the corporate debtor. Through the incorporation of planning proceedings within the domestic framework, the insolvency process can become more proficient. Such coordination facilitates the revival of the CD owing to the efficient management of the assets between subsidiaries and the parent company.

    In contrast to the Indian framework,  planning proceedings operate as a coordinated framework which envisages the restructuring of the multiple entities in the enterprise group. The court is authorised to approve inter-company financing, stay of actions or central administrative actions within a group. This preserves the going concern value of the insolvent entities, and also curbs the domino effect of structural and functional complications post-insolvency on the related entities of the group.

    The model law states that planning proceedings generally warrant the participation of related solvent entities through the appointment of a single RP that serves multiple affiliates, and ensures better coordination and long-term profit. This is in contrast to existing Indian insolvency framework, which restricts participation to insolvent entities only, foreclosing the possibility of contribution of resources for a collective recovery. The adoption of planning proceedings offers several potential benefits for the domestic insolvency framework.  The Insolvency and Bankruptcy Board of India working group observed that the separate insolvency of the group enterprise reduces credit value. The consolidation of multiple Corporate Insolvency Resolution Processes (‘CIRP’) into one planning proceeding leads to maximisation of assets, reduction in duplication, prevents conflicting resolutions and leads to better coordination. It also incentivises stakeholders, like the creditors, to lend more finance as they can file inter-company claims.The planning model would therefore mitigate the domino effect of the group distress.

    Hence, the Indian legislature may warrant examination of a tailored framework by defining planning proceedings within the domestic insolvency framework, consistent with Indian standards. The authorities must avoid verbatim adoption of the model law as evidenced by the conundrum of interpretive debates on Section 34, Arbitration and Conciliation Act 1996, that arose during Gayatry Balwaswamy’s judgment.

    To incorporate domestic needs, the law must also authorise the NCLT to grant relief under the planning proceeding. The legislature may take reference to MLEGI, Article 26, which requires separate approval from a member of the CoC. Any plan approved under the planning proceeding should be binding on all the participants, upon sanction by the NCLT. When the international model law is calibrated to align with domestic needs, it will lead to better adjudication, coordinated restructuring, and the prevention of value erosion from fragmented proceedings.

    PLANNING PROCEEDINGS IN THE UK

    The United Kingdom is among the few jurisdictions which actively implemented MLEGI, particularly planning proceedings. The proposed framework authorises a group representative to seek relief, for instance, injunctions, stays on the order, etc, to protect the value of the group. Pertinently, the framework allows participation of foreign creditors without necessitating parallel proceedings.  The applicable law for creditors will be the one that would have applied if the insolvency proceedings had been commenced. The UK also considered examining the interaction between MLEGI and 26A of the (UK) Companies Act 2006, which provides for restructuring plans. The government remarks that despite the broad definition of planning, the model did not incorporate restructuring plans, which may be pertinent for the successful implementation.

    Notwithstanding the proactive stance, the proposed implementation by the UK parliament reflects anomalies. A primary concern arises under Article 5 of MLEGI, which mandates the designation of a competent authority. Although the UK consultation suggested that an accountant in bankruptcy could potentially act as an authority, they have clarified that they don’t intend to create new institutional bodies. Hence, it is ambiguous which institution or court will be entrusted with the statutory function under Article 5. This institutional indeterminacy has direct repercussions on the creditor treatment, as fragmented adjudicatory treatment creates divergent approaches that undermine the efficiency of the proposed law. While the model law leaves it to the domestic court to manage the conflict, there have been no guidelines from the appropriate authority.

    CONCLUSION

    The growing pertinence of group insolvency has exposed the limitations of the IBC in addressing the challenges to financial distress. Judicial interventions have tried to fill the vacuum, with little success owing to the problems of value erosion and loss of operational synergies, among others. In this context, the MLEGI provides a unique solution through the introduction of planning proceedings. It preserves the dominant legal principle of separate legal existence while also facilitating collective restructuring without adopting substantive consolidation. Therefore, it necessitates the statutory introduction of planning proceedings with tailored domestic safeguards. Additionally, the appellate court should be empowered to grant interim reliefs including appointing a group representative, to ensure information symmetry across group entities. A calibrated implementation of the planning process will enhance value maximisation and strengthen creditors’ confidence in the Indian insolvency regime.

  • Tick-Box to Truth – SEBI’s 2025 Clarifications and the Crisis of Director Autonomy

    Tick-Box to Truth – SEBI’s 2025 Clarifications and the Crisis of Director Autonomy

    BY HARSHITA DHINWA AND RAM SUNDAR SINGH AKELA, FOURTH- YEAR STUDENTS AT NUSRL, RANCHI

    INTRODUCTION

    The first six months of 2025 saw a historic culling of Independent Directors from Corporate boardrooms in India where more than 150 Independent directors voluntarily resigned from numerous listed companies, not in anticipation to join new ventures but as an ultimate defense against the unprecedented growth in regulatory scrutiny and personal liability. The prime mover in this instance is the Securities and Exchange Board of India’s (‘SEBI’) 2025 clarificatory note on “Material pecuniary relationship” with securities under Regulation 16(1)(b)(iv) of the Listing Obligations and Disclosure Requirements (‘LODR’) Regulations 2015. However, a deeper look into the high-profile cases such as InfoBeans Technologies 2025, Byju’s 2024-25, Paytm Payments Bank 2024, Dewan Housing Finance Corporation Limited 2021-23, and Punjab and Maharashtra Co-operative PMC Bank 2019 -20 show a systemic connection where in all of them, the directors identified promoter domination, limited information about the financial data, and the threat of retrospective legal action as the main drivers. The main motive is to strengthen such governance by rewiring what the concept of independence means, to go beyond formal financial bright-lines to examine the relative economic and social frameworks that CEOs and nominal IDs should be freed from.

    SEBI’S 2025 CLARIFICATIONS: A SHIFT IN STANDARD OF INDEPENDENCE

      SEBI’s informal guidance to InfoBeans Technologies on May 14. 2025, clarifying “material pecuniary relationship” under  Regulation 16(1)(b)(iv) of the LODR Regulations left a big shift in independent directorships as a mere formula compliance to its substantive decision-making by independent directors, which saw a significant shift from size and revenue-based materiality assessment.

      Historically, Section 149(6) of the Companies Act, 2013, defined independence with the help of a quantifiable limit where pecuniary transactions not exceeding 10% of a director’s total income over two preceding final years would be considered independent.  SEBI’s clarification introduced a more wholesome evaluation of ongoing relationship, indirect economic ties and potential biasness to judgment, without numerical limits. Through InfoBeans, SEBI evaluated an Independent Director’s (‘ID’) proposed consultancy with an overseas subsidiary, compensated with 10% of their income, noting that materiality under LODR lacks a fixed ceiling, urging boards and Nomination and Remuneration Committee (NRC’s) to prioritize substance over form in its assessment of independence.

      This aligns with the Ministry of Corporate Affairs’ (‘MCA’) General Circular No. 14/2014, which excluded sitting fees and reimbursement from assessment of pecuniary relationship while focusing on autonomy. Moreover, the J.J. Irani Committee Report (2005) recommended assessing materiality from the director’s or Recipient’s perspective, proposing a 10% income threshold for transactions, that is, the key consideration will be whether the scale of financial involvement is substantial enough to compromise the director’s involvement. According to ICAI’s “Technical Guide on the Provision of Independent Directors from Corporate Governance Perspective, 2021”, the method of fiscal compilation should be disregarded, while also citing MCA’s October MCA’s 2018 Offences Committee Report recommended a 20% cap (Excluding sitting fees) to curb the erosion of directors’ discretionary powers and to standardize the governance framework. Due Diligence Norms demand prime disclosures and retrospective inspections on “friendly” directors to prioritize independent directors’ bias-free judgements over formally induced compliance. This change challenges the board to rethink their appointment and oversight role, ensuring that IDs are free from any social and economic influence.

      THE MASS DEPARTURE: CRISIS DISGUISED AS COMPLIANCE

        SEBI’s clarification has nearly provoked a boardroom Exodus, with almost 549 IDs resigning in FY25, of which, 94% mid-term, most of which were serving on National Stock Exchange  comparable to 2019’s wave, where 1390+ IDs quit. Resignation is more seen in firms facing financial distress, regulatory sanction, or governance lapses, and where ID’s report promoter-driven opacity, restricted access to financial data and fear of personal liability is rampant. For instance, the IDs of Byju’s resigned stating promoter-controlled decision-making and lack of financial transparency, as reported in MCA filings. Paytm’s directors exited fearing personal liability when the Reserve bank of India imposed penalties for non-compliance, while PMC Bank’s directors were investigated for failing to detect loan irregularities. The IL&FS crisis, where IDs were liable for oversight failures despite limited access to information, sets a precedent. Further, a 2025 NSE report noted a 30% resignation spike post-clarification, showing a crisis masked as compliance. The InfoBeans guidance multiplied fears of retrospective liability, as SEBI’s overall scrutiny exposed IDs to risk for past decisions, even beyond what they have in control.

        This “regulated retreat” arises from an inherent imbalance in structure where IDs face fiduciary and criminal liability under Section 149(8) of the Companies Act and SEBI’s review of regulatory provisions related to independent directors, but lack veto power, access to audit reports, or whistleblower protections. Unlike the system governing the U.S., where the Business Judgment Rule shields diligent directors, India’s framework leaves IDs in a much vulnerable position. It has been seen that IDs were penalized in  SAHARA India v. SEBI for promoter-driven judgments despite restricted authority. The legality was defeated in Chanda Kochhar V. SEBI, where IDs were examined for endorsing inequitable loans exposed under Section 149 as parental predominance over promoters. ID Nusli Wadia, who was revealed in the Tata-Mistry saga, also exposed parental superiority. This appears in the MCA’s 2018 Offences Committee Report, pointing ID liability concerns as one of the motives for quitting, which requests increased safeguarding of Section 149. The absence of being able to manage this risk without authority is what, in fact, leads good directors to quit high-risk companies, which in turn triggers the need for our IDs to be upgraded seamlessly, plus for the governance to re-establish its integrity

        THE PAPER-THIN PROMISE OF INDEPENDENCE

          Section 149(6) of the Companies Act, 2013, and Regulation 16 of LODR, create a mirage of independence by prioritizing formal disqualifications such as past financial ties, shareholding, or employment over functional autonomy.  In promoter-dominated firms, constituting 60% of listed entities, IDs are often selected by promoters, undermining their primary role as stakeholder guardians. The Kotak Committee Report (2017) criticized NRCs for acting as rubber stamps, failing to rigorously vet independence as evidenced in Dish TV India Ltd. (2021 BSE Filing), where minority shareholders challenged ID appointments for lacking autonomy and exposing promoter overreach. Similarly, in N. Narayan v. SEBI, IDs were penalized for governance lapses without direct involvement, highlighting judicial overreach that generally disregards Section 149(12)’s liability limits.

          The absence of the safe harbor Doctrine and the Delaware–style “entire fairness” test, which protects directors by scrutinizing conflicted transactions, worsens the ID exodus. Originally a creature of U.S. corporate law, the Safe Harbor Doctrine protects directors from liability arising out of decisions made in good faith, with due care and in the best interests of its company, even though outcomes can come out adverse. In the state of Delaware, the theory is codified in the “Business Judgment rule” which presumes director are diligent unless proven otherwise. This sharply contrasts with Section 149(12), which limits ID liability to act with knowledge or consent, but is inconsistently enforced as seen in the Narayan v. SEBI case.

          In addition, the U.K.’s Stewardship Code, issued by the Financial Reporting Council, mandates BODs and institutional investors to prioritize long-term value, transparency, and stakeholder interests, and requires annual disclosure of voting policies and dissent. Principle 7 emphasizes board independence, urging directors to challenge management constructively. In Royal Dutch Shell plc, the Code’s application compelled directors to disclose climate-related governance decisions, thereby enhancing accountability. India’s Regulation 25 mandates separate ID meetings, but these lack the Code’s rigor, as seen in the case study of Yes Bankfiasco , where IDs failed to curb risky lending due to promoter dominance and limited collective action.

          REIMAGINING INDEPENDENCE – A BLUEPRINT FOR REFORMS

          Halting the departure and regaining trust requires the implementation of reforms in India’s corporate governance. Firstly, since promoter dominance affects 60% of listed companies, it must be controlled by mandating independent third-party nomination panels as proposed per CII . These Panels will compromise minority shareholders, institutional investors and industry experts ensuring that ID appointments are based on expertise and autonomy. Secondly, in addition to the self-declaration under Section 149, promoters should explicitly state whether they have any prior economic, social, or historical relationships with ID candidates, either professionally or financially. This will be supported financially by NRCs and audited by external auditors, thus maintaining transparency and individual choice, preventing such promoter-led appointments. Thirdly, the implementation of the safe harbor doctrine for IDs who are on-record documents of dissent in board minutes. SEBI has recommended this in its consultation paper on directors’ protections, reducing the threat of multiple resignations due to IDS fearing punishment for not protecting the company.

           Fourth, flexibility and competitiveness in remuneration: SEBI in 2019 proposed capped stock options needing both shareholder and minority approval. Here, remuneration is competitive with attracting high-caliber talent but that does not compromise their independence. By the 2018 Report for MCA unlike high fees, which consider sitting fees insufficient, this alignment’s alternative ID incentives with the businessman’s interests; therefore, they should be retained. Fifthly, regular training on finance, risk, and compliance should be guaranteed and Formal evaluations of ID performance should be conducted. Sixthly, using Regulation 25 separate ID meetings to arrange red flags and Section 150’s databank and expertise tests for experienced IDs should be streamlined; these reforms would make ids empowered overseers, not ornamental figures.

          CONCLUSION

          Independence now feels like  escape, not strength. What was obtained to construct what SEBI 2025 will build has instead exposed the unwillingness of our setup to deny real power but equally demand responsibility. The interpretation of “material pecuniary relationship” under Section 149(6) (c) of the Companies Act and Regulation 16(1)(b)(iv) of SEBI’s LODR Regulations, certainly post-SEBI’s InfoBeans guidance, shows a stark shift from tick-the-box to substance. Independence can be assessed not just on paper but equally in spirit, making it free from past ties, undue influence or hidden loyalties. Independence must be both real and visible for effective governance.

          To stem the prevalent exodus of IDs and reinstate confidence in corporate governance, Section 149(6), (12) of the Companies Act, and Regulations 16 and 25 of LODR should be amended to include a safe harbour doctrine for the protection of dissenting IDs, a guarantee for full access to audit data & whistleblower protection, and independent nomination panels without influence of promoters. Remuneration should be fixed with independence safeguards to balance autonomy and talent attraction in the industry, and a materiality threshold should be codified to ascertain pecuniary relationships.  These amendments will ensure independence, substantive rather than symbolic, and they will strengthen integrity in corporate governance.

        1. From Price Control to Market Discipline: Reading SEBI’s Base Expense Ratio Reform in Comparative Perspective

          From Price Control to Market Discipline: Reading SEBI’s Base Expense Ratio Reform in Comparative Perspective

          BY AADIT SHARMA, SECOND YEAR STUDENT AT RMLNLU, LUCKNOW

          INTRODUCTION

          India’s mutual fund industry has experienced accelerated growth with assets under management increasing from ₹72.2 lakh crores in May 2025 to ₹80.8 lakh crores by November 2025 with retail investors having a larger chunk in the market. It is in this context of rapid market expansion and retail involvement that the Securities and Exchange Board of India’s (‘SEBI’) circular dated 17 December 2025(‘Circular’) introducing the Base Expense Ratio (‘BER’) has been primarily discussed as a numerical or transparency-driven intervention. The earlier Total Expense Ratio (‘TER’) was a single, all-inclusive umbrella cap that bundled together the fund’s core management fees, distributor commissions and operating costs along with various statutory and regulatory levies (such as GST, STT, Stamp Duty and SEBI fees) into one consolidated percentage. The now introduced BER includes unbundling of costs. It states that the BER will only include the base core scheme-level expenses such as management fees, distribution costs and routine administration, while statutory and regulatory levies are excluded and charged separately on actuals. 

          This article argues that the BER framework reflects a measured shift by SEBI from merit-based price control towards disclosure-led market discipline, while consciously stopping short of full deregulation. When viewed in a comparative international context, the reform reflects a cautious alignment with global regulatory trends rather than a blind replication of foreign models.

          FROM BUNDLED CONTROL TO SELECTIVE TRANSPARENCY

          Prior to the circular, mutual fund expenses in India were regulated under a TER framework that bundled discretionary fund management fees with statutory and regulatory levies such as GST, Securities Transaction Tax, exchange fees, and SEBI charges. Although nominally framed as a disclosure-based ceiling, the TER regime functioned substantively as merit regulation because SEBI did not merely mandate disclosure of costs but prescribed binding ceilings on total expenses regulated under SEBI (Mutual Funds) Regulations, 1996. By prescribing category-wise caps on the aggregate chargeable expense, SEBI effectively determined what constituted a ‘reasonable’ cost structure for mutual funds, embedding its regulatory judgement directly into cost limits. Investor protection under this framework was achieved less through competitive pricing or informed choice and more through ex ante regulatory intervention. Even where SEBI permitted limited add-ons such as the additional allowance of up to 0.05 basis points in specified circumstances, including exit load–linked expenses, the underlying architecture remained one of bundled cost control, with statutory pass-through levies obscuring the true pricing of fund management services.

          The BER reform marks a deliberate reconfiguration of this approach. By separating core fund management costs from statutory and regulatory levies, now charged on actuals, SEBI has partially withdrawn from adjudicating the fairness of total expenses. Instead, it has enabled investors to evaluate the pricing of asset management services independently of compulsory charges. This shift represents a recalibration rather than an abandonment of regulatory control: while aggregate cost assessment is displaced in favor of transparency and comparability, SEBI has consciously retained category-wise caps on the base component. This reflects continued skepticism about the disciplining capacity of markets in a retail-dominated ecosystem. However, the reform is not without structural consequences. Although statutory levies are excluded for all funds under the BER framework, the practical benefits of this change are not evenly distributed. Large Asset Management Companies (AMCs)which typically operate close to the regulatory TER ceiling benefit from the removal of mandatory levies such as GST and transaction-related taxes from the capped expense head, as this reclassification restores usable pricing space and cushions margin pressure without requiring any adjustment to headline fees. Smaller AMCs, by contrast, generally price their schemes below regulatory caps and therefore derive limited incremental flexibility from the reform. While the BER framework advances transparency, but does not significantly change competitive conditions, as its practical benefits accrue mainly to AMCs constrained by existing expense ceilings. This outcome underscores the limits of disclosure-led governance in addressing distributive and competitive asymmetries that were previously moderated through aggregate cost controls.

          COMPARATIVE PERSPECTIVE: CONVERGENCE AND DELIBERATE DIVERGENCE

          A.    United States: Disclosure Without Price Ceilings

          In the United States (‘US’) mutual fund regulation is   administered by the Securities and Exchange Commission (‘SEC’) under the Investment Company Act of 1940. It is premised on a combination of disclosure, investor education and procedural safeguards rather than direct regulation of fee levels. The SEC does not impose ceilings on expense ratios; instead funds are required to disclose management fees, distribution expenses (including 12b-1 fees) and operating costs in standardized formats leaving pricing discipline to investor choice and competitive pressures. The SEC requires that mutual funds disclose the expense ratios in key documents such as the prospectus and shareholder reports enabling investors to compare costs across funds.

          By contrast SEBI’s BER framework reflects a more cautious regulatory stance. Although disclosure has been strengthened through cost unbundling, SEBI has retained category-wise caps on base expenses, signaling an institutional judgement that disclosure alone may be insufficient to discipline pricing in a predominantly retail market.

          B. European Union: Transparency with Behavioral Framing

          The European Union’s (‘EU’) regulatory framework particularly under the Packaged retail and insurance-based investment products (PRIIPs), places strong emphasis on cost transparency through mandatory Key Information Documents . The EU regulatory framework is premised on the view that disclosure is effective only when it can be readily understood by retail investors. Accordingly, the PRIIPs regime requires investment costs to be presented in standardized formats and in many instances to be expressed in monetary terms over defined holding periods rather than only as percentages. This approach reflects an explicit regulatory acknowledgement that purely numerical disclosures may not be sufficient to inform investors in decision-making.

          SEBI’s BER framework aligns with the EU’s approach in unbundling costs and enhancing comparability across schemes but differs in its method of disclosure. While the Indian framework improves numerical transparency by separating base expenses from statutory levies it does not mandate behavioral framing or investor-oriented presentation of costs.  The reform enhances visibility of pricing components  but stops short of shaping how investors interpret or process that information.

          Taken together, these comparisons indicate that SEBI’s reform represents hybrid regulatory design. It borrows transparency mechanisms from global best practices while retaining structural controls suited to domestic conditions. The result is neither full convergence with them nor resistance to them but selective adaptation.

           THE LIMITS OF DISCLOSURE AS INVESTOR PROTECTION

          Disclosure-based regulation rests on the assumption that investors are able to read, understand and meaningfully compare cost information across financial products. In practice, this assumption is unevenly satisfied in India’s predominantly  retail driven mutual fund market. Levels of  low financial literacy are entangled with perceived complexity and limited information on investors’ part. As a result, the investors rely on intermediaries, brand reputation or recent returns rather than cost metrics when making investment decisions. In this context, the BER framework may improve the visibility of expense components without necessarily altering investor behavior. While headline base expense figures are now easier to identify, investors may underappreciate the cumulative impact of statutory levies charged separately or may continue to prioritize short-term performance over cost efficiency. As a result, transparency may not translate into effective market discipline. This does not undermine the regulatory rationale of the BER reform, but it highlights an inherent limitation: disclosure can function as a meaningful tool of investor protection only where investors possess the capacity and incentives to use the information disclosed.

          CONCLUSION: MAKING TRANSPARENCY EFFECTIVE

          The introduction of the BER marks a recalibration of mutual fund regulation rather than a completed transition. By unbundling statutory levies from core scheme expenses SEBI has created the conditions for improved cost comparison but transparency alone will not ensure market discipline unless it is operationalized through complementary regulatory practices.

          To realise the BER framework’s potential, post-implementation monitoring must assume central importance. SEBI should systematically track how expense structures evolve under the new regime and whether cost efficiencies are passed on to investors or absorbed within margins and distribution incentives. Periodic, category-wise publication of BER trends could strengthen competitive pressure without additional rulemaking.

          The impact of disclosure also depends on how intermediaries operate. In a market dominated by retail investors, transparency at the scheme level will have limited effect if distributors continue to shape investment decisions without regard to costs. Unless distributor incentives and point-of-sale disclosures reflect BER-related cost differences, investors are unlikely to use this information in practice. In addition, small improvements in how costs are presented such as showing base expenses alongside statutory levies can help investors better understand the total cost of investing, even without introducing formal behavioral mandates.

          Read this way the BER reform is best understood as a foundational step. Its success will depend less on arithmetic recalibration and more on whether transparency is translated into sustained pricing discipline through monitoring, intermediary oversight and usable disclosure.

        2. Are Depositories Becoming Systemic Risk Guardians? SEBI’s Quiet Shift in 2025

          Are Depositories Becoming Systemic Risk Guardians? SEBI’s Quiet Shift in 2025

          BY KEERTANA R MENON, THIRD YEAR STUDENT AT NUALS, KOCHI

          INTRODUCTION

          The concept of “systemic risk” has traditionally been synonymous with the banking sector, the giant lenders and financial intermediaries whose collapse could send shockwaves across the economy. The assumption here is that capital market infrastructure is mainly operational in nature. When we refer to infrastructure here, we make a special mention of depositories. In India, the Reserve Bank of India (‘RBI’) has stringent regulatory frameworks for these entities, formally labelling them as Domestic Systemically Important Banks (‘D-SIBs’).

          In contrast, market infrastructure entities, including depositories like the National Securities Depository Limited (‘NSDL’) and the Central Depository Services Limited (‘CDSL’), have occupied a much humbler space in the regulatory system. They are perceived as operational backbones that act as passive service layers. They are considered dedicated to record-keeping, dematerialization, and settlement facilitation. They are concerned with Market Infrastructure (‘FMI’), but most importantly, they are not market drivers. They do not engage in lending or funding activities that traditionally trigger systemic crises.

          This decades-old perception, however, has just been challenged by the SEBI (Depositories and Participants) 3rd Amendment Regulations, 2025 (‘Amendment’). This amendment is not merely about tightening internal governance or implementing standard operational updates. Instead, it suggests a strategic change by the Securities and Exchange Board of India (‘SEBI’). By dramatically increasing oversight and mandating specialized technical roles, SEBI is now subtly positioning depositories as entities whose collapse could destabilise the entire market. This suggests that this amendment is the first step toward treating depositories as systemic fault points. SEBI is starting to regulate these entities in a manner similar to how the RBI scrutinizes the larger banks, breaking down the old divide between banking oversight and market oversight.

          THE RISE OF DIGITAL RISK: WHY THE OLD PARADIGM FAILED

          For decades, SEBI’s regulation of depositories largely focused on fiduciary duties, investor safety, and compliance. All of these are concerns suitable for paper-based or human-error risks. The idea that a depository could pose a systemic threat, and that too one capable of taking down the entire market, was dismissed. This dismissal was because they do not carry financial risk in the way that banks or major brokerages do.

          However, the nature of systemic risk has fundamentally changed. The capital market has taken a “cyber-first” shift. In a fully digitized ecosystem, the real point of failure is no longer human conduct or a default in capital, but system vulnerability.  A technical failure or a cyberattack can halt settlements, shut down exchanges, and freeze the whole cycle in seconds. Financial losses usually give regulators some time to react. Technical failures don’t. They spread immediately and shake the entire market.

          The infamous NSE trading halt in February 2021, caused by a technical glitch, became a stark, domestic reminder that trading stops if infrastructure goes down, irrespective of price movements or trader defaults.

          Depositories are what keep the market alive. They hold the core ownership records for all demat securities. Prices can swing wildly, and the market will still cope, but if these records fail, everything comes to a standstill. A depository outage shuts the entire market. In this sense, depositories were already systemically important, just not officially acknowledged or regulated as such. SEBI seems to be preparing for a future where systemic risk comes from the server room, not the boardroom.

          ANATOMY OF THE SHIFT: SIFI GOVERNANCE IN THE DEPOSITORY SECTOR

          The SEBI (Depositories and Participants) 3rd Amendment Regulations, 2025, gazetted in November 2025, has three primary aims: i) enhance corporate governance and strengthen risk management, ii) operational resilience and iii) introduce technology and cybersecurity leadership. The biggest changes that this amendment brings in involve the composition and responsibilities of the key management personnel. Through Regulations 24 and 26A, it raises the governance bar by adding Executive Directors (‘ED’) to the Board and reorganising leadership so that one ED oversees infrastructure and systems, while another handles risk management. The Managing Director is now directly responsible for compliance, day-to-day affairs, and stability of the depository’s core systems.

          SEBI also provides for a tech-focused oversight through Regulation 81B and 81C. Every depository must now appoint a Chief Technology Officer (‘CTO’) to manage all technology systems, IT risks, and respond to tech-audit findings. Similarly, they must also appoint a Chief Information Security Officer (‘CISO’) to handle cybersecurity threats. Senior executives are now barred from sitting on external boards without approval so that conflict-management norms are applied to highly sensitive financial entities.

          This is the kind of structure that was historically only seen in the regulation of Domestic Systemically Important Banks (‘D-SIBs’). SEBI wants to avoid this label, but the aim is clear. The rules now treat depositories as core institutions, not just background service providers.

          ARE DEPOSITORIES BEING BUILT TO BE TOO RESILIENT TO FAIL?

          Instead of going all the way and calling depositories “systemically important,” SEBI seems to be taking a slower, quieter route. A formal label would set off alarms immediately. It would pull depositories into the kind of scrutiny banks face, raise questions about capital rules that don’t really fit them, and force India to line up quickly with global standards. SEBI clearly doesn’t want that kind of regulatory shock.

          So, it’s choosing to build strength from the ground up. By tightening governance, creating specific tech and cyber roles, and placing responsibility on senior management, SEBI is making depositories sturdier without suddenly demanding capital buffers or liquidity norms they were never designed for. It’s a gradual hardening of the system instead of a problematic shift.

          This also nudges the market towards a more honest view of where its real risks lie. If everything is digital, then the infrastructure carrying that digital load becomes the sole point of vulnerability. SEBI is preparing for a world where the biggest threat to market stability isn’t a bad loan or a rogue trader but a server glitch, a cyber intrusion, or a system freeze.

          There’s also a quieter international angle here. Regulators like European Securities and Markets Authority and the US Securities and Exchange Commission have already started treating market infrastructures as potential systemic risks. SEBI appears to be moving in that direction without announcing it as a policy shift.  The idea guiding all of this is quite simple: SEBI doesn’t want to declare depositories “too critical to fail.” Instead, it’s trying to make them strong enough that the question never arises

          Depositories don’t give out credit. They don’t lend. But they hold the backbone of the market, which is the record of who owns what. 

          THE BIGGER QUESTION: WHAT COMES NEXT?

          If the 2025 amendment is really the first step towards regulating systemic risk in financial market infrastructure, the next steps will mostly focus on making depositories stronger and more resilient. We might see stress tests for systems and cyber defences, or even minimum resilience capital. The future may also witness coordinated contingency plans with SEBI, RBI, and exchanges, and regular independent cyber audits to check that the CTO and CISO roles are meeting their purpose.

          As the market becomes more digital, depositories are moving from simple back-office utilities to the backbone of the system. The amendment may be quiet, but it sends a clear message: the next big threat to market stability will be a failure in the infrastructure itself. SEBI is acting early to make sure these institutions are strong enough to withstand it by bringing securities oversight closer to the kind of robust framework banks have long followed. By tightening the screws before anything breaks, SEBI is signalling that resilience has to be built into the plumbing, not patched in after a shock. It’s a quiet shift, but one that will shape how India thinks about market stability in a digital market for years to come.

        3. From Price to Experience: Expanding the Parameters of Relevant Market

          From Price to Experience: Expanding the Parameters of Relevant Market

          BY RICHA MARIA & KAVYA MITTAL, FOURTH & THIRD- YEAR STUDENTS AT RGNUL, PATIALA

          INTRODUCTION

          Post-pandemic, with 71% more people shopping in-person than before, the experiential retail market is a fundamental transition from a traditional market where consumers are immersed in a deeply curated sensory experience to drive loyalty. Unlike traditional retail, which focuses on product distribution and price competition, experiential retail prioritises environments where the shopping experience itself becomes the primary product offering. A prime example would be IKEA’s stores, where customers navigate impressive room setups to experience the product in consonance with realistic settings while relishing food courts and engaging with interactive displays. This differs drastically from conventional furniture retailers, primarily showcasing inventory with ‘please don’t sit on samples’ stickers, even though they might be competitive in price with the former.

          From an antitrust lens, the advent of experiential retail raises crucial questions regarding low substitutability, as consumers engaging with these experiences cannot easily switch to the traditional retail market. Often, consumers spend more when they interact with the unique services that a store offers, with 80% of customers likely to make a purchase if a brand serves a personalised experience. Given these novel considerations, the authors propose that accurate competition assessment requires establishing experiential retail as a distinct relevant product market since traditional market definitions may inadequately capture the unique competitive dynamics at play. By proposing a balancing test, the authors attempt to carve a way forward for the Competition Commission of India (‘CCI’) for its future analysis.

          THE INDIAN PERSPECTIVE: STATUTORY FOUNDATIONS

          Section 2(t) of the Competition Act, 2002 (‘Act’) defines the relevant product market as comprising products or services that are interchangeable or substitutable by consumers due to their characteristics, price and intended use. The parameters for delineating the relevant product market are enshrined within Section 19(7) of the Act; notably, the inclusion of consumer preferences indicates that non-price attributes are contemplated within the statute. Scholarly analysis identifies experiential retail’s four defining themes: brand worlds, fluidity, exceptional experiences, and novel value creation, which limit substitutability with traditional retail, and thereby support market differentiation under Section 19(7)’s consumer preference parameters. Thus, the authors propose that experiential retail should be recognised as a distinct relevant product market differentiated by customer preferences such as ambience, accessories, service and brand value, which could play a significant role in consumer choices.

          Building upon this foundation, competition regulators often employ the small but significant non-transitory increase in price (‘SSNIP’) test to assess the precise relevant market. According to this test, if a 5% to 10% price increase does not affect the demand, then that product would be considered as having no substitutes, and if the increase leads to consumers shifting their preferences to other similar products, then the relevant product market can be wider. In order to evaluate experiential retail against the SSNIP test, the CCI would have to examine whether a 5% increase in the price by the experiential retailer diverts demand to other experiential outlets or whether such a change to non-experiential outlets is minimal. The experiential outlet may qualify as a distinct relevant product market where consumer diversion is primarily limited to other experiential outlets rather than conventional retail formats.

          CCI’S ANALYSIS IN INDIA

          While the CCI has not explicitly categorised experiential retail as a separate relevant product market, its orders demonstrate a willingness to differentiate between separate relevant product markets for the same products on the basis of non-price criteria. In Sh. Ravi Beriwala and Lexus Motors and Ors., the CCI recognised that myriad factors influence the choice of purchase of a particular type of car, such as budget, convenience, accessories, comfort, brand name, facilities, features, looks, etc., which makes it a different class altogether. On this basis, the relevant product market was adjudged to be high-end luxury cars. Similarly, in Belaire Owner’s Association v. DLF Limited the relevant product market was identified as “services provided by developers for construction of high end residential buildings” as consumers were prepared to pay a premium for the extra performance. By analogy, while experiential retailers sell the ‘same’ product as mass outlets, features such as ambience, curated quality, branding and premium services cannot be replicated by mass outlets. Clearly, the CCI itself has accepted luxury as a distinct class due to factors such as budget, convenience, accessories, brand name, facilities, features and looks, which can also be features of experiential retail. Empirical evidence likewise suggests that consumers are more likely to pay more for experience, highlighting the willingness to pay a premium for non-price attributes, which reinforces the recognition of experiential retail as its own relevant product market.

          GLOBAL PERSPECTIVES ON MARKET SEGREGATION

          Competition authorities across the globe have steadily begun to acknowledge that the restricted traditional market definitions do not adequately cater to the augmenting complexities in the antitrust regime. The European Union’s nuanced approach in revising the Market Definition Notice explicitly recognises that competitive parameters extend beyond merely price and encompass the ‘image conveyed’, which is the entire experience of the consumer with the product, and is relevant to be judged as a comparative parameter, furthering the argument of establishing experiential retail as a distinct relevant market.

          The European Court of Justice’s ruling in Coty Germany GmbH v Parfümerie Akzente GmbH confirms that goods acquire value from curated experiences beyond mere functional utility. The segmentation of the luxury goods from mass products was justified, as it is based on the “aura of luxury” or the total intrinsic experience provided by the former. Thus, this precedent runs beyond luxury goods to any retail faction where experiential elements determine consumer choice. 

          In a similar vein, antitrust law has evolved parallelly in the United States to recognise market segmentation based on experience. The courts routinely rely on Brown Shoe factors to delineate relevant markets, which include recognition of the submarket as a separate economic entity and the product’s peculiar characteristics, among others. Federal Trade Commission v. Tapestry-Capri Holdings went a step ahead in establishing experiential market as a distinct relevant product market by recognising market segmentation on the basis of the experiential attributes and lifestyle positioning rather than pure functionality. Here, the accessible luxury handbag market was held to be a separate relevant product market, as it curated a distinct experience from mass-market and true luxury goods.

          However, this approach is not unprecedented. In United States v. Gillette Co., in order to segregate a sub-market out of a larger market, it was held that the relevant market must extend to recognise only those products which actually compete with each other and not superficially. This supports our argument of establishing an experiential market distinctly since mass products do not actually come at par with the products of the experiential segment, as they are coupled with certain additional characteristics and sensory experiences.

          Thus, the global perspectives on segregating goods for their premium experiences from mass products support the reasoning that market segmentation should be based on experiential attributes as well, rather than pure functionality.

          THE WAY FORWARD AND IMPLICATIONS

          The inclusion of experiential retail as a separate relevant product market and a non-price factor in antitrust analysis can have profound implications for investor decision-making, competitive assessment and retail strategizing. Experiential retail would also reshape investment priorities, where immersive brand environments drive higher rents and longer leases but also offer stronger customer engagement and generate ancillary revenue streams.

          Experiential retail as a separate relevant market would better enable antitrust authorities to detect anti-competitive conduct, even in cases where price competition remains unaffected. It will ensure that the market power of experiential retail brands is not understated by including irrelevant competitors in market share denominators, on the basis of mere functional substitutability. This would further augment investments in ambience, service quality, customer experience, and ensure brand differentiation and quality competition    receive appropriate weight in regulatory analysis.

          A key caution in recognising experiential retail as a separate product market is the risk of an overly broad ambit, which is why the authors recommend a balancing test. For this, the experience aspect should be the primary driver for consumers buying the product, and not merely a tertiary consideration. As per a study, a pleasant store experience is a primary factor in driving recurring customer visits, which means that the CCI must also consider quantitative aspects such as measuring the loyalty of a consumer to a product, a willingness to pay a premium price for the experience and an evaluation of consumer feedback that focuses on the ambience and brand value. Brand loyalty can be gauged through the number of returning customers compared with others in the relevant product market. When applying the SSNIP test, the CCI should ascertain whether the product demonstrates little to no alternative substitutes to non-experiential formats. If these criteria are satisfied, regulators can delineate a separate experiential market for competition assessments; if the conditions are not met, a broader relevant product market definition should be adopted instead of misclassifying the market power.

          Thus, the recognition of these competitive relationships ensures that regulatory analysis focuses on relevant competitive dynamics rather than theoretical substitution possibilities that rarely occur in practice. Hence, this would encourage continued innovation in customer experience delivery, ultimately enhancing consumer welfare through improved service and choice.

          CONCLUSION

          To conclude, the advent of the digital era has precipitated an unprecedented transformation in the traditional market structures, which requires antitrust authorities to recalibrate their approach in tune with market realities. This article argues that experiential retail should be evaluated as a distinct competitive space where non-price factors assume precedence in delineating the relevant product market since consumers are increasingly shifting towards valuing ambience, premium service and brand value, which limits substitution to mass outlets. Taking a leaf from foreign jurisprudence and a detailed study of CCI orders, the authors demonstrate that regulators are increasingly willing to recognise non-price attributes in defining markets. Moving forward, it would be interesting to witness in the future the CCI’s approach towards defining experiential retail as a distinct relevant product market. Such explicit recognition of experiential retail would not only safeguard consumer welfare, as it would lead to more accurate competition analysis, but also align Indian competition law with the emerging global practices.

        4. ESG Labels, Real Impact: Accountability and Incentives in India’s ESG Debt Securities Market

          ESG Labels, Real Impact: Accountability and Incentives in India’s ESG Debt Securities Market

          BY ANSHIKA SAH AND ABHAVYA SHARAN, FOURTH – YEAR STUDENTS AT RMLNLU, LUCKNOW

          INTRODUCTION

          Using the term “sustainability” merely as a marketing label, without any supporting regulations or uniform standards, results in purpose-washing and, consequently, loss of credibility in sustainable finance and corporate practices. In recent times, there has been a rapid increase in the ESG finance landscape across the globe, with the market projected to reach approximately $7.02 trillion in 2025. However, a litany of high-profile purpose-washing cases has made this market vulnerable to increased scrutiny over credibility and enforcement.

          India’s exploration into this      arena has gained momentum with the release of a dedicated Framework for Environment, Social and Governance (‘ESG’) Debt Securities (other than green debt securities) by the Securities and Exchange Board of India (‘SEBI’). This article examines the proposed framework and discusses      the strategic incentives involved for Indian corporates in integrating ESG considerations in their core business strategies. By analyzing the challenges involved in the implementation of the same, the article concludes with a few policy recommendations to address these challenges for a more comprehensive and better-suited framework.

          OVERVIEW OF THE FRAMEWORK 

          While India has had an environmental bond program since 2015, the newer instruments lacked the consistent regulation they required. SEBI in June 2025 introduced a comprehensive framework (‘the framework’)     , redefining ESG Debt Securities to include social bonds, sustainability bonds, and Sustainability-linked bonds or (‘SLBs’), as the demand for sustainable finance grew. In social bonds, funds are used for projects addressing social issues, such as affordable housing and job creation     , whereas in sustainability bonds, funds are raised for a combination of green and social projects. SLBs, on the other hand, are tied to the issuer achieving certain pre-set sustainability goals. These bonds guide private investment towards achieving the United Nations’ Sustainable Development Goals (‘SDGs’). They also provide investors with a practical means to combine financial gains with environmental and social benefits. The significance and momentum of these instruments are highlighted by the      expanding global ESG bond market, while India’s own issuance of over USD 13.07 billion on IFSC exchanges by the end of September. Globally accepted and recognised standards, like the Climate Bonds Standard, ASEAN standards, EU Green Bond Standard, and International Capital Market Association (‘ICMA’) Principles, must be followed by these ESG Debt securities to protect against the risks of ‘purpose-washing’ and guarantee comparability.

          ENFORCEMENT AND ACCOUNTABILITY MECHANISMS  

          Disclosure, reporting, and third-party review are significant prerequisites. Transparency needs to be maintained by the issuers, and quantifiable proof of impact has to be provided under the new framework. Significant information, such as how the proceeds are going to be utilised, target population, project selection, and whether the bond will finance new or ongoing projects, needs to be disclosed. For SLBs, issuers must specify the key performance indicators (‘KPIs’) and sustainability performance targets (‘SPTs’). There has to be constant reporting subsequent to the issue of securities of the fund allocation progress, and its impact on the environment and society.

          An independent third-party review is a mandatory requirement in order to ensure that, after the issue, the bonds are accurately classified into the four categories which are ‘green bonds’, ‘social bonds’, ‘sustainability bonds’ and ‘sustainability-linked bonds’ and to confirm that disclosures and results align with the commitments made. For this, the issuer must have a review by an independent third-party with relevant expertise, such as SEBI-registered ESG ratings providers. In order to combat non-compliance, SEBI has also included safeguards like early redemption clauses and penalties. Such provisions enable investors to redeem their securities if a try-out is attempted to purpose-wash or if the commitments entered into are not met.

          Purpose-washing is defined as making false, misleading, unsubstantiated, or otherwise incomplete claims about a bond’s purpose, often by misrepresenting how the money will be used. SEBI’s rules are explicitly designed to combat this by mandating that social or sustainability bonds must fund only the projects and objectives disclosed at the time of issue, and any deviation must be disclosed immediately.      SLBs carry a heightened risk of purpose-washing as compared to green or sustainability bonds, owing to their structure of performance-based incentives, as issuers may set low or easily attainable KPIs simply to label instruments as sustainability-linked, without delivering meaningful impact. SEBI’s earlier February 2023 Green Bond Guidelines mandated ‘dos and don’ts’ to combat greenwashing by prohibiting misleading labels, data cherry-picking, and unverified environmental assertions. However, one of the most glaring issues is the implicit exclusion of SLBs from the applicability of measures to mitigate purpose-washing, given the international standard of penalizing non-compliance.

          INCENTIVE FOR ESG INTEGRATION

          The new framework by SEBI      incentivizes Indian companies to integrate ESG considerations into their core strategies. With the global ESG asset pool sizing up to more than $35 trillion, the framework positions India to tap into this pool, to attract global capital and long-term finance. This is evident from Larson & Toubro’s debut ESG bond, which demonstrated huge investor demand and received a AAA CRISIL rating, and was priced at a lower interest rate      of 6.35%, compared to 6.45–6.50% for similar non-ESG instruments in the secondary market, indicating clear financial advantages for compliant issuers.

          Further, SEBI’s requirement of standard ESG disclosure through the Business Responsibility and Sustainability Reporting (‘BRSR’) core and the proposed India-specific ESG parameters improve the scope of sectoral comparison while aligning ESG reporting with domestic priorities. A higher ESG rating encourages businesses to improve corporate governance and performance because it signals increased market credibility and a lower cost of capital. Leading examples are Infosys and L&T, which have incorporated ESG principles in their core business strategies to gain a competitive edge by leveraging innovation and sustainability.

          Furthermore, businesses can use their credible ESG governance and disclosure practices to gain access to global markets and secure preferred vendor status with multinational buyers, particularly in export-driven industries like automobiles, electronics, textiles, etc. Moreover, Developmental Financial Institutions (‘DFIs’) like NABARD and SIDBI also provide facilities like concessional finance and targeted incentive schemes for companies that demonstrate ESG performance and compliance with SEBI’s framework.

          COUNTER ARGUMENTS AND CHALLENGES IN THE INDIAN MARKET

          Despite the benefits, as the ESG finance market expands, it presents significant challenges for issuers. One primary challenge is that there is no universally accepted definition for ‘Social’ or ‘Sustainable’, leading to a lack of clarity in application and also inhibiting standardization. Issuers run the risk of being falsely accused of purpose-washing in the absence of any uniform standards. Huge compliance costs for third-party verification and detailed disclosure requirements are compounded by this, which may discourage small and first-time issuers from participating because they often lack the infrastructure and budget to meet these requirements. Additionally, the ESG-rating market is highly fragmented and opaque, which makes it difficult for investors to evaluate and contrast the issuances across sectors. Investor confidence is further undermined by a lack of standard evaluation tools and unclear information on impact metrics.

          Although some critics have expressed concerns that the introduction of rigid taxonomies and standard KPIs may hinder innovation, and possibly put small and regional issuers at a disadvantage. Though valid, these concerns do not negate the broader need for uniformity in general. The same could be addressed through a phased implementation of the framework, starting with voluntary compliance and then gradually moving towards mandatory requirements. Similarly, inference can be drawn from the EU’s experience with the Green Taxonomy, which demonstrated that proportionality and standardization can go hand-in-hand.

          PROPOSED REFORMS TO STRENGTHEN THE FRAMEWORK

          However, this is only the beginning, and there is scope to counter these obstacles and to turn them into an opportunity to strengthen the ESG Finance landscape in India by learning from global best practices and tailoring them to suit India’s development needs. SEBI should move beyond international standards and introduce an India-specific ESG taxonomy tailored to national priorities and SDG commitments. This could draw inspiration from the EU Green Taxonomy but be adapted for India’s socio-economic development. For this, SEBI should promote the use of sector-specific templates and model KPIs to enable comparison without compromising local relevance. Though the disclosure burden is high and compliance requirements are complex, it must be noted that these are essential to eliminate the misuse of ESG labelling or purpose washing and ensure genuine impact is made. Leveraging public infrastructure and targeted support from DFIs like NABARD, SIDBI, etc., should be sought to alleviate this burden. Moreover, coalitions of the private sector, like the Confederation of Indian Industries (CII) and the Federation of Indian Chambers of Commerce and Industry (FICCI), can assist in ESG-related capacity building and provide technical and financial support.

          A central ESG oversight body under SEBI should be created to monitor disclosure, enforce accountability, ensure market discipline, and serve as an institutional safeguard for all the different stakeholders. Penalties for non-compliance should be clearly articulated to deter purpose-washing. Credit rating agencies must be mandated to follow a uniform ESG-scoring criterion. Additionally, integrating the ESG Bond market with blockchain technology and the smart contract system can enhance transparency and automate compliance by tracking the use of proceeds in real-time.

          CONCLUSION

          The framework is a timely step in aligning the Indian financial market with the UN SDGs and introduces baseline standards, opening a pathway for credible ESG capital mobilization. While it is built on good intent, this will all be meaningful when it is backed by strong enforcement and accountability mechanisms that go beyond mere disclosure formalities. The current framework leaves several gaps that require further attention. For India to become a global hub for sustainable financing, its ESG regulatory infrastructure must be built on pillars of credible enforcement, integrity, real impact, and alignment with sustainable principles.

        5. 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.