The Corporate & Commercial Law Society Blog, HNLU

Author: HNLU CCLS

  • Regulatory Turf Wars Resolved: Rethinking Regulatory Boundaries

    Regulatory Turf Wars Resolved: Rethinking Regulatory Boundaries

    NITIN PRADHAN AND MAHADEV KRISHNAN, FOURTH- YEAR STUDENTS AT ARMY LAW COLLEGE, PUNE AND NLUO, ORISSA

    INTRODUCTION

    The question of jurisdiction between the sectoral regulators and the Competition Commission of India (‘CCI’) is not new. Since the establishment of the CCI, concerns have been raised as to whether it is possible to co-exist with specialised regulators in technologically intensive sectors. The Kerala High Court (‘Court’), in Asianet Star Communications Pvt. Ltd. v. CCI & Ors. recently provided some sorely needed clarity by holding that the Telecom Regulatory Authority of India (‘TRAI’) and the CCI play different but complementary roles.

    The Court stressed that the mandate of one of the regulators cannot be displaced by that of the other and that the interaction between the two regulators should be driven by functional harmony, rather than displacement. TRAI comes into play in the structural and technical regulation of the telecom sector, licensing, tariffs, interconnection, and service quality, which provide smooth foundations of operations. In comparison, the mandate of the CCI is to protect competition, ensure that dominance is not abused and to ensure fairness in the market. Naturally, the two spheres overlap. The decision by the Court is important in that it enhances regulatory synergy instead of turf wars and the fact that overlapping jurisdictions, despite being a challenging issue, can be harmonized by working together.

    The case raises fundamental questions about institutional balance in markets where both technical oversight and competition enforcement are indispensable. More broadly, it signals the maturing of India’s regulatory architecture, where cooperation rather than conflict may increasingly define the relationship between regulators.

    Both regulators tend to claim that they are the first responder during jurisdictional conflicts. TRAI makes such a claim when complaints are technical or regulatory-based, e.g. when complaints are about licensing or interconnection. On the contrary, CCI intervenes when the matter involves anti-competitive practice or damage to the fairness of the market, which may not be within the regulatory jurisdiction of TRAI.

    It also gained national attention in the landmark decision of Bharti Airtel Ltd. v/s CCI. There, the Supreme Court ruled that whenever technical issues are involved then the sectoral regulator such as TRAI must suggest an opinion before the CCI steps in, this seemed to tilt the balance towards TRAI. However, this raises an important question; can sectoral regulation and competition law operate side by side without undermining each other?

    In this article, the authors explain the different roles of TRAI and CCI and reflect upon what the Asianet v. CCI judgment means for businesses, regulators, and the future of regulatory practice in India. Aiming to shed light on a possible forward path towards a more coordinated and effective framework for addressing overlaps between sector-specific regulation and competition law.

    BACKGROUND TO THE DISPUTE

    The dispute started when a major Kerala-based multi-system operator (‘MSO’) called Asianet Digital Network Pvt. Ltd. (‘ADNPL’) filed a complaint with the CCI against one of the dominant broadcasters called Star India Pvt. Ltd. (‘SIPL’). ADNPL claimed that SIPL had misused its market dominance in the broadcasting service market by: (i) Granting disproportionately high discounts to a rival MSO, Kerala Communicators Cable Ltd. (KCCL); (ii) Entering into “sham marketing agreements” involving unjustified payments to KCCL; and (iii) Effectively denying market access to ADNPL by conferring undue advantages on its competitor.

    On observing a prima facie case, the CCI issued an order of an investigation under Section 26(1) of the Competition Act, 2002 (‘Act’). SIPL opposed the argument that the complaint was clearly within the jurisdiction of TRAI, as it involved tariffs, discounts and interconnection agreements all of which were covered in details by TRAI Act, 1997. According to SIPL, the CCI had interfered with a domain that should be left to the sectoral regulator by intervening. ADNPL responded that TRAI governs technical and structural concerns and that discriminatory pricing and sham agreements are anti-competitive practices which are well within the jurisdiction of the CCI.

    Therefore, the High Court was obliged to consider two points: whether the presence of TRAI denied the jurisdiction of CCI, and whether the Section 26(1) of the CCI direction to investigate on the basis of which it ordered a certain investigation without issuing prior notice, infringed natural justice.

    COURT’S REASONING AND KEY FINDINGS

    In the present case the Court took a measured approach to address the seeming conflict between the TRAI and the CCI. The Court recognised TRAI and CCI as specialised regulators, but with distinct mandates. TRAI’s jurisdiction is deeply rooted in the technical and operational aspects such as licensing, tariff regulation and interconnection. Whereas, the duty of CCI is to ensure the fair market behaviour, investigating abuse of dominance and maintaining competitive equilibrium.

    Crucially, the Court declined the notion that an overlap of functions implied the jurisdictional exclusion. Instead, it emphasised upon maintaining functional harmony while echoing the principles laid down in Bharti Airtel case. It reaffirmed that sectoral expertise should not forbid competition oversight where market manipulation is concerned.

    Regarding the procedure, the Court clarified that under Section 26(1) of the Act, the CCI is not required to issue prior notice before directing the DG to investigate. Additionally, the Court also clarified that marketing agreements, when used to disguise anti-competitive conduct, clearly falls under jurisdiction of CCI not TRAI’s.

    Thus, the judgement upheld the autonomy of the CCI while also reaffirming the value of inter-regulatory cooperation rather than conflict.

    EU EXPERIENCE: WHY TURF WARS ARE RARE

    This is unlike the country India which has not experienced any conflict of jurisdiction between sectors within the European Union. This can be called the result of a highly orchestrated regulatory design. The Regulation 1/2003 clearly stipulates the application of Articles 101 and 102 TFEU, in parallel to national or sectoral regulations, whereas the ECN+ Directive (2019/1) takes the matter of coordination by supporting the national competition authorities with harmonization of powers and its integration into the European Competition Network (‘ECN’) The ECN serves as the facilitator of coherent enforcement so that the regulatory intersections do not result into the inter-institutional disagreements.

    The reduction of redundancy and construction of cooperative enforcement is reflected not only in scholarly analysis, e.g., in Potocnik & Manzour, in European Papers, but also in the ICN, 2025 report. The principle has been entrenched in courts interpretation: in Deutsche Telekom (C-280/08 P) and Telefnicia (C-295/12 P), the CJEU said that even approved by the regulator tariffs could amount to margin compression under Article 102 TFEU. In Meta v Bundeskartellamt (C-252/21) decided more recently, the Court empowered competition authorities to take into account compliance with the GDPR and stressed that cooperation with regulators must be followed.

    The combination of these aspects demonstrates that they are established on complementary and coordinating basis, with not much room left to turf wars as seen between TRAI and CCI in India continuously.

    PREDATORY PRICING OR PRICE PENETRATION?

    In the landmark Bharti Airtel Case, the SC was confronted with the critical question of whether Jio’s initial free pricing model amounted to predatory pricing under the Act. Bharti Airtel alleged that Jio’s deep pricing offering telecom services at virtually no cost was not a legitimate market entry strategy but a means to eliminate competition through price predation. The CCI, however, dismissed the complaint at the prima-facie stage, holding that no case of abuse of dominance was made out, especially since Jio was a new entrant and not a dominant player in the relevant market at the time.

    The case not only clarified the line between legitimate price penetration and predatory pricing but also underscored the importance of TRAI’s sectoral expertise which includes regulating tariffs, interconnection agreements, and market entry conditions. It held that CCI should intervene only after TRAI has addressed the relevant technical and regulatory concerns.

    The decision is particularly relevant in this case of similar allegations of discriminatory pricing and jurisdictional overlap between CCI and TRAI and therefore, the necessity of coordinated regulation and the balancing of market entry and anti-competitive protection in regulated industries.

    IMPLICATIONS FOR BUSINESSES AND REGULATORY PRACTICE

    The Asianet judgment is not just an institutional ground score settlement, but has real consequences on the market players. Telecom and media businesses will no longer be able to believe that their conformity to TRAI norms will exempt them of competition scrutiny. In even the most regulated industries, anti-competitive practices like discriminatory pricing, exclusive agreements or fake agreements could be subject to parallel proceedings by the CCI.

    The judgement also hereby denoted that both regulatory due diligence is now a two-dimensional authentication, on one hand, sectoral compliance and on the other hand, competitive impact. Marketing agreements, tie-ups, or discount structures will not only have to be tested against TRAI guidelines but also against possible exposure to the competition law.

    Furthermore, this facilitates a more cooperative style, switching from a turf war to a joint control that balances technical oversight and equity in the market. This move deters the exploitation of regulatory areas by businesses and ensures a transparent conduct across all operations.

    CONCLUSION

    The Asianet case is a milestone in the regulation development of India that was in conflict to cooperation. The Kerala High Court in maintaining the concurrent jurisdiction of TRAI and CCI, allowed that regulatory overlaps are not necessarily problematic provided both regulatory authorities are mindful of functional limits. In conjunction with Bharti Airtel, the ruling highlights the fact that the judiciary favours cooperation among regulators as opposed to competition.

    Nonetheless, harmonisation through judges is not a complete solution. The convergence of telecom, media and technology sectors has been growing and as a result, overlaps will continue to increase. India should thus institutionalise inter-regulatory coordination by statutory reforms, memoranda of understandings or joint decision making. The UK and EU are good examples where coordination models are clear, and the regulators follow them.  The Indian regulation of the future is not in the strict jurisdiction separation but in the collaborative models that provides predictability to the business, efficiency to the markets and fairness to the consumers.

  • SEBI’s AI Liability Regulation: Accountability and Auditability Concerns

    SEBI’s AI Liability Regulation: Accountability and Auditability Concerns

    AYUSH RAJ AND TANMAY YADAV, FOURTH AND THIRD-YEAR STUDENTS AT GUJARAT NATIONAL LAW UNIVERSITY, GANDHINAGAR

    INTRODUCTION

    Securities and Exchange Board of India’s (‘SEBI’) February 2025 amendments (Intermediaries (Amendment) Regulations, 2025) inserted Regulation 16C, making any SEBI-regulated entity solely liable for AI/ML tools it uses, whether developed in-house or procured externally. This “sole responsibility” covers data privacy/security, the integrity of artificial intelligence (‘AI’) outputs, and compliance with laws. While this shift rightfully places clear duties on intermediaries, it leaves unaddressed how AI vendors themselves are held to account and how opaque AI systems are audited. In other words, SEBI’s framework robustly binds intermediaries, but contains potential gaps in vendor accountability and system auditability. This critique explores those gaps in light of international standards and practice.

    SCOPE OF REGULATION 16C AND ITS LEGAL FRAMEWORK

    Regulation 16C was notified on Feb 10, 2025 with immediate effect. In substance, it mirrors SEBI’s November 2024 consultation paper: “every person regulated by SEBI that uses AI…shall be solely responsible” for (a) investor data privacy/security, (b) any output from the AI it relies on, and (c) compliance with applicable laws. The rule applies “irrespective of the scale” of AI adoption, meaning even small or third‑party use triggers full liability. SEBI may enforce sanctions under its general powers for any violation.

    This framework operates within SEBI’s established enforcement ecosystem. Violations can trigger the regulator’s full spectrum of penalties under the Securities and Exchange Board of India Act, 1992, ranging from monetary sanctions and cease-and-desist orders to suspension of operations. The regulation thus creates a direct enforcement pathway: any AI-related breach of investor protection, data security, or regulatory compliance automatically becomes a SEBI violation with corresponding penalties.

    The legal significance lies in how this shifts risk allocation in the securities ecosystem. Previously, AI-related harms might fall into regulatory grey areas or involve complex questions of vendor versus user responsibility. Regulation 16C eliminates such ambiguity by making intermediaries the single point of accountability, and liability, for all AI deployments in their operations.

    VENDOR-ACCOUNTABILITY GAP

    In practice intermediaries often rely on third-party models or data, but the regulation places all onus on the intermediary, with no parallel duties imposed on the AI vendor. If a supplier’s model has a hidden flaw or violates data norms, SEBI has no direct rulemaking or enforcement channel against that vendor. Instead, the intermediary must shoulder penalties and investor fallout. This one-sided design could dilute accountability: vendors might disclaim liability in contracts, knowing enforcement power lies with SEBI, not with the provider. As a result, there is a regulatory blind spot whenever AI harms stem from vendor error.

    Moreover, industry and global reports warn that relying on a few AI suppliers can create systemic risks. The Bank for International Settlements (BIS) Financial Stability Institute notes that “increased use of third-party services (data providers, AI model providers) could lead to dependency, disruption of critical services and lack of control,” exacerbated by vendor lock-in and market concentration. In other words, heavy dependence on external AI technologies can amplify risk: if one vendor fails, many intermediaries suffer concurrently. The US Treasury likewise highlighted the so‑called “vendor lock-in” problem in financial AI, urging regulators to require vendors to enable easy transitions between competing systems. SEBI’s framework currently lacks any mechanism to counteract lock‑in, such as mandated data or model portability requirements that would allow intermediaries to switch between AI providers without losing critical functionality.

    The recognition of these risks inherently places a responsibility on intermediaries to secure strong contractual controls with AI suppliers. This requires regulated entities to perform thorough due diligence and establish back-to-back arrangements with AI vendors to mitigate risk. Such agreements must include provisions like audit rights, data access, and vendor warranties. However, because explicit legal requirements are absent, the onus falls entirely on intermediaries to negotiate these terms. A failure to do so means SEBI’s liability framework itself provides no enforcement of vendor-side transparency.

    In practice, this gap means an intermediary could satisfy SEBI’s rule on paper (having liability assigned), yet still face failures or disputes with no legal recourse beyond its own contract. The regulator’s approach is asymmetrical: intermediaries have all the incentives to comply, while vendors have none. SEBI’s choice to rely on intermediaries may have been pragmatic, but it is a potential weakness if vendors operate without accountability.

    Consider an AI-driven trading recommendation system supplied by Vendor X. If X’s model generates a flawed recommendation that causes losses, Regulation 16C makes the brokerage (user) fully liable. Yet Vendor X could escape sanction if it sold the software “as is.” Under OECD principles, both the user and the supplier are expected to manage risk cooperatively, but SEBI’s text does not reflect that partnership.

    The foregoing points suggest that SEBI may need to clarify how vendor risks are handled. Potential solutions could include: explicitly requiring intermediaries to contractually compel vendor compliance and audit access, or even extending regulatory standards to cover AI vendors serving Indian markets.

    AUDABILITY AND TRANSPARENCY OF AI SYSTEMS

    A related issue is auditability. Even if intermediaries are liable, regulators must be able to verify how AI systems operate. However, modern AI, especially complex Machine Learning (ML) and generative models, can be “black boxes.” If SEBI cannot inspect the model’s logic or data flows, apportioning entire liability to an intermediary could be problematic.

    Regulators worldwide emphasize that AI systems must be transparent and traceable. The OECD’s AI Principles state that actors should ensure “traceability … of datasets, processes and decisions made during the AI system lifecycle, to enable analysis of the AI system’s outputs and responses to inquiry”. Similarly, a UK financial‑services review emphasizes that auditability “refers to the ability of an AI system to be evaluated and assessed, an AI system should not be a ‘black box’”. In practical terms, auditability means maintaining logs of data inputs, model versions, decision rationales, and changes to algorithms, so that an independent reviewer can reconstruct how a given outcome was reached.

    SEBI’s 16C does not itself mandate audit trails or explain ability measures. It only requires the intermediary to take responsibility for the output. There is no explicit requirement for intermediaries (or their vendors) to preserve model logs or allow regulator inspection. Without such provisions, enforcement of output accuracy or compliance with laws is hampered. For example, if an AI-generated trade signal caused a regulatory breach, SEBI (or a forensic auditor) needs access to the system’s internals to determine why.

    Industry guidance suggests that firms should make auditability a contractual requirement when procuring AI. This could involve specifications on data retention, explainability reports, and independent testing. In the SEBI context, best practice would be for intermediaries to demand from AI providers any data necessary for SEBI audits.

    In essence, two main concerns arise that are closely interconnected. BIS notes that “limits to the explainability of certain complex AI models can result in risk management challenges, as well as lesser … supervisory insight into the build-up of systemic risks“. If AI outcomes cannot be easily audited, SEBI risks being unable to verify compliance, and lacking explicit audit provisions, regulators and investors may lack confidence in the system’s integrity. Additionally, without mandated audit provisions, firms may neglect this in vendor agreements, though the operational reality for firms should be to include audit clauses and perform due diligence. SEBI should consider guidance or rules requiring regulated entities to ensure audit rights over AI models, just as banks must under banking third-party rules.

    CONCLUSION

    SEBI’s insertion of Regulation 16C is a welcome and necessary move: it recognises that AI is now mission-critical in securities markets and rightly puts regulated entities on notice that AI outputs and data practices are not outside regulatory reach. Yet the regulation, as drafted, addresses only one side of a multi-party governance problem. Making intermediaries the default legal backstop without parallel obligations on vendors or explicit auditability requirements risks creating enforcement illusions, liability on paper that is difficult to verify or remediate in practice.

    To make the policy effective, SEBI should close the symmetry gap between users and suppliers and make AI systems practically observable. At a minimum this means clarifying the standard of liability, requiring intermediaries to retain model and data audit trails, and mandating contractual safeguards (audit rights, model-version logs, notification of material model changes, and portability requirements). If SEBI couples its clear allocation of responsibility with enforceable transparency and vendor-accountability mechanisms, it will have moved beyond a paper rule to a practical framework that preserves market integrity while enabling safe AI adoption.

  • Decoding NCLT’s Philips India Ruling: Evolving Judicial Reasoning & Broader Implications

    Decoding NCLT’s Philips India Ruling: Evolving Judicial Reasoning & Broader Implications

    Vaibhav Mishra and Sparsh Tiwari, Fourth- year student at Hidayatullah National Law University, Raipur

    INTRODUCTION

      Capital reduction is a salient aspect of corporate finance that is dealt with under section 66 (‘the section’) of the Companies Act of 2013 (‘2013 Act’). It entails a reduction in the issued share capital of the company. Accounting and Corporate Regulatory Authority of Singapore explains the commercial rationale for undertaking the capital reduction as including a plethora of reasons such as simplifying capital structure, and ownership structure, increasing dividend-paying capacity, etc.

      Indian  corporate jurisprudence has evolved through numerous judgments that have elucidated the scope of this section. The established position was that the company’s rationale for the invocation of the section cannot be questioned, affirming its wide application. Last year, in September 2024, a petition was filed by Phillips India Limited before National Company Law Tribunal (‘NCLT’) Kolkata (‘the tribunal’) under the section seeking permission for the reduction of capital. The company provided two reasons for the application i.e. providing liquidity to the minority & reducing administrative costs. However, the tribunal, in its order dismissing the petition, held that such a transaction fell outside the scope of capital reduction.

      Though a development in last year, the vacuum of judicial discretion under Section 66 still remains in the Indian regime. This article attempts to critically analyse NCLT’s order vis-à-vis precedents. The article also analyses relevant foreign authorities to clarify the scope of the section. Furthermore, it also delves into the possibility of effecting the takeover outside these traditional arrangements.

      NCLT’S ORDER VIS-À-VIS PRECEDENTS

        In this matter, Koninklijke Philips N. V., which held 96.13% of shares in Philips India Limited, wanted to effect capital reduction by purchasing shares of minority shareholders. For this, a two-fold reason was provided by the company, viz., firstly, providing liquidity to the shareholders who could not liquidate their holdings following the company’s delisting in 2004, and secondly, reducing the administrative costs associated with minority shareholders. However, the tribunal dismissed the petition, with the interpretation of the statutory scheme of the section playing a key role in its decision.

        Before delving into judicial reasoning, it is crucial to examine the existing precedents on this section’s interpretation. In a similar factual scenario, the Bombay High Court in Capital of Wartsila India Limited v. Janak Mathuradas, confirmed the petitioner company’s capital reduction that was undertaken to provide liquidity to minority shareholders who had no way to liquidate their holdings after the company was delisted in 2007. Similarly, the single judge bench of Delhi NCLT in Devinder Parkash Kalra & Ors. v. Syngenta India Limited allowed capital reduction as a means of providing liquidity to the minority shareholders. It is pertinent to note that NCLT confirmed the application of capital reduction even though it called for revaluation by an independent valuer. Also, in Economy Hotels India Services Private Limited v. Registrar of Companies, Justice Venugopal termed the process of capital reduction under the section as a “domestic affair”, affirming its expansive scope. These precedents reflect the traditional line of reasoning where the courts did not interfere in the application of the section except to secure certain equitable objectives, such as securing the minority’s interest.

        ASSESSING THE NCLT’S ORDER IN LIGHT OF THE STATUTORY SCHEME OF THE SECTION

          In this matter, the tribunal characterised the nature of the transaction as a buy-back and not a capital reduction. The rationale for this decision was twofold: first, the present transaction did not fall under any of the three instances outlined under the section, and second, the inapplicability of the section in light of section 66(8). As evident, the order was a departure from the established line of judicial reasoning associated with capital reduction.

          Firstly, on the rationale that the present transaction did not fall under instances provided under the section, it is pertinent to note that the tribunal failed to give any consideration to the words “in any manner” as used in the section. These words are of wide import and must be given their natural meaning. Moreover, a reference may be made to the corresponding provision of the Companies Act, 1956 (‘the Act’) for guidance. Section 100 of the now-repealed Act further clarified the generality of the provision by incorporating the words “in any manner; and in particular and without prejudice to the generality of the foregoing power”. Therefore, the incorporation of the words “in any manner”, though not the same as section 100, supports an expansive interpretation not limited to the instances mentioned under the section.

          Furthermore, an expansive interpretation could reasonably allow the present transaction to fall within the purview of section 66(b)(ii), which states that a company can “pay off any paid-up share capital which is in excess of wants of the company”.The reasoning is that one of the motivations behind the company’s decision to undertake this transaction was to reduce the administrative costs of managing around 25,000 shareholders who collectively held a minuscule 3.16% of the total share capital. This objective of reducing administrative costs can reasonably be interpreted as falling within the scope of being in “excess of wants” under section 66(b). Further support for this interpretation is provided by Ramaiya’s commentary[i], where he suggests that “a company may be in need of money so paid-up through capital in business but still may not be in want of the money through share capital”. Thus, an expansive interpretation brings this transaction within the ambit of the section.

          Secondly, section 66(8) states that “nothing in this section shall apply to buy-back of its securities under Section 68”. To clarify the scope of this provision, the tribunal referred to section 100 of the Act, highlighting that it lacked a provision like section 66(8). The tribunal interpreted this discrepancy to mean that section 66(8) restricted the buy-back of securities under the section. However, this reasoning is beset by the fact that the Act lacked any provision for buy-back of securities. It was only in 1999 that such a provision, viz. section 77A, was included. The 2013 Act creates a separate section i.e. section 68, to deal with buy-back transactions. Hence, it is contended that 66(8) is clarificatory in nature, implying that capital reduction and buy-back of shares are governed under separate sections, and does not serve to restrict the scope of capital reduction. Thus, the author opines that the tribunal has erred in its order, creating an uncertain position in a relatively established position on the applicability of the section. 

          JUDICIAL DISCRETION IN CAPITAL REDUCTION TRANSACTIONS: AN ANALYSIS

          Judgements from the UK offer critical cues on understanding capital reduction. For instance, inBritish American Trustee and Finance Corporation v. Couper, judicial discretion over the capital reduction process was affirmed by the court. The courts also laid the relevant principles like fairness and equitable process for minority shareholders, creditors, etc., to guide this ‘judicial discretion’. In Re Ranters Group PLC[ii], the court interpreted the section 135(1) of the Company Act, 1985. Interestingly, section 135, though no longer in effect, uses similar wording, like the section in the context of capital reduction i.e. “reduced in any way”. Harman J. here held that the court needs to ensure broadly three things, viz, equitable treatment of shareholders, protection of creditor’s interest and ensuring that shareholders are aware of the proposal. The NCLT’s order exceeds this ‘judicial discretion’. In the instant case, there was nothing in the order to prove inequitable treatment or violation of the creditor’s interest. Therefore, the deviation in NCLT’s order could affect the business autonomy of the company and could potentially create various challenges for the corporate sector in executing transactions.

          Thus, the situation calls for legislators to reassess the structure & statutory scheme of the section of the 2013 Act. NCLT’s order, if treated as precedent, implies that the whole process under the section becomes dependent on the tribunal’s discretion. As is evident, the section starts with ‘subject to confirmation by tribunal’. It is contended that the role of the judiciary is limited to protecting the interests of shareholders, creditors and ensuring equity in transactions.

          EXPLORING THE ALTERNATIVES TO THE TRADITIONAL WAY OF CAPITAL REDUCTION

          In this matter, Phillips was unable to effect capital reduction even after obtaining the consent of 99% of shareholders. This highlights the need for an alternative structure that allows companies to undertake capital reductions outside the bounds of the traditional arrangement. In this context, valuable insights could be drawn from section 84 of the Companies Act of Ireland, 2014, which outlines two methods of capital reduction: the Summary Approval Procedure ( SAP) and the Court-bound method. The SAP allows a company to carry out a capital reduction through a two-fold process, firstly, by passing a special resolution of the shareholders and lastly, declaration of solvency from the directors. This process avoids the need of court approval, bringing in the efficiency and flexibility that our system currently lacks.

          Another example of a highly relaxed framework can be found in section 256B of the Corporations Act, 2001 in Australia, where companies wishing to effect capital reduction may do so, provided they lodge a notice with the Australian Securities and Investments Commission (‘ASIC’) prior the meeting notice is sent to the shareholders. The shareholders hold the final authority to decide on the capital reduction, and their decision does not require any confirmation. Thus, capital reduction remains entirely within the domain of the shareholders.

          In the Indian context, section 236 of the 2013 Act, mirroring section 395 of the Act, could potentially serve as an alternate mechanism for the acquisition of minority shares. This provision allows any person or group of persons holding ninety percent or more of the issued equity capital of a company to acquire the remaining minority shareholdings. However, there are few precedents on its application, and the provision lacks clarity due to its clumsy drafting. For example, while section 236(1) & (2) allows the majority with more than 90% shareholding to buy minority shares, 236(3) dealing with minority shareholders does not obligate them to sell their shareholding. Thus, 236 offers an incomplete remedy from the perspective of the company. It is contended that this provision should be interpreted in light of its objective, well-stated in its JJ Irani Committee report. The evident intention of the committee in introducing section 395 of the Act was to create a legal framework for allowing the acquisition of minority shareholding. However, as noted above, the provision in its current form does not put an obligation on the minority shareholders while providing a ‘buy-out’ mechanism to the majority, illustrating a conservative approach of legislators.

          Therefore, it is suggested that necessary amendments be made to section 236(3) to impose a mandate on minority shareholders to divest their shareholding, while also ensuring an equitable valuation for them. Such amendments would facilitate the full realisation of the remedy provided under this provision, serving as an alternative to the section of the 2013 Act.

          CONCLUDING REMARKS

          While the NCLT’s deviation from the established precedent on capital reduction may be flawed in its reasoning, it has nonetheless sparked a debate about the necessity of exploring alternatives to traditional capital reduction methods.  The need for such alternatives is further underscored by the economic and time-related costs associated with seeking tribunal confirmation. The focus should be on identifying alternative methods that safeguard minority shareholders from exploitation, while also enabling companies to undertake capital reduction quickly and efficiently.

          [i] Ramaiya, Guide to the Companies Act, 2013, vol. 1 (25th ed. LexisNexis 2021)

          [ii] [1988] BCLC 685.

        1. Opportunism or Omission? Dual Facets of Customs Misclassification Saga

          Opportunism or Omission? Dual Facets of Customs Misclassification Saga

          Riya Poddar, Fourth- Year student at Amity University, Noida

          INTRODUCTION

          Proper classification of goods, as per the guidelines provided by the Harmonised System of Nomenclature ( ‘HSN Code’), is an important dimension in cross-border trade, which not only assists in determining tariff rates but also facilitates free flow of goods across borders. Unperturbed by such a structured foundation, disputes with regard to misclassification continue to remain a persistent challenge within the customs law. The point of conflict often stems from either intended tax fraud or deliberate or unintentional misinterpretation by the department, causing a tussle between the taxpayer and the authorities.

          The recent case of Skoda Auto Volkswagen India Pvt. Ltd. v. Union of India and Ors. (2025), (‘Skoda’) has once again brought to the forefront the debate over the systemic defaults within India’s customs landscape. What is controversial is whether the ambiguity in the classification norms is being used very conveniently as a loophole to avoid duty under the mask of interpretation. While the error may be innocent, the likelihood of intentional misinterpretation by the department raises significant questions in the minds of the taxpayers. This blog seeks to analyse the given case in order to uncover the systemic flaws surrounding the misclassification issue and propose a way forward.

          SCRUTINY OF THE ISSUE SURROUNDING MISCLASSIFICATION

          The Customs Department served a Show Cause Notice to Skoda Volkswagen in September 2024 under Section 28(4) of the Customs Act, 1962 (‘the Act’), raising a substantial demand of $1.4 billion, alleging deliberate misclassification of imported goods to lower import duty payment.

          It is well-settled law that the customs authorities can carry out reassessment proceedings for up to five years only. However, the allegations posed by the Directorate of Revenue Intelligence on Skoda Volkswagen for deliberately misleading the custom authorities since 2012 by misclassifying import of cars as “individual parts” rather than “Completely Knocked Down Units” (‘CKD Units’), raises questions about their own intentions as to why the concerned authority remained mum for such a prolonged duration. Such inaction invokes suspicion of either incompetence or a deliberate plan to delay prosecution.  

          Further, it is pertinent to note that before 2011, the term ‘CKD Units’ lacked a precise and clear definition, leaving it open to subjective interpretation. Ambiguity with regard to the same was addressed on 1st March 2011, when the Central Board for Indirect Tax and Customs (‘CBIC’) issued Notification No. 21/2011-Customs, where CKD Unit has been defined as a kit consisting of necessary parts of a vehicle apart from gearbox and pre-assembled engine. Failure to clearly delineate such important elements provided a foundation for controversies, as seen in Skoda.

          INTENT OR OVERSIGHT: THE GREY ZONE

          The current Skoda Volkswagen misclassification dispute highlights the multifaceted dynamics between the intentional corporate wrongdoings and the probable negligence of the concerned authorities. Resolution of this ongoing controversy will provide the much-needed clarity on disputes surrounding the misclassification issue.

          Examining ‘Intent’ and ‘Oversight’

          Notably, the customs authorities have accused Skoda Volkswagen of paying lower import duty on goods for the past 12 years, but the fact that the authorities never raised a single objection on the same for such a significant duration weakens the credibility of their allegations. It is essential to determine whether the delay was a strategic move by the authorities, using it as a revenue-generating tool. Such an approach, if intentional, reflects a broader structural flaw where the authorities prioritise revenue generation, amplifying financial burden on businesses.

          Another aspect worth mentioning is the vague and ambiguous classification of HSN Codes. Disputes pertaining to tariffs continue to arise, primarily because they are based on technical product characteristics that lack a clear definition. For instance, car seats, despite being an integral component of a motor vehicle, are classified under Heading 940120 as “seats of a kind used for motor vehicle” rather than Heading 87089900, which deals with “parts and accessories of a motor vehicle”. Such vague and ambiguous distinction in the key terms and norms provides authorities with an upper hand to interpret it in a manner that aligns with their revenue objectives and undermines the very purpose of having codified rules and regulations relating to the same.

          THE BIGGER PICTURE: CHALLENGES AND WAY FORWARD

          Over the past few years, the customs framework has become increasingly technical and compliance-oriented, thereby heightening the burden on taxpayers. The structural inequality becomes increasingly significant when equating the capabilities of large corporations with those of small businesses and entities. While businesses having ample resources can ensure seamless compliance, in contrast, the smaller entities are disproportionately charged. Recognising this, the Federation of Indian Micro and Small and Medium Enterprises, the leading advocacy association for Indian Small and Medium Enterprises (‘SME’), has also reportedly advocated for simplified and streamlined customs procedures to address structural disparity that involves small exporters. Further, the Economic Survey 2024-25 data also clearly indicates that the SME sector continues to be excessively burdened with regulatory compliance, thereby calling for deregulation to enable SME’s to compete on a more level playing field.

          In addition to this imbalance, the financial strain of non-compliance, which results in long pending disputes or imposition of penalties and interests, further aggravates the problems of the bona fide taxpayers. The operational dislocations caused by such issues compel the businesses to allocate their resources in resolving such disputes, thereby affecting their capability to contribute to the economy. Further, problems such as erosion of investors’ trust, delay in clearance of goods or shipments, also significantly affect a company’s ability to maximise profit and generate revenue. This discrepancy not only weakens the taxpayer’s trust on the tax system but also hinders the growth of a country’s economy.

          It is pertinent to mention that in the case of M/s. Aska Equipment’s Ltd. v. Commissioner of Customs (Import), the Hon’ble Delhi Bench of Customs, Excise and Service Tax Tribunal (‘CESTAT’), recognised that penalising companies acting in good faith merely on account of a difference of opinion regarding the classification of goods would deter genuine trade practices. A similar judicial approach was adopted by the Hon’ble Delhi Bench of CESTAT in the case of Sarvatra International Vs Commissioner of Customs (ICD).

          Undoubtedly, the outcome of the Skoda case is likely to set a judicial precedent, providing the much-needed clarity on issues that extend beyond just the misclassification claim. Hence, the answer to the questions raised in this case will not only determine the fate of the company but also the future of customs enforcement in India.

          Roadmap

          It is very evident from the challenges being faced by the taxpayers owing to the current HSN classification framework that reform is the need of the hour. Policies must be formulated in a way that not only shields the bona fide taxpayers and businesses from unjust hardships but also ensures compliance on their part. One of the most essential reforms is the implementation of clear and consistent guidelines pertaining to HSN classification. Further, leveraging the use of technology such as Artificial Intelligence-regulated systems can highly minimise the likelihood of errors. Additionally, simplifying the dispute resolution process through digital case tracking and conducting training programmes for both customs officials and Importers can increase compliance and bridge the knowledge gaps that currently exist. Such reforms would guarantee that the system remains approachable in the long run, eventually contributing to a just and equitable economy.

          CONCLUSION

          The controversial discussion surrounding the misclassification issue points towards the need for a balanced tax compliance approach. While the Act aims to create an integrated and streamlined tax system, its current framework unjustly penalises and burdens honest taxpayers. By plugging systemic loopholes and ensuring equitable treatment for compliant enterprises, the government can preserve the very purpose of the tax system and gain public trust in the tax administration. Legal reforms, supported by firm enforcement mechanisms, are needed to achieve this balance.

        2. COMI Confusion: Can India Align With The Global Insolvency Order?

          COMI Confusion: Can India Align With The Global Insolvency Order?

          Prakhar Dubey, First- Year LL.M student, NALSAR University, Hyderabad

          INTRODUCTION

          In the contemporary global economy, where firms often operate across various countries, the growing complexity of international financial systems has made cross-border insolvency processes more complicated than ever. International trade and business have proliferated, with companies frequently possessing assets, conducting operations, or having debtors dispersed across multiple nations. In a highly interconnected environment, a company’s financial hardship in one jurisdiction may have transnational repercussions, impacting stakeholders worldwide. Consequently, addressing insolvency with equity, efficacy, and certainty is essential.

          A fundamental challenge in cross-border insolvency is establishing jurisdiction—namely, which court will manage the insolvency and which laws will regulate the resolution process. The issue is exacerbated when several nations implement disparate legal norms or frameworks for cross-border recognition and collaboration. Two fundamental concepts, forum shopping and Centre of Main Interests (‘COMI’), profoundly influence this discourse.

          Forum shopping occurs when debtors take advantage of jurisdictional differences to file in nations with more lenient rules or advantageous outcomes, such as debtor-friendly restructuring regulations or diminished creditor rights. Although this may be strategically advantageous for the debtor, it frequently generates legal ambiguity and compromises the interests of creditors in alternative jurisdictions. To mitigate such exploitation, the United Nation Commission on International Trade Law Model Law on Cross-Border Insolvency (‘UNCITRAL Model Law’) has formalised the COMI test, a principle designed to guarantee openness and predictability in cross-border procedures. It offers an impartial method to determine the most suitable forum based on the locus of a debtor’s business operations.

          Although recognising the need for cross-border bankruptcy reform, India has not yet officially adopted the Model Law. Instead, it relies on antiquated processes such as the Gibbs Principle, which asserts that a contract covered by the law of a specific country can only be terminated under that legislation, along with ad hoc judicial discretion. These constraints have led to ambiguity, uneven treatment of creditors, and prolonged cross-border remedies.

          This blog critically assesses India’s present strategy, highlights the gap in the legislative and institutional framework, and offers analytical insights into the ramifications of forum shopping and COMI. This analysis utilises the Jet Airways case to examine comparable worldwide best practices and concludes with specific measures aimed at improving India’s cross-border insolvency framework.

          INDIA’S STANCE ON ADOPTING THE UNCITRAL MODEL LAW

          The existing cross-border insolvency structure in India, as delineated in Sections 234 and 235 of the Insolvency and Bankruptcy Code ( ‘IBC’ ), 2016, is predominantly inactive. Despite the longstanding recommendations for alignment with international standards from the Eradi Committee (2000) and the N.L. Mitra Committee (2001), India has not yet enacted the UNCITRAL Model Law.

          More than 60 nations have implemented the UNCITRAL Model Law to enhance coordination and collaboration across courts internationally. India’s hesitance arises from apprehensions of sovereignty, reciprocity, and the administrative difficulty of consistently ascertaining the COMI. Adoption would include not only legislative reform but also institutional preparedness training for judges, fortifying the National Company Law Tribunal (‘NCLT’) and National Company Law Appellate Tribunal (‘NCLAT’), and establishing bilateral frameworks.

          KEY PROVISIONS OF THE UNCITRAL MODEL LAW AND IMPLICATIONS FOR INDIA

          The four fundamental principles of the UNCITRAL Model Law, Access, Recognition, Relief, and Cooperation, are designed to facilitate the efficient and fair resolution of cross-border bankruptcy matters. They facilitate direct interaction between foreign representatives and domestic courts, expedite the recognition of foreign procedures, protect debtor assets, and enhance cooperation among jurisdictions to prevent delays and asset dissipation.

          The effectiveness of these principles is evident in global bankruptcy processes, as demonstrated by the rising number of nations implementing the UNCITRAL Model Law and the more efficient settlement of complex international cases. Nonetheless, its implementation has not achieved universal acceptance, with certain countries, such as India, opting for different approaches, which may pose issues in cross-border insolvency processes.

          In the case of In re Stanford International Bank Ltd., the English Court of Appeal faced challenges in establishing the COMI due to inconsistencies between the company’s formal registration in Antigua and Barbuda and the true location of its business operations. This case underscores the imperative for a well-defined COMI standard that evaluates significant commercial operations rather than merely the jurisdiction of incorporation. The Court of Appeal finally determined that the Antiguans’ liquidation represented a foreign primary procedure, underscoring that the presumption of registered office for COMI may only be refuted by objective and verifiable elements to other parties, including creditors. This case highlights the complexity that emerges when a company’s official legal domicile diverges from its practical reality, resulting in difficulties in implementing cross-border insolvency principles.

          Moreover, India’s exclusion of a reciprocity clause hindered the global implementation of Indian rulings and vice versa. In the absence of a defined statutory mandate, ad hoc judicial collaboration often demonstrates inconsistency and unpredictability, hence compromising the global enforceability of Indian insolvency resolutions. This reflects the challenges encountered by other jurisdictions historically, as demonstrated in the European Court of Justice’s ruling in Re Eurofood IFSC Ltd. This pivotal judgment elucidated that the presumption of the registered office for the COMI can only be contested by circumstances that are both objective and verifiable by third parties, including the company’s creditors. These cases highlight the pressing necessity for a comprehensive and globally harmonised legal framework for insolvency in India, with explicitly delineated criteria to prevent extended and expensive jurisdictional conflicts.

          FORUM SHOPPING AND INSOLVENCY LAW: A DELICATE BALANCE

          Forum shopping may serve as a mechanism for procedural efficiency while simultaneously functioning as a strategy for exploitation. Although it may assist debtors in obtaining more favourable restructuring terms, it also poses a danger of compromising creditor rights and creating legal ambiguity.

          In India, reliance on the Gibbs Principle, which posits that a contract can only be discharged by the governing law, has hindered flexibility. This was seen in the Arvind Mills case, where the disparate treatment of international creditors was scrutinised, and in the Dabhol Power issue, where political and legal stagnation hindered effective settlement.

          While a certain level of jurisdictional discretion enables corporations to seek optimal restructuring, India must reconcile debtor flexibility with creditor safeguarding. An ethical framework grounded in transparency and good faith is crucial to avert forum shopping from serving as a mechanism for evasion.

          COMI IN INDIA: NEED FOR LEGAL CLARITY

          India’s judicial involvement in COMI was prominently highlighted in the Jet Airways insolvency case, which entailed concurrent processes in India and the Netherlands. The NCLT initially rejected the acknowledgement of the Dutch proceedings owing to the absence of an explicit provision in the IBC. The NCLAT characterised the Dutch process as a “foreign non-main” proceeding and confirmed India as the COMI. In a recent judgment dated November 12th, 2024, the Supreme Court ultimately ordered the liquidation of Jet Airways, establishing a precedent for the interpretation of COMI. This decision solidifies India’s position as the primary jurisdiction for insolvency proceedings involving Indian companies, even when concurrent foreign proceedings exist. It underscores the Indian judiciary’s assertive stance in determining the COMI and signals a stronger emphasis on domestic insolvency resolution, potentially influencing how future cross-border insolvency cases are handled in India.

          This case illustrates the judiciary’s readiness to adapt and the urgent requirement for legislative clarity. In the absence of a defined COMI framework, results are mostly contingent upon court discretion, leading to potential inconsistency and forum manipulation. Moreover, it demonstrates that India’s fragmented strategy for cross-border cooperation lacks the necessary robustness in an era of global corporate insolvencies.

          To address these difficulties, India must execute a set of coordinated and systemic reforms:

          Implement the “Nerve Centre” Test (U.S. Model)

          India should shift from a rigid procedure to a substantive assessment of the site of significant corporate decision-making. This showcases the genuine locus of control and decision-making, thereby more accurately representing the commercial landscape of contemporary organisations.

          Apply the “Present Tense” Test (Singapore Model)

          The COMI should be evaluated based on the circumstances at the time of insolvency filing, rather than historical or retrospective factors. This would deter opportunistic actions by debtors attempting to exploit more lenient jurisdictions.

          Presumption Based on Registered Office

          Utilising the registered office as a basis for ascertaining COMI provides predictability; nonetheless, it must be regarded as a rebuttable presumption. Judicial bodies ought to maintain the discretion to consider factors outside registration when evidence suggests an alternative operational reality.

          Institutional Strengthening

          India’s insolvency tribunals must be endowed with the necessary instruments and experience to manage cross-border issues. This encompasses specialist benches within NCLT/NCLAT, training initiatives for judges and resolution experts, and frameworks for judicial collaboration. The adoption of the UNCITRAL Model Law must incorporate a reciprocity clause to enable mutual enforcement of judgments. India should pursue bilateral and multilateral insolvency cooperation agreements to augment worldwide credibility and enforcement.

          By rectifying these legal and procedural deficiencies, India may establish a resilient insolvency framework that is internationally aligned and capable of producing equitable results in a progressively interconnected financial landscape.

          CONCLUSION

          The existing cross-border bankruptcy structure in India is inadequate to tackle the intricacies of global corporate distress. As multinational businesses and assets expand, legal clarity and institutional capacity become imperative. The absence of formal acceptance of the UNCITRAL Model Law, dependence on antiquated principles such as the Gibbs Rule, and lack of a clearly defined COMI norm have resulted in fragmented and uneven conclusions, as shown by the Jet Airways case. To promote equity, transparency, and predictability, India must undertake systemic changes, including the introduction of comprehensive COMI assessments, a reciprocity provision, and institutional enhancement. Adhering to international best practices will bolster creditor trust and guarantee that India’s bankruptcy framework stays resilient in a globalised economic landscape.

        3. Contractual ‘Non-Use’ Covenants: Plugging the Shadow-Trading Gap

          Contractual ‘Non-Use’ Covenants: Plugging the Shadow-Trading Gap

          Aditya Singh, THIRD- Year Student, Rajiv Gandhi National University of Law, Punjab

          INTRODUCTION

          The successful prosecution in Securities and Exchange Commission (SEC) v. Panuwat has introduced “shadow trading” as a novel enforcement concept for securities regulators. While India is yet to confront a concrete instance of shadow trading and its cognizance by Securities and Exchange Board of India (‘SEBI’), the U.S. experience highlights a potential lacuna in domestic regulations. Under SEBI’s current framework, insiders face civil liability only when trading in the stock of the very issuer, whose Unpublished Price-Sensitive Information (‘UPSI’) -they possess, and SEBI must prove both that the information “likely to materially affect” a particular security and that the insider used it with profit motive. The application of the shadow-trading principle domestically would therefore demand a framework which captures UPSI-driven trades beyond the issuer’s own stock, without becoming entangled in intricate economic-linkage or intent inquiries.

          This piece shows how India can strengthen its insider-trading regime by requiring all “designated persons” to pre-commit—via an expanded Code of Conduct—to refrain from using any UPSI for profit, and then empowering SEBI to invoke misappropriation principles against any breach. It begins by defining “shadow trading,” contrasts the classical and misappropriation theories, and then sets out the covenant-plus-notice proposal and its statutory foundation. The piece goes on to address proportionality and practical objections before concluding with implementation steps.


          THE SHADOW-TRADING PUZZLE

          Scholars have defined shadow trading as – when private information held by insiders can also be relevant for economically-linked firms and exploited to facilitate profitable trading in those firms. In SEC v. Panuwat, the U.S. District Court for Northern California confronted a novel fact pattern: Matthew Panuwat, a Senior Director at Medivation, received a confidential email revealing Pfizer’s imminent acquisition of Medivation. Rather than trading Medivation stock, he bought shares of Incyte—a competitor whose share price would rise on news of the Medivation deal.

          On the anvils of misappropriation theory, it was held that Panuwat’s breach of Medivation’s insider trading policy which expansively prohibited trading (while in possession of Medivation’s inside information) in not only Medivation’s securities, but arguably in any publicly traded securities in which Medivation’s inside information would give its insiders an investing edge. This fiduciary duty to Medivation—gave rise to insider-trading liability, even though he never traded Medivation securities. In rejecting Panuwat’s argument that liability requires trading in the issuer whose information is misused, the court emphasized that “misappropriation of confidential information for trading any economically linked security” falls within the scope of securities fraud under Rule 10b-5.

          The above discussion necessitates understanding 2 main principles behind insider trading. Under the classical model, insider-trading liability arises when an insider breaches a fiduciary duty by trading in the issuer’s own securities. By contrast, misappropriation theory treats any breach of duty to the source of confidential information as actionable; and India has consistently adhered to the classical approach.

          POSSIBLE IMPLEMENTATION IN INDIA THROUGH EXPANSIVE INTERPRETATION

          While the market-protection, investor-equity, and price-discovery rationales behind the prohibition of insider trading have been extensively examined by scholars, those same principles equally justify a similar regulatory approach to shadow trading, which is effectively an extension of insider trading itself.

          An interpretative reading of the SEBI (Prohibition of Insider Trading) Regulations, 2015 (‘PIT Regulations’), can be used for the domestic application of shadow trading . Regulation 2(1)(n) defines UPSI as any information “directly or indirectly” relating to a company’s securities that is “likely to materially affect” their price. The qualifier “indirectly” can thus for instance bring within UPSI material non-public information about Company A that predictably moves Company B’s shares due to their economic linkage. Indian tribunals have already endorsed expansive readings (see FCRPL v SEBI).  Likewise, the definition of “Insider” under Regulation 2(1)(g) encapsulates anyone who “has access to” UPSI. Once that information is used to trade Company B’s securities, the trader effectively becomes an “insider” of Company B.

          However, relying solely on this interpretative route raises a host of practical and doctrinal difficulties. The next section examines the key obstacles that would complicate SEBI’s attempt to enforce shadow‐trading liability under the existing PIT framework.

          CHALLENGES TO IMPLEMENTATION

          Key implementation challenges are as follows:

          No clear test for “indirect” links: Using “indirectly” as a qualifier posits the problem that no benchmark exists to determine how tenuous an economic link between two entities may be. Is a 5 % revenue dependence enough? Does a 1% index weight qualify? Without clear criteria, every “indirect” claim becomes a bespoke debate over company correlations in the market.

          Heavy proof of price impact: To show UPSI would “likely materially affect” a non-source instrument, SEBI and insiders can each hire economists/experts to argue over whether UPSI about Company A truly “likely materially affects” Company B’s price. Disputes over timeframes, statistical tests, and which market indicators to use would turn every shadow-trading case into an endless technical showdown.

          Uncertain Profit-Motive Standards: Courts already grapple with an implicit profit-motive requirement that the PIT Regulations do not explicitly mandate—a problem Girjesh Shukla and Aditi Dehal discuss at length in their paper—adding an ambiguous intent element and uncertain evidentiary burden. In shadow‐trading cases, where insiders can spread trades across stocks, bonds or derivatives, this uncertainty multiplies and is compounded by the undefined “indirect” linkage test and the need for complex price impact proofs as outlined above.

          THE CONTRACTUAL “NON-USE” COVENANT AND IMPORT OF MISAPPROPRIATION THEORY

          The author argues here that, despite there being many ways through legislative action to solve the problem, the quickest and most effective solution to this problem would be through an import of Misappropriation theory.

          This can be done by leveraging SEBI’s existing requirement for written insider-trading codes. Regulation 9(1) of the PIT Regulations mandates that every listed company adopt a Code of Conduct for its “designated persons,” incorporating the minimum standards of Schedule B, with a designated Compliance Officer to administer it under Regulation 9(3).

          Building on this foundation, SEBI could introduce a requirement to each Code to include a “Non-Use of UPSI for Profit” covenant, under which every insider expressly agrees to (a) abstain from trading in any security or financial instrument while in possession of UPSI, except where a safe-harbour expressly applies, (b) accept that a formal “UPSI Notice” serves as conclusive proof of materiality, obviating the need for SEBI—or any adjudicator—to conduct fresh event studies or call expert testimony on price impact and (c) Safe-harbour provision: extent to which trades can be made, to be determined/formulated by SEBI from time to time. Section 30 of the SEBI Act, 1992 authorises the Board to make regulations to carry out the purposes of this Act, thereby making the addition procedurally valid as well. It is important to note here that this covenant works alongside SEBI’s trading-window rules under PIT Regulations: insiders must honour the temporary ban on trading whenever they hold UPSI.

          Time-bound blackouts are already standard: EU MAR Article 19 enforces a 30-day pre-results trading freeze, and India’s PIT Regulations enforces trade freeze during trading window closures. This covenant simply extends that familiar blackout to cover any UPSI capable of moving related securities to adapt to evolving loopholes in information asymmetry enforcement.

          Under this covenant structure, SEBI’s enforcement simplifies to three unambiguous steps:

          1. UPSI Certification: The company’s board or its designated UPSI Committee issues a written “UPSI Notice,” categorising the information under pre-defined, per se material events (financial results, M&A approvals, rating actions, major contracts, etc.).
          2. Duty Evidence: The insider’s signed covenant confirms a clear contractual duty not to trade on UPSI and to treat the Board’s certification as definitive.
          3. Trade Verification: Any trade in a covered instrument executed after the UPSI Notice automatically constitutes a breach of duty under misappropriation theory—SEBI needs only to show the notice, the covenant and the subsequent transaction.

          To avoid unduly rigid freezes, the covenant would operate as a rebuttable presumption: any trade executed after a UPSI Notice is prima facie violative unless the insider demonstrates (i) a bona-fide, UPSI-independent rationale or; (ii) eligibility under a defined safe-harbour.

          The import of the misappropriation theory will help execute this solution, that is to say, as soon as this covenant is breached it would be a breach of duty to the information’s source, triggering the insider trading regulation through the misappropriation principle.

          The misappropriation theory can be embedded in the PIT regulations through an amendment to the Regulation 4 by SEBI to read, in effect:

          4(1A). “No Insider shall misappropriate UPSI in breach of a contractual or fiduciary duty of confidentiality (including under any Company Code of Conduct) and trade on that information in any security or financial instrument.”

          The blanket restraint on trading engages Article 19(1)(g) of the Constitution but survives the four-part proportionality test articulated in Modern Dental College & Research Centre v State of MP and applied to financial regulation in Internet & Mobile Association of India v RBI.

          WHY NOT A FACTOR-BASED TEST?

          An alternative approach,  advocates for a similar factor based test to determine “abuse of dominant position” by antitrust regulators to be adopted to the PIT regulations to determine cognizable economic linkage. Under this model, SEBI would assess a mix of metrics to decide when Company A’s UPSI is “economically linked” enough to Company B’s securities to trigger liability.

          However, the author argues that the covenant-based approach would be more effective. Unlike a factor-based linkage regime, which demands constant recalibration of revenue shares, index weights and supply-chain ties; fuels expert-driven litigation over chosen metrics and look-back windows; produces unpredictable, case-by-case outcomes; imposes heavy database and pre-clearance burdens; and leaves insiders free to game the latest matrices—the covenant-plus-misappropriation model skips the entire exercise as relies on one clear rule: no trading on UPSI. SEBI’s job becomes simply to confirm three things: the insider signed the promise, the information was certified as UPSI, and a trade took place afterward. This single-step check delivers legal certainty, slashes compliance burdens, and sharply boosts deterrence without ever reopening the question of how “indirectly” two companies are linked.

          CONCLUSION

          The covenant-plus-misappropriation framework streamlines enforcement, preserves SEBI’s materiality standard, and leverages existing Code-of-Conduct machinery—allowing rapid roll-out without new legislation. However, its success depends on corporate buy-in and consistent compliance-monitoring: companies must integrate covenant execution into their governance processes, and SEBI will still need robust surveillance to detect breaches. Therefore, SEBI should publish a consultation paper and pilot the covenant with select large-cap companies
          to identify practical challenges before a market-wide rollout.

        4. Fixing What’s Final? The Gayatri Balasamy Dilemma

          Fixing What’s Final? The Gayatri Balasamy Dilemma

          BY Arnav Kaushik and Saloni Kaushik, THIRD and FIFTH- YEAR studentS AT Dr. Ram Manohar Lohiya National Law University, Lucknow And MahArashtra NaTIONAL LAW UNIVERSITY, NagPUR

          INTRODUCTION

          On 30 April 2025, in Gayatri Balasamy v. ISG Novasoft Technologies Ltd. (‘Gayatri Balasamy’), a Constitution Bench of the Hon’ble Supreme Court by a 4:1 majority, held that courts possess a limited power to modify arbitral awards. This power was interpreted as falling within courts’ express powers under Section 34 of the Arbitration and Conciliation Act, 1996 (‘1996 Act’). The judgment departs from Project Director, National Highway v. M. Hakeem (‘M. Hakeem’), where such powers were expressly denied. The Court identified three limited circumstances permitting modification: (1) severance of invalid portions of award, (2) alteration of post-award interest, and (3) correction of inadvertent errors or manifest errors. Justice Vishwanathan dissented, arguing that modification cannot be read into Section 34, except to rectify inadvertent errors. While the majority sought to resolve a legal impasse, it arguably introduced new interpretative ambiguities.

          PARTY AUTONOMY AND JUDICIAL NON-INTERVENTION

          To discern the implications of this ruling, one must consider the foundational principles of arbitration law—party autonomy and minimal judicial intervention. The 1996 Act, modelled on the UNCITRAL Model Law (‘Model Law’), enshrines these core principles. Party autonomy, the grundnorm of arbitration, allows parties procedural freedom, as contemplated in Article 19(1) of the Model Law and Section 19(2) of the 1996 Act.  Complementing party autonomy, the Model Law’s non-interventionist approach is adopted by the 1996 Act, emphasizing minimal judicial interference and finality of awards. The Statement of Objects and Reasons of the 1996 Act clearly reveals the legislative intent to limit courts’ intervention, with sub-point (v) of Point 4 expressly aiming to minimize courts’ supervisory role. Section 5’s non obstante clause confines the scope of judicial intervention to matters governed by Part I of the 1996 Act, while Section 35 ensures finality of awards, highlighting the legislative intent of minimal judicial interference.

          NO POWER TO MODIFY ARBITRAL AWARD?

          There is no express provision in the 1996 Act, which recognizes the power to modify or vary arbitral award. The majority in Gayatri Balasamy invoked the maxim omne majus continet in se minus, arguing that the bigger power to set aside an arbitral award inherently subsumes the lesser power to modify. In contrast the minority, relying on Shamnsaheb M. Multtani v. State of Karnataka, argued that this maxim, rooted in criminal law, applies only when two offences are ‘cognate’— sharing common essential elements. Since modification and setting aside differ fundamentally in their legal consequence, the former results in alteration whereas the latter leads to annulment, therefore, the power to modify cannot be subsumed within power to set aside. Nonetheless, the application of this maxim violates the cardinal rule of statutory interpretation. According to this rule, where the language is unambiguous, it must be given plain and ordinary meaning. Notably, the majority held that Section 34 does not restrict the range of ‘reliefs’ the court can grant.  However, in our opinion, the plain text of Section 34 limits the recourse to ‘only’ setting aside an award. This deliberate restriction, supported by expressio unius est exclusio alterius, and upheld in M. Hakeem signifies the legislative intent to exclude other remedies such as modification.  Unlike foreign jurisdictions such as the U.K., U.S.A, and Singapore, and Section 15 of the erstwhile 1940 Act, the 1996 Act does not expressly provide for modification powers. Despite Vishwanathan Committee’s recommendation, the legislature has not evinced any intent to incorporate an express provision, as is evident from the Draft (Amendment) Bill 2024. Therefore, imputing a power of modification would amount to the courts engaging in a merit-based review of the arbitral award, a course of action unauthorized by law.

          MODIFICATION V. SEVERANCE

          As discussed in the preceding section of this blog, the powers to modify and to set aside an award are fundamentally distinct in their legal consequences. This raises the question: can the powers to partially set aside an award, that is to sever certain portions, be equated with the powers to modify? The minority view relies on the definition of “sever as to separate” to justify the power to set aside an arbitral award partly. Section 34(2)(a)(iv) contemplates severance, allowing partial setting aside of an award where the invalid portion is separable, in variability and quantum, to preserve the valid portion. Severance is possible where claims are structurally independent. As held in J.G Engineers Pvt. Ltd. v. Union of India , distinct claims—separate in subject-matter, facts, and obligations can be severed without altering award’s substance. A decision on a particular claim is an independent award in itself, capable of surviving despite invalidity of another claim, as endorsed in NHAI v. Trichy. While power to partial setting aside is recognised, this does not equate to a power to modify. Essentially, severance entails elimination of invalid portions without examining the merits, whereas modification entails a pro-active alteration which may or may not require a merit-based review. Furthermore, the majority view remained silent on a pertinent question: whether modification can fill the gap where severance fails due to structural dependence of claims, as with composite awards? With respect to invalid portions, Section 34 contemplates the initiation of fresh proceedings which re-affirms that severance is not an alternative to setting aside of an award but an ‘exception’ within it.

          BUILT-IN FIXES: SECTION 33 & 34(4) OF 1996 ACT

          Despite express provisions under Section 33, the Supreme Court held that courts may also rectify errors in arbitral awards by invoking inherent powers under Section 151 of the Code of Civil Procedure (‘CPC’). However, it is our considered view that inherent powers cannot override express statutory provisions, even under the pretext of serving justice. This is because it is presumed that procedure specifically laid down by the legislature, including under Section 34 of 1996 Act, is guided by the notions of justice.

          Both the opinions invoked Section 152 of the CPC, which allows correction of accidental slips in judgments to avoid undue hardship. The minority held that this may apply only where (a) errors were not raised under Section 33; or (b) despite being raised, were not rectified by the arbitral tribunal. The majority, however, broadened this to include “manifest errors” by combining Section 152, the power to recall, and the doctrine of implied powers. Yet, term “manifest errors”lack clear scope: does it refer only to inadvertent errors under Section 33(1)(a), or also to curable procedural defects? We draw a distinction here: inadvertent errors are unintentional and apparent, while curable defects involve procedural irregularities affecting the award’s integrity, such as lack of reasoning, or inadequate award interest. Addressing such defects require discretion, and rightly falls squarely within tribunal’s authority under Section 33. Interestingly, the majority itself conceded that remand, unlike modification, enables tribunal to take corrective measures such as recording additional evidence. This position was further reinforced by the majority’s holding that where any doubt arises as to the propriety of a correction, the appropriate course is to remand the award to the tribunal under Section 34(4). This aligns with judicial pronouncements in I-Pay Clearing Services (P) Ltd. v. ICICI Bank Ltd. and Dyna Technologies Private Ltd. v. Crompton Greaves Ltd., which clarified that courts ought to provide the tribunal an opportunity to rectify curable defects.  Moreover, Sections 33(2) and (3) explicitly empower the tribunal to evaluate whether correction requests are justified, reaffirming its authority over its procedural irregularities. In our view, curable procedural defects, such as post-award interest, should mandatorily be remanded to the tribunal, while courts may independently rectify inadvertent, clerical errors, under Section 152, CPC.

          JUDICIAL OVERREACH AND ARTICLE 142

          The minority view, while referring to the Supreme Court Bar Association v. Union of India and Shilpa Sailesh v. Sreenivasan (‘Shilpa Sailesh’), emphasized that Article 142 should not be invoked to construct a new legal framework in the absence of express provisions, such as modification powers under Section 34 of 1996 Act. In the case of Union Carbide Corporation v. Union of India, the Supreme Court had enunciated that Article 142, while rooted in equity, must conform to statutory prohibitions, especially those grounded on some fundamental principles of general or specific public policy. Citing interpretation of “specific public policy” in the case of Shilpa Sailesh, the minority held that the powers under Article 142 cannot override non-derogable principles central to a statute— in this context party autonomy and minimal judicial interference. 

           While we agree with the minority, the majority opinion warrants a closer scrutiny. While stating that Article 142 powers should not be invoked to modify awards on merit, the majority simultaneously observed that it may be invoked to end litigation, thereby blurring the scope of intervention. The equitable principles under Article 142, such as patent illegality, notions of morality and justice, and principles of natural justice, are already embedded as grounds for setting aside arbitral awards. Interestingly, the Vishwanathan Committee had recommended insertion of an express proviso allowing courts to make consequential orders varying the award only in exceptional circumstances to meet the ends of justice. However, this recommendation  didn’t materialise, thereby indicating that the legislature intended the mechanism of setting aside an award to serve the purpose of ensuring complete justice.

          CONCLUSION

          The Supreme Court’s ruling in Gayatri Balasamy marks a significant shift in Indian arbitration law by permitting courts limited power to modify arbitral awards. Citing legal maxims like omne majus continet in se minus, and inherent powers, the majority blurred the distinction between setting aside and modifying awards, risking judicial overreach and merit-based review.  The issue of modifying arbitral awards is inherently complex and must be approached with restraint. While courts may justifiably correct inadvertent, clerical errors, given that such corrections do not amount to review on merits, any broader exercise of this power must be checked. The vague and undefined use of the term ‘manifest errors’ creates a troubling lacuna, allowing scope for subjective judicial interpretation. The Apex Court must clarify the contours of what constitutes a ‘manifest error’, otherwise the courts risk exceeding the boundaries of minimal intervention. In the pursuit of doing complete justice, the courts must not undermine the legislative intent of excluding modification as a remedy, particularly when such a change can only be brought through a legislative policy decision. To resolve the present ambiguity, the legislature should reconsider the Vishwanathan Committee’s recommendation and expressly delineate the limited circumstances under which courts may vary an award.  Despite being well-intentioned, the judgment introduces new complexities, necessitating legislative intervention to preserve the delicate balance between finality of awards and fairness of outcomes

        5. Bridging Global Standards: India’s Approach To Enforcing Emergency Arbitrator Orders

          Bridging Global Standards: India’s Approach To Enforcing Emergency Arbitrator Orders

          Ishita kashyap and Vinayak RajaK, Fourth and Fifth Year students, NATIONAL LAW UNIVERSITY DELHI, NEW Delhi

          INTRODUCTION

          Emergency arbitration (‘EA’) is an evolving concept in the world of arbitration. It seeks to provide a speedy mechanism for disposal of interim relief applications made by the parties in arbitration before the tribunal is formed. It has been recognised by many international institutional rules such as Singapore International Arbitration Centre (‘SIAC’) and International Commercial Arbitration. There was an ambiguity on the legal question of enforceability of the ‘award’ given by such a method of arbitration. The Supreme Court of India, in the judgment of Amazon v Future, resolved this ambiguity and held the enforceability of such emergency arbitral ‘award’ under Section 17(1) of the Arbitration and Conciliation Act, 1996 (‘Arbitration Act’) valid in the cases of Indian-seated arbitration. This article provides the backdrop of the judgment and the recent Draft amendment of 2024 of the Arbitration and Conciliation Act,1996 (‘draft amendments’), and further analyses its legal implications on the arbitration landscape of India.

          JUDICIAL PRONOUNCEMENTS

          The legal standing of emergency orders in India was uncertain before the landmark judgment in the Amazon-Future case. The Delhi High Court, in Raffles Design v Educomp, determined that an emergency arbitrator’s order is unenforceable under Section 17 of the Act in foreign-seated arbitration, hence necessitating recourse under Section 9 of the Act for such arbitrations. Therefore, this case did not weaken emergency arbitration awards but rather focused only on foreign-seated arbitrations.

          Subsequently, the Delhi High Court in Ashwani Minda v. U-Shin denied the relief to the parties under Section 9, reasoning that the parties had excluded Part I of the Act, and the emergency arbitrator had already rejected the request, thereby the Doctrine of Election coming into play to bar the parties from switching forums. The Bombay High Court in Plus Holdings v. Xeitgeist granted interim relief to the parties under Section 9 despite an EA being appointed under SIAC rules because it explicitly allowed for court intervention.
          While neither case turned solely on Section 9(3), the two judgments showed the divergent judicial attitudes for court intervention when emergency arbitration has already been invoked. This judicial ambiguity around emergency arbitration enforcement in India was ultimately clarified in the Amazon-Future decision.

          AMAZON V. FUTURE RETAIL

          The Amazon–Future dispute originated when Amazon NV Investment Holdings LLC initiated arbitration proceedings against Future Retail Ltd. before the SIAC. In the course of these proceedings, Future moved to transfer its retail assets to a third party, which Amazon claimed was violative of pre-existing contractual arrangements. Amazon obtained interim relief from the emergency arbitrator, prohibiting Future from proceeding with this transaction. It sought to enforce this award in India under Section 17(2) of the 1996 Act.

          On 6th August 2021, the Supreme Court held that the Arbitration Act does not preclude parties from adopting procedural rules that allow an emergency arbitrator to grant interim relief. Since SIAC rules permit this mechanism, the EA award should be held valid and enforceable. The Court emphasised that party autonomy, which is the bedrock principle of arbitration, allows for such institutional rules, and as long as parties have agreed to them, the emergency arbitration must be respected.

          LEGAL ANALYSIS OF THE RULING

          The court answered the legal question of whether an award given by emergency arbitration can be considered as an order under section 17(1) of the Arbitration Act to be enforceable. The court read sections 2(1)(a), (c) and (d) along with sections 2(6) and 2(8) and recognised the party’s authority to determine issues that arise between the parties in any way they prefer. This autonomy was extended under section 2(8) to the selection of institutional rules which would govern the process of arbitration. Similarly, section 19(2) allowed for agreement on procedure to be followed by an arbitral tribunal in future proceedings.

          This reading emphasized the importance of party autonomy in dealing with substantive as well as procedural arrangements of arbitration. Further, section 21 proves that the arbitral proceedings are commenced on a date on which the request for that dispute to be referred to arbitration is received by the respondent. While this provision is expressed as limited by the parties’ consent to any other date, it provides a deemed date for commencement of proceedings before the actual arbitral tribunal is formed.

          The court used the ratio in Bharat Aluminium Co vs Kaiser Aluminium Technical Services and M/S. Centrotrade Minerals and Metals  to reaffirm the significance of party autonomy being the brooding and guiding principle  in arbitration. In this light, when section 2(1)(d) is read, it is to be read in subjection to the phrase “unless context otherwise requires”. The context in cases is provided by institutional rules agreed upon by the parties, which in this case were given by SIAC, which does provide for emergency arbitration.

          THE DRAFT ARBITRATION AND CONCILIATION (AMENDMENT) BILL, 2024

          This draft amendment fills the legal gap which was created by Amazon v. Future. While it judicially recognized orders of emergency arbitrators seated in India, there was no express statutory basis for the same. By bringing “emergency arbitrator” in the definitional clause and creating Section 9A, Parliament would recognize the appointment and functioning of emergency arbitrators in domestic arbitration, bringing the existing implied power under institutional rules now under the statute’s backing.

          The draft explicitly provides that orders of emergency arbitrators are enforceable as if they are tribunal orders under Section 17(2). This fades away the ambiguity about whether courts would treat EA orders as interim measures or final awards, which was an interpretive tension post-Amazon. Now, parties can rely on EA relief being directly enforceable without seeking parallel court injunctions.

          Section 9A(4) and the new Section 17(1)(da) ensure that once the full tribunal is constituted, it can confirm, modify, or vacate the EA’s order. This balances the urgent nature of EA relief with party rights to a full hearing. It mirrors Singapore and Hong Kong’s approach and ensures that provisional relief does not unjustly prejudice parties, once more facts emerge.

          However, a major limitation that persists is that the draft does not address foreign-seated emergency arbitration. There is no mechanism to enforce EA orders made abroad, since Part II, which governs foreign awards, does not extend to interim relief. Part II applies only to final awards under the New York Convention, and therefore, the cross-border parties would still need to apply for interim measures before Indian courts under Section 9 if they need urgent relief within India’s territory. This leaves India behind Singapore and Hong Kong, which allow some cross-border EA enforcement.

          IMPLICATIONS FOR ARBITRATION LAW IN INDIA

          This is a boon for foreign investors and multinational parties who prefer arbitration but need urgent interim relief early on. While high compliance rates with EA awards have been reported globally, having enforceability on record is critical for those situations where compliance fails. It also advances a pro-arbitration policy that the Law Commission and experts have long advocated. The Supreme Court in Amazon v Future used EA orders as a tool “in aid of decongesting the civil courts and affording expeditious interim relief to the parties”.

          The court’s approach may prompt parties to reconsider forum choices. Because only Indian-seated EAs benefit from this enforceability (by virtue of Part I applying), parties to international contracts may increasingly prefer India as the seat when quick interim relief is desired. However, the court’s reasoning is strictly limited to Indian-seated arbitrations. Notably, the Court held that an EA award with a foreign seat is not a “decree” or final award and therefore not enforceable in India under the New York Convention or Section 17(2). Thus, the Amazon v. Future case is raising the question of the enforcement of EA orders with a foreign seat in India—a sector that could potentially require legislative intervention if it is found to be problematic.

          CONCLUSION

          The Amazon v. Future Retail Supreme Court ruling is a crucial step towards harmonising India’s emergency arbitration regime with the values enshrined in United Nations Commission On International Trade Law Model Law (‘Model Law’), while at the same time uncovering subtle tensions. Model Law Articles 7, 9, and 17H converge with each other in consolidating party autonomy, coexistence of interim measures issued by courts and arbitration agreements, and enforcement of interim relief granted by arbitral tribunals. The Court’s judgment is consistent with this principle by treating orders issued under EA as binding interim measures enforceable under Section 17(2) of the Arbitration and Conciliation Act, thereby solidifying India’s pro-arbitration policy. A subtle divergence remains, as unlike the Model Law and SIAC Rules, which equate EA orders to awards, the Supreme Court treats them as provisional and enforceable, subject to modification by the arbitral tribunal.

          This interpretation works reasonably well with Model Law Article 17H, but it causes complications under the New York Convention, which generally authorizes cross-border enforcement of awards. In limiting enforceability to EAs seated in India, the ruling excludes foreign-seated EA orders from the Convention’s ambit, thus exposing a residual lacuna to be refined legislatively in the future.

        6. Microfinance In India: The Bad Loan Crisis And The Regulatory Conundrum

          Microfinance In India: The Bad Loan Crisis And The Regulatory Conundrum

          BY Kshitij Kashyap and Yash Vineesh Bhatia FOURTH- Year
          STUDENT AT DSNLU, Visakhapatnam

          INTRODUCTION

          Microfinance offers financial services to low-income people generally overlooked by conventional banking systems, facilitating small businesses and propelling the growth of the economy. India is a country where nearly every second household relies on microcredit, therefore, it is often the only bridge between aspiration and destitution. While the sector empowers millions, it is increasingly burdened by bad loans, also known as Non-Performing Assets (‘NPA’).

          In India, microfinance is regulated by the Reserve Bank of India (‘RBI’). Although the Indian microfinance sector has shown promising growth, it has had its share of challenges. During COVID-19, Micro Finance Institutions (‘MFIs’) experienced an unprecedented rise in NPAs, followed by a sharp recovery. The recovery appears promising, but a closer look reveals deeper structural vulnerabilities in the sector, owing to its fragmented regulatory framework.

           This piece analyses the statutory framework of India’s microfinance sector, reviewing past and present legislations, and exploring potential reforms for the future, allaying the existing challenges. While doing so, it does not touch upon The Recovery of Debt and Bankruptcy Act, 1993 (‘Act’) since Non-Banking Financial Companies (‘NBFCs’) do not fall within the ambit of a “bank”, “banking company” or a “financial institution” as defined by the Act in Sections 2(d), 2(e) and 2(h) respectively.

          LOST IN LEGISLATION: WHY THE MICROFINANCE BILL FAILED

          In 2012, the Government of India introduced The Micro Finance Institutions (Development & Regulation) Bill (‘Bill’), intending to organise microfinance under one umbrella. However, in 2014, the Bill was rejected by the Standing Committee on Finance (‘Yashwant Sinha Committee’), chaired by Mr. Yashwant Sinha. Glaring loopholes were identified, with a lack of groundwork and a progressive outlook.

          In its report, the Yashwant Sinha Committee advocated for an independent regulator instead of the RBI. It highlighted that the Bill missed out on client protection issues like multiple lending, over-indebtedness and coercive recollection. Additionally, it did not define important terms such as “poor households”, “Financial Inclusion” or “Microfinance”. Such ambiguity could potentially have created hurdles in judicial interpretation of the Bill since several fundamental questions were left unanswered. 

          A SHIELD WITH HOLES: SARFAESIs INCOMPLETE PROTECTION FOR MFIs

          The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (‘SARFAESI’) Act, 2002, is a core legal statute when it comes to credit recovery in India. It allows banks and other financial institutions to seize and auction property to recover debt. Its primary objective involves allowing banks to recover their NPAs without needing to approach the courts, making the process time and cost-efficient.

          While SARFAESI empowered banks and financial institutions, originally, NBFCs and MFIs were excluded from its purview. This was changed in the 2016 amendment, which extended its provisions to include NBFCs with an asset size of ₹500 crore and above. This threshold was further reduced via a notification of the government of India dated 24 February, 2020, which incorporated smaller NBFCs with an asset size of ₹100 crore and above within the ambit of this Act. However, its impact is extremely limited when it comes to MFIs as they do not meet the financial requirements

          .

          THE IBC GAP: WHERE SMALL NBFCs FALL THROUGH THE CRACKS

          The Insolvency and Bankruptcy Code, 2016 (‘IBC’), is another statute aimed at rehabilitating and restructuring stressed assets in India. Like the SARFESI Act, this too originally excluded NBFCs from its purview. The IBC recovers debt through Corporate Insolvency Resolution Process (‘CIRP’), wherein the debtor’s assets are restructured to recover the debt. In 2019, the applicability of  IBC was extended to NBFCs with an asset size of ₹500 crore and above.

          The IBC, however, has certain pitfalls, which have kept it away from the finish line when it comes to debt recovery. Some of these pitfalls were enumerated in the thirty-second report of the Standing Committee on Finance 2020-2021 (‘Jayant Sinha Committee’), chaired by Mr. Jayant Sinha. The Jayant Sinha Committee observed that low recovery rates and delays in the resolution process point towards a deviation from the objectives of this Code. Further, under the existing paradigm, Micro, Small and Medium Enterprises (‘MSMEs’), which somewhat rely on microfinance, are considered as operational creditors, whose claims are addressed after secured creditors.

          BRIDGING THE GAP: REGULATORY PROBLEMS AND THE WAY FORWARD

          Fundamentally, three problems are to be dealt with. The first one is a regulatory overlap between the SARFAESI Act and the IBC. While the SARFAESI Act caters to NBFCs with an asset size of ₹100 crore and above, the IBC caters to those with an asset size of ₹500 crore and above. Secondly, there is a major regulatory gap despite there being two statutes addressing debt recovery by NBFCs. The two statutes taken collectively, fix the minimum threshold for debt recovery at ₹100 crore. Despite this, they continue to miss out on the NBFCs falling below the threshold of ₹100 crore. Lastly, the problem of the recovery of unsecured loans, which constitute a majority of the loans in the microfinance sector and are the popular option among low to middle income groups, also needs redressal since unsecured loans have largely been overlooked by debt recovery mechanisms.

          For the recovery of secured loans

          Singapore’s Simplified Insolvency Programme (‘SIP’), may provide a cogent solution to these regulatory problems. First introduced in 2021 as a temporary measure, it was designed to assist Micro and Small Companies (‘MSCs’) facing financial difficulties during COVID-19. This operates via two channels; Simplified Debt Restructuring Programme (‘SDRP’) and Simplified Winding Up Programme (‘SWUP’). SDRP deals with viable businesses, facilitating debt restructuring and recovery process, while on the other hand, SWUP deals with non-viable businesses, such as businesses nearing bankruptcy, by providing a structured process for winding up. The SIP shortened the time required for winding up and debt restructuring. Winding-up a company typically takes three to four years, which was significantly reduced by the SWUP to an average of nine months. Similarly, the SDRP expedited debt restructuring, with one case completed in under six months, pointing towards an exceptionally swift resolution.

          In 2024, this was extended to non-MSCs, making it permanent. The application process was made simpler compared to its 2021 version. Additionally, if a company initiates SDRP and the debt restructuring plan is not approved, the process may automatically transition into alternative liquidation mechanisms, facilitating the efficient dissolution of non-viable entities. This marked a departure from the erstwhile SDRP framework, wherein a company was required to exit the process after 30 days or upon the lapse of an extension period. This, essentially, is an amalgamation of the approaches adopted by the SARFAESI Act and the IBC.

          Replicating this model in India, with minor tweaks, through a reimagined version of the 2012 Bill, now comprehensive and inclusive, may finally provide the backbone this sector needs. Like the SIP, this Bill should divide the debt recovery process into two channels; one for restructuring, like the IBC, and the other for asset liquidation, like SARFAESI. A more debtor-centric approach should be taken, wherein, based on the viability of the debt, it will either be sent for restructuring or asset liquidation. If the restructuring plan is not approved, after giving the debtor a fair hearing, it shall be allowed to transition into direct asset liquidation and vice versa. The classification based on asset size of the NBFCs should be done away with, since in Singapore, the SIP was implemented for both MSCs and non-MSCs. These changes could make the debt recovery process in India much simpler and could fix the regulatory overlap and gap between SARFAESI and the IBC.

          For the recovery of unsecured loans

          For the recovery of unsecured loans, the Grameen Bank of Bangladesh, the pioneer of microfinancing, can serve as an inspiration. It offers collateral free loans with an impressive recovery rate of over 95%. Its success is attributed to its flexible practices, such as allowing the borrowers to negotiate the terms of repayment, and group lending, wherein two members of a five-person group are given a loan initially. If repaid on time, the initial loans are followed four to six weeks later by loan to other two members. After another four to six weeks, the loan is given to the last person, subject to repayment by the previous borrowers. This pattern is known as 2:2:1 staggering. This significantly reduced the costs of screening and monitoring the loans and the costs of enforcing debt repayments. Group lending practically uses peer pressure as a method to monitor and enforce the repayment of loans. Tapping basic human behaviour has proven effective in loan recovery by the Grameen Bank. The statute should similarly mandate unsecured microcredit lenders to adopt such practices, improving recovery rates while cutting operational costs.

          CONCLUSION

          Microfinance has driven financial inclusion in India but faces regulatory hurdles and weak recovery systems. Existing systems offer limited protection for unsecured lending. A unified legal framework, inspired by the models like Grameen Bank and Singapore’s SIP can fill these gaps and ensure sustainable growth for the sector.

        7. SEBI’s Rights Issue Amendments 2025: Streamlined Issues or Regulatory Labyrinth?

          SEBI’s Rights Issue Amendments 2025: Streamlined Issues or Regulatory Labyrinth?

          BY Devashish Bhattacharyya and Sadhika Gupta, FOURth- Year STUDENT AT Amity Law School, Noida
          Introduction

          A Rights Issue enables companies to offer existing shareholders the opportunity to purchase additional shares directly from the company at a price lower than the prevailing market rate. According to the Securities and Exchange Board of India (‘SEBI’) Annual Report, the number of companies that raised funds through rights issues declined from 73 in 2022–23 to over 67 in 2023–24. It was observed that numerous companies opted for alternative fundraising methods, as the existing Rights Issue process was considered protracted.

          SEBI, in exercise of the powers conferred under Section 11 and Section 11A of the SEBI Act, 1992, read with Regulation 299 of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 (‘SEBI ICDR Regulations’), notified amendments under the framework of Rights Issue on 8 March 2025. The purpose of these Amendments was to improve the efficacy of capital raising by companies, as outlined in the Consultation Paper published by SEBI on 20 August 2024.

          Key Amendments in Rights Issue

          I. No more fast track distinction

          Pursuant to the Rights Issue Amendment 2025, regulations for Rights Issue now apply to all issuers regardless of their size. There is no longer a distinction in the documentation required for Rights Issue as SEBI has removed fast track eligibility requirements.

          II. SEBI Drops DLoF Requirement

          Draft Letter of Offer (‘DLoF’) and Letter of Offer (‘LoF’) must contain material disclosures to allow applicants to make a well-informed decision.  Since the issuer is listed, much of the DLoF/LoF information is already public, causing unnecessary duplication. Examining the aforesaid concerns, SEBI, through its recent amendments discontinued the requirement of filing DLoF with SEBI for the issuance of its observation.

          III. Disclosure Requirements under LoF

          Pursuant to the Recent Rights Issue Amendments 2025 , now an issuer undertaking a Rights Issue is required to comply with the updated Part-B of Schedule VI of the SEBI ICDR Regulations, eliminating the differentiation of Part B and Part B-1 of Schedule VI.

          IV. Removal of Lead Managers

          SEBI has lifted the necessity for the appointment of Lead Managers, i.e., Merchant Bankers (‘MBs’), in a Rights Issue process under the Recent ICDR Amendments 2025. The SEBI ICDR Regulations fail to define timelines for the completion of the due diligence and filing of DLoF/ LoF resulting in a prolonged duration.

          These ancillary activities that MBs perform are generic in nature and can be performed by the Issuer, Market Infrastructure Institutions, and Registrar and Transfer Agents. Therefore, the elimination of MBs will have a significant impact in expediting the issue process.

          V. Allotment to Specific Investors

          SEBI has promoted the allocation of securities through the renouncement of Rights Entitlements (‘Res’) to specific investors outside the promoters and promoter group under the Rights Issue Amendments 2025.

          A promoter must renounce REs within the promoter group. The Rights Issue Amendment 2025 eases these restrictions on the renunciation of REs to promoters and promoter group, allowing issuers to onboard specific investors as shareholders by inserting Regulation 77B.

          VI. Revised timeline for Rights Issues

          SEBI published a circular on 11 March 2025 requiring the completion of a Rights Issue within 23 days. This revised timeline is specified vide Regulation 85.

          The new timeline has been explained below:

          ActivityTimelines
          1st board meeting for approval of rights issueT
          Notice for 2nd board meeting to fix record date, price, entitlement ratio, etc.T* (Subject to Board’s/ shareholders’ approval)
          Application by the issuer for seeking in-principle approval along with filing of DLoF with stock exchangesT+1
          Receipt of in-principle approval from Stock ExchangesT+3
          2nd Board meeting for fixing record date, price, entitlement ratio etc.T+4
          Filing of LoF with Stock Exchanges and SEBIT+5–T+7
          Record DateT+8
          Receipt of BENPOS on Record date (at the end of the day)T+8
          Credit of REsT+9
          Dispatch/Communication to the shareholders of LoFT+10
          Publication of advertisement for completion of dispatchT+11
          Publication of advertisement for disclosing details of specific investor(s)T+11
          Issue opening and commencement of trading in REs (Issue to be kept open for minimum 7 days as per Companies Act, 2013)T+14
          Validation of BidsT+14–T+20
          Closure of REs trading (3 working days prior to issue closure date)T+17
          Closure of off-market transfer of REsT+19
          Issue closureT+20

          *If the Issuer is making a rights issue of convertible debt instruments, the notice for the 2nd board meeting to fix record date, price, entitlement ratio, etc. will be issued on the approval date of the shareholders, with the timeline adjusted accordingly.

          Rights Issue Amendments 2025: What SEBI Forgot to Fix?

          I. Erosion of Shareholder Democracy

          A listed company shall uphold a minimum public shareholding (‘MPS’) of 25% under Rule 19A of the Securities Contracts (Regulation) Rules, 1957. Prior to the Rights Issue Amendments, promoters and promoter group had restrictions to renounce rights within the promoter group, except for adherence to MPS requirements. The recent amendments have lifted this restriction. The promoters may renounce their rights in both manners without restrictions to related parties, friendly investors, strategic allies, etc. Such a specific investor may seem to be a public shareholder on paper, yet they effectively align their voting and acts with the interests of promoters. This creates a grey zone indirectly enhancing the control of promoters without formally increasing their share ownership. Since, SEBI has relaxed restrictions on the renunciation of REs; it shall consider introducing a cap limit on promoter renunciations in favour of specific investors. This would help prevent over-concentration of control, thereby safeguarding the interests and voice of public shareholders.

          II. Circumventing Takeover Code Intent

          Promoters are permitted to renounce their REs in favour of specific investors and allow issuers to allot unsubscribed shares to them, as per the Rights Issue Amendments 2025. This creates a vulnerability in which a specific investor can acquire a substantial stake, potentially exceeding 25%, without triggering an open offer under Regulation 3(1) of the SEBI Takeover Regulations. The exemption, which typically pertains to Rights Issues, is not applicable in this instance due to the following reasons: the acquisition is not pro-rata, it is the result of renunciation by another party, and it is not equally accessible to all shareholders. Consequently, the spirit of the SEBI Takeover Regulations may be violated if control is transferred stealthily without providing public shareholders with an exit opportunity. The Rights Issue Amendments 2025 facilitate backdoor takeovers and undermine investor protection unless SEBI clarifies that such selective acquisitions elicit open offer obligations. SEBI may consider introducing  a ceiling for acquisitions through rights issue renunciations (for e.g., 5% maximum through RE-based allotment unless open offer is made). This would prevent backdoor takeover route.

          III. Unmasking Preferential Allotment under the Veil of Rights Issue

            Under the SEBI Rights Issue Amendments 2025, companies conducting a rights issue can allocate the REs to specific investors rather than existing shareholders, provided that their identities are disclosed at least two working days prior to the opening of the issue, thereby contravening Regulation 90(2) of the SEBI ICDR Regulations. Under the veil of a rights issue, issuers can circumvent the more stringent and transparent process of preferential issue under Chapter V of SEBI ICDR Regulations by directing REs to specific investors. Further, the SEBI ICDR Regulations lack a framework that mandates issuers to justify why such specific investors were chosen.

            Pricing formula and lock-in restrictions applicable to preferential issue under Regulations 164 and 167 of the SEBI ICDR Regulations, respectively, should be applied to all discretionary allotments of REs. Any such allotment exceeding a defined threshold should require prior approval through a special resolution as specified under Section 62(1)(c) of the Companies Act, 2013. In addition, the SEBI ICDR Regulations should set a framework obligating issuers to disclose the rationale for selecting any specific investor.

            IV. Mandatory Lock-in Period for Specific Investors

              While the SEBI’s proposed framework on allotment of specific investors allows promoters to renounce their REs in favour of specific investors, and issuers to allot unsubscribed portions of the rights issue to such investors, it fails to mandate a lock-in period for the shares so allotted. Short-term arbitrageurs or entities allied with insiders may exploit this lacuna by acquiring shares at a discount and subsequently selling them in the secondary market to realise quick profits without a long-term obligation to the issuer.

              To prevent speculative arbitrage and ensure regulatory parity with preferential allotment norms, it is suggested that SEBI implement a mandatory 6-12 months lock-in on equity shares allotted to selective investors through promoter renunciation or unsubscribed portions in rights issues.

              Conclusion

              The Rights Issue Amendments 2025 mark a progressive shift in streamlining the Rights Issue process, which ameliorates procedural challenges and compliance requirements. However, the amendments also open a Pandora’s box of regulatory blind spots. What was once a pro-rata, democratic mechanism of capital raising now runs the risk of becoming a “Preferential Allotment in Disguise.” The unrestricted renunciation of REs to specific investors, the absence of a mandatory lock-in, and the circumvention of the Takeover Code’s spirit collectively enable promoters to strengthen their control, potentially sidelining public shareholders and eroding market fairness. While SEBI has turbocharged the rights issue vehicle, it needs to make sure no one drives it off-road so that it remains equitable and transparent.