The Corporate & Commercial Law Society Blog, HNLU

Category: Minority Shareholder

  • Inside the SEBI Intervention: Anatomy of Jane Street’s Derivatives Manipulation

    Inside the SEBI Intervention: Anatomy of Jane Street’s Derivatives Manipulation

    BY HIMANSHU YADAV, THIRD-YEAR STUDENT AT MNLU, CS.

    INTRODUCTION

    India is the world’s largest derivatives market, accounting for nearly 60% of the 7.3 billion equity derivatives traded globally in April, according to the Futures Industry Association. Amid growing concerns over market integrity and transparency, the Securities Exchange Board of India (‘SEBI’) took decisive action to protect the interests of investors. On July 3, 2025, the SEBI banned Jane Street from Indian markets for manipulating indices. The US-based global proprietary trading firm, Jane Street Group, operating in 45 countries with over 2,600 employees, is banned from trading until further notice. The order marks a significant regulatory action against market manipulation. Jane Street reportedly earned ₹36,502 crore through aggressive trading strategies, facing ₹4,843 crore in impounded unlawful gains.

    In April 2024, based on prima facie evidence, SEBI initiated an investigation against entities of Jane Street for alleged market abuse. The firm’s activities were found to have violated SEBI’s Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market Regulations, 2003 (‘PFUTP’). The further investigation by SEBI led to findings that on the weekly index options expiry dates, the firm was holding extremely large positions in cash equivalents in the Future and Options (‘F&O’) market. Based on prima facie evidence, the SEBI issued a caution letter to Jane Street and its related entities.

    The activity of Jane Street, mostly done on expiry dates, allowed the firm to influence the settlement outcomes. On expiry day, the closing price of an index (like Nifty or Bank Nifty) determines the final settlement value of all outstanding options and futures contracts. Even a small change in the index’s closing value can lead to huge profits or losses, especially when large positions are involved. Due to the large position held by Jane Street, it allowed the firm to easily conceive the motive.

    SEBI held Jane Street accountable for the two-phase strategy on January 17, 2024 intensive morning buying of Bank Nifty stocks/futures and simultaneous bearish options positioning, followed by aggressive afternoon sell-off to push the index lower at close. These trades directly influenced Bank Nifty’s settlement value, disproportionately benefiting Jane Street’s option positions at the expense of others.

    HOW JANE STREET’S JANUARY 17, 2024 TRADES MANIPULATED THE BANK NIFTY INDEX ON EXPIRY DAY

    The SEBI analysed the top 30 profitable trades of Jane Street, out of which 17 days were shortlisted for detailed analysis concerning derivative expiry day trades. The critical analysis of these days resulted in 15 days with the same deployed strategy for manipulation of indexes, which can also be termed as “Intraday Index Manipulation Strategy”.

    The manipulation strategy was deployed in such a manner that JS Group held a large position. In Patch-I, the net purchases of JS group were INR 4,370.03 crore in cash and future markets. As the purchases in the Index stocks in the morning were executed, it raised the prices of Bank Nifty constituents and the index. The purchases were so high, it made the index move upward. Now that the index moved upward, the put option would become cheaper and the call option would become expensive. This sudden surge gives a misleading signal of bullish interest in Bank Nifty. Based on this delusion of a bullish trend, the JS group purchased the put positions at a cheaper rate quietly. In Patch-II, the JS group sells all the futures positions that were purchased in Patch-I, as the volume bought and sold was so large that it resulted in pushing the index downward. Now, the premium of put prices rises, and there is a drop in the value of call options. This sole movement by JS group entities misled the retail investors, resulting in a loss booked by the retailers, as they were the single largest net buyer across Bank Nifty during this patch. This price upward movement reflects that the Jane Street group was creating an upward pressure during Patch-I.

    EXTENDED MARKING THE CLOSE STRATEGY ADOPTED BY JANE STREET

    On July 10, 2024, the entity was again held liable for “Extended Marking the Close” manipulation. The tactic used under this strategy is to aggressively give a sell or purchase order in the last trading session, upon which the final closing price of a security or index is reflected.  On the last day of trading (called expiry day), the final value of an index like Bank Nifty is very important because all option contracts are settled based on that final number, known as the closing price. Jane Street had placed bets that the market would fall (these are called short options positions, like buying puts or selling calls). If the market closed lower, they would make more money. So, in the last hour of trading on July 10, 2024, Jane Street sold a lot of stocks and index futures very quickly. This sudden selling pushed the Bank Nifty index down, even if only slightly. Even a small drop in the index at the end of the day can increase the value of their bets and bring in huge profits. This tactic is called “marking the close” It means influencing the final price at which the market closes to benefit your trades.

    THE LEGAL PERSPECTIVE ON THE STRATEGIES ADOPTED BY JS GROUP

    In trading, manipulating the market effectively creates and uses monopolistic power.  Order-Based Manipulation (‘OBM’) by high-frequency  traders have several negative effects, such as heightened price volatility in both frequency and size, unfair and monopolistic profit from manipulated investors’ losses and instability potential.

    The JS group and its entities are allegedly held liable for the Intra-day Index Manipulation strategy and Extended Marking the Close strategy. Regulations 3 and 4 of the SEBI PFUTP Regulations, 2003, prohibit any act that manipulates the price of securities or misleads investors. The JS Group was held liable under section 12A(a), (b) and(c) of the SEBI Act, 1992; regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a) and (e) of the PFUTP Regulations, 2003.

    The SEBI, which acts as a market watchdog, is well within its jurisdiction to initiate criminal proceedings as well as impose penalties against entities of the JS group under Section 24 of the SEBI Act, 1992. Section 11 of the SEBI Act 1992 empowers SEBI “to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market.” Section 11B – Directions by SEBI gives SEBI quasi-judicial powers to issue directions “in the interest of investors or the securities market,” even in the absence of specific wrongdoing. It allows the regulator to: Restrain trading activities, modify operational practices, and Direct intermediaries and related entities to cease and desist from certain actions.

    Further, the defence of arbitrage cannot be validly exercised by Jane Street. The activity incurred by Jane Street cannot be termed as a traditional arbitrage practice, as arbitrage means taking advantage of existing price gaps naturally. Jane Street was not only finding pricing gaps and making fair profits rather Jane Street was also manipulating the pricing of some index options and futures to change the market in a way that isn’t normal arbitrage.

    Jane Street artificial price moves through high-frequency, manipulative trading to mislead the market.

    WAY FORWARD

    The Jane Street ‘Soft Close’ Strategy and SEBI’s delayed discovery of such transactions highlight the extent to which a system can lag in evaluating manipulative actions by traders at machine speed. It was actually in 2023, the U.S. Millennium, a prominent global hedge fund, filed a lawsuit against Jane Street after poaching its employees. These employees disclosed a previously covert Indian market strategy centred around artificially influencing expiry-day closing prices to benefit Jane Street’s derivatives positions, a tactic akin to a “soft close.” Only upon the filing of such a suit, the SEBI launched a full-fledged investigation, and the regulator analyzed the 3-year expiry trades of the JS Group. The SEBI’s long-term sustained efforts over the years to safeguard the retail investors from losing their money, at this juncture, a much more advanced regulatory scrutiny is required. Jane Street, being a high-frequency trader, the tactics deployed by such an entity shock the market and have a grave impact on the retail investors. High-frequency Trading (‘HFT’),  has the potential to bring the most worrisome instability to the market. The Flash Crash 2010, which was triggered by automated selling orders worsened by HFT, is one of the most severe events that disrupted market stability. Going forward, SEBI must adopt a more agile and tech-driven oversight model, capable of detecting unusual volumes, timing-based trade clusters, and order book imbalances in real time. It should also consider making a special HFT Surveillance Unit that works with AI-powered systems. This isn’t to replace human judgment, but to help with pattern recognition and rapidly identify anything that doesn’t seem right.

    CONCLUSION

    The regulator recently released statistics showing that the number of retail investors in the derivatives market is close to 10 million. They lost 1.05 trillion rupees ($11.6 billion, £8.6 billion) in FY25, compared to 750 billion rupees in FY24. Last year, the average loss for a retail investor was 110,069 rupees ($1,283; £958). Due to such manipulative trading activities, it is the retail derivative traders who face a tight corner situation and end up losing their money.  SEBI, in its report published on July 7, 2025, highlights that 91% of retail investors lose their money in the Equity Derivative Segment (‘EDS’) The regulatory check and stricter analysis on the trading session are the need of the hour. But on the contrary, cracking down on the practice of such a global level player is what SEBI should be praised for. More dedicated and faster technology should be adopted by SEBI to carry out such an investigation in a swifter manner. 

  • Zee vs Invesco: Shareholder Activism or Struggle for Power?

    Zee vs Invesco: Shareholder Activism or Struggle for Power?

    By Monika Vyas and Ayushi Narayan. Monika is an associate at Khaitan & Co. Ayushi is an associate LexInfini.

    Shareholders Activism inter alia includes a situation wherein the shareholders of a company use their equity stake in the company to try and make governance decisions by influencing or controlling the actions of the directors of the corporation. Such structural changes or an attempt to improve the corporate governance are made by the shareholder activists to improve their returns on the investments made in the company. Recently, there has been a trend of rising shareholder activism in the Indian equity market. This article will discuss the recent trend of shareholder activism in India in the wake of the recent case of Zee Entertainment Enterprise Limited and Invesco Developing Markets Fund. The Bombay High court order is analysed in relation to the recent treatment of shareholder activism in India.

    Rise in shareholder activism

    Few examples of shareholders activism in the recent years are that of Cyrus Mistry being removed as the director of Tata Sons by an EGM held on February 2017. In March 2020, during market crash, Vendanta Ltd. was a company which wasunsuccessful in delisting itself from the stock exchange as it received resistance from its shareholders. Further its institution shareholder Life Insurance Company, tendered its share at a high price which forced the promoters to withdraw the offer. Puneet Bhatia, head of TPG Capital Asia was removed from the board of Shriram Transport Finance Corporation Ltd (“STFC”), as the minority shareholders voted against a resolution to re-appoint him as a member of the board due to his lack of sufficient attendance in board meetings. Interestingly, just after a week of Bhatia’s removal from the board of STFC, he was renamed to the board vide a press release from STFC.

    Facts of the case 

    One of latest examples of shareholders activism in India has been that of Invesco Developing Markets Fund (“Invesco”) against Zee Entertainment Enterprises Limited (‘Zee”). As a way of background, it may be relevant to note that Invesco which along with OFI Global China Fund LLC, hold a 17.88% stake in Zee, was interested in Zee to strike a deal with Reliance Industries Ltd. However, the discussions between Zee’s CEO and Reliance Industries didn’t turn out to be fruitful. On the other hand, Zee has now finalised merger with Sony Group Corporation’s India Unit, after conducting three months of due diligence. The dispute arose when Invesco requisitioned the board members of Zee to call for an extraordinary general meeting (“EGM”), for the purpose of making structural changes in the company by revamping the board and removing the managing director and Chief Executing Officer and suggesting six new independent board members.

    Zee rejected the proposal made by Invesco with respect to the change in board of members of the company and cited legal infirmities in Invesco’s request. As Zee denied Invesco’s request to revamp the board, Invesco sent a requisition notice to Zee for removal of the managing director and CEO Punit Goenka and to further appoint six new independent board members identified by Invesco. As per the provisions of the Companies Act, a shareholder holding more than 10% stake in a company can seek an EGM. In the event the board declines, the shareholders as per Section 100 of the Companies Act, can convene the EGM itself. Upon Zee’s denial to act upon the said notice, Invesco considered ZEE’s behaviour to be oppressive and filed an appeal before National Company Law Tribunal (“NCLT”) to direct ZEE to act upon Invesco’s notice for EGM. While the said matter was pending before the tribunal, Zee filed an appeal before the Bombay High Court for an injunction against Invesco’s notice for EGM. In the said appeal, Zee stated the notice to be illegal and that it could not implement the same. Further, Zee’s refusal to implement the said notice was within the purview of law and justified.

    analysis of the issues

    Issue of Requisition of EGM

    The issues in this case are quite complex and leads to different outcomes based on the interpretation. The first issue is, whether Zee is obligated to call EGM upon a valid requisition. The court issued the injunction whereby the requisition for the EGM was not granted based on the rationale that objections of Zee were justified and resolutions were illegal. It observed that if the Board itself cannot act call for EGM on such resolutions, then there’s no way that the shareholders would be kept at higher pedestal.

    Opinion- Section 100(2)(a) of the Companies Act, 2013 empowers the Board to call for EGM on requisition of minority shareholders. It reads as thus: the Board shall, at the requisition made by, in the case of a company having a share capital, such number of members who hold, on the date of the receipt of the requisition, not less than one-tenth of such of the paid-up share capital of the company as on that date carries the right of voting, call an extraordinary general meeting of the company within the period specified in sub-section (4). We should interpret the word ‘shall’ in Section 100 of the Companies Act, 2013 to find the legislative intent behind this section. The choice of word ‘shall’ indicates that is must to call the EGM. However, the literal interpretation can sometimes overlook the intent of the legislation. By giving the alternative route in Section 100(4) itself of conduction of the EGM lest the Board shall fail to act, the word ‘shall’ should not be used as ‘must’. It reads as thus: If the Board does not, within twenty-one days from the date of receipt of a valid requisition in regard to any matter, proceed to call a meeting for the consideration of that matter on a day not later than forty-five days from the date of receipt of such requisition, the meeting may be called and held by the requisitionists themselves within a period of three months from the date of the requisition. 

    Thus, we can say that the Board is well within its right to use discretion otherwise it can always be held hostage to the whims of the shareholders who intend to misuse the provisions. Having said this, it is also unclear why this in-built remedy of shareholders proceeding to hold the meeting was not granted to Invesco by the Court. 

    Issue of Legality of Propositions in the Resolutions

    This brings us to the next issue of whether the proposed resolutions were legal for requisition of EGM. For this, interpretation of the word ‘valid’ in section 100(4) of the Act was made the issue. The shareholders are allowed to hold the EGM themselves in case the Board fails to act within the stipulated time provided the requisition is valid. The court concluded that there was no question of interpretation of word ‘valid’ but only of the illegality of the resolutions proposed. It was established that the represented matters by the shareholders were illegal and hence could not be implemented. It held this based on the following reasoning:

    • Non-compliance of Ministry of Information and Broadcasting (“MIB”) guidelines, SEBI (Substantial Acquisition of Shares and Takeovers) (“SAST”) Regulations, 2011 and Competition Act, 2002

    The guidelines of MIB require that before effecting any change in CEO/Board of Directors, its prior approval must be taken. Approval of Competition Commission of India (“CCI”) is also required in the eventuality that Invesco is in control if it succeeds in appointing majority of directors. It also attracts the provisions of SEBI SAST Regulations, 2011 which provides for such regulatory approvals. In this case because the approval was not taken from either of them, the resolution was termed illegal by the court on grounds of non-compliance with the guidelines and the statute.

    Opinion-It is unclear whether the word ‘change’ applies to only fresh appointments or its scope covers resignations/removals too as in this case. The guidelines cannot be meant to stop someone from quitting. 

    Secondly, one must also question if the mere non-compliance with the guidelines and statutes would amount to illegality. As it is, the passage of resolution is contingent upon the approval of MIB and CCI. One cannot term it illegal when it is in its nascent stage and yet to fulfil the conditions for its acceptability. If, at all, it is inconsistent, the same would be declined by the regulatory body and need not be decided by the court. Thus, terming the resolution illegal when it is still premature cannot be held in good faith. Also, it would be Invesco who would be responsible for the consequences of not having the approval of competition commission. Hence, on this ground one cannot term the resolution illegal. 

    • Violation of SEBI LODR Regulations and Section 203 of Companies Act, 2013

    Invesco proposed six independent directors to be appointed named by it in the resolution. This is violative of Regulation 17 of SEBI LODR which states that the company should have optimum numbers of executive and non-executive directors processed by the nomination and remuneration committee. Further, the court was of the view that the proposition to remove the managing director and CEO infringed upon section 203 of the Act which envisages that every company must have CEO, managing director or manager.

    Opinion-While SEBI LODR talks about appointment through nomination and remuneration committee, it also envisages situation where appointments are initiated by the board of directors. Thus, the court through its order has created the situation of polarisation between the Companies Act, 2013 and SEBI LODR Regulations. Further, the violation under Section 203 of the Act is curative in nature meaning whereby it can be cured within six months of the removal of CEO.

    Concluding remarks

    There is no doubt that the order of the court is detrimental to the shareholder activism in India. From the above analysis, we can see that Invesco is not entirely in the wrong. However, Invesco has stepped on its feet by not being transparent about the issues why it wants to remove the CEO. The intention of Invesco is not clear as to whether the proposed resolutions are on account of bad governance issues of Zee or to exercise control by appointing independent directors, the names which it has not justified for appointment. Earlier, this year, it had also approached Goenka, CEO with the proposalto merge Zee with media entities of Reliance Industries Ltd. which failed. It is not clear why it did not approach the Board directly. However, the court could have been lenient in its interpretation of the provisions since the order wards off the shareholder activism which could have been for the benefit of the company. However, as Invesco has contested the Single Bench decision and the case has now been taken up by the Division Bench of Bombay High Court, one can be hopeful that the decision ushers in towards welcoming this concept. It would be especially interesting to see how the case unfolds in light of the recent merger with Sony which has facilitated the continuation of post of CEO being held by Punit Goenka.

  • Amendment in Takeover Offer Norms: A Formal Route to “Squeeze Out” Minority Shareholders

    Amendment in Takeover Offer Norms: A Formal Route to “Squeeze Out” Minority Shareholders

    By Arushi Gupta, a Fifth-Year Student at DES Law COllege, Pune

    On February 3rd, 2020  the Ministry of Corporate Affairs notified the coming into force of Sub-section (11) and (12) of Section 230 of the Companies Act, 2013 (‘Act’) which deals with the takeover offers in case of any restructuring of a company. The Ministry also notified the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2020 (‘CAA Rules’), which added Sub-rule (5) and (6) to Rule 3 in the original rules of 2016, along with the National Company Law Tribunal (Amendment) Rules, 2020 (‘NCLT Rules’) adding Rule 80 A to the principal rules of 2016.

    Section 230(11) of the Companies Act, 2013 deals with the takeover offers in case of unlisted companies. It is broad enough to include various types of restructuring like mergers, amalgamations, compromises, etc. Section 230(12) provides for the redressal of grievances concerning the takeover offers of companies other than a listed company, wherein the aggrieved party may make an application to the National Company Law Tribunal (‘NCLT’), which may pass an order as deemed fit. Rule 3(5) of the CAA Rules provides that a member of a company holding at least 75% of the shares along with any other member in the company shall make an application before the NCLT for an arrangement in terms of a takeover offer under Section 230(11) of the Act, acquiring remaining shares of the company. Furthermore, Sub-rule (6) of Rule 3 provides for a report of a registered valuer to be filed along with the application, disclosing the details of the value of the shares proposed to be acquired. Such valuation of the shares shall be made considering the following factors:

    1. The highest price offered for the acquisition of those shares during the last 12 months.
    2. The fair price must be determined by the registered valuer after considering parameters like return on net worth, the book value of shares, earning per share, price earning multiple vis-a-vis the industry average, etc.

    Sub-rule (6) also stipulates that the member proposing the acquisition shall open a bank account and provide the details of the same in the report, wherein 50% of the consideration of the total takeover offer must be deposited. The NCLT Rules, 2020 provides for the form in which application for grievances can be made under Sub-Section (12) of Section 230 of the Act.

    This article draws a detailed picture of how these norms can be utilized to force the exit of minority shareholders at a lower consideration, negatively impacting their interests.

    Applicability

    The newly notified Sub-section (11) of Section 230 of the Act applies to the takeover offer in the case of unlisted companies. The proviso to this sub-section specifies that the takeover offer in the case of listed companies is governed by the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011 which require the acquirer to make an open offer to acquire such shares. Explanation 1 to Rule 3(5) of the CAA Rules defines “shares” as any equity shares which carry voting rights. Therefore, shares can include securities like depository receipts which entitle the holder to exercise voting rights. However, Explanation 2 to the same rule provides that these rules do not apply to the transfer of shares made through a contract, arrangement, or succession or in pursuance of any statutory or regulatory requirement. Hence, only voluntary arrangements, which are not predetermined come into the scope of the new rules.

    An Overlap with Section 236 of the Act

    Section 236(1) of the Act provides for the purchase of minority shareholdings under an amalgamation, share exchange, conversion of securities or for any other reason wherein a person who is a registered holder of 90% or more of the equity share capital of a company notifies the company of their intention to buy the remaining of the equity shares. This creates an overlap with Rule 3(5) of the CAA Rules, which provides for a scheme or arrangement in terms of takeover offer to acquire the remaining shares, enabling only 75% of the total shareholders to apply directly to the NCLT, without having to engage in procreated negotiations with the minority shareholders. This creates a confusion as to which provision would apply when it comes down to the purchase of minority shareholding. The direct approach to the NCLT with a takeover offer may eliminate the role of votes of or meetings with the minority shareholders in such arrangements, resulting in the “squeeze out” of such shareholders and sidelining their interests.

    Furthermore, Section 236(9) of the Act provides that in case the majority equity shareholder fails to acquire any of the minority shareholders, then the provisions of Section 236 would still continue to apply to the residual shareholdings, which have not been acquired. This means that the provisions of Section 236 do not explicitly cast an obligation on the minority shareholders to sell their shares. However, the amended CAA Rules are silent upon the question of whether the minority shareholders would compulsorily have to give up their shares in a “compromise” or “arrangement” under Section 230 of the Act or not. This may affect the interests of the minority shareholders as they would have no inherent rights to retain their shares in the face of fair consideration. While some shareholders may be prepared to sell their shares for a lower consideration, others may prefer to hold. They may have a better grasp of the true value of their shares.

    Valuation of Minority Shares

    Considering the complexity and diversity of business carried out by the companies, the calculation of the fair value of minority shares as required under Sub-rule (6) of Rule 3 of the CAA Rules could be a subject of controversy. This may raise an issue for both the acquirer as well as the minority shareholders. This method of computation may be detrimental to the acquirer as the price offered to certain minuscule number of shares during the last 12 months may be higher than their original value. This would result in the acquirer having to pay more than what they were actual worth. On the other hand, there may be uncertainties while computation and some minority shareholders may be unrepresented, resulting in a financial loss to certain individuals.

    Furthermore, the rules do not provide explicitly the minimum amount that a takeover offer should be, unlike the SEBI Takeover Regulations which clearly state the minimum price at which shares can be acquired under an open offer. This may cause the exploitation of these provisions to squeeze out minority shareholders at a lower price than their initial investment when the company is at a low value, even if it is transitionary.

    Deposit of Funds

    Unlike Section 236(4) of the Act, which stipulates that the majority shareholders shall deposit an amount equal to the value of the shares to be acquired by them, Sub-rule 6(6) of CAA Rules requires only 50% of the consideration to be deposited in the bank account. Section 236(4) of the Act also stipulates that such amount shall be dispersed within 60 days. However, the amended CAA Rules do not stipulate the time limit for the distribution of consideration to the minority shareholders. This may lead to frozen money in the bank account until the completion of compromise or arrangement, preventing the minority shareholders from quick exit thus, blocking them into the new structure.

    Redressal of Grievance

    Another anomaly that may be observed in the recent amendment is that there is no basis for the valuation of grievances by the NCLT provided in the grievance redressal mechanism under Section 230(12). In the case of Ramesh B. Desai v. Bipin Vadilal Mehta, the Supreme Court approved that the question of purchase of minority shareholdings is a domestic affair to be decided by the majority. The court also stated that in the absence of serious allegations regarding the bona fides of the proposed scheme, the courts are hesitant to interfere with the decisions of the majority, who the court believes are in the best position to know the interests of the company concerned. This puts an onus on the minority to prove that the offer is unjust and unreasonable, which is difficult for the minority shareholders.

    Conclusion

    The recent amendment is brought in to facilitate efficient and time-saving procedures to purchase the minority shares. However, there seems to be an inclination towards the benefit of the majority shareholders, at the expense of the interests of the minority shareholders. These regulations can be easily manipulated by the company management to pursue objectives that are different from enhancing shareholders’ value. Thus, there should be a system which maintains a balance between the right of majority as well as the minority shareholders.