The Corporate & Commercial Law Society Blog, HNLU

Tag: business

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

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

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

    INTRODUCTION

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

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

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

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

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

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

    REASSESSING THE KNOWLEDGE AND CONSENT TEST

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

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

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

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

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

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

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

    THE DILIGENCE TEST: A STRONGER STANDARD

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

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

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

    CONCLUSION: CHARTING THE WAY FORWARD

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

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

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

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

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

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

    INTRODUCTION

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

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

    The SSDE DESIGNATION DEBATE

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

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

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

    III. The Case for a Rebuttal Mechanism

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

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

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

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

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

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

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

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

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

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

    V. The Road Ahead: Regulation without Stifling Growth

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

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

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

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

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

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

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

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

    INTRODUCTION

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

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

    THE MODIFIED FRAMEWORK AND ITS FAULTLINES

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

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

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

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

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

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

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

        LEARNING FROM GLOBAL SSES: AVOIDING EXCLUSIONS, BUILDING INCLUSION

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

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

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

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

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

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

          CONCLUSION

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

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

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

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

          INTRODUCTION

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

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

          UNDERSTANDING ESG DEBT SECURITIES

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

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

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

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

          THE PROPOSED REGULATORY FRAMEWORK

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

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

          ACTION MEETS AMBITION: ELIMINATING PURPOSE-WASHING

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

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

          THE WAY FORWARD

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

        2. Term Sheets and their Status in India: Key Lessons from the Oyo-Zostel Dispute

          Term Sheets and their Status in India: Key Lessons from the Oyo-Zostel Dispute

          ADITYA GANDHI AND SIDDHARTH SHARMA, FOURTH- YEAR STUDENT AT NLUO, ORISSA

          INTRODUCTION

          Term Sheets are preliminary agreements executed at the first stage of complex commercial transactions between companies and prospective investors. These agreements outline the deal structure and cover the material terms and conditions of an investment. They largely serve as non-binding agreements to direct negotiations between the investors and the target. While the core commercial terms in a term sheet are intended to be non-binding, virtually all term sheets contain certain clauses like exclusivity and confidentiality, that are binding and legally enforceable. This creates an uncertainty as to whether a “non-binding” term sheet could crystallize into a set of binding rights and obligations.

          In this context, the recent Delhi High Court (‘Delhi HC’) judgement in Oravel Stays Private Limited v. Zostel Hospitality Private Limited has highlighted the question regarding the legal enforceability of term sheets. The Delhi HC quashed the arbitral award that held the term sheet signed between Oyo and Zostel to be binding in Zostel’s favour. The dispute, spanning nearly a decade, seems to have concluded with Zostel withdrawing their special leave petition before the Supreme Court in July 2025.

          In light of this judgement, the article aims to map out the impact that the Delhi HC judgement will have on the status of term sheets. The authors explore the key difference in the rationale of the aforementioned judgement and the arbitral award.

          FACTUAL BACKGROUND

          This dispute stemmed from a proposed acquisition that fell through. Oyo and Zostel had executed a term sheet in 2015, where Oyo offered to purchase certain assets from Zostel. In line with the conventional approach, the term sheet’s preamble mentioned that it was non-binding and subject to definitive agreements. The proposed acquisition did not materialise after differences emerged between the parties before definitive agreements could be signed. Zostel claimed it had completed its obligations under the term sheet and sought for the specific performance of reciprocal obligations. Oyo contended that without any definitive agreements, it had no obligations towards Zostel as the term sheet was non-binding.

          THE ARBITRAL AWARD IN FAVOUR OF TERM SHEET ENFORCEABILITY

          The Arbitral Tribunal held that the term sheet had become binding due to the conduct of the parties. It observed that Zostel’s performance of its obligations under the term sheet gave them a legitimate expectation from Oyo to fulfil reciprocal obligations. The Tribunal further observed that Oyo’s communications to Zostel indicated that the parties were acting upon the term sheet. The Tribunal further held that the transaction envisaged in the term sheet was not consummated due to Zostel’s performance of their obligations; and there was no consensus ad idem between the parties. However, the Tribunal stopped short of granting the relief of specific performance to Zostel. Instead, it held that Zostel was entitled to bring a claim for specific performance of the term sheet in the absence of any definitive agreements.

          The Tribunal’s award marked a significant deviation from the standard legal position on the enforceability of term sheets. This approach by the Tribunal considered the actual intent and performance of the parties over mere contractual terminology. To put things into perspective, Oyo had acquired control over the business assets of Zostel after singing the term sheet. Further, the Tribunal observed that Zostel had satisfied all the conditions laid out in the ‘closing’ clause of the Term Sheet; and that the closing of the transaction (Oyo acquiring Zostel) was the only outcome after compliance with the stipulated conditions. Following this reasoning, the Tribunal held that the Term Sheet had become a binding document due to the actions of the parties.

          THE DELHI HC RULING

          The Delhi HC set aside the arbitral award rendered in favour of Zostel for being inconsistent with the public policy of India. The Court observed that the conclusions drawn in the award were at odds with the express language of the term sheet, wherein it stated that it is non-binding except for five specifically delineated clauses. It noted that had it been the intention of the parties that all the provisions of the term sheet be made binding, there would have been no occasion to incorporate an express stipulation to the contrary.

          The Court placed reliance on the Karnataka High Court judgement in Azeem Infinite Dwelling v. Patel Engineering Ltd. (‘Azeem Infinite’), which held that term sheets cannot be considered as binding agreements if they require the execution of definite agreements. It underscored that the term sheet was a preliminary document, the binding nature of which was subject to the execution of definitive agreements pertaining to its subject matter. It further observed that the arbitral tribunal did not hold that any implied term must be read into the term sheet to render it binding; rather, it anchored its finding of the binding nature of the term sheet on the conduct of the parties.

          The court’s view supported the strict interpretation of contractual terms, holding that the intention of the parties must be ascertained from the words used and not from the subsequent conduct of the parties. The Court also remarked that the award itself acknowledged the absence of definitive agreements, which was attributed to unresolved issues with a minority investor. There was no consensus ad idem between the parties, since the definitive agreements as envisaged under the term sheet were never executed.

          The Delhi HC also emphasised on the nature of a term sheet as a determinable contract; i.e. a contract whose outcome can be decided unilaterally by the ‘sweet will’ of one party without assigning any reasons for the same. This observation of term sheets being determinable contracts further weakens the case for their enforceability, emphasising that they are usually non-binding unless explicitly mentioned otherwise.

          INTERPRETATION UNDER CONTRACT LAW

          For any agreement to constitute a binding contract, the intention of the parties to create legally binding relations becomes the primary consideration. Indian courts have inferred the intention of parties not just through express written terms of the agreement, but also through their conduct. The Supreme Court (‘SC’) in Transmission Corpn. of Andhra Pradesh Ltd. v. GMR Vemagiri Power Generation Ltd. held that the conduct of parties, along with the surrounding facts, is relevant in determining if a binding agreement exists in the absence of express written terms. In this dispute, the Tribunal went a step further by holding the term sheet to be binding due to the conduct of parties, despite the preamble clearly stating otherwise.

          Though the Delhi HC found the Tribunal’s reliance on conduct to be precarious, it stopped short of going into the merits of the Award. The SC’s judgement in Bank of India v. K Mohandas, where it observed that contracts must be interpreted from their text, and not subsequent conduct of parties, offers support to the Delhi HC’s concerns. There is a clear conflict with regards to whether subsequent conduct should be considered to decide whether an agreement is binding. The precedent in Azeem Infinite supports the premise that term sheets requiring execution of definitive agreements are not binding. That said , there isn’t any definitive precedent on this issue. As a result, there still remains a sufficient legal basis for term sheets to be held binding in future decisions.

          Ultimately, the conflict between strict textual interpretation against reliance on subsequent conduct of the parties to infer a binding contract creates uncertainty for parties. The inconsistent precedents on this issue leave a significant ambiguity as to if, and when a term sheet becomes binding.

          WAY FORWARD

          Term sheets show the intention of parties to negotiate and subsequently reach an agreement. They do not represent consensus ad idem between the parties. The Delhi HC’s judgement is likely to become the binding precedent on this issue. However, the Award, backed by previous jurisprudence and no settled position, shows that there still is a possibility of courts holding term sheets to be binding in the future. This dispute has emphasised on the importance of term sheets to be well drafted and watertight to safeguard the interests of the parties.

          The buyers must  ensure that they are not held liable for breach of contract if a transaction falls through despite the term sheet being signed. Adding a final confirmation of closing from the buyer to the Closing clause can prevent the buyer from any liability. This adds an extra safeguard, ensuring that the buyer is not held implicitly responsible for breach of contract, especially when a term sheet is not even a binding agreement. A well-drafted termination clause can permit the buyer to terminate if the due diligence findings are unsatisfactory. At the same time, it can also allow the seller to withdraw if they believe the deal won’t conclude. The sellers need to avoid a situation where if a transaction falls through, their performance of obligations under the term sheet should not be rendered meaningless. To prevent this, sellers can seek indemnification in case the transaction does not materialize. This would protect them from the losses incurred from carrying out their obligations under the term sheet.

          Apart from the party-led solutions, the courts must also foster a consistent approach when deciding the enforceability of term sheets and other preliminary agreements. The courts should apply a two-tier test to harmonise the conflict between strict textual and contextual interpretations. First, the courts must consider the explicit language in the agreement. If the language designates the agreement as non-binding, a strong presumption against enforceability must be taken. Second, for this presumption to be rebutted, the party seeking enforceability must demonstrate that the parties’ subsequent conduct is overwhelmingly significant. Such conduct must show a clear intention to supersede, and mutually waive the non-binding clause and create a final, binding deal.

          Conclusion

          The Delhi High Court’s judgement affirms that term sheets, unless categorically stated to be binding, serve as instruments of intent that do not create binding legal obligations. Although conduct like transfer of assets and data sharing may indicate commercial intention of the parties, it does not result in creation of enforceable rights. For commercial intention to attain legal finality, terms of the contract must be express and not implied. This underscores the importance of clear and precise drafting of preliminary agreements where language disclaiming enforceability should be explicit and reiterated throughout. The Delhi HC’s verdict is a key reference point for contractual interpretation of not just term sheets, but all preliminary agreements in commercial disputes. This case also serves valuable lessons to buyers and sellers in drafting term sheets while entering into corporate transactions.

        3. Misplaced Reliance on CPC in Arbitration: From the lens of Ravi Ranjan Developers vs Aditya Kumar Chatterjee

          Misplaced Reliance on CPC in Arbitration: From the lens of Ravi Ranjan Developers vs Aditya Kumar Chatterjee

          BY SHOUBHIT DAFTAUR AND AROHI MALPANI, THIRD – YEAR STUDENT AT MNLU, MUMBAI

          INTRODUCTION

          The interplay between domestic arbitration and the Code of Civil Procedure, 1908 (‘CPC’) has long been fraught with tension. While certain CPC principles, such as the doctrine of res judicata under Section 11, have constructively contributed to arbitral practice by ensuring finality in dispute resolution, the indiscriminate imposition of procedural rules designed for civil litigation into arbitration has often been erroneous and misplaced. Arbitration, by its very design, prioritises party autonomy, procedural flexibility, and efficiency, and these objectives are frequently compromised when courts rely too heavily on civil procedure doctrines.

          The Supreme Court’s decision in Ravi Ranjan Developers Pvt. Ltd. v. Aditya Kumar Chatterjee (‘Ravi Ranjan’) exemplifies this difficulty. In the case, despite the arbitration agreement specifying Kolkata as the seat, the Respondent approached the Muzaffarpur District Court post-termination and later filed a petition under Section 11 before the Calcutta High Court. Ravi Ranjan Developers challenged the Court’s jurisdiction, citing a lack of cause of action, while the Respondent argued jurisdiction based on the arbitration clause. However, the Supreme Court problematically held that an arbitration agreement cannot confer jurisdiction on a court that inherently lacks it, applying a principle rooted in the CPC that negates autonomy and efficiency.

          This reasoning represents a significant departure from India’s recent pro-arbitration jurisprudence. Importing CPC-based jurisdictional tests into arbitration alters the centrality of party autonomy and threatens to dilute the efficiency and autonomy that arbitration seeks to achieve. Against this backdrop, this blog critiques the misplaced reliance that courts often place on CPC in arbitration and advocates for a clearer demarcation between the two frameworks, so as to preserve the foundations on which the arbitral process rests.

          THE RAVI RANJAN DEVELOPERS JUDGEMENT: A DEPARTURE FROM EFFICIENCY AND AUTONOMY

          The division bench in Ravi Ranjan Developers held that an arbitration agreement cannot confer jurisdiction upon a court that inherently lacks it. The crux of the controversy lies in the fact that this interpretation departs from the Supreme Court’s precedents as well as party autonomy and procedural efficiency, the pillars of arbitration. Party autonomy permits parties to designate either the seat or the venue of arbitration. In the BALCO case, the Supreme Court held that the term subject-matter of the arbitration under Section 2(1)(e) of the Act refers to the juridical seat, not the location of the cause of action or subject-matter of the suit. Once a seat is chosen under Section 20, the courts at that seat alone have supervisory jurisdiction. The Court has further ruled that parties may select a neutral seat of arbitration, and that a narrow construction of Section 20 would render this autonomy nugatory.    

          Building on this principle, BGS SOMA JV v. NHPC (Ltd..) clarified that when a venue is expressly designated and the arbitration proceedings are anchored to it, with no contrary indications,      it must be treated as the juridical seat. Applying this, the reference to Kolkata satisfies all conditions, making it the legal seat and conferring exclusive jurisdiction on its courts. Despite this clarity, the court erred in concluding that an agreement cannot confer jurisdiction on a place that otherwise lacks it, overlooking that such autonomy is not only consistent in the judicial precedents, but also it forms a statutory right.

          Fair, speedy, and inexpensive resolution is the essence of arbitration, but in Ravi Ranjan Developers, the Supreme Court undermined this principle by disregarding the parties’ express choice of Kolkata as the juridical seat. By reverting to a cause-of-action-based analysis under the CPC, the Court imposed delay, expense, and uncertainty, eroding the efficiency and autonomy that arbitration is meant to safeguard. This reasoning marks a troubling departure from India’s pro-arbitration jurisprudence, threatening to dilute party autonomy, compromise finality, and undo the progress made in fostering arbitration as an alternative to litigation

          MISPLACED RELIANCE ON THE CODE OF CIVIL PROCEDURE

          The Statement of Objects and Reasons of the Arbitration and Conciliation Bill, 1995, makes it clear that the Act was intended to comprehensively govern arbitration, reduce court interference, and simplify the enforcement of arbitral awards. This intention is further firmly set out in Section 5 of the Act. The meaning of this provision is straightforward- laws like the CPC, are not meant to apply to arbitration proceedings unless the Act itself refers to them. The Act is a complete and self-sustained code, and any procedure to be followed must arise from the Act itself rather than external sources.

          Indian courts have on several occasions supported this understanding. One such instance was the Court’s ruling in Essar House Pvt. Ltd. v. Arcellor Mittal Nippon Steel India Ltd. (‘     Essar’     ). The Supreme Court held that while courts must keep in mind the basic principles of CPC, they are not bound to apply every procedural requirement strictly when deciding an application for interim relief under Section 9 of the Act. The Court, therefore, clarified that procedural technicalities under the CPC should not prevent courts from doing justice, upholding the separation between CPC rules and dispute resolution via arbitration.

          However, Sanghi Industries Ltd. v. Ravin Cables Ltd. appears to narrow the scope of the court’s powers under Section 9 by requiring that the conditions under Order XXXVIII Rule 5 of CPC be met before interim relief can be granted. This decision seems to go against the broader and more flexible interpretation adopted in Essar, and arguably compromises the independent and self-contained nature of the Act by drawing it back to the procedural framework of CPC.

          A similar borrowing can be seen in the debate around impleadment. The power to implead parties stems from Order I Rule 10 of the CPC. While this principle is well established in civil and commercial disputes, its extension into arbitration through reliance on the Group of Companies doctrine in Cox and Kings II in the absence of a clear statutory provision raises concerns. Particularly criticised for weakening the consensual foundation of arbitration by substituting implied consent for the express consent mandated under Section 7 of the Act, this inclusion has nonetheless found some support. What is clear, however, is that a procedural device rooted in the CPC has been read into a framework intended to be autonomous and self-contained. It is against this background of contested application and creeping CPC influence that the reasoning in Ravi Ranjan Developers must be understood.

          Parties cannot be compelled to enter arbitration, and by the same logic, cannot be made to follow procedural laws they did not agree to. In Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd., the C     ourt held that parties must give their consent before being referred to arbitration under Section 89 of CPC. A clear example of non-application of CPC principles in practice can be found in Emkay Global Financial Services Ltd. v. Girdhar Sondhi, where the Supreme Court reaffirmed that, unlike CPC, arbitration treats the concept of seat as central. It held that the seat chosen by the parties acts as a neutral location for the arbitration, and even if no part of the cause of action arises there, the seat alone confers exclusive jurisdiction on the courts of that place to oversee the arbitral process. This position affirms that once the seat is determined, for instance, Mumbai, the Mumbai courts alone have the authority to regulate the proceedings arising from that agreement, regardless of any connection to the cause of action. Thus, this clarity leaves no room for importing jurisdictional doctrines from the CPC and places the control of arbitration squarely in the hands of the parties. 

          As established, the Court in Ravi Ranjan Developers runs counter to the legislative scheme of the Act, eroding the core tenets that distinguish arbitration from traditional litigation. If India is to affirm its commitment to an arbitration-friendly regime, it must resist the temptation to fall back on outdated procedural frameworks. Upholding party autonomy and ensuring the non-applicability of CPC-based tests is not merely desirable; it is essential.

          CONCLUSION AND WAY FORWARD: THE PATH TO A TRULY PRO-ARBITRATION INDIA

          Party autonomy and procedural efficiency in international arbitration are not loose ideals but have been firmly established in the UNCITRAL Model Law and widely followed in both common law and civil law countries. Leading arbitral institutions such as the International Chamber of Commerce and London Court of International Arbitration structure their procedural frameworks around these principles, enabling parties to shape proceedings on their terms while ensuring the expeditious resolution of disputes. This reflects a trend across many arbitration-friendly countries that value clarity in commercial disputes, which is diluted by antithetical reliance on CPC principles. If India wants to be seen as a reliable arbitration hub, these principles cannot be selectively applied. 

          The Supreme Court’s reasoning in Ravi Ranjan brings forth the perils of conflating arbitration with civil procedure. The CPC has been designed to regulate adversarial litigation in courts and is inherently different to arbitration. Importing CPC principles in arbitration dilutes the very principles that make arbitration a preferred method for dispute resolution. When courts superimpose civil procedural frameworks upon arbitral proceedings, they risk collapsing arbitration back into the litigation model it was intended to replace. India has made serious efforts to promote itself as a pro-arbitration jurisdiction. Landmark rulings like BALCO and BGS SOMA JV v. NHPC Ltd. have moved the law closer to international norms. However, when judgments like Ravi Ranjan Developers are passed, it slows down progress and creates confusion.

          The takeaway is clear- for India to maintain credibility as a pro-arbitration regime, the judiciary must resist the tendency to borrow from the CPC, and instead reaffirm arbitration as a distinct legal framework governed by its own statute and international principles. Only by safeguarding this separation can India strengthen its arbitration ecosystem and align itself with global best practices. By reviving a cause-of-action test rooted in the CPC, the Supreme Court in Ravi Ranjan Developers didn’t just misread party autonomy, it set Indian arbitration back by reinforcing judicial overreach over consensual dispute resolution. Unless courts resist the temptation to read CPC into arbitration, India risks reducing arbitration to nothing more than litigation in disguise.

        4. 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.

        5. 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. 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.

              2. 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.