Tag: news

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

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

INTRODUCTION

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

JUDICIAL PRONOUNCEMENTS

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

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

AMAZON V. FUTURE RETAIL

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

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

LEGAL ANALYSIS OF THE RULING

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

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

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

THE DRAFT ARBITRATION AND CONCILIATION (AMENDMENT) BILL, 2024

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

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

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

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

IMPLICATIONS FOR ARBITRATION LAW IN INDIA

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

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

CONCLUSION

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

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

September 1, 2025

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

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

Introduction

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

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

Key Amendments in Rights Issue

I. No more fast track distinction

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

II. SEBI Drops DLoF Requirement

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

III. Disclosure Requirements under LoF

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

IV. Removal of Lead Managers

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

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

V. Allotment to Specific Investors

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

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

VI. Revised timeline for Rights Issues

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

The new timeline has been explained below:

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

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

Rights Issue Amendments 2025: What SEBI Forgot to Fix?

I. Erosion of Shareholder Democracy

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

II. Circumventing Takeover Code Intent

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

III. Unmasking Preferential Allotment under the Veil of Rights Issue

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

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

IV. Mandatory Lock-in Period for Specific Investors

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

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

Conclusion

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

August 7, 2025

In Dissent Lies the Truth: A Critical Look at the Court’s Power to Modify an Arbitral Award
BY ANMOL TYAGI, THIRD-YEAR STUDENT AT RGNUL, PATIALA.

INTRODUCTION

With a 4:1 majority decision in Gayatri Balasamy vs. M/S ISG Novasoft Technologies Ltd. (2025), (‘Balasamy’) the Supreme Court fundamentally altered India’s arbitration landscape by recognizing courts’ power to modify arbitral awards under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 (‘the Act’) to modify an arbitral award. This watershed judgment resolves a decade-long jurisprudential conflict sparked by the Court’s 2021 M. Hakeem ruling, which categorically denied modification powers. By permitting limited judicial corrections from computational errors to compensation adjustments, the majority attempts to balance arbitration’s finality with the practical need for efficient justice. However, Justice K.V. Viswanathan’s dissent warns that this “judicial innovation” risks reviving the very interventionist culture the 1996 Act sought to eradicate. This article, firstly, delves into the controversy and analyses the ratio in its pragmatic context; secondly, it analyses its implications and advocates for how what should have been a unanimous verdict is penned down as a dissenting opinion; and lastly, it tries to explore a way forward.

THE MAJORITY ON THE POWER TO MODIFY

The Apex Court, through judicial precedents, proffered minimal judicial intervention in arbitral awards, not extending to correction of errors of fact, reconsideration of costs, or engagement in the review of the arbitral awards.

For modification of awards, the court held that a modification does not necessarily entail the examination of the merits of the case, thereby allowing limited power of modification within the confines of Section 34 without a merit-based evaluation under certain circumstances including; where severing invalid from the valid, correcting clerical, computational and typographical error, certain post award interest and under Article 142 of the Constitution of India, where it is required and necessary to end litigation. Progressively, such a decision was held to prevent the hardship of re-filing an arbitration and a manifestation of the objects of the Act.

To that end, the majority in Balasamy invoked the maxim omne majus continet in se minus (“the greater includes the lesser”) to justify modification as incidental to the power to set aside awards. This reasoning hinges on Section 34(2)(a)(iv), which permits partial annulment if an award exceeds the scope of submission. By framing severability as statutory intent, the Court positioned modification as a natural extension of existing powers rather than a novel judicial innovation.

For severability of awards, the court held that the greater power to set aside an award under Section 34 also includes the lesser power to sever the invalid portion of an award from the valid portion under Section 34(2)(a)(iv) of the Act, whenever they are legally and practically separable. The court differentiated the power conferred under section 34(4) from the limited power to modify on the ground of flexibility. The court upheld the idea of remittal under Section 34(4) as a remedial mechanism enabling the arbitral tribunal to correct curable defects in the award upon court adjournment. On the other hand, modification involves the court directly changing the award, which is limited and requires certainty.

ANALYSIS OF THE MAJORITY OPINION

While the court may have tried to weave the principle of equity and justice without offending the judicial fabric of Section 34 and the legislative intent of the Act, certain shortcomings are still exposed. Justice K.V. Vishwanathan’s dissent helps explore these shortcomings.

i) Theoretical tensions: Party Autonomy vs. Judicial Paternalism

Justice K.V. Vishwanathan’s dissent concurs with the idea that the power to modify subsumes the power to set aside under section 34 of the Act is fallacious, since the power to set aside an arbitral award does not inherently include the power to modify it because the two functions serve distinct purposes within the arbitration framework. Similar was the rationale of the court in M. Hakeem. Setting aside an award under Section 34 of the Arbitration and Conciliation Act, 1996, is a corrective measure that allows courts to annul an award if it violates fundamental legal principles, such as public policy or procedural fairness. In contrast, modification implies an active intervention where the court alters the substance of the award, which contradicts the principle of minimal judicial interference in arbitration, as in the Mcdermott International Case.

The proposition of limited modification of an award in the interest of expeditious dispute resolution may seem attractive at first instance, especially for commercial arbitrations involving public law, where the courts may modify the award to enhance compensation for the land acquisition. However, it points to vital concerns regarding its applicability by the courts in general and arguably, the power of remand under section 34(4), though different from the modification powers, acts as a safety valve and serves a similar purpose as it arrays wide powers upon the arbitral tribunal to modify an arbitral award for an effective enforceability.

Theoretically, arbitration is a voluntary act of dispute resolution through a third party, different from courts and its legal procedures. While the judgment provides for modification powers to remove the ‘invalid’ from the ‘valid’ and enforce complete justice under Article 142 of the Constitution, it not only raises concerns as to its applicability and limitation in determining what constitutes ‘invalid’ or complete justice, but also strikes at the core of arbitration. It does so by contradicting the fundamental characteristic and statutory intent of arbitration, i.e., the finality of the award through minimal judicial intervention, as was held in Re: Interplay Between Arbitration Agreements Under the Arbitration and Conciliation Act, 1996, and the Indian Stamp Act, 1899.

Justice K.V. Viswanathan’s dissent highlights a critical tension: the 1996 Act deliberately omitted modification powers present in its predecessor, the 1940 Arbitration Act. The legislature’s conscious choice to limit courts to setting aside or remitting awards reflects a policy decision to prioritize finality over granular corrections. Noting that the Parliament intentionally omitted the ‘powers to modify’ from the repealed Arbitration Act, 1940, the majority’s interpretation risks judicial overreach by reading into the Act what the Parliament excluded, a point underscored by the dissent’s warning that using Article 142 to modify awards subverts legislative authority.

To that end, arbitration’s legitimacy stems from its contractual nature. By allowing courts to “improve” awards, Balasamy subtly shifts arbitration from a party-driven process to one subject to judicial paternalism. This contravenes the kompetenz-kompetenz principle, which reserves jurisdictional decisions for tribunals. Notably, the UNCITRAL Model Law emphasizes tribunal autonomy in rectifying awards (Article 33), a responsibility now partially appropriated by Indian courts

ii. Impact on Arbitral decision making

The threat of post-hoc judicial adjustments may incentivize arbitrators to over-explain conclusions or avoid innovative remedies. For instance, tribunals awarding compensation in land acquisition cases might default to conservative valuations to pre-empt judicial reduction. Conversely, the power to correct clerical errors (e.g., miscalculated interest rates) could save parties from unnecessary remands.

iii. Enforcement Challenges

While the Court envisions modification as a time-saving measure, practical realities suggest otherwise. District courts lacking commercial arbitration expertise may struggle to apply the “severability” test, leading to inconsistent rulings and appeals. The Madras High Court’s conflicting orders in Balasamy (first increasing compensation, then slashing it) illustrate how modification powers can prolong litigation.

Arguably, with the possibility of modification, the judgment practically creates uncertainty and opens Pandora’s box, thereby exposing every arbitration being challenged under some pretext or other. The effect of the judgment might extend to various PSUs, companies, and individuals opting out of arbitration, fearing the non-finality of the award.

The majority’s reliance on Article 142 to justify modifications creates a constitutional paradox.

While the provision gives the Supreme Court the power to do “complete justice,” applying it to an arbitral mechanism of private dispute settlement blurs the line between public law exceptionalism and the enforcement of private contracts, which arguably would render Article 142 a “universal fix” for disenchanted arbitral awards.

For land acquisition cases and corporate disputes both, this poses a paradox: courts acquire efficiency tools at the risk of sacrificing arbitration’s fundamental promise of expert-driven finality. As Justice Viswanathan warns, the distinction between “severance” and appellate review remains precariously thin. With ₹1.3 trillion in ongoing arbitrations at stake, Balasamy’s real test lies in whether lower courts use this power with the “great caution” prescribed inadvertently to revive India’s reputation for boundless arbitration litigation

COMPARITIVE INTERNATIONAL PERSPECTIVES

Leading arbitration hubs strictly reserve judicial modification. Singapore’s International Arbitration Act only allows setting aside on grounds of procedure and not on a substantive basis. The UK Arbitration Act 1996 can correct only clerical errors or clarifications (Section 57), whereas Hong Kong’s 2024 rules authorize tribunals-not courts-to correct awards. India’s new “limited modification” system varies by allowing courts to modify compensation values and interest rates, which amounts to re-introducing appellate-style review.

The UNCITRAL Model Law that influenced the Act limits courts to setting aside awards (Article 34). More than 30 Model Law jurisdictions, such as Germany and Canada, allow modifications by way of tailormade legislative provisions. The Balasamy judgment establishes a hybrid model where there is judicial modification without an express statutory authority, raising concerns in enforcement under the New York Convention. As Gary Born observes, effective jurisdictions identify procedural predictability as a core value threatened by unfettered judicial discretion.

THE WAY FORWARD: ENSURING EQUILIBRIUM

The decision permitting limited alteration of the arbitral award represents a paradigm shift in the jurisprudence. The decision demonstrates a genuine effort to balance efficiency with fairness. However, its success depends on responsible judicial application. In the absence of strict adherence to the “limited circumstances” paradigm, India stands the risk of undermining arbitration’s essential strengths: speed, finality, and autonomy. As Justice Viswanathan warned, the distinction between correction and appellate review remains hair-thin. What is relevant here is how the courts apply the new interpretation to amend arbitral awards. Objectively, the courts have to be careful not to exercise the powers of amendment in exceptional situations to that extent, refraining from any impact on the finality of the arbitral award as well as the faith of the citizenry and other institutions within it.

To avoid abuse, parliament has to enact modification grounds by amending Section 34, in line with Section 57 of the UK Arbitration Act, specifically allowing for corrections confined to reasons specified, promoting clarity and accountability. The Supreme Court would need to direct guidelines to the lower courts for arbitral award modification only when the errors are patent and indisputable, refrain from re-assessing evidence or re-iterating legal principles, and give preference to remission to tribunals under Section 34(4) where possible.
July 26, 2025
Digital Competition Bill: Complementing or Competing with the Competition Act?

BY Winnie Bhat, SECOND- YEAR STUDENT AT NALSAR, HYDERABAD

Introduction

Data is the oil that fuels the engine of the digital world. The economic value and competitive significance of data accumulation for companies in the digital age cannot be overstated. It is in recognition of this synergy between competition and data privacy laws, that the Competition Commission of India (‘CCI’) has imposed a fine of Rs 213 crore on Meta, the parent company of WhatsApp, for abusing its dominant market position under Section 4 of the Competition Act, 2002 (‘CA’).

As digital markets evolve, so too must the legal frameworks that regulate them. This article considers whether the proposed Digital Competition Bill, 2024 (‘DCB’) enhances the current competition regime or risks undermining it through regulatory overlap. In doing so, it assesses how traditional competition tools have been stretched to meet new challenges and whether a shift toward an ex-ante model is necessary and prudent.

Reliance on Competition Act, 2002

In the absence of a dedicated digital competition framework, Indian regulators have increasingly relied on the CA to address issues of market concentration, data-driven dominance, and unfair terms imposed by Big Tech firms. One of the clearest examples of this reliance is the CCI’s scrutiny of WhatsApp’s 2021 privacy policy. In the present case, CCI found that WhatsApp’s 2021 privacy policy which mandated sharing of users’ data with WhatsApp and thereafter its subsequent sharing with Facebook vitiated the ‘free’, ‘optional’ and ‘well-informed’ consent of users as WhatsApp’s dominant position in the market coupled with network and tipping effects effectively left users with no real or practical choice but to accept its unfair terms.

This contrasts with the CCI’s previous stances in Vinod Kumar Gupta v WhatsApp and Harshita Chawla v WhatsApp & Facebook, where it declined to intervene because data privacy violation did not impact competition. However, in a slew of progressive developments, a market study by CCI has now recognized privacy as a non-price competition factor and the Supreme Court’s nod in 2022 for CCI to continue investigation in the Meta-WhatsApp mater has effectively granted CCI the jurisdiction to deal with issues relating to privacy that have an adverse effect on competition.

The facts of this case very closely resemble that of Bundeskartellamt v Facebook Inc.,2019 wherein the German competition regulator had flagged Facebook for imposing one sided terms about tracking users’ activity in the social networking market where consent was reduced to a mere formality. Both cases illustrate how dominant digital platforms exploit their market power to impose unfair terms on users, effectively bypassing meaningful consent. This pattern reflects a deeper structural issue—where existing competition law, focused on ex-post remedies, is used to address the unique challenges of digital markets. It is precisely this regulatory gap that the proposed DCB seeks to fill through its ex-ante approach.

Abuse of dominant positions by Big Tech companies in the digital era occurs in more subtle ways as the price of these services is paid for with users’ personal data. A unilateral modification in the data privacy policy leaves users vulnerable as they have little bargaining power against established corporate behemoths. These companies collect huge chunks of “Big data” by taking advantage of their dominance in one relevant market (in the present case, the instant messaging market) and use them in other relevant markets (social networking, personalized advertising, etc.) which gives them a significant edge against their competitors. This creates entry barriers and a disproportionate share of the market goes to a few large corporations resulting in monopoly-like conditions.

To deal with such issues, competition law first identifies a corporation’s dominant position in the market. Once this is established, it investigates the factors that lead to the abuse of this position. Here, the factor is collection of data which invades the privacy of users without their free and informed consent. The CCI, in its ruling against Meta, held WhatsApp to be in violation of Sections 4(2)(a)(i), 4(2)(c) and 4(2)(e) of the CA, dealing with imposition of unfair conditions in purchase of service, engagement in practices resulting in denial of market access and use of dominant position in one market to secure its market position in another relevant market respectively.

The Digital Competition Bill, 2024

The proposed Digital Competition Bill, 2024 when enacted, would signify a landmark shift in how India approaches competition regulation in digital markets. Unlike the CA, which operates on an ex-post basis; acting upon violations after analysing their effects, the DCB introduces a proactive approach that seeks to regulate the conduct of Systemically Significant Digital Enterprises (‘SSDEs’) through an ex-ante framework. SSDEs are large digital enterprises that enjoy a position of entrenched market power and serve as critical intermediaries between businesses and users. The DCB aims to curb their ability to engage in self-preferencing, data misuse, and other exclusionary practices before harm occurs, rather than waiting for evidence of anti-competitive outcomes. While this progressive approach aims to address the unique challenges posed by the dominance of digital giants, it also raises critical concerns about legislative overlap, disproportionate penalties on corporations and potential legal uncertainty.

A key issue with the coexistence of the DCB and the CA is the overlap in their regulatory scopes. The CA, particularly through Section 4, targets abuse of dominance through a detailed effects-based inquiry. As evidenced in the CCI’s ruling against WhatsApp, a compromise or breach of data privacy of the users will not be tolerated and has the potential to be considered as a means of abuse of an enterprise’s dominant position. By contrast, the DCB imposes predetermined obligations on SSDEs, which are deemed to have significant market power. Section 12 of the DCB prescribes certain limitations on the use of personal data of the users of SSDEs, whereas Section 16 grants the CCI the power to inquire into non-compliance if a prima facie case is made out, regardless of the effects such non-compliance may have on competition.

Concerns about dual enforcement

This duality creates an ambiguity. For instance, should a prima facie case involving data misuse by an SSDE, which unfairly elevates its market position, be assessed under the CA’s abuse of dominance provisions, or should it fall exclusively within the purview of the DCB? The risk of dual penalties further compounds these challenges. Section 28 (1) of the DCB empowers the CCI to impose significant fines (not exceeding 10% of its global turnover) on SSDEs for non-compliance with its obligations. However, under Section 48 of the CA, these entities are also subject to penalties for engaging in anti-competitive behaviour that may stem from the same act of data misuse.

Although, the protection against double jeopardy only applies to criminal cases, the spirit of double jeopardy is clearly visible in this case, wherein businesses could face disproportionate punishments for overlapping offenses, raising concerns about fairness and proportionality. This mirrors similar concerns in the European Union, where the Digital Markets Act (‘DMA’) (India’s DCB is modelled on EU’s DMA) and Articles 101 and 102 of the Treaty on the Functioning of the European Union (traditional EU competition law provisions) operate in tandem. However, EU’s DMA grants the European Commission overriding powers over the nations’ competition regulating authorities, which brings unique challenges and is not applicable in India since the regulating authority (CCI) oversees implementation of both the CA and DCB. This vests the CCI with considerable discretion in deciding which act takes precedence and their spheres of regulation. The MCA report leaves potential overlaps in proceedings to be resolved by the CCI on an ad hoc basis. Therefore, statutory clarity on the application of the DCB and the CA are essential to avoid inconsistency in outcomes.

The Way Forward

To address these challenges, India must focus on creating a harmonious regulatory framework. Moreover, a Digital Markets Coordination Council could be established to harmonize enforcement actions, share data, and resolve jurisdictional disputes. Such a body could include representatives from the CCI, the Ministry of Electronics and Information Technology (MeitY), and independent technical experts to ensure holistic oversight.

Proportional penalties are another area for reform. Lawmakers should ensure that corporations do not have to bear the burden of being punished in two different ways for the same offence. Introducing a standardised penalty framework across the DCB and CA would prevent over-penalisation and ensure fairness.

Since the DCB has not been enacted yet, India can pre-empt these concerns of overlap and ensure that the CA and DCB complement rather than compete with each other. The exact scope of a solution to these concerns is beyond the scope of this article, but by learning from the EU’s experiences and adopting a coordinated, balanced approach, India can create a regulatory framework that promotes innovation, safeguards competition, and protects consumers’ rights and interests in the digital age.

July 24, 2025
A New Chapter in India’s Insolvency Law: What the 2025 Amendments Mean for Stakeholders
BY Suprava Sahu, Fourth-Year student at gnlu, Gandhinagar

INTRODUCTION

The Insolvency and Bankruptcy Code, 2016 (‘IBC’) marked a shift in India’s approach to the corporate resolution process. By changing a fragmented framework into a unified, creditor-centric process, IBC aimed to expedite the resolution of non-performing assets and enhance the ease of doing business. While studies have highlighted that IBC succeeded in improving recovery rates and reducing the timelines, structural issues began to surface as the code matured. Delays in the resolution, underutilization of viable assets, and limited investor participation called for reform.

Recognizing this need, the Insolvency and Bankruptcy Board of India (‘IBBI’) introduced the IBBI ((Insolvency Resolution Process for Corporate Persons) Fourth Amendment Regulations 2025 which aim to address the inefficiencies and enhance the effectiveness of the Corporate Insolvency Resolution Process (‘CIRP’). Key features of this amendment include enabling part-wise resolution of corporate debtors, harmonizing payment timelines for dissenting creditors, and mandating the presentation of all resolution plans to the Committee of Creditors (‘CoC’).

The piece unpacks whether the regulatory changes align with the IBC and its intended goals or are just a mere paper over the institutional cracks.

DIAGNOSING THE IBC’S STRUCTURE

IBC rests on three foundational pillars: maximizing the value of assets, ensuring a time-bound insolvency process, and balancing the interests of all stakeholders. These principles are affirmed as the foundational principle behind the IBC by cases like Essar Steel India Ltd. v. Satish Kumar Gupta.

Yet these principles exist in tension. For example, despite the 190–270-day timeline for the CIRP, the IBBI’s quarterly report shows that more than 60% of the CIRPs have exceeded the timelines, which leads to diminished asset value, deters strategic investors, and disrupts the objective of value maximization.

The framework also gives substantial control to financial creditors via the CoC, with operational creditors having a very limited say. This structure offers swift decision making it has attracted criticism for privileging institutional lenders at the cost of small creditors. The introduction of staged payments for dissenting creditors and asset-specific resolution under the new regulations can be seen as a regulatory response to this imbalance.

The IBC initially favoured a rigid process to instill discipline in resolution, but a one-size-fits-all model may stifle innovation. Scholars have argued that insolvency systems need to adapt to varied market structures and varied market structures especially in emerging economies. A key question remains: can a rigid, rule-bound structure effectively adapt to the complexities of a diverse insolvency system? The amendments must be understood not as isolated tweaks but as strategic interventions to reconcile the tensions inbuilt in the IBC’s design.

DISSECTING THE KEY AMENDMENTS

The amendment introduces four main changes each targeting to address long-standing inefficiencies and gaps in the stakeholder engagement.
- Part-wise Resolution of Corporate Debtors
The amended regulations now allow the Resolution Professionals (‘RPs’)to invite resolution plans for specific business segments of the corporate debtor in addition to the entire company. This creates a dual-track mechanism that offers unprecedented flexibility to the CoC and RPs. It is grounded on the fact that many insolvency cases involve heterogeneous assets, some of which are viable, some of which are distressed. Under the earlier regime, focusing on a holistic resolution often led to delayed proceedings and discouraged potential resolution applicants who were only interested in certain businesses. A similar model has been employed in jurisdictions like UK, where the pre-pack administrative sales and partial business transfers allow administrators to sell parts of their enterprise to recover the maximum value. Studies have advocated for asset-wise flexibility as a strategy to reduce liquidation rates and protect value.

However, this reform risks of cherry picking, where bidders might try to choose profitable units while leaving liabilities and nonperforming divisions. This can potentially undermine the equitable treatment of creditors and complicate the valuation standard and fair assessment. This concern was evident in cases like Jet Airways where bidders sought profitable slots while avoiding liabilities. Jurisdictions like the UK mitigate this through independent scrutiny in pre-pack sales, a safeguard which India could adapt.
- Harmonized Payment Timelines for Dissenting Creditors
In cases like Jaypee Kensington and Essar Steel, the Supreme Court upheld that dissenting creditors must receive at least the liquidation value but left ambiguity on payment. Previously, the treatment of dissenting creditors lacked clarity, especially around the payment timelines. The amendment resolves this ambiguity by laying down a clear rule. . By ensuring that dissenters are not disadvantaged for opposing the majority, it reinforces a sense of procedural justice and also encourages more critical scrutiny of resolution plans within the CoC. It seeks to balance the majority rule with individual creditor rights, thereby enhancing the quality of proceedings.

But, this provision could also complicate cash flow planning for resolution applicants and disincentivize performance-based payouts. Early, mandatory payouts to dissenters could affect plan viability and reduce the flexibility needed for restructuring. There is also a risk that dissenters may use their position to strategically extract early payments, leading to non-cooperation or tactical dissent – an issue which the amendment has left unaddressed.

The balancing act between fairness and functionality can be seen as a reform which not just enhances inclusivity but also introduces a new operational pressures.
- Enhanced role for interim finance providers
Another noteworthy intervention is that the CoC may now direct RPs to invite interim finance providers to attend CoC meetings as observers. These entities will not have voting rights but their presence is expected to improve the informational symmetry within the decision-making process. Finance providers have more risk when they are lending to distressed entities. Allowing them to observe deliberation offers more visibility into how their funds are being used and enhances lender confidence. From a stakeholder theory perspective, this inclusion marks a shift away from creditor dominance towards a more pluralist approach. This was also argued by Harvard Professor Robert Clark, who stated that insolvency regimes must recognize the varied capital interests involved in business rescue.

While the introduction of interim finance providers promotes transparency and may increase lender confidence, the observer status needs to be carefully managed. Without clear boundaries, non-voting participants could still exert indirect influence on CoC deliberations or access sensitive information. To mitigate such risks, the IBBI could consider issuing guidelines to standardize observer conduct. This highlights a broader concern – expanding stakeholder involvement without proper guardrails, which may create issues in the already complex process.
- Mandatory Presentation of All Resolution Plans to the CoC
Earlier, RPs would filter out non-compliant plans and only present eligible ones to the CoC. The new amendment mandates all resolution plans to be submitted to the CoC along with the details of non-compliance. This reform shifts from RP discretion to CoC empowerment. It repositions the RP as a facilitator and reduces the risk of biased exclusion of potential plans.

The amendment enhances transparency and aligns with the principles of creditor autonomy, which states that the legitimacy of the insolvency process depends not only on outcomes but on stakeholder confidence in the process. It also carries a risk of “decision fatigue” if the CoC is flooded with irrelevant non-viable proposals. The RP’s expert assessment should still carry some weight and structured formats for presenting non-compliant plans may be needed to make this reform operationally sound.

Taken together, the amendments do not merely fix operational gaps they reflect a broader evolution of India’s insolvency framework from rigidity to responsiveness.

STAKEHOLDER IMPLICATIONS & CONCERNS

The regulation significantly rebalances roles within the CIRP, with distinct implications for each stakeholder. For Financial Creditors, part-wise resolutions, allowing staged payments and overseeing finance participants through the CoC has deepened their influence. This aligns with the creditor-in-control model, which states that power demands fiduciary accountability. Dominant creditors could steer outcomes for selective benefit, risking intra-creditor conflicts previously flagged by IBBI.

Dissenting creditors now gain recognition through statute in phased payouts, ensuring they receive pro rata payments before consenting creditors at each stage. However, operational creditors remain outside the decision-making process, raising concerns about continued marginalization. This concern was also highlighted by IBBI that insolvency regimes that overlook smaller creditors risk creating long-term trust deficits in the process. RPs must now present all resolution plans, including the non-compliant ones to the CoC. This not just curtails arbitrary filtering but also increases the administrative burden.. Beyond the RP’s procedural role, the reforms also alter the landscape for resolution applicants. The amendment benefits RPs by offering flexibility to bid for specific parts of a debtor. This may attract specialized investors and increase participation. However, unless the procedural efficiencies are addressed alongside the increased discretion, both RPs and applicants may find themselves in navigating through a system which is transparent but increasingly complex.

CONCLUSION AND WAY FORWARD

The Fourth Amendment to the CIRP reflects a bold move that seeks to move from a procedural rigidity towards an adaptive resolution strategy. The reforms aim to align the IBC more closely with the global best practices which are mainly focused on value maximization and creditor democracy. Yet as numerous scholars have emphasized insolvency reform is as much about institutional capability and procedural discipline as it is about legal design. The real test would lie in implementation, how the CoCs exercise their enhanced discretion and how RPs manage rising procedural complexity. Equally important is ensuring that small creditors, operational stakeholders and dissenters are not left behind.

Going forward, further reforms are needed which include standard guidelines for plan evaluation, better institutional support and capacity upgrades for the NCLTs. Without these, the system risks duplicating the old inefficiencies. Overall, the 2025 reform represents a necessary evolution, but whether it becomes a turning point or a missed opportunity will depend on how effectively the ecosystem responds.
July 5, 2025
Addressing the Silence: Security for Costs in India’s Arbitration Landscape (Part II)
BY Pranav Gupta and Aashi Sharma Year, RGNUL, Punjab

Having discussed the concept of Security for Costs and International Precedents of Investment Arbitration, this part will delve into precedents of Commercial Arbitration and potential solution for the security for cost puzzle.

B. Commercial Arbitration Procedure:

The UNCITRAL Model Law on International Commercial Arbitration, being a foundational framework, empowers the tribunal to order SfC under Article 17(2)(c), after being amended in 2006. The ambiguous drafting of the provision fell prey to a much-anticipated debate,[i] with critics arguing it fails to clearly address the issue of SfC. It led to a proposal [ii] for amending Article 17(2)(c) by adding words “or securing” after “assets” to signify security of some sort. Despite this, the Model Law continues to influence the rules of major arbitral institutions like the London Court for International Arbitration Rules (“LCIA Rules”) and the Singapore International Arbitration Centre Rules (“SIAC Rules”).

Article 25.2 under the LCIA rules grants the arbitral tribunal power to order for SfC as mirrored by Article 38(3) of the English Arbitration Act, 1996 which is the governing law of arbitrations seated in England and Wales. In the cases of Fernhill Mining Ltd. and Re Unisoft Group (No. 2), the judges devised a three-pronged test for granting SfC: Firstly, there must be “reasons to believe” that the claimant will be unable to pay the defendant’s costs if unsuccessful in the claim. Secondly, there must be a balancing of the interest [iii] of the defendant and the claimant by protecting the defendant against impecunious claims while not preventing the claimant from proceeding with a meritorious claim. Thirdly, the conduct of the party [iv] seeking a SfC must not suggest an attempt to stifle a meritorious claim.

Rule 48 of the SIAC Rules 2025 empowers the arbitral tribunal to order for SfC. Notably, both the LCIA and SIAC Rules distinguishes between SfC and ‘security for the amount in dispute’, with LCIA Article 25.1(i) and Article 25.2 addressing each separately, in the similar way as SIAC Rule 48 and 49 do.

A Possible Solution to the Security for Costs Puzzle

As the authors earlier observed that The Arbitration Act doesn’t possess any express provision for awarding SfC, leading courts to resort to section 9 of The Act, an approach later debunked by the Delhi High Court. However, this contentious issue gained prominence again with the landmark judgement of Tomorrow Sales Agency. The case remains landmark, being the first Indian case to expressly deal with the issue of SfC, with the earlier cases touching the issue only in civil or implied contexts. The case led to the conclusion that SfC couldn’t be ordered against a third-party funder, who is not impleaded as a party to the present arbitration, though the Single Judge Bench upholding the court’s power to grant such a relief under Section 9. However, the judgment leaves ambiguity regarding the particular sub-clause under which SfC may be granted, which the author tries to address by providing a two-prong solution.

As an ad-hoc solution, the authors prescribe the usage of sub-clause (e) of section 9(1)(ii) of The Arbitration Act, which provides the power to grant any ‘other interim measure of protection as may appear to the court to be just and convenient’. The above usage would be consistent with firstly with the Tomorrow Sales Agency case as it implies the power to order such measure under section 9 of The Act and secondly with the modern interpretation of section 9, where courts emphasised its exercise ex debito justitiae to uphold the efficiency of arbitration.

As a permanent solution, the authors suggest the addition of an express provision to The Arbitration Act. The same can be added by drawing inspiration from the LCIA Rules and the SIAC Rules’ separate provisions for ‘SfC’ and ‘securing the amount in dispute’, further building on the specifics of the concept laid down in Rule 53 of ICSID Rules, with particular emphasis on the above mentioned Indian precedents. An illustrative draft for the provision adopting the above considerations is provided below:
- “Section XZ: Award of Security for Costs
- Upon the request of a party, the Arbitral Tribunal may order any other party to provide Security for Costs to the other party.
- In determining the Security for Costs award, the tribunal shall consider all the relevant circumstances, including:
- that party’s ability or willingness to comply with an adverse decision on costs;
- the effect that such an order may have on that party’s ability to pursue its claims or counterclaim;
- the conduct of the parties;
- any other consideration which the tribunal considers just and necessary.
Provided that the tribunal while considering an application for Security for Costs must not prejudge the dispute on the merits.
- The Tribunal shall consider all evidence adduced in relation to the circumstances in paragraph (2), including the existence of third-party funding.
Provided that the mere existence of a third-party funding arrangement would not by itself lead to an order for Security for Costs.
- The Tribunal may at any time modify or revoke its order on Security for Costs, on its own initiative or upon a party’s request.”
Hence, in light of increasing reliance on mechanisms such as TPF, the absence of a dedicated provision for SfC remains a glaring procedural gap. While, the Indian courts have tried to bridge this void through the broad interpretations of section 9 of The Arbitration Act, a coherent solution requires both an ad interim interpretive approach, through the invocation of sub-clause (e) of Section 9(1)(ii) and a long-term legislative amendment explicitly incorporating SfC as a standalone provision. Such a provision must be drawn from international frameworks such as the ICSID, LCIA, and SIAC Rules, ensuring India’s credibility as an arbitration-friendly jurisdiction.

[i] United Nations Commission on International Trade Law, Report of the Working Group on Arbitration and Conciliation on the work of its forty-seventh session (Vienna, 10-14 September, 2007).

[ii] ibid.

[iii] Wendy Miles and Duncan Speller, ‘Security for costs in international arbitration- emerging consensus or continuing difference?’ (The European Arbitration Review, 2007) <https://www.wilmerhale.com/-/media/e50de48e389d4f61b47e13f326e9c954.pdf > accessed 17 June 2025.

[iv] Sumeet Kachwaha, ‘Interim Relief – Comments on the UNCITRAL Amendments and the Indian Perspective’ (2013) 3 YB on Int’l Arb 155 <https://heinonline-org.rgnul.remotexs.in/HOL/P?h=hein.journals/ybinar3&i=163> accessed 5 June 2025.
June 25, 2025
Addressing the Silence: Security for Costs in India’s Arbitration Landscape (Part I)
BY PRANAV GUPTA AND AASHI SHARMA, SECOND- YEAR STUDENT AT RGNUL, PUNJAB

Introduction

The recent cases of Lava International Ltd. and Tomorrow Sales Agency have reignited the confusions regarding the concept of Security for Costs (‘SfC’) in India.Gary B. Born[i] defines SfC as “an interim measure designed to protect a respondent against the risk of non-payment of a future costs award, particularly where there is reason to doubt the claimant’s ability or willingness to comply with such an award.”

The authors in this manuscript shall wade through the confusions raised in the above cases. For that, firstly, we try to conceptually understand the concept of SfC by distinguishing it from the other situated similar concepts, while also emphasizing on the legal provisions governing them. Secondly, we analyze the concept of SfC in light of the leading international investment and commercial arbitration practices. Lastly, the authors propose a two-tier solution to the problem of SfC in India building on the international practices with certain domestic modifications.

Security for Costs: Concept and Law
1. Understanding Security for Costs:
The concept of SfC is fundamentally different from that of ‘securing the amount in dispute’, as the latter is a measure to ensure the enforceability of the arbitral award by securing the party with whole or some part of the amount claimed or granted. section 9(1)(ii)(b) and section 17(1)(ii)(b) of The Arbitration and Conciliation Act, 1996 (‘The Arbitration Act’) regulates the regime for ‘securing the amount in dispute’ as an interim measure. The Hon’ble Supreme Court in the cases of Arcelor Mittal and Nimbus Communications clarified that section 9 permits securing the ‘amount in dispute’ on a case by case basis. Further, SfC is also distinct from ‘Recovery of Costs’, as ‘costs’ are recovered post the declaration of award and is addressed by section 31A of The Arbitration Act.

B. Security for Costs and Section 9: A Legal Void:

While, The Arbitration Act deals with the similarly situated aspects of SfC as shown above, it remains silent on a provision for SfC, a gap that remains unaddressed even by the 2015 Amendment and The Draft Arbitration and Conciliation (Amendment) Bill, 2024. A landmark ruling with respect to SfC was delivered in the J.S. Ocean Liner case, by ordering to deposit USD 47,952 as an amount for recovery of legal costs. The court relied on section 12(6) of the English Arbitration Act 1950, akin to section 9(1)(ii)(b) of The Arbitration Act, to award SfC as an interim measure in this case. However, this harmonious interpretation was later rejected in the cases of Intertoll Co. and Thar Camps, by observing that under sub-clause (b) of section 9(1)(ii), only ‘amount in dispute’ can be secured and not the SfC. Hence, The Arbitration Act needs a reform with respect to the provision concerning SfC.

International Precedents concerning Security for Costs
1. Investment Arbitration Insights:
The International Centre for Settlement of Investment Disputes (‘ICSID’) Tribunal (‘The Tribunal’), being the world’s primary institution, administers the majority of all the international investment cases. Till the 2022 Amendment to The ICSID Arbitration Rules (‘ICSID Rules’), even ICSID Rules were silent on this concept of SfC, however now Rule 53 of the same Rules contains the express provision for awarding SfC by The Tribunal. As the newly introduced Rule 53 is in its nascent stage with no extensive judicial precedents [ii] on it yet, the authors analyze the cases prior to the 2022 Amendment to understand the mechanism for granting SfC.

Prior to the 2022 Amendment, SfC was granted as a provisional measure [iii] under Article 47 of The ICSID Convention and Rule 39 of The ICSID Rules as observed in the cases of RSM v. Grenada[iv] and Riverside Coffee.[v] However, in the Ipek[vi] case, the Tribunal permitted the granting of SfC only in ‘exceptional circumstances’.[vii] The high threshold [viii] was reaffirmed in Eskosol v. Italy[ix], where even the bankruptcy didn’t sustain an order for SfC. Further, in EuroGas[x] case, financial difficulty and Third-Party Funding (’TPF’) arrangement were considered as common practices, unable to meet the threshold of ‘exceptional circumstances’.

Finally, in the RSM v. Saint Lucia[xi] case, the high threshold [xii] was met as the Claimant was ordered to pay US$ 750,000 as SfC on account of its proven history of non-compliance along with the financial constraints, and TPF involvement. In the same case, The Tribunal established a three-prong test [xiii] for awarding SfC emphasizing on the principles of ‘Exceptional Circumstances, Necessity, and Urgency’,[xiv] with the same being followed in the further cases of Dirk Herzig[xv] and Garcia Armas.[xvi] Further, The Tribunal added a fourth criterion of ‘Proportionality’[xvii] to the above three-prong test in the landmark case of Kazmin v. Latvia.[xviii]

The Permanent Court of Arbitration (“PCA”) is another prominent institution, with nearly half its cases involving Investment-State arbitrations. The PCA resorts to Article 26 of the UNCITRAL Arbitration Rules to award SfC as seen in the Nord Stream 2 case.[xix] In Tennant Energy v. Canada[xx] and South American Silver,[xxi] the PCA applied the same test, devised in the Armas case to grant SfC.[xxii] Similar approaches have been adopted by the local tribunals, including Swiss Federal Tribunal and Lebanese Arbitration Center.[xxiii]

[i] Gary B. Born, International Commercial Arbitration (3rd edn, Kluwer Law International 2021); See also Maria Clara Ayres Hernandes, ‘Security for Costs in The ICSID System: The Schrödinger’s Cat of Investment Treaty Arbitration’ (Uppsala Universitet, 2019) <https://uu.diva-portal.org/smash/get/diva2:1321675/FULLTEXT01.pdf> accessed 17 June 2025.

[ii] International Centre for Settlement of Investment Disputes, The First Year of Practice Under the ICSID 2022 Rules (30 June 2023).

[iii] Lighthouse Corporation Pty Ltd and Lighthouse Corporation Ltd, IBC v. Democratic Republic of Timor-Leste, ICSID Case No. ARB/15/2, Procedural Order No. 2 (Decision on Respondent’s Application for Provisional Measures) (13 February 2016) para 53.

[iv] Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg and RSM Production Corporation v. Grenada, ICSID Case No. ARB/10/6, Tribunal’s Decision on Respondent’s Application for Security for Costs (14 October 2010) para 5.16.

[v] Riverside Coffee, LLC v. Republic of Nicaragua, ICSID Case No. ARB/21/16, Procedural Order No. 7 (Decision on the Respondent’s Application for Security for Costs) (20 December 2023) para 63.

[vi] Ipek Investment Limited v. Republic of Turkey, ICSID Case No. ARB/18/18, Procedural Order No. 7 (Respondent’s Application for Security for Costs) (14 October 2019) para 8.

[vii] BSG Resources Limited (in administration), BSG Resources (Guinea) Limited and BSG Resources (Guinea) SÀRL v. Republic of Guinea (I),ICSID Case No. ARB/14/22, Procedural Order No. 3 (Respondent’s Request for Provisional Measures) (25 November 2015) para 46.

[viii] Lao Holdings N.V. v. Lao People’s Democratic Republic (I), ICSID Case No. ARB(AF)/12/6, Award (6 August 2019) para 78.

[ix] Eskosol S.p.A. in liquidazione v. Italian Republic, ICSID Case No. ARB/15/50, Procedural Order No. 3 Decision on Respondent’s Request for Provisional Measures (12 April 2017) para 23.

[x] EuroGas Inc. and Belmont Resources Inc. v. Slovak Republic, ICSID Case No. ARB/14/14, Procedural Order No. 3 (Decision on the Parties’ Request for Provisional Measures) (23 June 2015) para 123.

[xi] RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, Decision on Saint Lucia’s Request for Security for Costs (13 August 2014) para 75.

[xii] Transglobal Green Energy, LLC and Transglobal Green Panama, S.A. v. Republic of Panama, ICSID Case No. ARB/13/28, Decision on the Respondent’s Request for Provisional Measures Relating to Security for Costs (21 January 2016) para 7.

[xiii] Libananco Holdings Co. Limited v. Republic of Turkey, ICSID Case No. ARB/06/8, Decision on Applicant’s Request for Provisional Measures (7 May 2012) para 13.

[xiv] BSG Resources Limited (n vii) para 21.

[xv] Dirk Herzig as Insolvency Administrator over the Assets of Unionmatex Industrieanlagen GmbH v. Turkmenistan, ICSID Case No. ARB/18/35, Decision on the Respondent’s Request for Security for Costs and the Claimant’s Request for Security for Claim (27 January 2020) para 20.

[xvi] Domingo García Armas, Manuel García Armas, Pedro García Armas and others v. Bolivarian Republic of Venezuela, PCA Case No. 2016-08, Procedural Order No. 9 Decision on the Respondent’s Request for Provisional Measures (20 June 2018) para 27.

[xvii] Transglobal Green Energy (n xii) para 29.

[xviii] Eugene Kazmin v. Republic of Latvia, ICSID Case No. ARB/17/5, Procedural Order No. 6 (Decision on the Respondent’s Application for Security for Costs) (13 August 2020) para 24.

[xix] Nord Stream 2 AG v. European Union, PCA Case No. 2020-07, Procedural Order No. 11 (14 July 2023) para 91.

[xx] Tennant Energy, LLC v. Government of Canada, PCA Case No. 2018-54, Procedural Order No. 4 (Interim Measures) (27 February 2020) para 58.

[xxi] South American Silver Limited v. The Plurinational State of Bolivia, PCA Case No. 2013-15, Procedural Order No. 10 (Security for Costs) (11 January 2016) para 59.

[xxii] Domingo García Armas (n xvi).

[xxiii] Claimant(s) v. Respondent(s) ICC Case No. 15218 of 2008.
June 25, 2025
Navigating RBI’s Revised Framework for Downstream Investments by FOCCs

BY PURNIMA RATHI, FOURTH-YEAR STUDENT AT SYBIOSIS LAW SCHOOL, PUNE

On January 20, 2025, the Reserve Bank of India (‘RBI’) released a comprehensive revision of the Master Direction on Foreign Investment in India (‘Master Direction’). The update represents a landmark regulatory revision, particularly for Foreign Owned and/or Controlled Companies (‘FOCCs’) pursuing downstream investments. The updated Master Direction has attempted to resolve a number of ambiguities, align regulatory treatment with the Consolidated Foreign Direct Investment (‘FDI’) Policy, 2020 and the Foreign Exchange (Non- Debt_ Instruments) Rules, 2019 (‘NDI Rules’) and thus, stream lining the compliance requirements for both investors and companies.

The blog shall analyse key regulatory changes made through the Master Direction and its effects on downstream investments made by FOCCs. This analysis is made by comparing the recent update to the earlier versions of the Master Direction.

WHAT ARE FOCCs AND DOWNSTREAM INVESTMENTS ?

To understand the significance of the Master Direction, it is first necessary to understand the meaning and the context in which FOCCs and downstream investments operate. A FOCC is defined in the Foreign Exchange Management Act, 1999 (‘FEMA’) and the NDI Rules as an Indian entity that is:

• Owned by non-resident entities (more than 50% shareholding); or

• Controlled by non-residents (in the sense of a non-resident entity or person is empowered to appoint a majority of directors or is empowered to influence decisions which are deemed to be strategic business decisions).

Downstream investment is defined collectively, in this context, as an investment in capital instruments (equity shares, compulsorily convertible preference shares, etc.) made by said FOCC in another Indian entity. It is essentially an investment made by a company already partly or wholly owned by foreign investors, into another Indian entity.

Analysis of Key Changes

The updated Master Direction has important amendments which are aimed at reducing compliance complexities, providing legal clarity, and allowing flexibility with transaction structures. Analysed below are the key revisions from the Master Direction:

1. Consistency with General FDI Norms

The most important change is the explicit consistency of downstream investments by FOCCs with general FDI norms. Downstream investments are treated as a different investment category and require separate compliance obligations. However, now it requires that FOCCs must comply with the same entry routes (automatic or government), sectoral restrictions, price restrictions, and reporting requirements as any direct foreign investment investor. The guiding principle of “what cannot be done directly, shall not be done indirectly” has the intention to place downstream investments on an equal level with FDI.

This is particularly advantageous in sectors where the automatic route is available and removes unnecessary bureaucratic hurdles. For example, if a FOCC is investing in an Indian startup that provides services to the technology sector, they may now invest and treat it the same as a direct foreign investment provided that the sector cap and conditions are adhered to.

2. Share Swaps Approved

Another important change is the recognition of share swap transactions by FOCCs. Before the recent change, it was unclear whether share swaps were permitted for FOCCs at all, and companies tended to either seek informal clarifications or err on the side of caution.

The updated direction explicitly provides that FOCCs can issue or acquire shares in lieu of shares of another company (either Indian or foreign) subject to pricing guidelines and sectoral limitations. This is an important facilitative measure for cross-border mergers, joint ventures, and acquisition deals where share swaps are the predominant form of consideration.

This reform enhances transactional flexibility, encourages capital growth and will reduce friction in structuring deals between Indian FOCCs and foreign entities, thereby promoting greater integration with global capital market.

3. Permissibility of Deferred Consideration

The RBI now formally recognizes deferred consideration structures such as milestone-triggered payments, escrows, or holdbacks. However, they are still governed by the ’18-25 Rule’, which allows 25% of total consideration to be deferred, which must be paid within 18 months of execution of the agreement. This represents a pragmatic acceptance of the commercial acknowledgment that not all transactions are settled upon completion.

RBI shall have to give additional clarifications as the Master Direction still does not specify the extent to which provisions are applicable to downstream investments in comparison to the FDIs.

4. Limitations on the Utilisation of Domestic Borrowings

In an effort to safeguard the integrity of foreign investment channels and to deter round-tripping, or indirect foreign investment through Indian funds, the RBI continues to restrict FOCCs from utilising domestic borrowings for downstream investment. This implies that FOCCs can only downstream invest with foreign funds introduced through equity investments or through internal accruals. The restriction aims that downstream investments are made through genuine foreign capital introduced in the country through abroad, rather than through domestic borrowings.

Practically this means that if the FOCC receives a USD 5 million injection from the parent organization abroad, then they can utilize such funds for downstream investment, but not if they were to borrow the same amount in INR through a loan from an Indian financial institution. This maintains investor confidence and enhances transparency in capital flows.

5. Modified Pricing Guidelines for Transactions

The revised framework reiterated pricing guidelines in accordance with the different types of company:

• For listed companies: The pricing must comply with the Securities and Exchange Board of India (‘SEBI’) guidelines,

• By unlisted companies: The price cannot be lower than the fair market value determined by internationally accepted pricing methodologies.

Additionally, in all rights issues involving non-residents, if the allotment is greater than the investor’s allotted entitlement, price has to comply with these guidelines. In this case, the rights issue would protect minority shareholders and mitigate the dilution that would occur by no listings from unlisted companies.

6. Reporting and Compliance via Form DI

An excellent innovation is the new compliance requirement of filing on Form DI within 30 days of the date an Indian company becomes a FOCC or makes a downstream investment. This will assist the RBI in maintaining regulatory visibility and better tracking of foreign investment in India. Companies will have to implement stricter internal compliance mechanisms and timely reporting as failure to do so could result in penalties under FEMA. The RBI’s emphasis on transparency reflects a continuing trend toward digitization and live reporting of capital flows by Indian regulators.

7. Clearer Application of the Reporting Forms (FC-GPR, FC-TRS, DI)

In addition, the RBI has further clarified the documents to use the following forms:

• Form FC-GPR: is for reporting the issuance of shares by an Indian entity to a FOCC. • Form FC-TRS: is for any transfer of shares involving FOCC as the non-resident and between residents and non-residents.

• Form DI: is for downstream investments made by FOCC into any other Indian entity.

This clarity will help eliminate confusion around these procedures and synchronize the reporting regime of the RBI with the reporting systems of the Ministry of Corporate Affairs (‘MCA’) and SEBI. FOCC should implement strong internal controls to monitor and track when these filings will become due.

8. Classification of FOCCs based on Share Movement

The new regulations will also provide clarity on how the status of a FOCC will influence a regulatory classification. Specifically:

• if a FOCC receives shares from an Indian entity, it will be treated as a ‘Person Resident Outside India’; and

• if it transfers shares to an Indian entity, it will be deemed to be domestic in nature but needs to comply with the repatriation norms.

These classifications have an important bearing on the route and pricing of transactions especially in exits or complex internal restructuring transactions. Through these classifications, RBI intends to clarify the confusion from mischaracterizing transactions and reducing risk for the investors in the event of any enforcement action.

Conclusion

The amendments to the Master Direction represent a measured and thoughtful change in the foreign investment regulatory framework in India. The RBI has set the tone in favour of enabling policy predictability and investor confidence by clarifying FOCC structures’ downstream investment norms to be consistent with FDI, allowing for more sophisticated structures like share-swap transactions and deferred consideration, and imposing effective operational compliance requirements. Going forward, these refinements have set the foundation for deeper capital integration and increased investor trust in India’s FDI regime.

May 28, 2025
RBI’s Electronic Trading Platforms: a Bittersweet Take on Trading

BY ABHISHEK KAJAL, FOURTH YEAR STUDENT AT IIM, ROHTAK

Introduction

The Reserve Bank of India (RBI) introduced the 2024 framework on Electronic Trading Platforms (“ETPs”) in April 2024 (“2024 Draft Framework”), superseding the earlier 2018 Direction (“2018 Framework”) with some key changes.

As defined by the RBI, an ETP means any electronic system, other than a recognised stock exchange, on which transactions in eligible instruments are contracted.It is a platform that allows trading in eligible instruments as notified by the Reserve Bank of India. The main instruments include Government Securities (“G-Sec”), Money instruments, and Foreign Exchange instruments.

No individual or organisation, whether local or foreign, is permitted to run an ETP without first securing authorisation or registration from the RBI. A resident person under the Foreign Exchange Management Act, 1999 (“FEMA”) is allowed to do online forex transactions only on authorised ETPs by the RBI. The purpose of this blog is to analyze the Indian ETP framework by tracing its evolution, examining key regulatory changes in the 2024 draft, highlighting challenges faced by domestic platforms, and suggesting practical solutions to strengthen the framework.

Evolution of ETPs in India

After the global financial crisis, trading on electronic platforms was being encouraged in several jurisdictions, driven primarily by regulatory initiatives to reform Over-the-Counter (“OTC”) derivative markets through a technology-driven approach.

Therefore, to have more market access, increased competition, and reduced dependency on traditional trading methods, the RBI, in 2017, issued a Statement on Developmental and Regulatory Policies as a part of its fourth bi-monthly Monetary Policy Statement 2017-18, where it highlighted its intention, for the first time, to regulate the money markets instruments under their purview through ETPs. They recommended a framework to be put in place for ETPs that will deter market abuse and unfair trading practices, leading to better price discovery and improved market liquidity. Following this, the ETP Direction was first introduced in 2018.

More Flexibility in Trading

Under the 2018 framework, only banks were excluded from the framework’s applicability given that they allowed trading of eligible market instruments only with their customers on a bilateral basis and did not trade with market makers, including authorised dealers under FEMA.

However, under the 2024 framework, the RBI has expanded the relaxation of this framework. Now, scheduled commercial banks (“SCB(s)”) and standalone primary dealers are also excluded from the framework for trading in eligible instruments. They can operate ETP platforms and trade in eligible instruments even without the authorization of the RBI, given that the SCB or primary dealer is the sole provider of price/quote and is a party to all the transactions of the platform.

Certain reporting requirements have been provided for the SCBs or primary dealers, where they have to report any data or information whenever asked by RBI, and further, to avoid any misuse, the RBI can require such ETPs to comply with the ETP Direction. This change by the RBI reflects a balance between promoting ease of doing business and ensuring market protection in the ETP market.

Setting up and Authorisation of ETPs

To establish itself, an ETP must meet specific eligibility criteria for authorization from the RBI. The criteria are dynamic, beginning with the basic requirement that the ETP must be a company incorporated in India. Then, the ETP must comply with all applicable laws and regulations, including those of FEMA.

The ETP or its Key Managerial Personnel (“KMP”) must have at least three years of experience in managing trading infrastructure within financial markets. This requirement serves as a preventive measure against potential market collapses. The ETP must have a minimum net worth of ₹5 crores at the outset and must maintain this net worth at all times. The ETP must have a robust technology infrastructure that is secure and reliable for systems, data, and network operations. All the trade-related information must be disseminated on a real-time or near real-time basis. Once an ETP meets the eligibility criteria, it must submit an application to the RBI in the prescribed format to obtain authorization.

Offshore ETPs: Opening Doors for Cross-Border Trading

The background of offshore ETPs is closely linked to the rising incidents of unauthorized forex transactions in India. In response, the RBI has periodically issued warnings against unauthorized platforms engaged in misleading forex trading practices and has maintained an Alert List of 75 such entities.

The reason for such unauthorized practices lies in the previous 2018 framework, where a significant barrier for offshore ETPs was the requirement to incorporate in India within one year of receiving RBI authorization. This regulation proved challenging for foreign operators, leading to their non-compliance. Under the 2024 draft framework, foreign operators are now allowed to operate from their respective jurisdictions, however, they need authorisation from the RBI.

The authorization process involves adhering to a comprehensive set of criteria aimed at ensuring regulatory compliance and market integrity. To qualify, the offshore ETP operator must follow some conditions, which include incorporating it in a country that is a member of the Financial Action Task Force (“FATF”). This will enhance the transparency and integrity of Indian Markets. It ensures adherence to global standards in combating money laundering and terrorist financing. This can enhance the overall credibility of India’s financial markets, making them more attractive to global investors.

Then, the operator must be regulated by the financial market regulator of its home country. This regulator must be a member of either the Committee on Payments and Market Infrastructures (CPMI) or the International Organization of Securities Commissions (IOSCO), both of which are key international bodies that promote robust financial market practices and infrastructure. Once an offshore ETP operator meets these criteria, they must then follow the standard ETP application process for registration with the RBI.

While analyzing this decision of the RBI, it is a promising initiative. The reason is that it does serve the purpose for which it was intended to be implemented, i.e., preventing unauthorized forex trading. The fundamental issue of unauthorized forex trading was about mandatory incorporation or registration in India, which has been done away with.

Further, the framework specifies that transactions on these offshore ETPs can only involve eligible instruments that include the Indian rupee or rupee interest rates, and these transactions must strictly be between Indian residents and non-residents.

Transactions between residents are not permitted under this framework, which indicates that the offshore ETP serves a cross-border trading function rather than facilitating domestic transactions. This is the right step in increasing Foreign Portfolio Investment in India and ensuring risk mitigation that may arise by allowing offshore ETPs to allow transactions among Indian residents.

The Domestic Game

However, when it comes to domestic ETPs, the 2024 draft framework is not very effective, the reason being that they do not incentivize domestic operators to apply for authorization. To date, over a span of six years, the RBI has authorized a total of only five ETP operators, one of which is the Clearing Corporation of India and four other private players.

The reason for such slow adoption is that the operators are ineligible to apply for authorization due to stringent eligibility criteria (Regulatory Restriction). For example, the general authorization criteria for an ETP require that the applying entity or its Key Managerial Personnel must have at least three years of experience in operating trading infrastructure in financial markets. The issue here is that the requirement focuses solely on prior experience in operating trading infrastructure. This effectively limits eligibility to entities already active in this space, leaving little to no opportunity for new entrants to participate and innovate in the ETP market.

This missed opportunity to foster domestic competition and innovation could limit the full potential of ETPs in India. Therefore, the RBI should take a liberalized approach towards domestic ETPs and ensure that the domestic ETP climate is conducive. To address this, the RBI should broaden the eligibility criteria to allow entities from other financial sectors, not just those with experience in trading infrastructure, to apply for ETP authorization. To ensure market safety, this relaxation can be balanced by imposing stricter disclosure requirements on such entities.

A phased approach could also be taken by RBI where it could require new players with insufficient experience to first test their platform in the regulatory sandbox operated by RBI and then after rigorous testing, the same could be granted authorization. This will allow more domestic players to participate and will lead to enhanced forex trading in India which will potentially increase FDI investment in India.

Way Forward

Another potential change to increase the adoption rate of domestic ETPs might include examining and changing the eligibility requirements. Tax exemptions or lower net worth (less than 5 cr.) entry with certain restrictions could be considered to attract more participants, improving the entire market environment and addressing the low adoption rate found under the existing framework.

The inclusion of offshore ETPs to register and operate in India has been the most favorable move towards facilitating foreign investment in India. The sturdy registration process ensures that only serious firms join the Indian market, which sets the pace for a market overhaul. The exclusion of scheduled commercial banks and standalone primary dealers is also a significant step forward in simplifying banking operations and increasing FPI.

Finally, the 2024 Draft ETP Framework may be favorable to foreign ETPs, but the game is not worth the candle for domestic ones. With continued advancements and strategic enhancements, as suggested, India’s ETP framework has the potential to drive significant economic growth and elevate its position in the global financial landscape.

April 26, 2025
Bridging Borders: SCRR Amendment 2024 and India’s Gateway to Global Capital

BY MANAV PAMNANI AND SHOURYA SHARMA, THIRD-YEAR STUDENTS AT NALSAR HYDERABAD AND JINDAL GLOBAL LAW SCHOOL, SONIPAT

INTRODUCTION

The Department of Economic Affairs, Ministry of Finance (‘MoF’), has recently amended the Securities Contracts Regulation Rules, 1957 (‘SCRR’). This Amendment attempts to make it easier for Indian public companies to list their equity shares within International Financial Service Centres (‘IFSCs’) such as the Gujarat International Finance Tec-City (‘GIFT City’), under the framework of Direct Listing of Equity Shares Scheme and the Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024. One of the significant changes under the Amendment is the reduction of minimum public shareholding thresholds from 25% to 10% for listing made in IFSCs, making international listings more accessible, especially for start-ups and technology-driven enterprises. This move mirrors the government’s broader commitment towards placing India among the world’s competitive investment-friendly destinations and financial hives. This article attempts to analyse the legal framework of this Amendment, alongside exploring its practical implications for the Indian financial landscape.

REGULATORY FOUNDATIONS AND LEGISLATIVE DEVELOPMENTS

The SCRR was notified by the Central Government to help achieve the objectives of the Securities Contracts (Regulation) Act, 1956 (‘SCRA’) effectively. The preamble clause of the SCRA states that the objective of the statute is to regulate undesirable transactions in securities by overseeing the dealing in securities and monitoring other ancillary business activities. The Amendment aligns the SCRR with this overarching objective. The legal foundation of this Amendment lies in section 30(h)(A) of the SCRA, which gives the Central Government the power to introduce rules stipulating the specific requirements that companies have to follow to get their securities listed on any stock exchange. The word “any” here has to be given a wide interpretation to align with the framers’ intention which was to bestow supervisory and regulatory authority upon the Government to foster the maintenance of a reliable and efficient securities business framework. Therefore, the regulation of listing of securities on IFSCs squarely falls within the competence and authority of the Government.

Earlier in 2024, the MoF, through a notification amending the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (‘NDI Rules’), explicitly enabled the listing of securities of public Indian companies on international exchanges recognized in Schedule XI of NDI Rules. This, termed as the Direct Listing Scheme, governed several intricacies such as permissible investors, compliance with sectoral caps, regulations regarding prohibited sectors, and pricing guidelines. Simultaneously, the Ministry of Corporate Affairs (‘MCA’) had also introduced the Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024 by virtue of its power under section 23(3) r/w section 469 of the Companies Act, 2013 to regulate the entities that can list and jurisdictions where the listing can take place.

However, both these enactments, along with the Companies (Amendment) Act, 2020 which prescribed certain similar requirements pertaining to listing in international exchanges, served as mere regulatory tools rather than efficient operational guidelines. They prescribed an overarching framework that has to be adhered to during such listing and discussed the eligibility criteria but failed to provide or clarify points regarding specific thresholds and other operational mechanisms specified under the SCRR.

LEGAL ANALYSIS

The recent Amendment fills the void identified above by introducing a few but impactful changes in the securities listing regime, thus reflecting its commitment to fostering a globally competitive and investor-friendly framework while aligning domestic practices with international standards. These international standards include the minimum public float thresholds in jurisdictions like Singapore, the International Organisation of Securities Commissions’ principles of efficiency, transparency and fairness in cross-border listings, the securities regime in the Dubai International Financial Centre, the Financial Action Task Force’s Anti-Money Laundering /Combating the Financing of Terrorism recommendations, and the pricing mechanisms and sectoral compliance thresholds present in the European Union Capital Markets Union and the United States Securities and Exchange Commission Regulations.

The widespread benefits accruing to investors and other stakeholders through the effectuation of this Amendment not only covers the inflow of higher foreign capital and a more efficient and dynamic securities framework but also extends to direct tax advantages. section 10(4D) of the Income Tax Act, 1961 provides a significant tax exemption on income arising from transactions conducted on recognized stock exchanges within IFSCs, including GIFT-IFSC. This incentivizes participation, reduces transactional costs for investors, and creates a persuasive financial rationale for businesses contemplating listing on foreign exchanges. It is also in line with the numerous Double Taxation Avoidance Agreements (‘DTAAs’) entered into by India to prevent non-resident Indians from being taxed twice, in both, India and their country of residence, thus significantly alleviating their tax burden. Additionally, the Securities and Exchange Board of India (‘SEBI’) has considerable control over listing and transactions in the IFSC, as is evident from the scheme of the SEBI (International Financial Services Centres) Guidelines, 2015. This reiterates the commitment of SEBI to safeguard the interests of investors and other stakeholders, alongside maintaining an effective securities landscape.

An important caveat to consider with respect to this Amendment is that the reduction of thresholds from 25% to 10% extends only to listings made in the IFSC. This implies that as per domestic subscription requirements, the extent of public shareholding is still fixed at the previous 25%. This distinction creates a dual regulatory framework, potentially leading to compliance complexities for companies seeking listings in both domestic and IFSC exchanges. This may limit the seamless integration of domestic and international listing strategies, requiring companies to carefully navigate the differing regulatory requirements to maximize benefits and avoid potential conflicts. Although the text of the Amendment alters Rule 19(2)(b) of SCRR, which covers domestic listings, the primary intention of the legislature was to effect changes in the IFSC listing framework. This ambiguity necessitates a clarification, which will most likely uphold uniformity by stating that the reduction also extends to listings made on domestic stock exchanges by companies wishing to obtain listing on permitted international exchanges. The importance of such uniformity and standardization is also evident from the two definitions (IFSC and International Financial Services Centre Authority (‘IFSCA’) that have been introduced which do not impose their own requirements but simply suggest an alignment with the definitions incorporated in existing legislations. The Amendment while defining these terms states that an IFSC means an IFSC as defined under section 3(1)(g) of the IFSCA Act, 2019 and an IFSCA means the Authority established under section 4(1) of the IFSCA Act. This significantly reduces complexity and fosters consistency and clarity in the navigation of relevant legalities pertaining to share listing and other compliance requirements.

PRACTICAL IMPLICATIONS

This Amendment marks a shift in India’s financial regulatory regime by redefining the entry of companies into global capital markets. In its amplitude, it is not an ordinary technical change but a strategic recalibration of structures of investment. The reduction of public shareholding thresholds from 25% to 10% for foreign listings creates an easier route for start-ups, emerging businesses, and small, mid and large capitalisation companies to access global capital, a phenomenon that is already experiencing an upward trajectory. For example, the gross foreign portfolio investment (‘FPI’) in India was massively estimated at around US$ 41.6 billion in the year 2023-24, which is bound to increase manifold due to this Amendment. The business insights from companies like Reliance Industries Limited and HDFC Bank Limited, among others, reflect clear examples of corporations successfully accessing large amounts of global capital due to international financial listing. This consequentially places Indian business enterprises in a robust position as reduction in public shareholding compliance requirements is an attractive proposition for investors.

Interestingly, the lowering of the barriers to international capital access also provides the same growth opportunities to a wider spectrum of sector-specific enterprises, including deep technology, renewable energy and biotechnology. These are crucial sectors requiring large investments. Furthermore, this change may even decentralise India’s economic hubs by allowing international capital to penetrate smaller companies located in tier-2 and tier-3 cities. As an offshoot, regions other than the economically prospering metro cities would witness increased industrialisation and employment generation since more local companies would gain access to foreign investments.

A research conducted by the International Monetary Fund on emerging markets provides a broader context in which this Amendment fits into a global trend, towards more accessible and flexible capital markets. It represents the benefits of India’s strategic approach to positioning itself as an attractive destination for global investors. Indian firms may be better positioned to raise capital in foreign currencies with a more straightforward pathway to listing abroad while hedge-protecting firms reliant on imports for raw materials or technology from the capricious market exchange rate.

Contrary to the apprehensions of capital outflow, this Amendment may benefit India’s domestic markets since an international listing enhances reputation of a company, provides international exposure, and encourages investor confidence. Companies will attract a larger pool of sophisticated retail and institutional investors, leading to increased credibility and brand value through such listings. This will enhance liquidity, valuation, expertise, innovation and overall market efficiency.

However, the opportunity comes with nuanced challenges, particularly for companies that aim to be listed on both domestic and international exchanges. In a dual-listed company structure, the requirement for multi-jurisdictional shareholder and board approvals introduces complexities to decision-making and company operations. This substantially increases audit and compliance costs, necessitating detailed planning and high investments in financial and legal advisory services.

CONCLUDING REMARKS

This Amendment is more than a routine regulatory change because it aims to manifest India as a global financial hub by significantly relaxing listing requirements in the IFSC. It serves as a forward-looking measure with the objective of modernising the Indian securities law landscape and aligning it with international best practices by furthering a more inclusive access to global capital markets. With the introduction of this Amendment, the legislature has taken a significant step in the right direction and it will be interesting to observe the future course this Amendment adopts, particularly concerning its effective implementation.

February 20, 2025

Tag: news

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

INTRODUCTION

JUDICIAL PRONOUNCEMENTS

AMAZON V. FUTURE RETAIL

LEGAL ANALYSIS OF THE RULING

THE DRAFT ARBITRATION AND CONCILIATION (AMENDMENT) BILL, 2024

IMPLICATIONS FOR ARBITRATION LAW IN INDIA

CONCLUSION

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

Introduction

Key Amendments in Rights Issue

Rights Issue Amendments 2025: What SEBI Forgot to Fix?

Conclusion

BY Winnie Bhat, SECOND- YEAR STUDENT AT NALSAR, HYDERABAD

Introduction

Reliance on Competition Act, 2002

The Digital Competition Bill, 2024

The Way Forward

BY Suprava Sahu, Fourth-Year student at gnlu, Gandhinagar

INTRODUCTION

DIAGNOSING THE IBC’S STRUCTURE

DISSECTING THE KEY AMENDMENTS

STAKEHOLDER IMPLICATIONS & CONCERNS

CONCLUSION AND WAY FORWARD

BY Pranav Gupta and Aashi Sharma Year, RGNUL, Punjab

A Possible Solution to the Security for Costs Puzzle

Introduction

Security for Costs: Concept and Law

International Precedents concerning Security for Costs

BY PURNIMA RATHI, FOURTH-YEAR STUDENT AT SYBIOSIS LAW SCHOOL, PUNE

WHAT ARE FOCCs AND DOWNSTREAM INVESTMENTS ?

Analysis of Key Changes

Conclusion

BY ABHISHEK KAJAL, FOURTH YEAR STUDENT AT IIM, ROHTAK

Introduction

Evolution of ETPs in India

More Flexibility in Trading

Setting up and Authorisation of ETPs

Offshore ETPs: Opening Doors for Cross-Border Trading

The Domestic Game

Way Forward

INTRODUCTION

REGULATORY FOUNDATIONS AND LEGISLATIVE DEVELOPMENTS

LEGAL ANALYSIS

PRACTICAL IMPLICATIONS

CONCLUDING REMARKS