Author name: CBCL

Customer Suitability and Bank Liability: A Review of the RBI’s Marketing Directions

Leave a Comment / Banking Law /

[By Neha Lodha and Vivek Kumar] Ms. Neha Lodha is a Team Lead and Mr. Vivek Kumar is a Research Fellow at the Vidhi Centre for Legal Policy. Introduction In February 2026, the Reserve Bank of India (“RBI”) issued the Draft Amendment Directions for ‘Advertising, Marketing and Sales of Financial Products and Services by Regulated Entities’ (“Directions”) covering various aspects relating to marketing and sale of financial products and services. One of the central goals of these directions is to prevent mis-selling of financial products and services by ensuring the suitability and appropriateness of financial products and services for the customer. Though the Directions are a significant step towards protecting consumer interests in the banking sector, certain provisions may need revisiting in order to ensure a balance between protection of consumer interest and efficient conduct of financial activities by regulated entities (“REs”), which include banks and non-banking financial companies. This article aims to analyse certain provisions of the Directions in light of international practices and the existing jurisprudence around seller liability to suggest a balanced approach to the requirement of customer suitability assessment. The Directions define mis-selling as, inter alia, “sale of a product/service, which is neither suitable nor appropriate in view of the customer’s profile even if with his/her explicit consent;” In pursuance of this, the Directions explicitly require an RE to ensure the suitability and appropriateness of a financial product or service by analysing the features of such products and services against the customers profile, before they are marketed or sold to a customer. The requirement of customer suitability assessment is aimed at addressing the increasing customer complaints around aggressive marketing strategies and mis-selling by REs. However, to adopt a balanced approach, the scope of liability of REs may be circumscribed by providing the following: (i) distinction between retail and non-retail customers to calibrate compliances with the level of customer’s sophistication and knowledge, (ii) a graded approach to suitability assessment to link it with complexity of the product and the risk involved, and (iii) differentiation between solicited and unsolicited sales to recognise a greater reliance of customers on the recommendations or advice provided by an entity. (i)  Distinction between retail and non-retail customers The Directions provide for customer suitability assessment as a blanket requirement across all classes of customers, without regard to the expertise or sophistication of the customer. IOSCO’s Report on Suitability Requirements with Respect to the Distribution of Complex Financial Products (“IOSCO Report”) includes ‘Classification of Customers’ as its first principle and advises regulatory systems to establish a process to distinguish between retail and non-retail customers, in light of the complexity and the relative risk of different products, when assessing suitability. The EU Markets in Financial Instruments Directive 2014 (“MiFID II”) also follows this approach and provides, “Measures to protect investors should be adapted to the particularities of each category of investors (retail, professional and counterparties).” It is also relevant to mention that the distinction between retail and institutional/professional customers is well established in Indian jurisprudence. The Delhi High Court’s judgment in the case of Punjab National Bank v. Kohinoor Foods is a case in point. In this case, the respondent alleged mis-selling of certain derivative transaction by the petitioner on the ground that the said derivative transactions were entered into even though the risks involved were not commensurate with the respondent’s business, financial operations, skill and sophistication, internal policy and risk appetite and that the petitioner failed to carry out a proper due diligence, concerning user appropriateness, or suitability of the product qua the respondent. However, the Delhi HC ruled on the contrary, denying any allegation of mis-selling or fraud on the ground that the respondent was a sophisticated customer who routinely entered into such transactions and that he had consented to the transaction after understanding the impact of the transaction. Past experiences in financial markets also indicate that retail customers are more susceptible to mis-selling than non-retail customers, entailing a greater level of protection. The insurance sector alone saw 1,20,429 grievances regarding unfair business practices by insurance providers in FY24-25. However, a blanket requirement may be too onerous and may lead to high operational costs for REs. Further, the definition of mis-selling under the Directions includes the sale of an unsuitable or inappropriate product, even with the consent of the customer. In essence, this confers upon the RE a veto power, transforming a tool for the protection of retail customers into a restraint on a customer’s freedom to deal with certain financial products, even if they are willing to take the risks associated with such products or services. This is in sharp contrast to the position in the USA, where institutional investors are allowed to waive suitability assessment by indicating that it is exercising independent judgment. Thus, there is a need to recalibrate the requirement for suitability assessment for different categories of customers. (ii) Graded approach to suitability assessment To ensure compliance and avoid onerous obligations on REs, it is necessary that suitability assessment requirements are proportionate to the complexity of the product and the risk involved in dealing with such products. It would not be appropriate to mandate the same suitability assessment requirements for both non-complex products with minimum risk and complex products with high-risk profiles. Therefore, the Directions should provide for a graded approach commensurate with the level of complexity and risk involved in sale of such products, instead of blanket suitability assessment requirements. In contrast to the Directions, MiFID II follows a graded approach concerning suitability assessment. While article 25(2) provides that investment advice or portfolio management services to retail customers have to be suitable, requiring a written statement on suitability, as per article 25(3), other services only entail an assessment of whether a product or service is appropriate. Further, article 25(4) allows firms to skip such assessment entirely for certain non-complex products, including in situations where the service is provided at the initiative of the client or potential client. It is apposite to mention that the RBI (Non-Banking Financial

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Bridging Archaic DTAAs and the 21st Century Digital Economy

Leave a Comment / Taxation Law /

[By Aviral Singhai and Shubham Sharma] The authors are students of National Law Institute and University Bhopal Introduction A foreign company can earn significant revenue from Indian users without adhering to the traditional notion of a fixed place. AppleTV, a service distinct from Apple Inc., can collect subscription fees from Indian viewers, Supercell can earn revenue from Indian gamers, and platforms such as Twitch or OnlyFans can generate advertising and subscription income from Indian users. Yet, under most of India’s tax treaties, much of this income may remain outside India’s taxing jurisdiction. The significance of this issue has increased with the growth of the digital economy. The OECD Digital Economy Outlook 2024 reports that the information and communication technology sector grew at nearly three times the rate of the overall economy across OECD countries between 2013 and 2023, while the UNCTAD Digital Economy Report 2024 records global business e-commerce sales of US$27 trillion in 2022. India has emerged as one of the world’s largest digital markets, with a January 2025 ICRIER study identifying it as the world’s third-largest digitally engaged economy. This shows the number of people engaging with companies online without any necessary physical presence. Despite this transformation, most Double Taxation Avoidance Agreements (DTAAs) still allocate taxing rights through the concept of a Permanent Establishment (PE), which generally requires physical presence. India and many of its treaty partners have explored alternatives based on digital or economic presence, but the DTAA framework continues to limit such approaches. The Protocol signed on 23 February 2026 amending the India-France DTAA expanded source taxation through a Service PE provision but still required the physical presence of personnel. Furthermore, the OECD’s update to the Model Tax Convention on 18 November 2025 introduced a commercial reason test for home office Permanent Establishments but this did not recognise a Virtual PE or taxing rights based solely on digital presence. This article examines these developments in depth and evaluates what is necessary to recognise meaningful digital presence as a basis for taxation. India’s approach to Virtual PE Regime India’s tax law does not require a Permanent Establishment, as Section 9(1)(i) of the Income Tax Act, 1961 (Income Tax Act) taxes income arising from a “business connection” in India. However, in cross-border situations, Section 90(2) allows the taxpayer to choose between the Income Tax Act and the DTAA, depending on which is more beneficial. This weakens the scope of domestic taxation and creates problems in taxing digital businesses, where significant income is earned from India but goes untaxed due to the absence of a Permanent Establishment under Article 5 of the OECD Model DTAA. As business shifted towards digital platforms and remote service delivery, disputes arose over whether treaty concepts developed for offices, factories and employees could adequately deal with these new business models. The concept of fixed place PE was explained in Formula One World Championship Ltd. v. CIT, where the Supreme Court held that a PE exists only when the place is at the disposal of the foreign enterprise and business is carried on through it. While the Court adopted a more practical approach by focusing on control over operations rather than ownership, it still treated physical presence as an essential requirement under DTAA. In order to address the problem of digital taxation, India introduced the Equalisation Levy in 2016 and expanded it in 2020. It applied only to online advertising and e-commerce services involving Indian users, including targeted ads and use of user data. Since it operated outside the Income-tax Act and treaty network, it enabled taxation even without a PE. However, it was withdrawn to align with the OECD/G20 BEPS framework and Pillar One, which allocated taxing rights based on business activity and user markets rather than physical presence. India then introduced the concept of Significant Economic Presence (SEP) through the Finance Act, 2018, effective from AY 2022–23. SEP creates a taxable nexus based on revenue from India and continuous user interaction. As per Explanation 2A of Section 9, it covers transactions where payments exceed the prescribed threshold or there is systematic and continuous interaction with users. The thresholds under Rule 11UD of Income Tax Rules, 1962 are INR 2 crore in revenue or 3 lakh users. However, the application of SEP is substantially limited by Section 90(2) of the Income-tax Act, which permits a taxpayer to rely on the more beneficial provisions of an applicable DTAA. Since India’s DTAAs continue to require a Permanent Establishment based on physical presence before business profits can be taxed, SEP has had limited practical effect in most treaty situations. The difficulty became clearer as technology transformed cross-border service delivery. In ABB FZ-LLC v. Dy. CIT, the ITAT recognised that consultancy and technical services could be provided virtually through e-mails, internet platforms, video conferencing, remote monitoring and remote-access systems and observed that continuous physical presence was no longer necessary for a Service PE. A similar shift is seen in Hyatt International Southwest Asia Ltd. v. ADIT, where the Supreme Court held that substantive control over operations of an Indian entity could establish a fixed place PE even without ownership of premises. These decisions reflected a growing judicial focus on how business was actually conducted. The limits of this judicial expansion became apparent in CIT v. Clifford Chance Pte Ltd. The Revenue argued that a “Virtual Service PE” could arise through services provided remotely into India. The High Court rejected the argument and held that the DTAA required services to be performed within India through personnel. Merely rendering services from abroad for Indian clients was insufficient. With regards to “Virtual Service PE” the Court expressly acknowledged that modern business models have exposed weaknesses in the traditional PE framework and referred to developments such as Significant Economic Presence as evidence of a broader policy shift. It made clear that recognising digital or virtual economic participation as a basis for taxation would require amendment of the DTAA itself. Domestic response of countries having DTAAs with India While India may seek

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Analysing the Amended PN3: From Blanket Screening to Measured Oversight

Leave a Comment / Contemporary Issues /

[By Nalin Arora & Sofia Dash] The authors are students of Jindal Global Law School.   Introduction During the COVID-19 pandemic, the Indian Government had introduced the Press Note No. 3 (2020 Series) (“PN3”) on April 17, 2020 to safeguard Indian companies from opportunistic takeovers/acquisitions. This was enforced through amendments to Rule-6(a) of the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (“NDI Rules”). The amended Rule-6(a) mandated government approval through an approval-route mechanism for investors from countries sharing a land border with India (“LBCs”) or where the beneficial owner of the investment is situated in a LBC. PN3 has thus become an important factor in cross-border investments involving an LBC nexus. More recently, On 10th March 2026, the government issued a press release indicating amendment to the current framework of PN3 (“amended PN3”). Herein, the government has endeavoured to bring in strategic changes in PN3,indicating a shift from a blanket screening to a measured approach. Following this, on 15th March 2026, the Department for Promotion of Industry and Internal Trade (“DPIIT”) issued Press Note 2 (2026 Series) (“PN2”). PN2 amended Paragraph 3.1.1. of the Consolidated FDI Policy to enforce the revised framework introduced under the amended PN3. Furthermore, the Ministry of Finance notified the Foreign Exchange Management (NDI) (Amendment) Rules, 2026 on 1st May 2026, amending Rule 6 of NDI Rules, which aided in the formalisation of the amended PN3. Recently, on 4th May 2026, the DPIIT also issued an updated Standard Operating Procedure (“SOP”) to process future Foreign Direct Investment (“FDI”) proposals. Against this backdrop and recent legal developments, this article argues that while the amended PN3 offers much awaited relief for investors, it falls short of the structural stability India’s investment screening framework needs. The amended PN3’s geography-first logic is highly vulnerable to layered ownership structures and misuse due to insufficient clarity on the definition of key terms. The article will further draw a comparative analysis with the existing models in the United States of America (“USA”) and the United Kingdom (“UK”) to conclude that the amended PN3 is a reform beset with uncertainty and loopholes. Background: The Existing Framework and its Shortcomings PN3 in its original form had mandated all non-resident investors from LBC(s), even ones having beneficial ownership, to go through the approval-route. It did not define “beneficial ownership” which created a definitional vacuum given that the term has different meanings under the Companies Act, 2013 and the Prevention of Money Laundering Act, 2002 (“PMLA”). This led to inconsistent compliance across authorized dealer banks. In PN3’s implementation over the past 6-years, it has practically led to only 124 investment approvals out of a whopping 526 FDI proposals, 201 rejections and the balance under review, indefinitely, as per media reports in the Economic Times, Legal500, and Chambers & Partners. This led to a lot of unintended victims. Various blue-chip PE, VC funds domiciled in countries in Europe and America that were never intended to be caught by the net of PN3 ended up being trapped due to minute participation by LBC investors. For instance, a fund domiciled in the USA with a mere 0.5% Chinese Limited Partner investment would be subjected to the same government-approval route burden as a 100% China-backed investor. Thus, the amended PN3 provides no resolution to such an unintended conflation. Decoding the Amendment: Key Features The amended PN3 aims to fill-up the interpretive gap for “beneficial ownership” by importing the definition from the PMLA. This is supplemented with a 10% de minimis threshold which allows investors to invest through the automatic-route in case they are non-controlling in nature and fall within this threshold. However, investors must pay heed to Paragraph 3.1.1(d) of the amended Consolidated FDI Policy, introduced under PN2, which states that any investment which has any direct/indirect LBC ownership, regardless of whether it falls under the 10% de minimis threshold advantage or not, is subjected to a mandatory reporting obligation. Thus, the Indian investee company must mandatorily report the investment to the DPIIT as per the format prescribed in the SOP. This reporting obligation is not limited to future/fresh investments but also applies to transfers of existing FDI where such transfers amount to a beneficial ownership within the LBC nexus. In essence, this highlights the redundancy of the 10% de minimis threshold advantage since despite the option of an automatic approval-route, the investors are burdened with additional compliance obligations. The shift is merely from prior-approval to post-investment disclosure. Furthermore, applications for investments that require government approval, for instance, investments in manufacturing capital goods, electronic capital goods, electronic components, polysilicon, and ingot-wafer sectors shall be eligible for an expedited 60-day clearance. In these cases, the majority shareholding and control of the investee entity will be with resident Indian citizen(s) and/or resident Indian entity(ies) owned and controlled by resident Indian citizen(s), at all times. The government has also retained the ability to revise this list. These changes could revive previously stalled capital flows and increase fundraising for technology companies ahead of IPOs. The de-minimis threshold helps resolve a multitude of concerns for security for PE/VC funds, with passive LBC partners, since previously, such fundraising took months for approval. Additionally, the 60-day clearance may facilitate expansion of manufacturing units in India since it enables companies to enter into joint ventures with foreign players, to improve and adopt nascent technologies and integrate global supply chains. However, whether these benefits outlined will be fully realised in practice or not is still an impending question. The primary condition for the 10% de minimis threshold is whether the investor is “non-controlling” or not, a term which has been left undefined – thereby leaving authorised dealer banks without any guidance on whether to accept / reject a FDI proposal. Critical Assessment of the Amended Framework Firstly, the “beneficial ownership” rule is applied at the level of the immediate investor, leading to significant structural issues. Where a Chinese entity directly holds 40% of a Singapore holding-company that invests into India, the PMLA-based test is triggered cleanly – 40% exceeds the

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AI-Generated Intangibles in Transfer Pricing: A Case Study on OECD and Indian Frameworks

Leave a Comment / Taxation Law /

[By Shivam Tiwari] The author is a student of Gujarat National Law University, Gandhinagar.   Introduction Once a patentable drug compound is produced through an artificial intelligence system on its own, the conventional concepts of ownership and value creation begin to collapse. An example may be a cross-border structure in which the Indian research and development subsidiary offers data curation services to its Luxembourg parent on a cost-plus basis, such that the subsidiary is paid its costs plus a predetermined markup. The parent company’s AI system, which has access to both publicly available molecular databases and the proprietary patient data of the subsidiary, creates a commercially viable compound without the involvement of its human counterparts. Under the OECD functional analysis, residual profits are generally allocated to the entity that performs the economically significant functions, assumes the relevant risks, and makes the principal contributions to value creation. AI-generated intangibles, however, complicate this analysis. Where an AI system autonomously develops a commercially viable drug compound using both publicly available molecular databases and proprietary datasets supplied by an Indian research and development subsidiary, it becomes difficult to determine whether the subsidiary merely rendered routine data-curation services or made a substantive contribution to the creation of the intangible. This uncertainty also raises a broader question: which entity should be recognised as the developer of the AI-generated intangible for transfer pricing purposes? These questions are no longer merely hypothetical. Intangible assets now account for 82% of the total value of S&P 500 companies, according to Brand Finance’s Global Intangible Finance Tracker (GIFT) 2025. As Jonathan Haskel and Stian Westlake observe in Capitalism Without Capital, economies that are becoming more reliant on intangible assets pose special measurement and allocation problems. When non-human systems create or refine those resources, the problem becomes structural. Thus, the question is not whether AI can fit perfectly into the existing doctrine but whether it remains conceptually clear. The OECD Framework and India’s Transfer Pricing Regime The OECD Transfer Pricing Guidelines (Guidelines) are based on the arm’s length principle, which stipulates that related business enterprises should price transactions in a manner that is similar to how unrelated businesses would do so in the same market conditions. Chapter VI applies the DEMPE model of Development, Enhancement, Maintenance, Protection, and Exploitation to intangibles. This model identifies the party entitled to residual profits because it performs economically significant functions, assumes economically significant risks, and contributes to value creation. Legal ownership alone is insufficient. The Guidelines also deal with hard-to-value intangibles, or assets whose capabilities to generate future income cannot be properly estimated at the moment of transfer. In such cases, tax authorities can consider the ex post performance to determine whether arm’s length conditions were incorporated in the original pricing. Recognised methods of valuation are functional analysis, comparability studies, discounted cash flow techniques and contingent arrangements such as royalties or milestone payments. To a great extent, this structure is reflected in India’s transfer pricing regime under Sections 161 to 174 of the Income Tax Act, 2025 (IT Act), which govern the computation of income arising from international transactions and specified domestic transactions between associated enterprises in accordance with the arm’s length principle. Section 165 recognises six methods for determining the arm’s length price, while Rule 79 of the Income-tax Rules, 2025 (IT Rules) sets out the manner in which those methods are to be applied. The Cost-Plus Method compensates a service provider by marking up the expenses. The Profit Split Method is used to allocate total profits to related businesses based on their related contributions. The Transactional Net Margin Method helps to compare net margins of similar independent businesses. In 2012, India introduced Advance Pricing Agreements (APA) in order to enhance certainty. An Advance Pricing Agreement is a pre-transaction agreement between a taxpayer and tax authorities stating in advance the way transfer pricing rules will apply to specific transactions (typically over a number of years). Of the over 500 unilateral and bilateral APAs that the Central Board of Direct Taxes (CBDT) had finalised by March 2023, approximately 18 percent were of intangibles. To resolve cases of double taxation, tax authorities in different jurisdictions invoke the Mutual Agreement Procedure (MAP) as a post-transaction dispute resolution mechanism. These mechanisms are effective when there is an identifiable human activity that can be associated with the value creation. Once that assumption fails, the real challenge emerges. The Attribution Paradox: Algorithms as a Value Creation Process The DEMPE model presupposes the involvement of identifiable legal persons informing the human decision-making process and executing economically significant functions. Current AI systems complicate this concept. Large language models, among other high-end predictive models are trained using large datasets to identify patterns and deliver results with minimal human supervision. The data used to facilitate this learning process is referred to as training data. In a conventional analysis, the role of the latter may be identified as routine in cross-border AI arrangements in which the former party develops and trains the model and the latter provides proprietary datasets. The distinction between regular input and value creation becomes difficult when the quality of datasets directly affects commercial performance. The allocation of residual profits therefore relies more on the technological interdependence than on legal ownership. Domestic law displays this uncertainty. The Copyright Act, 1957 (Copyright Act) does not attract any presumption of non-human authorship. Although 2024 governmental clarifications suggested that already developed rules regarding copyright could help regulate the AI-generated works, they did not provide the answer to the more significant question regarding the attribution of ownership. The case of Asian News International v. Open AI (2024) (Open AI) highlights this ambiguity in the impending ruling in the case. The case concerns an admittedly illegal use of copyrighted content to provide training to large language models, but it raises broader concerns regarding control and ownership in AI-driven models. The Digital Personal Data Protection Act, 2023 (DPDP Act) remains silent on the issue of the proprietary rights of AI-generated outputs but only focuses on personal data processing.

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Stalled Runways: Repossession vs Moratorium in Aviation Insolvency

Leave a Comment / Insolvency Law /

[By Arunav Kapur and Jacob Eldho Kalarikkal] The authors are students of Rajiv Gandhi National University of Law, Punjab Introduction In the era of ever-increasing need for expeditious travel and prioritization of convenience, the aviation industry plays a major role in providing swift and accessible transportation. The aviation industry of India recently made history with over 5,00,000 travelling passengers accounted for in a single day. Yet, paradoxically, the industry operates on razor-thin margins. It is a huge loss bearing industry with a net loss of over Rs 110 billion in 2022-2023, driven by high fixed costs, volatile fuel prices, and cutthroat competition on fares. Along with this it is pertinent to highlight the extreme capital required to purchase an aircraft outright. To overcome this, airlines rely on sale-and-leaseback models, leasing up to eighty percent of their fleets from international financiers. However, when an airline defaults on its payments and insolvency proceedings are started, the presence of these international entities who are the lessors of the aircraft causes a complex jurisdictional and statutory conflict. Against this backdrop, the Convention on International Interests in Mobile Equipment (“the Cape Town Convention” or “CTC”) becomes the necessary guiding force. The CTC, aims to reduce the risks of aircraft financing by establishing a predictable, structured and independent framework for lessors to protect their asset i.e. the aircrafts. Through this essay, the authors analyse the conflict between the Irrevocable De-Registration and Export Request Authorisation (“IDERA”) mechanism under the CTC and the statutory moratorium period under Section 14 of the Insolvency and Bankruptcy Code, 2016 (“IBC”). By examining recent legislative advancements leading to the Protection of Interests in Aircraft Objects Act, 2025 (“the Act”) and drawing  insights from U.S. jurisprudence. While giving appropriate arguments and reasoning, the author would highlight rationale behind the prioritization of the IDERA provisions as well as the need to find a balance in aviation insolvency between international financiers and corporate debtors. Domestic Moratorium vs. International Repossession Section 14 of the IBC lays down provisions for a strict moratorium period upon the commencement of a Corporate Insolvency Resolution Process (“CIRP”). This provision provides an automatic stay, prohibiting the enforcement of security or recovery over any asset in the possession of the debtor. It also includes those assets which are under lease with the objective of preserving the debtor as a going concern. In the aviation context, this historically froze the assets of insolvent airlines, prohibiting lessors from deregistering and exporting their aircraft. Conversely, the CTC champions the express repossession of mobile equipment. Under the CTC framework, an IDERA empowers an authorised party (typically the lessor) to procure the deregistration and physical export of an aircraft without judicial impediment, overriding local insolvency moratoriums. For years, this created a severe normative hierarchy dispute in India. The IBC’s asset-freeze ideology clashed directly with the CTC’s asset-recovery mandate. Lessors argued that grounding aircraft during a protracted CIRP inevitably destroys their value, as aircraft are highly depreciable assets that require rigorous, continuous maintenance. Article 13 of the Protection of Interests in Aircraft Objects Act, 2025, which implements the Cape Town Convention, provides for the statutory recognition of the Irrevocable De-registration and Export Request Authorisation regime under the Aircraft Protocol as the only authorised party able to initiate the deregistration and the export of the aircraft, i.e., the lessor, an irrevocable request is made to the local aviation authority to deregister the aircraft and physically remove the plane overriding any local insolvency moratorium. The Go First Catalyst The breaking point for this statutory dissonance was the insolvency of Go First in 2023. When the National Company Law Tribunal (“NCLT”) admitted the airline into CIRP and imposed a moratorium, lessors were barred from repossessing over fifty aircrafts. In response, the Aviation Working Group had downgraded India’s compliance rating, which is used to decide the interest rate and other financials relating to the leasing,  triggering an immediate spike in leasing premiums for all lessees from India. The crisis laid bare a fundamental reality that prioritising domestic insolvency moratoriums over international finance obligations artificially inflates the cost of doing business for the entire domestic aviation sector. Acting under the pressure of plummeting investor confidence, the Ministry of Corporate Affairs issued a notification in October 2023 under Section 14(3)(a) of the IBC, exempting aircraft and engines from the statutory moratorium. While this action facilitated the deregistration of Go First’s aircraft, it was widely viewed as a stop-gap measure. Delegated legislation lacks the permanence often preferred by international financiers. Recognising the need for a permanent measure, the Parliament enacted the Protection of Interests in Aircraft Objects Act, 2025. This legislation formally incorporated the CTC into law, granting it primacy over the conflicting domestic statutes, including the IBC. Crucially, the Act adopted the “Alternative A” under Article XI of the Aircraft Protocol of the CTC. To understand its significance, it is important to understand that the Aircraft Protocol offers its Contracting States a choice of insolvency frameworks. Alternative A is possibly the most rigid, creditor-protective option. It states that upon the initiation of insolvency proceedings, the debtor or insolvency administrator must either cure all defaults and commit to future lease obligations within a strictly defined “waiting period,” or unequivocally surrender the aircraft back to the lessor. This is not a novel  experiment; rather, it is the adoption of a recognised standard that jurisdictions like the United States have enforced for decades, yielding benefits such as significantly lower capital and leasing costs for airlines. Comparative Jurisprudence: The U.S. Standard To understand the mechanics and benefits of the new regime, it is important to look at the country that inspired it the United States. Recognising the unique nature of aviation finance, the U.S. Congress carved out Section 1110 of the Bankruptcy Code. Section 1110 serves as the global gold standard for balancing airline restructuring with lessor rights. It mandates that a lessor’s right to repossess an aircraft is not hindered by the automatic stay, unless the airline debtor, within sixty days of the bankruptcy filing, agrees

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From Form to Substance: Evaluating the SAT Order’s Impact on India’s Related-Party Transaction Governance

Leave a Comment / Capital Markets and Securities Law /

[By Sharad Dhruw] The author is a student of Hidayatullah National Law University, Naya Raipur Introduction In recent years, a significant evolution in the regulatory framework governing related party transactions (RPTs) under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 has taken place. This evolution reflects the SEBI’s transition from a regime that was primarily form-based to that of substance-driven and focused on economic scrutiny of disputed transactions, minority protection, and transparency. In order to achieve these objectives, the Securities Appellate Tribunal (SAT) has established a broad definition of materiality, aggregation, and value transfer in the context of related party transactions by its recent order. The Tribunal has recalibrated the compliance obligations applicable to listed businesses and strengthened SEBI’s broader governance mission by emphasizing economic substance above legal characterization. Through this article, the author examines the SAT’s interpretation of the RPT framework. First, it outlines the key interpretative decisions, which includes related party aggregation, its view of strategic allocations as resource of transfers, its reliance on valuation for materiality and its greater emphasis on non-interested shareholder approval. Second, it examines the concerns these changes raise questions about regulatory proportionality, compliance assurance, and the limits of acceptable engagement in economic decision-making, even as they fortify protections against value diversion and conflicts of interest. Lastly, it puts forth a constructive way forward, informed by legal best practices. Examining the Recent SAT Order Firstly, for the purpose of determining materiality under Regulation 23(1) of the SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015, the transactions which are entered into a related party in a financial year must be aggregated, notwithstanding whether it arises from a single or multiple independent contracts. SAT in its order under Regulation 23 has been treated as a complete machinery provision, mandating aggregation at the level of the related party rather than at the level of individual contractual arrangements. This aggregation-centric interpretation finds resonance in the EU Shareholder Rights Directive II (SRD II), which also mandates comprehensive review of significant related-party transactions in order to identify covert value transfers and protect minority shareholders. Secondly, the tribunal held that the geographical and product allocation of business between related parties with respect to a joint venture or shareholders’ agreement may constitute a “transfer of resources, service or obligations”, which qualifies as a related party transaction under Regulation 2(1)(zc) of the LODR, 2015. This allocation may involve the transfer of profit-making apparatus, including goodwill, customer relationships, and future revenue generating capacity, even in the absence of immediate assets transfer or monetary consideration. This portrays a substance-over-form approach, where impact on shareholder as well as economic consequences are prior over formal legal characterisation. In the regulatory domain, SEBI has consistently emphasised the requirement for an enhanced scrutiny of promoter-driven restructuring that affect minority shareholder, specifically by requiring that all material RPTs must disclose detailed pricing, valuation, and impact information to prevent value migration and ensure transparency. This aligns with IOSCO’s global guidance, which recognize that, transfers of commercial opportunities, intangible benefits, or future economic rights may constitute value transfers in related-party contexts even in the absence of formal asset conveyance, thereby warranting enhanced regulatory scrutiny. Thirdly, the tribunal’s recognition of valuation a crucial mechanism for evaluating the materiality and fairness of complex related party arrangements, specially where transactions involve territorial allocation, business realignment, or transfer of future economic benefits supports the SEBI’s direction to appoint an independent valuer to measure business acquired and lost, while highlighting out that without valuation, it would be impossible to determine whether shareholder approval is necessary or whether materiality thresholds under Regulation 23(1) have been crossed. This clarifies the established corporate and securities law practice where valuation is frequently applied in mergers, demergers and reorganizing transactions to ensure informed shareholder decision making. From a regulatory point of view, SEBI has relied steadily on valuation-assessed assessments in related party transactions, preferential allotments, and scheme approvals, reflecting a wider trend against procedural compliance and towards economic substance and fairness examination. A comparable emphasis aligns in the ESMA’s opinion undue costs in UCITS and AIFs,  stating the need to “identify, prevent, manage and monitor conflicts of interest to avoid detriment to investors,” highlighting similar objectives in material related-party scrutiny. Lastly, the ruling reaffirms the importance of non-interest shareholder approval.  This is a not a mere formality rather a substantive protection intended to protect minority interest in conflict-of interest situations involving related parties when a transaction or arrangement is determined to exceed materiality standards under Regulation 23. This aligns with the legal objective of the strengthened RPT regulation for listed businesses, which sets more stringent governance requirements rather than those found in the Companies Act, 2013 alone.  In Needle Industries Ltd. v. Needle Industries Newey, the Court stressed the importance of treating minority shareholders with fairness and transparency. This is further reflected in SEBI’s ongoing tightening of RPT standards through amendments to the LODR, 2015 Regulations. Similarly, the OECD Principles of Corporate Governance recognises independent shareholder approval as a central mechanism for ensuring accountability and preventing abusive RPT’s. Legal challenges consistent with the order. While the enhanced RPT framework strengthens investor protection, listed companies involved in a variety of commercial arrangements suffer uncertainty due to its broad interpretation of materiality, value transfer, and valuation. These issues indicate that, in spite of its protective objectives, the regime might need to be examined more closely to deliver proportionate and practically feasible control. First, Regulation 23(1) does not provide clarity by requiring all transactions with a related party to be aggregated within a fiscal year, but it also raises questions about how legally and commercially separate contractual arrangements are to be handled. By collapsing legally and commercially distinct contracts into a single aggregated assessment without regard to their underlying nature, purpose, or risk profile, the framework deprives listed entities of a predictable benchmark for determining ex ante whether a particular transaction is likely to trigger materiality thresholds, thereby generating compliance uncertainty. Since, materiality is evaluated cumulatively without taking into account the nature, purpose,

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“Honey (“CCI”), I Blew Up the Jurisdiction!”: The DG’s Unauthorised Sequel to Section 26

Leave a Comment / Competition Law /

[By Aditya Bhargava] The Author is a student of National Law School of India University, Bengaluru Introduction The Competition Act, 2002 (“the Act”) was enacted to ensure fair competition by prohibiting trade practices that have an appreciable adverse effect on competition (“AAEC”) in India. For this purpose, the Competition Commission of India (CCI or “the Commission”) was established and tasked with the duty to: (i) eliminate practices having an AAEC, (ii) promote and sustain competition, (iii) protect the interests of consumers, and  (iv) ensure freedom of trade carried on by market participants, in India.[1] The investigative wing of the CCI, i.e., the Director General (“DG”), assists it in investigations into anti-competitive practices of enterprise(s). Under Section 19 of the Act, any person aggrieved by the anti-competitive conduct of an enterprise can provide information to the CCI, requesting an investigation. Based on the information, if the Commission is of the prima facie opinion that there exists a potential Section 3 or Section 4 violation, it is required to direct the DG to investigate the matter through a Section 26(1) order. As per the Supreme Court’s judgment in CCI v. SAIL, this order acts as the “Jurisdictional Gateway” for the DG to proceed with the investigation. However, the precise scope of the DG’s investigation remains far from clear, considering conflicting jurisprudence from various courts and the latest 2023 amendments to the Act. The latest question is whether, relying on Excel Corp, the DG can unilaterally extend the inquiry to unnamed parties or reclassify Third Parties as Opposite or Contesting Parties without explicit permission from the CCI and in the absence of a mandatory Section 26(1) order. Currently sub-judice before several High Courts is the question of whether this reclassification is merely procedural or whether it also violates Third Parties’ substantive rights under the Act.  I argue that it is the latter, and it must not be preserved under the guise of procedural efficiency, as suggested by the existing literature. This article contends that the DG’s investigation must be strictly confined to the scope of the Commission’s prima facie order. The legislative history of the Competition Act, 2002, reveals a deliberate departure from the preceding MRTP Act, 1969, by stripping the DG of suo motu powers. This established a two-tiered structure: the CCI as a quasi-judicial body with exclusive discretionary authority, and the DG as its purely investigative arm. This statutory separation of powers has been decisively affirmed by the judiciary, particularly in the recent Bombay High Court’s judgment in Asian Paints Ltd. v. Competition Commission of India, which pointed towards the CCI’s supreme role in forming a prima facie opinion under Section 26(1). Consequently, I argue that the DG cannot unilaterally implead new parties or reclassify third parties as opposite parties, as this would constitute jurisdictional overreach and a back-door attempt to reclaim suo motu powers. Therefore, should an investigation reveal the culpability of a new enterprise, the only legally sound procedure is for the DG to refer the matter back to the Commission and seek explicit permission from the Commission. Only the CCI has the authority to apply its mind and issue a fresh or supplemental Section 26(1) order to expand the inquiry. Furthermore, any party subsequently impleaded must be formally notified of its status as an “Opposite Party” and afforded all attendant procedural and substantive rights. The Statutory Architecture of Sections 26 and 41 read with the General Regulations Section 26 is a carefully crafted provision that must be read alongside Sections 19 and 41. Section 19 empowers the CCI to form a “prima facie opinion” on the basis of information, a reference, or its own knowledge. Once the Commission reaches that opinion, it shall and only then issue an order under Section 26(1) directing the DG “to cause an investigation into the matter”. The phrase “the matter” is significant: textually, it refers to the specific allegations, theories of harm, and named enterprises that gave rise to the Commission’s prima facie satisfaction. Consequently, the Act does not authorise the DG to amend, expand, or substitute “the matter”; it merely authorises the DG to investigate exactly what the Commission has delineated in its Section 26(1) order. Notably, under the Monopolies & Restrictive Trade Practices Act, 1969 (the Competition Act’s predecessor), the DG possessed suo motu powers, powers explicitly removed by the Raghavan Committee in recommending the Competition Act 2002. This legislative history clarifies the intent: the DG’s authority is strictly derivative, and the DG, being an independent office, must operate at an ‘arm’s length’ from the CCI. A clear reading of Section 41, which provides for the powers of the DG, supports this. The Section is triggered only “when so directed by the Commission”. Its subsection (4) distinguishes between (a) “officers, employees and agents of the party being investigated” and (b) “any other person,” and obliges the DG to secure the Commission’s prior approval before examining the latter on oath. The dichotomy created by the subsection presupposes clarity, at every stage, as to who is the party under investigation and who is merely a third‑party information holder. The reason this differentiation is crucial is due to the difference in rights afforded to differently designated parties under the Act.  In particular, classification as an “opposite party” triggers rights such as notice, inspection of records, and participation in proceedings, alongside exposure to penalties and remedial orders, whereas a third party does not enjoy these rights nor bear such liabilities. The General Regulations, in force since 2009 and amended in 2024, reinforce this dichotomy by separating Regulation 24 (joinder of necessary parties) from Regulation 25 (participation of interested persons). Each of these is predicated on an application and a reasoned order of the Commission. Neither empowers the DG to alter party status proprio motu. The Commission’s power under Regulation 20 to “call for information from any person” is investigatory, not adjudicatory. When read alongside Section 36(1), which requires the Commission to be guided by natural justice, the text supports a clear proposition: the identity of

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How Residential DAGPAs Can Enter Into Commercial Courts

Leave a Comment / Commercial Courts Act /

[By Venna Siddharth Reddy] The author is a student of UPES  School of Law, Dehradun   In the high-stakes arena of real estate litigation, the choice of forum is rarely just procedural; it is a decisive strategic manoeuvre. Developers, seeking to enforce the rigid timelines and expeditious disposal mechanisms of the Commercial Courts Act, 2015, invariably attempt to shoehorn disputes into the “Commercial Division.” Similarly, landowners typically retreat to the traditional Civil Courts, preferring the broader procedural latitude and, the delays that are inherent in the Code of Civil Procedure. For years, this tug-of-war was settled by the Supreme Court’s strict constructionist ruling in Ambalal Sarabhai Enterprises Ltd. v. K.S. Infraspace LLP. The Supreme Court interpreting the  Section 2(1)(c)(vii) which governs agreements relating to immovable property laying down a formidable barrier stating that, for a dispute to be “commercial,” the property in question must be actually used exclusively in trade or commerce at the time of the agreement. Under this doctrine, a Development Agreement-cum-General Power of Attorney (DAGPA) for a future residential project would fail the test, as raw land destined for housing is not “currently commercial”. However, a judicial pivot is underway. Recent rulings from the High Courts of Telangana and Andhra Pradesh specifically in Blue Nile Developers v. Movva Chandra Sekhar have engineered a potent workaround to the Ambalal blockade. By reclassifying these disputes from “agreements relating to immovable property” (Clause vii) to “construction and infrastructure contracts” (Clause vi), these courts have effectively rendered the residential nature of the land irrelevant. This article analyses how this “Infrastructure Loophole” is reshaping the jurisdictional landscape, allowing residential disputes to bypass the Supreme Court’s usage test and enter the Commercial Courts through the backdoor The “Infrastructure” Loophole: The Blue Nile Doctrine The jurisprudential shift away from Ambalal Sarabhai finds its most aggressive articulation in the Andhra Pradesh High Court’s ruling in Blue Nile Developers Private Limited v. Movva Chandra Sekhar. Here, the Court was presented with a textualist defence that Blue Nile argued that the phrase “construction and infrastructure contracts” in Section 2(1)(c)(vi) must be read conjunctively. Under this restrictive interpretation, a contract would only qualify if it involved both construction and infrastructure typically implying large-scale public works like highways or bridges, rather than private residential villas. The High Court dismantled this restrictive syntax with a decisive purposive interpretation. It reasoned that reading the clause in isolation or restrictively would “frustrate the meaningful definition” intended by the legislature. The Court effectively parsed the statutory language of Section 2(1)(c)(vi) into three distinct, standalone categories: (1) Construction Contracts; (2) Infrastructure Contracts; and (3) Construction and Infrastructure Contracts. By holding that the provision covers any of these categories independently, the Court removed the requirement for a project to be “infrastructure” in the traditional public sense. This semantic decoupling is the “judicial innovation” that allows private residential construction to be read simply as a “construction contract,” thereby triggering commercial jurisdiction without needing to satisfy the “trade or commerce” requirement of land usage. The important aspect here us that the Court stretched the definition of “infrastructure” itself. Rejecting the notion that, infrastructure is the exclusive domain of public utilities, the Court relied on broad dictionary definitions, citing Oxford, and Merriam-Webster to define “infrastructure” simply as the basic physical and organizational structures needed for operation. Applying this logic to residential projects, the Court catalogued standard private amenities “storm water disposal,” “solid waste management,” “sewerage treatment plants,” “street lights,” and even “100% Diesel Generator backup” and labelled them as infrastructure. The Court concluded that because the Development Agreement involved creating these systems, the dispute arose directly from a “Construction and Infrastructure Contract”. This ruling represents a pivotal expansion of the Commercial Courts Act, 2015. By elevating the internal utilities of a private gated community to the status of statutory “infrastructure,” the High Court has effectively standardized the commercialization of residential disputes. The logical corollary of the Blue Nile doctrine is that almost any large-scale residential project which inevitably requires drainage, power backup, and internal roads is now a “commercial” infrastructure project by default. The distinction between a civil suit for home construction and a commercial infrastructure dispute has thus shifted from the nature of the land (public vs. private) to the complexity of the amenities, effectively moving high-value residential litigation permanently into the commercial sphere. The “Activity over Asset” Shift While the Blue Nile judgment broadened the definitions, the Telangana High Court using the Blue Nile ruling expanded on the interpretation. In Legend Estates Private Limited v. P Srinivas Reddy 2024, provides the procedural blueprint for this jurisdictional capture. The analytical pivot here is subtle yet profound. The Court moved the inquiry from the status of the asset to the substance of the activity. The petitioner (Legend Estates) in this case mounted a classic defence rooted in the Supreme Court’s Ambalal Sarabhai precedent, arguing that the Development Agreement-cum-General Power of Attorney (DAGPA) did not involve property “used exclusively in trade or commerce”. However, the Division Bench explicitly held that Ambalal was “of no assistance” to the petitioner (Legend Estates). The Court’s reasoning was surgical: Ambalal interprets Section 2(1)(c)(vii) (agreements relating to immovable property), but the Court found that the dispute actually fell under Section 2(1)(c)(vi) (construction and infrastructure contracts). By re-categorizing the agreement under Clause (vi), the Court rendered the strict “commercial use” requirement of Clause (vii) legally moot. To justify this classification, the Court did not look at the title of the agreement but deconstructed its specific performance obligations. It read the DAGPA and the Supplementary Agreement as a single, integral corpus. The Court isolated specific clauses to prove the “construction” character of the deal. Clause 7 obligated the developer to take “total responsibility of the construction of Row Houses”. Clause 34 mandated the construction of a “Club House/Resort”. Clause 40 detailed infrastructure specifications like “underground cabling” and “WBM Roads”. The Court concluded that these were not merely agreements to sell land but were fundamentally contracts to construct This ruling effectively establishes an “Activity over Asset”

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Proposed Section 28A of IBC: Efficiency Gains or Disproportionate Burden on Guarantors?

Leave a Comment / Insolvency Law /

[By Vanshika Kamboj] The author is a student of Rajiv Gandhi National University of Law   Introduction The Insolvency and Bankruptcy Code (“IBC” or “the Code”) has reshaped India’s approach to insolvency aiming to strike a balance between creditor recovery and fair treatment of debtors and other stakeholders. At its core, the Code is built on the ideas of value maximisation and equitable, efficient, and transparent processes. The Insolvency and Bankruptcy Code (Amendment) Bill, 2025 (“the Amendment”), although builds on the same principles, marks a significant shift by introducing Section 28A which allows pooling of assets of corporate and personal guarantors (“guarantors”) with the Corporate Insolvency Resolution Process (“CIRP”) or liquidation estate. The Amendment aims to remove complexities and reduce delays by aligning with the Transfer of Property Act 1882 (“ToPA”) and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (“SARFAESI”). However, the real effect may be less about “harmonisation”, and more about legislative dominance, potentially overriding existing substantive provisions under other laws. While the Amendment may appear to be well-intentioned, it raises important questions about how far the law can stretch without weakening the existing statutory and constitutional safeguards available to the guarantors. Section 28A gives the Resolution Professional (“RP”) the power to bring guarantors’ assets into the ongoing CIRP or liquidation estate. It allows the RP to use or transfer them as part of a resolution plan – which marks a significant expansion of its authority. This approach marks a shift from the inter-partes framework of the ToPA (where rights arise between specific parties) to the in-rem nature of IBC proceedings (which bind all stakeholders without explicit exceptions). Hence, the real concern is whether pooling third-party assets effectively converts a single-entity, inter-party process into a collective exercise of resolution – which transgresses the existing protections. Notably, the Parliamentary Select Committee in its report on the Amendment bill dated December 17, 2025 left the issues unaddressed. Instead, it adopted the ministry’s view that 28A is merely a facilitative provision and does not override any substantive rights under any other statute, mainly ToPA and SARFAESI. This analysis interrogates this legal fiction by examining the legislative reasoning, procedural implications, and potential constitutional and jurisprudential tensions it creates. It also analyses whether Section 28A genuinely advances value maximisation or risks deepening inequities. The analysis first discusses the intent and the procedure under section 28A. Second, it critically analyses the potential conflicts with current substantive laws, especially ToPA and SARFAESI and determines their implications on guarantors’ rights. Last, the analysis examines constitutional and jurisprudential implications of the amendment, and outlines the safeguards that should be included to guarantee equitable enforcement.  I. RATIONALE AND CONTEXT OF SECTION 28A Section 28A aims to simplify insolvency processes and allow greater creditor recovery by pooling the assets of the guarantors with the CIRP or liquidation estate. Before this amendment, third-party security holders (creditors in whose favour an asset is pledged or provided as security for another borrower’s borrowing) had to pursue recoveries pursuant to ToPA or SARFAESI, which usually resulted in delays, piecemeal recoveries, and increased litigation. Section 28A allows the creditor to pool the guarantor’s assets, whether personal or corporate, in the ongoing CIRP or liquidation proceedings. This inclusion is subject to the sanction by the Committee of Creditors (“CoC”) or creditors representing a specified majority, i.e. in case of a corporate guarantor going through CIRP, then at least 66% of CoC approval, and in case of a personal guarantor’s insolvency or bankruptcy, then by a majority of 75% in value of creditors. This is applicable when the creditor has the lawful possession of those assets. Once approved, the RP integrates the asset into the estate. Then, the Resolution Applicants (“RA”) can bid on the bundled package, with proceeds first adjusting the CD’s debt (after preservation costs), and any surplus is then returned to the guarantor. Further, Section 28A (2) creates a legal fiction by deeming that, once the assets are transferred into the estate, the buyer (potential RAs) acquires the title as though the transfer was made by the real owner i.e., the guarantor. It provides for an unencumbered title, overriding prior encumbrances, third-party claims, or inter partes rights under ToPA/SARFAESI.  II. INFRINGEMENT OF GUARANTORS’ RIGHTS While Section 28A aligns with the core objectives of IBC, i.e., value maximisation and safeguarding the interests of stakeholders, it undermines the statutory rights of the guarantors under ToPA and SARFAESI. This also results in a violation of Article 300A of the Constitution of India (“COI”). In Lalit Kumar Jain v. UOI (2021), the Hon’ble Supreme Court (“SC”), while upholding the inclusion of personal guarantors into the IBC framework, stressed that their liability remains distinct. Contrarily, Section 28A dilutes this by letting guarantors’ assets commingle with CIRP or liquidation estate, effectively subsuming the guarantee contract into the debtor’s insolvency, and hence, leaving the guarantor with far less control. The following violations are apparent: 1.Under ToPA Section 28A (2) provides that “the transfer of an asset referred to in sub-section (1) under a resolution plan shall vest in the transferee all rights in, or in relation to the asset, as if the transfer had been made by the owner of such asset.” This effectively grants ownership rights over a mortgaged asset. This position conflicts with ToPA as it limits a mortgagee’s interest to possession and enforcement only, and not ownership. Further, under Section 60 of the ToPA, the guarantor retains a statutory right of redemption, and even in the case of default, no right of ownership is transferred to the mortgagee. The only right a mortgagee gets is the right to file a suit of foreclosure u/s 67 of the ToPA. Ownership of the property can only be claimed through a suit of foreclosure, and once an order for sale or transfer of the ownership is passed, it must be followed by execution of a registered deed. The SC, in Narandas Karsondas v. S.A. Kamtam and Anr, reiterated that a mortgagee’s rights are limited, and ownership of a property can

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