Author name: CBCL

Safeguarding Bonafide Taxpayers: Reconsidering Section 16(2)(C) of the Cgst Act

Taxation Law /

[By Madhu Murari K] The author is a student of Rajiv Gandhi National University of Law, Punjab. The Goods and Service Tax (GST) laws have been enacted to overcome the difficulties of the multiple tax regimes and to get away from the tariff and non-tariff barriers which would hinder the free flow of trade throughout the Country. The structure of GST is of a destination-based consumption tax with input tax credit (ITC) of the tax paid on goods or services at each stage available in the next stage of value addition for avoiding cascading effects irrespective of the destination, be it an inter-state supply or intra-state supply. Section 16 of the Central Goods and Service Act, 2017 (CGST Act) lays down the conditions in which ITC can be claimed. One of the conditions under Section 16(2)(c), which denies ITC to buyers/recipients if the sellers have not remitted the tax to the government. Denying of ITC to the purchaser dealer for default of supplier dealer over whom the purchaser dealer has no control, is an arbitrary and irrational exercise of powers. While earlier commentaries on the impugned provision have primarily focused on drawing comparisons between various judicial decisions from the former tax regimes, current academic discourse on the issue appears limited. Recent judicial decisions demonstrate that courts have either favoured the revenue’s position by upholding the provision or have directed the authorities to conduct thorough investigations before holding a recipient liable for non-payment of tax. Nevertheless, none of these discussions offer a substantive alternative to resolve the present legislative dilemma, leaving a significant gap in the policy analysis on the issue. The prime tenets which would be delved into this particular piece are: firstly, the contention that the impugned provision violates the equality guaranteed under Article 14 of the Constitution, secondly, an analysis of this provision through the lens of doctrine of impossibility, and thirdly, proposal of potential solution that could benefit both the bonafide recipients and the government. Arbitrary classification under Article 14 The principle of equality, is enshrined in Article 14 of the Constitution of India. The guiding principle of this article is that everyone should be treated equally by the state and its essence lies in the prohibition of unequal treatment to individuals who are equal and at the same time it permits valid classification made by the state to avoid arbitrary denial of rights to equals. The Supreme Court (SC) in the EP Royappa v. State of Tamil Nadu, duly held that classification must be based on an intelligible differentia that is bona fide and meaningful, and must serve a legitimate legislative goal. A valid classification does not require mathematical nicety and perfect equality. If there is a similarity or uniformity within a group, the law will not be discriminatory. Analyzing the issue at hand, the Section 16(2)(c) lays a prerequisite for claiming ITC that if the sellers have not transferred the tax amount to the government, then the recipients of goods are not eligible for ITC credit. It draws no distinction between the bonafide purchasers and culpable purchasers who are in collusion with defaulting sellers. This arbitrariness is further aggravated by the fact that while the Government reverses the ITC availed by the buyer and simultaneously demands tax, interest, and penalty from the seller. The effect of such parallel actions is that the revenue secures a double recovery of tax, which is wholly inconsistent with the equitable principles of fiscal law. Precedents can be referred from the earlier Value Added Tax (VAT) regimes, such as Arise India Ltd v Commissioner of Trade & Taxes (Arise India), wherein, the court struck down a materially similar provision under the Delhi VAT Act, holding that law cannot complied in good faith if it imposes disproportionate consequences upon a bona fide purchasing dealer for mere non-compliance of the seller, it risks falling foul of the equality guarantee enshrined in Article 14 of the Constitution. In a very recent pronouncement, the SC in the Commissioner Trade and Tax Delhi v. M/S Shanti Kiran India, also ruled that ITC under the Delhi VAT Act, cannot be denied to bona fide purchasers when sellers fail to deposit VAT. By following the decision in Arise India, it emphasized that at the time of transaction the sellers were duly registered, invoices were genuine and there was no collusion between parties, hence paving the way for equitable treatment to the bonafide purchasers. Even though revenue protection is a legitimate legislative objective, fraudulent, and innocent transactions cannot attract the same punitive measure. However, to impose the same penalties on a bona fide purchaser who has fulfilled all his legal requirements but cannot control the supplier’s compliance is an unjustifiable burden that goes against the constitution and defeats the purpose of the GST framework. This analysis proves that Section 16(2)(c) is ultra vires the quintessential Article 14 of the Constitution by treating both the guilty and the innocents at par. Doctrine of Impossibility The maxim, “Lex non Cogit Ad Impossibilia” means that the does not compel one to impossible things. This is foundational principle in contract law providing relief to parties when the performance becomes impossible wholly due to reasons out of their control. Over the course of time, this principle has expanded to taxation law across globe, especially when the statutory framework places responsibilities on taxpayers to perform an impossible act. Addressing the issue at hand, the Section 16(2)(c) postulates such a scenario where the recipient of goods has to not only to fulfil his duties, but also to ensure that the supplier of goods remits the tax to government to claim ITC. Also, statutorily the recipient is not required to ensure compliance of tax remittance to the government by the supplier. Further in Arise India, the court observed that purchasing dealer cannot reasonably be expected to perform the impossible task of foreseeing which selling dealer may eventually default in remitting the tax collected to the Government and to accordingly refrain from transacting with such sellers.

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Turning Points in the Indian Corporate Landscape: A Private Equity Lens

Mergers & Acquisitions /

[By Isha Khurana] The author is a corporate lawyer. Introduction Over the last decade, Private Equity (PE) has emerged as a primary financing mechanism for Indian corporations. Previous literature has examined how the typical leveraged buyout (“LBO”) model employed by private equity investors in other jurisdictions was not feasible in India due to regulatory restrictions.Thus, PE investors structured their investments as minority shareholdings, with a wide range of investor rights to protect their investments. While the investor rights typically granted to PE investors are beneficial for both the investor and the firm, the investor rights so granted have faced severe scrutiny by Indian authorities, such as the Competition Commission of India (CCI). Moreover, the 2025 Commercial Banks – Capital Market Exposure Draft Directions (2025 Directions) by the Reserve Bank of India (RBI) seek to open the door for banks to fund corporate acquisitions. The 2025 Directions allow banks to increase their capital market exposure (an area that has been heavily regulated so far) while also limiting the participation of PE funds in raising capital. This paper analyses the two developments collectively and argues that they may alter the mergers and acquisitions landscape in India while simultaneously limiting the growth of PE investments. CCI’s Concerns with PE investors CCI, as the anti-trust authority of India, is concerned with ensuring fair competition and equitable investor rights. The CCI had earlier taken a quantitative approach to assessing competition where “control” was seen only through the lens of shareholding percentages. Until this time, the CCI did not scrutinize PE investments due to their position as minority shareholders. Over time, however, the CCI integrated the substance over form approach  in its assessments and began delving into qualitative features such as the investor rights. As a part of these investor rights, PE investors typically negotiate for, inter alia, information rights, veto rights, right to board representations, reserved matters, and exit rights. From their standpoint, this helps them protect their investments in a largely family-business controlled business environment wherein promoter opportunism is a major obstacle. However, from the CCI’s perspective, these rights move the investment outside the ordinary course of business and make PE investors privy to sensitive information. While PE investors may not exercise control through shareholding, their veto rights and director appointment powers enable them to influence a firm’s business decisions. Thus, the CCI views such influence as a strategic investment, making it reportable under prevailing laws and regulations. This background led to the CCI’s scrutiny of Goldman Sachs’ investment this year, as the authority found that the investment goes beyond the scope of a minority investment. The CCI’s approach is a departure from its earlier quantitative approach, but still aligns with global practice. Interestingly, the EU’s competition commission has similarly found that governance rights amount to strategic investments and go beyond the scope of a minority investment due to the element of decisive influence. These events mark a shift in the regulatory approach, since anti-trust and competition authorities have typically focused on competition at the market level but now are venturing into competition concerns at the investor level as well. Authorities across jurisdictions seek to prevent any fund or group of funds from engaging in transactions that may accord it strategic control or market influence over any industry. What remains concerning, is the PE funds primary focus to build their portfolios and maximise returns. So, in theory, PE funds may share important business and market information of firms that they have invested in (belonging to the same industry) to maximize their returns. This may lead to serious competition concerns, thereby warranting concerns from competition authorities. Moreover, most PE investors negotiate for exit rights, as they leave an investee firm after maximizing returns ( through an IPO or otherwise). However, this raises concerns regarding market and industry stability that must be addressed. We have established that the CCI’s approach in the Goldman Sachs decision aligns with that of the competition authorities of other jurisdictions. However, it is worth noting that in the Indian landscape, PE investors have had to modify their investment model (moving away from an LBO). PE investors in India have no alternative but to rely solely on investments as minority shareholders, while this may not hold true in other jurisdictions. While PE Funds’ governance and exit rights may raise concerns, one cannot ignore their importance, since they are key to maintaining a favorable investment landscape for PE investors. Unfortunately, the CCI’s recent findings have distinct implications for the PE industry in India, as they severely increase the compliance and reporting burdens. Due to the CCI’s recent findings and scrutiny of most governance rights, PE investors may be forced to report perhaps all their investments, which is extremely cumbersome. These compliances may eventually deter  PE investments and work against the PE framework, which has grown in India. In the larger scope, it could substantially alter the investment landscape in India altogether when viewed with the RBI draft master directions discussed hereinafter. Consequently, a revised PE model addressing competition concerns whilst maintaining essential investor protections is essential for sustainable PE growth in India. RBI’s Move Towards Acquisition Financing The RBI on 24th October 2025 issued the 2025 Directions for capital market exposures by commercial banks, thereby allowing Indian banks to finance corporate acquisitions, which was previously off-limits. The 2025  Directions define acquisition financing as the lending funds to a company (acquiring company) for the purchase of all, or a controlling portion of the target company. Interestingly, acquisition financing seems to follow the same model of financing or investing as an LBO. An LBO is the acquisition of a target company by an acquirer, where the acquirer company uses debt for such acquisitions. Such debt is typically borrowed from one or multiple lenders (which are usually commercial banks). Since there is a high risk of non-payment here, the assets of the target company are often provided as security against the debt undertaken. It is interesting that the RBI now allows commercial banks’ entry in

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Segregation or Substance? Assessing Sebi’s Ring-Fencing Framework for Debenture Trustees

Capital Markets and Securities Law /

[By Himansh Soni and Ankit Kumar Yadav] The authors are students of Hidayatullah National Law University,Raipur. Introduction India’s corporate bond market has been witnessing a pronounced expansion, with outstanding issuances nearing the Rs. 55 trillion mark. Notwithstanding the substantial surge, the limited retail investor participation has been a persistent challenge to the evolving bond market. In response, the Securities and Exchange Board of India (‘SEBI’) has taken steps aimed at broadening retail participation in the market, such as the recent proposal to incentivize the issuance of certain public bonds. However, the effectiveness of these measures’ hinges on the structural soundness of the expansionary reforms and the underlying market structure. In pursuit of structural development in the corporate bond market, the board issued a circular specifying the conditions for debenture trustees (‘DTs’)  for carrying out non-regulated activities (‘Circular’). This comes in furtherance of the Securities and Exchange Board of India (Debenture Trustees) (Amendment) Regulations, 2025, which allowed debenture trustees to undertake activities that fall outside the purview of SEBI and are regulated under any other financial sector regulator. The conditions outlined by the regulator mark an unprecedented step, in terms of global regulatory practices, towards building the financial viability of the job of DTs while advancing the board’s objective of making the bond market retail-friendly. In this blog, the author offers a critical analysis of various aspects of the circular, including the structural segregation adopted by means of the Separate Business Unit (SBU) ring fencing mechanism for DTs. To begin with, it addresses the key implications of the circular, along with their legal context and analysis of global best practices. Secondly, it highlights the potential shortcomings of the segregated mechanism adopted in the circular. Finally, it proposes recommendations by the author to alleviate these challenges, summing up the circular with a way forward. Decoding The Reforms The SEBI, exercising its statutory powers under Section 11(1) of the Securities and Exchange Board of India Act 1992, has regulated the undertaking of activities outside its purview by the DTs by the insertion of Regulations 9C and 15A in SEBI (Debenture Trustees) Regulations, 1993 (‘DT Regulations’), which provide for the permitted non-regulated activities and enhanced oversight powers of DTs, respectively. The regulatory intervention aims to resolve the financial unsustainability of the job of the DTs arising out of low income from fees, in contrast to high monitoring costs. However, regulators’ limited resources may be better deployed to protect retail-level and vulnerable consumers than those who have greater levels of experience or net worth. The SEBI, in furtherance of Regulation 9C of the DT Regulations, specified the conditions for DTs to undertake non-regulated activities. Firstly, the board has mandated that non-regulated activities be conducted on an arm’s-length basis only by the Separate Business Unit (SBU) of DTs. This measure is to prevent potential conflicts of interest that could arise when the monitoring and enforcement functions of DTs owed to debenture holders are superseded by commercially motivated non-regulated activities. It aligns with Schedule III of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008, which requires intermediaries to mitigate and disclose any conflict of interest.  The principle of prevention of conflict of interest is also reflected in international legal principles, such as the International Capital Market Association’s note on International Practices of Bond Trustee Arrangements, which expects the trustees to act independently by avoiding conflicts of interest. However, in other global jurisdictions, the principle of prevention of conflict of interest has not been translated into the incorporation of a ring-fenced mechanism for trustees. For instance, Section 310(b) of the US’s Trust Indenture Act of 1939 employs only a time-bound approach by providing DTs with a ninety-day period to eliminate any conflict of interest. The regulator’s prescriptive approach represents a regulatory refinement unique to Indian market conditions, which has a narrow and fragile investor base with a retail participation of less than two percent, in contrast to developed markets such as the US, where retail participation is estimated at 28 percent. Secondly, Each SBU must have a “Chinese Wall” that insulates it from trustee operations, with dedicated and independent staff, a separate grievance-redressal framework, and individually maintained records. Further, Shared IT systems or infrastructure may be used, but only with explicit board-approved protocols. SEBI has also strengthened transparency requirements, as DTs must display the mandatory disclosures for investors on their websites. he use of Chinese walls as a segregation mechanism is consistent with international regulatory practices. The Senior Management Arrangements, Systems and Controls Sourcebook (SYSC) 10.2 of the United Kingdom’s Financial Conduct Authority (FCA) requires firms to establish a Chinese wall arrangement to manage conflicts and internal information regulation. The need for the establishment of information barriers has been repeatedly underscored by market failures such as the London Whale scandal, wherein the investigations highlighted the possibility of concealment of losses in the information booklet by chief information office (CIO) employees. Similarly, in the Enron Scandal, the firm exploited the obscurity in both the internal control and accounting loopholes to conceal outstanding debts, leading to the enactment of the Sarbanes-Oxley Act of 2002 to reinforce internal controls and the financial reporting standards. Shortcomings Of The Framework While the Circular marks a major step towards building the financial viability of DT’s job in line with market realities in the Indian corporate landscape, which continues to exhibit fragile retail participation, concerns surrounding the expected challenges to its efficiency demand closer examination. Firstly, whereas the board requires an arm’s length separation structure, the structure does not stipulate operational standards, including the requirement of independent reporting lines. In the absence of independent reporting lines, the segregation risks being merely functional rather than institutional, conflicting with the aim of mitigating conflicts of interest. For instance, if the heads of both the SBUs report to the same senior management, there may be an overlap in managerial decisions over operational decisions, which will influence the outcomes of enforcement. In such a structure, the trustee SBU may hesitate to promptly report and enforce covenant

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One Nation, One Tax & One Action: The Parallel Proceeding Conundrum

Taxation Law /

[By Kushagra Jaiswal] The author is a student of Nalsar University of Law. Introduction On 14 August 2025, in M/s Armour Security (India) Ltd. v. Commissioner, CGST, Delhi East Commissionerate & Anr.,(“Armour Security”)the Supreme Court (“SC”) pronounced on the meaning and purpose of Section 6(2)(b) of the Central Goods and Services Tax Act, 2017 (“CGST Act”). The crux of the matter was whether the issuance of summons under Section 70 could be characterized as “initiation of proceedings” when a related matter was currently under investigation by another GST authority. The petitioner contented that the authorities could not take these parallel approaches as dual action would contravene the bi-jurisdictional bar on them in Section 6(2)(b) and undermine cooperative federalism that is contemplated in the GST law. Through Justice J.B. Pardiwala, the Court disagreed with this argument and noted that a summons is an investigatory tool rather than a process of adjudication. A summons is solely used by the Department to gather information to determine whether legal proceedings should be brought. A summons cannot be considered “commencement of proceedings” under Section 6(2)(b) as it does not render a finding of liability nor issue a show cause notice (“SCN”). The Court confirmed that concurrent proceedings are not allowed on the same subject matter and against the same person (Emphasis supplied), but it nevertheless upheld the validity of the CGST summons on this basis. An Economic Times report reveals that parallel proceedings under GST are anything but rare. Official estimates suggest nearly 10,000 taxpayers have faced simultaneous action by both Central and State authorities. This figure underscores the systemic, not incidental, nature of the problem. This article analyses the Supreme Court’s ruling in Armour Security, highlights the persistence of parallel proceedings despite safeguards, and proposes a VAT Information Exchange System (“VIES”) like framework within Goods and service Tax Network (“GSTN”) to prevent duplication. What Did The Court Say? The jurisprudence surrounding Section 6(2)(b) of the CGST Act has steadily delineated the contours of “proceedings” vis-à-vis “inquiry.” The High Courts (“HC”) in G.K. Trading v. Union of India & Kuppan Gounder case, have underscored that the power to summon under Section 70 is investigatory in character, whereas “proceedings” connote adjudicatory steps such as assessment, demand, or penalty. Nevertheless, despite this doctrinal clarity, the persistence of duplicative actions remains unmistakable. The Orissa HC in the Anurag Suri case quashed a State GST SCN where the Central authority was already seized of the matter, observing that such overlap imposes needless hardship on taxpayers. Likewise, the Delhi HC in the Indo International Tobacco case drew attention to the practical complexities of concurrent jurisdiction, noting how fragmented enforcement fosters administrative inefficiency and conflicting outcomes. The SC also took note of the petitioner’s reliance on Vivek Narsaria v. State of Jharkhand, where both the Central and State GST authorities commenced investigations at the same time, ultimately compelling the assessee to reverse his input tax credit. The petitioner relied on this case to highlight how overlapping jurisdiction creates hardship. However, the Court articulated that the factual matrix was materially different, noting that in that case the grievance stemmed from simultaneous investigations concerning the same matter, while in this instance, the search took place only after the prior assessments and pending proceedings had been completed. Based on those findings, the reasoning was determined to be inapplicable. This issue pertains to the very design of the GST structure, which rests inter alia, on the concepts of ‘single interface’ and ‘cross empowerment.’ On their face, these two concepts might seem contradictory, but the Court explained they complement each other, not stand in conflict. The single interface principle aims to abolish the dual system of administrative oversight, which prevents a taxpayer from being supervised by various authorities regarding the same compliance. The principle embraces the idea that GST, even if it is a dual levy, is administered through a single interface whereby compliance with CGST, SGST and IGST is met simultaneously. Cross empowerment allows for Central and State authorities to undertake enforcement power, albeit not in parallel. Therefore, maintaining the federal balance: both levels of the Government have the authority to enforce, but jurisdiction should not be exercised in parallel in order to avoid duplication of the exercise of jurisdiction. Together, these two principles embody the cooperative federalism that underlies the GST, promising simplicity and fairness for taxpayers. The Conundrum Of Parallel Proceeding While the ruling definitively resolves the narrow legal issue, it makes equally clear what it foreshadows as a deeper execution problem, i.e. taxpayers still remain subject to processes by multiple agents with overlapping statutory jurisdiction. Actions taken by statutory authorities with overlapping jurisdiction may be lawful, and they do violate the overall spirit of GST i.e “One nation, One tax.” While the Court prohibits parallel proceedings on the same subject with respect to the same assessee, the absence of institutional coordination between the Centre and the States only permits it to continue. Bridging the coordination gap will require structural change in procedure, sharing of data, jurisdictional allocation of authority, and cross-empowerment among the actors involved, not simply an interpretation of judicial meaning. The government sought to curb duplication through a  circular dated 5 October 2018, which authorised both Central and State tax authorities to initiate intelligence-based enforcement across the taxpayer base. The authority that first acts was mandated to carry the matter to its conclusion, including investigation, SCN, adjudication, recovery and appeal.Yet, despite these safeguards, judicial precedents reveal that parallel proceedings persist. Courts across jurisdictions have repeatedly quashed duplicative SCNs and inquiries, for instance, in M/S Toyota Kirloskar Motor Pvt. Ltd. v. Union of India, Baazar Style Retail Ltd. & Anr. v. Deputy Commissioner of State Tax, et al., underscoring the continuing breach of Section 6(2)(b). In fact, the Supreme Court itself in Armour Security (¶ 98–99) emphasised the pressing need for better coordination. The Court observed that since both Central and State authorities rely on a common IT infrastructure, it is imperative that they act in harmony and exercise heightened

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Sebi’s Expanded Strategic Investor Framework: The Double-Edged Sword

Contemporary Issues /

[By Divyansh Chauhan] The author is a student of Rajiv Gandhi National University of Law, Punjab Introduction: The Bordered Scope of the Strategic Investor In a move aimed at broadening institutional participation and deepening India’s capital markets, the Securities and Exchange Board of India (SEBI) has come up with changes meant to reform the meaning of Strategic Investor under the SEBI (Real Estate Investment Trusts) Regulations, 2014 and the SEBI (Infrastructure Investment Trusts) Regulations. The proposed revision attempts to align this definition with that of Qualified Institutional Buyers (QIBs) as provided in the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. Before this, who could qualify as a Strategic Investor was limited to two specific definitions set out in India’s investment regulations. These rules applied to the two major investment structures used in real estate and infrastructure:  InvIT Regulations for Infrastructure Investment Trusts, which pool investor money to fund projects like highways, transmission lines, and power plants and secondly, REIT Regulations for Real Estate Investment Trusts, which invest in income-generating properties such as offices, malls, and commercial complexes. It focused on a few parties like infrastructure finance companies incorporated as NBFCs, scheduled commercial banks, multilateral and bilateral development financial institutions, systemically important NBFCs, foreign portfolio investors, insurance companies and mutual funds. While this structure maintained a focused pool of financially sound participants, it left limited room for a larger institutional base. The new definition includes other foreign portfolio investors than individuals, corporate bodies and family offices, an insurance company registered by the Insurance Regulatory and Development Authority of India (IRDAI), a mutual fund and any other qualified institutional buyer according to the definition of Regulation 2(1)(ss) of the ICDR Regulations. Yet the existing investment conditions remain unchanged, strategic investors are still required to commit a minimum of five per cent of the total offer size, with a lock-in period of 180 days after listing. Although the motive is to enhance institutional participation, the change might erode the distinction between strategic investment and simple financial anchoring, which is essential in ensuring the integrity of governance in a trust-wholes system. The paper reviews the updated definition of Strategic Investor as per the REIT and InvIT models by SEBI and evaluates its overall implications in the market. It highlights potential benefits like increased liquidity and institutional participation, while also addressing risks such as governance gaps, market concentration, and systemic vulnerabilities. The discussion goes beyond capital expansion to consider oversight, market signaling, and retail investor impact. Practical solutions, tiered classification, strategic intent statements, enhanced transparency, proportional lock-ins, and retail safeguards are proposed to ensure guidelines fulfil the purpose they were created for. Analysis of the Guidelines: Positives and Broader Implications Expanding the Capital Pool: Balancing Stability and Complexity The amendment is aimed at enticing a wider range of institutional capital, especially long-term investors like pension funds, insurance companies and provident funds. Such investors, commonly called patient capital, are in a better position to finance long gestation infrastructure and real estate projects. The definition presented under ICDR Regulations, in line with the QIB framework, facilitates the need to comply and enhances access to Indian REITs and InvITs by investors across the world. Nonetheless, the increase in the number of investing entities presents an intricate system of interconnections. Although these types of institutions are not invariably alike, they tend to share similar fiduciary rules, investment models and risk assumptions. These similarities might become correlated behaviour, such as massive simultaneous exits when there is economic stress, such as a sudden increase in interest rates or a liquidity squeeze. In this case, the depth that is generated by the increased number of participants might, paradoxically, increase the instability of the market. However, the amendment has the advantage of raising the amount of capital available, at the expense of linking the REITs and InvITs to the overall financial system, making them prone to external sector shocks. Regulatory Alignment and Governance Challenges Harmonising the Strategic Investor definition with the QIB category reduces procedural friction and encourages wider participation by automatically qualifying eligible institutions. This alignment creates a coherent investment framework across asset classes like REITs and InvITs, reducing regulatory friction. By eliminating duplicative checks and conflicting thresholds, it encourages broader institutional participation from mutual and pension funds, integrating these vehicles into the mainstream market and enhancing capital flow while simplifying the investment process for qualified institutions. Yet this alignment raises questions about the quality of oversight. The original definition implicitly favoured entities such as infrastructure finance companies and large insurers, which possess the sectoral expertise and managerial bandwidth to actively monitor sponsors. The cases of making this category broader to everyone that is a QIB water down this assumption. Passive or generalist investors can satisfy the financial requirement without taking part in asset-level management. This arises as a gap in governance whereby the role of checking the behavior of the sponsors gets scattered and may not be effective. Consequently, the system that is created to put strategic control in place ultimately presents the risk of becoming more symbolic than operational, expsing the minority investors even further. Signalling and the Shift in Market Perception Strategic Investors have long been used to give confidence to the market by showing that a deal is reliable. With bigger and more varied institutions coming in, this trust will likely grow, especially for small or retail investors. But this also changes what their involvement represents. Earlier, when a specialised infrastructure lender invested, it usually meant they had checked the project carefully. But when a pension fund or a general-purpose fund invests, it often shows trust in the overall sector or the economy, not in the details of a particular project. This new kind of capital is useful, but it also shifts how the market behaves. Instead of focusing on how well each project or asset is being managed, the market may start reacting more to broader financial trends. This could make REITs and InvITs more like standard products whose value moves up and down

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Demergers in India: Promise, Pitfalls, and the Need for Legal Synchrony

Mergers & Acquisitions /

[By Harsh Ahuja] The author is a student of Hidayatullah National Law University I. Introduction and Context India’s corporate landscape is in the middle of a restructuring wave. Some groups are consolidating, others are splitting. A pattern has become visible: listed companies are increasingly turning to demergers as a way to unlock value, simplify holding structures, or prepare for sector-specific growth. Quess Corp’s recent three-way split, ITC’s decision to hive off its hotel business, and Tata Motors’ separation of passenger and commercial vehicle divisions are only the latest in a string of high-profile examples. Yet, these transactions are constrained by a complex and sometimes contradictory legal framework. The Companies Act, 2013 creates two main pathways for corporate restructuring: the conventional scheme of arrangement before the National Company Law Tribunal (“NCLT”) under sections 230-232, and a fast-track route under section 233. The latter was designed to reduce cost and time, but while it works reasonably for small company mergers, its application to demergers has been fraught. The Income Tax Act has not recognised fast-track demergers. Approval thresholds are near impossible for listed firms. Ambiguities remain about  how liabilities, guarantees, and minority rights are handled. Regulators retain broad discretion to push cases back into the conventional route. This blog analyses why India’s framework remains under-prepared for demergers. It examines the statutory routes, tax foundations and the specific frictions in practice, as well as lessons from comparative jurisdictions. Demergers may be strategically valuable, but until the law synchronises company procedure with tax certainty and investor protection, the fast-track will remain more of a mirage than a mechanism. II. Routes for Demergers in India: Conventional vs Fast-Track Every demerger in India that utilizes the conventional route begins the same way: with a plan on paper and a nod from the boardroom. Once the board approves the scheme, the company must turn outward- to its creditors,  shareholders, and finally, to the National Company Law Tribunal. The process advances at a slow pace through a framework of mandatory formal steps. Notices go out, meetings are called, votes are counted. If three-fourths in value agree, the scheme moves ahead. Then comes the tribunal’s turn. The NCLT examines whether the valuation stands up, whether minority shareholders were heard, and whether the deal respects both the letter and the spirit of the law. Only after that scrutiny does the gavel fall, giving the scheme its legal life. Appeals lie with the NCLAT, which ensures another layer of review. Every actor knows the next step, every order builds on the last. The route is long and heavy with paperwork, but it offers certainty in corporate restructuring. The fast-track route under section 233 was introduced to ease this burden. Originally limited to mergers of small companies or between a holding and wholly owned subsidiary, it allows approval through Regional Directors rather than the NCLT. The Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2025 (“Companies (CAA) Amendment Rules, 2025”) expanded this idea to allow demergers to follow a similar path. In theory, this offers a cheaper, quicker option, especially attractive for start-ups and smaller entities. However, a significant challenge emerges here: the Income Tax Act still defines a “demerger” narrowly in section 2(19AA), requiring transfer of all assets and liabilities and mirroring of shareholding. It recognises only schemes sanctioned by tribunal. Fast-track demergers risk falling outside this tax definition, with severe consequences. That uncertainty makes the fast-track route a legal gamble. III. Gaps, Ambiguities, and Friction in the Framework India’s fast-track demerger framework promises efficiency but is weighed down by legal uncertainty. The 90% approval requirement for shareholders and creditors may work for private companies, but it effectively excludes large listed firms with widely dispersed ownership. In practice, such companies rely on the conventional tribunal route, which is slower but predictable. The law is also silent on how liabilities transfer between entities. There is no clarity on whether contingent liabilities, guarantees, or third-party obligations automatically move to the new company. Vedanta’s proposed split into six listed entities exposed this flaw. Credit rating agencies, including Fitch and Moody’s, flagged uncertainty about how group-level debt and guarantees would be divided, warning that such ambiguity could trigger covenant breaches or weaken credit profiles. Without express statutory guidance, creditors face uncertainty each time a restructuring is attempted. Disclosure gaps further weaken the framework. When Vedanta sought shareholder approval, it omitted a ₹1,200-crore claim from SEPCO, a major contractor. The omission distorted the financial picture and misled investors about the company’s liabilities. The NCLT noted that shareholders cannot provide informed consent if material facts are missing. Regulators pointed out that the scheme had changed after initial clearances, raising questions about procedural transparency. Regulatory discretion adds another layer of unpredictability. Regional Directors can refer any fast-track scheme back to the NCLT on broad “public interest” grounds. This power, though well-intentioned, blurs the line between oversight and obstruction. In Vedanta’s case, the Ministry of Petroleum and Natural Gas alleged misrepresentation of hydrocarbon assets and non-disclosure of loans worth ₹3,200 crore. The objections led to adjournments, highlighting how regulatory intervention, often justified, can still prolong the process. Other listed demergers show similar systemic strain. Quess Corp’s three-way split in 2024 triggered concerns about whether all entities would qualify for tax neutrality under section 2(19AA) of the Income Tax Act. Tata Motors’ separation of its passenger and commercial vehicle businesses proceeded smoothly, but only because the company pre-emptively ensured full valuation transparency, an extra step that India’s law does not mandate. Taken together, these cases reveal a pattern. Approval thresholds remain impractical, liability allocation uncertain, disclosure incomplete, and oversight inconsistent. The framework, built to facilitate quick restructuring, often turns into a procedural maze. Until company law and tax law move in sync, India’s demerger process will stay slow, unpredictable, and risk-prone. COMPARATIVE INSIGHTS AND THE ROAD AHEAD The United Kingdom: Clarity through Restraint The United Kingdom’s demerger regime values clarity over control. Demergers are regulated by Parts 26 and 27 of the Companies Act 2006, which govern schemes of arrangement.

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Is Sebi’s New Regulatory Bargain Truly a Win? Exploring Sebi’s New Angel Fund Framework

Capital Markets and Securities Law /

[By Mayank Upadhyay and Atharv Sharma] The authors are students of Hidayatullah National Law University. INTRODUCTION Following India’s goal to foster a nurturing environment for start-ups, the Securities and Exchange Board of India (‘SEBI’) has recently announced a seismic overhaul of the Angel Funds Framework. These funds are a sub-category of Alternative Investment Funds (AIF – Category I), which provides foundational support to a start-up during the early stages. These funds function by pooling capital from high-net-worth individuals (Angel Investors), to invest in early-stage start-ups, providing the start-ups with both capital and mentorship during the initial turbulent period. This reform seeks to achieve a dual goal: fostering a conducive environment for start-ups by encouraging investments in them and limiting the risks involved in such investments exclusively to individuals having commensurate risk appetite. To achieve this dual goal, SEBI, via circular dated 10th September 2025 (‘Circular’), has introduced a fundamental ‘regulatory bargain’ by drawing inspiration from the US qualified purchaser rule. This bargain offers unprecedented flexibility to Angel Funds registered under the SEBI (AIF Regulations) 2012 (‘AIF Regulations’), in exchange for restricting investment rights exclusively to independently verified Accredited Investors (‘AI’). This shift aligns with the thriving angel ecosystem, showcasing a Compound Annual Growth Rate (CAGR) of 106% in investments, opening the possibility of attracting ultra-wealthy investors who hesitated from investing due to outdated rules. However, these changes necessitate examination of how the underlying objectives can be better realised by studying practices across different jurisdictions. Therefore, this blog examines various issues surrounding the Circular. First, it analyses the changes introduced by the Circular. Next, it reveals the hidden flaws in the new framework. Finally, it evaluates and proposes additional reforms that could aid this overhaul by drawing lessons from other jurisdictions. THE CORE BARGAIN: CHANGES AND INTENT First and foremost, the Circular has limited the investor base of Angel funds exclusively to the AIs. This entails that only those individuals/body corporates are capable of investing in start-ups, through the instrument of Angel funds, who have been accredited by independent third-party recognised as accreditation agencies by the SEBI. Prior to these, any investor who fulfilled the wealth-based criterion laid down in the AIF regulations was entitled to participate in the investment schemes rolled out by Angel Funds. This fulfilment was attested entirely through self-declarations by investors. However, in an attempt to limit the risk to only those having a commensurate risk appetite, SEBI has laid down a strict wealth-based criterion for these accreditations. This change ensures that only reliable investors are permitted to invest in the start-ups, and also supports the ecosystem by channelling vetted and trustworthy capital. Second, the Circular has granted upon the AIs, the status of a Qualified Institutional Buyer (‘QIB’) as defined in SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. Prior to this, Reg. 19E(2) limited investments via Angel Funds to no more than 200 investors to bring the limit in line with the restriction placed upon private companies under the Companies Act, 2013. However, upon combined reading of S. 42 of the Companies Act 2013 with R. 14(2) of the Companies (Prospectus and Allotment of Securities) Rules, 2014, this manoeuvre effectively excludes the AIs from the calculation of the numerical limit, which is placed on the membership of private companies. Third, the circular eliminates the restriction placed on the Angel Funds in the Reg. 19F(5) of AIF regulations, which mandates that not more than 25% of the total investments of an Angel Fund can be made in a single venture capital undertaking and must be within the limits specified, i.e., 25 lakhs to 10 Cr. Furthermore, the Circular permits Angel Funds to make Follow-on investments in companies even after they cease to be start-ups, as defined by the Department for Promotion of Industry and Internal Trade (‘DPIIT’). This change effectively permits an Angel fund to invest any proportion of its corpus into any start-up and continue to invest in it, regardless of it ceasing to be a start-up. This regulatory change has been introduced to safeguard the pre-emptive rights of angel investors in their portfolio companies and to preserve the value of their investments. THE NEW REGIME: FULFILLING OR SELF-DEFEATING? Firstly, a high wealth-based threshold for accrediting investors suggests the prioritisation of wealth over expertise. The new framework jeopardises seasoned entrepreneurs and domain experts in possession of invaluable industrial knowledge, but lacks the wealth-based criteria set up by the new regulations. This prioritisation of wealth condenses the quality of guidance and network available to the early-stage startups. Furthermore, reportedly, India has only around 650 registered Accredited investors (AIs) while the US has about 24 million of them due to the high threshold and transactional cost of accreditation, directly translating into a shrinking of the available pool of capital to the startups and stifling the benevolent intent of the Angel investors. This was the main concern raised by the NASSCOM during the consultations phase, which advocated against a wealth-based definition of Angel Investor to avoid adversely impacting the startup ecosystem. Secondly, the new framework extends the status of QIB to individuals solely based on their personal wealth, ignoring the institutional grade due diligence and professional oversight that form the very core of QIB, thus creating a situation where wealth is used as a lazy proxy for institutional sophistication. It sets a risky trend that could be extended to other areas of security laws for example, Qualified Institutional Placements (QIPs), institutional allocation portion of an Initial Public Offering (IPO) etc. eroding the critical line of difference between the retail and institutional investors diluting investor protections and alter market dynamics in domains designed to rely on the sophisticated due diligence capabilities of institutions. Thirdly, the removal of 25% concentration limit in one company acts as a dereliction of the regulator’s duty to protect investors for the reason that it fundamentally clashes with the fund manager’s fiduciary duty to manage risk and protect investors’ capital, as has been set out in the case of ILFS Investment Managers v.

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Addressing Algorithmic Collusion in Indian Competition Law

Competition Law /

[By Saksham Agrawal] The author is a student of National Law School of India University, Bengaluru. Introduction The CCI’s 2025 Market Study on Artificial Intelligence and Competition (‘2025 Market Study’) marks a decisive moment in India’s evolving engagement with digital markets. For the first time, it confronts not merely the deployment of artificial intelligence (‘AI’) as a business tool but its emergence as a participant in market coordination itself. Pricing algorithms, which were previously appreciated      for their efficiency and quick respons     es     , now act on their own as autonomous economic agents that can create results similar to, and sometimes better than, human collusion. The implications are profound because when coordination no longer requires communication, traditional antitrust concepts begin to fray. The central question that follows is both conceptual and institutional. Can a legal framework built upon human intent, consensus, and “meeting of minds” extend to a world where coordination is computational? This article examines how the 2025 Market Study reframes this problem within India’s competition law regime. It argues that while the study expands regulatory consciousness of algorithmic risks and proposes mechanisms for internal accountability, the Competition Act, in its present form, remains constrained by doctrines that presuppose human agency. The resulting gap is not of enforcement capacity but a gap between how markets now behave and how the law still thinks. However, a purposive interpretation of its wide wording to increase accountability among enterprises deploying pricing algorithms, along with building capacity through technical literacy, may provide solutions to the same. Background Algorithmic collusion refers to the coordination of prices or market conduct achieved through artificial intelligence systems, whether by deliberate human programming or through autonomous machine learning. What distinguishes these mechanisms from conventional cartels is not the outcome they produce, but the process by which they reach it. The Study refers to 4 identified operational forms. These are monitoring algorithms, parallel algorithms, signalling algorithms, and self-learning algorithms. Monitoring algorithms serve as instruments of execution or surveillance, implementing or monitoring agreements that have been consciously formed by human actors. Parallel algorithms or Hub-and-Spoke algorithms involve competitors relying on a common pricing algorithm or platform, enabling indirect coordination of prices through a shared technological intermediary. Signalling algorithms capture situations where firms independently deploy reactive algorithms that adjust to market conditions in similar ways, thereby increasing the likelihood of tacit alignment without explicit agreement. Finally, self-learning algorithms autonomously optimise prices through iterative learning, giving rise to collusive outcomes that occur without human intent, awareness, or participation. The first three categories fit comfortably within the conceptual apparatus of antitrust enforcement: they depend, at some level, on human design or tacit consensus. The fourth does not. It involves coordination without communication. The resulting difficulty is not merely evidentiary but ontological. Competition law has always treated collusion as an act of will, a convergence of minds expressed through behaviour. But when algorithms learn to align independently, what remains of collusion once its human authors disappear? The Competition Act’s framework      Section 3 of the Competition Act prohibits agreements, decisions, and “actions in concert” that cause or are likely to cause an appreciable adverse effect on competition. Its open-textured phrasing reflects deliberate legislative breadth where it captures conduct that may fall short of an explicit contract but nonetheless reveals a common economic design. This elasticity offers interpretive room to address algorithmic coordination. Where enterprises knowingly deploy similar pricing algorithms, or adopt machine-learning systems calibrated to react to market data in comparable ways, the resulting interdependence may constitute an action in concert even in the absence of explicit communication. In theory, then, the statutory language is capacious enough to include technologically mediated coordination within its fold. Yet the structure of Section 3 remains rooted in an anthropocentric model of collusion. It assumes actors capable of intention, decision, and mutual awareness, all attributes that belong to legal persons, not autonomous systems. Self-learning algorithms fracture this premise. They act without instruction, evolve without oversight, and generate patterns of market alignment that no individual firm may have foreseen or even understood.  The law presupposes agency as a precondition for culpability, but in algorithmic markets, agency is diffuse, distributed between code, design, and data. The result is a conceptual disjunction between how the law identifies responsibility and how coordination now occurs.  The 2025 Market Study implies that accountability should remain with the enterprise deploying the system, but the Act provides no clear doctrinal bridge between control and outcome once human intervention ceases. If liability follows control, firms could evade responsibility by distancing themselves from their algorithms’ autonomy. If it follows effect, firms risk sanctions for conduct they neither intended nor could reasonably predict. The absence of an intermediate principle that ties responsibility to foreseeability and design risks creating a zone of regulatory paralysis precisely where control has been surrendered to machines. The Market Study’s Approach The 2025 Market Study acknowledges that algorithmic interaction can generate and sustain supra-competitive pricing even in markets that are neither concentrated nor consciously collusive. What distinguishes such outcomes is not conspiracy but code per se and the capacity of algorithms to observe, infer, and adjust with a speed and precision far beyond human coordination. The study identifies three structural attributes that make algorithmic collusion uniquely resilient. First is its speed, which compresses the interval between detection and retaliation; second, opacity, which obscures causation and intent; and third, interdependence, which ensures that one system’s decision becomes another’s signal. Together, they      create a feedback loop that can stabilise collusive equilibria without any act of human agreement. In response, the study proposes a shift from reactive enforcement to preventive compliance. It recommends that enterprises conduct algorithmic self-audits consisting of systematic reviews of how their AI tools function in practice, documenting design parameters, data inputs, and market outcomes. Firms are encouraged to test algorithms periodically to detect patterns of unintended coordination and to maintain internal documentation explaining how pricing decisions are reached. A second strand of reform concerns hub accountability. Digital platforms and intermediaries that deploy common algorithms

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Risk to Creditworthiness: Policy and Legal Vulnerabilities in India’s Credit Scoring System

Commercial Law, Company Law /

[By Siddhi Bhosale and Saloni] The authors are students of Maharashtra National Law University, Mumbai and Rajiv Gandhi National University of Law respectively. ABSTRACT Amidst the complex landscape of credit agencies and subsequent ratings derived from the agencies, an individual’s borrowings are highly dependent. The approval from financial institutions and banks is directly proportional to the CIBIL score of an individual. Thereby, CIBIL score plays a pivotal role in determining an individual’s prospect vis-à-vis loan approvals and disbursement. However, the integral sector of CIBIL score is not immune from the bottlenecks of the regulatory framework governing the score. There is lack of transparency, accountability, delay in updation, lack of uniformity, no effective redressal mechanisms addressing the grievances of the consumers, etc. All these challenges draw the attention towards the creditworthiness of the scores provided by the credit rating agencies in India. Adding to this, several concerns regarding privacy further aggravate such fragmented sector’s effective implementation, despite legislations and statutes in place. This paper highlights the grave challenges faced by the consumer base and provides effective measures that can be undertaken to ameliorate the situation, thereby providing assistance to the individuals who actively take actions to improve their CIBIL score. INTRODUCTION An individual’s credit score is important in deciding access to financial resources because it directly determines loan eligibility, relevant interest rates, credit card issuance, and other financial goods. From one’s eligibility of availing a loan to the rate of interest at which such loan is to be issued, one’s credit cards and more is governed by one’s credit score. It is a statistical method used to predict an individual’s or small business’s ability to repay debt. The credit score is a three-digit number, generally ranging from 300 to 900. It provides a numerical measure of creditworthiness, derived from an individual’s repayment history and financial behaviour across various credit accounts and institutions. It is a way for credit institutions to gauge an individual’s financial reliability. TransUnion CIBIL Limited (formerly known as Credit Information Bureau India Limited, or “CIBIL”), Experian, Equifax, and CIRF High mark are the four foremost credit information companies in India that are licensed by the Reserve Bank of India for the management of credit information, as per Statement on Developmental and Regulatory Policies, Reserve Bank of India. Among the, four, CIBIL, a Chicago-based company, arguably is the most recognised and prevalent one among the Indian Credit Institutions. It was incorporated in 2000 based on the recommendations made by the RBI Siddiqui Committee. A person’s reputation with lenders and credit card companies rises in direct proportion to how close their credit score is to 900. Because it indicates dependability and reduced credit risk, financial institutions typically favour candidates who maintain a credit score of 700 or above. If your CIBIL score is 700 or higher, your loan and credit card applications will be processed more quickly than those with lower credit scores may already be approved for some of the cards. Through the means of this article, the authors delve into the regulatory structure that governs Credit Information Companies in India. It emphasizes the operational and systemic challenges that result from a lack of transparency, over-reliance on a single institution, and loopholes in legal oversight. The article concludes with a comparison to worldwide methods and ideas for improving the fairness, accountability, and dependability of credit reporting in India. REGULATORY FRAMEWORK AND EMERGING CONCERNS These Credit Information Companies (CICs), are regulated by the Credit Information Companies (Regulation) Act, 2005 (CICRA) and Credit Information Company Rules, 2006. These companies are registered with and governed by RBI. RBI issues directions in exercise of the powers conferred under Section 11 of the CICRA, 2005 on credit information reporting. While the existing framework also extends access to the RBI’s Integrated Ombudsman Scheme for grievance redressal, this mechanism has often been regarded as insufficient. CIC possess considerable power as barriers to financial opportunity, yet many struggle to understand the complex factors that contribute to calculation of CIBIL Score. Congress MP Karti P Chidambaram recently raised the issue in Parliament. “If you want to take a car loan, if the Finance Minister of this country wants to take a house loan, everything depends on the CIBIL score, but nobody knows how the CIBIL organisation works” “It is a private company. It is called TransUnion. This is the company which is rating every one of us,” Chidambaram said in Lok Sabha, voicing concern over the opaque methodology of credit scoring. Absence of Regulatory Oversight The present state of affairs raises two primary concerns. Firstly, there is a glaring absence of regulatory oversight and transparency in the manner in which credit scores are calculated. As per the latest RBI Master Guidelines, the Credit Institutions (CIs) are now needed to update credit bureau records every 15 days, instead of the existing monthly cycle. With the introduction of a 15- day reporting cycle, borrowers’ financial conduct, is expected to be captured and reflected more promptly in their credit history. In principle, this should enhance accuracy and ensure that borrower behaviour is duly reported. However, the ground reality reveals a stark gap between regulatory intent and practical implementation. CIBIL scores often remain depressed even after repayments are made, leaving borrowers uncertain whether their updated information has been transmitted by the CI or incorporated by the CIC. In a writ petition praying to direct Trans Union CIBIL Limited (‘TUCL’) to restore the credit rating of the petitioner to the levels entitled, since the petitioner had paid off his loan amount, Justice Devan Ramachandran gave necessary directions for such restoration. In this case, despite the petitioner paying off the loan, the TUCL continued to show his credit rating as low which led to closure of loan account and banned him from availing subsisting loan. In cases of non-compliance, complaints can be raised before the concerned CI or CIC, which must be resolved within 30 days. However, even with the RBI’s Integrated Ombudsman Scheme, 2021 the mechanism remains inadequate as the Ombudsman have

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