Author name: CBCL

Explanation to Rule 89(4): Whether the ‘Lesser of Invoice or FOB of Shipping Bill’ ultra vires the CGST Act?

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[By Shrushti Taori & Tatva Damania] The authors are students of Maharashtra National Law University, Nagpur and Maharashtra National Law University, Mumbai respectively.   Introduction Recently, in Union of India v. Tata Steel Ltd. , the Hon’ble Supreme Court decided on the prospective nature of the Explanation to Rule 89(4) of the Central Goods and Services Rules, 2017 (‘the Rules’) (‘the Explanation’) added vide Notification No. 19/2022 (‘the Notification’). The appeal was against Jharkhand High Court’s judgement in Tata Steel Ltd. v. Union of India , wherein the petitioner challenged the validity of Paragraph 47 of the Circular No. 125/44/2019-GST (‘the Circular’). Paragraph 47 of the Circular directs the authorities to examine the value declared in both the GST invoice and the shipping bill while processing refund claims of unutilised Input Tax Credit (‘ITC’). It further clarifies that the lower of the two values must be considered to compute the eligible refund amount. This was later vis-à-vis incorporated as the Explanation vide the Notification. The very objective of the Explanation is to avoid over-invoicing by the assessee. In Tata Steel, the Hon’ble Supreme Court decided on the prospective application of the Notification. However, it remanded the matter back to the Jharkhand High Court to decide on the merits of the Paragraph 47 the Circular, and hence that of the Explanation. The petition is pending in the Jharkhand High Court. The authors contend that the Explanation to Rule 89(4) of the Rules is ultra vires the Central Goods and Services Act, 2017 (‘CGST Act’), as it imposes a substantive cap on availment of refund on ITC, despite having no such cap in the parent statute. This article frames three arguments to justify the ultra vires nature of the Explanation: (i) the statutory scheme of the CGST Act bases refund of ITC entirely on the invoice only, and shipping bill serves an entirely different purpose; (ii) The CGST Act employs the intention of ‘full refund’, and basing refund on shipping bill does not ascertain ‘full refund’, especially in cases of CIF Contracts; and (iii) Principles laid down in Tanbo Imaging affirms that exports are ‘zero-rated’ and hence, must be tax neutral. Refund on Export in GST Laws Exports are zero-rated supplies under Section 16(1) of the Integrated Goods and Services Tax Act, 2017 (‘the IGST Act’). In cases of zero‐rated supplies under a Bond/Letter of Undertaking (‘LUT’), according to Rule 96A of the Rules, the export is made without the payment of IGST. In such arrangement, the refund of unutilised ITC is later claimed by the exporter under Section 54(3) of the CGST Act. Rule 89(4) of the Rules lays down the formula to calculate the refund of unutilised ITC for that export. It is : Refund = (Export turnover) × (Net ITC) / (Adjusted Total Turnover). Here, Export turnover means turnover of zero‐rated supplies of goods and services, and Net ITC is the input credit availed during the period. The Adjusted Total Turnover is essentially the exporter’s overall turnover (taxable supplies plus zero‐rated services) in a State, excluding exempt supplies and any supplies already refunded under Rules 89(4A)/(4B). Hence, the formula essentially prorates the total ITC based on the share of exports in the total (taxable) business, so that only the portion of credit attributable to exports is refunded. While this mathematical equation precisely gives the amount of refund for that specific export turnover, an important legal issue that arose is the cap on export turnover in this formula. Oftentimes, the transactional value on tax invoice is different than that on the shipping bill for the same product. Hence, vide Paragraph 47 of the Circular, and then vide the Explanation, the Department inserted an explanation to Rule 89(4): it expressly provides that the “value of goods exported” shall be taken as the lower of (i) the Free On Board (‘FOB’) value in the shipping bill; or (ii) the invoice value.  According to the Circular No. 197/09/2023- GST (‘2023 Circular’), this ‘lower’ value must be considered in both numerator and denominator in ‘export turnover’ and ‘adjusted total turnover’ while calculating the refund according to the Rule 89(4) of the Rules. The explanation to Rule 89(4) is ultra vires the CGST Act This consideration of the ‘lesser’ value of the invoice or the shipping bill has been challenged in the Tata Steel. It is pertinent to note that the Jharkhand High Court did not decide on the validity of the Explanation yet, nor consider the issue in the judgement. Hence, the Supreme Court remanded the matter back to the Jharkhand High Court to decide on the validity of the Explanation of considering the ‘lesser’ value out of either FOB value of the value on the tax invoice for the purpose of refund of the unutilised ITC. Purpose of invoice and shipping bill, and the scheme of CGST Act for refund of ITC For the purpose of tax, the invoice and the shipping bill serve different purposes. The invoice is issued under Section 31 of the CGST Act r/w Rule 46 of the CGST Rules, whereas the Shipping Bill is issued under Section 50 of the Customs Act, 1962. Even though, according to Rule 96 of the CGST Rules, the Shipping Bill is deemed as a refund application of integrated tax paid on the goods, it is merely a proof of the fact that the good has been exported and the assessee has utilised zero-rated policy, and hence is eligible for the refund. According to the Shipping Bill and Bill of Export (Forms) Regulations, 2017, Form SB I / SB II mandates to list the quantity, description, and declared values (including INCOTERM-based breakdown of FOB, freight, insurance, etc.). However, the valuation of refund as per the Explanation is based on the FOB component only. The invoice, on the other hand, contains total value of supply of goods or services, taxable value of supply of goods or services, rate of tax, and amount of tax charged. For the purpose of valuation, especially that of ITC, the authorities rely on

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The Grandfathering Dilemma: Analysing the Scope of Circumvention in FDI Framework

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[By Ayush Singh Verma] The Author is a student of Hidayatullah National Law University   Introduction Recently, the Department for Promotion of Industry and Internal Trade released Press Note No. 2 (2025 Series) (PN2), which clarified the position regarding the issuance of bonus shares by Indian companies operating in Foreign Direct Investment (FDI) restricted sectors to their pre-existing non-resident shareholders. However, the position regarding pre-existing non-resident (PE NR) shareholders under the FDI policy regime remains uncertain, giving rise to the grandfathering dilemma. This article will explore the nuances of grandfathering under the FDI regulatory landscape in India by highlighting a gap in the framework regarding the permissibility of PE NR shareholders to hold stakes in companies operating in FDI-restricted sectors, especially the tobacco industry. Background to Grandfathering When new laws or regulations are enacted in a regime, they can be detrimental to a certain class of businesses or individuals who complied with the existing regime. Grandfathering seeks to resolve this issue by allowing such parties to function usually without any change being applicable to them. This is usually done by a grandfather clause, which provides that a section of rules or law would only be applicable to new businesses or activities. It was first introduced in the 1890s as a device to deny suffrage to African-Americans, as it conferred the right to vote only to those who had enjoyed the same before 1866-67. Foreign Direct Investment is defined under the Consolidated FDI Policy Circular 2020 as “investment through capital instruments by a person resident outside India in an unlisted Indian company; or in ten per cent or more of the post issue paid-up equity capital on a fully diluted basis of a listed Indian company” With regard to existing investment, the PN2 clarified that an Indian company engaged in FDI prohibited sectors or activities are permitted to issue bonus shares to its pre-existing non-resident shareholders. This provision is based on the condition that the shareholding pattern of such pre-existing shareholders should not change after the issuance of shares. The clarifications also provide that this provision will become effective from the date of issue of the applicable Foreign Exchange Management Act (FEMA) notifications. Although this move is much appreciated, the rules still do not clarify whether PE NR shareholders can continue to hold shares in companies engaged in the FDI restricted sector. Gaps in Existing Framework The regulatory gap lies in the fact that while the press note clarifies the position on the issuance of bonus shares, the regulatory framework is silent on the permissibility of holding shares by non-resident companies in restricted sectors. For instance, DPIIT via Press Note 2 of 2010 series changed the position regarding ‘Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes’ where earlier, FDI in these activities were permissible for 100% under the Government Approval route. However, after the aforesaid press note, this sector was brought under the prohibited/restricted sector for FDI. Regardless, what would happen to the non-resident shareholders already holding shares in tobacco manufacturing companies was not clarified. The best case in this regard is that of Godfrey Philips India Ltd. (GPI), which used to be a wholly owned subsidiary of Philip Morris International Inc. (PMI), a United States (US) based company, which is a leading cigarette manufacturer. In 2011, Modi Group acquired the majority stake in GPI, reducing the shareholding of PMI to 21%. Currently, GPI continues to hold a 25% stake in PMI despite its operations in an FDI-prohibited sector. This is a classic case of grandfathering, however, without any regulatory sanction or approval. Similarly, British American Tobacco Company (BAT) continues to hold 25% shares in ITC Ltd., another leading cigarette manufacturing company in India. A notable mention of grandfather-like clause in FDI restricted sector is evident from Paragraph 1.2 of the Master Direction – Foreign Investment in India which provides that “An investment made by a person resident outside India in accordance with FEMA or the rules or the regulations framed thereunder and held on the date of commencement of NDI Rules i.e. October 17, 2019, shall be deemed to have been made in accordance with NDI Rules and shall accordingly be governed under it.” However, it still does not clarify the position with respect to investments made before 2010, when the tobacco sector was not restricted from FDI. These grandfathering instances, in light of the recent PN2, create a dilemma in ascertaining the position of such PE NR shareholders, where on one hand, they have investment in FDI restricted sectors, and on the other hand, there does not exist any grandfather clause under the FDI policy to allow such holdings. In the absence of a formal grandfather clause, circumvention can occur through mechanisms such as indirect control, proxy shareholding, or routing investments through layered corporate structures, enabling foreign entities to maintain de facto ownership or influence despite the formal FDI restrictions. This has the effect of circumventing FEMA provisions and increase the scope of illegal foreign investment in the tobacco industry. Way Forward The aforesaid gap in the regulatory framework justifies the need for including a grandfather clause in the FDI policy, which can determine the position of PE NR shareholders in FDI-restricted activities. For instance, a grandfather clause was introduced by the Finance Act of 2018 for investments made in or before 31 January 2018 in equity shares or an oriented mutual fund. This was done to exempt any income arising from the transfer of long-term capital assets of the same nature on which Securities Transaction Tax (STT) was already paid. In State of Manipur v. Surajkumar Okram, The Supreme Court ruled that “While repealing a statute, the Legislature is competent to introduce a clause, saving any right, privilege, liability, penalty, act or deed duly done and any investigation, legal proceeding or remedy arising therefrom, under the repealed statute.” This reasoning can be supplemented to conclude that the legislature is well within its powers to introduce a grandfather clause or saving of any right, even when it is substituting

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Judicial Uncertainty: Can Extended Limitation for Reassessment Operate Retrospectively?

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[By Sudarshana Mahanta and Aditya Belsare] The authors are students of Gujarat National Law University, Gandhinagar   Introduction Section 147 of the Income Tax Act, 1961 (IT Act) allows an Assessing Officer to assess or reassess any income if they have reasons to believe that such income has escaped assessment in the assessment year where they were liable to be charged with tax. Section 149 of the IT Act prescribes the time limit for sending notice to initiate reassessment proceedings under Section 147 of the IT Act. Section 149 was amended by the Finance Act, 2012 (Finance Act), extending the time limit for sending notice for reassessment in cases involving foreign assets from six to sixteen years. This resulted in the issuance of reassessment notices by the tax department for cases that would have been time-barred under the earlier law. The department placed reliance on the extended limitation period provided by the amendment to do so. These reassessment notices were challenged before different judicial forums, leading to varying interpretations and judicial uncertainty. The issue is currently pending before the Delhi High Court and merits a close inspection given its relevance to tax certainty and jurisprudential development. I. Judicial Divergence In 2018, the Delhi High Court in Brahm Datt v. Assistant Commissioner of Income-tax (Brahm Dutt) quashed a reassessment notice for assessment year 1998-99, holding that the extension of the time period of limitation cannot be used to reopen proceedings that have attained finality before the amendment became effective. Following this, the Income Tax Appellate Tribunal (ITAT), Mumbai, in Deputy Commissioner of Income-tax v. Smt. Deval D. Thakkar quashed reopening proceedings initiated under Section 147 of the IT Act, holding that the extended limitation cannot revive proceedings for which the limitation period has already expired, given that the 2012 amendment is prospective in nature. A similar view was expressed by ITAT Kolkata, relying on Brahm Dutt. On the flip side, the above-mentioned view was not agreed upon by ITAT Mumbai in Deputy Commissioner of Income Tax 6(4), Mumbai v. Smt. Mitali R Lakhanpal, Mumbai where the court refused to be bound by the Brahm Dutt precedent, citing that the judgment is of a non-jurisdictional court along with being contrary to the clear provision of law. The court declared that retrospective application of the extended limitation period is possible in light of the express terms of the Explanation to Section 149 of the IT Act, as amended by the Finance Act. A similar view was taken by the tribunal in Deputy Commissioner of Income Tax v. Dilip J Thakkar as well. Given these divergent views, by an order dated 30 May 2025, a division bench of the Delhi High Court referred the issue to a larger bench to answer the question, “Can legislative amendments to limitation periods revive assessments that are already time-barred?” The court would be adjudging the implication of Explanation to Section 149 of the IT Act inserted through the Finance Act which states: “For the removal of doubts, it is hereby clarified that the provisions of sub-sections (1) and (3), as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.” Section 149(1)(c) of the IT Act, as amended, had extended the limitation period to sixteen years. Brahm Dutt, while holding that retrospective application of the amendment is impermissible, did not seem to consider this explanation. The question that lingers is whether the explanation gives the amended provision a retrospective nature. II. Critical Analysis A close examination of the provision, jurisprudential and constitutional principles, and practical implications suggests that the courts should refrain from allowing the Revenue to reopen cases that would have been time-barred if not for the amendment through the Finance Act. The moot question before the larger bench of the Delhi High Court would be assessing whether “any assessment year beginning on or before April 1, 2012” encompasses all assessments, including the ones already time-barred or only those that were still open. The Supreme Court has been clear in its stance that the rule of interpretation does not allow for retrospective operation to create or impose a new obligation or liability unless the language of the statute expressly or by necessary implication provides for it. “Any assessment year” in this context could be construed to mean the years before April 1, 2012, for which the limitation period has not expired yet. Nothing in the provision explicitly and unambiguously declares that the extended limitation period could be used to revive time-barred cases. Since two interpretations are possible, retrospective application for all years should be avoided, and the explanation read with the section should be understood to extend the time limit for cases for which the limitation period, as it existed during their relevant assessment year, has not expired. Secondly, the rationale behind the amendment cannot be used to justify a retrospective operation. The memo accompanying the Finance Bill, 2012 (Bill) clearly states that the amendment is proposed since the existing timeline of six years was insufficient in cases where assets are located outside India, because additional procedural requirements and foreign laws make the process more time-consuming. Judicial precedents do not allow for administrative difficulty to justify taking away vested rights, except where the legislature’s intention is unambiguously clear. Jurisprudential principles, supported by case laws, do not allow subsequent legislation to interfere with vested rights unless they are made retrospective, expressly or by necessary implication. The Bill further stated that the provisions are procedural in nature. However, it is a settled law that once the limitation period expires, the taxpayers’ right against adjudication becomes a vested right. Provisions of fiscal statutes prescribing the period of limitation would be subjected to strict construction and cannot be overridden by legislative intent. Thirdly, retrospectively increasing the limitation period would impose undue compliance burdens on taxpayers who might be subjected to defending themselves against matters they considered closed and did not maintain records for. Since non-disclosure of

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Waiver of Right to Continue Arbitration: Application to the NCLT Under Sec. 60(5) IBC

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[By Avesta Vashishtha] The author is a student of Dr. Ram Manohar Lohiya National Law University, Lucknow.   INTRODUCTION There exists a plethora of international jurisprudence on waiver of the right to invoke arbitration, when proceedings in another forum have been substantially utilized. In a situation where the parties have initiated prior, or simultaneous proceedings in a different forum, than before the arbitral tribunal, then such forum has to evaluate whether the proceedings have been considerably utilized for discussing the issues that would be duplicated in the arbitration. It is a well-settled position that in case the proceedings have been exploited to such an extent where the key issues related to the merits of the case have already been examined, then the right to invoke arbitration would be waived off. However, the issue regarding waiver, when arbitration proceedings have in fact already been invoked, or when a mandatory application under Section 60(5) (Sec.) of Insolvency and Bankruptcy Code 2016 (IBC) is filed before the National Company Law Tribunal (NCLT), over which the NCLT exclusive jurisdiction, has not been brought to light yet. In the present article, I will lay out the difficulties caused due to the non-initiation of arbitration, and the subsequent filing of Sec. 60(5) application in the NCLT, and also provide a course of action to achieve clarity from the conundrums. INCONSISTENCY WITH THE RIGHT TO ARBITRATE A waiver refers to the “deliberate, intentional and unequivocal abandonment of the right that is later sought to be enforced”. The issue arises when, in an arbitration, the claims have been submitted by one of the parties before the arbitral tribunal, but the arbitration proceedings discussing such substantive claims have not yet been initiated. In the meanwhile, if one of the parties is admitted under insolvency, an application would be required to be filed under Sec. 60(5) of IBC to protect the subject matter of arbitration, which would otherwise be sold off during Corporate Insolvency Resolution Process (CIRP). For a waiver to be established, various principles have been provided in international authorities, which can be relied upon due to the dearth on Indian jurisprudence on the topic. One such principle that can lead to a waiver of arbitration is the submission of a dispute to another forum, which is inconsistent with the right to arbitrate. Such inconsistency includes (a) substantial invocation of the procedure; (b) the extent of the moving party’s activity, including discovery of evidence; and (c) duplicity of claims. However, when factual issues are decided by two forums, numerous practical problems arise. Concurrent jurisdiction might be exercised by both the arbitral tribunal and the NCLT over the factual issues, leading to duplicity of claims. Such decisions can be inconsistent with each other, and the binding value of the decisions would come into question. Further, proceedings in multiple forums can cause undue delay and diminish the economic value of the assets of the corporate debtor, further prejudicing the responding party. WHETHER SEEKING PROTECTIVE MEASURES UNDER IBC CAN LEAD TO WAIVER? Interim measures, for an arbitration proceeding seated within India, can be granted either under Sec. 9 of the Arbitration and Conciliation Act, 1996 (ACA) by the domestic court having jurisdiction over the arbitration, or by the arbitral tribunal itself under Sec. 17 of the ACA. If the arbitration is seated outside of India, the procedure provided in the law of such country would be followed. However, when the matter is related to insolvency of one of the parties, NCLT has jurisdiction over disputes that may have a monetary impact on the economic value of the debtor firm since the liquidation process will be streamlined and efficient. Sec. 63 of IBC bars any authority from entertaining any proceeding over which the ‘NCLT’ has necessary jurisdiction, even in cases not related to insolvency.[1] Nevertheless, Sec. 25(2)(b) of IBC mandates the representation of Corporate Debtors by the Resolution Professional (“RP”) in “any court, tribunal or other authority”. Such recognition of adjudicating authorities, other than the NCLT, refutes the exclusive jurisdiction of NCLT over all disputes against Corporate Debtor. Therefore, arbitral proceedings can be initiated between the parties even with the continuance of insolvency of one of the parties, by the virtue of Sec. 25 of IBC. But still, the parties cannot adopt the procedure provided under the ACA, or a foreign arbitration legislation for seeking protective/interim measures when one of the parties is undergoing insolvency, because the NCLT has exclusive jurisdiction under Sec. 60(5) of IBC for providing protective measures. Sec. 60(5) is non-obstante in nature. Therefore, when a party requests for the protective measure, which is urgent in nature due to the ongoing insolvency resolution process, or such order can be exclusively granted by the NCLT, the same cannot be decided by the arbitral tribunal, and it would not lead to the waiver of right to arbitrate. CAVEAT: ISSUES ARISING OUT OF AN APPLICATION FOR PROTECTIVE MEASURES UNDER SEC. 60(5) Sec. 60(5) primarily determines the powers of the NCLT to entertain or dispose issues related to the corporate debtor or the insolvency process. It contains various clauses, which can appear to have overlapping effects on applications presented before the NCLT. Clause (a) encompasses any legal action initiated by or against the Corporate Debtor, however, factual or substantive issues that may arise during the course of the liquidation proceedings are covered under clause (c). This means that clause (c) has been specifically incorporated for dealing with factual issues arising during the insolvency process, whereas clause (a) has been provided with a wider ambit. Thus, if one were to assume that the issues submitted under clause (c) are to be exclusively decided by the NCLT, the same would provide a clearer view of jurisdiction between the NCLT and the arbitral tribunal. Yet, the wide ambit of clause (a) would still lead to a confusion about this division of jurisdiction. For establishing a conclusive principle, it is imperative to draw a connection between the principles of waiver, and Sec. 60(5) of IBC. A waiver

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Unpacking the 2025 IBBI Amendment: Challenges in Operationalising Avoidance Transaction Disclosures

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 [by Arzoo Kedia] The author is a student of Hidayatullah National Law University.   Introduction On 4th July, 2025, the Insolvency and Bankruptcy Board of India (‘IBBI’) notified the IBBI (Insolvency Resolution Process for Corporate Persons) (Fifth Amendment) Regulations 2025, whereby avoidance transactions must be disclosed upfront in the Information Memorandum (‘IM’) prepared by the corporate debtor’s resolution professional. According to the new norm, all avoidance transactions covered under Sections 43 to 51 and 66 of the Insolvency and Bankruptcy Code (‘IBC’) must now be explicitly identified and disclosed in the IM. This contains information about applications that have previously been submitted to the Adjudicating Authority, as well as any avoidance, preferential, undervalued, extortionate credit or fraudulent activities. Additionally, it states that the value of any avoidance transaction should not be assigned by debt resolution plans unless it was revealed in the prospectus and communicated to all potential investors in accordance with Regulation 35A(3A), prior to the deadline for bid submission. The IM must also be kept updated and shared with the Committee of Creditors (‘CoC’) at regular intervals, ensuring continuous transparency. However, the amendment is not free from challenges and requires further clarification. This blog discusses the amendment’s key provisions, the problems it seeks to address, persistent challenges, and possible reforms to ensure effective implementation. Previous Challenges and What the Amendment Resolves The main goals of this amendment are to improve the resolution processes’ transparency and enable better price discovery. This amendment aims to solve the problem of material irregularity being swept under the rug during resolution procedures. Previously, insider knowledge of avoidance transactions allowed resolution applicants to suggest recovery tactics that others were not aware of. Creditors are better equipped to assess resolution plans with greater knowledge when early disclosure of contentious transactions is required, which increases the amount of collective decision-making under Section 30(4). Prior to the amendment, the framework for dealing with avoidance transactions was lacking clarity. Regulation 39(2) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 required RPs to place resolution plans before CoC along with information regarding any avoidance transactions and orders passed there in, if any. Similarly, Form H, the RPs’ compliance certificate, merely required disclosure of pending avoidance applications at the time of submitting the resolution plan for final approval. These gaps in regulation usually keep material irregularities hidden until resolution, hindering informed decision-making. Aligning more closely with the UNCITRAL Legislative Guide on Insolvency Law, the amendment represents a progressive shift in India’s insolvency framework. However, it still faces certain unresolved challenges. Remaining Gaps and Concerns Although a welcome step, the amendment highlights a critical ambiguity. The criteria for transactions to be identified as “avoidant” remain unclear. The RP’s determination of the same is preliminary until the adjudicating authority passes an order. Additionally, there is no look-back period for fraudulent transactions, and the 3-year period under the limitation act does not apply. Hence, the RPs may look back at any time preceding the insolvency commencement and get a substantial volume of transactions to examine, still however, RPs may sometimes fail to recognise certain transactions as avoidant. For instance, in the case of Shinhan Bank v. Sugnil India Pvt. Ltd., the RP failed to characterise unsecured loans provided at an interest rate of 65% per annum as extortionate. Yet, the NCLT Allahabad considered the transactions on an independent basis and ruled that a percentage rate of interest that was considered exorbitant constituted extortionate credit under Section 50 of the IBC. The Tribunal went ahead and waived the debt, highlighting the need for a clear set of criteria. Additionally, there is judicial uncertainty in the application of preferential transactions under Section 43 of the IBC, with various forums having taken different views on structurally similar transactions. For example, in IDBI Bank Ltd. v. Jaypee Infratech Ltd., the NCLAT ruled that payments to financial creditors on the eve of the insolvency commencement date did not constitute preferential transactions on the grounds that the payments were made in the ordinary course of business and hence exempt. But in Anuj Jain v. Axis Bank Ltd., the Supreme Court considered that mortgages entered into by Jaypee Infratech to secure its parent company’s loans were preferential since they conveyed interest in property for the advantage of a related party and were not in the ordinary course of business. These inconsistent applications of the “ordinary course of business” and “financial position worsening” tests have generated uncertainty for RPs, who are required to make early determinations in the face of developing and sometimes conflicting judicial standards. Secondly, the amendment clubs Section 66 with other avoidance provisions, but the apex court has held that applications filed under Section 66 cannot be treated as avoidance transactions. There is no guidance on how to differentiate and treat fraudulent behaviour beyond disclosure. Thirdly, fraudulent transactions are often handled by external agencies, such as the Serious Fraud Investigation Office (‘SFIO’). The investigation for these cases may drag on for years, extending well beyond the CIRP period. Accordingly, the pre-emptive compulsory disclosure of these transactions in the IM, while intended to enhance transparency, can create commercial uncertainty for potential resolution applicants. The threat of outstanding investigations and subsequent post-resolution liabilities can discourage bidders or result in under-valuation of distressed assets. This grey area becomes especially contentious when resolution applicants are compelled to take pricing and strategic decisions in the absence of understanding how far or what the consequences are of possibly avoidant transactions. Pre-mature disclosures—particularly, if made based on an RP’s initial and not final estimate—may discourage applicants from bidding entirely, fearing potential future litigations or contingent liabilities. This is particularly so in the absence of final adjudication by the National Company Law Tribunal (NCLT), which tends to come after resolution or in liquidation. Statistics released by the IBBI in 2024 highlight the disparity between the identification of avoidance transactions and their subsequent enforcement. Up to September 2024, 1,326 applications that involved claims totalling ₹3.76 lakh crore had been made to the Adjudicating Authority.

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Made in India, Claimed by the West: When Haute Couture Meets Legal Vacuum

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[By Inika Dular] The author is a student of Rajiv Gandhi National University of Law, Punjab   Why the controversy? The recently released Kolhapuri chappal version by Prada, a design steeped in cultural history in Maharashtra, truly made waves, not for beauty but for a price tag of INR 1.2 lakh without meaningful acknowledgement of its Indian roots. Very shortly after, Dior showcased a USD 200,000 overcoat with mukaish embroidery, the metallic thread technique that has been perfected for centuries by artisans in Lucknow. This coat was lauded by fashion critics and jeered at by Indian designers and craft advocates. There was, however, little mention of Indian craftsmen who developed the technique in the marketing materials. The brand had organised a show in Mumbai in 2023, but crediting a country is not the same as crediting a community. The IP Law Blind Spot Intellectual Property (IP) law, as designed, protects novelty and individual authorship. Copyright guards original artistic work and economic value; design law protects industrial designs for a limited duration; and trademarks ensure brand identity. But what happens when the author is a community, the novelty is centuries old, and the economic value is repackaged by someone else? The Kolhapuri chappal, for instance, received a Geographical Indication (GI) tag in 2019, a tool meant to protect products rooted in place and tradition, like Champagne or Darjeeling tea. Yet, GIs only restrict unauthorised use within the jurisdiction of registration, unless India signs reciprocal protection agreements. Prada, headquartered in Italy, is not bound by the Indian GI regime, nor does Trade-Related Aspects of Intellectual Property Rights (TRIPS) (the WTO’s IP framework) enforce these protections meaningfully across borders. The ineffectiveness of the existing international arrangements becomes apparent when one observes the treatment of GI under the TRIPS Agreement. Article 22 of TRIPS caters only to basic protection for GIs in all products, requiring Member States to stop the use of a GI that misleads the public or amounts to unfair competition. At the same time, enhanced protection is provided for in Article 23 for only wines and spirits. Under this two-tier system, European alcoholic beverages enjoy a higher degree of protection than the handicrafts of African and many other developing countries. Articles 22 and 23 require member countries to refuse or invalidate trademark registrations containing false geographical indications, but it is for wines and spirits alone that such protection stands, regardless of whether the public is being misled. Indian courts have had to fight these issues through landmark decisions revealing the imbalance in IP protection. In Scotch Whisky Association v. Pravara Sahakari Shakkara Karkhana, the Bombay High Court recognized GI protection for Scotch whisky without any Indian registration, thereby indicating how international brands can rely on their reputation for protection. This recognition was, however, not extended reciprocally to Indian traditional crafts in foreign jurisdictions, where local artisans do not have the resources or legal standing to pursue this sort of protection. The case law reveals a disturbing tendency: the courts in India have tended to exhibit sympathy toward foreign GIs for matters of international reputation and consumer recognition, whereas hardly ever do Indian traditional crafts stand for such recognition abroad. That judicial discrimination is indeed but a superficial lineal manifestation of deeper, embedded structural inequities afflicting the global IP structure; that is to say, consumers of a market are made aware through marketing expenditures by well-gelded established brands; such consumer awareness is accepted by courts as an interest worthy of protection, and such an interest can be denied to traditional artisans aiming at establishing a market from within their informal networks. What Dior Gets to Do, Mukaish Workers Can’t Let us go back to the Mukaish overcoat again. This technique, which employs twisting micro-thin metallic wires into fabric patterns, goes way back to the Mughal era and is still kept alive by the underpaid artisans working in the narrow alleys of Lucknow. Contrary to this electrifying history, a Dior product, whose price is equal to what these artisans can earn in a lifetime, never made any mention of these craftsmen, nor did they share any royalties or enter into any form of collaboration. If an Indian label tried to reverse-engineer the Dior coat, and managed to get hold of its look and feel, it could face suits for design infringement, DMCA takedowns, and brand dilution claims. But there is no reciprocal right available to these craftsmen. Presently, the IP law setup can perhaps be described by the nomenclature: ‘lawful cultural piracy.’ The Indian Designs Act, 2000, ostensibly protects industrial design but systematically excludes traditional crafts. Section 2(d) defines design through the lens of industrial manufacture and does not cater to the domain of community craftsmanship, wherein designs are generated on an organic basis through mutational changes across generations. Section 4 prescribes that the design be new, but this demands an impossible standard for an ancient technique like that of mukaish work, and Section 11 boldly offers just 10 years of protection, which is terribly short for traditional designs that have been molded by generations of cultural expression. The enforcement asymmetry finds manifestation in the outcome of litigation. Indian courts have favoured Western luxury brands over Indian manufacturers. The Delhi High Court, in the case of Louis Vuitton v. Haute24.com, granted a permanent injunction against and awarded damages to the plaintiffs against Indian defendants. In Louis Vuitton Malletier v. Futuretimes Technology India Private Limited, the Court awarded ₹20 lakh damages in favour of the French luxury house for trademark infringement. These cases reveal how, within a matter of months, the established brands get ex parte interim injunctions, while the traditional artisans have none at their disposal. In contrast, traditional artisans face an evidentiary problem beyond the reach of the legal regime. How does one prove ownership of techniques passed down through generations without written records? The individual proprietary focus of Section 5 of the Indian Designs Act actually works against traditional handicrafts of a collective nature, effectively rendering entire communities legally invisible

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Structural Exclusion in Digital Markets: Rethinking the Scope of Section 3(3)(c)

Leave a Comment / Competition Law /

[by Vashmath Potluri and Shubhranshu] The authors are students of NALSAR Hyderabad.   Introduction India’s e-commerce market has rapidly consolidated, with Amazon and Flipkart controlling over 67 percent of the market. While this dominance is often attributed to scale and logistics, the Director General’s (“DG”) 2024 investigation report reveals deeper structural concerns. Both platforms exercise infrastructural control over warehousing, logistics and algorithmic discoverability in ways that consistently privilege select sellers and marginalise unaffiliated rivals. Practices such as exclusive launches, fulfilment-linked visibility boosts and restricted consumer access reflect a broader pattern of selective gatekeeping. However, the Competition Commission of India (“CCI”) continues to assess such conduct under Section 3(4)(c) of the Competition Act, 2002 (“the Act”), treating the platforms as vertically aligned intermediaries. With August 2025 marking one year of the DG report and the CCI’s final order still pending, similar concerns have emerged against quick commerce platforms like Zepto and Blinkit. Therefore, the Amazon–Flipkart case marks a turning point for Indian competition law as it could shape regulatory responses to infrastructural exclusion across platform markets. This article proceeds in two parts. Part I argues for an ex post reclassification of the conduct under Section 3(3)(c), treating selective infrastructural access as a form of horizontal market allocation. This would invoke a per se presumption of appreciable adverse effect on competition (“AAEC”) once coordination is shown. Part II offers a forward-looking, ex ante regulatory framework by drawing from global models such as the EU’s Digital Markets Act (“DMA”) and the UK’s Strategic Market Status regime (“SMS”), it proposes structural and behavioural tools to prevent infrastructural foreclosure at the design stage. Together, these approaches aim to restore open competition in India’s platform market economy. Ex-Post: Establishing Horizontal Market Allocation The DG’s 2024 investigation revealed that the exclusion on Amazon and Flipkart was not incidental; it was embedded in platform design. Both companies consistently privileged a small cohort of sellers, six on Amazon and thirty-three on Flipkart to be precise by providing them early inventory access, algorithmic prioritisation and subsidised warehousing. These advantages were especially visible during exclusive launches, where unaffiliated sellers were systematically denied access to high-demand stock keeping units, despite having similar operational capabilities. The DG’s conclusion that “no seller other than its preferred seller can survive”  highlights that this was not sporadic favouritism but a deliberate exclusionary structure. This exclusionary design is best understood as a form of “Hub-and-Spoke coordination,” with platforms acting as hubs and preferred sellers as spokes. While the sellers may not directly communicate, the platform facilitates alignment through observable and repeatable incentives. In CCI v. Coordination Committee of Artists, the Supreme Court held that tacit arrangements may constitute agreements when reflected in sustained, parallel conduct facilitated by a central structure. Here, algorithmic favouritism and real-time visibility generate constructive knowledge. Sellers observe which behaviours are rewarded, such as integrating with platform logistics or participating in exclusivity, and calibrate their conduct accordingly. This form of indirect alignment, stabilised by the platform and repeated across cycles, supports an inference of agreement under Section 2(b) of the Act. At the centre of this arrangement is infrastructural segmentation. In digital marketplaces, search visibility, fulfilment logistics and promotional tools are not neutral; they are levers that shape competition. While Indian jurisprudence has not yet defined these as standalone markets, international regulators increasingly treat them as critical gatekeeping mechanisms. The European Commission, in its enforcement under the DMA, flagged Apple’s restrictions on interface functionalities, such as preventing developers from linking users to external purchase options, as materially distorting market access even in the absence of total foreclosure. Similarly, the OECD has recognised that platform-controlled tools such as ranking systems, algorithmic design, and fulfilment infrastructure can act as structural barriers by controlling visibility and consumer access. When allocated selectively, particularly during launch cycles, these tools replicate the exclusionary impact of classic market-sharing. Recognising this infrastructural segmentation as a form of horizontal coordination is therefore a doctrinal interpretation grounded in functional realities. In FHRAI v. MakeMyTrip, the CCI held that algorithmic prioritisation of OYO, combined with suppression of competitors, amounted to an exclusionary agreement. The same logic applies here because algorithmic and logistical design choices made by Amazon and Flipkart repeatedly favour the same seller cohort. This enables parallel outcomes among competing sellers, driven not by direct collusion but by their mutual orientation to platform-curated incentives. Such structurally induced alignment occurs “in any other similar way” as contemplated under Section 3(3)(c), fulfilling the evidentiary threshold for coordination even in the absence of a traditional horizontal agreement. Importantly, this interpretation also aligns with the second proviso to Section 3(3), which extends liability to entities that act “in furtherance of” anti-competitive agreements,” even if they are not engaged in “identical or similar trade.” By designing and enforcing exclusionary infrastructures, Amazon and Flipkart move beyond the role of passive intermediaries and become active participants in market segmentation. Classifying their conduct as horizontal market allocation ensures that Indian law can respond effectively to structural exclusion embedded in platform design. Shifting the standard from the rule of reason to Per Se Once Amazon and Flipkart’s conduct is reclassified under Section 3(3)(c) of the Act, the standard of liability undergoes a fundamental shift. Currently assessed under Section 3(4), such conduct requires a “rule-of-reason analysis,” where the CCI must affirmatively demonstrate that an agreement causes or is likely to cause an AAEC. This approach places the evidentiary burden on the regulator. In contrast, Section 3(3) adopts a “per se rule” because once a horizontal agreement with an exclusionary object is established, AAEC is presumed, and the burden shifts to the parties to provide compelling evidence of overriding pro-competitive justifications. This presumption is more than a procedural shortcut; it reflects a structural understanding of platform markets. In these markets, tools like fulfilment access, algorithmic ranking and promotional placement are not ancillary. They define the terms of competition itself because when such tools are selectively allocated to a few preferred sellers, the result is not mere inequality but systemic distortion of competition. The per

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Invisible Credit Networks – India’s Algorithm-Driven Shadow Banking Ecosystem

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[By Ojas Sharma] The author is a student of Maharashtra National Law University, Nagpur.   INTRODUCTION The Non-Banking Financial Company Peer-to-Peer Lending Platform (NBFC-P2P) has gained a significant standing in the Indian money lending scenario. India’s ambitious financial inclusion drive, combined with regulatory arbitrage opportunities, has led to the emergence of an unconventional ecosystem of shadow credit providers operating outside the purview of traditional banking oversight. Often, algorithms are used for decision-making, credit scoring, underwriting, and risk pricing, which generally operate through NBFC-P2P structures or partnerships with unregulated digital platforms. RBI’s Master Directions of 2017 struggle to address the opacity and systemic risks in these structures, as the directions cater to conventional institutions, and the P2P structure is an ever-evolving contemporary subject. This article seeks to map the legal and regulatory landscape governing algorithm-driven shadow banking in India and to identify the business risks and regulatory gaps. Ultimately, this article proposes reforms from comparative jurisdictions. EXISTING SCHOLARSHIP Existing scholarship on shadow banking emphasises traditional NBFCs and their systemic risks. These risks are often noted, but the scope is very limited. There is very limited scholarship on algorithm-driven credit intermediaries and their financial implications on consumer protection and systemic stability. There is data available highlighting emerging risks in P2P digital lending, but a lack of granular analysis of business model innovations like embedded finance is observed. This article addresses this gap. LEGAL FRAMEWORK The NBFC-P2P Master Directions serve as a statutory framework through which registration, prudential norms, and operational limits of P2P platforms are regulated. The direction describes P2P as an intermediary providing loan services via an online platform and an NBFC-P2P as a non-banking institution carrying P2P work. The aim is to cover unregulated lending under legal purview, but with the emergence of artificial intelligence and AI-based underwriting and embedded finance partnerships, the regulation appears to be redundant. RBI’s Digital Lending Guidelines introduced restrictions on first-loss default guarantees and mandated disclosure norms in 2025. An attempt was made to set up a grievance redressal mechanism; however, enforcement against algorithmic opacity remains weak even in the recent RBI guidelines. Even in the DPDP Act 2023, only the baseline is touched for data protection, algorithmic transparency and auditability in financial services. P2P remains highly unregulated even after constant guidelines by the RBI and the DPDP Act. A striking need for inclusion of specific provisions for algorithmic transparency and auditability is the need of the hour in the legal framework. LEGAL IMPLICATIONS AND ANALYSIS Primarily, fintech platforms engage in regulatory arbitrage by structuring their operations to escape the purview of conventional banking regulations. Often, partnering with licensed NBFCs to act like a legal front while these companies drive credit decision-making, customer acquisition and repayment collection through digital interfaces is one of the prominent strategies used by the fintech companies. By operating through this mode, bypassing RBI scrutiny while accessing credit markets becomes possible, ultimately allowing platforms to circumvent caps on exposure norms, risk-weighted capital requirements, and provisioning obligations to banks and larger NBFCs. The most common model for many digital lenders is to engage in ‘Bank NBFC-Fintech-Tri-Paritite-Structures’ where the NBFC originates the loan, but it is the fintech that handles disbursement, collections, and risk modelling, ultimately proving to be a grey zone not properly regulated under the current RBI guidelines. The Buy Now, Pay Later (BNPL) credit service is also used to exploit a legal vacuum via e-commerce or aggregator platforms operating as unregistered lenders. These products have a tendency to mimic credit offerings, putting on a façade to adhere to compliance standards, which include risk disclosure obligations and Know Your Customer (KYC). RBI, through its guidelines in 2022 and 2025 attempts to limit this arbitrage by using various measures like imposing sanctions, enhancing disclosure requirements, and mandating direct loan disbursements. However, these measures remain inconsistent for entities bypassing jurisdictions, often failing to unravel shell NBFCs through layered partnerships and fintechs. The existing arrangements, while showing a promising intention, lack clear, structured directions, which result in systematic vulnerability and ambiguity. This ambiguity can have grave consequences like consumer harm, default spikes, data misuse and serious litigation. ALGORITHMIC BIASES AND OPACITY The opaque nature of proprietary credit algorithms deployed by fintech platforms serves as a poignant risk in India’s invisible credit networks. These models are often trained on unregulated data and non-traditional data points like social media activity, smartphone metadata and behavioural patterns, operating as black boxes with minimal regulatory compliance or consumer transparency requirements. These underwriting systems, while positioned to be neutral, can perpetuate social and economic biases present in the historical data, as there is barely any regulation. This risk is amplified in India because there is a sheer lack of formal credit histories, as India is still a growing economy with a majority relying on informal credit sources to avoid hassle in obtaining loans. Empirical reviews indicated that first-time borrowers, women-led enterprises and applicants from certain geographical locations suffer from this algorithmic bias, which makes obtaining credit from these models a hassle. As of now, no regulation discusses algorithmic biases. While the DPDP Act is empowered to enforce data rights, it lacks jurisdiction over algorithmic accountability, creating a regulatory vacuum in decisions for credit and loan disbursements, affecting financial access and compromising the right to equality. Australia’s Consumer Data Right and the EU’s proposed Artificial Intelligence Act classify credit underwriting as a highly risky AI application, mandating transparency to mitigate bias and including robust grievance redressal mechanisms. However, Indian regulators are yet to formally acknowledge these risks in the digital lending context. This lack, clubbed with the lack of auditability, exacerbates legal risks for platforms, causing fintech firms to face potential class actions, consumer complaints and data privacy violations. Without transparent creditworthiness parameters, borrowers are often discouraged and denied procedural fairness, a fundamental right under Indian constitutional jurisprudence as enshrined in Article 19(1)(g) of the Indian Constitution. SYSTEMIC RISK CONTAGION A key vulnerability in this interconnected lending arrangement of invisible credit networks is the widespread practice of risk layering through

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RBI’s New AePS Guidelines: A Precarious Road Ahead?

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[By Yash Somraj Roy] The author is a student of Hidayatullah National Law University, Raipur.   Introduction Recently, the Reserve Bank of India (“RBI”) under the Payments and Settlements Systems Act, 2007 has issued new due diligence guidelines for its Aadhaar-enabled Payment System (“AePS”) touchpoint operators. Enforceable from 1st January 2026 the guidelines look to reinforce the regulatory oversight of banks, regarding agents transacting with them. The new, stringent directives come as a solution to the high occurrences of identity theft and fraud in the AePS and Business Correspondent Model ecosystem. An AePS touch point operator in brief, is an agent who facilitates banking transactions of customers through their Aadhar number and Biometric data. The RBI to ensure credibility and better functioning of the AePS touchpoint operators, has introduced a new set of guidelines for improved due diligence. The guidelines primarily introduce four significant safeguards as a way to reduce fraudulent attempts. To begin with, the guidelines stipulate for rigorous due diligence methods for AePS touchpoint operators before onboarding them with a bank. Furthermore, the guidelines also advocate for a “one-operator-one-bank” rule establishing that an agent would not be able to operate with multiple banks simultaneously. In addition to this, the guidelines also propose for a constant risk-based monitoring of AePS touchpoint operators by banks as part of their fraud-control framework. Ultimately, the guidelines state that every AePS touchpoint operator (“ATO”), idle for a period of more than three months must undergo Re-Know Your Customer (“KYC”) and must be re-verified subsequently before resuming transactions. Interestingly, while the RBI has taken a positive approach to curb fraudulent practices by reinventing the AePS. It has blindsided several challenges and implications which arise out of the new guidelines. The author through this blog analyses the several shortcomings vis-à-vis the newly issued guidelines and delves into the implications arising out of it. Additionally, the blog analyses the quandary on how the absence of a central registry, indirectly makes it stricter for banks to prove their non-liability. Lastly, the author through this blog recommends several policy responses along with solutions and explores the way ahead for the seamless execution of the newly issued guidelines. The Lack of Centralised Monitoring Platform: A Major Inadequacy As set forth above, there are several lapses and implications which arise out of the newly issued AePS guidelines. One such major implication is the lack of a centralised monitoring platform. In absence of a central database, each bank only has the option of relying on its own modalities even in instances of inadequate competency. One such subsequent major challenge which arises due to the lack of a centralised monitoring platform is duplicate onboarding. Duplicate onboarding is when, an ATO who is already affiliated with one bank, registers themselves with another bank using a slightly altered name or identity. The absence of a centralised platform plays a key role here, as without it there is no automated screening of ATOs, and each bank’s KYC process is forced to evaluate each application independently. Thus, this eventually also acts as a threat to the RBI’s “one-operator-one-bank” policy as the lack of a centralised monitoring system makes it easier for ATOs to commit fraud. Perhaps most consequentially, the lack of a centralised monitoring platform fragments fraud detection and renders it rather ineffective. Although the National Payments Corporation of India (“NPCI”) provides banks with a mechanism to report and flag non-compliant agents. It does little to stop these said agents, to re-enter the AePS with altered identities. Hence, this allows for an ATO to simply function indefinitely by utilising numerous identities in multiple banks. In essence, while the RBI’s newly introduced guidelines take initiative to strengthen the defences of individual banks. The guidelines due to the absence of a nation-wide platform to monitor ATOs, do little to curb fraudulent practices which operate across multiple institutions. Exploring the Lesser-Noticed Implications in the Framework Owing to the centralised monitoring concern, there are several other ramifications which arise, that the RBI might have failed to notice. The absence of specificity vis-à-vis the three-month inactivity rule and the uneven standards of monitoring across banks give rise to several loopholes and legal lacunae which ATOs could use to rationalize acts of fraud. At the outset, the three-month inactivity rule is susceptible to manipulation. An ATO with minimal effort could circumvent this provision by executing dummy transactions once, within an interval of two or three months. This in turn means, that an ingenuous ATO by making a small withdrawal every three months would be able to bypass the Re-KYC protocols. Due to the transactions occurring within the stipulated time, the legitimacy of them are not under suspicion by the banks and no pattern of misuse is detected. Resultantly, ATOs who are practically inactive, could continue to function indefinitely exploiting the aforementioned provision stated by the guidelines. Thereby, this loophole acts as a detrimental force against the AePS and the transparency which the guidelines look to implement. Another subsequent loophole arises from the ambiguity which lies within the standards of monitoring across banks. Although, the new guidelines allow for banks to implement risk-based controls as they deem fit, it fails to consider the dissimilarity in manpower and competency each bank may have. This consequently implies, that while some banks with higher resources and manpower may actively flag anomalies, others would not be able conduct regulatory oversight to that extent. Hence, an operator that does not meet the criteria of one bank would be able to continue operations in another. At its core, the RBI’s new guidelines for ATOs has inadvertently created a disparity which could lead to incorporation of increased fraudulent practices and illicit conduct in the AePS. Who Pays When ATOs Go Rogue? Under Section 7 of the Aadhaar Act, 2016 it is permittable by law to conduct Aadhar-based withdrawals for customer benefits and banking needs. Hence, the need of guidelines for the governance of ATOs is of utmost importance in the AePS. But a major conundrum which arises due to

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