CBCL, Author at NLIU CBCL

Beyond the Fine: The Hidden Cost of Delayed Sebi Penalty Payment

[By Qazi Ahmad Masood] The author is a student of Rajiv Gandhi National University of Law, Patiala Introduction To regulate and supervise the Indian securities markets, the Securities and Exchange Board of India (SEBI) is imperative. SEBI has a sound regulatory framework that encourages openness, equity, and investor confidence. It was established to protect investors’ interests and ensure the orderly development of the capital markets. One of the main tools SEBI has to maintain market integrity is imposing fines on individuals and organizations that are in contravention of securities law, for example, insider trading or non-compliance with disclosure obligations. Besides encouraging compliance and safeguarding investors’ as well as the overall financial system’s interests, penalties serve as a necessary deterrent to aberration. But the question of interest—more particularly, when interest on unpaid SEBI penalties begins to accrue—is an important and widely debated element of these fines. This issue impacts the effectiveness of SEBI’s enforcement mechanism and has significant monetary implications for defaulters. This issue has now been settled by the Supreme Court of India in a landmark judgement Jaykishor Chaturvedi & Ors. v. SEBI, which shed light on the timing and calculation of interest on delinquent fines under the SEBI Act. Apart from settling long-pending legal questions, this ruling highlights how important it is to comply immediately with SEBI’s order of adjudication. The author in this article will discuss the nuances of this judgment and its implications for businesses, investors, and market participants. Overview of SEBI’s Penalty Framework and Recovery Mechanism SEBI can under the Securities and Exchange Board of India (SEBI) Act impose fines on individuals and entities who violate securities laws. The fines are an important deterrent to illegal activity such as insider trading, fraud, not disclosing information, and other regulatory breaches. Chapter VIA of the SEBI Act, consisting of Sections 15A to 15HB, is substantially prescribing the legal framework governing these penalties. By stipulating various types of violations and demarcating the corresponding penalties, these sections ensure adherence to regulatory norms and safeguard the interests of investors. These penalties are leveled after an adjudication process overseen by SEBI’s Adjudicating Officer. The Adjudicating Officer issues an adjudication order that specifies the penalty charge to be paid after investigations and a determination that there has been a violation. Notably, this order also specifies a payment date, which is usually 45 days from the date of purchase. Transparency and fairness in enforcement are ensured by providing the accused offender a clear and fair opportunity to pay the penalty in this specified period. SEBI can initiate collection procedures under Section 28A of the SEBI Act, in the event that the penalty is not paid within the specified time. This provision empowers the SEBI Recovery Officer to recover the amount of unpaid penalty in the same manner in which land revenue arrears can be recovered. The Recovery Officer may attach the bank accounts, demat accounts, and immovable as well as movable properties of the defaulter for recovery. In addition, relevant provisions of the Income Tax Act of 1961, like those that refer to interest on delayed payment and collection procedures, are incorporated into Section 28A. The deterrent and penalizing impact of regulatory sanctions is augmented by this incorporation, providing SEBI a complete and effective mechanism to recover fines along with interest. Impact of Timing of Interest Accrual on Legal Certainty and SEBI Penalty Enforcement The exact moment when interest on delayed payment of the fine begins to accrue is a very important legal issue in relation to SEBI penalties, and there are two contrasting perspectives. Impact of Interest Accrual Timing on SEBI Penalty Enforcement and Legal Certainty One perspective believes that interest begins as soon as the payment due date for the penalty has expired without making the payment, normally after 45 days from the date of order. This is the reason interest begins when the payment date specified in the adjudication order itself lapses. In accordance with the other perspective, interest must only be charged from the date on which SEBI, by its Recovery Officer, issues a formal demand notice under Section 28A. Such a demand notice can be issued much after the adjudication order. For defaulters, this is important as it makes a considerable difference in finances; the longer period of interest accrual, the higher the overall debt. In addition, since early interest accrual encourages compliance early on, the timing affects the regulatory effectiveness and deterrent capability of SEBI’s penalty system. Finally, it impacts adjudication orders’ finality and legal certainty; if interest begins only after a subsequent demand notice, it may create uncertainty and extend penalty recovery disputes. The Supreme Court has discussed and interpreted this complex issue, providing much-needed guidance on when interest should accrue on SEBI penalties. The character of compensation and the regime of enforcement Careful examination of the law, specifically the incorporation of Income Tax Act provisions into the SEBI Act, was involved in the Supreme Court’s deliberation over interest accrual on SEBI penalties. The Court drew a distinction between “legislation by reference,” which simply refers to another enactment without adopting its provisions in full, and “legislation by incorporation,” where the provisions of one statute apply forthwith with the necessary modifications. Compensatory Nature and Enforcement Framework It clarified that collection of SEBI penalties is within the purview of Sections 220 to 227 of the Income Tax Act, which are absorbed in the SEBI Act under Section 28A. Section 220 of the Income Tax Act, which mandates payments within 30 days following a demand notice and provides for interest on late payments at the rate of 1% monthly (12% a year), was the key to the Court’s argument. Most importantly, the Court held that SEBI’s own adjudication order was a valid and enforceable “notice of demand.” That means that the order of adjudication, being the statutory demand for payment, specifies the amount of penalty and due date (usually 45 days). Consequently, the running of interest can be triggered without the SEBI Recovery Officer sending out a new demand

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Hidden Charges in Delivery Apps: Legal or Deceptive?

Contemporary Issues, Foreign Direct Investment Regulations / CBCL

[By Souvick Saha] The student is a student of National Law Institute Odisha 1.Introduction When you order a meal through an online delivery application, you may notice that the final amount you pay is often more than the listed price of the items. A closer look at the bill reveals the layers that compose this sum, other than the price of the meal: i) delivery fees and platform charges, collected by the app itself, ii) packaging costs imposed by the restaurant and iii) the ever-present GST, collected by the restaurant on behalf of the government. In essence, the customer is paying for the costs of the meal, the delivery of the meal, and the convenience of ordering a meal through the platform. However, there is another thing that the customer is made to pay for – the packaging of the meal, which is somewhat perplexing. This is just one example of drip pricing in the quick commerce sector, which has seen rapid growth through the entrance of the daily deliverables market. Besides the restaurants, the delivery platforms are also responsible for various additional charges added to the final price of the daily deliverables, which increases the cost of these deliverables to a much higher rate than the maximum retail price (MRP). 2.Legal Framework Restaurants are charging a fee on the packaging of the deliverable food item to the consumer, in addition to the full price of the items. However, the seller is responsible for the expenses incurred in or incidental to the preparation of the goods into a deliverable state, unless the buyer and seller have agreed otherwise, according to Section 36(5) of the Sale of Goods Act 1930 (Sale of Goods Act). Yet most restaurants get away with putting these charges on the consumer through the employment of dark patterns on the online delivery platforms. It is clear that the provision is only applicable to sellers who deal in goods. Hence, it is essential first to establish whether the food items offered by restaurants on online platforms qualify as a ‘good’ under the Act. Additionally, it is important to investigate whether hiding this charge is a dark pattern, and if so, who bears responsibility for its use – the restaurants themselves or the intermediary platforms. 3.Is food a good? Consumers would place reliance on the Sale of Goods Act to hold sellers liable for the cost of preparing goods for delivery. However, a possible argument is that the restaurants do not sell goods but offer a service for transactions on online platforms. Goods include every kind of movable property in the Sale of Goods Act, while food is explicitly included in the expansive definition provided in the Consumer Protection Act 2019 (Consumer Protection Act). Service has also been defined in inclusive terms as a service of any description which is made available to potential users. Restaurants provide dining as a service, which includes elements such as preparation, ambience, hygiene, and waiting on customers. The transaction is composite and contains elements of both goods and services. However, the serviceable aspects are generally absent in an online delivery since the food items are merely bought for consumption, and the dining service provided by restaurants is not available in this form of transaction. The element of service is minimal as food delivery is analogous to takeaway and is primarily a sale of goods. 4.Are the hidden charges a dark pattern? Dark Patterns are deceptive design practices in user interface or user experience that mislead or trick users into actions they did not intend, by subverting or impairing consumer autonomy, decision-making, or choice, amounting to misleading advertisement, unfair trade practice, or violation of consumer rights. Drip Pricing has been recognised as a dark pattern in the Guidelines for Prevention and Regulation of Dark Patterns 2023 (Guidelines). These guidelines are applicable to both the platforms and the sellers. It is considered ‘drip pricing’ when the elements of the full price are not revealed upfront or are revealed surreptitiously within the user experience. Most online delivery companies employ drip pricing to showcase the items in their application. After selecting an item, these applications show a different and often larger final price for the selected article. This is because the application adds various elements such as platform fees, packaging fees, processing fees, handling fees, delivery fees and taxes to the base price of the selected item, and these charges remain hidden in the final price. The breakdown of the full price is only revealed after the amount to be paid button is expanded. Since these guidelines are applicable to sellers and platforms, both the restaurants and delivery applications shall be liable for violations of these guidelines. 5.What do the courts say? Restaurants cannot use any unfair trade practices to sell their goods or services on an online platform or elsewhere. An unfair trade practice is defined as a trade practice that adopts any unfair method or unfair or deceptive practice, including the adoption of such practices in the provision of services. Moreover, those contracts between a service provider and a consumer having such terms which cause a significant change in the rights of such consumer are also barred as unfair contracts. Any contract that imposes any unreasonable charge, obligation, or condition on the consumer that puts them at a disadvantage would fall under the ambit of an unfair contract in the Consumer Protection Act. Consumer courts have consistently held that sellers on online platforms cannot charge for the packaging of food articles. The Government has also notified that the price of the product or the service at restaurants must include all operating costs involved in the making and delivery of the product or service. However, this was challenged in a recent case where the Delhi High Court affirmed the notification as constitutionally valid. It was held that the collection of mandatory service charges constitutes an unfair trade practice under the Consumer Protection Act. Likewise, packaging charges are also added by default in addition to the

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Reconciling the Overlap: Sarfaesi’s Sections 13(4) & 13(8) v. Ibc’s Moratorium Under Section 14

Banking Law / CBCL

[By Nimish Maheshwari] The author is a student of National Law Institute Jodhpur 1.Introduction One of the salient aspects that makes Insolvency and Bankruptcy Code (‘IBC’), 2016 stand out from the other debt recovery mechanisms is its overriding effect over any other law where there is overlap. For instance, the IBC takes precedence over The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI’). Consequently, where there are proceedings under the SARFAESI Act and a Corporate Insolvency Resolution Process (‘CIRP’) has commenced under Sections 7, 9, or 10 of the IBC, imposition of the moratorium would lead to suspension of proceedings under SARFAESI. In Rakesh Kumar Gupta v. Mahesh Bansal the court relied on Section 238 of IBC to hold that the pendency of proceedings under the Sarfaesi Act would not obstruct the courts from allowing an application under Section 7 of the IBC. This position has also been consistently upheld in relation to Section 13(4) of the SARFAESI also. It has been recognised that any action to foreclose, recover or enforce a security interest created by the corporate debtor in respect of its property including any action under the SARFAESI Act is prohibited due to the overriding power of Section 14(1)(c) of IBC. For example, even where a bank, in exercise of its power under Section 13(4) of the SARFAESI Act, read with Rule 8 of the Security Interest (Enforcement) Rules, 2002 (‘Rules’) has taken symbolic possession of secured assets mortgaged exclusively with it and proceeded to auction those assets and receive bid amounts, the commencement of CIRP and the resulting moratorium would lead to halting of such SARFAESI proceedings. In Indian Overseas Bank v. M/S R.C.M Infrastructure Ltd. and Anr., (‘Indian Overseas’) the Supreme Court (‘SC’) reaffirmed the settled legal position that once the CIRP is initiated under IBC, any parallel proceedings under the SARFAESI Act must be halted. In this case, a sale certificate has already been issued, and 25% of the bid amount has been paid by the auction purchaser under Section 13(8) of the SARFAESI Act. The court held that the moratorium imposed under Section 14 of the IBC would override such enforcement actions, thereby safeguarding the corporate debtor’s assets for the benefit of all creditors. However, this clarity has recently been disrupted by recent developments of the National Company Law Appellate Tribunal (‘NCLAT’) in Nagpur Nagrik Sahakari Bank Ltd. and Ors. v. Mohanlal Ayyapan Pillai and Ors (‘Nagpur Nagrik Sahakari Bank’) & Pratibha industries v. Yes Bank Ltd. and Anr. (‘Pratibha Industries’). These rulings have carved out exceptions to the SC’s interpretation, introducing a degree of uncertainty into an otherwise well-settled area of law. This article examines the conflicting judicial approaches to the interplay between Section 13(4) and 13(8) of the SARFAESI Act and Section 14 of the IBC. Part II explores what is the question of law that has arisen because of recent cases and what is the core contention. Part III is discussing the conflicting interpretations that have been employed by different cases and how that has led to an interpretative conundrum. It explores the underlying legal rationale for each position and identifies the specific points of divergence. Part IV concludes by providing with recommendation and way forward. Question of law – The Core Contention A significant legal conundrum has emerged at the intersection of the SARFAESI Act and IBC, particularly in cases where proceedings under both statutes appear to overlap. Recently, NCLAT have interpreted Section 13(8) of the SARFAESI Act, to conclude that an auction conducted by a bank under the SARFAESI cannot be set aside if the sale notice had been issued prior to commencement of the CIRP. It held that the relationship between the parties i.e., the mortgagor-mortgagee, for redemption, exists only till the date of issuance of notice of sale of property. The tribunal, relying on Celir LLP v Bafna Motors (Mumbai) Pvt. Ltd (‘Celir LLP’) decided that even if insolvency proceedings are initiated under the IBC and a moratorium is imposed, it would neither revive the mortgagor’s extinguished rights nor would the property form part of the corporate debtor’s asset pool. In Celir LLP, the SC undertook a detailed analysis of the pre- and post-amendment versions of Section 13(8) and concluded that after the 2016 amendment, once the auction notice in accordance with Rule 8(6) and 9(1) of the Security Interest (Enforcement) Rules, 2002, is published and dues remain unpaid, the borrower’s redemption rights are extinguished. On this basis court decided that the sale of an asset even if after the initiation of CIRP is not in violation of Section 14(1)(c) of IBC because there was no relationship between the mortgagor and mortgagee. And no right of redemption exists between them because notice under Section 13(8) was issued much prior to the commencement of CIRP. Court emphasised on the sanctity of public auctions, underscoring the judicial responsibility to protect such processes from unnecessary interference. It cautioned that any other interpretation of Section 13(8) would allow mischievous borrowers to disrupt the auction process. There would be multiple redemption offers from borrowers even after public auction notices, potentially frustrating the auction process and discouraging public participation, thereby defeating the purpose of the Act. In the Pratibha Industries, and the recent Nagpur Nagrik Sahakari Bank case, the tribunal, held that if the property is sold in accordance with Section 13(8), the borrower’s right to redeem the property is extinguished. In both decisions, the court relied heavily on the ratio of Celir, wherein the central question was “what is the impact of the amended Section 13(8) of the Act on the borrower’s right of redemption in an auction conducted under the Act.” Now the core issue that arises is that currently two interpretations are there on the same point of law. Putting simply, the question is that if an auction is conducted under Section 13(8) of SARFAESI & partial bid money has been received. But before the whole money is received, the insolvency proceedings have

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

Taxation Law / CBCL

[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

Company Law / CBCL

[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?

Taxation Law / CBCL

[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

Insolvency Law / CBCL

[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

Insolvency Law / CBCL

[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

Contemporary Issues / CBCL

[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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Author name: CBCL