Capital Markets and Securities Law

[By Anirudh Das] The author is a student of National Law University, Vishakapatanam.   Introduction The Securities Exchange Board of India, via the amendments to the LODR Regulations on June 14th, 2023, has introduced a rather peculiar sort of Obligation on a Listed Entity, specifically on India’s top 100 & 250 listed entities (based on market capitalization), who would have to with effect from October 1st, 2023 and April 1st, 2024 respectively mandatorily confirm, deny, or clarify market rumours to the stock exchanges. Now let’s try and analyze this move by SEBI and speculate on the potential impact of this regulatory step on the Indian securities market. We will try to provide a comprehensive analysis of the move, including its benefits, challenges, and potential implications for market participants and investors. By evaluating the regulatory framework and the underlying reasons for such a requirement, this study seeks to shed light on the effectiveness of this measure in enhancing market transparency and investor confidence. History of the Provision and Need for the Amendment SEBI’s existing regulations include guidelines on disclosure and transparency requirements for listed companies, mandate companies to promptly disclose any material information or events that could have a significant impact on their financial position or stock prices. However, the recent move goes a step further by specifically focusing on addressing rumors, rumors that often circulate in the market and have the potential to create confusion and market volatility. Prior to the recent move, SEBI had already instituted regulations to address issues related to market rumors and misinformation. Regulation 30(11) of the Listing Obligations and Disclosure requirements gave an option to Listed Entities to “..confirm or deny any reported event or information to stock exchange(s)”. Now it has become mandatory for the Top 250 Companies.  Dissecting the Words In order to fully appreciate the Obligation that this proviso confers let us break down the requirements for the Proviso to be triggered: Information must be in Mainstream Media Must not be General in Nature & Indicates Rumors of Impending Specific Event In terms of the Provision of this regulation Circulating amongst the Investing Public And in response to which the company must perform the following: Deny or Confirm any reported Material event or Information. Within a reasonable time or 24 hours from the time when the Event has been reported In trying to examine each and every element, we must pay close attention to the words used. Several of these words do not have any defined legal meaning and hence we would try and subject them to interpretation and define the Set of Conditions to be met in order for them to be fully met. Firstly, The expression ‘Mainstream media’ has been, in the prefaces of the amendment, said to include both print and electronic by stating that it would not just be “print media but television and Digital Media”. It is interesting to note that Social Media has not been mentioned as a source of news, implying quite literally that Rumors or news that is circulated on Social Media, which constitutes a significant avenue for news consumption, would fall outside the purview of this Regulation. The Jury’s out on whether it is a willful omission or a negligent one. Secondly, rumors that would qualify to be subject to clarification would require specific averments in reference to the Material Event or information. The Current Amendment quantifies by Para 3.1.6 , Material Events on specific Criteria. The criteria are based on a combination of turnover, net worth and profit/ loss after tax (PAT) where such event/ information is considered “material”, whose value or the expected impact in terms of value, exceeds the lower of the following; two per cent of turnover, as per the last audited consolidated financial statements of the listed entity; two per cent of net worth, as per the last audited consolidated financial statements of the listed entity, except in case the arithmetic value of the net worth is negative; five per cent of the average of absolute value of profit or loss after tax, as per the last three audited consolidated financial statements of the listed entity. Hence only such events that are probable to trigger the aforementioned thresholds would qualify for disclosure under this bracket. Additionally, the term used here is ‘impending’ Specific Event or information, and hence thereby must be an even that is set to happen in the near future. Meaning that speculations about events that said to occur in distant future or a general policy decision not relating to an event or information other than an event would not trigger the said Regulation. And lastly, it must be a piece of information that is circulated within the Investing Public, therefore any piece of information by merely becoming widely speculated would not attract the provision, since prosecution would have to prove that it is circulated within the Iinvesting public. All the same quantifying whether a certain information has been circulated to the Investing Public would be difficult. It wouldn’t be surprising to think that the amendment stems from the recent speculative train ride that was faced in Jio-Facebook deal,[1] but it could also be seen as a provision providing for greater transparency and robust regulatory environment. The Clarification Conundrum The most evident pitfall of the Regulation would definitely be the volume of such rumors. Consider, India has over 392 news channels and over 20, 278 newspapers. And hence the question that arises is that does any rumor or speculation that has been brought forth by these news outlet mandate a clarification by the company? Because if that is the case one could only imagine the volume of clarifications that would arise. It could also be argued and has been in fact contented in the feedback to the consultation brief that some listed entities subject to these conditions would lose their competitive Edge while vying for various contracts and Concession. The author feels that this argument has no merit since the Companies that would have to

[By Shyam Gandhi] The author is a student of National Law University, Jodhpur.   Introduction Recently, Securities and Exchange Board of India (“SEBI”), has stated that it will be framing rules and regulations regarding fin-influencers to protect the consumers. SEBI has emphasised on the potential dangers posed by influencers, particularly when individuals blindly adhere to their financial advice, promising substantial returns. Fin-influencers are individuals who have public social media profiles and use these platforms to offer advice and share personal experiences with matters pertaining to finances and investments in stocks. A concern has been raised that these fin-influencers lack the requite license and qualifications and they may possibly provide completely flawed advice to earn profit from the promoter of specific products illicitly, which results in loss to the innocent consumers who rely on them. Need For Regulations The SEBI plays a pivotal role in the facilitation of investor protection and the advancement of market development within the Indian context. In recent years, there is an increase in the number of fin-influencer. The emergence of financial influencers was propelled by the significant growth of the cryptocurrency market in 2017 and the subsequent impact of the COVID-19 pandemic, leading to an extraordinary jump in the stock market and attracting a larger audience of inexperienced investors. However, on the other side of the pendulum, financial literacy in India is only 27%. It implies, most of the investors lack the requisite knowledge and thus depend upon these fin-influencers. Usually, investors take their advice for granted and they act as per the instructions of fin-influencers. A fallacious or biased advice can cause irreparable loss to the investors. Take for example, SEBI’s action in the Vauld case. Further in case of Stock Recommendations using Social Media Channel (Telegram), it has been ascertained that the individuals responsible for managing the channel were found to be lacking registration as Research Analysts or Investment Advisors. Furthermore, it had come to light that these individuals had imposed fees on the innocent investors that were deemed to be unjust and inequitable. Thus, from the above the following can be culled out to be the reasons why such steps by SEBI were required: Unregulated Advice: Finfluencers, being private individuals or entities, are not necessarily subject to the same level of scrutiny as registered financial advisors or investment professionals. This lack of regulation can lead to a risk of misinformation or unverified advice, which could harm investors. Market Manipulation: In some cases, Finfluencers may have vested interests in certain stocks or financial products. They may use their influence to manipulate the market or promote certain assets without adequate disclosure, potentially harming investors who follow their advice without understanding the full picture. For example, Arshad Warsi through the fraudulent advice manipulated the share prices of Sadhna Broadcast and Sharpline Broadcast. Retail Investor Vulnerability: Retail investors, especially those new to investing, might be more susceptible to making decisions based on the recommendations of Finfluencers without conducting thorough due diligence. SEBI aims to protect these investors from potential risks arising from misleading or unverified information. Maintaining Market Integrity: A well-regulated market is crucial for its stability and long-term growth. By establishing rules and guidelines for Finfluencers, SEBI seeks to ensure that market participants, including influencers, adhere to ethical practices and maintain market integrity. Does SEBI Have Jurisdiction To Make Rules And Regulations? One of the key legal aspects is whether SEBI has the jurisdiction to make such rules and regulation. The SEBI Act, 1992 primarily empowers SEBI to regulate and oversee various entities and activities related to the securities market in India. These include stock exchanges, listed companies, brokers, portfolio managers, mutual funds, and other market intermediaries. Financial influencers, who provide financial advice and insights to their followers through various media channels, may not fall directly within the purview of entities typically regulated by SEBI. I. SEBI Investment Advisers Regulations, 2013 As per the SEBI Investment Advisers Regulations, 2013, under the proviso to Regulation 2(l), state that “investment advice given through a newspaper, a magazine, or any electronic, broadcasting, or telecommunications medium that is widely available to the public shall not be considered investment advice for these regulations.”Thus, as per the above provision, if advice has been given through a electronic medium, which is widely accepted, then that advice will not be considered as Investment advice.  As the fin-influencers utilize social media platforms as a means to distribute their expertise in the field of finance, leveraging the widespread accessibility of electronic media to reach a broad audience. Hence, it might be argued that the guidance provided by them does not meet the criteria of investment advice as outlined in the SEBI Investors Advisers Regulations. Therefore, it is not feasible to regulate fin-influencers within the scope of an ‘Investment Advisers’ regulations. II. SEBI Research Analysts Regulations, 2014 According to Regulation 7 of the SEBI Research Analysts Regulations 2014, individuals registered as Research Analysts, as well as those employed as research analysts as and partners involved in preparing and publishing research reports or analyses, must meet specific minimum qualifications and certification requirements issued by the National Institute of Securities Markets. However, even though fin-influencers may possess knowledge and have a substantial following, they may not have the necessary certification and training required to be registered as research analysts with SEBI. As a result, under the SEBI Research Analysts Regulations, 2014, they are not authorized to provide investment advice or research reports, and they may not be classified as research analysts. III. Advertising Standards Council of India Guidelines, 2013 Although, Advertising Standards Council of India [“ASCI”] has released the guidelines in this regard. As per the guidelines, If there is a material connection between the advertiser and the influencer, it must be disclosed and disclosure needs to be clearly and prominently presented to ensure that it is not overlooked by customers. Material connections includes but not limited to monetary compensation, discounts, gifts, etc. However, the guidelines of ASCI are not mandatorily applicable on these influencers. These guidelines do not

[By Sayali Dodal] The author is a student of Maharashtra National Law University Aurangabad.   Introduction Over the past few years, the Indian markets have witnessed a remarkable growth fuelled by ever evolving desire of General Partner (“GP”) and Limited Partners (“LP”) to take part in secondary transaction structures with an aim to deliver solutions to the challenge faced by investors which is lack of liquidity. These GP led Secondary Transaction such as Strip Sale or Continuation Funds are utilized when, in the opinion of the GP, the investments would not yield the expected returns at the originally expected due time of making exits for closed-end funds. In recent years, continuation funds which involves setting up a new fund to simply transfer unrealized investments out of an existing fund, have emerged as an innovative investing method. Continuation funds provide a solution by extending the investment life cycle of venture capital and private equity funds thereby providing liquidity to early investors while also supporting business growth. Presently, at the end of tenure of a scheme of an Alternative Investment Funds (“AIF”), the manager can seek extension of the tenure of the scheme by two years upon approval of two third of the investors which is decided on the basis of their investment in the scheme. Furthermore, after acquiring approval of at least 75% of the investors by value of their investment, the managers also have the option to distribute the assets of the AIF in-specie. In case neither of the aforementioned investors’ consent is received, or if the two-year extension  of  the AIF  is  complete without  investor  approval  for  in-specie distribution of  residual  assets, the AIF is left with no other option than to liquidate the scheme within one year in accordance with AIF Regulations of 2012. The Fund is expected to exit its investments during the harvesting period, and in any case, upon the completion of its tenure. However, sometimes it may be more conducive from a value generation perspective to have a longer holding period for some of these investments. This necessitates a fine balance of expectations, since not all LPs may be on board with extending the holding period and may seek liquidity by the end of the originally communicated tenure of the Fund. Over the past few years, the branding of GP led secondaries has improved particularly in the light of COVID-19, and GP-led secondaries are being used more frequently to continue investments in assets which can potentially provide higher returns in future commonly referred to as the “trophy assets”. One way to structure secondary transaction is by Continuation Funds. Mechanism Of Continuation Funds Continuation Funds are a form of restructuring, partaking transfer of assets by an existing fund to a new fund. These new funds often invest in existing portfolios of successful early-stage firms, allowing initial investors to earn partial returns while reinvesting in fresh prospects. LPs in the existing fund can quit their investments (“Dissenting Investors”) while still being exposed to potential future gains since continuation funds provide liquidity or roll into the new, longer life fund. The purchase of interests from cashing-out LPs is funded by subscription funds from new LPs or current LPs increasing their stakes. Additionally, these new funds are typically managed by the same GP thus mirroring the old fund. Continuation Funds provides General Partners two options: first, they can retain those assets that have given satisfactory returns and may generate additional value in future, and second, they can let the weaker performing assets to stabilise by giving it more time. A continuation vehicle can also be used strategically to create additional funds to be used in expansion prospects by investing in newer buildings or equipment. SEBI’s Take On Continuation Funds Keeping in view the growing popularity of Continuation Funds, Securities and Exchange Board of India (“SEBI”) issued a Consultation Paper in February, 2023 with the proposal to allow AIFs and the managers to carry forward unliquidated investment of a scheme upon completion of its tenure to a new scheme of the same AIF. As per the Consultation Paper, this step came as a response to the sample data collected by SEBI which highlighted the expiration of 24 AIF schemes with a total valuation of Rs. 3,037 crores in FY 2023-24. Another 43 schemes with a valuation of Rs. 13,450 would also expire in the subsequent FY 2024-25. With closure of an existing fund, the introduction of Continuation funds would benefit the investors by providing them the required liquidity while also ensuring disclosure, recognising its asset value  and tracing fund performance. Accordingly, AIFs/managers can transfer unliquidated assets to a new scheme at the end of its tenure with the consent of 75% of investors by value. One condition to be imposed on such AIFs/managers is to arrange bids for atleast 25% of the unliquidated investment in order to provide liquidity to the investors who do not wish to continue. When the bid is obtained from related parties of the AIF/manager/sponsor or existing investors, it has to be disclosed to the investor for transperancy and according to SEBI “such bids can only be used to provide pro-rata exit to other remaining investors”. It is assumed therefore, that to provide liquidity to the dissenting investor who do not wish to transfer to the new scheme, bids obtained from related parties or existing investors can only be utilised. But this pose the question that wouldn’t bids from parties who do not fall in this purview be used to provide liquidity? Another interesting point is that this obligation to obtain bids for 25% of the unliquidated investment is not mandatory since the proposal itself provides an alternative.  In case such bids cannot be arranged, the closing valuation of the scheme will be based on the liquidation value as determined under IBBI Regulation, 2016 or other IBC norms. The ambiguity concerning whether Dissenting investors have to be paid or not poses another issue. In the scenario when 25%  bids are obtained for the unliquidated assets,

[By Siddharth Sharma] The author is a student of Institute of Law (Nirma University).   Introduction In the world of the securities market, insider trading is one of the most heard and frowned upon terms. The term insider trading in its simplest connotation implies the advantage churned out of some confidential information, where the information lies with the person due to the position or privilege he holds in an entity and the information is of such nature which has the potential to either soar the value of the securities or plunge it. The indulgence in selling and purchasing of securities on the basis of such information that is generally not available to the public consequently results in insider trading Across jurisdictions, the practice of insider trading has been considered to be both immoral as well as illegal in nature. This article analyses the judgment of the Supreme Court of India in the case of SEBI v. Abhijit Ranjan. The Apex Court through its judgement in the aforesaid case has changed the yardstick for holding a person guilty of insider trading to some extent. The article further delves into the question of whether this decision of the apex court is an overreach. The Factual Matrix of the Case The respondent in the present case, Mr. Abhijit Ranjan was the chairman and managing Director of Gammon Infrastructure Projects Limited (GIPL) till 20th September 2013 and thereafter he continued only as director of the company. In the year 2012, a special purpose vehicle (SPV), Vijayawada Gundugolanu Road Project Pvt. Ltd. (VGRPPL), was created for the execution of the project worth Rs 1648 Crores which was awarded to GIPL by the National Highway Authority of India (NHAI).  Simplex Infrastructure Limited (SIL) was similarly awarded a contract worth Rs. 940 Crores by NHAI for a project in Jharkhand and West Bengal. For the execution of this project, SIL set up an SPV called Maa Durga Expressway Private Ltd. (MDEPL). Thereafter two shareholders agreement was signed between SIL and GIPL, pursuant to these agreements SIL had to invest in VGRPPL and similarly GIPL had to make an investment in MDEPL. The structure of this investment effectively meant that each of the parties would have 49% stakes in each other’s project. However, on 09.08.2013, the abovementioned agreements between the parties were terminated by the GIPL Board. Later, the respondent on 22.08.2013 sold a total of 114 lakhs of his shares of GIPL worth Rs. 10.28 crore. The disclosure regarding the termination of the shareholder’s agreement was made to the National Stock Exchange of India (NSE) and the Bombay Stock Exchange (BSE) was made on 30/08/ 2013. The Securities and Exchange Board of India (SEBI), based on the input of the NSE regarding the transaction and the possibility of the trade being concluded based on unpublished price sensitive information (UPSI), conducted a preliminary enquiry, wherein it prima facie held that the respondent violated the provisions of Section 12A(d) and (e) of the SEBI Act, 1992. This was later confirmed, upon hearing the respondent, by its order dated 23.03.2015. Further, notices were served upon to the respondent and another company named, Consolidated Infrastructure Company Pvt Ltd (CICPL) along with its two directors. Upon receiving the replies and hearing the notices, an order holding the respondent guilty of insider trading was passed and he was made liable to disgorge Rs. 1.09 crores, which is the said amount of unlawful gain from the trade. However, the other noticee i.e., CICPL. Subsequently, a statutory appeal was filed by the respondent which was ruled in its favour and thus the SEBI went to appeal against it before the apex court, which is the present case. The Bone of Contention The apex court in this appeal by the SEBI formulated primarily a three-pronged issue for consideration. Two of the main issues were: (i) Whether the decision of the board to terminate the aforesaid agreements can be characterized as ‘Price Sensitive Information’ within the meaning of section 2h(a) of the SEBI (Prohibition of Insider Trading) Regulations, 1992. (ii) Whether the said sale of the shares by the Respondent would amount to insider trading under Regulation 3(i) and Regulation 4. A. Unpublished Prince Sensitive Information The expression Price Sensitive Information has been defined under Regulation 2(ha) of the SEBI (Prohibition of Insider Trading) Regulations, 1992. It is defined as ‘any information which relates directly or indirectly to a company and which if published is likely to materially affect the price of securities of company.’ The explanation to regulation 2(ha) provides 6 specific pieces of information which are to be characterized as price sensitive, whereas the seventh sub-point of explanation mentions a relatively broad entry i.e., significant changes in policies, plans or operations of the country. The term ‘unpublished’ has been defined under regulation 2k as ‘information which is not published by the company or its agents and is not specific in nature. Further, regulation 3 prohibits dealing, communicating or counselling on matters related to insider trading. Any person who enters into a transaction of securities in contravention of the provisions mentioned under regulation 3/3A was made to be held guilty of the mischief of insider trading. Therefore, for rendering a person guilty of insider trading two essentials are to be fulfilled in accordance with Regulation 4, they are a) the person happens to be an insider b) the transaction in securities should be in violation of regulation 3/3A. The apex court held in its judgement that the information which resided with the respondent would definitely fall within the category of Unpublished Price Sensitive Information as it found the information regarding the termination of the said agreements capable enough to materially affect the price of the security in the market where the effect of such information could either be beneficial or have an adverse effect. B. Guilt of Insider Trading: Introduction of a New Element While the apex court affirmatively answered the essentials with regard to the said information being rendered to be a UPSI and

[By Shivesh Didwania] The author is a student of Maharashtra National Law University, Mumbai.   Introduction Corporate Transparency Act (hereinafter ‘CTA’) was brought forth by the Congress of the USA on 1 January, 2021. CTA is a part of the Anti-Money Laundering Act of 2020. Financial Crimes Enforcement Network of the Department of the Treasury (hereinafter ‘FinCEN’) finalized the guidelines for implementation of the CTA on 30 September, 2022. The CTA will come into force from 1 January, 2024 for new companies and from 1 January, 2025 for the already existing companies. The objective of the enactment is to is to fight money laundering, tax evasions, etc. by the way of mandatory corporate reporting which will enhance corporate transparency. However, the CTA has been hailed as a ‘seismic shift’ towards achieving a better version of corporate transparency in the USA. It will help in curtailing the illegality that is carried on by the activities of shell companies.[i] In India, such corporate reporting which is mandatory for the companies is governed and regulated by the Securities and Exchange Board of India’s Listing Obligations and Disclosure Requirements (hereinafter ‘LODR’) 2015. The objective of these regulations is to make transparency an intrinsic part of the Indian corporate regime. The objective of this article is to make the reader aware of the new legislation – the CTA of the USA and the loopholes that it suffers from. It will be followed by a comparison of the CTA with the existing regime of LODR in India. Corporate Transparency Act: What does it entail? The USA had a weak legal regime to tackle the transparency with regard to the beneficial ownership information. The CTA creates a federal framework for the information relating to the beneficial ownership in the USA.[ii] The CTA creates a rule for a ‘reporting company’ to disclose beneficial owners of the company.[iii] The company is required to disclose this information to the FinCEN, which will maintain a central registry.[iv] The information is to be provided on an annual basis. If there is a change in the ownership structure which needs to be reported, then the company must intimate the change to the FinCEN within period of thirty days.[v] FinCEN, in turn, shares the information with investigation authorities as and when the need arises. These authorities may very well include any federal enforcement agency or may also include any overseas law enforcement bodies who have made request to a federal enforcement agency. However, there are stringent safeguards to ensure the data protection and privacy concerns.[vi] Beneficial owners according to the CTA Beneficial owners are persons/ entities that directly or indirectly have a substantial control over the reporting company; or which hold at least 25% in the reporting company. Substantial control essentially means that the entity/person has an intrinsic role to play in decision making in the affairs of the reporting company. This means that the person/entity holds a substantial control over the main company. It is important to note that ‘substantial control’ is not defined adequately in the CTA. A senior officer of a reporting company will also be said to have a substantial control over the affairs of the reporting company. Moreover, a person having control over the appointment or removal of the senior officer or the majority of the board of directors will also be said to have a substantial control over the reporting company.[vii] However, this interpretation of substantial control is not exhaustive in nature.[viii] Moreover, persons/ entities are beneficial owners irrespective of their citizenship or residency.[ix] However, serious data privacy and confidentiality aspects may arise when the requesting party is a foreign agency. It may be justified when it is under a treaty between USA and the requesting country. However, it will be a matter of concern when the request is not made in furtherance of a treaty.[x] Beneficial owner may also include a person/ entity that receive substantial economic benefits from the assets of the reporting company. This wide definition or, as some people argue, lack of a proper definition opens the gate for the FinCEN to include numerous actors within the ambit of the CTA.[xi] CTA is not free from loopholes The CTA has been lauded as a land and mark step towards tackling corporate shell crimes. However, this legislation is also not without flaws. One of the problems that this mechanism may face is the time period of reporting the information. This mechanism may require the companies to report the required data on an annual basis which may, in turn, lead to untimely and non-updated information.[xii] Another problem is that this mechanism does not lay down rules for entities like trusts.[xiii] These bodies may take advantage if they are kept outside the regime of the CTA. The information demanded is to be kept confidential and only the prescribed government agencies can access the same. However, there are arguments that whether the CTA really promotes transparency if the beneficial ownership information is highly confidential and secretive.[xiv] The scope of financial institutions to which information may be shared is also a restricted one and includes only a certain class of institutions as governed by the CTA.[xv] Access to the information can only be acquired so as to ensure requirements relating to the customer due diligence (CDD).[xvi] This might pacify the concerns of the companies that may be worried about the horizon of the disclosure of the beneficial ownership information. There can be serious privacy concerns about the data that is reported by the reporting company. The question posed may be that whether the right of a reporting company to keep its data confidential is greater than the importance of tracking the illegality pursued by shell companies.[xvii] Another major problem is that companies may have reservations in declaring the information which might be available in the public domain.[xviii] They may be concerned about the extent of information that the CTA might effectively demand. This criticism will be present for a very long time because the USA might very well

[By Palash Varyani] The author is a student of Institute of Law, Nirma University.   Introduction Recently, the Securities and Exchange Board of India (SEBI) has made a significant breakthrough by explicitly addressing and defining the practice of “spoofing” in its recent order. Spoofing, a method employed by traders worldwide to extract illegitimate profit from the stock market, has been a longstanding concern. This article focuses on the SEBI’s order concerning Nimi Enterprises, highlighting the concept of spoofing and recent developments in its regulation within India’s financial landscape. By examining the implications of the SEBI’s action and the measures taken to combat spoofing, this article sheds light on the evolving dynamics of market integrity and investor protection. The Practice of Spoofing Spoofing entails a manipulative strategy employed in financial markets, wherein a trader deliberately places deceptive buy or sell orders, without genuine intent for their execution within the market. This deceptive practice frequently relies on the deployment of algorithms and automated bots, with the objective of distorting market dynamics and asset prices by fabricating a false impression of supply or demand. In simple terms, spoofing refers to the act of a trader initiating orders to purchase or sell a specific security, only to subsequently alter or cancel those orders with the aim of extracting profits. For example, Mr. A submits a purchase request for 5000 shares of XYZ company, which will lead to an increased demand for the stock. Consequently, the price of the stock will escalate. Later on, he cancels the order and proceeds to sell his existing shares. By doing so, he aims to generate an artificial demand and achieve a higher selling price than originally anticipated. This practice is also known as “Layering” which encompasses the utilization of a disruptive algorithmic trading strategy. This particular approach can potentially instigate either excessive “optimism” or “pessimism” within the market. It constitutes a form of illicit market manipulation that is prohibited in the majority of countries worldwide. Within the USA, engaging in such conduct is deemed unlawful and classified as a criminal offence according to the Dodd-Frank Act of 2010. In the UK, spoofing is governed by Article 15 of the Market Abuse Regulation, and sections 89 and 90 of the Financial Services Act, 2012. SEBI and the Nimi Enterprises case The SEBI has recently passed an order against “Nimi Enterprises” and has ruled that it was involved in spoofing of shares in the Indian securities market. The firm was involved in securities trading and was subject to an investigation regarding its trading operations to determine whether it violated the regulations outlined in the SEBI Act and the Prohibition of Fraudulent and Unfair Trade Practices Regulations, 2003. Throughout the probe, SEBI uncovered evidence indicating that the firm engaged in a trading scheme designed to artificially manipulate the perception of demand or supply for specific stocks. As an illustration, the firm placed substantial buy orders for a security, offering a price significantly distinct from the current market value. Subsequently, the firm would place another order for the same stock, but at a price in line with market rates, although for a lower number of shares. After this order was executed, they would cancel the initial order, which consisted of a higher quantity of shares. As a result of the public disclosure of these activities, the parties concerned received a “Show Cause Notice”. The firm asserted that its approach of placing many large purchase and sell orders, some of which were executed at prices higher or lower than the current market price, was driven by the anticipated price changes caused by a variety of causes. Certain big orders, however, were not fulfilled and were subsequently cancelled in order to free up the “margin” for trading in alternative equities. Furthermore, they claimed ignorance of the word “spoofing” used in the “Show Cause Notice”, emphasising that it was not defined by SEBI. Moreover, they asserted that their actions evidenced a genuine intention to carry out the orders, as they openly disclosed them to participants of the market. According to their argument, a trader who harbours no intention of executing an order would refrain from making such disclosures. Consequently, they contended that there was no substantiated proof indicating any fraudulent motives behind the activities in question. SEBI’s investigation determined that there was a brief time interval, often just seconds, between the fulfilment of “small orders” and the subsequent cancellation of “large orders”. On multiple days, a similar trend was observed for several stocks. This information revealed the firm’s recurrent mode of operation as a usual trade practice. SEBI also emphasised the rules of the stock exchanges, which require traders to reveal to market participants either the complete quantity of their order or at least 10% of the overall quantity. A further amount equal to 10% of the total quantity then becomes publicly viewable in the “Order book” once the revealed quantity has been traded. According to SEBI’s inquiry, the firm purposefully disclosed all of their significant orders in the “Order book”. They chose to report only a portion of shares, however, while making deals involving significantly lower amounts for the same stocks. Based on this factual investigation, SEBI reached the conclusion that the firm had placed “large orders” with no genuine motive of executing them. Instead, they harboured a “malicious intent” to rig the price of the stock. By capitalizing on the non-authentic demand or supply generated within those stocks, the firm was able to purchase or sell shares at the price that was influenced by these artificial market conditions. This unethical practice ultimately affected the interests of sincere investors trading in the stock market. In this order, the SEBI also defined spoofing for the first time as: “The unlawful practice of placing orders containing a large number of shares on one side of the market (buy/sell) and eventually executing orders containing relatively smaller quantities of shares on the opposite side (sell/buy) and cancelling the orders containing large orders.” According to SEBI, the firm was involved in the act of spoofing and its

[By Himanshi Garg] The author is a student at University Institute of Legal Studies, Panjab University, Chandigarh. Abstract The Supreme Court (Hereinafter as “SC”) in the case of the SEBI v Abhijit Rajan has held that the motive on the part of an insider is an essential element to hold an insider in violation of the provisions of the SEBI (PIT) Regulations 1992 .This present blog seeks to critically analyze the judgment of the SC referred to above in light of the insider trading jurisprudence developed in the U.S.A, by securities fraud scholars, courts, and commentaries. The author then tries to draw home her argument as to why the possession test should be used in determining the liability of the person charged for violating the Act and why the SC’s judgment sets a bad precedent. Analyzing Supreme Courts judgment holding ‘motive’ as an essential element in violating SEBI Act 1992 The brief facts of this case were as follows Mr. Abhijit Rajan was the chairman and managing director of Gammon Infrastructure Projects Limited  GIPL.  and another company Simplex Infrastructure Limited   SIL were awarded separate contracts by the National Highways Authority of India NHAI. However,in 2013, the Board of GIPL passed a resolution authorizing the termination of contracts. The information was communicated to the stock exchange 21 days later. During that period, Mr. Rajan had already sold his shares which became the subject matter of an investigation of insider trading shares by SEBI. The Securities regulator held Mr. Rajan liable for the violation of SEBI(PIT)Regulations, 1992, On appeal, the Securities Appellate Tribunal (Hereinafter as “SAT”) overturned the order of SEBI holding Mr. Rajan not guilty. The SAT order was now appealed before the SC by the SEBI. Two issues arose before the SC, one of which was Does the Sale of Equity Shares by Mr. Rajan, under the compelling circumstances amounts to insider trading? There is no requirement under the SEBI (PIT) Regulations,1992, for SEBI to prove the motive of the insider, only an essential requirement of possession of unpublished price-sensitive information (UPSI) on part of the insider is required to be established by SEBI to prove his liability. Mr. Rajan advanced his arguments by contending that the sale of shares was occasioned by the compelling need to save the bankruptcy of the parent company of GIPL and utilize the proceeds of the share sale towards it rather than making unlawful gains. He further advanced that he had no motive to use the UPSI to defraud the securities market. The SC in its turn went beyond the SEBI Regulations by applying a profit motive test.The Supreme Court observed that Mr. Rajan’s actions were contrary to the arithmetic movement of the Securities market, had the UPSI been disclosed. Based on this analysis, the SC concluded that Mr. Rajan’s actions did not originate from unlawful motives, but from a pressing need to prevent the parent company of GIPL from going into bankruptcy. In view of the Court, the result that is profit/loss from the resulting transaction may not provide an escape route to the insider, but one cannot ignore human conduct. The determining factor is whether the insider has the necessary motive to make unlawful gains and manipulate the securities market. However, one may observe that in holding ‘Motive’ as an essential requirement,both the SC and SAT have deviated from their past rulings. In Chairman, SEBI v Shriram Mutual Fund the SC held that unless the language of the statute otherwise indicates, it is unnecessary to ascertain whether the violation is intentional or not. A similar viewpoint was shared by SAT with SEBI in Hindustan Lever Ltd v SEBI. The Rationale of the Courts in adopting the Possession Test The fundamental provision governing insider trading in the U.S. is SEC Rule 10b-5, etched in the light of Section 10(b) of the Securities Exchange Act, 1934. This Section prohibits fraud in connection with the purchase and sale of any security. However, different Circuits have adopted different tests in determining the liability of the insider based on different rationales which are analyzed below. The first case that extensively dealt with this issue was United States v Teicher  in which a lawyer leaked the inside information to the defendant. The defendants argued that he had other reasons to trade such as his fundamental research about the value of the stock. His contention that there could only be a violation when trading was casually connected with the information established by the SEC was rejected by the Second Circuit, which upheld his conviction. Teicher case, therefore, stands for a Pro-Government approach, where a trader is judged for the worst reasons to trade and the reasons for trade are rejected.  The Second Circuit observed that it’s difficult to assume in light of human nature, that the UPSI would not have influenced the behavior of the insider and “Unlike a loaded weapon, ready to use but not used, material information cannot lay idle in the human brain and the Use Standard pose difficulties for the SEC in requiring factual inquires in the state of mind.” Motive Test: A Safe Harbour for the Insiders? The supporters of the Use test primarily argue that adopting the possession test to determine liability would encompass in its punishable net the innocent trader who did not use the UPSI. The innocent trader is no better than the uninformed trader because he did not use that information and no unfair disadvantage accures to the uninformed trader. The Ninth Circuit in United States Vs Smith took this view, in that Smith argued that the jury must prove that there is a causal connection between the information and trade to convict him. The Ninth Circuit accepted his arguments and acquitted him. The burden of proof shifts from the defendant to the SEC. Thus, the Ninth Circuit comes to a very stronger conclusion that if the insider does not use the information, there cannot be any inference of his motive to defraud the market. Why the Possession of

[By Aditi Kundu] The author is a student at Hidayatullah National Law University.   Introduction In an attempt to strengthen the sustainable financing regime in India, Securities and Exchange Board of India (SEBI) has revised its Green Debt Securities (GDS) framework, whereby it has expanded the definition of GDS, enhanced the disclosure requirements, and introduced guidelines to avoid greenwashing. SEBI’s review of the existing framework under Disclosure   Requirements   for   Issuance   and   Listing   of   Green   Debt Securities, 2017 is aimed at preventing misallocation of funds, ensuring transparency, and fighting greenwashing. GDS are green finance instruments specifically designed to fund environmentally sustainable projects. By SEBI (Issue and Listing of Non-Convertible Securities) (Amendment) Regulations, 2023 the definition of GDS has been expanded to include new categories of projects for which the proceeds from the issuance of bonds can be allocated. These include: climate change adaptation; pollution prevention and control; circular economy adapted products; blue bonds; yellow bonds; and transition bonds. Subsequently, SEBI also released a Revised Disclosure Requirement for Issuance and Listing of Green Debt Securities which mandates the appointment of a third-party certifier by the issuer who would audit and track the use and management of proceeds during both the pre-issue and post-issue phases. This requirement is applicable for two years from 1st April 2023 on a ‘comply or explain basis’. The initial and continuing disclosure requirements in financial statements and annual reports on the part of issuer have also been enhanced. These include details of process and criteria used for selection of eligible projects, green taxonomies/standards followed, details of temporary placement of unutilized funds, perceived risks and mitigation plan, details of the projects, and reporting of impact on environment. Further, most importantly, to curb the over-arching problem of greenwashing, SEBI released a guidance paper for do’s and don’ts relating to GDS. SEBI has made a monumental effort to define greenwashing as “making false, misleading, unsubstantiated, or otherwise incomplete claims about the sustainability of a product, service, or business operation”. Now, the issuers need to regularly monitor their use of funds and ensure that projects are contributing towards a sustainable economy by reducing adverse environment impact. Issuers are prohibited from using funds for purposes other than those mentioned in the definition of GDS, using misleading labels, and cherry picking data that works in their favour. Further, if funds are utilised for unqualified purposes, then, on the option of debenture holders, there can be an early redemption. At the centre of such regulatory revision lies India’s sustainable development and climate change action targets. India is a party to the Paris Agreement 2015 (the agreement), and the Nationally Determined Contributions (NDC) is an action plan for mitigating greenhouse gas emissions and adapting to climate change impacts under the agreement. According to NDCs, each country sets its Intended Nationally Determined Contributions (INDC) and identifies its climate action goals. India’s current INDC is reduction of emission intensity of its GDP by 33 to 35 % by 2030 from 2005 level and increase in share of non-fossil fuel based energy 40% by 2030. It also aims to cut emissions to net zero by 2070. However, estimates suggest that more than $10 trillion will be required only for power, green hydrogen and electric vehicles to meet such goals. Since such huge amounts are required for financing the green goals, climate/green finance which is intended to be used only for certain specified purposed becomes the key factor, and GDS is one of the promising ways to achieve the same. Based on the aforementioned premise, this articles provides a critical analysis of the regulatory mechanism of GDS. Analysis What does “Green” signify? SEBI has commendably amplified the definition of GDS as it increases the scope of categories of projects for which debt securities that can be issued. However, the current framework provides a description of GDS, instead of particularising the term ‘green’. It describes GDS as debt securities issued for raising funds which are utilised for certain categories of green and sustainable projects. SEBI has stuck to a list of vacuous subject areas that are generally considered crucial to sustainable development. There is no India-specific justification as to why subject areas like biodiversity conservation, sustainable waste management, etc. which are essentially general aspects of sustainable development have been included. There is a lack of logical co-relation between the subject areas and India’s INDCs. Due to the absence of well-defined criteria as to what constitutes green under the mentioned categories, issuers get more window to broaden the scope of their green activity and making it easier for them to squander the funds in the name of “green”. This ultimately discourages investors from buying green bonds. The issuers get more window to dictate the scope of their green activity, making it challenging for the investors to make informed decisions. A suggestion at this end would be that the GDS regulation should recognise major sectors in the economy and incorporate a sector-specific list of activities and the detailed environmental criteria these activities must meet to be labelled ‘green’. This list can be timely updated with emerging economic sectors, and the criteria for existing sectors may be changed by analysing their potential impact on India’s climate mitigation goals. Furthermore, the current framework requires the issuer to state the environmental sustainability objectives of the issuance. However, there is no reference to the environmental targets which are being pursued by the regulation. This creates a gap between the environmental goals intending to be achieved by the issuer and green targets of India. In this regard, it becomes imperative to formulate a standard green finance taxonomy which aligns with India’s environmental targets. Curating a taxonomy would mean a clear definition of ‘green’ and ‘sustainable’ by segregating both the concepts in terms of category of project for which the funds from GDS are to be utilised. This would result in a clear distinction and help identify sustainable activities from green economic activities. Currently, the issuers are at a liberty to take reference from any taxonomy/ standard as they

[By Tanishq vijay] The author is a student of Gujarat National Law University.   Introduction Anti-avoidance provisions prevent taxpayers from using contrived and non-commercial arrangements to abstain from or reduce their tax liability.[1] These provisions in the realm of market regulation can be relevant in curbing tax leaks from corporate entities who devise various schemes to circumvent share market rules. SEBI has recently pitched before the committee appointed by the Supreme Court looking after Adani mayhem for anti-avoidance provisions to regulate corporates who devise innovative schemes to avoid share market rules.[2] SEBI wants a proviso similar to General Anti Avoidance Rules (GAAR) in the Income Tax Act 1961. This will help regulators stop activities like insider trading and transactions violating market rules.[3] General Anti-Avoidance Rules GAAR is a system to prevent tax evasion. It is covered under Chapter X-A of the Income Tax Act of 1961.[4] It contains impermissible avoidance arrangements, which are entered into to create tax benefits. A transaction that is a result of misuse of the act or does not have a bona fide explanation or commercial solidarity to it is covered in this arrangement. The Hon’ble SC in Vodafone International Holdings B.V v. Union of India & Anr.[5] GAAR “intends to prevent tax avoidance, which is inequitable and undesirable.” The court further provided valuable insight into the necessity of legislation of this nature. The lack of provisions and effective legislation gives rise to judicial uncertainty. Hence, maintaining market stability and complying with market rules and regulations will prevent tax avoidance motives and boost genuine commercial transactions. Instances of Anti-avoidance Provisions in SEBI The Securities and Exchange Board of India Act, 1992 (SEBI Act hereinafter)  does not provide for any specific anti-avoidance provision.  Within the framework of the SEBI Act, 1992, Section 12A stands as the closest provision addressing anti-avoidance measures. [6]  This section explicitly prohibits the use of manipulative, deceptive to defraud or deceive any person engaged in stock exchange securities. It also prohibits insider trading. It gives powers to SEBI to take action against those who try to use deceptive practices to defraud investors. Still, the problem with this is that it deals mainly with defrauding a company or stock exchanges which may include siphoning of a company’s funds or artificially increasing or decreasing the prices of the stock exchanges. It does not provide for a compliance regime against corporate transactions that seek to avoid compliance with the rules of SEBI. Chapter VIA of the SEBI Act, 1992[7], delves into penalties and adjudication. It is founded on the tenet that anyone who violates or disregards any provision of the Act, the regulations, or any directions issued by SEBI is subject to penalty or adjudication, regardless of whether they had any malicious intent or rationale. However, we cannot equate it with Anti-avoidance rules as it is a specific provision intended towards imposing and adjudicating penalties in case of an artificial increase or  a decrease in share price. At the same time, anti-avoidance in market regulation is a more general principle based on substance over form, where transactions inconsistent with the economic stability and leading to immoral gains to a corporation are discouraged. Enhancing Transparency in foreign portfolio investors SEBI has recently proposed more transparency and stricter disclosure norms for Foreign Portfolio Investors (FPI) in the backdrop of the Adani-Hindenburg saga. SEBI wants additional information regarding foreign investors investing in Indian entities with a concentrated holding in one single entity so they can be monitored more closely.[8] FPIs with over 25,000 crores or 50% Asset Under Management (AUM) must make additional disclosures. This was done so that promoters do not circumvent the minimum public shareholding requirement.[9] Under the Prevention of Money Laundering (Maintenance of Records) Rules 2005, a ‘beneficial owner’ is defined as an individual with a controlling ownership interest of more than 25% in the case of companies.[10] SEBI aims to obtain granular information regarding ownership, economic interest and control rights of these FPIs, which will help categorise these based on risk. SEBI had observed that some foreign investors have a large portion of investments in a single company for an extended period.[11] The current requirement for minimum public shareholding is 25% which means that the company’s promoters must maintain at least 25% of its share capital to the public. To bypass this regulation, the promoters invest through FPI by concentrating a substantial portion of the equity in one single investee company ultimately resulting into a deflective image of the actual situation of the publicly traded shares. SEBI has also observed that it is difficult to identify the beneficial owner of FPI based simply on economic interest. Most investor entities fall below the threshold required for identification as Beneficial owners.[12] The same Beneficial Owner holds ownership in FPI through different entities, each falling below a certain requirement that needs to be followed to become a beneficial owner, leading to decreased transparency. For example, there is a FPI company based in Mauritius named ABC Funds. It has multiple shareholders in the name of X,Y,Z Ltd holding 9% each and 73% being held by others. SEBI’s guidelines states that Beneficial Owner of an FPI is a natural person who owns or controls more than 25 of that FPI. However, here ABC Funds Beneficial owner is hidden by different entities below 25%. This leads to a creation of a loophole in SEBI’s requirements resulting in exploitation of disclosure agreements and a breach in transparency. This is one instance of anti-avoidance measures to bring transparency in market regulation. The big corporates will not be able to use loopy laws to circumvent the shareholding requirement resulting in irregular increase or decrease in the price of shares. Impact of Anti-avoidance provision in SEBI on foreign institutional investors According to section 2 (f) of the SEBI (FII) Regulations 1995, FII is “institutions established or incorporated outside India which proposes to invest in India in securities”[13]. Companies pool large amounts of money from investors and invest it in securities, real estate, and other assets.[14] Anti-avoidance proviso in