Technology Law

[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

[By Priyanshu & Mahek Gupta] The authors are students of Hidayatullah National Law University, Raipur. INTRODUCTION In a recent regulatory crackdown, the Securities and Exchange Board of India (‘SEBI’) froze the demat accounts of the designated persons in the Gensol Engineering fiasco related to diversion of loans and corporate misconduct. The Board exercised its power to freeze someone’s account for non-compliance with the SEBI Regulations from circular number SEBI/HO/CFD/CMD/CIR/P/2018/77 dated May 3, 2018, which outlines the procedure for suspension or revocation of trading in specified securities in case of non-compliance with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘LODR Regulations’).  On May 9, 2025, the affected persons appealed to the Securities Appellate Tribunal (‘SAT’) to direct SEBI to unfreeze the unlisted securities held by them in such demat accounts. The appeal presented a critical question before the SAT: Can SEBI validly freeze demat accounts, particularly those holding unlisted securities? Given the increased use of demat-based enforcement and the lack of clarity on its limitations, the authors attempt to investigate this regulatory gray area, its repercussions, and comparative views on SEBI’s authority. WHY GENSOL ENGINEERING LTD. IS IN TROUBLE? Gensol Engineering Ltd. (‘Gensol’) is currently under serious financial and regulatory trouble. On 15 April 2025, the SEBI passed an interim order, prohibiting Anmol Singh Jaggi and Puneet Singh Jaggi, the promoters of Gensol, from occupying board positions or accessing the securities market. SEBI also ordered a freeze on their demat accounts and shareholding. SEBI alleged that a major chunk, i.e., Rs. 262 crores of a loan for Rs. 978 crores taken from various creditors for the purchase of EVs was diverted for personal use. The order was based on credit agencies downgrading their rating for Gensol on the issue of a falsified debt servicing track record and concerns over corporate governance practices. The order was challenged before the SAT, however, the Tribunal refused to grant relief, noting that SEBI was within its rights to take preventive steps and instructed the regulator to pass a confirmatory order within four weeks. Soon after, the Indian Renewable Energy Development Agency (‘IREDA’), one of the creditors of Gensol, filed an insolvency application against Gensol under Section 7 of the Insolvency and Bankruptcy Code, claiming a loan default of ₹510 crore. The National Company Law Tribunal (‘NCLT’) issued a notice to the company to file its reply and scheduled the next hearing on June 3, 2025. Most recently, Gensol’s Chief Financial Officer, Jabirmahendi Mohammedraza Aga, resigned, citing that his decision was linked to internal turmoil and the ongoing regulatory probes. POWERS OF SEBI: DOES IT INCLUDE FREEZING OF DEMAT ACCOUNTS? The enormous powers of SEBI are not unknown to the securities market. In Sahara India Real Estate Corporation Limited v. SEBI, the Supreme Court affirmed that the Board has a vast range of powers under the Securities & Exchange Board Act, 1992 (‘the Act’). The Board is given enormous responsibilities under the Act to develop and regulate the securities market. Section 11A of the Act specifically empowers SEBI to take such measures as it deems fit in the interest of the investors. Banning parties from trading, freezing of demat accounts, or holding of securities are activities bound to severely impact any investor. Three notable circulars were passed by SEBI on November 30, 2015, October 26, 2016, and finally, the last on May 3, 2018. The third and last circular deals with the freezing of securities of the promoter(s) or promoter group. It is pertinent to refer to the circular passed on May 3, 2018, that superseded the earlier two circulars. Specifically, the circular proposes three main actions against an entity that fails to follow certain provisions of the LODR Regulations. They are – imposition of fines under Annexure I, freezing of holdings of the promoter(s) or promoter group as per paragraph 5 of Annexure I, and suspension of trading in the shares of such entity as per paragraph 1 of Annexure II. The holdings of the promoter(s) or the promoter group are generally frozen if the fine(s)/penalty imposed based on non-compliance with the LODR Regulations are not paid by the concerned entity. WHY DOES THIS POWER STAND OUT IN COMPARISON TO OTHER REGULATORS? The power of SEBI directing the depositories to freeze demat account(s) of an investor is rather unique. It is pertinent to compare such power with the powers of other financial market regulators across the world, especially the United States of America and the United Kingdom, as the Financial Regulators operating in these countries are believed to be some of the most powerful financial market regulators. USA Arguably one of the most powerful financial markets regulators, the United States of America’s Securities and Exchange Commission (‘SEC’) has never directly ordered the freezing of someone’s demat account. Such actions usually require judicial sanction. There have been numerous occasions on which the SEC has sought freezing of assets or accounts of individuals from a district court. In a press release dated June 21, 2021, the SEC notified an action of asset freeze on two individuals on the charges of offshoring of funds to the shell companies and defrauding the investors. The key point to note here is that the said action was taken in pursuance of an emergency court order, and the SEC did not act on its own. Similarly, in a press release dated April 14, 2017, the SEC announced a freeze of assets in two brokerage accounts that were used to generate a benefit of more than $1 million in an alleged insider trading case. The SEC undertook this move after getting an emergency court order from the District Court for the Southern District of New York. It is apposite to note that the SEC has never obtained such an order for non-disclosure of information. The Commission usually obtains such orders in cases of, but not limited to, fraud and insider trading. UK When it comes to the United Kingdom’s Financial Conduct Authority (‘FCA’), their powers are similarly constrained. As per

[By Siddhanth Singhi & Harsh Mishra] The authors are students of Gujarat National Law University. Introduction SEBI has propelled India’s mutual fund landscape to evolve, by introducing a new asset class, Specialised Investment Funds or SIFs. This investment class is making headlines due to its multidirectional nature of investment such as equity, debt, debentures, REITs, InvITS etc. It was brought in with the aim of “bridging up the gap that existed between Portfolio Management Service (PMS) and Mutual Funds (MF)”, and allowing the investors to increase and diversify their investment, by not just restricting themselves to the equity market through Mutual funds. It primarily caters to High-Net-Worth Individuals (HNIs) and sophisticated investors, who are well aware and informed about the market dynamics. The primary objective for the introduction of this asset class is to cater to those investors who lie between the void of PMS and MF because PMS is for the HNIs whereas the MF is more appropriate for retail investors due to its standardised structure. The PMS offers more diversification but requires high investment as it is high-risk contrary to Mutual Funds which are highly regulated and are suitable for retail investors who seek long-term returns. So, to bridge the gap and facilitate the investors to gain access to various niche markets such as real estate, energy, infrastructure etc, this asset class was conceptualised by the SEBI. It is intended for those who have higher investment capabilities than the MFs but less than the PMS, and in order to provide sophisticated investors more flexibility in investing, it allows for great diversification, ensuring regulatory oversight. The SEBI’s recent circular serves as a significant step towards addressing existing gaps in the framework. This piece aims to respectfully highlight these concerns and suggest constructive recommendations for enhancing the new asset class’s effectiveness. Overlapping of Regulations SIFs have a minimum investment requirement of Rs.10 lakhs, positioning it between Mutual Funds, PMS and Alternate Investment Funds (AIFs). AIFs function as a privately pooled investment vehicle which invests across an array of asset classes such as startups, venture funds, hedge funds etc. The significant point of contention between SIFs and AIFs lies in the fact that Category III AIF allows investment in hedge funds and derivatives, which is now being offered by SIF. Although the ticket size between both of them is vast, i.e. Rs. 10 lakhs for SIF and Rs. 1 crore for AIF, there exists a risk of overlapping between these investment vehicles as both allow investment in derivatives and hedge funds, which can lead to dilution of their identity. This is because SIFs permit up to 25% investment (Regulation 5 and 6) in derivatives and unlike AIFs, it requires less corpus to invest, which allows Fund Managers to repackage the Category III AIF as the SIF, to capture the investors with less corpus. As a result, the fund managers will have the leeway to revamp the Category III AIF as SIF, as AIF requires a large investment and has no restriction on hedging, thereby increasing risk, contrary to SIF’s 25% limit. Hedging is a risk management strategy, similar to an insurance policy, used by investors to minimise their losses by investing in a position opposite to the existing investment. This allows the investors to offset any potential risk of losing in the existing investment. (Refer here for better understanding.)This restriction has the ability to attract investors as the fund managers will try to capture these large numbers of small investors, thereby broadening the reach of SIFs. However, this can create a problem of regulatory oversight as it can lead to confusion for investors and managers in the allocation of funds. Also, SIFs can “cannibalise” the AIF/PMS, by promoting sophisticated investment strategies into retail-like structure, which might confuse the investor. It is also pertinent to note that SIFs could divert the flows of AIFs towards themselves, as it has low investment requirements with high returns. However, this poses a challenge, that the AIFs were specifically brought in to cater for the needs of HNIs, due to their ability to invest in high-intensive investment sectors, such as start-ups, venture funds, Social Venture Funds etc. Also, investors are likely to then invest more in SIFs as it is more liquid in nature as compared to the AIFs, which have a longer lock-in period. Now, if the flow of funds starts diverting from AIFs to SIFs, it will impede the development of these AIF categories, as they will not get adequate funding. Therefore, it becomes necessary for SEBI to bring in certain rules for the differentiation of AIFs and SIFs, or else the SIFs may become “AIFs Lite”. Regulatory Arbitrage With the introduction of SIFs in the market, it can potentially take over the AIFs due to their low investment barrier and tax benefits. The SIFs are taxed like the Mutual Funds, meaning investors are only liable for taxes upon redemption or sale of their investments. Therefore, MFs are taxed in the hands of investors, and this same structure is devised for the SIFs. However, unlike SIFs, Category III AIFs are taxed at every transaction, sometimes rates varying as high as 30%, and need to pay long-term or short-term tax accordingly. Furthermore, AIFs are taxed at the fund level along with being taxed on dividends. This means that despite AIFs giving high returns, there will be substantial outflows from AIFs towards the SIFs, for the reason that it has low investment requirements and are taxed similarly to Mutual funds, thereby saving a lot of money for the investor. Any prudent or rational investor having Rs.1 crore will invest in ten different schemes of SIFs, each worth Rs.10 lakhs, rather than locking in one AIF. This structure will particularly harm the Category III AIFs, as it invests in derivatives, hedge funds, and will redirect the investments coming towards it to the SIFs due to its liquid and flexible nature. This creates a regulatory arbitrage and may pave the way for SIFs to become a simplified

[By Aditi Srivastava] The author is a student at National Law Institute University, Bhopal.   Introduction In IPOs, media plays a crucial role in disseminating information to investors who may lack the expertise to interpret prospectuses. Media coverage can influence investment decisions and IPO performance, particularly affecting the opening price on listing day. Recently, CFA Institute’s March 2025 report has brought to light the significant challenges and misleading information pervading India’s expanding financial influencer landscape, where countless individuals are increasingly turning to social media for investment guidance. The draft red herring prospectus (“DRHP”) is the most important document, which contains all the information about the company, along with the details of the initial public offering.[1] The information given in the DRHP, is mainly advertised in brief for the investors in the form of newspaper articles, videos, banners, websites etc. The Indian securities market is regulated by the Securities and Exchange Board of India (“SEBI”), a governmental body that primarily exercises its authority through the enactment of regulations. Notably, Regulation 42 read with Schedule IX of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, (“ICDR Regulations”) provides specific regulations for public communication, publicity, advertisements, and research reports related to IPOs. This article will discuss the various requirements of the advertisement rules and regulations and analyse the impact of the advertising with the help of various market studies along with the recent developments with the challenges that are faced in relation to advertising an IPO. Applicability of the regulation and its ambit Regulatory provisions governing IPO communications are structured around a temporal bifurcation, delineating between the ‘Pre-Filing Period’ (from board approval to DRHP filing with SEBI) and the ‘Post-Filing Period’ (from DRHP filing to IPO share allotment), with each period subject to distinct rules regarding permissible communications.[2] Pre-filing restrictions protect investors by curbing premature promotions and unverified information, preserving market integrity. Post-filing rules ensure timely, accurate disclosures while preventing deceptive or manipulative practices, balancing investor information needs with fair, transparent market conduct. Within the context of these regulations, ‘Public communication or publicity material’ and ‘Advertisement’ are construed expansively, encompassing corporate and IPO advertisements of the company, documentaries about the company, periodical reports, press releases, newspaper insertions, and films in any print or electronic media, radio, television programs etc. Navigating the Publicity during the Pre-Filing Period and Post-Filing Period Prior to filing the DRHP, advertising must be consistent with established company practices, defined as the company’s historical approach to communicating with the public and its stakeholders. Any deviation necessitates a prominent disclaimer indicating that the company is ‘under process of filing a DRHP,’ contingent upon necessary approvals and prevailing market conditions.[3] This disclaimer must be presented legibly and with a prominence commensurate with the communication. All advertising materials, including recirculated materials, are subject to pre-clearance by Lead Managers and legal counsel of the company preparing for the IPO.[4] During this pre-filing period, advertisements are prohibited from referencing the IPO, except for the disclaimer, or alluding to share valuation or future financial projections. Within two days of filing the DRHP with SEBI, companies must publish a public announcement in widely circulated English, Hindi, and a regional language newspaper.[5] This informs the public of the filing and solicits feedback for SEBI regarding the DRHP’s disclosures. The RHP is the final version of the preliminary prospectus, incorporating SEBI’s observations and approvals on the DRHP. After filing the RHP with the jurisdictional Registrar of Companies (“RoC”), a pre-IPO advertisement is mandated in the same newspapers, formally announcing the forthcoming IPO. If the RHP doesn’t include the price band (share price range), a separate price band advertisement is obligatory, published at least two working days before the IPO opens.[6] This price band advertisement, disseminated through the same newspapers as the pre-IPO advertisement, must specify the floor price or price band, incorporate relevant financial ratios for both ends of the band, and direct investors to the ‘Basis of Issue Price’section in the RHP, which elucidates the pricing rationale.[7] Following DRHP filing, advertising (excluding product/service advertisements) must prominently disclose the company’s IPO proposal and DRHP/RHP/Prospectus filing with SEBI/RoC. It must also state where these documents are accessible online (SEBI and Lead Managers’ websites).[8] A prescribed disclaimer, adapted for each IPO stage, must be legible and commensurate with the communication, and confined to factual information from the filed documents, precluding projections, estimates, forecasts, or extraneous material. The requirement for advertising to align with established company practices before filing the DRHP ensures that communications remain factual and consistent, preventing companies from using promotional content to mislead or unduly excite investors before regulatory review. Formats for IPO advertisements principal restrictions Pre-IPO advertisements, IPO opening and IPO closing advertisements have to be in the format and contain the minimum disclosures as specified in Parts A, B and C of Schedule X of the ICDR Regulations respectively on the letterhead of the Company along with details prescribed under Section 12(3)(c) of the Companies Act, 2013.[9] Any advertisements which contain highlights or information, other than the details contained in the format as specified in Parts A and B of Schedule X of the ICDR Regulations shall contain risk factors which outlines the potential risks and uncertainties associated with investing in the company and the IPO, such advertisements, must also comply with the provisions of Section 30 of the Companies Act, 2013, which require disclosures regarding the Company’s objects as per its memorandum of association, the liability of members, the amount of share capital of the Company, the names of the signatories to the memorandum of association and the number of shares subscribed for by them and details of the capital structure of the Company.[10] Stringent guidelines, in line with Schedule IX of the Act, govern all company communications during the IPO process, aiming for transparency and preventing misleading promotion. Routine business communications are allowed but cannot promote the IPO, the closure announcements are permissible only after lead manager confirmation of sufficient subscription, registrar certification, and completion of allotment. Website content must align with