[By Sejal Sahu and Anenya]
The authors are students of Hidayatullah National Law University
Introduction
In the recent judgement of Hyeoksoo Son v. Moon June Seok & Anr., the Supreme Court (SC) emphasized that “the rule of law has a responsibility to protect the investments of foreign investors”. While reiterating that the accused had a right to a fair trial, the SC expressed a wider systemic responsibility to depict that fraud on foreign entities should not be left unexamined. The reinstitution of criminal charges in this matter is an indication of a departure in our system of purely procedural adjudication to one that consciously considers the economic impact of legal outcomes. This reflects a shift towards a substantive conception of the rule of law, where justice is not only procedural but also considers investor protection and legal integrity.
Does this signal an evolving jurisprudence where constitutional values like the rule of law and due process are being reinforced? Meanwhile, does it reflect an alignment with the economic goal of making India an attractive and secure destination for foreign investment? This post examines how judicial justice is beginning to define the boundaries of a legal environment responsive to the demands of investments. The first part highlights the judicial shift, followed by an analysis of the SC’s verdict. The second part explores India’s legal system in fostering investors’ trust. The third part provides a comparative analysis of investor rights in other jurisdictions. Lastly, recommendations are proposed to strengthen investor protection and create a safe environment for them.
Analysing The SC’s Verdict as A Beacon for Investor Protection
The Indian subsidiary of the South Korean company Daechang Seat Automotive Pvt. Ltd. experienced a significant financial fraud involving the siphoning of GST money by outsourced advisors and former Chief Financial Officer (CFO) Moon June Seok. The High Court ruled in favour of the accused CFO due to the absence of direct evidence, raising concerns about investor protection. However, the Supreme Court interpreted the situation as an institutional failure with wider implications and recognised that leniency could undermine investor confidence and the credibility of India’s legal system.
The SC cited the case of State of Haryana vs Bhajan Lal, where the limited scope of judicial interference was applied to Section 482 of Cr. P.C. and held that the apex court must refrain from conducting the mini-trial at the preliminary stage and assess only if a prima facie case exists. In its reasoning, the SC carefully balanced the interests of investors and constitutional fairness. It did not want the sheer enormity of the alleged financial wrongdoing to be used as an excuse to circumvent legal protections. This finding indicates that the SC was reluctant to prejudge guilt solely based on the presence of foreign investment. Instead, it reaffirmed that procedural fairness, grounded in the presumption of innocence, should guide the process.
More importantly, the SC acknowledged that the validity of the Indian investment environment depends not only on the ability to prevent financial wrongdoing but also on upholding the legal rights of all stakeholders. By emphasizing this dual obligation, the SC conveyed to both domestic institutions and international investors that the Indian legal system is committed to due process, transparency, and accountability, a system where economic governance and constitutional integrity work in unison.
Where’s the Safety Net? India’s Rule of Law Deficit in Investor Protection
Investors have long been accustomed to structuring their regulatory compliance around contractual obligations. The transactions, hence, majorly depend upon the party’s legal ability to perform. The major portion of the A.T. Kearney 2025 index underscores the importance of legal and regulatory efficiency as the top two most important factors for investors when choosing where to make their investment. India’s performance has fallen short of attracting investments, where it manages to come at the 24th position out of 25 countries that make up the index. Hence, the judgment comes in to save the picture and provides hope in the clouded Indian investment landscape. In Vedanta Resources Plc v Union of India, the Court reiterated the public trust obligation of the State. However, it failed to offer any meaningful protection for investors. The court justified the state’s discretion in allocating resources and allowed for the retrospective amendment of contractual rights, which increased uncertainty for investors. Likewise, the enforcement of arbitral awards was only available after the dispute in Cairn Energy Plc v Republic of India. These examples show that even prominent investors do not receive proactive safeguarding or stabilization, but resort to the time-consuming process of litigation and corrective enforcement. A significant lack of the judiciary’s protective armour rests in its blunt-edged approach, with no relief to investors in terms of pivotal democratic rights. Even when upholding the rights of investors against illegal use of power by tax authorities in another case, the SC reasoned that “case is of considerable public importance, especially on Investment, which is indispensable for a growing economy like India”, hence, outlining a very narrow and incentive-driven approach to the legal protection of investors in the country. The only relatively useful safeguard that emerges is Section 125 of the Companies Act, 2013, which offers limited relief through the Investor Education and Protection Fund (IEPF). It requires investors to transfer any unclaimed dividends or other amounts to the IEPF, which is further used to create awareness among investors and to clear any valid dues. It aims to stop the possible misappropriation of unutilised funds by the business institutions and offer a platform in which the rightful owners can reclaim their legitimate cash. However, the refund process through the IEPF is usually bureaucratic and opaque and thus discourages a large number of small investors from going forward with their claim. Furthermore, the outreach and education programs facilitated through the IEPF are regarded as small-scale and short-lived, particularly outside of urban centres. Section 125 deals only with unclaimed financial entitlements. It does not cover larger issues like fraudulent investment schemes, lack of transparency, or weak enforcement against corporate misconduct in India’s investor protection system.
Moreover, foreign investors consistently seek robust rule of law protections. Yet, despite being a longstanding democracy with a formal rule of law framework, India continues to lag in attracting high levels of Foreign Direct Investment (FDI). This reflects a gap between legal promise and practical assurance. The SC had taken cognizance of this need back in 2013 by declaring, “Even if the foreign investor has no fundamental right, let them know that the rule of law prevails in this country. Let the message be loud and clear”. The judgment was, though focused on the legislative control of the host country on foreign investors, it did not fall short of underlining the importance of strict adherence to constitutional standards of equality and reasonableness. However, judicial promises and statutory commitments have only achieved this in substance, severely lacking in ensuring procedural fairness. For instance, in Ethiopian Airlines vs. Ganesh Narain Saboo, the Court invoked the rule of law to reinforce the authority of domestic legislation in ensuring accountability in contractual and commercial dealings, applying the same standards to both domestic and foreign investors. The SC in this case could only go to the extent of making the rule of law integral for saving a degrading international business, as far as normal market rules are concerned. What emerges is a judiciary that invokes the rule of law but fails to operationalize it as a consistent legal standard, leaving investor confidence tied more to selective activism than to systemic reliability.
Comparative Perspectives: Rule Of Law as A Systemic Shield for Investor Protection
Interestingly, South Korea, the investor’s home country in this case, offers significantly greater legal protection to investors than India does. The recent amendments of the Korean Commercial Act, 1962, have not only made the procedures to claim audits, call general meetings and bring derivative actions simple, but also the access to these remedies will no longer be accompanied by undue procedural burden. This willingness is a sharp contrast to the traditionally cautious approach to litigation in India, where judicial delays and unwillingness to intrude on the decisions of the management are constant sources of loss of investor confidence. This is a lesson that needs to be internalized by the Indian legal system that protection of investors, especially foreign, is not just about legal rights but enforcement by the courts and a straightforward intent. The Daechang case demonstrates that courts are prepared to view investor confidence not merely as a matter of post-crisis correction, but as an area requiring proactive adjustments within the corporate legal framework.
In the United Kingdom (UK), the Companies Act 2006 is more comprehensive in its statutory method of dealing with oppressive conduct by providing an action under Part 30 Sections 994-996 to deal with unfair prejudice. The decision made by the House of Lords in O Neill v. Phillips brought forward a more powerful and subtle doctrine of legitimate expectations that had long been in operation, making the court recognise that shareholder relations were not just founded on legal form but also on equitable estimation. A similar provision, though superficial in nature, can be found under Section 241 of the Companies Act, 2013 of India, but the judicial interpretation has been lacking in the doctrinal refinement and consistency to make it a reliable tool.
Besides, where the UK represents a pattern of doctrinal elaboration, Singapore provides an approach in which the rule of law is internalized into economic policy as such. In the case of Ho Yew Kong vs Sakae Holdings, the Singapore Court of Appeal elaborated on fiduciary duties and fairness that must be provided to the minority shareholders, making it clear that the courts are a team player in economic governance. The Indian courts, however, seem to alternate between formalism and activism without an established normative point of reference. What Singapore demonstrates is how the constitutional principles, such as fairness and non-arbitrariness, can be aligned with the commercial policy, which India will have to follow to transform the ad hoc judicial rulings into an institutionalised investor assurance.
Reforms for Robust Investor Protection in India
To strengthen investor protection in India and prevent them from being defrauded, a set of proactive measures should be considered.
One effective step would be adopting pre-court mechanisms from the APEC Best Practices Guidebook would improve complaint resolution, responsiveness, and investor confidence. Establishing a dedicated foreign investment ombudsman, functioning as a neutral, single-window body, could address investors’ complaints about fraud, delays, regulatory gaps, or other issues. A similar practice exists in South Korea, which set up the investor ombudsmen as part of Korea Trade-Investment Promotion Agency (KOTRA), 1999. Building on this, India should also consider introducing downside protection clauses and regulatory safeguards for investors, both foreign and domestic, to be embedded in India’s investment regime. The downside protection safeguards investors from downside risk by virtue of adverse regulatory market changes. America’s Treasury Inflation Protected Securities bonds protect investors against inflation erosion while OECD promote frameworks that will balance the expectations of investors with public interest. India could adopt statutory provisions that require impact assessment, grandfathering clauses, and compensation remedies for any change in policies that are materially harmful.
CONCLUSION
The ruling of the Supreme Court in the current case indicates a promising shift in the attitude of Indian courts toward the legal proceedings and investor trust. However, one case alone will not reverse the systematic skepticism among investors. This should be part of a consistent judicial practice if India is to be seen as a credible and safe destination for foreign investment. This ruling should encourage broader reforms across judicial, legislative, and administrative realms, which should work together. For example, providing greater assurance to foreign investors could involve establishing specialized commercial benches to resolve cases more quickly, improving mechanisms for enforcing arbitration awards, and creating an independent investor ombudsman system. These measures, combined with increased judicial transparency, would help turn the goal of the rule of law into reality—building investor confidence and fostering long-term economic involvement.