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FINANCIAL SERVICE PROVIDERS UNDER THE INSOLVENCY AND BANKRUPTCY CODE, 2016

 

SIDDHARTH SRIVASTAVA, RAUNAK RAHANGDALE AND SHIKHA MOHINI

The authors are Partner, Principal Associate and Associate at Khaitan & Co. Views stated in this paper are personal. 

Financial Service Providers (“FSPs”) are the backbone of the economy of any country and hence their insolvency and resolution become a matter of public concern. Although much is known about the resolution and liquidation of a company in general, a lot remains unexplored in the domain of insolvency of FSPs. The authors via this article attempt to explore the abovestated and, in the process, have consolidated the laws and procedures surrounding the resolution of an FSP prior to and after the commencement of the Insolvency and Bankruptcy Code, 2016 (“Code”). Further, we analyze in detail the ratio laid down in the matters concerning the insolvency of Dewan Housing Finance Limited (“DHFL”), the first FSP to undergo insolvency under the Code. The insolvency of DHFL is of utmost importance for it went on to settle multiple legal principles in regard to the insolvency of FSPs and has paved the way for future FSP resolutions.

IS THE NATIONAL PENSION SYSTEM A ONE-WAY STREET? 

PRATHAM DARAD

The author is a Principal Associate at Regstreet Law Advisors. The author was assisted by Tarpan Soni, a second-year student of B.A. LL.B. (Hons.) at Rajiv Gandhi National University of Law, Punjab. Views stated in this paper are personal. 

A new constitutional showdown is brewing in a domain that is as much political as much social. National Pension System which was ushered in as an instrument of social and financial reform has become a cause for a standoff between Centre and States and which may sooner than later be resolved by judicial forums. This piece discusses the background because of which the Old Pension System was replaced by the New Pension System and issues such as who has the right over funds, is the PFRDA Act even applicable to States, and whether the stand of NPS Trust and PFRDA to not to return the contributory funds to States violates constitutional principles. These discussions are of utmost importance for a nation that will in a few years see a significant rise in the aging population and a stable social welfare system is a necessity rather than a choice.

THE PARADOX BETWEEN SECTORAL REGULATION AND COMPETITION LAW: NEED OF EVOLVING A MODEL OF COOPERATION TO RESOLVE THE REGULATION / COMPETITION DICHOTOMY

MAHIMNA DAVE

The author is a fourth-year students of B. Com LL.B. (Hons.) at Institute of Law, Nirma University. Views stated in this paper are personal.

The constant rise in India of regulatory bodies overseeing economic reforms has resulted in multiple instances of jurisdictional overlay and inefficient results. This paper aims to analyse the inception of the proliferation of a sector-specific regime in India through a historical perspective. The article takes into account the challenging question concerning the relationship between sectoral regulations and competition law. It analyses the genesis of regulatory jurisprudence in the Indian context explaining the complementarities and contradictions of the same. Further, it elucidates how sectoral regulatory bodies circumscribe the role of the competition authority. In order to elaborate on the regulation/competition dichotomy, this article also takes into consideration two case laws, they are Ericsson v. CCI and CCI v. Bharti Airtel and Ors. Finally, the last section throws light on two internationally accepted models of the regulation/competition interface, specifically, the Exclusivity model and the Concurrent model; it describes their distinct features, the disadvantages they pose and suggests a novel way forward. Accordingly, the article proposes to expand the competition enforcement by adopting a “rule-making” approach in order to reduce the market-wide uncertainty, cost of litigation and reduce unexpected outcomes. The latter is founded on a hybrid-mutual-influence approach and intends to reduce the current inconsistencies existing between the regulatory and competition bodies in India.

COMBATTING INSIDER TRADING IN INDIA: DETERMINING EXISTING LOOPHOLES AND EFFECTIVE DETERRENTS

RINI KOTHARI

The author is a practicing lawyer in the High Court of Madhya Pradesh and NCLT. Views stated in this paper are personal.

Despite severe consequences capable of causing reputational damage, and the existence of stringent laws and regulations specifically designed to curb insider trading, the violations and leakage of unpublished price-sensitive information have become more common. The cases being probed by the Securities and Exchange Board of India have rapidly increased from 10 to 20 percent during Financial Year (FY) 2003-18, to over 30 percent during FY 2019-21. Yet, the rate of conviction in these cases remains significantly low. This implies that flaws and gaps persist which impede the effectiveness of the laws prohibiting insider trading. There are several layers involved in regulating the cases of insider trading, viz., legislation, investigation, prosecution, and conviction. This paper delves deeper into the concept with the main aim to determine the stage at which the loopholes largely persist structurally within the regulatory regime and the issues which plague that specific layer in India. The paper also attempts to ascertain effective deterrents for combatting insider trading in the context of India. Further, since research indicates that developed countries have a better record of prosecution than emerging markets, this paper seeks to examine the laws and experiences of one of such developed countries, the United States of America, known to have the most robust and vigorous regulations and prosecution of insider trading cases globally, and determine whether the practices followed in the U.S. are suitable for the regulatory/enforcement culture in India. 

A CRITICAL ANALYSIS OF THE INFORMANT MECHANISM UNDER THE SEBI (PROHIBITION OF INSIDER TRADING) REGULATIONS, 2015 VIS-À-VIS GLOBAL BEST PRACTICES ON WHISTLEBLOWING

 

SAGNIK SARKAR

The author is a graduate of B.A. LL.B. (Hons.) from Tamil Nadu National Law University, Tiruchirappalli. Views stated in this paper are personal.

Whistleblowers perform a key social function. They expose wrongs that would otherwise have been difficult, if not possible, for State authorities to detect. This is the advantage of their proximity to the internal affairs of the organization they were, or are, employed with. Whistleblowers thus play a key role in upholding public ethics, by contributing to the detection of, and the enforcement of remediation measures and sanctions against, wrongs. Whistleblowing is particularly useful for securities law enforcement actions. These actions tend to rely heavily on circumstantial evidence, which is often difficult for a regulator to procure without disclosure from a whistleblower. The informant mechanism under the Regulations allows whistleblowers to report information concerning insider trading directly to SEBI. While the mechanism is well-intentioned, it falls short of global best practices on whistleblowing on multiple counts. Firstly, it fails to vest in employees a right to refuse to follow a direction from a superior reasonably believed to be unlawful. Secondly, it imposes an unwarranted burden on the informant to satisfy themselves that the conduct they are disclosing is wrongful. Thirdly, there is inadequate guidance on the extent to which SEBI will keep the informant’s identity in confidence. Fourthly, the mechanism omits to protect the family members of informants against retribution. Fifthly, a protected person cannot seek a remedy against retribution as a matter of right. Finally, the burden of proof necessary to prove retaliation appears to be disproportionately high, with the odds of success stacked against the claimant.

ANALYSING ADDITION TIER 1 BONDS THROUGH THE YES BANK FIASCO

 

MANAS AGARWAL

The author is a fourth-year student of B.A. LL.B. (Hons.) at National Law School of India University, Bengaluru. Views stated in this paper are personal.

First, there is a dearth of literature in Indian academic writing on the issues discussed in this paper. No Indian scholar has critically analyzed the SEBI order or the decision of the High Courts. At best, there have been studies of the impact disclosure on consumer finance, which do not have a direct correlation to the AT-1 bonds. Moreover, even in international literature, the focus has only been on empirical analysis, and not on the interpretation of statutes, circulars, and regulations. Second, the SC has not delivered any verdict on the decision of either the Bombay High Court or the Madras High Court. Moreover, SAT has not given a conclusive order on the issue of violation of PFUTP. Third, the fiasco of AT-1 bonds has been discussed in newspaper articles however; these newspaper articles merely state the stance of the different stakeholders without providing a strong critical analysis. Thus, this paper becomes imperative. It provides a critical and holistic analysis on first, the validity of issuing AT-1 bonds generally, irrespective of the issuing bank, and second, on the specific case of AT-1 bonds issued by YBL.

SHINING A LIGHT ON SHADOW TRADING:  UNDERSTANDING ITS IMPLICATIONS WITHIN INDIA’S INSIDER TRADING REGULATIONS

ANIKET PANCHAL AND KHUSHI PAREKH

The authors are fifth-year students of B.BA. LL.B. (Hons.) at Gujarat National Law University, Gandhinagar. Views stated in this paper are personal.

 

Shadow trading encapsulates a theory of insider trading. It finds its roots in the misappropriation theory propounded by the United States. Based on the idea that secret information from one company may also be relevant for other economically linked companies, shadow trading aims to convict those insiders who may profit from trading in the scrip of such economically linked companies. Regulatory scrutiny has been avoided for these kinds of market transactions up until August 2021 when the Securities Exchange Commission of the United States targeted one Mathew Panuwat based on a complaint of shadow trading. This paper aims to analyze this case and then explore the viability of this theory in the context of Indian law. Further, this paper attempts to examine under what pigeonhole will this theory fit in the existent insider trading laws of the country. Lastly, the authors will recommend policy changes to ensure that the integrity of the securities market in India is balanced against its development and increased participation.

THE LEGITIMACY OF ASYMMETRICAL ARBITRATION CLAUSES IN INTERNATIONAL COMMERCIAL  ARBITRATION

 

AHAN GADKARI 

The author is a fifth-year student of B.A. LL.B. (Hons.) at Jindal Global Law School, Sonipat. Views stated in this paper are personal.

Despite the contrast in the parties’ positions, unilateral dispute settlement provisions have garnered widespread recognition from judicial tribunals due to their consensual character. Nevertheless, due to specific flaws inherent in their one-sided character, similar provisions have been rejected in a few cases in the past. Apart from causing substantive imbalance, they foster procedural inequality by allowing one of the parties to choose the venue after the dispute has occurred. Their legitimacy, however, has never been challenged against the standard set out in Article 18 of UNCITRAL Model Law, which demands equal treatment of parties in arbitral proceedings. This paper aims to examine such asymmetrical arbitration clauses provisions under Article 18 of UNCITRAL Model Law, taking inspiration from the judicial handling of similar clauses under Article 6 of the European Convention on Human Rights, which is the basis of Europe’s need for equitable treatment. Thus, the article’s subsequent sections explore the nature and scope of Article 18 in order to determine if it may be used to challenge unilateral dispute settlement provisions. Finally, the paper suggests an objective three-step test that judicial courts and arbitral tribunals might use to resolve this majorly unresolved issue.

RE-CONSTRUCTING THE LIMITATIONS UNDER SECTION 7 OF IBC: A CRITICAL ANALYSIS OF THE STATUS OF HOMEBUYERS UNDER INDIAN INSOLVENCY REGIME

 

PRANAY AGARWAL

The author is a third-year student of B.A. LL.B. (Hons.) at Gujarat National Law University, Gandhinagar. Views stated in this paper are personal.

The Insolvency and Bankruptcy Code, 2016 was enacted with the motive of economic development of the country and in its furtherance, for providing the most efficient and justifiable solution to corporate insolvency. But when it comes to the insolvency of real estate companies and builders, the approach of the Code was shy in the initial years, thus relying majorly upon the judicial precedents and interpretations. With the coming of the amendments of 2018 and 2020, the contentious debate on the status of homebuyers was sought to be put to rest by the Parliament. However, the amendment of 2020, being in contravention to the earlier judicial reasoning raised new questions on the status of the homebuyers. The addition of the second proviso to Section 7 though settled the legal position on the procedural aspect, but new challenges in the light of socio-economic advancements highlight the need to critically analyse the status of the homebuyers with respect to both the substantive and procedural aspects of Section 7. In this article, the author has attempted to resolve this dilemma and has tried to fill the lacunas left in the code and its amendments for the purpose of reconstructing the limitations imposed by Section 7 of the code.

PROPOSING AN ALTERNATE LEGAL INTERPRETATION OF AGREEMENTS FOR SALE - A BUYER-FRIENDLY APPROACH

 

TARUN ASHOK

The author is a second-year student of B.A. LL.B. (Hons.) at National Law School of India University, Bangalore. Views stated in this paper are personal.

The questions surrounding the legal ramifications of agreements for sale have occupied the limelight in property sale transactions. A document pivotal to transactions for sale of property, they have been used and abused by sellers to the detriment of unsuspecting purchasers of property. Aggrieved buyers have been forced to resort to remedies under different laws such as the Specific Relief Act, 1963 and the Indian Contract Act, 1872 to enforce their rights under the contract. This article puts forth avenues of recourse to buyers within the four corners of the Transfer of Property Act, 1882- the primary law governing immovable property in India. In furtherance of the same, it first analyses provisions related to a charge on property through a contract for sale. Then it examines existing jurisprudence surrounding agreements for sale in India. It also considers the questions of part performance, obligations annexed to the land and the English Equitable Doctrine. Finally, it advances a mechanism to establish a charge on the property in the interest of the buyer to shield them against deceitful sellers. It primarily focuses on Section 55 (6) (b) of the Transfer of Property Act, to articulate an interpretation that fully realizes the rights of the buyer, in the form of a charge on property. The existing judicial approach generally steers buyers towards recourse such as specific performance or refund of earnest money. This article propounds a novel re-imagination of this interpretation by securing a charge on the property in the hands of the buyer.

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