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SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

Responsible use of artificial intelligence by intermediaries

SEBI, vide notifications dated February 10, 2025, has issued the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Amendment) Regulations, 2025 amending the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 and the SEBI (Intermediaries) (Amendment) Regulations, 2025 amending the SEBI (Intermediaries) Regulations, 2008, respectively, to include provisions dealing with responsible use of Artificial Intelligence (“AI”). A recognised stock exchange/recognised clearing corporation/any person regulated by SEBI which uses AI and machine learning tools and techniques, either designed by it or procured from third-party technology service providers, irrespective of the scale and scenario of adoption of such tools for conducting its business and servicing its clients or constituents, will be solely responsible for:

the privacy, security and integrity of investors’ and stakeholders’ data including data maintained by it in a fiduciary capacity throughout the processes involved;
the output arising from the usage of such tools and techniques it relies upon or deals with; and
the compliance with applicable laws in force.

SEBI (Depositories and Participants) (Amendment) Regulations, 2025

SEBI, vide notification dated February 10, 2025, has amended the SEBI (Depositories and Participants) Regulations, 2018, by inserting Regulation 9A dealing with interest on non-payment, belated payment or short payment of annual fee and annual charge payable to SEBI. Where due to the default of the depository, any fee which was liable to be paid to SEBI under Regulation 8 and Regulation 9 of the principal regulations remains unpaid or is paid belatedly or is short-paid by the depository, it will, without prejudice to any other action that may be initiated under the SEBI Act, 1992, rules or regulations, pay an interest of 15% per annum on the amount remaining unpaid or belatedly paid or short-paid, for every month of delay or part thereof to SEBI.

Further, provisions pertaining to responsible use of AI are inserted. A depository which uses AI and machine learning tools and techniques, either designed by it or procured from third-party technology service providers, irrespective of the scale and scenario of adoption of such tools for conducting its business and servicing its clients or constituents, must be solely responsible –

the privacy, security and integrity of investors’ and stakeholders’ data including data maintained by it in a fiduciary capacity throughout the processes involved;
the output arising from the usage of such tools and techniques it relies upon or deals with; and
the compliance with applicable laws in force.

Facilitation to SEBI registered stock brokers to access negotiated dealing system-order matching for trading in government securities – separate business units

Pursuant to the Master Direction – RBI (Access Criteria for NDS-OM) Directions, 2025, and to facilitate SEBI-registered stock brokers to participate in government securities market in the Negotiated Dealing System – Order Matching (“NDS-OM”), SEBI, vide circular dated February 11, 2025, has decided that they may do so under a Separate Business Unit (“SBU”) of the stock broking entity itself, in the specified manner. Some of the key safeguards are as follows:

they must ensure that activities of the NDS-OM under a SBU are segregated and ring-fenced from their securities market related activities and arms-length relationship between these activities are maintained;
such SBUs must be exclusively engaged in activities of transacting on NDS-OM only;
they must prepare and maintain a separate account for the SBU on arms-length basis; and
the net worth of the SBU must be kept segregated from their net worth in the securities market.

Relaxation in timelines for holding Alternative Investment Fund’s investments in dematerialised form

SEBI, vide circular dated February 14, 2025, has modified the timelines with respect to Alternative Investment Funds (“AIFs”) holding their investments in dematerialised form. Some of the relaxations are as follows:

any investment made by an AIF on or after July 1, 2025, will be held in dematerialised form only;
the investments made by an AIF prior to July 1, 2025, are exempted from the requirement of being held in dematerialised form, except in the prescribed cases (which must be held in dematerialised form on or before October 31, 2025); and
the requirement of holding investments in dematerialised form will not be applicable to:
1. scheme of an AIF whose tenure (not including permissible extension of tenure) ends on or before October 31, 2025; and
2. scheme of an AIF which is in extended tenure as on February 14, 2025.

SEBI (Mutual Funds) (Amendment) Regulations, 2025

SEBI, vide notification dated February 14, 2025, has amended the SEBI (Mutual Funds) Regulations, 1996. Some of the key amendments are as follows:

the Asset Management Company (“AMC”) must invest a percentage of the remuneration of such employees as specified by SEBI in units of mutual fund schemes based on the designation or roles of the designated employees in the manner as may be specified by SEBI;
the AMC must conduct stress testing for such schemes as specified by SEBI and disclose the results of the stress testing in the form and manner, as may be specified by SEBI; and
the AMC must pay charges or commission or fees related to distribution of mutual fund schemes, and in the manner as may be specified by SEBI from time to time.

These provisions will come into force with effect from April 1, 2025.

Revising the norms for nomination for demat accounts and mutual funds

SEBI, vide circular dated February 28, 2025, has issued amendments and clarifications to circular dated January 10, 2025, on revise and revamp nomination facilities in the Indian securities market. Some of the key aspects are as follows:

it is clarified in the event of the demise of one or more joint holders, the assets held in a joint account will be transmitted to the surviving joint holder(s) by deleting the deceased holder(s)’ name;
an investor having single holding/account/folio can opt-out of nomination, either online or through physical /offline mode;
for new accounts opened online, the opt-out process must also be completed online, whereas new offline accounts will require the opt-out to be completed offline. Existing account holders have the flexibility to opt out either online or offline, based on their convenience. For demat accounts, depository participants will handle the online opt-out process, not the depositories themselves;
in case of non-resident Indian/overseas citizen of India/person of Indian origin, passport number of the nominee is acceptable as the personal identifiers of the nominee;
the provisions of Clause 3.5.1 of the circular dated January 10, 2025, will be applicable for a joint account/folio in the event where all the holders are simultaneously incapacitated; and
the nomination form for demat accounts and mutual fund folios at Annexure- A to the circular dated January 10, 2025, is modified.

RESERVE BANK OF INDIA (RBI)

Revision in the payment rules for cross border transactions

RBI, vide notification dated February 10, 2025, has issued the Foreign Exchange Management (Manner of Receipt and Payment) (Amendment) Regulations, 2025, amending the Foreign Exchange Management (Manner of Receipt and Payment) Regulations, 2023. Pursuant to the amendment, as regards receipt/payment for export to or import of eligible goods and services, the payments from a resident in the territory of one participant country to a resident in the territory of another participant of the member countries of Asian Clearing Union (“ACU”), other than Nepal and Bhutan, must be through ACU mechanism, or as per the directions issued by RBI to authorised dealers from time to time. For all other transactions, receipt and payment ca be made in Indian Rupees or in any foreign currency.

Updates to the Master Direction on Foreign Investment in India

RBI has introduced updates to the Master Direction – Foreign Investment in India (FED Master Direction No.11/2017-18) on January 20, 2025. The master directions supplement the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 and the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019.

For a detailed analysis, please refer to the JSA Prism of February 14, 2025.

COMPETITION COMMISSION OF INDIA (CCI)

Regulations to specify the manner of recovery of monetary penalty

CCI, vide notification dated February 27, 2025, has brought into force the CCI (Manner of Recovery of Monetary Penalty) Regulations, 2025 (“2025 Regulations”), repealing the CCI (Manner of Recovery of Monetary Penalty) Regulations, 2011 (“2011 Regulations”). The key changes introduced in the 2025 Regulations are as follows:

Definition of ‘legal heir’, ‘person’ and ‘person in default’ introduced in the 2025 Regulations:
1. ‘Legal heir’ has been defined as a legal representative having the same meaning as per Section 2(11) of the Code of Civil Procedure, 1908;
2. ‘Person’ has been defined to have the same meaning as per Section 2 (1) of the Competition Act; and
3. ‘Person in default’ has been defined as a person who has not paid the penalty imposed upon it within the stipulated time despite a demand notice being duly served.
Issuance of demand notice simultaneously with order: Under the 2011 Regulations, a demand notice imposing the penalty was issued by the Secretary of the CCI only after the expiry of the period specified in the order imposing the penalty. However, under the 2025 Regulations, such a demand notice must now be issued simultaneously with the said order.
Extension of time to deposit penalty: Under the 2011 Regulations, parties had 30 days from the date of receipt of the CCI order to deposit the penalty. However, under the 2025 Regulations, the time period has now been extended to 60 days, aligning it with the 60-day period allowed for filing an appeal against the CCI order before the National Company Law Appellate Tribunal. This provision ensures that interest does not accrue before the appeal can be filed.
Reduction in rate of interest on penalty: Under the 2011 Regulations, if a party defaulted in paying the penalty amount, it was liable to pay simple interest at the rate of 1.5% per month on the outstanding amount. However, under the 2025 Regulations, this rate has been reduced to 1% per month.
Recovery of penalty from legal heirs: The 2025 Regulations now provide that those legal heirs of a deceased person, from whom penalty is due, are liable to pay the penalty to the CCI after the expiry of the recovery period. If the penalty remains unpaid, such legal heirs can be treated as ‘person in default’.
Simultaneous recovery through sale: The 2025 Regulations now provide that if a person or enterprise in default fails to pay the penalty on time as per the recovery certificate, the recovery officer may simultaneously proceed to recover the penalty amount through attachment and sale of their property, in accordance with the rules laid down in the Income Tax Act, 1961.
Deferring proceedings: The 2025 Regulations now provide that if the income tax authority to which a reference has been made by the CCI, initiates recovery proceedings, the recovery proceedings initiated by the CCI shall be deferred sine die (i.e. deferred without a future date), to prevent parallel proceedings for recovery of monetary penalty before the CCI and income tax authority.

MINISTRY OF CORPORATE AFFAIRS (MCA)

Extension in the timeline for mandatory dematerialisation of securities for private companies till June 30, 2025

MCA, vide notification dated February 12, 2025, has notified the Companies (Prospectus and Allotment) Rules, 2025 (“Amendment Rules 2025”). Pursuant to the Amendment Rules 2025, the MCA has further amended Rule 9B (issue of securities in dematerialised form by private companies) of the Companies (Prospectus and Allotment of Securities) Rules, 2014 to extend the effective date for the demat requirements to June 30, 2025. The demat requirements do not apply to a ‘small companies’, additionally the ‘producer companies’ can comply with the dematerialisation of their securities by March 31, 2028. The public companies are already required to maintain and transact their shares in dematerialise form starting from October 2, 2018. The extension to the effective date is granted in line with market stakeholders’ consultation to ensure better compliances and transparency. Further, the demat requirements aim to facilitate the share transfer process by making it more efficient and reduce the company’s expense of printing and distribution of physical certificates.

For a detailed analysis, please refer to the JSA Prism of February 14, 2025.

INTERNATIONAL FINANCIAL SERVICES CENTRES AUTHORITY (IFSCA)

Bullion exchange and Bullion market

Liquidity enhancement scheme for bullion exchange

IFSCA, vide circular dated February 4, 2025, has permitted bullion exchange in the International Financial Services Centres (“IFSCs”), to introduce 1 (one) or more Liquidity Enhancement Schemes (“LES”) to enhance liquidity of illiquid commodity derivatives contracts. Some of the key features of the LES are as follows:

the bullion exchange must get prior approval from its governing board before implementing the LES. The approval is valid for 1 (one) year;
only market makers, liquidity providers, or designated participants can receive incentives. These participants should be actively engaged in providing liquidity and should meet specific performance criteria set by the bullion exchange;
the bullion exchange must formulate its own benchmarks for selecting the securities for liquidity enhancement with the broad objective of enhancing liquidity in illiquid securities. The criteria are as follows: (a) the bullion exchange may introduce LES on any security. Once the scheme has been discontinued, the scheme can be re-introduced on the same security; and (b) the list of securities eligible for liquidity enhancement must be disseminated to the market;
incentives for market makers and liquidity providers may encompass fee discounts, fee adjustments across segments, cash payments, or issuance of shares, including options and warrants. However, total incentives should not exceed 25% of the bullion exchange’s net profits, free reserves, or net worth, based on the preceding financial year’s audited financial statements; and
the bullion exchange may issue shares, including options and warrants, as incentives under the LES. However, the total number of shares issued upon the exercise of these options or warrants in a financial year cannot exceed 25% of the exchange’s outstanding shares as of the last day of the previous financial year.

New regulations to govern bullion exchange

IFSCA, on February 13, 2025, has notified the IFSCA (Bullion Market) Regulations, 2025 (“BM Regulations”), to govern bullion exchanges, clearing corporations, depositories, and vault managers within IFSCs. They provide a framework for recognition of bullion exchanges and bullion clearing corporations, and registration of bullion depositories and vault managers, and matters connected therewith or incidental thereto. Some of the key features of the BM Regulations are as follows:

both bullion exchanges and bullion clearing corporations are mandated to maintain a minimum net worth of USD 10,000,000 (US Dollars ten million). IFSCA may specify higher net worths based on specific business considerations;
the term Key Managerial Personnel (“KMP”) now inter alia includes individuals with decision-making influence and those involved in core functions, ensuring clarity in governance structures.
the regulations also specify the process for appointing directors, requiring compliance with the Companies Act, 2013, and approval from IFSCA;
every bullion clearing corporation will have to maintain a framework for orderly winding down of its critical operations and services covering both voluntary and involuntary scenarios. This framework will provide for: (a) timely and orderly settlement or cessation or transfer of position; (b) transfer of the collateral/ deposit/ margin/ any other asset of the members to another bullion clearing corporation that would take over the operations of the bullion clearing corporation; and
every bullion exchange will have to establish a consumer education and protection fund to promote consumer education and provide compensation to consumers in case of defaults by the bullion trading members.

Remote Trading Participants on the stock exchanges in IFSCs

On February 11, 2025, IFSCA issued a circular revising the eligibility criteria of a Remote Trading Participants (“RTPs”). Foreign entities regulated by their home jurisdiction’s securities market regulator are eligible to register as RTPs, provided:

their country is a signatory to the International Organization of Securities Commission’s Multilateral Memorandum of Understanding or a signatory to the bilateral Memorandum of Understanding (“MoU”) with IFSCA or has a bilateral MoU with IFSCA;
entities from countries flagged by the Financial Action Task Force for anti-money laundering concerns are excluded;
RTPs are permitted only proprietary trading in cash-settled derivatives and must partner with an IFSCA-registered clearing member;
an entity incorporated in India will not qualify to be onboarded by the stock exchanges as an RTP;
the RTP must be onboarded by the stock exchange in accordance with the IFSCA (Anti Money Laundering, Counter Terrorist-Financing and Know Your Customer) Guidelines, 2022;
the stock exchanges will be responsible for specifying the terms and conditions for onboarding a RTP, inter alia including the risk management measures and code of conduct in relation to the RTP; and
the stock exchanges will have the operational flexibility to specify the net-worth criteria, security deposit, application fee, annual fee and any other additional conditions for onboarding an RTP.

Fund Management Entities

IFSCA (Fund Management) Regulations, 2025

IFSCA, vide notification dated February 10, 2025, notified the IFSCA (Fund Management) Regulations, 2025 which outline the key provisions for Fund Management Entities (“FMEs”) operating in IFSCs. They establish rules on fund registration, investor eligibility, valuation norms, compliance requirements and disclosure obligations. FMEs are mandated to maintain transparency by disclosing net asset value periodically and ensuring investor updates on portfolio performance. Further, FMEs or their associates are required to invest at least 1% of assets under management or USD 200,000 (United States Dollar two hundred thousand) in retail schemes.

Appointment and change of KMP by an FME

IFSCA, vide circular dated February 20, 2025, has specified the manner and procedure to be followed by an FME for effecting the appointment of or change to the KMPs subsequent to the grant of registration by IFSCA to the FME. This circular aligns with Regulation 7 of the IFSCA (Fund Management) Regulations, 2025, which mandates that FMEs appoint KMPs based in IFSCs who meet specific eligibility criteria, including educational qualifications and work experience. Some of the key provisions of the circular are as follows:

Intimation to IFSCA: FMEs must notify the IFSCA about proposed appointments or changes of KMPs using the prescribed format, accompanied by the applicable fee. Pending applications as of the circular’s date should be refiled as prescribed under this circular, providing proof of any fees already paid.
Regulatory review process: Upon receiving the intimation, the IFSCA will review and communicate any observations within 7 (seven) working days. FMEs are expected to consider these comments before proceeding with the appointment or change.
Compliance responsibility: FMEs and their controlling persons are responsible for ensuring that KMPs meet the eligibility criteria set by the IFSCA, including being based in an IFSC.
Succession planning and timelines: FMEs should have a structured succession plan to maintain operational continuity. A vacant KMP position must be filled within 3 (three) months of its occurrence and cannot remain vacant for more than 6 (six) months.

Amendment to the framework for aircraft lease for person (s) resident in India

IFSCA, vide circular dated February 26, 2025, issued an amendment to the framework for aircraft lease regarding transactions with person(s) resident in India. To enable purchase of assets covered by the aircraft lease framework by a lessor in IFSCs from the manufacturers of such assets in India, the following key amendments are made in the aircraft lease framework:

lessor is prohibited to purchase, lease or otherwise acquire any asset(s) covered under this framework, where post-acquisition, the asset will be operated or used solely by person(s) resident in India or provide services to person(s) resident in India; and
the abovementioned restriction will not apply if: (a) the acquisition is made from such a person(s) who is not a ‘Group Entity’ of the lessor or; (b) the acquisition by a lessor is a part of sale and leaseback arrangement of such assets which are being imported into India for the first time, or; (c) such asset(s) is acquired by the lessor from a manufacturer of such asset(s) in India.

MINISTRY OF INFORMATION AND BROADCASTING (MIB)

Advisory on adherence of Indian laws and the code of ethics prescribed under the Information Technology (Intermediary Guidelines and Digital Media, Ethics Code) Rules, 2021

MIB, vide circular dated February 19,2025, has advised Over-the-Top (“OTT”) platforms to adhere to the various provisions of applicable laws, and the code of ethics prescribed under the Information Technology (Intermediary Guidelines and Digital Media, Ethics Code) Rules, 2021 while publishing content on their platforms, including stricter adherence of the age-based classification of content prescribed under the code of ethics. Further, self-regulatory bodies of OTT platforms are requested to take appropriate proactive action for violation of code of ethics by the platforms.

JSA UPDATES

Gratuity forfeiture permissible without criminal conviction for misconduct involving moral turpitude

The Hon’ble Supreme Court of India (“Supreme Court”) in the case of Western Coal Fields Ltd vs. Manohar Govinda Fulzele has ruled that a criminal conviction would not be necessary to forfeit an employee’s gratuity, if the employee’s services are terminated for an offence involving moral turpitude, which has been established through a disciplinary inquiry conducted by the employer. This ruling diverges from the traditional stance which typically required a court conviction prior to imposing punitive measures such as forfeiture of gratuity. This ruling underscore the need to uphold ethical standards within the workplace, pointing towards the fact that actions reflecting moral failing can carry serious repercussions, regardless of criminal proceedings.

For a detailed analysis, please refer to the JSA Prism of February 27, 2025.

Agreement to sell granting possession of immovable property must be treated as a conveyance for stamp duty purposes

The Supreme Court, while deciding the case of Mr. Ramesh Mishrimal Jain vs. Mr. Avinash Vishwanath Patne and Niranjan Prakash Dali, held that an agreement to sell granting possession of property would be deemed to be a conveyance and would attract stamp duty as applicable to a conveyance under Explanation I to Article 25 of the Maharashtra Stamp Act, 1958.

For a detailed analysis, please refer to the JSA Prism of February 22, 2025.

The High Court of Delhi quashes Goods and Services Tax notices issued to Central Electricity Regulatory Commission and Delhi Electricity Regulatory Commission

The Hon’ble High Court of Delhi, by its recent judgment dated January 15, 2025, in CERC vs. Addl. Director, Directorate General of GST Intelligence and Anr. and Batch, quashed the Show Cause Notices issued by the Directorate General of GST Intelligence to the Central Electricity Regulatory Commission and Delhi Electricity Regulatory Commission (“Electricity Regulatory Commissions”). It was inter alia held that the statutory functions discharged by the Electricity Regulatory Commissions under the Electricity Act, 2003 are not exigible to Goods and Services Tax under the Central Goods and Services Tax Act, 2017 and the Integrated Goods and Services Tax Act, 2017.

For a detailed analysis, please refer to the JSA Prism of February 7, 2025.

The Appellate Tribunal for Electricity settles dispute on modification of tariff under the power purchase agreement between a Section 62 generator and Tamil Nadu Generation and Distribution Corporation Limited

The Appellate Tribunal for Electricity (“APTEL”) in the case of Tamil Nadu Electricity Generation and Distribution Company Ltd. vs. Tamil Nadu Electricity Regulatory Commission & Anr., disposed of the matter by granting a path-breaking relief to an imported coal based (“ICB”) thermal power generating company which set up its power plant under Section 62 of the Electricity Act, 2003. APTEL allowed modification of terms of power purchase agreement (“PPA”) including terms related to tariff by in effect upholding the order passed by the Ld. Tamil Nadu Electricity Regulatory Commission (“TNERC”) i.e., order dated August 31, 2023 (“Order”). The Order relied upon GUVNL vs. Tarini Infrastructure Ltd. (“GUVNL Judgement”) and considered global price rise of imported coal. Due to the price rise, the thermal power generator was suffering on account of a stifling ceiling price mechanism prescribed in the PPA. TNERC appreciated the issue and inter alia allowed removal of ceiling on tariff.

TNERC’s Order was challenged before APTEL by Tamil Nadu Generation and Distribution Corporation Limited (“TANGEDCO”). Before APTEL, TANGEDCO primarily argued against the removal of ceiling on tariff by TNERC. Without prejudice to the settled law by the Supreme Court in the GUVNL Judgement, it was brought to APTEL’s notice (by the ICB thermal power generator) that TANGEDCO had submitted to the jurisdiction of TNERC to determine the tariff afresh, thereby giving up on tariff under the PPA. APTEL agreed with the said understanding. It is in this view APTEL passed its final judgment dated January 27, 2025, deciding on the aspects of implementation of arrangement of power supply between the ICB generator and TANGEDCO.

For a detailed analysis, please refer to the JSA Prism of February 18, 2025.

MB Power (Madhya Pradesh) Ltd. secured payment of capacity charges and transmission charges withheld by Procurers

The APTEL, in its recent judgment dated January 17, 2025, in Uttar Pradesh Power Corporation Ltd. and Ors. vs. Central Electricity Regulatory Commission & Ors., reaffirmed Uttar Pradesh Power Corporation Limited’s obligation to pay capacity charges and transmission charges for the capacity declared by MB Power (Madhya Pradesh) Ltd., even though the same was not scheduled.

For a detailed analysis, please refer to the JSA Prism of February 3, 2025.

This Newsletter has been prepared by: