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JSA Prism | Insolvency Law | May 2025

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Known statutory claims survive Insolvency and Bankruptcy Code, 2016 resolution plan, if not disclosed

On April 2, 2025, the Madurai Bench of the Madras High Court (“Madras HC”), in M/s. Empee Distilleries Limited vs. The Superintending Engineer and Ors.[1], delivered a pivotal ruling on the interplay between the Insolvency and Bankruptcy Code, 2016 (“IBC”) and statutory claims under litigation. The Madras HC held that a claim pending before a statutory appellate body is not extinguished upon approval of a resolution plan by the National Company Law Tribunal (“NCLT”) if it was known but not disclosed during the Corporate Insolvency Resolution Process (“CIRP”). This decision underscores the duty of the Interim Resolution Professional (“IRP”) and promoters to ensure full transparency regarding known debts.

Brief facts

M/s. Empee Distilleries Limited (“Empee”) underwent CIRP, with a resolution plan approved by the NCLT on January 20, 2020, for INR 475 crore (Indian Rupees four hundred and seventy-five crore), covering secured creditors, statutory dues, and unsecured creditors under the waterfall mechanism.
The Tamil Nadu Generation and Distribution Corporation Limited (“TANGEDCO”), a statutory creditor, claimed INR 1,23,69,195 (Indian Rupees one crore twenty-three lakh, sixty-nine thousand, one hundred and ninety-five) in electricity dues, including INR 1,14,80,039 (Indian Rupees one crore fourteen lakh, eighty thousand and thirty-nine) under litigation in a writ petition (W.P. No. 26553 of 2013) pending since 2013, which was known to Empee’s promoters and the IRP.
TANGEDCO did not participate in the CIRP, and its claim was not included in the resolution plan. Post-approval, the new management sought electricity reconnection, which TANGEDCO denied due to unpaid dues.
Empee challenged TANGEDCO’s demand via a writ petition, arguing that the claim was extinguished under the IBC’s ‘clean slate theory’. The single judge ruled that while TANGEDCO could not enforce the claim directly, it could refuse reconnection under the Tamil Nadu Electricity Supply Code.
Empee appealed, leading to the present intra-court ruling by the Madras HC.

Issue

Does a statutory claim under litigation, known but not disclosed during the CIRP, get extinguished upon approval of a resolution plan by the NCLT?

Findings and analysis

The Madras HC, after reviewing IBC provisions and judicial precedents, held as follows:

the pending writ petition over TANGEDCO’s INR 1,14,80,039 (Indian Rupees one crore fourteen lakh, eighty thousand and thirty-nine) claim was known to Empee’s promoters and the IRP but was not disclosed to the committee of creditors. This omission breached the IRP’s statutory duty, preventing the claim’s extinguishment;
citing Ghanashyam Mishra and Sons (P) Ltd. vs. Edelweiss Asset Reconstruction Co. Ltd.[2], the court affirmed that the ‘clean slate theory’ (where claims not in the resolution plan are extinguished), applies only when all known debts are disclosed. Non-disclosure of a known, sub judice claim undermines this principle;
the court harmonized State Tax Officer vs. Rainbow Papers Limited[3] (“Rainbow Papers”), which treated statutory dues as secured debts, with Paschim Anchal Vidyut Vitran Nigam Limited. vs. Raman Ispat Private Limited[4], clarifying that Rainbow Papers applies narrowly and does not override the IBC’s disclosure requirements. Here, the focus was on procedural lapse, not the nature of the dues; and
due to the IRP’s failure to disclose the pending claim, TANGEDCO’s demand remained enforceable as a condition for reconnection, subject to the litigation’s outcome. The IRP failed to gather and present information about the pending statutory dues, breaching IBC mandates. The court rejected Empee’s argument that TANGEDCO’s non-participation in the CIRP extinguished the claim, emphasizing that known debts cannot be excluded by silence.

Conclusion

The ‘clean slate theory’, or the ‘fresh start theory’, in the context of IBC, means that once a resolution plan for a financially distressed company is approved, the company is considered to have a fresh start, free from all past liabilities except those specifically addressed in the approved plan. This judgment reinforces that the IBC’s ‘clean slate theory’ hinges on transparency. Known statutory claims, including those under litigation, survive resolution plan approval if not disclosed during the CIRP. It places a heightened onus on IRPs and promoters to diligently report all liabilities, protecting creditors like TANGEDCO from being prejudiced by procedural lapses. The decision clarifies that while the IBC overrides inconsistent laws under Section 238, this protection does not extend to shielding non-disclosure of known debts.

This Prism has been prepared by:

Varghese Thomas
Partner

Fatema Kachwalla
Partner

Shaan Mamta Bhatt
Associate

For more details, please contact [email protected].

[1] W.A (MD) No. 1426 of 2022

[2] (2021) 9 SCC 657

[3] (2022) SCC Online SC 1162

[4] (2023 SCC OnLine SC 842)

Tags CIRP, Clean Slate Theory, Corporate Debts, IBC Compliance, IBC Litigation, Insolvency Law, JSA, JSA Prism, Madras High Court, Resolution Plan, Statutory Dues, TANGEDCO, Transparency In IBC

JSA Prism | Employment Law | May 2025

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Karnataka High Court to examine validity of compulsory gratuity insurance rules

In the ongoing case of Bruhat Bangalore Hotels Association and Ors. vs. The Principal Secretary[1], a single judge bench of the Karnataka High Court (“Karnataka HC”), while examining the constitutional validity of the Karnataka Compulsory Gratuity Insurance Rules, 2024 (“Insurance Rules”) has, vide an interim order dated April 28, 2025, restrained the Government of Karnataka from taking coercive action against the petitioners for non-payment of gratuity insurance premiums for employees who have not completed 5 (five) years of continuous service, subject to the petitioners continuing to pay insurance premiums for employees who have completed 5 (five) years of continuous service.

Brief facts

On January 10, 2024, the Government of Karnataka notified[2] the Insurance Rules pursuant to Section 4A of the Payment of Gratuity Act, 1972 (“Gratuity Act”), requiring all eligible employers in Karnataka to obtain compulsory gratuity insurance from Life Insurance Corporation of India or other approved insurers, for their liability towards payment of gratuity to all eligible employees under the Gratuity Act. Existing establishments were required to comply with these directions within 6 (six) months of the notification (extended from the initial 60 (sixty) days), while new establishments are expected to comply within 30 (thirty) days of commencement of their operations.

On March 19, 2024, the Bruhat Bangalore Hotels Association and other industry bodies filed writ petitions before the Karnataka HC, challenging the constitutional validity of the Insurance Rules in its entirety and seeking:

a declaration that the notification dated January 10, 2024 (i.e., the Insurance Rules) is unconstitutional and violative of Article 14 of the Constitution of India; and
an interim stay on the operation of the Insurance Rules pending final adjudication.

Grounds for challenge

The challenge is primarily premised on the following[3]:

pursuant to requirements under the Insurance Rules, employers are bound to pay insurance premiums even for those employees who have not completed 5 (five) years of continuous service as prescribed under the Gratuity Act — despite gratuity becoming payable only upon completion of such period under the Gratuity Act; and
the Insurance Rules apply uniformly to all employers, without accounting for differences in the size or financial capacity of the establishment — potentially impacting the profitability of small-scale businesses.

Preliminary observations and interim order

While passing the interim order that no coercive steps should be taken against the petitioners for not paying premiums for employees who have not completed 5 (five) years of continuous service—so long as premiums are paid for eligible employees—the Karnataka HC made the following observations:

as the pleadings in the matter are yet to be completed, it would not be appropriate to stay the operation of the Insurance Rules entirely at this stage, as such a direction could prevent employers in a position to pay the insurance premium, from continuing to do so;
continuing with coercive enforcement measures during pendency of the proceedings could result in undue hardship—particularly in respect of employers who are unable to pay premiums for employees who have not completed 5 (five) years of continuous service, and therefore, are not yet eligible for gratuity under the Gratuity Act.

The matter is next listed for hearing on June 3, 2025.

Potential outcome and impact

The ongoing proceedings before the Karnataka HC assume particular significance as they mark the first constitutional challenge to the Insurance Rules. Notably, several employers across key sectors such as hospitality, manufacturing, retail have already commenced compliance efforts—ranging from procuring group gratuity insurance policies, to undertaking internal documentation and registration requirements as compliance measures under the Insurance Rules and Gratuity Act.

Against this backdrop, the outcome of the present case is likely to set a precedent with broad-based implications. Should the Karnataka HC uphold the validity of the Insurance Rules—particularly the obligation to insure employees who have not yet completed 5 (five) years of continuous service—employers will be required to front-load insurance costs regardless of whether gratuity has legally accrued. This would effectively result in continued concerns around cost efficiency, disproportionate burden on smaller enterprises, and inconsistency with the broader statutory construct under the Gratuity Act. Conversely, a favourable ruling for the petitioners could potentially offer significant relief to financially constrained businesses and may prompt a reconsideration of the manner in which gratuity insurance obligations are framed and enforced.

This Prism has been prepared by:

Sonakshi Das
Partner

Mitali Jain
Associate

For more details, please contact [email protected].

[1] W.P. Nos. 9358/2024, 12931/2025 and other connected petitions (Interim order passed on April 28, 2025)

[2] Notification No. LD 397 LET 2023

[3] As per Karnataka High Court Daily Order dated April 28, 2025

Tags Constitutional Law, Employer Compliance, Employment Regulations, Gratuity Act, Gratuity Insurance, JSA, JSA Prism, Judicial Update, Karnataka High Court, Labour Law, Legal Challenge, Policy Impact, Writ Petition

JSA Prism | IFSCA | May 2025

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International Financial Services Centres Authority notifies fund management regulations 2025 to streamline fund management industry in Gujarat International Finance Tec-City – International Financial Services Centres, offering investor-friendly measures and more operational flexibility

In furtherance of the commitment to develop the Gujarat International Finance Tec-City (“GIFT”) city as the premier global centre for fund management activities and with a view to facilitate the next phase of growth in fund management operations within the International Financial Services Centres (“IFSCs”), the International Financial Services Centres Authority (“IFSCA”) undertook a comprehensive review of the extant IFSCA (Fund Management) Regulations, 2022 (“2022 FM Regulations”). Pursuant to this review, the IFSCA notified the International Financial Services Centres Authority (Fund Management) Regulations, 2025 (“2025 FM Regulations”) on February 19, 2025, superseding the 2022 FM Regulations.

Key amendments introduced under the 2025 FM Regulations

Non-retail scheme (venture capital and restricted scheme)

The minimum corpus of the scheme has been reduced from USD 5,000,000 (US Dollars five million) to USD 3,000,000 (US Dollars three million). This change will make entry of the new fund managers more accessible.
The validity of private placement memorandum has been increased to 12 (twelve) months from 6 (six) months. It will provide more time to Fund Management Entities (“FMEs”) to raise the minimum corpus to start a scheme.
FMEs or their associates can now invest up to 100% (as opposed to erstwhile 10%) in a venture capital scheme provided that:
- the FME and its associate investing in the scheme, are persons resident outside India and do not have any person resident in India as their ultimate beneficial owners; and
- not more than one-third of the corpus of the scheme is invested in an investee company and its associates.
Open-ended schemes have been permitted to commence its investment activities upon receiving an investment of USD 1,000,000 (US Dollars one million) and the minimum corpus of USD 3,000,000 (US Dollars three million) can be achieved within a 12 (twelve) month period. This allows FMEs additional time period to achieve necessary corpus.
A provision for joint investments has been introduced for restricted schemes. It aims to increase investor participation in the schemes launched by FMEs.

Retails schemes

The minimum corpus has been reduced from USD 5,000,000 (US Dollars five million) to USD 3,000,000 (US Dollars three million).
The mandatory requirement for listing close-ended retail schemes on recognised stock exchanges has been made optional, provided that each investor’s minimum contribution to the scheme is not less than USD 10,000 (US Dollars ten thousand).
The ‘sound track record’ requirement for retail FMEs now considers the experience of other entities in the FME group, making it easier for new fund managers to enter.

Portfolio management services

The minimum investment amount has been reduced to USD 75,000 (US Dollars seventy-five thousand) from USD 150,000 (US Dollars one hundred and fifty thousand).
Clients under a portfolio management services may maintain their funds in specific account of the client maintained with a regulated broker dealer, amongst other accounts subject to certain prescribed conditions.

Manpower and operational flexibility

No prior approval of IFSCA is required for appointing any Key Managerial Personnel (“KMPs”) – only an intimation will suffice.
FMEs managing Assets under Management (“AUM”) over USD 1,000,000,000 (US Dollars one billion) (excluding the AUM of fund of funds) will have to appoint one additional KMP within a period of 6 (six) months from the end of the financial year. This requirement is meant to manage the higher operational risks associated with larger AUM.
It is mandated that the employees of FMEs should undergo certifications from specified institutions to ensure continuous professional competence.
The requirements regarding educational qualifications, work experience, eligibility criteria of the KMPs have been clarified to widen the pool of eligible candidates to man the KMP positions and to streamline the process for appointment of KMPs.

Conclusion

2025 FM Regulations represents a regulatory advancement aimed at reinforcing the positioning of IFSC as globally competitive financial jurisdictions by balancing business facilitation with investor protection mechanisms. In nutshell, the aim of replacing 2022 FM Regulations is to enhance the overall ease of doing business, incorporate protective measures to safeguard the interest of investors and provide necessary clarification to the intent and scope of existing regulatory regime.

This Prism has been prepared by:

Rajul Bohra
Partner

Anmol Khurana
Associate

For more details, please contact [email protected].

Tags IFSCA, JSA, Leading Law Firm, Leading Lawyers, Legal Updates

JSA Newsletter | Finance | February_March Edition 2025

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This Newsletter sets out some of the key legislative and regulatory updates in the banking and finance, and insolvency space for the months of February and March 2025.

Revision in the payment rules for cross border transactions

The Reserve Bank of India (“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, 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), has been mandated to 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 can be made in Indian Rupees or in any foreign currency.

Government securities

Amendment related to government securities and gold related securities

By way of gazette notification dated February 13, 2025, RBI amended the notification dated January 8, 2010, under Securities Contracts (Regulation) Act, 1956 (“SCRA”), regarding contracts for the sale or purchase of government securities, gold-related securities, and money market instruments. In 2010, RBI had prohibited all forms of the sale and purchase contracts in government securities, gold related securities and money market securities other than: (a) spot delivery contracts; and (b) contracts traded on recognized stock exchanges. The RBI has now clarified that, in addition to the spot delivery contracts and contracts traded in stock exchange previously permitted, RBI will, from time to time, permit other forms of contracts which will be considered permissible sale and purchase contracts in government securities, gold related securities and money market securities.

RBI (Forward Contracts in Government Securities) Directions, 2025

In furtherance to the power granted to RBI under the gazette notification dated February 13, 2025, on February 21, 2025, RBI notified the RBI (Forward Contracts in Government Securities) Directions, 2025 (“FC Directions”). The FC Directions lays down the framework for forward contracts in government securities (“Bond Forward”) to be undertaken in the over-the-counter market in India. These provisions of the FC Directions come into effect from May 2, 2025. Some of the key provisions are as follows:

Eligibility: A Resident is permitted to undertake bond forward transactions to the extent permitted under the FC Directions. Any non-resident authorised to invest in government securities under the Foreign Exchange Management (Debt Instruments) Regulations, 2019, are also permitted to engage in Bond Forward transactions, to the extent permitted under the FC Directions.
Market makers: The following entities are eligible to undertake Bond Forward tractions as market makers:
- scheduled commercial banks (except a Small Finance Bank, a Payment Bank, a Local Area Bank and a Regional Rural Bank); and
- a standalone primary dealer.
Users: Any entity, eligible to be classified as a non-retail user in terms of the Rupee Interest Rate Derivatives (Reserve Bank) Directions, 2019, is eligible to undertake transactions in Bond Forwards as a user. An eligible user (resident and non-resident) may undertake covered short positions in Bond Forwards only for the purpose of hedging.
Settlement and Payment: A Bond Forward transaction may be physically settled or cash settled in the manner prescribed there.

Provisions are also made for market participant to exit its position through unwinding or novation under specified conditions. The FC Directions further outline mandatory reporting requirements, prudential norms, margining guidelines and compliance with applicable accounting standards. Finally, RBI reserves the right to call for information, impose penalties, or suspend trading in Bond Forwards for non-compliance of the FC Directions.

Government securities transactions in negotiated dealing system – order matching

Currently, the transactions between a between a Primary Member (“PM”) and its own Gilt Account Holder (“GAH”) or between two GAHs of the same PM are not permitted to be matched on Negotiated Dealing System – Order Matching (“NDS-OM”) and are also not cleared and settled through Clearing Corporation of India Limited (“CCIL”). Basis review and stakeholder feedback, RBI, vide circular dated February 17, 2025, has decided to:

permit matching of transactions between a PM and its own GAH or between two GAHs of the same PM on both the anonymous Order Matching segment and the Request for Quote (RFQ) segment of NDS-OM. Transactions matched on NDS-OM will be cleared and settled through CCIL; and
extend the facility of clearing and settlement through CCIL for transactions between a PM and its own GAH or between 2 (two) GAHs of the same PM which are bilaterally negotiated and reported to NDS-OM, on an optional basis.

Amendment to the prudential regulations for All India Financial Institutions

RBI, vide circular dated February 17, 2025, has issued an amendment to the RBI (Prudential Regulations on Basel III Capital Framework, Exposure Norms, Significant Investments, Classification, Valuation, and Operation of Investment Portfolio Norms and Resource Raising Norms for All India Financial Institutions) Directions, 2023 applicable to All India Financial Institutions (“AIFIs”) regulated by RBI including EXIM Bank, NABARD, NaBFID, NHB and SIDBI. This amendment, effective April 1, 2025, provides that all investments made by AIFIs, as per their statutory mandates, in long-term bonds and debentures (i.e., having minimum residual maturity of 3 (three) years at the time of investment) issued by non-financial entities will not be accounted for the purpose of the ceiling of 25% applicable to investments included under ‘Held to Maturity’ category, specified under the said Directions.

Revised risk weights on microfinance loans and exposures

RBI, vide circular dated February 25, 2025, has revised the risk weights on microfinance loans and exposures of scheduled commercial banks (“SCBs”) (excluding payments banks). Microfinance loans in the nature of consumer credit have been excluded from the purview of higher risk weights specified in the circular on ‘Regulatory measures towards consumer credit and bank credit to Non-Banking Financial Companies’ (“NBFCs”) dated November 16, 2023, and accordingly, are subject to a risk weight of 100% instead of earlier risk weight of 125%. All microfinance loans extended by RRBs and LABs will attract risk weight of 100%. The revised risk weight provisions apply to both outstanding and new loans, effective immediately from the issuance of the circular.

On November 2023, RBI had increased the risk weights on exposures of SCBs to NBFCs (with external credit ratings), excluding core investment companies, by 25 percentage points (over and above the risk weight associated with the given external rating) in all cases where the extant risk weight as per external rating of NBFCs is below 100%. Now, by its notification dated February 25, 2025, RBI has restored the previous risk weights applicable to such exposures which are specified in the Master Circular – Basel III Capital Regulations dated April 1, 2024. These instructions have come into effect from April 1, 2025.

Amendments to the insolvency resolution process for corporate persons regulations

To streamline the Corporate Insolvency Resolution Process (“CIRP”) relating to real estate projects, the Insolvency and Bankruptcy Board of India (“IBBI”), vide notification dated February 3, 2025, has amended the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. By way of this amendment, the following new provisions were added:

the Resolution Professional (“RP”), after obtaining the approval of the Committee of Creditors (“CoC”), with not less than 66% of total votes, can hand over the possession of the plot, apartment, or building or any instruments agreed to be transferred under the real estate project and facilitate registration, where the allottee has requested for the same and has performed his part under the agreement;
in cases where a creditor class exceeds 1,000 (one thousand) members, the CoC may direct the RP or the Interim Resolution Professional (“IRP”) to appoint a facilitator for sub-classes within that group subject to certain conditions. The facilitators, who must be insolvency professionals other than the RP or IRP or authorised representative, are responsible for facilitating communication and providing information about the insolvency process to creditors;
where the corporate debtor has any real estate project, the RP is required to: (a) prepare a report detailing the status of development rights and permissions required for development of such project; (b) submit the report to the CoC for its comments; and (c) submit to the adjudicating authority, the report referred to in clause (a) above along with the comments of the CoC referred to in clause (b) above, on or before the 60^th day from the insolvency commencement date;
where the corporate debtor has any real estate project, the CoC, for an association or group of allottees in such real estate project, representing not less than 10% or 100 (one hundred) creditors out of the total number of creditors in a class, whichever is lower, may relax the following conditions: (a) eligibility criteria for submission of expression of interest as provided under Regulation 36A (4) (a) of the principal regulations; and (b) conditions regarding the refundable deposit; and
where the corporate debtor has any real estate project, the CoC may relax the requirement to provide for performance security (which is required to be provided for approval of the resolution plan) for an association or group of allotees in such real estate project, representing not less than 10% or 100 (one hundred) creditors out of the total number of creditors in a class, whichever is lower.

Intimation to IBBI on the appointment of insolvency professional under various processes under the Insolvency and Bankruptcy Code, 2016

To streamline the process of appointment of an Insolvency Professional (“IP”) and ensure thorough and proper record-keeping, IBBI, vide circular dated February 11, 2025, has refined the assignment module to mandate IPs to add assignments on the IBBI’s electronic portal upon their appointment in the prescribed processes and capacities including as IRP under the CIRP, RP under the CIRP, liquidator under the liquidation process. All IPs must adhere to the prescribed timelines for filing of assignment.

Disclosure of information relating to carry forward of losses in information memorandum

IBBI, vide circular dated March 17, 2025, has directed insolvency professionals to enhance the disclosure of information related to carry forward of losses, as per the Income-tax Act, 1961, in the information memorandum. This section must prominently highlight, but is not limited to, the following aspects:

the quantum of carry forward losses available to the corporate debtor;
a breakdown of these losses under specific heads as per the Income Tax Act,1961;
the applicable time limits for utilising these losses; and
if there are no carry forward of losses available to the corporate debtor, the information memorandum should explicitly specify the fact.

This enhanced disclosure framework is intended to provide potential resolution applicants with a more comprehensive understanding of the corporate debtor’s financial position, enabling them to develop more informed and viable resolution plans while considering the benefits of carry forward losses.

Remote Trading Participants on the stock exchanges in International Financial Services Centres

In April 2024, International Financial Services Centres Authority (“IFSCA”) had permitted foreign entities not having a physical presence in International Financial Services Centres (“IFSCs”), to trade directly on the stock exchanges in the IFSC, on a proprietary basis, as Remote Trading Participants (“RTP”). On February 11, 2025, IFSCA issued a circular revising the eligibility criteria of RTPs. Now, foreign entities regulated by their home jurisdiction’s securities market regulator are required to fulfil the below mentioned conditions ((“Regulated RTP Conditions”), which were earlier required to be complied by all RTPs):

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 to trade only on proprietary basis (and not permitted to onboard clients) and such trading must only be transacted in cash-settled derivatives; and
RTPs are required to partner with an IFSCA-registered clearing member for clearing and settlement of transactions executed on the stock exchanges.

If a foreign entity is not regulated their home jurisdiction’s securities market regulator, then in addition to the Regulated RTP Conditions, such RTP will have to be a member of any of the stock exchanges mentioned in the said circular.

This circular allows flexibility to a foreign entity regulated by its securities market regulator in its home jurisdiction to be a RTP without being a member of the notified stock exchanges.

It may be noted that the other conditions as mentioned under the circular of IFSCA in April 2024 for onboarding a RPT will continue to apply. These include:

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, has notified a new IFSCA (Fund Management) Regulations, 2025 which has replaced the earlier IFSCA (Fund Management) Regulations, 2022. The new regulations will continue to govern the Fund Management Entities (“FMEs”) operating in IFSCs and have incorporated few changes in the Regulations including but not limited to:

revision of minimum corpus for retail and non- retail schemes;
allowing FMEs and its associates to hold up to 100% in the non-retail venture capital funds provided the investors and Ultimate Beneficial Owners (UBOs) are persons residents outside Indian and such fund has not invested more than 1/3^rd of the corpus in a investee company;
revision of time period for validity of private placement memorandum of venture capital funds from 6 months to 12 months, IFSCA (Fund Management) Regulations, 2025; and
Appointment of key managerial personnel (“KMP”) of FMEs will not require prior approval of IFSCA and the manner of appointment of the KMP will have to be in the manner specified by IFSCA.

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 of or changes to 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 will be responsible for ensuring that KMPs meet the eligibility criteria prescribed by the IFSCA, including being based out of an IFSC.
Succession planning and timelines: FMEs should have a structured succession plan to maintain operational continuity. A vacant KMP position will be filled within 3 (three) months of its occurrence and such position 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.

This has replaced the earlier restrictions and conditionalities placed on Indian residents to sell, transfer, lease or otherwise dispose-off the assets to a finance company undertaking aircraft leasing activities in IFSC.

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

The Securities and Exchange Board of India (“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 (and in such prescribed cases the investments 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:
- scheme of an AIF whose tenure (not including permissible extension of tenure) ends on or before October 31, 2025; and
- scheme of an AIF which is in extended tenure as on February 14, 2025.

Mutual Funds

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 have come into force from April 1, 2025.

Relaxation in the ‘skin in the game requirements’ for mutual funds

SEBI, vide circular dated March 21, 2025, has modified the Master Circular for Mutual Funds, dated June 27, 2024, for aligning with the amendments to the SEBI (Mutual Funds) Regulations, 1996 which were carried out vide notifications dated February 14, 2025, and March 4, 2025, which relaxed the regulatory framework relating to alignment of interest of the designated employees of the AMC, with the interest of the unitholders (also known as the ‘skin in the game requirements’). Some of the key changes under the said Master Circular for Mutual Funds are as follows:

minimum slab wise percentage of the gross annual cost to company, net of income tax and any statutory contributions under the said Master Circular for Mutual Funds of the designated employees of the AMCs must be mandatorily invested in units of mutual fund schemes in which they have a role/oversight, in the prescribed manner;
for designated employees managing liquid fund schemes and associate with other schemes in addition to the liquid fund scheme, up to 75% of the minimum investment amount required to be invested in liquid fund schemes may be invested in schemes, managed by the AMC, with higher risk as compared to liquid fund schemes. The risk value based on the risk-o-meter of the preceding month will be considered;
in case of retirement on attaining the superannuation age, the units must be released from the lock-in and the designated employee will be free to redeem the units, except for the units in close ended schemes where the units will remain locked in till the tenure of the scheme is over;
on resignation or retirement of the designated employee from the AMC before attaining the age of superannuation, the lock-in period, for the investments made will be reduced to 1 (one) year from the end of the employment or completion date of 3 (three) year lock-in period, whichever is earlier, except for the units in close ended schemes where the units will remain locked in till the tenure of the scheme is over;
in case of violation of the Code of Conduct under the Master Circular for Mutual Funds for fraud or gross negligence by the designated employees, the nomination and remuneration committee of AMC will undertake the preliminary examination and provide recommendations to SEBI for consideration, after approval of the trustees; and
Every scheme will disclose the ‘compensation in aggregate, mandatorily invested in units for the Designated Employees’, under the provisions of the Master Circular on the website of the relevant stock exchanges. The disclosure will be at quarterly aggregate level showing the total investment across all relevant employees and will be within 15 (fifteen) calendar days from the end of each quarter.

Qualified buyers under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

SEBI, vide notification dated February 28, 2025, has specified that all NBFCs, including housing finance companies, regulated by the RBI, are classified as qualified buyers for the purposes of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 subject to the following conditions:

they must ensure that the defaulting promoters or their related parties do not directly or indirectly gain access to secured assets through security receipts; and
they must comply with such other conditions as RBI may specify from time to time.

Report on framework for recognising Self-Regulatory Organisations for the Account Aggregator ecosystem

On March 12, 2025, RBI introduced a framework for recognising Self-Regulatory Organisations for the Account Aggregator (“SRO-AA”) ecosystem. The framework is to enhance governance and operational efficiency among entities involved in the secure exchange of financial information. In terms of the framework the SRO-AA is expected to achieve the following objectives:

the SRO-AA, through comprehensive membership agreements, should adopt objective, well-defined and consultative processes to make rules relating to conduct of its members and be able to monitor the compliance of these rules;
the SRO-AA should promote a culture of compliance of regulatory compliance and public good by the participants of the AA ecosystem;
the SRO-AA should act as the collective voice of its members in providing suggestions to/ engagements with RBI, other financial sector regulators and other stakeholders. The SRO-AA should aim to represent and address broader ecosystem concerns and play a pivotal role in the functioning of the AA ecosystem;
the SRO-AA should collect and share relevant information with RBI to aid in policy making;
the SRO-AA should undertake/ encourage a culture of research and development within the AA ecosystem to encourage innovation while ensuring highest standards of compliance and self-governance;
the SRO-AA must function independently, without undue influence from any single participant or group, to ensure credibility and impartial decision-making; and
a transparent and consistent dispute resolution mechanism will be established to handle any grievances that may arise among participants, ensuring that the ecosystem operates smoothly.

The framework also lays down the eligibility criteria for an applicant who wants to function as an SRO-AA as well as the standards of governance and management to be adopted by an SRO-AA.

SEBI modifies the formats for disclosure of holding of specified securities and in dematerialised form

SEBI, vide circular dated March 20, 2025, has modified the formats for disclosure of holding specified securities and shareholding pattern under the Master Circular for compliance with the provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 by listed entities dated November 11, 2024. Some of the key amendments are as follows:
1. Table I to Table IV showing the shareholding pattern has been amended as follows: (a) details of Non-Disposal Undertaking (“NDU”), other encumbrances, if any and total number of shares pledged or otherwise encumbered including NDU must be disclosed by the listed entities; (b) it is clarified that the underlying outstanding convertible securities also includes Employee Stock Option Plan (“ESOP”) i.e. the existing header of column X as “ of Shares Underlying Outstanding convertible securities (including Warrants, ESOPs, etc.)”; and (c) one additional column is added in the existing shareholding pattern format to capture the details of total number of shares on fully diluted basis (including warrants, ESOP, convertible securities etc.); and
2. Table II of the shareholding pattern has been amended to include a footnote providing the details of promoter and promoter group with shareholding ‘NIL’.

This circular will come into force with effect from the quarter ending June 30, 2025.

Amendment to Master Circular for Infrastructure Investment Trusts and Real Estate Investment Trusts

SEBI, vide circulars dated March 28, 2025, has amended the Master Circulars for Infrastructure Investment Trusts and Real Estate Investment Trusts, both dated May 15, 2024. Pursuant to the amendment, 25% (in the case of the Infrastructure Investment Trusts (“InvITs”)) and 15% (in the case of the Real Estate Investment Trusts (“REITs”)) of the units allotted to sponsor(s) and sponsor groups will be locked in for a period of 3 (three) years from the date of trading approval granted for the units. It is further provided that units allotted in excess of 25% (in the case of InvIT) and 15% (in the case of REIT) of the total unit capital of the InvIT/REIT will be locked in for 1 (one) year from the date of trading approval. Inter-se transfer is permitted among the sponsor groups subject to the condition that the lock-in period will continue for the remaining period with the transferee.

Guidelines are provided for follow-on offers by publicly offered InvITs/REITs including application processes, public unitholding requirements and filing procedures.

Revised norms for government guaranteed Security Receipts

RBI, vide circular dated March 29, 2025, has revised the prudential treatment of government-guaranteed Security Receipts (“SRs”) under the Master Direction on Transfer of Loan Exposures, 2021, by introducing a differentiated approach to valuing SRs. Some of the key revisions are as follows:

if a loan is transferred to an Asset Reconstruction Company (“ARC”) for a value higher than its net book value, the excess provision can be reversed to the profit and loss account in the year of transfer if the sale consideration comprises only of cash and SRs guaranteed by the Government of India. However, the non-cash component in SRs must be deducted from Common Equity Tier 1 capital, and no dividends will be paid out of this component;
any SRs outstanding after the final settlement of the government guarantee or the expiry of the guarantee period, whichever is earlier, will be valued at INR 1 (Indian Rupees one);
in the event of the SRs being converted to any other form of instruments as part of resolution, then the valuation and provisioning thereof, for such instruments will be governed by the provisions as laid down under the Prudential Framework for Resolution of Stressed Assets dated June 7, 2019; and
periodic valuation of these SRs will be based on the net asset value declared by ARCs, based on recovery ratings received for such instruments.

Revised criteria for micro, small or medium enterprise classification of enterprises

The Ministry of Micro, Small and Medium Enterprise, vide its notification dated March 21, 2025, has further modified the monetary thresholds for classification of an enterprise as micro, small or medium. An enterprise will be classified as a micro, small or medium enterprise based on the following criteria:

a micro enterprise – where the investment in plant and machinery or equipment does not exceed INR 2,50,00,000 (Indian Rupees two crore and fifty lakh) (previously it was INR 1,00,00,000 (Indian Rupees one crore)) and turnover does not exceed INR 10,00,00,000 (Indian Rupees ten crore) (previously it was INR 5,00,00,000 (Indian Rupees five crore);
a small enterprise – where the investment in plant and machinery or equipment does not exceed INR INR 25,00,00,000 (Indian Rupees twenty-five crore) (previously it was INR 10,00,00,000 (Indian Rupees ten crore)) and turnover does not exceed INR 100,00,00,000 (Indian Rupees one hundred crore) (previously it was INR 50,00,00,000 (Indian Rupees fifty crore)); and
a medium enterprise – where the investment in plant and machinery or equipment does not exceed INR 125,00,00,000 (Indian Rupees one hundred and twenty-five crore) (previously it was INR 50,00,00,000 (Indian Rupees fifty crore)) and turnover does not exceed INR 500,00,00,000 (Indian Rupees five hundred crore) (previously it was INR 250,00,00,000 (Indian Rupees two hundred and fifty crore).

The notification has come into force from April 1, 2025.

JSA Updates

For resolution plans involving combinations, resolution plan can be tabled for committee of creditors’ approval only after obtaining the requisite approval by the Competition Commission of Inda

The Hon’ble Supreme Court of India (“Supreme Court”), vide its recent ruling, has held that prior approval by the Competition Commission of India for resolution plans involving combinations (i.e. mergers or amalgamations) is a necessary pre-requisite before placing such resolution plan for consideration before the committee of creditors or the adjudicating authority. The judgment sheds light on the delicate balance between ensuring effective debt resolution and maintaining competitive market conditions and attempts to harmonise the timelines prescribed under the Competition Act, 2002 and the Insolvency and Bankruptcy Code, 2016 (“IBC”). While the majority judgment (by Hrishikesh Roy, J. and Sudhanashu Dhulia, J.) upheld a literal interpretation of the statute, the dissenting judgment (by S.V.N. Bhatti, J.) called for a purposive interpretation to preserve the legislative effort and intent.

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

Key updates for equity capital markets under the SEBI (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2025

SEBI has introduced the SEBI (Issue of Capital and Disclosure Requirements (“ICDR”)) (Amendment) Regulations, 2025, amending the SEBI (ICDR) Regulations, 2018 (“SEBI ICDR Regulations”). The amendment came into effect on March 8, 2025, except for regulations related to the rights issue by a listed issuer which will come into force on the 31^st day of their publication in the official gazette and apply to rights issues approved by the board of the issuer post this amendment. These amendments aim to enhance procedural efficiency and align regulatory frameworks with contemporary market practices. Key changes include the integration of Stock Appreciation Rights into the ICDR framework, faster rights issue timelines, providing clarity on the price determination of securities for promoters’ contributions, and reporting of pre-initial public offering (“IPO”) transactions amongst others. The amendments also take care of some of the recurring SEBI observations on the draft offer documents filed by companies eyeing for an IPO and harmonises some of the provisions under the SEBI ICDR Regulations and LODR Regulations. It also resonates with the views taken by expert committees through their consultation papers in relation certain conceptual ambiguity existing under various capital markets regulations in the past.

For a detailed analysis, please refer to the JSA Prism of March 12, 2025.

Demand notice under Rule 7 of personal guarantors rules does not constitute invocation of guarantee

In a recent judgment, the National Company Law Appellate Tribunal (“NCLAT”) has clarified that a statutory demand notice issued under Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 (“PG Rules”) does not amount to a valid invocation of the personal guarantee to initiate insolvency resolution proceedings under Section 95 of the IBC.

The judgment clarifies the distinction between a statutory demand and the invocation of a guarantee. It establishes that a mere demand notice under Rule 7 of the PG Rules does not automatically trigger the guarantor’s liability, reinforcing the principle that a formal invocation of the guarantee is essential for enforcement. This ruling provides much-needed certainty for creditors and guarantors, shaping the interpretation of personal guarantee provisions under the IBC.

For a detailed analysis, please refer to the JSA Prism of March 17, 2025.

Acknowledgement of debt cannot revive the defaults that occurred during the pre-Section 10A period under the IBC, particularly when the acknowledged debt is partially paid

The NCLAT, in a recent judgement, has held that defaults occurring during the pre-Section 10A period under the IBC, do not continue to constitute a default thereafter once the corporate debtor has made partial payments toward the (acknowledged) debt accumulated during the period excluded under Section 10A of the IBC.

This judgement is a significant development for both creditors and corporate debtors, reinforcing that the protective shield of Section 10A of the IBC cannot be circumvented. For creditors, it underscores the need to track default timelines carefully, while corporate debtors must understand that acknowledging debts post-exclusion does not resurrect defaults for initiating insolvency proceedings. The judgment strengthens the legislative intent behind Section 10A of the IBC, ensuring that the exclusion period remains an effective safeguard against insolvency actions during the specified timeframe.

For a detailed analysis, please refer to the JSA Prism of March 28, 2025.

Interim moratorium under the IBC does not bar execution of regulatory penalties against the personal guarantor

The Supreme Court, in a recent judgment, held that the interim moratorium under Section 96 of the IBC does not extend to regulatory penalties imposed under consumer protection laws. The Supreme Court reaffirmed that such penalties remain enforceable despite the pendency of insolvency proceedings.

The judgment clarifies the scope of the IBC’s moratorium provisions, ensuring that personal guarantors cannot exploit insolvency mechanisms to evade regulatory penalties. It upholds the primacy of consumer protection laws by affirming that penalties imposed in the public interest are not subject to the moratorium under the IBC. The judgement further reinforces the judiciary’s commitment to preventing the misuse of insolvency laws, thereby maintaining a balance between corporate debt resolution and consumer rights.

For a detailed analysis, please refer to the JSA Prism of March 29, 2025.

SEBI redefines High Value Debt Listed Companies

SEBI, vide notification dated March 27, 2025, amended the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 pursuant to the SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2025 (“LODR Amendment”).

The LODR Amendment has redefined High Value Debt Listed Entities (“HVDLEs”) to mean entities with outstanding listed debt securities of a minimum value of INR 1,000 crore (Indian Rupees one thousand crore). Further, as a key change, HVDLEs (which do not have their specified securities listed) are required to obtain prior consent from the debenture holders for undertaking any material related party transactions.

For a detailed analysis, please refer to the JSA Prism of April 28, 2025.

This Newsletter has been prepared by:

Anish Mashruwala
Partner

Tirthankar Datta
Partner

Utsav Johri
Partner

Aditi Sehgal
Partner

Sucheta Bhattacharya
Partner

Kratika Parashar
Senior Associate

Rithika Rarichan
Associate

For more details, please contact [email protected]

Tags Banking and Finance, Finance, Insolvency, Insolvency and Bankruptcy Board of India, JSA, Leading Law Firm, Leading Lawyers, Legal Updates, Newsletter, RBI, SEBI

JSA Prism | Insolvency | April 2025

Please click here to download the Prism as a PDF.

Supreme Court clarifies non-applicability of moratorium under the Insolvency and Bankruptcy Code, 2016 to proceedings under the Negotiable Instruments Act, 1881

In a landmark ruling, a 2 (two) judge bench of the Hon’ble Supreme Court of India (“Supreme Court”) in the case of Rakesh Bhanot vs. M/s. Gurdas Agro Private Limited[1] held that proceedings under Section 138 of the Negotiable Instruments Act, 1881 (“NI Act”) cannot be stayed merely because a personal guarantor initiates insolvency resolution under Section 94 of the Insolvency and Bankruptcy Code, 2016 (“IBC”). The Supreme Court emphasised that the interim moratorium under Section 96 of the IBC applies only to civil debt recovery, not criminal liability arising from cheque dishonour.

Brief facts

M/s Gurdas Agro Private Limited (“Respondent”) filed a complaint under Section 138 of NI Act, against M/s Arjun Mall Retail Holdings Private Limited through its directors, Rakesh Bhanot (“Appellant”) and others before the Judicial Magistrate First Class, Bathinda, (“Trial Court”) for dishonour of cheques for insufficiency of funds.
During the pendency of the aforesaid proceedings, the Appellant filed an application under Section 94 of the IBC before the Hon’ble National Company Law Tribunal, Chandigarh Bench (“NCLT”) seeking initiation of personal insolvency proceedings.
In view of the pending Section 94 application and the operation of interim moratorium under Section 96 of the IBC, the Appellant moved an application before the Trial Court seeking adjournment of the Section 138 proceedings sine die. The said application was rejected by the Trial Court.
Aggrieved by the rejection, the Appellant preferred a criminal petition under Section 482 of the Code of Criminal Procedure, 1973, before the High Court of Punjab and Haryana, which was also dismissed. Challenging the same, the lead criminal appeal was filed by the Appellant before the Supreme Court.
Notably, the Appellant contended that the moratorium under Section 96 of the IBC should be interpreted broadly to encompass criminal proceedings under Section 138 of the NI Act, as these arise from non-payment of a debt. The Respondent argued that the moratorium was intended only for civil recovery actions and not for penal proceedings, which serve a public interest by upholding the integrity of negotiable instruments.

Issue

Whether the interim moratorium under Section 96 of the IBC automatically stays criminal proceedings under Section 138 read with Section 141 of the NI Act against personal guarantors/directors?

Findings and analysis

Re: Moratorium cannot be misconstrued as a means to avoid criminal accountability

The Supreme Court examined the statutory language and legislative intent of Sections 94, 96, and 101 of the IBC. Briefly, Section 94 of the IBC provides for a situation wherein a debtor may approach the Adjudicating Authority for initiation of personal insolvency resolution process. Section 96 of the IBC deals with the commencement of interim moratorium from the date of application filed under Section 94 of the IBC in relation to all debts, i.e., deemed stay on any legal proceeding pending against the debtor concerning any debt. It held that the interim moratorium under Section 96 is designed to provide debtors with a temporary shield from civil recovery actions during the pendency of insolvency resolution, not to insulate them from criminal liability for statutory offences like dishonour of cheque.
The Supreme Court also held that the object of moratorium or the right of a debtor to approach the NCLT under Section 94 of the IBC is not to stall criminal prosecution or any proceedings unrelated to the recovery of the debt. The term “any legal action or proceedings” does not mean “every legal action or proceedings”. It must be interpreted to mean only proceedings concerning recovery of debt by invoking the principles of noscitur a sociis.

Re: The statutory liability against the directors under Section 138 of the NI Act continues to bind natural persons irrespective of any moratorium

The Supreme Court distinguished between actions for debt recovery (civil in nature) and prosecutions under Section 138 of the NI Act (criminal in nature). It observed that while the former may be stayed during the moratorium under the IBC, the latter are penal proceedings aimed at maintaining commercial discipline and trust in negotiable instruments.
The Supreme Court relying on Mohanraj vs. Shah Brothers Ispat Private Limited[2]and Ajay Kumar Radheyshyam Goenka vs. Tourism Finance Corporation of India Limited[3] reaffirmed that the moratorium under the IBC does not extend to criminal prosecutions. The Supreme Court emphasised that the object of the IBC is to facilitate resolution of financial distress, not to provide a refuge from personal criminal liability.
The Supreme Court further clarified that even if the underlying debt is extinguished or restructured through insolvency proceedings, the personal criminal liability of signatories or directors under Section 138 of the NI Act persists. The acceptance of a resolution plan under Section 31 of the IBC or the operation of a moratorium does not absolve individuals from prosecution for dishonour of cheque.

Conclusion

The Supreme Court’s judgment provides much needed clarity on the interplay between insolvency proceedings and prosecutions for dishonour of cheques. The interim moratorium under Section 96 of the IBC is limited to civil actions for recovery of debt and does not shield individuals from criminal liability under Section 138 of the NI Act. This ensures that the statutory deterrence against dishonour of cheques remains robust, and the integrity of commercial transactions is preserved.
The judgment also comes down heavily on attempts to misuse insolvency mechanisms as a shield against criminal accountability, reinforcing the principle that insolvency is a process for resolution, not a refuge from liability.
The Supreme Court emphasised that the object of the IBC is to facilitate the resolution of genuine financial distress and not to provide a refuge for individuals seeking to evade statutory penal consequences. The ruling demonstrates that the phrase “legal action or proceeding in respect of any debt” in Section 96 of the IBC must be interpreted in the context of civil proceedings for debt recovery and cannot be stretched to include criminal prosecutions which are fundamentally punitive and serve public interest.
The Supreme Court has further highlighted that the provisions for moratorium under the IBC are designed to offer a breathing space to enable reorganisation of financial affairs without the immediate threat of creditor actions. The provisions of moratorium flow with the overall scheme of a complete resolution such that the business of the debtor or corporate debtor can be started with a fresh slate or can be liquidated if resolution is not a viable option. Thus, in no way can a moratorium be interpreted to mean that it absolves an individual from criminal liability.
The Supreme Court has further clarified that the proceedings under Section 138 of the NI Act are not primarily for recovery of debt but rather for initiating criminal action against issuer of dishonoured cheque.
This judgment therefore ensures that creditors retain the ability to pursue both insolvency remedies and criminal prosecutions against defaulting companies and its directors, in turn maintaining the integrity of the financial system. It prevents the misuse of insolvency proceedings as a tool for delaying or avoiding criminal accountability and reinforces the legislative intent behind both the IBC and the NI Act.

This Prism has been prepared by:

Sidharth Sethi
Partner

Varghese Thomas
Partner

Fatema Kachwalla
Partner

Virgil Braganza
Senior Associate

Kunal Saini
Associate

Shivangi Pathak
Associate

For more details, please contact [email protected]

[1] Criminal Appeal No.1607 of 2025; (2025 INSC 445)

[2] (2021) 6 SCC 258

[3] (2023) 10 SCC 545

Tags Cheque Bounce, Commercial Law, Creditor Rights, Ibc, Insolvency and Bankruptcy Code, JSA, Legal Update, Negotiable Instruments Act, NI Act, Personal Guarantor, Supreme Court

JSA Prism | Finance | April 2025

Please click here to download the Prism as a PDF.

The Securities and Exchange Board of India redefines High Value Debt Listed Companies

The Securities and Exchange Board of India (“SEBI”) has amended the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR”) pursuant to the SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2025 (“LODR Amendment”). The LODR Amendment has come into effect on March 27, 2025.

The LODR Amendment redefines High Value Debt Listed Companies (“HVDLEs”) to mean entity which has outstanding listed non-convertible debt securities of INR 1,000 crore (Indian Rupees one thousand crore) and above (“HVDLE Threshold”) as on March 31, 2025 and also prescribes the corporate governance for HVDLEs.

Key Changes

Applicability

Any entity with an outstanding listed non-convertible debt securities of the HVDLE Threshold as on March 31, 2025, will be a HVDLE. This threshold has been increased from INR 500 crore (Indian Rupees five hundred crore) as existing previously.
If any entity meets the HVDLE Threshold, then such entity will be required to comply with the regulatory and disclosure requirements within 6 (six) months from the date of such trigger. The disclosure of such compliance will be required to be made in the corporate governance compliance report on and from the date of the third quarter following the date of such a trigger.
An entity which becomes a HVDLE must continue to comply with the requirements applicable to a HVDLE till the value of the outstanding listed debt securities as on March 31 in a year, reduces and remains below the HVDLE Threshold for a period of 3 (three) consecutive financial years. Previously, the relevant corporate governance requirements would continue to remain applicable until all the listed debentures were redeemed regardless of whether a listed entity’s outstanding listed debt securities fell below the prescribed threshold.
REITS and InvITs are not required to comply with these corporate governance requirements and continue to be governed by the SEBI regulations specifically applicable to them.
The corporate governance provisions proposed pursuant to the LODR Amendments are in addition to the requirements set out in the Companies Act, 2013.

Additional corporate governance requirements under the LODR Amendments

Debenture trustee consent for material related party transactions:
- HVDLEs are required to obtain consent from the debenture trustee (“Debenture Trustee Consent”) for all material related party transactions[1]. The debenture trustee consent should be provided after the debenture trustee has obtained approval from the debenture holders who are not related to the issuer and hold at least 50% of the debentures in value. HVDLE can proceed to obtain the approval of the shareholders only upon the receipt of the Debenture Trustee Consents.
- This requirement is only applicable to debt securities which are issued after April 1, 2025, and does not apply to debt securities which have been issued until March 31, 2025.
- Further, the requirement of Debenture Trustee Consent does not apply in the following cases:
  - transactions entered into between 2 (two) government companies (as defined under the Companies Act, 2013);
  - transactions entered into between a holding company and its wholly owned subsidiary (“WOS” whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval; and
  - transaction entered into between two WOSs of the listed holding company, whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval.
- This is a major departure from the existing regime where no such consent from debenture trustees were required.

Introduction of a separate regime for HVDLEs which do not have any specified securities listed:
- The LODR Amendment introduces a new Chapter VA which sets out the corporate governance requirements applicable to HVDLEs, which do not have any specified securities (i.e. equity shares’ and ‘convertible securities’ as defined under clause 33 (eee) of sub-regulation (1) of regulation 2 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018) listed on any stock exchange. HVDLEs which have any specified securities listed on any stock exchange, continue to be governed by the requirements set out under Regulations 15 to 27 of the LODR.
- The corporate governance requirements prescribed under Chapter VA as introduced by the LODR Amendment remain substantially similar to what is provided under Regulations 15 to 27 of the LODR. These include board composition and corporate governance requirements such as appointment of woman directors, independent directors, constitution of audit committee, nomination and remuneration committee and audit committee
- HVDLEs which are governed by Chapter VA as introduced by the LODR Amendment have the flexibility to constitute the nomination and remuneration committee, the stakeholder relationship committee and the risk management committee or discharge their functions through the board of directors. This will ease the burden of constituting various committees by such HVDLEs.

Conclusion

The introduction of the LODR Amendment is primarily aimed at simplifying and streamlining the corporate governance norms of HVDLEs. The changes introduced pursuant to the LODR Amendment are largely in alignment with the consultation paper introduced by the SEBI in October 2024 to address issues concerning listed entities with a significant exposure in the debt capital markets.

The increase in the threshold of applicability has rightly been revised to INR 1,000 crore (Indian Rupees one thousand crore) to ensure ease of doing business, especially for companies which are in a nascent stage in accessing the debt markets generally and does not apply to entities which do not have major exposure to the debt capital markets.

Having said that, the additional requirement of procuring debenture holder consent for material related party transaction may prove to be burdensome. Usually, the requirement of consent of the debenture holders for related party transactions is commercially driven and may not be the norm. Non-banking financial companies with multiple debt issuances and a large exposure to debt markets may struggle to obtain such consent which was not commercially sought for by the debenture holders. This will also affect covenant-lite perpetual or subordinated debt instruments which usually do not have these consent items in their contracts. Delay or failure to obtain such consent from debenture holders (especially, retail participants where the debentures are widely held) may stall any strategic sale or other forms of corporate restructuring by the issuers which may be time sensitive in nature and was not contractually permitted. In light of the above, it will be interesting to see how some of the HVDLEs navigate through this new framework especially since the regulators have been trying to deepen the bond market in the recent past.

This Prism has been prepared by:

Utsav Johri
Partner

Pritha Chatterjee
Partner

For more details, please contact [email protected]

[1] A material related party transaction is defined in the LODR Regulations as transaction with a related party is considered material if the transaction to be entered into individually or taken together with previous transactions during a financial year, exceeds INR 1,000 crore (Indian Rupees one thousand crore) or 10%. of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity, whichever is lower.

Tags Compliance, Corporate Law, Debt market, Debt Securities, High Value Debt, JSA, JSA Prism, Listed Entities, LODR, Regulatory Update, SEBI, SEBI Update

JSA Prism | Finance | April 2025

Please click here to download the Prism as a PDF.

Proposed Framework on Securitisation of Stressed Loans

The Reserve Bank of India (“RBI”) has issued the Draft Directions on Securitisation of Stressed Assets on April 9, 2025 (“Draft Directions”). The Draft Directions sets out a Framework for Securitisation of Stressed Assets (“Stressed Asset Securitisation Framework”) to be undertaken by specified regulated entities of the RBI.

The Stressed Asset Securitisation Framework is set to deepen the secondary market of stressed loans by providing more flexibility to the banks and financial institutions to convert illiquid loans into tradable securities. Further, it will provide a broader mechanism for the regulated entities to undertake securitisation of their stressed loan exposures, similar to the framework applicable to securitisation of standard assets.

Overview of the proposed Stressed Asset Securitisation Framework

The key elements proposed in the Draft Directions are discussed below:

Applicability:
- Regulated entities: The Stressed Asset Securitisation Framework will be applicable to banks (including overseas branches of Indian banks), non-banking finance companies (including housing finance companies), small finance banks and all Indian financial institutions.

- Eligible assets:
  - a homogeneous pool of stressed loans can be securitised as per these Draft Directions. Such assets can be either: (A) personal loans (except educational loans) to individuals and business loans to individuals and micro enterprises not exceeding INR 50,00,00,000 (Indian Rupees fifty crore) (“Category A Loans”); or (B) other loans (“Category B Loans”);
  - the ‘pool of stressed loans’ is defined to mean a portfolio of stressed loans in which the sum of squares of the relative shares of underlying stressed loans is 0.30 or less. The ‘relative shares of underlying loans’ is calculated as the outstanding balance of each loan divided by total outstanding balance of the portfolio on the origination cut-off date; and

- - up to 10% of the aggregate outstanding exposures in the underlying pool can consist of standard assets and the remaining 90% must consist of non-performing assets;

- Excluded assets:
  - the Draft Directions continue to limit securitisation of exposures to other lending institutions, refinance exposures of AIFI, re-securitisation. Other kinds of exposures which are excluded are: (A) education loan; (B) farm credit; and (C) accounts marked as wilful defaulter or fraud or red flagged account; and
  - loans with bullet payments and revolving credit facilities are not excluded from the ambit of securitisation exposure;

Key features
- Minimum Retention Requirement (“MRR”) and Minimum Holding Period (“MHP”):
  - The originator will be required to maintain the MRR only in the following limited situations:

- - - if the originator is acting as the Resolution Manager (“RM”), the originator will have to retain a MRR of 5%; and
    - if the due diligence is performed on a sample basis with sample comprising of at least one third of the portfolio by value and number of loans in the portfolio, the originator will have to retain at least 10 % of the securitisation notes issued;

- - the originator and/or servicer can contractually be required to retain MRR; and

- - there is no obligation to maintain MHP requirement;

- RM:
  - the Draft Directions have introduced a concept of RM. RMs are responsible for carrying out resolution/recovery related activities of underlying exposures. Further the eligibility criteria of a RM are provided in the Draft Directions;
  - for Category A Loans, the RM can be the originator, or an entity regulated by RBI (including, a bank, non-banking finance company or asset reconstruction company). If the originator is the RM, then it must maintain at least 5% of the securitisation notes as discussed in paragraph 2 (a) (i) above;

- - for Category B Loans in addition to the entities which can be appointed for Category A Loans, following may also be appointed as RM: (A) entity registered with a financial sector regulator in India; (B) an insolvency professional registered with IBBI; or (C) insolvency professional entity; and

- - RM can also raise finance for the operational purpose of resolution of the stressed assets. Such finances cannot be provided by the originator or its group entities. There is also a threshold applicable for such finance (which is 75% of the total requirement).

Investor pool: For securitisation consisting of Category B Loans, persons disqualified by 29A of the Insolvency and Bankruptcy Code, 2016 with respect to the borrowers cannot be an investor to such securitisation.

All other conditions applicable to a special purpose vehicle under the Master Direction on Securitisation of Standard Assets, 2021 (“Standard Asset Directions”) will also apply for securitisation of stressed assets.

Price discovery sale consideration: The accounting provisions applicable for a securitisation under the Standard Asset Directions will also apply for securitisation of stressed assets. However, under the Stressed Asset Securitisation Framework, the assets cannot be said to be transferred unless the sale consideration has been paid. Sale consideration will have to be paid on cash basis.

The originators are also required to incorporate the price discovery methodology in their policies such that the realisable value of underlying stressed loans is reasonably estimated in a fair and transparent manner. For any securitisation involving Category A Loans, 2 (two) external valuation reports will also be required.

Credit enhancement: Originators can provide credit enhancement subject to such originators not exceeding the threshold of 20% of the total securitisation exposures created by such structure or scheme. RBI has clarified that any exposure beyond the limit of 10% (upto 20%) will be treated as a first loss facility and the originators will have to provide capital accordingly. The 20% limit on total retained exposures will not be deemed to have been breached if it is exceeded due to amortisation of securitisation notes issued.
Regulatory filings: Some of the key regulatory filings required to be undertaken are as follows:
- the originator is required to submit the details of the securitisation transactions to RBI on a quarterly basis and after the transfer, the special purpose vehicle will have to report the same to RBI. This provision will have to be built into the assignment agreement; and
- RBI has specified formats for reporting data of underlying borrowers and portfolio by the originators as well as servicers or RM. At least on a quarterly basis, the servicer or the RM is also required to provide the investors data to monitor pool performance.

Conclusion

RBI seemed to have responded to the industry requests and have considered a balance approach for securitisation of stressed loans. RBI’s approach aligns with the global securitisation practices. Such alignment can make Indian securitised products in stressed loans more attractive to international investors and facilitate cross-border investment flows.

Foreign portfolio investors, alternative investment funds and other domestic investors will now have an enabling framework to acquire and resolve stressed loans by investing through a special purpose vehicle without involvement of an asset reconstruction company. Institutional investors will also bring their expertise in faster resolution and turnaround of stressed loans.

The Stressed Asset Securitisation Framework allows for securitisation, which can potentially offer better recovery rates by tapping into a wider investor base and competitive pricing mechanisms.

This Prism has been prepared by:

Utsav Johri
Partner

Sucheta Bhattacharya
Partner

For more details, please contact [email protected]

Tags Alternative Investments, Banking, Distressed Assets, Finance, Financial Markets, Ibc, Insolvency, Investment, JSA, Nbfc, RBI, Resolution, Securitisation, Special Purpose Vehicle, Stressed Assets, Turnaround

Axis Bank Limited invests 250 Crores NCDs issued by CESC Limited

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Our transaction team comprised of Lead Partner, Soumitra Majumdar, Partner, Shrijita Bhattacharya and Junior Associate, Gavin Pais.

Tags CESC, Corporate Law, Debt Funding, Electricity Distribution, Financial Services, India Deals, JSA Deal Alert, Legal Advisory, NCD, Non Convertible Debentures, Power Sector, Project Financing

From Don Bosco to Deal Tables in Capital Markets with Arka Mookerjee | Koffee Conversation

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In this insightful episode, Arka shares his remarkable journey from his formative years at Don Bosco and then at JSA to becoming a leading partner in the field of Capital Markets. His experiences and expertise offer invaluable insights for professionals navigating the complexities of the legal and business landscapes.

Tags JSA, JSA expertise, Koffee Conversation Show, Leading Law Firm, Leading Lawyers, Legal Insights, TEIF, The Emerging Lawyer

Proposed framework on partial credit enhancement

The Reserve Bank of India (“RBI”) has issued the draft guidelines on non-fund-based credit facilities on April 9, 2025 (“Draft Guidelines”). The Draft Guidelines propose a new and overhauled Framework for Partial Credit Enhancements (“Proposed PCE Framework”) to be issued by regulated entities. The Proposed PCE Framework intends to revamp the existing Partial Credit Enhancements (“PCE”) Framework introduced by the RBI pursuant to the circular dated September 24, 2015, on ‘PCE to Corporate Bonds’, as amended (“Existing PCE Framework”).

The Proposed PCE Framework is amongst the latest initiatives to bolster the growth in the infrastructure sector. This was outlined by the Government of India in the latest Union Budget which contemplated the setting up of a partial credit guarantee scheme for corporate bonds for infrastructure to address liquidity concerns. The Proposed PCE Framework will enable the issuers with a credit rating of less than ‘AA’ to access the bond market and not restrict their funding source to bank financing for infrastructure projects.

Overview of the Proposed PCE Framework

The key changes proposed in the Draft Guidelines are discussed below:

Applicability

Regulated Entities: The Proposed PCE Framework will be applicable to the following entities (collectively, “REs”):
- commercial banks;
- co-operative banks;
- all India financial institutions; and
- Non-Banking Finance Companies (“NBFCs”) in top, middle and upper layers (including, Housing Finance Companies (“HFCs”)).
Applicable instruments: Bonds issued by: (a) corporates and/or their special purpose vehicles for funding all types of projects; and (b) NBFCs with an asset size of INR 1,000 crore (Indian Rupees one thousand crore) or above.
Rating requirement: Issuers with a pre-enhanced rating of at least ‘BBB–’ are eligible to avail PCEs. Further, the bonds must be rated by 2 (two) registered credit rating agencies. The reports for both the pre-enhanced and post enhanced credit rating are required to be disclosed.

Nature of PCEs

Key Features: The following are the salient features of the PCE proposed under the Proposed PCE Framework:
- PCE cannot be in the nature of a guarantee;
- PCE must be provided at the time of issuance of the bonds;
- PCE must be irrevocable;
- PCE facilities to the extent drawn will be treated as an on-balance sheet advance in the balance sheet of the RE, unlike undrawn portions, which will be an off-balance sheet item;
- PCE must be provided by way of contingent lines of credit which may be drawn in case of shortfall of funds for servicing the bonds; and
- PCE may be revolving in nature.

Other salient features such as documentation and disclosure requirements in relation to the PCE to be provided by REs remain unchanged under the Proposed PCE Framework.

Permissible end use:
- The Proposed PCE Framework intends to enable issuers to tap the domestic debt market for long-term infrastructure projects. However, the PCE proceeds can only be utilised for servicing the bond and not for any other purpose. PCEs can only be provided at the time of issuance of the bonds and may be drawn down in case of any shortfall of funds for servicing such bonds.
- PCEs cannot be used for asset acquisition, project expenses, or corporate purposes. Further, the PCE proceeds cannot be utilised for servicing other lenders of the issuer irrespective of the seniority of claims of other creditors in relation to the bond holders or the end-use of the facilities availed from other lenders.
Restriction on RE participation: REs cannot participate in the bonds which have been credit enhanced by the other REs.

Coverage of PCEs

The coverage of PCEs is proposed to be increased from the exposure limit of 20% of the issue size by a single RE to 50% of the issue size of the bond under the Proposed PCE Framework.

The aggregate limit of all REs to a corporate bond backed by PCEs remains unchanged at 50% of the issue size.

Provisioning requirements

Capping of capital requirements for PCEs:
- The Proposed PCE Framework proposes to provide capital relief to REs granting PCEs to corporates.
- The provision requirement of REs will be relaxed and linked to the amount of the PCE granted. The Existing PCE Framework mandates provisioning for the difference between: (a) the capital required on the entire bond amount, corresponding to its pre-credit enhanced rating (regardless of the PCE provided by the RE); and (b) the capital required on the bond amount corresponding to its post-credit enhanced rating, as per the risk weights applicable to claims on corporates under the relevant provisioning guidelines.
- By way of an illustration, under the Proposed PCE Framework, for a bond issuance of INR 100 (Indian Rupees one hundred) and a pre-enhanced rating of the bond as ‘BBB’, the applicable risk weight at the pre-enhanced rating of ‘BBB’ is 100%. Accordingly, the capital requirement for the carrying amount of PCE will be as follows:

PCE Amount (in Indian Rupees)	Capital requirement for PCE provider
20	1.8 (20100%9%)
30	2.7 (30100%9%)
40	3.6 (40100%9%)
50	4.5 (50100%9%)

It is clarified that a PCE to a bond issuer will not amount to restructuring of the underlying project loan if: (a) the issuer has availed a loan from the RE which is a ‘standard asset’ (which is being refinanced out of the bonds being backed by the PCE); and (b) the borrower is not declared to be in financial distress.

Risk weights assigned to ratings
- The Proposed PCE Framework prescribes the following:
  - In case of change in the pre-enhanced rating of the bond, the capital required will be recalculated based on the risk weight applicable to the revised pre-enhanced rating, subject to a floor, i.e., the capital requirement on the PCE at the time of issuance of the PCE enhanced bonds;
  - If the outstanding amounts under the bonds exceed the aggregate PCE offered, then the capital held by the RE in such cases must not be less than the amount required to be held at the time of issuance of the PCE enhanced bond. However, if the bond outstanding has amortised below the aggregate PCE amount, the capital can be computed taking into account the outstanding bond amount; and
  - If the pre-enhanced rating of the bond slips below investment grade i.e. (BBB -), full capital to the extent of PCE provided must be maintained by all REs, including NBFCs and HFCs.

Repayment of PCE

Given that PCEs are to be used as a contingent measure to meet any shortfall in servicing requirements, the Proposed PCE Framework mandates that any drawn-down portion of the PCE must be repaid within a period of 30 (thirty) days. In the event such amounts remain unpaid for more than 90 (ninety) days, then the account will be classified as a non-performing asset in accordance with the extant RBI guidelines. Further, the aggregate PCE exposure of an RE must not exceed 20% of its Tier 1 capital.

PCEs for bond issuances by NBFCs and HFCs

Bonds issued by NBFCs and HFCs having a tenor of more than 3 (three) years will also be permitted to be supported by PCEs. However, the proceeds of such bonds must only be utilised for refinancing existing debt with robust monitoring of the end-uses. However, the exposure to REs regarding PCEs granted in connection with NBFCs and HFCs is capped at 1% of the capital funds of the RE within the single/group borrower exposure limits.

Conclusion

The Proposed PCE Framework is a welcome step in enhancing retail and non-retail participation in the funding requirements of the infrastructure sector and in NBFCs and HFCs (with an asset size of INR 1,000 crore (Indian Rupees one thousand crore) and above) and broadening the bond market. The capital relief proposed is likely to result in freeing up the balance sheets of the REs and would also address the deep-rooted concern of wider accessibility of capital of infrastructure companies which are generally restricted to financing by banks and NBFCs.

While the Proposed PCE Framework is being finalised, the RBI should consider providing for objective parameters signifying a genuine cash shortfall in debt service requirements with respect to drawing down of the PCEs.

In our view, the RBI has also provided for a well-rounded approach for the REs to analyse the creditworthiness of the issuer for providing the PCEs (including through due diligence and robust internal monitoring and rating systems) under the Proposed PCE Framework thereby enabling uniformity of credit appraisal between non fund based facilities and funded facilities.

This Prism has been prepared by:

Utsav Johri
Partner

Pritha Chatterjee
Partner

For more details, please contact [email protected]

Tags Bond Market, Credit Enhancement, Draft Guidelines, Ease Of Doing Business, Financial Regulations, HFCs, Housing Finance, Indian Banking, Infrastructure Financing, JSA Prism, JSA Thought Leadership, NBFC Funding, NBFCs, Partial Credit Enhancement, PCE Framework, RBI, RBI Update, Regulatory Updates, Retail Participation

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