Introduction
Whenever a Job notification is out the first thing we do is go to the salary section and check what is the remuneration for that particular job. In order to apply for that particular job and later put all the effort and hard-work to get selected, is a long and tiring process. If our efforts are not compensated satisfactorily, we might not really like to get into the long time consuming process.
When we go through the salary section we often see words like Pay Scale, Grade Pay, or even level one or two salary and it is common to get confused between these jargons and to know the perfect amount of salary that we are going to receive.
To understand what pay scale, grade pay, various numbers of levels and other technical terms, we first need to know what pay commission is and how it functions.
Pay Commission
The Constitution of India under Article 309 empowers the Parliament and State Government to regulate the recruitment and conditions of service of persons appointed to public services and posts in connection with the affairs of the Union or any State.
The Pay Commission was established by the Indian government to make recommendations regarding the compensation of central government employees. Since India gained its independence, seven pay commissions have been established to examine and suggest changes to the pay structures of all civil and military employees of the Indian government.
The main objective of these various Pay Commissions was to improve the pay structure of its employees so that they can attract better talent to public service. In this 21st century, the global economy has undergone a vast change and it has seriously impacted the living conditions of the salaried class. The economic value of the salaries paid to them earlier has diminished. The economy has become more and more consumerized. Therefore, to keep the salary structure of the employees viable, it has become necessary to improve the pay structure of their employees so that better, more competent and talented people could be attracted to governance.
In this background, the Seventh Central Pay Commission was constituted and the government framed certain Terms of Reference for this Commission. The salient features of the terms are to examine and review the existing pay structure and to recommend changes in the pay, allowances and other facilities as are desirable and feasible for civil employees as well as for the Defence Forces, having due regard to the historical and traditional parities.
The Ministry of finance vide notification dated 25th July 2016 issued rules for 7th pay commission. The rules include a Schedule which shows categorically what payment has to be made to different positions. The said schedule is called 7th pay matrix
For the reference the table(7th pay matrix) is attached below.
Pay Band & Grade Pay
According to the table given above the first column shows the Pay band.
Pay Band is a pay scale according to the pay grades. It is a part of the salary process as it is used to rank different jobs by education, responsibility, location, and other multiple factors. The pay band structure is based on multiple factors and assigned pay grades should correlate with the salary range for the position with a minimum and maximum. Pay Band is used to define the compensation range for certain job profiles.
Here, Pay band is a part of an organized salary compensation plan, program or system. The Central and State Government has defined jobs, pay bands are used to distinguish the level of compensation given to certain ranges of jobs to have fewer levels of pay, alternative career tracks other than management, and barriers to hierarchy to motivate unconventional career moves. For example, entry-level positions might include security guard or karkoon. Those jobs and those of similar levels of responsibility might all be included in a named or numbered pay band that prescribed a range of pay.
The detailed calculation process of salary according to the pay matrix table is given under Rule 7 of the Central Civil Services (Revised Pay) Rules, 2016.
As per Rule 7A(i), the pay in the applicable Level in the Pay Matrix shall be the pay obtained by multiplying the existing basic pay by a factor of 2.57, rounded off to the nearest rupee and the figure so arrived at will be located in that Level in the Pay Matrix and if such an identical figure corresponds to any Cell in the applicable Level of the Pay Matrix, the same shall be the pay, and if no such Cell is available in the applicable Level, the pay shall be fixed at the immediate next higher Cell in that applicable Level of the Pay Matrix.
The detailed table as mentioned in the Rules showing the calculation:
For example if your pay in Pay Band is 5200 (initial pay in pay band) and Grade Pay of 1800 then 5200+1800= 7000, now the said amount of 7000 would be multiplied to 2.57 as mentioned in the Rules. 7000 x 2.57= 17,990 so as per the rules the nearest amount the figure shall be fixed as pay level. Which in this case would be 18000/-.
The basic pay would increase as your experience at that job would increase as specified in vertical cells. For example if you continue to serve in the Basic Pay of 18000/- for 4 years then your basic pay would be 19700/- as mentioned in the table.
Dearness Allowance
However, the basic pay mentioned in the table is not the only amount of remuneration an employee receives. There are catena of benefits and further additions in the salary such as dearness allowance, HRA, TADA.
According to the Notification No. 1/1/2023-E.II(B) from the Ministry of Finance and Department of Expenditure, the Dearness Allowance payable to Central Government employees was enhanced from rate of 38% to 42% of Basic pay with effect from 1st January 2023.
Here, DA would be calculated on the basic salary. For example if your basic salary is of 18,000/- then 42% DA would be of 7,560/-
House Rent Allowance
Apart from that the HRA (House Rent Allowance) is also provided to employees according to their place of duties. Currently cities are classified into three categories as ‘X’ ‘Y’ ‘Z’ on the basis of the population.
According to the Compendium released by the Ministry of Finance and Department of Expenditure in Notification No. 2/4/2022-E.II B, the classification of cities and rates of HRA as per 7th CPC was introduced.
See the table for reference
However, after enhancement of DA from 38% to 42% the HRA would be revised to 27%, 18%, and 9% respectively.
As above calculated the DA on Basic Salary, in the same manner HRA would also be calculated on the Basic Salary. Now considering that the duty of an employee’s Job is at ‘X’ category of city then HRA will be calculated at 27% of basic salary.
Here, continuing with the same example of calculation with a basic salary of 18000/-, the amount of HRA would be 4,840/-
Transport Allowance
After calculation of DA and HRA, Central government employees are also provided with Transport Allowance (TA). After the 7th CPC the revised rates of Transport Allowance were released by the Ministry of Finance and Department of Expenditure in the Notification No. 21/5/2017-EII(B) wherein, a table giving detailed rates were produced.
The same table is reproduced hereinafter.
As mentioned above in the table, all the employees are given Transport Allowance according to their pay level and place of their duties. The list of annexed cities are given in the same Notification No. 21/5/2017-EII(B).
Again, continuing with the same example of calculation with a Basic Salary of 18000/- and assuming place of duty at the city mentioned in the annexure, the rate of Transport Allowance would be 1350/-
Apart from that, DA on TA is also provided as per the ongoing rate of DA. For example, if TA is 1350/- and rate of current DA on basic Salary is 42% then 42% of TA would be added to the calculation of gross salary. Here, DA on TA would be 567/-.
Calculation of Gross Salary
After calculating all the above benefits the Gross Salary is calculated.
Here, after calculating Basic Salary+DA+HRA+TA the gross salary would be 32,317/-
However, the Gross Salary is subject to few deductions such as NPS, Professional Tax, Medical as subject to the rules and directions by the Central Government. After the deductions from the Gross Salary an employee gets the Net Salary on hand.
However, it is pertinent to note that benefits such as HRA and TA are not absolute, these allowances are only admissible if an employee is not provided with a residence by the Central Government or facility of government transport.
Conclusion
Government service is not a contract. It is a status. The employees expect fair treatment from the government. The States should play a role model for the services. The Apex Court in the case of Bhupendra Nath Hazarika and another vs. State of Assam and others (reported in 2013(2)Sec 516) has observed as follows:
“………It should always be borne in mind that legitimate aspirations of the employees are not guillotined and a situation is not created where hopes end in despair. Hope for everyone is gloriously precious and that a model employer should not convert it to be deceitful and treacherous by playing a game of chess with their seniority. A sense of calm sensibility and concerned sincerity should be reflected in every step. An atmosphere of trust has to prevail and when the employees are absolutely sure that their trust shall not be betrayed and they shall be treated with dignified fairness then only the concept of good governance can be concretized. We say no more.”
The consideration while framing Rules and Laws on payment of wages, it should be ensured that employees do not suffer economic hardship so that they can deliver and render the best possible service to the country and make the governance vibrant and effective.
Written by Husain Trivedi Advocate
Section 10 Application under IBC: A Comprehensive Guide
Authored by: Aaditya Bhatt, Advocate
Bhatt & Joshi Associates
Introduction
The Insolvency and Bankruptcy Code (IBC), 2016, has fundamentally transformed India’s insolvency regime by introducing a clear and time-bound process for resolving financial distress. Section 10 of the IBC empowers corporate debtors—such as companies and LLPs—to voluntarily initiate the Corporate Insolvency Resolution Process (CIRP) when they default on their debts. This mechanism allows businesses to proactively address financial challenges, restructure, or facilitate an orderly liquidation. This guide provides a detailed overview of Section 10 application under IBC, covering their purpose, legal framework, filing process, documentary requirements, relevant rules, and key judicial interpretations.
Purpose of Section 10
Section 10 enables a corporate debtor that has committed a default to apply to the National Company Law Tribunal (NCLT) to commence CIRP. The provision is designed to:
- Offer a proactive route for distressed entities to seek resolution.
- Maximize asset value and promote entrepreneurship.
- Ensure equitable treatment of stakeholders.
- Encourage early intervention and transparent restructuring or liquidation.
Legal Framework for Section 10 Application under IBC
Insolvency and Bankruptcy Code, 2016
Section 10 sets out the conditions and procedures for a corporate debtor to initiate CIRP:
- Initiation: The corporate debtor may file an application with the NCLT upon committing a default.
- Form and Particulars: The application must be filed in the prescribed form, with requisite particulars and fee.
- Supporting Documents: The applicant must submit:
- Books of account and other specified documents.
- Details of the proposed interim resolution professional.
- Special resolution or partner approval authorizing the filing.
- NCLT Review: The NCLT must admit or reject the application within 14 days, allowing a seven-day window to rectify defects if any.
- CIRP Commencement: The process begins upon admission.
Application Rules and Regulations
- Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016: Rule 7 requires applications under Section 10 to be filed in Form 6, with documents specified in the rules and regulations.
- Insolvency Resolution Process Regulations: These govern the process post-admission, including appointment of the interim resolution professional and conduct of CIRP.
Step-by-Step Filing Process Under Section 10 of IBC
- Verify Default: Ensure the corporate debtor has defaulted on a debt of at least INR 1 crore.
- Obtain Approval: Secure a special resolution from shareholders or three-fourths of partners authorizing the application.
- Prepare Form 6: Complete Form 6 with accurate details about the debtor, default, and proposed interim resolution professional.
- Gather Documents:
- Books of account evidencing default.
- Audited financial statements for the last two financial years and provisional statements for the current year (within 14 days of application).
- Written consent from the proposed interim resolution professional.
- Proof of fee payment and supporting affidavit.
- File with NCLT: Submit the application and annexures to the NCLT having jurisdiction over the debtor’s registered office.
- Serve Copies: Serve application copies to the Insolvency and Bankruptcy Board of India (IBBI) and the debtor’s registered office as per IBBI circulars.
- NCLT Review: The NCLT examines the application for completeness and compliance. If complete and no disciplinary proceedings are pending, the application is admitted and CIRP commences.
Documentary Requirements
Forms and Annexures
Applications must be filed in Form 6, with annexures including:
| Annexure | Description | Purpose |
|---|---|---|
| I | Record of default for financial debt | Evidence of default |
| II | Demand notice and record for operational debt | Evidence of operational default |
| III | Written consent of interim resolution professional | Consent and eligibility |
| IV | Books of account | Evidence of default |
| V | Audited financial statements (last two years) and provisional statements (current year) | Financial overview |
| VI | Statement of affairs | Snapshot of assets, liabilities, creditors |
| VII | Authority documents | Authorization to file |
| VIII | Affidavit | Accuracy of information |
| IX | Fee proof | Compliance with fee requirement |
Audited Financial Statements: Requirement and Flexibility
Statutory Requirement
Form 6, Annex V, requires “copies of audited financial statements of the corporate debtor for the last two financial years and the provisional financial statements for the current financial year made up to a date not earlier than fourteen days from the date of the application.” This aligns with the Companies Act, 2013, which mandates audits under Sections 128, 134, and 139.
Judicial and Regulatory Approach
- General Rule: Audited financial statements are typically mandatory, as they provide verified evidence of the debtor’s financial position and support the claim of default.
- Exceptions: In limited cases—such as newly incorporated companies without two years of operations, or genuine audit delays—NCLT may accept unaudited statements if accompanied by a valid explanation. However, such flexibility is rare and subject to NCLT’s discretion.
- No Blanket Waiver: There is no explicit regulatory or judicial provision allowing a blanket waiver of audited statements; their absence without justification is generally treated as a material defect.
Judicial Interpretations
- Unigreen Global Pvt. Ltd. v. Punjab National Bank: NCLAT held that NCLT’s role is limited to verifying completeness as per Section 10 and Form 6. If all required information is provided, and the applicant is not ineligible under Section 11, the NCLT must admit the application. NCLT cannot impose additional requirements beyond the statute and prescribed forms.
- Surendra Trading Company v. Juggilal Kamlapat Jute Mills: The Supreme Court clarified that the seven-day period for rectifying defects is directory, not mandatory, allowing some flexibility in procedural compliance.
- Vyomit Shares Stock & Investments Pvt. Ltd. v. SEBI: NCLAT held that Section 10 applications may be rejected if the debtor is financially viable, underscoring the importance of audited financials in demonstrating genuine distress.
Practical Guidance for Applicants
- Document Completeness: Ensure all required documents, especially audited financial statements, are included and current.
- Professional Advice: Engage insolvency professionals and legal advisors for robust application preparation and to address documentary gaps.
- Proactive Communication: Inform creditors of the intention to file and address potential objections.
- Compliance Monitoring: Maintain up-to-date statutory records and audits to avoid application defects.
- Anticipate Scrutiny: Be prepared to justify any absence of audited statements, particularly for new companies or in cases of audit delays.
Conclusion
Section 10 Application under IBC provides corporate debtors with a structured, voluntary process to address insolvency. While the requirement for audited financial statements is generally mandatory, limited flexibility exists in exceptional cases, subject to NCLT’s discretion. Judicial decisions emphasize strict compliance with statutory requirements and restrict NCLT from imposing conditions beyond those prescribed. Corporate debtors should prioritize thorough preparation, complete documentation, and professional guidance to enhance the likelihood of a successful application.
Key Citations:
- Insolvency and Bankruptcy Code, 2016
- Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016
- Unigreen Global Pvt. Ltd. v. Punjab National Bank (NCLAT)
- Surendra Trading Company v. Juggilal Kamlapat Jute Mills (Supreme Court)
- Vyomit Shares Stock & Investments Pvt. Ltd. v. SEBI (NCLAT)
- Insolvency and Bankruptcy Board of India (IBBI)
SEBI’s PFUTP Regulations in the Digital Age: Tackling Algorithmic Abuse and Encrypted Communications
How Technological Advancements Challenge Market Integrity Investigations and SEBI’s Adaptive Strategies Under the PFUTP Regulations
Author: Aaditya Bhatt Advocate
Introduction: The Evolving Battlefield of Indian Securities Regulation
The integrity of India’s securities market is paramount, and the Securities and Exchange Board of India (SEBI) stands as its primary guardian. A cornerstone of its regulatory arsenal is the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP Regulations). These regulations form the bedrock for preventing manipulation, fraud, and unfair practices that can erode investor confidence and destabilize markets. However, the financial landscape is undergoing a seismic shift, driven by rapid technological advancements. The widespread adoption of sophisticated encryption in communications and the increasing dominance of algorithmic trading (Algo Trading) present formidable challenges to SEBI’s ability to effectively detect, investigate, and prosecute violations under the PFUTP Regulations. This article delves into the complex challenges posed by evolving market abuse tactics, exploring how SEBI’s PFUTP regulations are adapting to the digital era to uphold transparency and fairness.
Understanding SEBI’s PFUTP Regulations: A Shield for Market Integrity
Before exploring the challenges, it’s crucial to understand the scope of SEBI’s PFUTP Regulations. These are principle-based rules designed with a broad ambit to capture a wide range of misconduct. Key aspects include:
- Prohibition: They prohibit any person from directly or indirectly engaging in fraudulent or unfair trade practices in the securities market.
- Definition of Fraud: Includes acts like misrepresentation, concealment of facts, and any deceptive device or scheme employed to induce trading in securities.
- Definition of Unfair Trade Practices: Encompasses manipulative practices, misleading statements, and actions that distort market equilibrium or harm investor interests, even if not strictly fraudulent.
This broad framework allows SEBI to address novel forms of manipulation as they emerge, including those facilitated by technology.
The Technological Gauntlet: Dual Challenges to PFUTP Enforcement
SEBI’s investigative capabilities face a two-pronged challenge from modern technology:
1. The Veil of Encryption: Obscuring Intent and Coordination
Modern communication platforms – from messaging apps to emails – increasingly employ end-to-end encryption. While crucial for user privacy, this technological shield poses a significant obstacle for regulators investigating market manipulation, insider trading, or the coordinated spread of false information designed to influence stock prices.
- The Challenge: Encrypted communications make it extremely difficult, if not impossible, for SEBI to access direct evidence of collusion or illicit information sharing. Traditional methods relying on intercepting or retrieving communication records are often rendered ineffective.
- Illustrative Context: Past SEBI investigations, such as those concerning the alleged leak of unpublished price-sensitive information (UPSI) via platforms like WhatsApp, highlighted this difficulty. Even seizing devices may not yield usable evidence if the communication content is encrypted and inaccessible. This directly impedes proving the mens rea (guilty intent) often required to establish fraud or insider trading.
- Impact: Investigators must increasingly rely on circumstantial evidence, trading pattern analysis, and connecting trades to known associates, making investigations more complex and potentially less conclusive.
2. The Algorithmic Conundrum: Speed, Complexity, and Masked Manipulation
Algorithmic trading, including High-Frequency Trading (HFT), involves using sophisticated computer programs to execute trades at speeds impossible for human traders. While contributing to market liquidity and efficiency, it also creates new avenues for manipulation that are harder to detect and prove.
- The Challenge: Algorithms can execute complex strategies involving numerous orders and cancellations across multiple platforms in milliseconds. Practices like:
- Wash Trades: Creating artificial trading volume by simultaneously buying and selling the same security through related accounts, often executed algorithmically to mimic genuine activity.
- Spoofing & Layering: Placing non-genuine orders to create a false impression of supply or demand, influencing prices, and then cancelling them before execution.
- Synchronized/Circular Trading: Coordinated trading schemes executed by algorithms to manipulate prices or volumes.
- Proving Intent: A significant hurdle is proving manipulative intent behind algorithmic trades. Was a flurry of self-trades (where the same entity is both buyer and seller) an intentional wash trade designed to mislead, or an unintentional byproduct of complex HFT strategies in a liquid market? Distinguishing legitimate strategies from manipulative ones executed by autonomous programs is a major challenge for SEBI.
Applying PFUTP Principles in the Digital Age: The Intent Dilemma
The principle-based nature of the PFUTP Regulations allows flexibility, but applying them to tech-driven scenarios requires careful consideration, particularly regarding intent.
- The Rakhi Trading Precedent: The Supreme Court of India’s landmark judgment in SEBI v. Rakhi Trading (P) Ltd. (2018) [3] provides crucial guidance. While acknowledging that manipulation often involves a deliberate attempt to interfere with market forces, the Court also focused on the nature of the trades. It held that synchronized trades executed without the intention of transferring beneficial ownership were non-genuine and detrimental to market integrity, even if a direct intent to manipulate the price wasn’t conclusively proven in that specific instance.
- Shifting Focus: This suggests that SEBI can find violations under PFUTP by demonstrating that trades were artificial, non-genuine, or created a false appearance of trading activity, thereby undermining market integrity, even when proving explicit manipulative intent behind an algorithm is difficult. The effect and nature of the trade become critical factors.
- Unfairness Broadly Defined: The concept of “unfair trade practice” under Regulation 4 of PFUTP [1] provides another avenue. Algorithmic strategies that disrupt market fairness or mislead investors, even without fitting traditional manipulation definitions, could potentially be captured.
SEBI’s Counter-Strategies: Adapting to the Tech Revolution
Recognizing these challenges, SEBI is actively evolving its surveillance, investigation, and regulatory approaches:
- Technological Arms Race: SEBI is significantly enhancing its technological capabilities. It employs sophisticated market surveillance systems, leveraging Artificial Intelligence (AI) and Data Analytics to:
- Detect anomalous trading patterns indicative of manipulation (e.g., unusual volumes, price spikes, synchronized trades).
- Analyze vast datasets generated by algorithmic and high-frequency trading.
- Identify connections between traders and suspicious activities across segments.
- Focus on Patterns and Outcomes: Given the difficulty in accessing direct evidence (like encrypted messages) or proving algorithmic intent, SEBI increasingly focuses on:
- Trading Data Analysis: Scrutinizing patterns, timing, and the economic rationale (or lack thereof) behind trades.
- Circumstantial Evidence: Building cases based on the timing of trades relative to information flow, the relationships between suspected parties, and the overall impact on market fairness. The Rakhi Tradingjudgment supports this focus on the observable characteristics and impact of trades.
- Regulatory Evolution (and Considerations): SEBI continually reviews and updates its regulations.
- Algorithmic Trading Framework: SEBI has introduced specific regulations governing algorithmic trading, requiring robust risk controls, testing, and approval processes for algorithms .
- Past Proposals (USTA): Although not implemented, SEBI had previously floated concepts like the “Unexplained Suspicious Trading Activities” (USTA) regulations . The idea was to potentially create a framework where suspicious trading patterns coinciding with UPSI could create a rebuttable presumption of violation, shifting the onus partially onto the trader. This reflects the regulator’s thinking on addressing evidence gaps created by technology.
- Seeking Enhanced Tools: Reports surfaced in the past regarding SEBI seeking more direct investigative powers, potentially akin to limited wiretapping authority, to tackle encrypted communications in serious fraud cases . While facing legal and privacy hurdles, this highlights the perceived need for stronger tools against technologically shielded misconduct.
- International Cooperation: Market manipulation can be cross-border. SEBI collaborates with international counterparts through bilateral Memoranda of Understanding (MoUs) and memberships in international organizations like IOSCO (International Organization of Securities Commissions) to share information and coordinate enforcement actions .
The Balancing Act: Fostering Innovation While Ensuring Transparency
The core challenge lies in balancing the need to regulate effectively against the desire to foster technological innovation in financial markets. Overly stringent regulations could stifle beneficial advancements, while insufficient oversight can lead to market abuse. SEBI must navigate this complex terrain by:
- Upholding Market Integrity: Ensuring the primary goal remains a fair, transparent, and efficient market for all participants.
- Adaptive Regulation: Continuously monitoring technological trends and adjusting the regulatory framework proactively.
- Enhanced Surveillance: Investing in technology and expertise to keep pace with market developments.
- Respecting Boundaries: Ensuring that investigative powers are used judiciously, respecting legal and privacy norms.
Conclusion: The Road Ahead for PFUTP Enforcement
The intersection of technology and finance presents undeniable challenges to the enforcement of SEBI’s PFUTP Regulations. Encryption obscures communication trails, while the speed and complexity of algorithmic trading can mask manipulative intent. SEBI’s response involves a multi-faceted strategy: leveraging advanced technology for surveillance, focusing on the demonstrable impact and nature of trading activities (as supported by judicial precedent like Rakhi Trading), adapting regulatory frameworks, and seeking appropriate investigative tools.
The battle for market integrity in the digital age is ongoing. It requires continuous vigilance, regulatory adaptability, and a commitment to harnessing technology not just for trading, but also for effective oversight. For legal professionals, investors, and market participants, understanding this evolving landscape is crucial for navigating the complexities of India’s modern securities market.
Sources and Citations:
-
The Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 – Available on SEBI’s official website: SEBI Regulations (Note: Always refer to the latest version on SEBI’s website).
-
SEBI Investigations on Information Leaks – Context regarding SEBI investigations into information leaks via social media/messaging apps has been widely reported. Various financial news articles from 2017-2018 discuss SEBI’s actions on WhatsApp leaks. (Suggested search: “SEBI WhatsApp leak investigation”).
-
SEBI v. Rakhi Trading (P) Ltd., (2018) 13 SCC 753 – Supreme Court of India judgment. Summaries and analyses are available on legal databases and financial news sites. Relevant discussions highlight the distinction between genuine and non-genuine trades.
-
SEBI Annual Reports – These reports often detail enhancements in surveillance capabilities. Access them on SEBI’s official website: SEBI Annual Reports.
-
SEBI Master Circulars on Algorithmic Trading – SEBI issues Master Circulars and specific guidelines on algorithmic trading. Relevant documents can be found by searching “Algorithmic Trading” under Legal Framework → Circulars on SEBI’s website. Example: Master Circular for Stock Brokers dated May 17, 2023.
-
Discussions on USTA and Suspicious Trading Frameworks – Media reports from 2018-2019 discussed SEBI’s considerations regarding frameworks like USTA for monitoring suspicious trades. Verification can be done through SEBI press releases or consultation papers from that period. (Note: As of early 2025, no specific USTA regulations have been enacted, but the challenge persists.)
-
SEBI’s Pursuit of Enhanced Surveillance Powers – Reports on SEBI seeking broader surveillance powers, such as wiretapping, have surfaced periodically. Relevant discussions can be found in financial news archives (2017-2019). (Suggested search: “SEBI seeks wiretapping powers”).
-
SEBI’s International Cooperation Initiatives – Information on SEBI’s international regulatory collaborations is available on its website: SEBI International Cooperation.
Disclaimer: This article provides general information and analysis. It does not constitute legal advice. Readers should consult with qualified legal professionals for specific advice pertaining to their situation. Market regulations and interpretations can change; always refer to official SEBI releases and relevant judicial pronouncements for the most current information.
Governor’s Powers under Article 200: Supreme Court Reinforces Constitutional Boundaries
Authored by: Aaditya Bhatt, Advocate
Bhatt & Joshi Associates
Introduction: A Constitutional Reckoning
The relationship between the Union and the States, particularly the role of the Governor as a constitutional head and a link to the Centre, has been a recurring theme in India’s constitutional discourse. The Supreme Court’s judgment in State of Tamil Nadu vs. Governor of Tamil Nadu & Anr. (Writ Petition (Civil) No. 1239 of 2023, cited as 2025 INSC 481) marks a significant moment in this ongoing dialogue. Delivered on April 8th, 2025, this landmark ruling provides crucial clarifications on the scope and limitations of the Governor’s powers under Article 200 of the Constitution, especially concerning the assent to Bills passed by State Legislatures. Addressing issues of gubernatorial inaction, discretionary powers, and the very essence of parliamentary democracy within India’s federal structure, the judgment sets firm boundaries and reinforces constitutional propriety.
The Factual Crucible: A Governor, Delayed Bills, and Constitutional Questions
The case arose from a writ petition filed by the State of Tamil Nadu under Article 32, highlighting perceived constitutional transgressions by the Governor. The core grievances, as meticulously detailed by the Court (Paras 3-29), included:
- Prolonged Inaction on Bills: Twelve Bills passed by the State Legislature between January 2020 and April 2023 remained pending with the Governor for assent, some for years.
- Action Triggered by Litigation: Only after the Court issued notice in the writ petition did the Governor act on the pending Bills (on November 13, 2023), withholding assent simpliciter (without message) to ten and reserving two for the President. This action came after the Supreme Court’s clarifying judgment in State of Punjab (supra) on the procedure under Article 200.
- Re-passing and Subsequent Reservation: The State Legislature, in a special session (November 18, 2023), reconsidered and repassed the ten Bills without material changes, presenting them again for assent under the first proviso of Article 200. However, the Governor, citing repugnancy (despite acknowledging the bills as intra vires), reserved these repassed Bills for the President’s consideration on November 28, 2023.
- Other Delays: The petition also cited delays concerning sanctions for prosecution, premature release of prisoners, and TNPSC appointments.
This factual matrix set the stage for the Court to delve deep into the constitutional architecture governing the legislative process at the State level.
Key Constitutional Questions on Governor’s Powers under Article 200
The Supreme Court identified several “questions of paramount constitutional importance” for determination (Para 36, elaborated in Paras 61-66):
- What are the precise courses of action available to the Governor under Article 200?
- Is the first proviso an independent option, or is it tied to withholding assent? How should the phrase “Bill falls through unless…” be construed?
- Is the State of Punjab (supra) decision per incuriam?
- Does Article 200 permit ‘absolute’ or ‘pocket’ vetoes?
- Can the Governor reserve a bill for the President after it has been repassed under the first proviso? Was the Governor’s reservation of the ten repassed bills lawful?
- Is there an express or implied time-limit within which the Governor must act under Article 200? How should “as soon as possible” be interpreted?
- Must the Governor act only on the ‘aid and advice’ of the Council of Ministers under Article 200, or does discretion exist? What is the source and scope of such discretion? Does the deletion of “in his discretion” from the draft Article matter?
- Is the Governor’s exercise of functions/discretion under Article 200 subject to judicial review? What are the parameters? Is the President’s action under Article 201 similarly reviewable?
- Are the observations in Hoechst, Kaiser-I-Hind, and B.K. Pavitra regarding non-justiciability applicable?
- How must the President act under Article 201 on a reserved Bill?
Governor’s Powers under Article 200: Supreme Court’s Clarifications
The judgment provides a masterclass in constitutional interpretation, blending textual analysis with historical context and purposive reasoning, particularly in the context of the Governor’s Powers under Article 200.
1. The Governor’s Options and the First Proviso’s Mandate
The Court reaffirmed the three mutually exclusive options under the substantive part of Article 200: Assent, Withhold Assent, or Reserve for President (Para 169). The Court decisively settled the debate around the first proviso:
- Integral Link: It is “intrinsically attached to the option of withholding of assent” and “not an independent fourth course of action” (Paras 191, 196, 434(II)).
- Mandatory Consequence: When the Governor withholds assent, the procedure under the first proviso must follow (Paras 175, 182, 434(II)). The Governor must return the Bill (if not a Money Bill) with a message “as soon as possible.”
- No ‘Simpliciter’ Withholding: The Court found the idea of withholding assent without returning the bill under the proviso to be constitutionally impermissible, amounting to an ‘absolute veto’ which is absent from the scheme (Paras 198, 209, 434(V)). The Court noted:
“Thus, it is only upon the declaration of withholding of assent that the first proviso is animates into action.” (Para 190)
“…it is not open for the Governor to declare a simpliciter withholding of assent without taking recourse to the first proviso as that virtually amounts to the exercise of absolute veto by the Governor, a power which is conspicuously absent from our constitutional scheme.” (Para 209)
- Governor Bound after Repassage: The phrase “shall not withhold assent therefrom” in the proviso creates a clear constitutional prohibition against withholding assent once the Legislature repasses the bill (Paras 170, 201).
2. Rejecting Absolute and Pocket Vetoes
The Court emphatically stated that the Governor possesses neither an absolute nor a pocket veto under Article 200:
“Neither the concept of ‘pocket veto’ nor that of ‘absolute veto’ finds place within the constitutional scheme and mechanism envisaged under Article 200…” (Para 434(V))
The mandatory nature of “shall declare” negates inaction (pocket veto), and the compulsory procedure following withholding of assent negates finality (absolute veto) (Para 197-198).
3. Time is of the Essence: Addressing Gubernatorial Delay
While noting the lack of a prescribed deadline in the text (unlike the initial Draft Article 91’s six weeks, Para 217), the Court stressed that this absence does not license indefinite delay:
- “As soon as possible”: This phrase in the first proviso “infuses a sense of urgency and expediency” (Paras 186, 197).
- Reasonable Time Principle: Where no time limit is fixed, power must be exercised within a reasonable time (Ram Chand, Durga Pada Ghosh cited in Paras 229, 226).
- Constitutional Imperative: Delay “roadblocks the law-making machinery” and undermines representative democracy (Paras 231, 246).
- Judicial Standards Prescribed: To ensure accountability and provide benchmarks for judicial review, the Court prescribed timelines (derived from Sarkaria/Punchhi recommendations and MHA guidelines, see Para 120, 385):
- Withholding/Reserving on Aid & Advice: Forthwith (Max 1 month)
- Withholding against Advice (Return with Message): Max 3 months
- Reserving against Advice: Max 3 months
- Assent upon Reconsideration: Forthwith (Max 1 month)
- “(XIV) Keeping in mind the constitutional significance of Article 200 and the role it plays in the federal polity of the country, the following timelines are being prescribed. Failure to comply with these timelines would make the inaction of the Governors subject to judicial review by the courts…” (Para 434(XIV))
4. Demystifying Gubernatorial Discretion under Article 200
The judgment provides a clear and comprehensive clarification regarding the very limited scope of the Governor’s powers under Article 200, especially in relation to the Governor’s discretionary authority.
- The General Rule: The Governor must act on the aid and advice of the Council of Ministers (Para 318). The deletion of “in his discretion” from the original GoI Act provision was deliberate and significant (Paras 315-316).
- Source of Discretion: Any discretion flows only from Article 163(1) – i.e., where the Constitution expressly requires or necessitates action in discretion (Paras 301, 305, 325).
- Limited Exceptions under Art. 200:
- Second Proviso: Bills endangering the High Court’s position (Express discretion, Samsher Singh cited in Para 295).
- Bills Requiring Presidential Assent: Where the Constitution mandates Presidential assent for validity or immunity (e.g., Arts 31A, 31C, 254(2), 288(2), 360(4)(a)(ii)) – discretion arises by necessary implication (Nabam Rebia cited, Para 319).
- Peril to Democracy: Exceptional situations where ministerial advice is biased, the Council disables itself, or there’s a breakdown of the rule of law, as per M.P. Special Police (Para 300, 319).
- No General Discretion: The Governor cannot reserve bills based on personal dissatisfaction, policy disagreement, or political considerations (Paras 103, 364, 367(a)(iv)).
- Overruling B.K. Pavitra: The Court explicitly declared the observations in B.K. Pavitra (supra) regarding the Governor having discretion in reserving bills (beyond the second proviso) and such discretion being non-justiciable, as per incuriam for failing to consider Samsher Singh, M.P. Special Police, and the legislative history (Paras 305-306, 434(XVI)).
5. Illegality of Reserving Repassed Bills
Applying these principles, the Court found the Governor’s action of reserving the ten repassed bills for the President’s consideration illegal:
- Once the bills were returned (even without a message, which itself was improper post State of Punjab) and repassed by the Legislature without material changes, the only constitutional option was assent (Paras 205, 434(VII)).
- The reservation on November 28, 2023, was in contravention of Article 200 and declared erroneous in law, non-est and set aside (Paras 211, 434(VIII), 435(a)).
- Any subsequent action by the President on these illegally reserved bills was also declared non-est and set aside (Paras 211, 434(VIII), 435(b)).
Judicial Review: The Sentinel on the Qui Vive
The judgment robustly defends the judiciary’s role in reviewing the exercise of constitutional power, including by the Governor and the President:
- No Power Beyond Review: “no exercise of power under the Constitution is beyond the pale of judicial review” (Para 332). Immunity under Article 361 doesn’t bar challenges to the actions (Para 333).
- Review of Discretion: The exercise of discretion under Article 200 is amenable to judicial review to ensure it stays within constitutional bounds (Paras 321, 348, 434(XV)).
- Justiciability vs. Review: The Court distinguished between the power of judicial review (which is implicit) and justiciability (whether manageable standards exist for review). While assent itself (often based on advice) might lack material for review, withholding assent or reserving bills (which require reasons or specific constitutional triggers) are justiciable (Paras 337-339, 358-359, 434(XXI), 434(XXIII)).
- Grounds: Review can examine legality, constitutionality, arbitrariness, mala fides, extraneous considerations, and inaction/delay (Paras 367, 368).
The President’s Role Under Article 201: Considered Action
The Court clarified the distinct procedure under Article 201:
- No Obligation for Assent: The President is not bound to assent even if the State Legislature repasses the bill (Para 373).
- Requirement of Reasons: If withholding assent (especially after invoking the proviso to return the bill), the President must communicate reasons to the State Government (Paras 397, 405).
- Time Limit: A three-month timeline was prescribed for the President’s decision on reserved bills (Para 391, 434(XIX)).
- Judicial Review: Limited review for arbitrariness, mala fides, inaction, but potentially broader review if withholding assent on purely constitutional grounds related to State List matters without referring to the Supreme Court under Article 143 (Paras 363, 366, 368).
Article 142 Invoked: Ensuring Complete Justice
Finding the Governor’s actions (prolonged inaction, improper withholding, illegal reservation) demonstrated a lack of bona fides and violated the Constitution, and given that assent was the only permissible course after repassage, the Court invoked Article 142:
“Having regard to the unduly long period of time for which these Bills were kept pending… and in view of the scant respect shown by the Governor to the decision of this Court in State of Punjab (supra) and other extraneous considerations… we are left with no other option but to exercise our inherent powers under Article 142… for the purpose of declaring these ten Bills as deemed to have been assented on the date when they were presented to the Governor after being reconsidered i.e., on 18.11.2023.” (Para 435(c))
This extraordinary step underscored the Court’s commitment to preventing constitutional deadlocks and ensuring the legislative process is not thwarted by unconstitutional means.
Conclusion: Reinforcing Constitutionalism and Federal Harmony
The Supreme Court’s decision in State of Tamil Nadu vs. Governor of Tamil Nadu is a powerful assertion of constitutional principles over political expediency. It meticulously delineates the Governor’s Powers under Article 200, emphasizing that the Governor is not an autocratic authority but a constitutional functionary, bound by law, the advice of ministers (generally), and the principles of reasonableness and expediency.
By rejecting the notions of absolute and pocket vetoes, mandating procedural compliance following the withholding of assent, setting timelines as benchmarks for judicial review, severely limiting discretion, and affirming the justiciability of gubernatorial actions, the Court has strengthened the pillars of federalism and parliamentary democracy in India. The judgment serves as a clear directive that Governors must act as facilitators of the legislative process, not as impediments, and must perform their role as a “friend, philosopher and guide” (Para 436) with constitutional propriety and deference to the elected will of the people. The overruling of problematic aspects of B.K. Pavitra adds significant clarity.
Ultimately, the Court reminds all constitutional authorities of their duty to uphold the Constitution, urging harmonious cooperation between the Governor and the State Government, keeping the welfare of the people paramount (Para 444), echoing Dr. Ambedkar’s timeless wisdom about the crucial role of those who work the Constitution (Para 439).
Anticipatory Bail in Economic Offenses: An Analysis of Legal Framework and Judicial Approach
Authored by: Aaditya Bhatt, Advocate
Bhatt & Joshi Associates
Introduction
The landscape of anticipatory bail in economic offenses has undergone significant evolution through judicial pronouncements over the years. The Supreme Court of India has consistently emphasized that economic offenses constitute a different class altogether due to their impact on the financial fabric of society. A recent Supreme Court judgment in Serious Fraud Investigation Office (SFIO) vs. Aditya Sarda (2025) has further solidified this position while clarifying the stringent conditions for granting anticipatory bail in cases involving fraud under the Companies Act. This article analyzes the legal framework governing anticipatory bail in economic offenses and explores the judicial approach through landmark judgments.
Legal Framework for Anticipatory Bail in Economic Offenses
General Provisions Under Section 438 of CrPC
Section 438 of the Criminal Procedure Code (CrPC) provides the power to grant anticipatory bail to the High Court and Sessions Court. While this provision is meant to protect individuals from unwarranted arrest, the courts have consistently held that this power should be exercised sparingly, particularly in cases of serious economic offenses.
In SFIO vs. Aditya Sarda (2025), the Supreme Court quoted from P. Chidambaram vs. Directorate of Enforcement (2019) to highlight the exceptional nature of anticipatory bail:
“Power under Section 438 CrPC is an extraordinary power and the same has to be exercised sparingly. The privilege of the pre-arrest bail should be granted only in exceptional cases.”
The Court further elaborated on the relationship between anticipatory bail and economic offenses:
“Economic offenses stand as a different class as they affect the economic fabric of the society. In economic offenses, the accused is not entitled to anticipatory bail.”
Special Provisions Under Companies Act, 2013
The Companies Act, 2013 introduces special provisions regarding bail for certain offenses, particularly those involving fraud. Section 212 of the Act deals with investigation into affairs of a company by the Serious Fraud Investigation Office (SFIO), and subsection (6) lays down specific conditions for bail in cases involving Section 447 (punishment for fraud).
As reproduced in the SFIO vs. Aditya Sarda judgment, Section 212(6) states:
“Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), offence covered under section 447 of this Act shall be cognizable and no person accused of any offence under those sections shall be released on bail or on his own bond unless-
(i) the Public Prosecutor has been given an opportunity to oppose the application for such release; and
(ii) where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail.”
Twin Conditions for Bail in Fraud Cases
The Supreme Court in SFIO vs. Aditya Sarda referred to these as “twin conditions” that are “mandatory in nature.” The Court held that these conditions apply even to anticipatory bail proceedings, citing the three-judge bench decision in Vijay Madanlal Choudhary and Others vs. Union of India and Others (2023), which examined similar provisions under the PMLA.
The significance of Section 447 of the Companies Act lies in its comprehensive definition of fraud and stringent punishment. As per this section:
“Without prejudice to any liability including repayment of any debt under this Act or any other law for the time being in force, any person who is found to be guilty of fraud, involving an amount of at least ten lakh rupees or one per cent. of the turnover of the company, whichever is lower shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud.”
Judicial Approach to Anticipatory Bail in Economic Offenses
Supreme Court’s Consistent Stance
The Supreme Court has consistently maintained a firm stance on anticipatory bail in economic offenses. In SFIO vs. Aditya Sarda, the Court referenced several previous judgments that establish this position.
Quoting from Y.S. Jagan Mohan Reddy vs. Central Bureau of Investigation (2013), the Court reiterated:
“Economic offences constitute a class apart and need to be visited with a different approach in the matter of bail. The economic offences having deep-rooted conspiracies and involving huge loss of public funds need to be viewed seriously and considered as grave offences affecting the economy of the country as a whole and thereby posing serious threat to the financial health of the country.”
The Court further cited Nimmagadda Prasad vs. Central Bureau of Investigation (2013):
“Unfortunately, in the last few years, the country has been seeing an alarming rise in white-collar crimes, which has affected the fibre of the country’s economic structure. Incontrovertibly, economic offences have serious repercussions on the development of the country as a whole.”
Analysis of SFIO vs. Aditya Sarda (2025)
The SFIO vs. Aditya Sarda case involved allegations of serious fraud where the Adarsh Credit Cooperative Society Limited, managed by Mukesh Modi and his family, had allegedly siphoned off funds to the tune of Rs. 1700 crores through illegal loans to approximately 70 companies controlled by them.
The Court analyzed the conduct of the respondents-accused who had avoided execution of non-bailable warrants even after their anticipatory bail applications were rejected by the Special Court. The Supreme Court observed:
“It cannot be gainsaid that the judicial time of every court, even of Magistrate’s Court is as precious and valuable as that of the High Courts and the Supreme Court. The accused are duty bound to cooperate the trial courts in proceeding further with the cases and bound to remain present in the Court as and when required by the Court. Not allowing the Courts to proceed further with the cases by avoiding execution of summons or warrants, disobeying the orders of the Court, and trying to delay the proceedings by hook or crook, would certainly amount to interfering with and causing obstruction in the administration of justice.”
Key Principles Established
The Supreme Court in SFIO vs. Aditya Sarda established or reinforced several key principles:
- Special Treatment for Economic Offenses: Economic offenses constitute a class apart because they affect the economic fabric of society and pose serious threats to the financial health of the country.
- Mandatory Twin Conditions: The twin conditions specified in Section 212(6) of the Companies Act are mandatory and apply even to anticipatory bail proceedings.
- Conduct of the Accused: The conduct of the accused in evading legal process can be a determinative factor in denying anticipatory bail.
- Proclamation Proceedings and Anticipatory Bail: When a warrant of arrest is issued or proclamation proceedings are initiated, the accused is not entitled to invoke the extraordinary power of anticipatory bail except in exceptional cases.
The Court emphatically stated:
“When warrant of arrest is issued or proclamation proceedings are initiated, the accused would not be entitled to invoke, except in exceptional cases, the extraordinary power of the court to grant anticipatory bail. Granting anticipatory bail is certainly not the rule. The respondents-accused, who have continuously avoided to follow the due process of law, by avoiding attendance in the Court, by concealing themselves and thereby attempting to derail the proceedings, would not be entitled to the anticipatory bail.”
Procedural Aspects in Economic Offenses Case
Issuance of Warrants: Bailable vs. Non-bailable
The judgment in SFIO vs. Aditya Sarda provides valuable insights into the procedural aspects of issuing warrants in economic offense cases. Section 204 of CrPC gives the court taking cognizance of an offense the discretion to issue either a warrant or summons in warrant cases.
The Court referred to Inder Mohan Goswami and Another vs. State of Uttaranchal and Others (2007) to explain when non-bailable warrants should be issued:
“Non-bailable warrant should be issued to bring a person to court when summons or bailable warrants would be unlikely to have the desired result. This could be when:
- it is reasonable to believe that the person will not voluntarily appear in court; or
- the police authorities are unable to find the person to serve him with a summon; or
- it is considered that the person could harm someone if not placed into custody immediately.”
The Court clarified that there cannot be a “strait jacket formula” for issuing summons versus warrants:
“There cannot be a strait jacket formula, as sought to be submitted by the learned advocates for the Respondents that the Court must first issue a summons even in case of a warrant case, irrespective of the gravity or seriousness of the offence.”
Proclamation Proceedings Against Absconding Accused
When an accused person deliberately avoids appearing before the court, Section 82 of CrPC allows the court to initiate proclamation proceedings. As reproduced in the judgment:
“If any Court has reason to believe (whether after taking evidence or not) that any person against whom a warrant has been issued by it has absconded or is concealing himself so that such warrant cannot be executed, such Court may publish a written proclamation requiring him to appear at a specified place and at a specified time not less than thirty days from the date of publishing such proclamation.”
In SFIO vs. Aditya Sarda, the Court endorsed the Special Court’s decision to initiate proclamation proceedings against the respondents who had been avoiding the execution of warrants.
Conduct of Accused and Its Relevance to Bail
A significant aspect of the judgment is the emphasis on the conduct of the accused in determining bail applications. The Court noted:
“If the Rule of Law is to prevail in the society, every person would have to abide by the law, respect the law and follow the due process of law.”
The Court firmly rejected the argument that if the respondents were not arrested during investigation, only summons should have been issued:
“Whether the attendance of the accused can be best secured by issuing a bailable warrant or non-bailable warrant, would be a matter, which entirely rests at the discretion of the concerned Court. Although the discretion should be exercised judiciously, diverse considerations such as the nature and seriousness of the offence, the circumstances peculiar to the accused, possibility of his concealing or absconding, larger interest of public and state etc. also must be seriously considered by the court.”
Other Significant Cases on Similar Legal Points
P. Chidambaram vs. Directorate of Enforcement (2019)
In this landmark case, the Supreme Court extensively discussed the principle that anticipatory bail should not be granted as a matter of routine, particularly in serious economic offenses. The Court observed:
“A delicate balance is required to be established between the two rights-safeguarding the personal liberty of an individual and the societal interest.”
The Court emphasized that refusal to grant anticipatory bail would not amount to a denial of rights under Article 21 of the Constitution, especially in economic offenses.
Srikant Upadhyay and Others vs. State of Bihar (2024)
In this recent case, the Supreme Court made pertinent observations about the power to grant anticipatory bail under Section 438 of CrPC:
“The power to grant anticipatory bail is an extraordinary power. Though in many cases it was held that bail is said to be a rule, it cannot, by any stretch of imagination, be said that anticipatory bail is the rule. It cannot be the rule and the question of its grant should be left to the cautious and judicious discretion by the Court depending on the facts and circumstances of each case.”
Prem Shankar Prasad vs. State of Bihar (2024)
This case specifically dealt with the issue of granting anticipatory bail when proclamation proceedings had been initiated. The Court disapproved of granting anticipatory bail while ignoring the proceedings under Sections 82/83 CrPC:
“Thus, the High Court has committed an error in granting anticipatory bail to Respondent 2-accused ignoring the proceedings under Sections 82/83 CrPC.”
Conclusion
The judgment in SFIO vs. Aditya Sarda (2025) reinforces the Supreme Court’s consistent stance that economic offenses require special consideration due to their impact on society and the economy. The Court has clearly established that the twin conditions under Section 212(6) of the Companies Act are mandatory for granting bail in cases involving fraud under Section 447, even for anticipatory bail applications.
The Court has also emphasized that when accused persons deliberately avoid court proceedings by concealing themselves or not making themselves available for the execution of summons or warrants, they forfeit their right to anticipatory bail. The rule of law demands that every person abide by the law and follow due process.
This judgment adds to the growing body of jurisprudence that recognizes the gravity of economic offenses and establishes stringent standards for granting bail in such cases. It underscores the need for courts to balance individual liberty with societal interest, particularly when dealing with offenses that impact the financial health of the nation.
By setting clear guidelines for the exercise of discretion in granting anticipatory bail in economic offense cases, the Supreme Court has provided valuable guidance to lower courts and reinforced the principle that the law aids only those who abide by it, not those who resist it.
