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
Preponderance of Probabilities Explained: How Indian Courts and SEBI Weigh Evidence
Authored by: Aaditya Bhatt, Advocate
Bhatt & Joshi Associates
General Principles of Preponderance of Probabilities
Definition and Legal Basis of Preponderance of Probabilities
The preponderance of probabilities standard governs civil proceedings, requiring a party to demonstrate that their claim is more likely true than not (over 50% probability). Unlike criminal law’s “beyond reasonable doubt,” this standard focuses on weighing evidence to determine which narrative is more plausible. Courts assess conflicting probabilities and select the most convincing scenario. For instance, in Narayan Ganesh Dastane v. Sucheta Narayan Dastane (1975), the Supreme Court clarified that civil cases rely on this balance to establish facts.
Application in Civil Litigation
In breach of contract or tort disputes, plaintiffs must show their version is more probable. For example, in Rangappa v. Sri Mohan (2010), the Supreme Court applied this standard to rebut presumptions under the Negotiable Instruments Act, emphasizing that defendants must provide credible explanations to counter allegations. The standard accommodates circumstantial evidence and indirect inferences, as seen in M. Narsinga Rao v. State of Andhra Pradesh (2001), where courts linked evidence to common human conduct.
SEBI’s Evidentiary Framework: Regulatory Context
Statutory Basis and Jurisprudence
SEBI enforces market regulations under the SEBI Act, 1992, and ancillary rules like the PFUTP Regulations, 2003. The Supreme Court in SEBI v. Kanaiyalal Baldevbhai Patel (2017) affirmed that SEBI proceedings follow the preponderance standard, rejecting the need for criminal-level certainty. This aligns with SEBI v. Kishore Ajmera (2016), where the Court held that civil liability under SEBI mandates a “preponderance of possibilities” threshold.
Key Judgments:
- Front-Running and Mens Rea:
In Kanaiyalal Patel, the Court ruled that mens rea (intent) is unnecessary for PFUTP violations. SEBI need only prove that trades likely harmed market integrity. This “victim-centric” approach prioritizes investor impact over intent. - Synchronized Trading:
Ketan Parekh v. SEBI (2006) required SEBI to demonstrate manipulative intent for synchronized trades, introducing nuance. However, later decisions like Pyramid Saimira Theatre Ltd. v. SEBI (2010) de-emphasized intent, focusing on unfair outcomes[4][10]. - Insider Trading:
Balram Garg v. SEBI (2023) highlighted that circumstantial evidence (e.g., trading patterns) alone cannot establish insider trading without proof of a tipper-tippee relationship.
Evidence Collection and Presentation
SEBI leverages technological tools (AI, data analytics) to detect anomalies like:
- Abnormal trading volumes preceding corporate announcements.
- Mule accounts funneling illicit gains.
- Encrypted communications (e.g., WhatsApp) suggesting collusion.
For example, in a 2021 case, SEBI identified entities building long positions in derivatives before favorable financial results, yielding profits post-announcement. Such patterns, while indicative, require corroboration (e.g., forensic audits, bank records).
Rebuttal Mechanisms in SEBI Proceedings
Burden of Explanation
Accused parties must rebut SEBI’s prima facie case by demonstrating:
- Lack of Materiality: Information traded on was publicly available or insignificant.
- Alternative Motives: Trades aligned with pre-existing strategies or market trends.
- Absence of Connection: No nexus between traders and insiders.
In Dolat Capital Market Pvt. Ltd. v. SEBI (2017), SAT required the appellant to prove trades were independent of client orders to counter front-running allegations. Similarly, Vibha Sharma v. SEBI (2013) permitted rebuttals showing legitimate research guided trading decisions.
Judicial Scrutiny of Rebuttals
Courts assess rebuttals for credibility and coherence:
- In Shri Dipak Patel v. SEBI (2012), SAT dismissed explanations lacking documentary support (e.g., unverified trading algorithms).
- T. Takano v. SEBI (2022) mandated disclosure of investigation reports to ensure accused parties can counter evidence effectively.
Challenges and Evolving Standards
Tension Between Intent and Impact
While Kanaiyalal Patel (2017) minimized mens rea, cases like Rakhi Trading (2018) reintroduced “deliberate” conduct as a factor. The 2019 PFUTP amendments resolved this by inserting “knowingly” into key provisions (e.g., Regulation 4(2)), protecting inadvertent actors while penalizing intentional misconduct.
Proposed Presumptions in PUSTA Regulations
SEBI’s 2023 draft Prohibition of Unexplained Suspicious Trading Activities (PUSTA) Regulations shift the burden to accused parties to explain trades coinciding with material non-public information (MNPI). Critics argue this risks presumption of guilt, requiring traders to prove innocence—a departure from traditional burdens.
Conclusion: Balancing Market Integrity and Fairness
SEBI’s reliance on preponderance of probabilities enables agile enforcement against complex financial crimes, where direct evidence is often elusive. Judicial precedents have refined this standard, permitting circumstantial evidence while safeguarding against overreach through rigorous rebuttal mechanisms. However, emerging frameworks like PUSTA test this balance, potentially altering evidentiary dynamics. As markets evolve, SEBI must harmonize technological surveillance with procedural equity to maintain investor trust and regulatory efficacy.
Citations:
-
Preponderance of Probability: A Legal Perspective – Read full article
-
What Is Balance Of Probability? – Read full article
-
Contextualising SEBI’s Move Towards Permissive Evidentiary Standards – Read full article
-
The Curious Case of ‘Standard of Proof’ Under the SEBI Regime – Read full article
-
Appreciation of Evidence by Court – ‘Preponderance of Probabilities’ – Read full article
-
Securities and Exchange Board of India (SEBI) – Read full article
-
Section 138 NI Act: Standard Of Proof For Rebutting Presumption – Read full article
-
Hunting for Evidence – Securities – Read full article
-
Standard of Proof for Rebutting Presumption is That of Preponderance of Probabilities – Read full article
-
Rohitkumar Premkumar Gupta vs SEBI on 2 August, 2021 – Read full article
SC Ruling: Interim Moratorium Under Section 96 Won’t Halt Section 138 NI Act Criminal Prosecution Against Individuals
Authored by: Aaditya Bhatt, Advocate
Bhatt & Joshi Associates
Introduction
In a significant ruling impacting individuals facing cheque dishonour cases while simultaneously undergoing personal insolvency proceedings, the Supreme Court of India has clarified the scope of the interim moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2016 (IBC). In its judgment dated April 1, 2025, primarily addressing appeals like Rakesh Bhanot vs. M/S.Gurdas Agro Pvt. Ltd. (arising out of SLP (Crl.) No. 6087 of 2023), the Court held that this moratorium does not shield individuals (such as personal guarantors or directors) from criminal prosecution under Section 138 of the Negotiable Instruments Act, 1881 (NI Act).
This common judgment addresses a crucial conflict between the protective measures of the IBC and the punitive provisions of the NI Act concerning personal liability.
Background: Personal Insolvency vs. Cheque Dishonour Prosecution
The cases involved appellants/petitioners facing criminal trials under Section 138 read with Section 141 of the NI Act for cheque dishonour. These individuals, often directors or personal guarantors, had subsequently initiated personal insolvency resolution processes by filing applications under Section 94 of the IBC.
Filing a Section 94 application triggers an automatic interim moratorium under Section 96 IBC. This provision stays pending legal actions and prohibits new ones “in respect of any debt”. The appellants argued their Section 138 NI Act proceedings fell under this stay. Their requests were denied by lower courts, leading to the Supreme Court appeals.
Key Legal Issue: Can Section 96 IBC Moratorium Stay Section 138 NI Act Proceedings?
The Supreme Court identified the central issue in paragraph 4 of the judgment:
- The common legal question that arises for consideration herein is, whether the proceedings initiated against the appellants / petitioners under Section 138 read with Section 141 of the N.I. Act, 1881 should be stayed in view of the interim moratorium under Section 96 IBC having come into effect upon the appellants / petitioners’ filing applications under Section 94 IBC.
Supreme Court’s Analysis and Reasoning
The Court undertook a detailed analysis, emphasizing the distinct nature of Section 138 NI Act proceedings compared to civil debt recovery actions.
Nature of Section 138 Proceedings:
The Court highlighted that NI Act proceedings target the act of dishonour, not just the debt itself. Paragraph 29 states:
- … The protection is not available against penal actions, the object of which is to not recover any debt. This moratorium serves as a critical mechanism, allowing the debtor to reorganize their financial affairs without the immediate threat of creditor actions. The clear and unequivocal language of this provision reflects the legislative intent to provide a protective shield for debtors during the insolvency process.
13. On the other hand, the proceedings under Section 138 of the N.I. Act, 1881, pertain to the dishonor of cheques issued by the respective appellants / petitioners in their personal capacity. These proceedings are distinct from the corporate insolvency proceedings and are aimed at upholding the integrity of commercial transactions by holding individuals accountable for their personal actions…
Interpreting the Scope of Section 96 Moratorium:
The Court focused on the limiting phrase “in respect of any debt” within Section 96. Paragraph 28 clarifies this interpretation:
- … Upon filing of the application under section 94 [IBC], a moratorium comes into effect, designed to protect the debtors from any legal actions concerning their debts. Specifically, Section 96 IBC provides that any legal proceedings pending against the debtor concerning any debt shall be deemed to have been stayed. The term “any legal action or proceedings” does not mean “every legal action or proceedings”. In sub-clauses 96 (b) (i) and (ii), the term “legal action or proceedings” are followed by the term “in respect of any debt”. The term “legal action or proceedings” would have to be understood to include such legal action or proceedings relating to recovery of debt by invoking the principles of noscitur a sociius. The purpose of interim moratorium contemplated under Section 96 is to be derived from the object of the act, which is not to stall the proceedings unrelated to the recovery of the debt.
Further, paragraph 10.1 distinguishes the objective:
10.1. … The use of the words “all the debts” and “in respect of any debt” in Sub-section (1) of Section 96 is not without a purpose, as the moratorium is intended to offer protection only against civil claim to recover the debt. Hence, such period of moratorium prescribed under Section 14 or 96 is restricted in its applicability only to protection against civil claims which are directed towards recovery and not from criminal action.
Liability of Natural Persons (Directors/Guarantors):
The Court heavily relied on its previous rulings in P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd. and Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation of India Ltd., which established that even under a Section 14 IBC moratorium (for corporate insolvency), the criminal liability of individuals under Section 141 NI Act continues. The Court extended this principle to the Section 96 scenario.
Quoting its conclusion in P. Mohanraj, the Court stated in paragraph 31:
- … This being the case, it is clear that the moratorium provision contained in Section 14 of the IBC would apply only to the corporate debtor, the natural persons mentioned in Section 141 continuing to be statutorily liable under Chapter XVII of the Negotiable Instruments Act.”
The Court also cited the Ajay Kumar Radheyshyam Goenka judgment in paragraph 16, quoting paragraph 75 from that decision:
- … quoting para 75: “Thus, where the proceedings under Section 138 of the NI Act had already commenced and during the pendency the plan is approved or the company gets dissolved, the Directors and the other accused cannot escape from their liability by citing its dissolution. What is dissolved is only the company, not the personal penal liability of the accused covered under Section 141 of the NI Act. They will have to continue to face the prosecution…”
Final Determination on Stay Application:
Based on this reasoning, the Court concluded that the moratorium under Section 96 IBC cannot be used to halt criminal prosecution under the NI Act. Paragraph 17 states the opinion:
- For the foregoing discussion, we are of the opinion that the object of moratorium or for that purpose, the provision enabling the debtor to approach the Tribunal under Section 94 is not to stall the criminal prosecution, but to only postpone any civil actions to recover any debt. The deterrent effect of Section 138 is critical to maintain the trust in the use of negotiable instruments like cheques in business dealings. Criminal liability for dishonoring cheques ensures that individuals who engage in commercial transactions are held accountable for their actions…
Paragraph 19 delivers the final verdict:
- For the foregoing discussion, the prayer of the appellants / petitioners to stay the prosecution under Section 138 of the N.I. Act, 1881, relying on the interim moratorium under Section 96 IBC, cannot be entertained. Therefore, the judgments / orders passed by the different High Courts affirming the orders of the trial court, which had rightly refused to stay the section 138 proceedings, need not be interfered with by us.
Key Takeaways: Section 96 IBC Moratorium vs. Section 138 NI Act Liability
- Section 138 NI Act Prosecution Continues: Individuals facing cheque dishonour charges cannot halt these criminal proceedings using the Section 96 IBC interim moratorium triggered by their personal insolvency application.
- Moratorium Limited to Civil Debt Recovery: The Section 96 moratorium stays legal actions specifically aimed at recovering debt, not penal actions like Section 138 NI Act prosecution.
- Personal Criminal Liability Persists: Insolvency proceedings under IBC do not absolve individuals (directors, guarantors, signatories) of their personal criminal liability under Section 141 NI Act for cheque dishonour.
- Dual Objectives Upheld: The judgment balances the IBC’s goal of financial resolution with the NI Act’s goal of ensuring commercial integrity and accountability for cheque transactions.
Conclusion
The Supreme Court’s decision in the Rakesh Bhanot batch of cases provides definitive clarity: the protective shield of the Section 96 IBC interim moratorium does not extend to criminal prosecution under Section 138 of the Negotiable Instruments Act. Individuals remain personally accountable for cheque dishonour offences, irrespective of their concurrent personal insolvency proceedings. This ruling underscores the distinct nature of criminal liability and its separation from the civil debt resolution processes governed by the IBC.
Comprehensive Analysis of PFUTP Regulations: A Judicial and Regulatory Framework
Authored by: Aaditya Bhatt, Advocate
Bhatt & Joshi Associates
Introduction
Before delving into the specific judicial pronouncements on the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP Regulations), it’s essential to understand that these regulations represent one of the most significant regulatory tools in SEBI’s arsenal for maintaining market integrity. This report analyzes landmark judgments on PFUTP Regulations while providing definitional clarity on the entire framework and its implementation.
Regulatory Genesis and Framework: From SEBI Act to PFUTP
Legal Foundation and Evolution
The PFUTP Regulations derive their legal authority from Section 30 of the SEBI Act, 1992, which empowers SEBI to frame regulations. More specifically, Section 11(2)(e) of the SEBI Act mandates SEBI to “prohibit fraudulent and unfair trade practices relating to the securities market”. This provides the foundational basis for SEBI’s power to regulate market misconduct.
The current PFUTP Regulations were enacted in 2003, replacing the previous 1995 version. A notable change during this transition was the modification in the applicability of front-running provisions—while the 1995 regulations prohibited front running by “any person,” the 2003 regulations initially appeared to restrict it to “intermediaries”. This created interpretive challenges that were later addressed through judicial interpretations.
The regulations have undergone several amendments, most recently in 2019, which incorporated recommendations from the Committee on Fair Market Conduct Report. These amendments expanded the definition of “dealing in securities” and modified the list of prohibited activities to provide greater clarity.
Core Definitional Framework
The PFUTP Regulations are built around several key definitions:
- Fraud (Regulation 2(c)): Includes “any act, expression, omission or concealment committed whether in a deceitful manner or not by a person or by any other person with his connivance or by his agent while dealing in securities in order to induce another person or his agent to deal in securities, whether or not there is any wrongful gain or avoidance of any loss”. This broad definition encompasses:
- Knowing misrepresentation of truth or concealment of material facts
- Suggestions of facts that are untrue by those who don’t believe them to be true
- Dealing in Securities (Regulation 2(1)(b)): The 2019 amendments broadened this definition to include “acts which are knowingly designed to influence trading decisions of investors or any activities undertaken to assist such acts”.
- Prohibited Activities: The regulations outline specific prohibited practices under Regulations 3 and 4, covering a spectrum of activities that undermine market integrity.
Landmark Judicial Pronouncements: Shaping PFUTP Interpretation
The interpretation and application of PFUTP Regulations have been significantly shaped by judicial pronouncements. These judgments have addressed critical questions regarding the scope, applicability, and requisite mental elements for violations.
Supreme Court Judgments
- SEBI v. Shriram Mutual Fund (2006) This judgment established a fundamental principle that was later extended to PFUTP Regulations—that mens rea (guilty mind) is not an essential requirement for establishing violations of provisions of the SEBI Act. This decision was applied in subsequent cases to extend this principle to PFUTP Regulations.
- N. Narayanan v. Adjudicating Officer, SEBI (2013) In this case, the Supreme Court seemed to imply a need for mens rea in market abuse cases, describing them as involving “manipulative and deceptive devices” and giving out information “known to be wrong to the abusers”.
- SEBI v. Kanaiyalal Baldevbhai Patel (2017) This landmark judgment brought front-running by non-intermediaries within the prohibition of PFUTP Regulations. The Court provided a liberal interpretation of the regulations, holding that front running by any person connected to the securities market is punishable, regardless of whether they are intermediaries.
Significantly, the judgment clarified that “mens rea is not an indispensable requirement to attract the rigour of regulations 3 and 4, and the correct test is one of preponderance of probabilities”. This established a victim-centric approach, focusing on the harmful effects on investors rather than the intent of the violator. - SEBI v. Rakhi Trading (P) Ltd. (2018) In contrast to Kanaiyalal, the Supreme Court here defined market manipulation as a “deliberate attempt to interfere with the free and fair operation of the market,” with the term “deliberate” suggesting intention is relevant.
- T. Takano v. Securities and Exchange Board of India (2022) This judgment addressed procedural aspects of PFUTP enforcement, holding that the investigation report under Regulation 9 forms an integral part of the decision-making process and must be disclosed to the person to whom a show cause notice is issued. The Court noted that “a quasi-judicial authority has a duty to disclose the material that has been relied upon at the stage of adjudication”.
Securities Appellate Tribunal (SAT) Decisions
- Pyramid Saimira Theatre Ltd. v. SEBI (2010) SAT extended the Supreme Court’s ratio in Shriram Mutual Fund to all provisions of SEBI Act and PFUTP Regulations. The Tribunal observed that “the words indicated in the definition of ‘fraud’ under regulation 2(1)(c) of the PFUTP Regulations ‘whether in a deceitful manner or not’ are significant and clearly indicate that intention to deceive is not an essential requirement of the definition of fraud”.
- Shri Dipak Patel v. SEBI (2012) and Mr. Sujit Karkera v. SEBI (2012) In these cases, SAT observed that under the 2003 regulations, front running was prohibited only when carried out by intermediaries. This narrow interpretation was later overruled.
- Vibha Sharma v. SEBI (2013) SAT provided a liberal interpretation to front running, holding that it is punishable when conducted by any person connected to the securities market, regardless of whether they are an intermediary. This interpretation was later affirmed by the Supreme Court in Kanaiyalal.
- Ketan Parekh v. SEBI (2006) and Subhkam Securities Private Limited v. SEBI (2012) These judgments established that synchronized trades are not per se illegal, but become violations of PFUTP Regulations only when carried out with the intention to manipulate the market. This introduced a nuanced view on market activities that might appear suspicious but require manipulative intent to be deemed violations.
- Dolat Capital Market Pvt. Ltd. v. SEBI (SAT Appeal No. 11/2017) SAT affirmed that even indirect benefits or motives could bring front-running trades under scrutiny, emphasizing the prevention of any unfair advantage derived from privileged information.
The Mens Rea Dilemma: Intent vs. Impact in PFUTP Violations
One of the most contested aspects of PFUTP enforcement is the role of mens rea—whether intention is required for establishing violations. Judicial pronouncements have shown divergent approaches:
Pro-Intent Approach
Some judgments have emphasized the need to establish intent:
- S Gopalkrishnan v. SEBI (2011): SAT held that SEBI must prove parties acted “willfully with intent and knowledge” to induce investors wrongly.
- Ketan Parekh v. SEBI (2006) and Subhkam Securities Private Limited v. SEBI (2012): These judgments established that synchronized trades require manipulative intent to violate PFUTP Regulations.
Pro-Impact Approach
Other judgments have de-emphasized the role of intent:
- SEBI v. Kanaiyalal Baldevbhai Patel (2017): The Supreme Court held that mens rea is not indispensable for establishing PFUTP violations, and the focus should be on the impact on investors.
- Pyramid Saimira Theatre Ltd. v. SEBI (2010): SAT emphasized that intention to deceive is not essential under the definition of “fraud” in PFUTP Regulations.
Regulatory Resolution
The 2019 amendments to PFUTP Regulations attempted to address this tension by incorporating the word “knowingly” in several provisions (Regulations 2(1)(b), 4(2)(a), 4(2)(f), 4(2)(r), and 4(2)(s)). This modification aims to protect innocent investors from being implicated in violations due to inadvertent or accidental trades, while still maintaining a strong enforcement mechanism for deliberate misconduct.
Implementation Mechanism: From Detection to Penalization
Investigation Process
- Initiation of Investigation: Under Regulation 9, SEBI can appoint investigating authorities to investigate violations of PFUTP Regulations.
- Investigation Report: The investigating authority prepares a detailed report outlining its findings and submits it to SEBI[9]. As clarified in T. Takano (2022), this report is not merely a preliminary document but a thorough analysis compiled after exhaustive investigation.
- Show Cause Notice: If the investigation reveals potential violations, SEBI issues a show cause notice to the alleged violator under Regulation 10.
- Hearing and Disclosure: Following T. Takano, SEBI must disclose the investigation report to the person to whom the show cause notice is issued, as it forms the basis of the potential action.
Enforcement Powers
SEBI possesses extensive powers to enforce PFUTP Regulations, derived from Sections 11(1), 11(4), and 11B of the SEBI Act:
- Preventive Measures:
- Suspending trading of securities
- Restraining persons from accessing the securities market
- Suspending office-bearers of stock exchanges or self-regulatory organizations
- Asset-Related Measures:
- Impounding and retaining proceeds or securities under investigation
- Attaching bank accounts or other property of intermediaries or persons involved in violations
- Directing intermediaries not to dispose of assets related to transactions under scrutiny
- Remedial Measures:
- Appointing independent auditors for forensic audits
- Issuing directions for specific compliance measures
Penalties and Sanctions
- Monetary Penalties: Section 15HA of the SEBI Act provides for substantial monetary penalties for violations of PFUTP Regulations.
- Market Access Restrictions: SEBI can restrict violators from accessing the securities market or prohibit them from buying, selling, or otherwise dealing in securities.
- Administrative Sanctions: For regulated entities like intermediaries, additional administrative sanctions may be imposed.
Modern Evolution: Technological Adaptation and Expanding Scope
Technological Surveillance
SEBI has evolved its enforcement approach to address emerging challenges:
- AI and Data Analytics: SEBI utilizes artificial intelligence and advanced data analytics to monitor trading activity and detect complex manipulative patterns.
- Social Media Scrutiny: With the rise of “finfluencers,” SEBI has increased vigilance over stock recommendations and information dissemination on social media platforms.
- Intermediary Accountability: There is greater focus on the role and responsibility of market intermediaries in upholding market integrity.
Evolving Concept of Market Integrity
The interpretation of PFUTP Regulations has broadened to protect the holistic concept of market integrity:
- Beyond Price Manipulation: Judicial interpretations have expanded PFUTP’s scope to protect overall market fairness, transparency, and investor confidence, not just prevent price manipulation.
- Nature and Genuineness of Transactions: The focus has shifted to the nature and genuineness of transactions, with artificial market activities being viewed as inherently harmful regardless of their specific impact on prices.
- Gatekeeper Responsibility: As seen in cases like Price Waterhouse & Co. v. SEBI (related to the Satyam scandal), the reach of PFUTP Regulations extends to facilitators of fraud like auditors involved in false disclosures.
Conclusion: Balancing Investor Protection and Market Fairness
The PFUTP Regulations represent a complex and evolving framework designed to maintain market integrity while balancing various competing interests. From their inception through the SEBI Act to their current implementation through judicial interpretations, these regulations have adapted to address new challenges in India’s securities markets.
The judicial pronouncements have generally favored a liberal interpretation of the regulations, prioritizing investor protection and market integrity over narrow technicalities. The tension between intent-based and impact-based approaches continues to be refined through both judicial decisions and regulatory amendments.
As technology and market practices evolve, SEBI’s implementation of PFUTP Regulations continues to adapt through enhanced surveillance capabilities and proactive enforcement strategies. The underlying philosophy remains consistent: to protect the fairness, transparency, and trustworthiness of India’s securities markets, thereby fostering investor confidence and economic growth.
The regulatory framework, while complex, ultimately serves a clear purpose—creating a securities market where participants can operate with confidence that the rules are clear, enforcement is fair but firm, and the system as a whole maintains its integrity against those who would undermine it through fraudulent or unfair practices.
Citations:
- The Supreme Court’s Liberal Interpretation of the SEBI Regulations
- Market Integrity Under PFUTP Regulations – Bhatt & Joshi Associates
- Landmark Judgments on SEBI by Supreme Court & High Courts (2022)
- Role of Mens Rea in PFUTP Violations – Bhatt & Joshi Associates
- SEBI Amends the PFUTP Regulations – Finsec Law Advisors
- Supreme Court Judgment (Reportable) – 18 Feb 2022
- PFUTP Case Search – Indian Kanoon
- NSE Circular on PFUTP Regulations
- Regulatory Framework of PFUTP Regulations – Anti Corruption Team
- SEBI Meeting File – October 2020
- T. Takano vs. SEBI – Indian Kanoon
Securing India’s Aviation Future: Analysing the Protection of Interests in Aircraft Objects Bill 2025
Authored by: Aaditya Bhatt, Advocate
Bhatt & Joshi Associates
Introduction
In a significant move for India’s burgeoning aviation sector, the Parliament has passed the Protection of Interests in Aircraft Objects Bill, 2025. Following its passage in the Rajya Sabha, the Lok Sabha approved the Bill on Wednesday, April 3, 2025. This landmark legislation aims to align India’s domestic laws with its international commitments under the Cape Town Convention and its Aircraft Protocol, addressing critical gaps highlighted by recent airline insolvencies. Once brought into force, the Act is set to have an overriding effect over other laws in case of inconsistencies, marking a pivotal shift in the legal landscape governing aircraft financing and leasing in India.
The Global Context: The Cape Town Convention (CTC)
India acceded to the Convention on International Interests in Mobile Equipment (commonly known as the Cape Town Convention or CTC) and the Protocol to the Convention on Matters Specific to Aircraft Equipment (the Aircraft Protocol) back in 2008. Signed in Cape Town on November 16, 2001, the CTC framework seeks to:
- Establish a uniform international legal regime for creating, enforcing, registering, and prioritizing international interests in high-value mobile assets, specifically aircraft objects (airframes, engines, helicopters).
- Enhance legal predictability for creditors and lessors.
- Facilitate asset-based financing by reducing risks associated with cross-border transactions and debtor defaults or insolvencies.
- Ultimately, lower the cost of financing for operators by mitigating creditor risk.
Despite India’s accession in 2008, the full benefits and protections offered by the CTC, particularly specific insolvency-related remedies that India declared it would adopt, remained largely inaccessible due to the absence of enabling domestic legislation.
The Catalyst for Change: Airline Insolvencies and the IBC Conflict
The urgency for enacting domestic legislation became starkly evident following recent high-profile airline insolvencies, most notably Go First (in 2023) and earlier, Jet Airways. The core issue stemmed from the conflict between the objectives of India’s Insolvency and Bankruptcy Code, 2016 (IBC) and the specific creditor protections enshrined in the CTC’s Aircraft Protocol.
Under the IBC, particularly Section 14, the initiation of insolvency proceedings triggers a moratorium. This moratorium prohibits, among other things, the recovery of assets by owners or lessors from the corporate debtor. While designed to preserve the debtor’s assets as a going concern and maximize value for all creditors collectively, this directly clashed with the remedies available to aircraft lessors/financiers under the CTC framework, which prioritizes their ability to regain possession of their specific, high-value assets promptly upon default or insolvency.
The Go First crisis exemplified this conflict. Lessors were legally barred by the IBC moratorium from repossessing their aircraft, leading to protracted legal battles and significant financial uncertainty. This situation prompted the global Aviation Working Group (AWG), which monitors CTC compliance, to downgrade India’s compliance score in 2023. The perception of India as a high-risk jurisdiction for aircraft leasing intensified, potentially jeopardizing future financing and leasing arrangements crucial for the country’s massive fleet expansion plans (with over 1100 aircraft currently on order by Indian carriers, supplementing the approximately 840 aircraft already operating, a large majority of which are leased).
Key Features of the Protection of Interests in Aircraft Objects Bill, 2025
Enacted under the constitutional power granted by Article 253 (allowing Parliament to legislate for implementing international treaties), the Bill translates India’s CTC commitments into enforceable domestic law. Salient features include:
- Implementation of CTC & Aircraft Protocol: The Bill’s primary objective, as stated in its preamble, is to give legal force to the Convention and Protocol within India.
- Overriding Effect (Clause 9): Crucially, the Bill stipulates that its provisions will prevail over any other inconsistent laws. This is vital for ensuring that the CTC-mandated remedies are not negated by conflicting domestic legislation, such as aspects of the IBC concerning aircraft assets. However, it preserves the right of government entities to detain aircraft for unpaid dues related to services provided directly to that aircraft object.
- Default Remedies (Article 8, Chapter III): The Bill explicitly empowers secured creditors (chargees) and lessors to exercise remedies upon default, including taking possession or control of the aircraft object. This aligns Indian law with the internationally accepted standards for aircraft repossession under the CTC.
- Jurisdiction of High Courts (Article 53 / Chapter XII): The Bill designates High Courts as the competent courts for granting relief sought under the Convention (e.g., orders for repossession). This provides a clear and established judicial forum for enforcing rights.
- Designated Registry Authority: The Bill formally appoints the Director General of Civil Aviation (DGCA) as the entry point/registry authority in India for the purposes of the Convention, streamlining registration and de-registration processes in line with CTC requirements.
- Preservation of State Rights (Article 39): The Bill acknowledges the existing rights of State entities or service providers to arrest or detain aircraft under specific conditions for payment of amounts owed relating to services rendered to the object.
Why Ratification Through Domestic Law Matters: Expected Impacts
The enactment of this Bill is anticipated to yield substantial benefits:
- Strengthened Creditor Confidence: Provides robust legal protection and clear enforcement mechanisms for international lessors and financiers, significantly reducing legal uncertainty and perceived jurisdictional risk.
- Potential for Lower Leasing Costs: By mitigating risks associated with repossession delays and asset deterioration during insolvency, the Bill is expected to lower the risk premium charged by lessors. Experts anticipate this could lead to reduced lease rental costs (potentially by 8-10%), making aircraft financing more affordable for Indian carriers and potentially benefiting passengers through competitive airfares.
- Facilitating Fleet Expansion: With massive aircraft orders pending, ensuring access to predictable and cost-effective financing/leasing is critical for the Indian aviation industry’s growth trajectory.
- Improved International Standing: Aligning with global best practices under the CTC enhances India’s reputation in the international aviation finance market, potentially improving its AWG score and attracting further investment.
- Enhanced Ease of Doing Business: Creates a more predictable and stable legal framework, fostering a more encouraging climate for complex, high-value aircraft transactions.
- Efficient Asset Utilisation: Prevents valuable aircraft assets from being indefinitely grounded and potentially deteriorating during prolonged insolvency proceedings, allowing them to be redeployed more quickly.
Conclusion: Impact of the Aircraft Objects Bill, 2025 on Aviation Law
The Protection of Interests in Aircraft Objects Bill, 2025 represents a watershed moment for Indian aviation law. By effectively domesticating the Cape Town Convention and its Aircraft Protocol, India addresses a critical vulnerability exposed by recent insolvencies. This legislation is poised to restore international confidence, reduce financing costs, and provide a stable legal foundation essential for supporting the ambitious growth plans of the Indian aviation sector. The focus now shifts to the effective implementation and interpretation of this Act by regulatory authorities and the judiciary to fully realize its intended benefits.
Disclaimer: This article is authored by Aaditya Bhatt Advocate, Bhatt & Joshi Associates, for informational purposes only. It does not constitute legal advice. The information provided is based on the details available regarding the Protection of Interests in Aircraft Objects Bill, 2025, as presented in the provided source material and general legal principles. Readers should consult with qualified legal counsel for advice specific to their circumstances. Bhatt & Joshi Associates assumes no liability for any reliance placed on this article.
