Sagus Speaks - April 2025 | Part II

REGULATORY AND POLICY UPDATES

SEBI extends the automated implementation of trading window closure for immediate relatives of Designated Person¹

The Securities and Exchange Board of India (“SEBI”) by way of circular dated 21.04.2025 (“PIT Circular”) has extended the automated implementation of trading window closure as envisaged under clause 4 of Schedule B of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 (“PIT Regulations”) to immediate relative of Designated Persons (“DPs”). The master circular on Surveillance of Securities Market dated 23.09.2024 (“Master Circular”) requires a system to restrict trading by DPs during trading window closure period by freezing of PAN of DP's of a listed company. The PIT Circular extends such automatic closure of the trading window on the immediate relative of DP's for listed companies. 

The procedure for implementation of the system for freezing of PAN and closure of trading window has also been annexed in the PIT Circular.

The implementation of the framework for top 500 companies based on BSE market capitalization as of 31.03.2025 would be on 01.07.2025 and for all remaining companies listed on BSE, National Stock Exchange of India and Metropolitan Stock Exchange of India Limited, as well as companies that get listed on stock exchanges after the issuance of the PIT Circular, would be on 01.10.2025.

RBI issues amendments to directions on Compounding of Contraventions under FEMA 1999²

The Reserve Bank of India (“RBI”) has published notification no. RBI/FED/2025-26/29 dated 22.04.2025 and notification no. RBI/FED/2025-26/32 dated 24.04.2025 (“Notifications”) to amend the provisions relating to the computation of compounding amounts under the procedure of compounding provided in Paragraph 5.4 of Master Directions on Compounding of Contraventions under the Foreign Exchange Management Act, 1999 (“FEMA 1999”) (“Compounding Circular”).

Paragraph 5.4 of the Compounding Circular provides that the penalty amount can be up to a maximum of three times the sum involved in the contravention, and the compounding amount payable for the same is to be calculated based on the guidance note under Paragraph 5.4.I, subject to the provisos under Paragraph 5.4.II of the Compounding Circular (“Compounding Amount”).

The Notifications have deleted Paragraph 5.4.II.v of the Compounding Circular, which linked the Compounding Amount payable for a contravention to the earlier compounding orders passed with respect to the same transaction, that were not paid by the applicant before reapplying. After the deletion, in such cases, the applicant shall be deemed to have made a fresh application, and the Compounding Amount payable shall not be enhanced with respect to or linked to the earlier Compounding Amount in any other way.

The Notifications have added Paragraph 5.4.II.vi to the Compounding Circular, which provides that the compounding authority may cap the maximum Compounding Amount to INR 2,00,000/- for contravention of each rule/regulation under the category of “other nonreporting contraventions” provided in the guidance note on computation matrix in Paragraph 5.4.I. The Compounding Amount for such contraventions comprises the fixed amount of INR 50,000/- (applied once for each regulation/rule contravened, in a compounding application) and the variable amount (determined with respect to the duration of contraventions). This limit on maximum Compounding Amount may be allowed, subject to the satisfaction of the compounding authority and based on the nature of the contravention, exceptional facts/circumstances involved, and public interest.

SEBI aligns Margin Collection Timelines with T+1 Settlement Cycle³

SEBI has issued circular No. SEBI/HO/MIRSD/MIRSDPoD/P/CIR/2025/57 dated 28.04.2025 mandating revised timelines for collection of margins (excluding upfront VaR and ELM) by Trading Members (“TMs”) and Clearing Members (“CMs”) in the cash segment with effect from date of issuance, i.e., 28.04.2025.

The key amendments to the Master Circular on Stock Brokers dated 09.08.2024 are as follows:

1. Para 39.1.2 - Margins (excluding VaR and ELM) must now be collected by the settlement day, although clients are not permitted to delay margin payment until the settlement date.
2. Para 39.1.3 - If full pay-in is made by the settlement day, margins are deemed to be collected and no penalty for non-collection of other margins shall apply.
3. Para 39.1.5 - Failure by clients to make pay-in by settlement day and failure by TMs/CMs to collect applicable margins by the settlement day shall attract penalty.

SEBI issues clarifications for ESG Rating Providers⁴

SEBI has issued circular No. SEBI/HO/DDHS/DDHS-PoD2/P/CIR/2025/59 dated 29.04.2025, introducing clarificatory and procedural changes to the circular dated 16.05.2024 which specified various procedural/disclosure requirements and obligations for ESG Rating Providers (“ERPs”). These clarifications aim to aid and strengthen the ERPs and shall be applicable from immediate effect.

The key highlights of the circular are as follows:

1. ERPs are now permitted to withdraw ESG ratings under certain conditions, including if a rated entity lacks a business responsibility and sustainability report, the absence of subscribers for the ESG rating or if the rating has been in place for three years or for 50% of the tenure of the rated security.
2. The stock exchange where an issuer/entity with an ESG rating is listed, shall prominently display the ESG rating on its website under a separate tab/section on the listed company's page.

GOVERNMENT NOTIFICATIONS

MNRE issues draft amendment to procedure for inclusion/updating wind turbine model in the revised list of models and manufacturers of wind turbines⁵

The Ministry of New and Renewable Energy (“MNRE”), through its circular dated 17.04.2025, has issued a draft amendment to the procedure for inclusion/updating of wind turbine models in the revised list of models and manufacturers (“RLMM”) of wind turbines (“Draft Amendment”) for stakeholder consultation.

The key proposed amendments are as follows:

1. Para 4(g): The uploaded details for RLMM inclusion will now mandatorily include not only the wind turbine model name along with the details of the wind turbine manufacturer, technical details and certifications but also the domestic vendor/source details for blade, tower, gearbox and generator.
2. Para 4(h): It is proposed that the type certificate for a wind turbine model must mandatorily include blade, tower, gearbox and generator manufacturing facilities located in India. Furthermore,
   1. An exemption shall be applicable for importing the aforementioned components for up to 50 turbines or 200 MW, whichever is lower, by any new manufacturer and/or new model for a period of one year from the date of inclusion in RLMM.
   2. The requirements for the gearbox and generator manufacturing facility will be applicable after six months from the issuance of the Draft Amendment.
3. Para 4(i): Certain new cybersecurity norms have been prescribed:
   1. Data centres and/or servers must be mandatorily located within India. Further, all data in relation to the wind turbine must be stored and maintained in India.
   2. Real-time operational data transfer outside India shall be prohibited and operational control of wind turbines must be conducted exclusively from a facility in India.
   3. A R&D centre will be mandatorily established in India within six months from the date of issuance of the Draft Amendment.
4. Para 4 (j): The application along with all required documents shall be submitted in soft copy to the designated officers.

All stakeholders have been invited to submit comments on the Draft Amendment within three weeks from the date of issuance, i.e., 17.04.2025, to the designated MNRE officer.

PWD Delhi deletes arbitration clause from all future contracts⁶

The Public Works Department (“PWD”), Government of National Capital Territory of Delhi, through its Office Order No. F.10(31) / 2023 / PWD-I / Court Matters / 4309-17 dated 21.04.2025 (“PWD Order”) has directed that:

1. The arbitration clause (Clause 25) under the General Conditions of Contract (“GCC”) of all future contracts of PWD shall be deleted from the date of issuance of the PWD Order.
2. In place of the arbitration clause, the following provision shall be incorporated: “Any disputes arising between the parties to this agreement/contract shall be subject to the exclusive jurisdiction of Courts in Delhi only.”

JUDICIAL PRONOUNCEMENTS

Supreme Court holds that appellate courts possess ‘limited power' to modify arbitral awards under Section 34 and 37 of the Arbitration and Conciliation Act, 1996

The Supreme Court, through its judgement dated 30.04.2025 in Gayatri Balasamy v. M/S ISG Novasoft Technologies Limited⁷ , held that the court has a limited power under Sections 34 and 37 of the Arbitration and Conciliation Act, 1996 (“A&C Act”) to modify arbitral awards. 

The Supreme Court explained the scope under which such power can be exercised and laid down certain circumstances under which an arbitral award can be modified. Such circumstances in which an arbitral award can be modified by the court are (a) by severing the invalid portion from the valid portion of the arbitral award, (b) by correcting any clerical, computational or typographical errors which appear erroneous on the face of the record, (c) by modifying the post award interest and (d) by invoking inherent power of the Supreme Court under Article 142 of the Constitution of India, 1950. 

The Supreme Court also emphasized that such power must be exercised with great care and caution and within the limits of the constitutional power i.e., the exercise of this power must be in consonance with the fundamental principles and objectives of the A&C Act and not in derogation or in suppression thereof.

Supreme Court holds that arbitral award passed by MSME Council post-resolution plan approval is unenforceable

The Supreme Court, through its judgment dated 21.04.2025 in Electrosteel Steels Ltd. v. Ispat Carrier Pvt. Ltd.⁸ , ruled that an arbitral award passed by Micro, Small, and Medium Enterprises Facilitation Council (“MSME Council”) after the approval of a resolution plan under the Insolvency and Bankruptcy Code, 2016 (“IBC”), is unenforceable. The Supreme Court held that provisions of the IBC, by virtue of the overriding effect conferred under section 238 of IBC, take precedence over any claims arising under Micro, Small, and Medium Enterprises Development Act, 2006.

The appeal arose from a dispute where Ispat Carrier Pvt. Ltd.(“ICPL”), a supplier to Electrosteel Steels Ltd.(“ESL”), secured an arbitral award from the West Bengal MSME Council after the CIRP was concluded and a resolution plan submitted by Vedanta Limited was approved by the NCLT in April 2018. The arbitral award dated 06.07.2018 granted ICPL approximately INR 1.04 crore with interest. Execution proceedings were later initiated based on the arbitral award, which led to ESL challenging the validity of such proceedings before the Supreme Court.

The Supreme Court held that after the approval of a resolution plan, all prior claims not included therein stand extinguished. It was held that the MSME Council lacked jurisdiction to arbitrate extinguished claims and that the lifting of the moratorium does not revive such claims. The Court further clarified that an arbitral award passed without jurisdiction can be challenged under Section 47 of the Code of Civil Procedure, 1908 (“CPC 1908”) during execution, without the necessity of a separate Section 34 application under the A&C Act. The appeal was accordingly allowed, and the execution proceedings and the High Court of Jharkhand's judgment were set aside.

Supreme Court holds that dismissal of a suit under Rule 2 or Rule 3 of Order IX of the Code of Civil Procedure, 1908 is not the formal expression of an adjudication upon any right claimed or the defense set up in a suit

The Supreme Court, through its judgement dated 22.04.2025 in Amruddin Ansari (Dead) through LRS & Ors. v. Afajal Ali & Ors.⁹ , held that the dismissal of a suit or application for default under Rules 2 or 3 of Order IX of CPC 1908 does not prevent the filing of a fresh suit, as such dismissal does not constitute a judgement or decree, and therefore, the principle of res judicata does not apply.

In the present matter, a suit was dismissed under Order IX Rule 2 of the CPC 1908, thereafter a fresh suit under Order IX Rule 4 of the CPC 1908 was filed seeking the same reliefs, which was allowed by the High Court. Challenging the same order of High Court, the present appeal was preferred contending that the fresh suit on the same cause of action is barred by the principle of res judicata.

The Supreme Court observed that a fresh suit based on the same cause of action is not barred by the principle of res judicata when the suit was firstly dismissed under Rule 2 or 3 of Order IX of CPC 1908. Further, the dismissal of a suit under Order IX Rule 2 of CPC 1908 does not amount to a decree or a judgement that finally resolved the dispute and therefore could not be treated as a decision on merits warranting the application of the principle of res judicata.

The High Court of Bombay clarifies the scope of Section 29A of the Arbitration & Conciliation Act, 1996 affirming that substitution of arbitrator is permissible only on statutory grounds

The High Court of Bombay, in its judgement dated 23.04.2025 in Indiabulls Infraestate Ltd. v Imagine Realty Pvt. Ltd¹⁰, held that substitution of an arbitrator under Section 29-A (6) of the A&C Act is not automatic and cannot be exercised unless grounds under Sections 14 or 15 of the A&C Act are satisfied. Further, the High Court refused the prayer for substitution of the sole arbitrator, despite the expiry of mandate which was already extended by six months.

The High Court held that Section 29-A (6) of the A&C Act does not confer unqualified powers to substitute arbitrators and must be read in consonance with Sections 14 and 15 of the A&C Act. Further, the High Court observed that allegations of bias and delay were speculative and unsupported by facts warranting removal. The High Court criticized the Imagine Realty Pvt Ltd.'s inconsistent conduct challenging jurisdiction while seeking relief in the same proceedings and viewed their approach as delaying tactics. Furthermore, the High Court found no material to suggest that the arbitrator had become de jure or de facto unable to perform.

High Court of Bombay clarifies limits of Section 9 of the Arbitration & Conciliation Act, 1996

The High Court of Bombay, through its judgement dated 16.04.2025 in SJK Buildcon LLP v. Kusum Pandurang Keni¹¹, dismissed a petition filed under Section 9 of the A&C Act, seeking interim relief in the nature of eviction of certain occupants being tenants in a redevelopment project. The High Court held that Section 9 of the A&C Act cannot be invoked to seek substantive reliefs against third parties, particularly when such reliefs fall within the exclusive domain of special legislation like the Maharashtra Rent Control Act, 1999 (“Rent Act”). Further, the High Court observed that in absence of any dispute between the parties to the arbitration agreement, no interim protection could be granted under the A&C Act.

SJK Buildcon LLP, a developer, had entered into a Development Agreement seeking to redevelop the project site. Certain occupants, including legal heirs of original tenants, were termed “non-cooperative” and allegedly in illegal possession of such premises. However, the undisputed fact was that some of these tenants held decrees from rent courts confirming their tenancy status. Despite this, SJK Buildcon LLP sought an appointment of Court Receiver and eviction directions against these occupants under Section 9 of the A&C Act on the ground of hindrance to the redevelopment project.

High Court of Calcutta holds that FEMA proceedings cannot continue during moratorium under Insolvency and Bankruptcy Code 2016

The High Court of Calcutta, in its judgment dated 16.04.2025 in Anup Kumar Singh v. Union of India & Ors.¹², held that proceedings under Section 37A of the FEMA, 1999 cannot continue against a corporate debtor once a liquidation order is passed under Section 33(5) of the IBC. The High Court emphasised that Section 238 of the IBC, containing a nonobstante clause, overrides conflicting statutes such as FEMA 1999, which lacks a similar provision.

The High Court held that the IBC, being a subsequent legislation with a clear overriding clause, prevails over FEMA 1999. The High Court quashed the provisional seizure order and related notices under FEMA 1999 against the corporate debtor. However, it clarified that proceedings could still be initiated personally against directors if independent liability is established.

NCLAT rules that NCLT cannot rectify an uploaded order without hearing affected parties

The National Company Law Appellate Tribunal (“NCLAT”), Chennai Bench, in its judgment dated 15.04.2025 in Deccan Advanced Sciences Private Limited v. Escientia Biopharma Private Limited & Ors. ¹³, held that once an order is uploaded, it enters the public domain and the National Company Law Tribunal (“NCLT”) cannot modify or rectify it under Rule 154 of the NCLT Rules, 2016 without first issuing notice to all affected parties. It further held that under the proviso to Section 420(2) of the Companies Act, 2013 (“CA 2013”), once an appeal against an order has been filed, no rectification of that order can be made.

The appeals arose from rectifications carried out by the NCLT, Hyderabad, first through a suo motu order dated 10.03.2025 modifying the earlier docket order dated 07.03.2025 and later by an order dated 25.03.2025 based on a memorandum filed by the Administrator on 20.03.2025. Deccan Advanced Sciences Private Limited (“DASPL”) challenged these rectifications on the ground that no prior notice was issued, violating principles of natural justice, and that the second rectification was made after DASPL had already filed an appeal on 14.03.2025, attracting the statutory bar under Section 420(2) of CA 2013.

NCLAT observed that the docket order of 07.03.2025, having been uploaded and attained finality, no subsequent modification could have been made without notice. It further held that any rectification attempted after an appeal has been filed is legally impermissible. Accordingly, the rectification orders dated 10.03.2025 and 25.03.2025 were quashed, and the appeals were allowed. NCLAT clarified that while the impugned orders were quashed, a fresh application for rectification can be filed, which would be decided as per law.

NCLAT holds that limitation cannot be extended by arbitral award unless specifically pleaded in Section 7 application under Insolvency and Bankruptcy Code 2016

NCLAT in its judgment dated 16.04.2025 in Deepak Mahadev Shirke v. Unity Small Finance Bank Ltd. & Anr. ¹⁴, set aside the admission of a Section 7 application under the IBC, holding that an adjudicating authority could not extend limitation based on an arbitral award without a formal amendment to the pleadings.

The appeal arose from the admission of a Section 7 application against Excel Arcade Private Limited, filed by Unity Small Finance Bank Ltd. (“USFB”), wherein the original date of default pleaded was 12.11.2018. The application was filed on 08.11.2023, well beyond the threeyear limitation period, which, after accounting for the exclusion granted by the Hon'ble Supreme Court in Suo Motu Writ Petition (C) No. 03 of 2020, expired on 28.10.2023. Despite this, the adjudicating authority relied on an arbitral award dated 28.04.2022 to hold that a fresh limitation period had commenced, rendering the Section 7 application maintainable.

NCLAT held that although an arbitral award may give rise to a fresh cause of action, the benefit of such an extended limitation period must be expressly pleaded in the application filed under Section 7 of the IBC. Since USFB neither cited the arbitral award as the basis for default in Part IV of Form I of the Section 7 application, nor sought a formal amendment to modify the date of default, the adjudicating authority erred in relying on it to extend the limitation. The arbitral tribunal distinguished precedents such as Vidyasagar Prasad v. UCO Bank & Anr.¹⁵, and Dena Bank v. Shivakumar Reddy¹⁶ and reaffirmed the Hon'ble Supreme Court's decision in Asset Reconstruction Co. v. Bishal Jaiswal¹⁷, holding that limitation cannot be extended based on documents not specifically pleaded as acknowledgements in the Section 7 application. 

Accordingly, the admission order was set aside. However, liberty was granted to USFB to formally amend the pleadings within four weeks before the adjudicating authority, which shall consider the matter afresh on merits thereafter.

CERC affirms its jurisdiction to adjudicate on the merits of claims under the CIL Rules

The Central Electricity Regulatory Commission (“CERC”) by its order dated 20.04.2025¹⁸ held that even if a party does not invoke the adjudicatory jurisdiction of the CERC under Section 79(1)(c) read with Section 79(1)(f) of the Electricity Act, 2003 (“EA 2003”) while seeking verification of the arithmetic calculation of the impact of the Change in Law event (“CIL”) in terms of Rules 3(7) and 3(8) of the Electricity (Timely Recovery of Costs due to Change in Law) Rules, 2021 (“CIL Rules”), the CERC can still adjudicate on the merits of the claim. 

The CERC noted that under the CIL Rules, the role of the appropriate commission is restricted to verifying the calculation of impact on account of CIL. There is no provision in the CIL Rules whereby the appropriate commission can adjudicate on the claims of an affected party, particularly when the claim is disputed by a party to the agreement. However, it noted that provisions of the Transmission Service Agreement (“TSA”) would take precedence over the CIL Rules, and under the TSA, disputes regrading CIL are to be referred to the appropriate commission. It also referred to the decision of the Supreme Court in Vijaya Bank v. Shyamal Kumar Lodh¹⁹, and held that as the CERC has substantive jurisdiction to entertain the matter and grant relief, mere non invocation of its adjudicatory mechanism under Section 79(1)(c) read with Section 79(1)(f) of EA 2003 would not restrict it from looking into the merits of the claim of impact of CIL. Thus, in such a case, when there is a dispute regarding the CIL itself raised by a party to the agreement, an appropriate commission can look into the merits of the claim.

Footnotes

1. SEBI extends the automated implementation of trading window closure for immediate relative of DP.

2. RBI issues Amendments to Directions on Compounding of Contraventions under FEMA, 1999.

3. SEBI aligns Margin Collection Timelines with T+1 Settlement Cycle.

4. SEBI Issues clarifications for ESG Rating Providers.

5. MNRE issues Draft Amendment to Procedure for updating Wind Turbine Model.

6. PWD Office Order on Deletion of Arbitration Clause.

7. S.L.P.(C) Nos.15336-15337 of 2021).

8. Civil Appeal No. 2896 of 2024.

9. Petition for Special Leave to Appeal (C) No. 11442 of 2023.

10. Arbitration Petition No.39 of 2025.

11. Commercial Arbitration Petition (L) No. 20834 of 2024.

12. WPA 4585 of 2023.

13. IA Nos.535, 536, 537 & 538/2025 in Company Appeal (AT) (CH) No.43/2025.

14. Company Appeal (AT) (Insolvency) No. 490 of 2025.

15. 2024 SCC OnLine SC 2993.

16. (2021) SCC OnLine SC 543.

17. (2021) 6 SCC 366.

18. Petition No. 131/MP/2024.

19. (2010) 7 SCC 635.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.