Legal Updates (Dec 29, 2025– Jan 3, 2026)
CASE UPDATES:
Mere violation of FEMA provisions does not, by itself, lead to the conclusion that enforcement of a foreign award would be contrary to India’s public policy
The Bombay High Court in the case of Imax Corporation vs E-City Entertainment [Commercial Arbitration Appeal (CARBA) (L) No. 38267 of 2024] dated December 30, 2025, has allowed the impleading of the related companies for the purpose of executing the arbitral award against the diverted assets, and remanded the matter to the executing court to proceed with the execution of the foreign awards, which were deemed to be decrees of the Court.
The High Court ruled that a mere violation of FEMA provisions does not, by itself, lead to the conclusion that enforcement of a foreign award would be contrary to India’s public policy. It distinguished the FEMA regime from the stricter, erstwhile FERA regime, noting that FEMA does not render transactions void for lack of prior RBI approval.
The ruling came while considering the disputes that arose between the parties in 2003-2004, leading to arbitration before the International Chamber of Commerce (ICC) in London, where the ICC Arbitral Tribunal passed three foreign awards in favour of IMAX, opining that the Master Agreement was legally binding and the E-City had breached its obligations.
The Court reiterated that the expression ‘Public Policy of India’ in Section 48(2)(b) of the Arbitration and Conciliation Act, 1996, must be construed narrowly, especially in the context of enforcing a foreign award. Thus, the Court dismissed the argument regarding the non-consideration of expert testimony, treating it as an attempt to seek a merit-based review of the foreign award, which is impermissible under Section 48 of the said 1996 Act.
The Court observed that the facts presented a clear case for lifting the corporate veil. The diversion of assets from E-City to its associated companies during the pendency of arbitral proceedings was deemed an “impropriety” linked to the use of the corporate structure to avoid or conceal liability. Hence, the two essential conditions for piercing the veil were met: (i) control of the companies by the wrongdoers, and (ii) impropriety in the use of the corporate structure as a façade to conceal wrongdoing.
The Court pointed out that the diversion of assets worth Rs. 210 Crores from E-City to its associated companies (2nd and 3rd Respondents) during the pendency of arbitration was a misuse of the corporate structure as a façade to conceal liability and render the assets “execution proof” while retaining control over them through the holding company (4th Respondent).
Refunds claimed under the Vivad Se Vishwas–I Scheme, which allows MSMEs to seek return of most performance guarantees forfeited during the pandemic, cannot be enforced through insolvency proceedings under Section 60(5) of the IBC
The Chennai NCLT in the case of R Venkatakrishnan (RP) Star Trace Pvt Ltd vs Hindustan Copper Ltd [IA/IB/2365/CHE/2024] dated December 16, 2025 , has held that refunds claimed under the Vivad Se Vishwas–I Scheme, a government COVID-19 relief measure that allows MSMEs to seek return of most performance guarantees forfeited during the pandemic, cannot be enforced through insolvency proceedings under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (IBC).
The NCLT observed that the determination of eligibility under the Vivad Se Vishwas–I Scheme, verification of entitlement, and assessment of amounts payable thereunder are matters falling squarely within the administrative domain, and not within the adjudicatory competence of this Tribunal under Section 60(5) of the IBC. Thus, Section 60(5) does not allow it to decide eligibility or grant refunds under the government scheme.
The NCLT said it could not act as an implementing authority for a government scheme or decide disputed contractual and policy issues under insolvency jurisdiction. Since the relief sought in the present Application is founded not on any provision of the IBC, but entirely on an executive policy scheme of the Government of India, the NCLT observed that it cannot issue a mandamus directing a refund under such a Scheme.
The Tribunal also observed that the bank guarantees were unconditional and lawfully invoked, and that “the mere fact that encashment occurred during the COVID-19 period cannot, by itself, render the invocation unlawful or obligate restitution.”
If a secured creditor enforces its security interest under the SARFAESI Act without involving the liquidator, the amount realised does not form part of the liquidation estate
The NCLT Ahmedabad, in the case of Ramesh Kumar Totla vs State Bank of India [IA No. 1002 (AHM) 2025] dated November 21, 2025, has held that when a secured creditor enforces its security interest under the SARFAESI Act without involving the liquidator, the amount realised does not form part of the liquidation estate.
While dealing with an application filed by the liquidator against the State Bank of India in the liquidation of Raghuvanshi Cotton Ginning and Pressing Private Limited, the NCLT held that this asset was not part of the liquidation estate and therefore would not be counted for the purpose of computation of fee even as per Regulation 4(2) of the IBBI (Liquidation Process) Regulations. According to the tribunal, only those assets over which the secured creditor has relinquished its security interest form part of the liquidation estate.
The NCLT observed that where the liquidation estate itself has no value, a fee linked to estate value cannot be claimed. Further, Regulation 4(1) gives primacy to the decision of the Committee of Creditors taken under Regulation 39D. Since SBI, as the sole member of the CoC, had already fixed the liquidator’s fee at Rs 10 lakh for the first six months, that decision was binding and could not be overridden by invoking the slab-based fee mechanism.
REGULATORY UPDATES:
IBBI makes beneficial ownership disclosure mandatory for Insolvency Resolution Applicants
The Insolvency and Bankruptcy Board of India (IBBI) vide its Gazette F. No. IBBI/2025-26/GN/REG133, dated December 22, 2025, has made it mandatory for companies bidding to take over insolvent firms to clearly disclose who ultimately owns or controls them, also known as their beneficial owners. This change applies to bidders taking part in the corporate insolvency resolution process.
Under the new regulations, every resolution applicant must submit a beneficial ownership statement along with its resolution plan. This must include the names of all natural persons who ultimately own or exercise control over the applicant. It must also explain the shareholding structure and list any intermediate entities involved. It is also expected of the bidder to specify the countries or jurisdictions in which those entities are based.
The IBBI will notify the exact format for this disclosure through a separate circular. The Bidders must also file an affidavit stating whether they are eligible to claim protection under Section 32A of the Insolvency and Bankruptcy Code.
The affidavit must be filed in the format prescribed by the regulator. These requirements were introduced by adding a new provision to Regulation 38 of the Insolvency Resolution Process for Corporate Persons Regulations, 2016. Regulation 38 prescribes the contents of a resolution plan and provides how it is examined during the insolvency process.
Click here to read/ download the original Gazette Circular
SEBI mandates NISM Certification for AIF Compliance Officers
The Securities and Exchange Board of India (SEBI) vide its Circular No. HO/19/(8)2025-AFD-POD1/I/1266/2025, dated December 30, 2025, has introduced a mandatory certification requirement for Compliance Officers of Managers of Alternative Investment Funds (AIFs), aiming to strengthen regulatory compliance and ensure that compliance functions within AIFs are handled by adequately qualified professionals.
SEBI has specified that Compliance Officers of AIF Managers must obtain certification from the National Institute of Securities Markets (NISM). The prescribed qualification is the NISM Series III-C: Securities Intermediaries Compliance (Fund) Certification Examination, which focuses on regulatory frameworks, compliance obligations, and fund-related governance standards.
The requirement applies to individuals currently serving as Compliance Officers as well as those appointed in the future. AIF Managers are responsible for ensuring that their Compliance Officers acquire and maintain the prescribed certification within the stipulated timeline. SEBI has clarified that with effect from 1 January 2027, only individuals who have successfully obtained the NISM certification may be appointed as Compliance Officers of AIF Managers. This provides a transition period for existing officers to meet the certification requirement.
By mandating NISM certification for Compliance Officers of AIF Managers, SEBI seeks to enhance compliance standards and reinforce investor protection in the alternative investment space. AIF Managers should proactively plan for certification to ensure uninterrupted compliance with regulatory requirements.
Click here to read/ download the original circular
RBI SFB – KYC Amendment aligns the KYC framework with the Department of Revenue’s clarification on ultimate responsibility under the Prevention of Money-Laundering regime
The Reserve Bank of India (RBI) vide its Notification No. RBI/2025-26/164 dated December 29, 2025, has issued the Small Finance Banks – Know Your Customer (KYC) Amendment Directions, 2025, effective immediately, to clearly allocate responsibility for customer KYC records maintained in the Central KYC Records Registry (CKYCR).
The amendment aligns the KYC framework with the Department of Revenue’s clarification on ultimate responsibility under the Prevention of Money-Laundering regime. It provides that the regulated entity that last uploaded or updated a customer’s KYC information in CKYCR is responsible for verifying the customer’s identity and/or address.
Consequently, small finance banks that download and rely on such KYC records are not required to re-verify identity or address, provided the records are current and compliant with the PML Act and Rules.
However, the relying bank continues to remain responsible for all other customer due diligence obligations and compliance requirements under the KYC Directions. The amendment seeks to eliminate duplication, improve operational efficiency, and ensure clarity in accountability without diluting AML safeguards.
Click here to read/ download the original notification
SEBI revises capital adequacy and new liquid net worth requirements for Merchant Bankers
The Securities and Exchange Board of India (SEBI) vide its Circular No. HO/49/11/11(106)2025-CFD-RAC-DIL3/I/1796/2026, dated January 02, 2026, specifies the consequential requirements following the amendment of the SEBI (Merchant Bankers) Regulations, 1992, which becomes effective on January 03, 2026. The circular introduces revised capital adequacy and new liquid net worth requirements for Merchant Bankers (MBs), to be implemented in a phased manner for existing MBs by January 02, 2028.
Existing MBs are required to re-categorise as either Category I or Category II and intimate SEBI of their choice by January 02, 2027, and the failure to meet the requirements for a category will result in automatic designation to a lower category or a prohibition on undertaking new activities. The circular defines “liquid net worth” as net worth deployed in unencumbered liquid assets, subject to specified haircuts on instruments like government securities and listed equities. Furthermore, it caps the total underwriting obligations of an MB at 20 times its liquid net worth, with compliance required by January 02, 2028.
The regulations mandate new professional standards, requiring specific employees and compliance officers to obtain NISM certifications within stipulated timelines. The compliance officer must be separate and independent from the principal officer and other key employees, a requirement to be met by April 03, 2026. The principal officer must now have at least five years of experience in financial markets, with existing MBs required to comply by January 02, 2027. A significant operational change is the prohibition on outsourcing core merchant banking activities, and any existing agreements for such outsourced activities must be closed by April 03, 2026.
Merchant Bankers are now required to generate minimum revenue from permitted activities on a cumulative basis over three preceding financial years, with the first assessment commencing from April 01, 2029. The circular also specifies disclosure requirements for MBs involved only in the marketing of an issue where their personnel have a specified interest in the issuer company.
Finally, it lays down detailed conditions for MBs undertaking activities not regulated by SEBI, requiring them to be conducted on an arm’s-length basis through a separate business unit (SBU) segregated by a “Chinese Wall”. This includes maintaining separate records, grievance mechanisms, and making explicit written disclosures to all stakeholders that such activities are outside SEBI’s regulatory purview and its investor protection mechanisms are not available, with compliance for existing arrangements due by July 03, 2026.
Click here to read/ download the original circular
