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The Reserve Bank of India (RBI) possibly does not get enough credit for the kind of challenges it faces, both internal and external. The RBI is encumbered with a rather thankless task of maintaining fiscal stability while ensuring a fertile environment for growth. Yet, it has done a stellar job, particularly over the last couple of years in the wake of the global pandemic, and is likely to again be the bearer of firewood, as we brace for economic winter.

The global economy may soon be about to see a third phase of contraction since the 2009 Great Financial Crisis (GFC), something that even US Federal Reserve Chairman Jerome Powell admitted to be a possibility given the pace of rate hikes that the Fed has embarked upon. The US markets have been in a heightened state of activity, with the Fed following through, for now, with its narrative of tightening the liquidity conditions through quantitative tightening (QT, or the process of sucking excess liquidity from the system) and with a hike to the Fed funds rate.

The interconnectedness of the global economy, underpinned by the reserve currency status of the US Dollar, has forced central banks around the world to follow suit, irrespective of the state of their economies. While curtailing inflation has been a priority across the globe, many tend to forget that this inflation has been imported from the US on account of the latter’s loose monetary policies of the last decade.

Policy Moves

The last Federal Open Market Committee (or FOMC) meeting saw Powell show resolve in increasing rates to tame inflation, with an increase in the benchmark rate to a 3-3.25 percent range, the highest since 2008.

While India has not been immune in the past to the US monetary policy movements, 2022 has been a relative period of quiet. The relative resilience of the Indian Rupee and by corollary the economy has been attributed to better access, demographic dividend, start-ups, and government policies. While all these factors have contributed, the role of the RBI policy stance goes largely underappreciated.

The RBI approach to rate hikes is a great example to buttress the above point. The RBI has raised the repo rate by 140 bps, since the beginning of 2022, on a base of 4 percent. In sharp contrast to the US Fed raising its target rate by 3 percent on a base of near zero, the RBI’s repo rate hike trajectory has been a lot less steep.

Instead of trying to follow the US Fed’s cue on rate hikes, the RBI has taken a slightly different course, and paced the hikes to focus on the challenges of the Indian economy. While the Fed’s need to rein in debt is evident, the data of the last two decades points towards the futility of this exercise.For every one percent rise in the interest rates, the interest burden will shave off nearly 4 percent from the US GDP, which emboldens Powell’s assertion about a likely recession.

Also, one cannot ignore the six-to-nine-month lag in monetary policy transmission, and the cascading effect it will have on the economy. While the US is almost certain to see a contraction as large hikes ripple through the economy at a record pace, in India’s case, the impact on growth trajectory is likely to be less onerous. Furthermore, a near normal monsoon, and the upcoming festival season without the COVID-19 restrictions of the last couple of years should further bolster the sentiment.

While the Fed is trying to make the world believe that QT has set in, the sustained level of the Fed balance sheet along will increasing rates will only add to the interest burden of the US.

As the RBI’s monetary policy committee meets from September 28, the committee will be looking at inflation, considering seasonally tighter monetary conditions in September and the impact of the lag in policy transmission while hiking rates. The current rupee depreciation may be less of a concern if the imminent US Fed rate cut cycle’s impact on the calendar year-end exchange rates is considered.

Considering where the US mortgage rates are, the smart money should be lining up to enter India, which, while benefitting the Indian markets, will also possibly contribute to the imported inflation. Once again, we will expect another measured intervention from the ever-reliable RBI.

In a bid to meet the requirements of the liberalised geospatial data regime that was released last year, the central government has released a list of economic- and national security-related strategic and sensitive locations that cannot be mapped and exported, reported BusinessLine on Tuesday.

These sensitive locations include bulk oil and gas depots, and nuclear and military installations among others.

The Central Board of Indirect Taxes and Customs in a notification released on Friday said, “The export of maps and geospatial data with sensitive attributes will be restricted.”

The central department, which comes under the Finance Ministry, said, the transgression of the threshold values the Department of Science and Technology had mentioned in its guideline issued on February 15, 2021, will not be allowed for mapping and collection of location data of the identified installations and facilities, reported BusinessLine.

“For the maintenance of the security of India, it is necessary so to do, hereby prohibits the export of Maps and Geospatial data of spatial accuracy and value finer than the threshold values as specified in Annexure-I,” the department stated.

The threshold values, as per the notification, are: “On-site spatial accuracy - one meter for horizontal or planimetry and three meters for vertical or elevation,” and “gravity anomaly - one milli-gal”. It further added the threshold value in the case of “vertical accuracy of bathymetric data ( study of underwater depth) in territorial waters - ten meters for up to five hundred meters from the shore-line and one hundred meters beyond that”, reported BusinessLine.

The government tagged 52 security installations and secured facilities as 'sensitive attributes' and added that each carries 'stipulated regulations' to prohibit them from mapping and location data sampling.

The directive has listed out 51 “security installations/ features and secured facilities” that have been tagged as “sensitive attributes” with each carrying “stipulated regulations” to prohibit them from mapping and location data sampling.

The notification, for instance, added that all missile test ranges, be it for launch and firing, will 'not to be labelled in geospatial data and map.'

Other locations that are prohibited to be labelled in geospatial data and maps are: oil bulk depots/ storage tanks; LPG/ LNG storage area/tanks; operational control rooms of oil and gas terminals; seizing up of glacier lake depth; all nuclear installations in India; the nation's intelligence agencies and its governance architecture; the space centre and space port; international boundaries with neighbouring countries, reported BusinessLine.

The central intelligence agencies and governance architecture that are barred from mapping include Aviation Research Centre (ARC), Intelligence Bureau (1B), National Security Council Secretariat (NSCS), Research & Analysis Wing (R&AW), and Cabinet Secretariat.

Should promoters be banned altogether from participating in the revival of companies which went sick under their guard? Or should they face restrictions only if the sickness was due to specific wrongs they have committed? These questions have troubled insolvency regulators and lawmakers alike.

Indeed, alarmed by attempts by errant promoters to acquire back the companies they ran, and that too at deep discounts, the lawmakers made urgent amendments in 2017 itself, the second year of life of the Insolvency & Bankruptcy Code (IBC), and barred such promoters from participating in revival of such companies. The bar was widely worded and covered promoters and even other persons on multiple counts.

There have been several cases where the question was whether such disqualified persons were trying to take back their companies through various means. The Supreme Court in 2018 elaborately ruled on such issues in the case of revival of Essar Steel. It highlighted the fact that the IBC contains widely-worded restrictions barring not just errant promoters and other persons, but also persons acting in concert with them or connected with them. Even the seemingly opaque corporate veil would not stop the court — and hence the insolvency regulators — from seeing the underlying reality. The controversies never seem to stop though.

A Nuances, Commercial View

But before we examine the issues in more detail, we come back to the more fundamental question. Should promoters of such companies in insolvency be barred from participating in their revival?

The cynical arguments in favour would seem strong. Surely the promoters have taken care of themselves and siphoned funds — in India or abroad? Or they have ‘enriched’ relatives, and connected persons through loaded transactions leaving a hollow shell of the company? Even if they did not indulge in such things, the argument goes, surely the promoter is incompetent and, if given a second chance, drown the lenders and creditors once again?

The law, however, took a nuanced and commercial view. At the outset, while promoters are not given any preference, they are not discriminated wholesale either. A specific list of disqualifications have been made. Those entering into ‘preferential’ transactions whereby related parties are enriched at the cost of the company are barred. So are wilful defaulters. Also those who have been barred by SEBI from accessing the capital markets. So on.

While generally, these disqualifications are about those who have carried out illegal/harmful activities, promoters and others are not disqualified solely because they took that, or another company, into insolvency. Yet there is one more disqualification which borders on punishing business failure. If a person is connected to a business which has become a non-performing asset, and a year has passed but such default is not cured, such person is also disqualified. Even this bar can be justified on the ground that if a person is already in financial trouble, how can they expect to enter into yet another venture?

It may also be remembered that the scheme of the IBC gives primacy to the wisdom of the Committee of Creditors. Barring such disqualifications, they have wide freedom in accepting or rejecting a particular proposal on merits, and at their choice.

Tough To Establish Links

However, the question is not whether any of the statutory disqualifications are unjustified. The question is whether they are so widely worded that they could cause several problems in practice. The disqualification, for example, applies not only to the errant persons themselves, but also to ‘persons acting in concert’ with them. This term, apparently borrowed from the SEBI Takeover Regulations, has a wide connotation, and covers several persons who may not even have formal links. Even persons ‘connected’ in the specified manner are disqualified, and this word too has been given a wide meaning.

These deeming and widely worded restrictions could end up covering even independent persons and groups who by the fortuitous circumstance of being related to or otherwise have some sort of joint arrangement in a business becoming disqualified.

The other problem is the proving of such connection or acting ‘in concert’. In the Essar Steel case before the Supreme Court, there was fairly deep investigation carried out and connections even in countries such as Bermuda was unearthed. Further, the background of entities such as discretionary trusts were also unravelled. Such inquiry and investigation, however, is a costly affair, and often faces roadblocks of non-cooperating countries that swear to secrecy.

That apart, India particularly is known for informal arrangements between parties where trust, relations, and community network often substitute formal agreements. Tax evasion/avoidance has almost been like a national sport and industry, as most recently the demonetisation exercise demonstrated. Detection of such connections and ‘acting in concert’, and then proving it before an impartial adjudicator can be very difficult indeed.

More Likely Than Not

That said, multiple laws, rulings, and legal principles laid down do help. There is a rich set of judicial precedents under the SEBI Takeover Regulations, the SEBI Insider Trading Regulations, and even under competition law. Courts have, for example, laid down useful principles one of which is the benchmark of ‘preponderance of probability’. In cases of securities fraud and similar acts, a well-accepted principle is that the level of proof applicable is whether it is more likely than not that such a wrong has taken place. This is contrasted with the principle applied for criminal proceedings of proving beyond reasonable doubt. The term ‘persons acting in concert’ also specifically covers even unwritten agreements, and understandings. This too helps the adjudicating authority, and the courts to take a view from the underlying circumstances that there indeed is a connection which disqualifies the parties.

To conclude, adjudicating authorities and courts may well adopt these principles, and apply them in insolvency cases too to disqualify those who attempt to use legal and other subterfuges. At the same time, courts may also help in those cases where parties get unintentionally disqualified due to the wide wording, albeit with the difference that the onus of proof of not being connected may be shifted to such party. All in all, the law, with all its admitted overreach, and even vagueness, is still apt to India’s circumstances. Even if its application in actual cases may continue to be a challenge, the principles are available.

Should promoters be banned altogether from participating in the revival of companies which went sick under their guard? Or should they face restrictions only if the sickness was due to specific wrongs they have committed? These questions have troubled insolvency regulators and lawmakers alike.

Indeed, alarmed by attempts by errant promoters to acquire back the companies they ran, and that too at deep discounts, the lawmakers made urgent amendments in 2017 itself, the second year of life of the Insolvency & Bankruptcy Code (IBC), and barred such promoters from participating in revival of such companies. The bar was widely worded and covered promoters and even other persons on multiple counts.

There have been several cases where the question was whether such disqualified persons were trying to take back their companies through various means. The Supreme Court in 2018 elaborately ruled on such issues in the case of revival of Essar Steel. It highlighted the fact that the IBC contains widely-worded restrictions barring not just errant promoters and other persons, but also persons acting in concert with them or connected with them. Even the seemingly opaque corporate veil would not stop the court — and hence the insolvency regulators — from seeing the underlying reality. The controversies never seem to stop though.

A Nuances, Commercial View

But before we examine the issues in more detail, we come back to the more fundamental question. Should promoters of such companies in insolvency be barred from participating in their revival?

The cynical arguments in favour would seem strong. Surely the promoters have taken care of themselves and siphoned funds — in India or abroad? Or they have ‘enriched’ relatives, and connected persons through loaded transactions leaving a hollow shell of the company? Even if they did not indulge in such things, the argument goes, surely the promoter is incompetent and, if given a second chance, drown the lenders and creditors once again?

The law, however, took a nuanced and commercial view. At the outset, while promoters are not given any preference, they are not discriminated wholesale either. A specific list of disqualifications have been made. Those entering into ‘preferential’ transactions whereby related parties are enriched at the cost of the company are barred. So are wilful defaulters. Also those who have been barred by SEBI from accessing the capital markets. So on.

While generally, these disqualifications are about those who have carried out illegal/harmful activities, promoters and others are not disqualified solely because they took that, or another company, into insolvency. Yet there is one more disqualification which borders on punishing business failure. If a person is connected to a business which has become a non-performing asset, and a year has passed but such default is not cured, such person is also disqualified. Even this bar can be justified on the ground that if a person is already in financial trouble, how can they expect to enter into yet another venture?

It may also be remembered that the scheme of the IBC gives primacy to the wisdom of the Committee of Creditors. Barring such disqualifications, they have wide freedom in accepting or rejecting a particular proposal on merits, and at their choice.

Tough To Establish Links

However, the question is not whether any of the statutory disqualifications are unjustified. The question is whether they are so widely worded that they could cause several problems in practice. The disqualification, for example, applies not only to the errant persons themselves, but also to ‘persons acting in concert’ with them. This term, apparently borrowed from the SEBI Takeover Regulations, has a wide connotation, and covers several persons who may not even have formal links. Even persons ‘connected’ in the specified manner are disqualified, and this word too has been given a wide meaning.

These deeming and widely worded restrictions could end up covering even independent persons and groups who by the fortuitous circumstance of being related to or otherwise have some sort of joint arrangement in a business becoming disqualified.

The other problem is the proving of such connection or acting ‘in concert’. In the Essar Steel case before the Supreme Court, there was fairly deep investigation carried out and connections even in countries such as Bermuda was unearthed. Further, the background of entities such as discretionary trusts were also unravelled. Such inquiry and investigation, however, is a costly affair, and often faces roadblocks of non-cooperating countries that swear to secrecy.

That apart, India particularly is known for informal arrangements between parties where trust, relations, and community network often substitute formal agreements. Tax evasion/avoidance has almost been like a national sport and industry, as most recently the demonetisation exercise demonstrated. Detection of such connections and ‘acting in concert’, and then proving it before an impartial adjudicator can be very difficult indeed.

More Likely Than Not

That said, multiple laws, rulings, and legal principles laid down do help. There is a rich set of judicial precedents under the SEBI Takeover Regulations, the SEBI Insider Trading Regulations, and even under competition law. Courts have, for example, laid down useful principles one of which is the benchmark of ‘preponderance of probability’. In cases of securities fraud and similar acts, a well-accepted principle is that the level of proof applicable is whether it is more likely than not that such a wrong has taken place. This is contrasted with the principle applied for criminal proceedings of proving beyond reasonable doubt. The term ‘persons acting in concert’ also specifically covers even unwritten agreements, and understandings. This too helps the adjudicating authority, and the courts to take a view from the underlying circumstances that there indeed is a connection which disqualifies the parties.

To conclude, adjudicating authorities and courts may well adopt these principles, and apply them in insolvency cases too to disqualify those who attempt to use legal and other subterfuges. At the same time, courts may also help in those cases where parties get unintentionally disqualified due to the wide wording, albeit with the difference that the onus of proof of not being connected may be shifted to such party. All in all, the law, with all its admitted overreach, and even vagueness, is still apt to India’s circumstances. Even if its application in actual cases may continue to be a challenge, the principles are available.

Should promoters be banned altogether from participating in the revival of companies which went sick under their guard? Or should they face restrictions only if the sickness was due to specific wrongs they have committed? These questions have troubled insolvency regulators and lawmakers alike.

Indeed, alarmed by attempts by errant promoters to acquire back the companies they ran, and that too at deep discounts, the lawmakers made urgent amendments in 2017 itself, the second year of life of the Insolvency & Bankruptcy Code (IBC), and barred such promoters from participating in revival of such companies. The bar was widely worded and covered promoters and even other persons on multiple counts.

There have been several cases where the question was whether such disqualified persons were trying to take back their companies through various means. The Supreme Court in 2018 elaborately ruled on such issues in the case of revival of Essar Steel. It highlighted the fact that the IBC contains widely-worded restrictions barring not just errant promoters and other persons, but also persons acting in concert with them or connected with them. Even the seemingly opaque corporate veil would not stop the court — and hence the insolvency regulators — from seeing the underlying reality. The controversies never seem to stop though.

A Nuances, Commercial View

But before we examine the issues in more detail, we come back to the more fundamental question. Should promoters of such companies in insolvency be barred from participating in their revival?

The cynical arguments in favour would seem strong. Surely the promoters have taken care of themselves and siphoned funds — in India or abroad? Or they have ‘enriched’ relatives, and connected persons through loaded transactions leaving a hollow shell of the company? Even if they did not indulge in such things, the argument goes, surely the promoter is incompetent and, if given a second chance, drown the lenders and creditors once again?

The law, however, took a nuanced and commercial view. At the outset, while promoters are not given any preference, they are not discriminated wholesale either. A specific list of disqualifications have been made. Those entering into ‘preferential’ transactions whereby related parties are enriched at the cost of the company are barred. So are wilful defaulters. Also those who have been barred by SEBI from accessing the capital markets. So on.

While generally, these disqualifications are about those who have carried out illegal/harmful activities, promoters and others are not disqualified solely because they took that, or another company, into insolvency. Yet there is one more disqualification which borders on punishing business failure. If a person is connected to a business which has become a non-performing asset, and a year has passed but such default is not cured, such person is also disqualified. Even this bar can be justified on the ground that if a person is already in financial trouble, how can they expect to enter into yet another venture?

It may also be remembered that the scheme of the IBC gives primacy to the wisdom of the Committee of Creditors. Barring such disqualifications, they have wide freedom in accepting or rejecting a particular proposal on merits, and at their choice.

Tough To Establish Links

However, the question is not whether any of the statutory disqualifications are unjustified. The question is whether they are so widely worded that they could cause several problems in practice. The disqualification, for example, applies not only to the errant persons themselves, but also to ‘persons acting in concert’ with them. This term, apparently borrowed from the SEBI Takeover Regulations, has a wide connotation, and covers several persons who may not even have formal links. Even persons ‘connected’ in the specified manner are disqualified, and this word too has been given a wide meaning.

These deeming and widely worded restrictions could end up covering even independent persons and groups who by the fortuitous circumstance of being related to or otherwise have some sort of joint arrangement in a business becoming disqualified.

The other problem is the proving of such connection or acting ‘in concert’. In the Essar Steel case before the Supreme Court, there was fairly deep investigation carried out and connections even in countries such as Bermuda was unearthed. Further, the background of entities such as discretionary trusts were also unravelled. Such inquiry and investigation, however, is a costly affair, and often faces roadblocks of non-cooperating countries that swear to secrecy.

That apart, India particularly is known for informal arrangements between parties where trust, relations, and community network often substitute formal agreements. Tax evasion/avoidance has almost been like a national sport and industry, as most recently the demonetisation exercise demonstrated. Detection of such connections and ‘acting in concert’, and then proving it before an impartial adjudicator can be very difficult indeed.

More Likely Than Not

That said, multiple laws, rulings, and legal principles laid down do help. There is a rich set of judicial precedents under the SEBI Takeover Regulations, the SEBI Insider Trading Regulations, and even under competition law. Courts have, for example, laid down useful principles one of which is the benchmark of ‘preponderance of probability’. In cases of securities fraud and similar acts, a well-accepted principle is that the level of proof applicable is whether it is more likely than not that such a wrong has taken place. This is contrasted with the principle applied for criminal proceedings of proving beyond reasonable doubt. The term ‘persons acting in concert’ also specifically covers even unwritten agreements, and understandings. This too helps the adjudicating authority, and the courts to take a view from the underlying circumstances that there indeed is a connection which disqualifies the parties.

To conclude, adjudicating authorities and courts may well adopt these principles, and apply them in insolvency cases too to disqualify those who attempt to use legal and other subterfuges. At the same time, courts may also help in those cases where parties get unintentionally disqualified due to the wide wording, albeit with the difference that the onus of proof of not being connected may be shifted to such party. All in all, the law, with all its admitted overreach, and even vagueness, is still apt to India’s circumstances. Even if its application in actual cases may continue to be a challenge, the principles are available.