Introduction

The Insolvency and Bankruptcy Code, 2016 (IBC) represents a landmark legislation in India’s commercial law landscape, designed to consolidate and streamline the insolvency resolution process for corporate entities, individuals, and partnerships. Among its various provisions, the threshold limit provision under Section 4 IBC has emerged as one of the most debated and litigated aspects of the Code. This provision establishes the minimum quantum of defaulted debt required to trigger Corporate Insolvency Resolution Process (CIRP) against a corporate debtor, serving as a crucial gatekeeping mechanism to prevent frivolous or vexatious proceedings.

The concept of  threshold limit under IBC serves multiple purposes: protecting debtors from harassment through proceedings initiated for trivial amounts, ensuring judicial resources are utilized efficiently, and maintaining the balance between creditor rights and debtor protection. The IBC’s threshold mechanism has undergone significant evolution since its inception, particularly in response to the COVID-19 pandemic’s economic disruptions.

Historical Development and Legislative Framework

Original Threshold Limit Under Section 4 of IBC

Section 4 of the Insolvency and Bankruptcy Code, 2016, originally established the threshold limit at Rs. 1,00,000 (One Lakh Rupees). The section states: “This Part shall apply to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of default is one lakh rupees: Provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one crore rupees” [1].

This provision empowered the Central Government to modify the threshold limit through executive notification, subject to an upper ceiling of Rs. 1 crore. The relatively low initial threshold of Rs. 1 lakh was designed to ensure accessibility of the insolvency process to smaller creditors, particularly operational creditors who typically deal with smaller transaction values.

The COVID-19 Pandemic and Emergency Measures

The outbreak of COVID-19 in early 2020 necessitated extraordinary economic measures to protect businesses from insolvency proceedings during a period of unprecedented financial stress. Recognizing that the existing threshold of Rs. 1 lakh could lead to a flood of insolvency applications against businesses facing temporary liquidity constraints, the Central Government exercised its powers under the proviso to Section 4.

On March 24, 2020, the Ministry of Corporate Affairs issued Notification S.O. 1205(E), which increased the minimum threshold limit for initiating CIRP from Rs. 1,00,000 to Rs. 1,00,00,000 (One Crore Rupees) [2]. This notification was issued under the extraordinary circumstances prevailing due to the pandemic, with the objective of providing relief to corporate debtors facing financial distress due to the nationwide lockdown and economic disruption.

The notification stated: “In exercise of the powers conferred by the proviso to sub-section (1) of section 4 of the Insolvency and Bankruptcy Code, 2016, the Central Government hereby specifies the minimum amount of default as rupees one crore in place of rupees one lakh.” This represented a hundred-fold increase in the threshold limit, fundamentally altering the accessibility and scope of insolvency proceedings under the IBC.

Legal Analysis of the Threshold Enhancement

Statutory Interpretation and Scope

The dramatic increase in the threshold limit from Rs. 1 lakh to Rs. 1 crore fundamentally altered the dynamics of insolvency proceedings under the IBC. This change had several immediate implications for different classes of creditors and the overall effectiveness of the insolvency framework.

For financial creditors operating under Section 7 of the IBC, the impact was relatively limited. Financial creditors typically deal with larger loan amounts and often have the flexibility to aggregate multiple defaults or join with other financial creditors to meet the enhanced threshold. Section 7 permits financial creditors to file applications individually or collectively, providing them with strategic options to overcome the higher threshold requirement.

However, operational creditors governed by Section 9 of the IBC faced significantly greater challenges. Operational creditors, including suppliers, service providers, and contractors, typically have smaller individual exposures and cannot aggregate their claims with other operational creditors in the same manner as financial creditors. The requirement that each operational creditor individually meet the Rs. 1 crore threshold effectively excluded a vast majority of operational creditors from accessing the insolvency process.

Impact on Different Classes of Creditors

The enhanced threshold created a dichotomous effect on the creditor landscape. Large corporate creditors and major financial institutions could still effectively utilize the IBC mechanism, while smaller businesses, individual entrepreneurs, and micro, small, and medium enterprises (MSMEs) found themselves largely excluded from the process. This outcome arguably contradicted one of the IBC’s fundamental objectives of creating an inclusive and accessible insolvency resolution framework.

The differential impact on operational versus financial creditors also raised questions about the equitable treatment of different creditor classes under the Code. While the original design of the IBC sought to balance the interests of various stakeholder categories, the enhanced threshold appeared to create an inherent bias favoring financial creditors over operational creditors.

Judicial Interpretation and Prospective Application

The Landmark Arrowline Organic Products Case

The question of whether the enhanced threshold limit would apply retrospectively or prospectively became the subject of extensive litigation across various National Company Law Tribunals (NCLTs). The most significant judicial pronouncement on this issue came from the NCLT Chennai in the case of M/s Arrowline Organic Products Pvt. Ltd. v. M/s Rockwell Industries Limited [3].

In this case, the corporate debtor challenged the maintainability of insolvency proceedings initiated before March 24, 2020, arguing that the enhanced threshold should apply to all pending cases. The NCLT Chennai, however, rejected this contention and held that the notification increasing the threshold limit would apply only prospectively, not affecting cases where defaults had occurred and proceedings had been initiated before the notification date.

Constitutional and Legislative Principles

The NCLT Chennai’s decision was grounded in well-established constitutional and legislative principles governing the retrospective application of executive notifications. The tribunal relied on several Supreme Court precedents to reach its conclusion, establishing important jurisprudential principles for the application of threshold modifications under the IBC.

In the case of Bakul Cashew Co. vs. Sales Tax Officer Quilon, the Supreme Court established the fundamental principle that only the legislature possesses the inherent power to make laws with retrospective effect [4]. When legislative powers are delegated to executive authorities, such powers are limited in scope and cannot ordinarily be exercised retrospectively unless expressly authorized by the parent statute.

Applying this principle to the IBC context, the NCLT observed that the notification enhancing the threshold limit was issued by the Central Government under delegated legislative powers conferred by Section 4. Since the statute did not expressly authorize retrospective application of such notifications, the enhanced threshold could only apply prospectively to future cases.

The tribunal further strengthened its reasoning by referencing the Supreme Court’s decision in Indramaniyarelal Gupta v. W. R. Nath, which held that while the legislature has inherent powers to enact retrospective legislation, executive authorities exercising delegated powers cannot assume such retrospective authority without express statutory authorization [5].

The Kirti Kapoor Precedent

The NCLT Chennai also drew support from the Division Bench decision of the Rajasthan High Court in Kirti Kapoor v. Union of India, which dealt with similar threshold enhancement under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 [6]. Although the Rajasthan High Court did not explicitly term the notification as prospective, it applied the doctrine of conditional legislation to hold that such notifications should apply only to future applicants.

This precedent provided additional jurisprudential support for the prospective application principle, establishing a consistent judicial approach across different insolvency and debt recovery statutes in India.

Practical Implications and Implementation Challenges

Operational Creditor Disadvantage

The enhanced threshold limit under IBC created significant practical challenges for operational creditors seeking to recover debts through the IBC mechanism. Unlike financial creditors who typically maintain long-term relationships with corporate borrowers and have larger exposure limits, operational creditors often deal with smaller, transaction-specific obligations.

The requirement for individual operational creditors to meet the Rs. 1 crore threshold effectively eliminated the viability of IBC proceedings for most supplier and service provider relationships. This outcome was particularly problematic for MSMEs, which form the backbone of India’s industrial ecosystem but typically have smaller individual transaction values with their corporate customers.

Strategic Implications for Corporate Debtors

From the perspective of corporate debtors, the enhanced threshold provided significant protection against frivolous or harassment-oriented insolvency proceedings. Companies facing temporary financial distress, particularly during the pandemic period, could avoid premature insolvency proceedings initiated by smaller creditors for relatively minor defaults.

However, this protection came at the cost of potentially enabling strategic default behavior by corporate debtors who might delay payments to smaller creditors, knowing that individual creditors would be unable to initiate insolvency proceedings. This moral hazard aspect of the enhanced threshold raised concerns about the overall integrity of commercial relationships and payment disciplines in the corporate sector.

Judicial Efficiency and Resource Allocation

The enhanced threshold also had positive implications for judicial efficiency and resource allocation within the NCLT system. By filtering out smaller-value cases, the enhanced threshold helped reduce the caseload burden on NCLTs, allowing them to focus on larger, more complex insolvency matters that have greater systemic importance.

However, this efficiency gain came at the cost of access to justice for smaller creditors, raising fundamental questions about the appropriate balance between judicial efficiency and stakeholder access to legal remedies.

Contemporary Judicial Developments

NCLT Delhi’s Interpretation

Subsequent to the Chennai NCLT decision, other benches of the NCLT have generally followed the prospective application principle established in the Arrowline case. The NCLT Delhi, in the case of Udit Jain (Sole Proprietor of M/s U.J. Trading Co.) vs. Apace Builders and Contractors Pvt. Ltd, further clarified that the Rs. 1 crore threshold must be fulfilled by the applicant on the date of filing the application [7].

This interpretation added an additional layer of complexity by requiring creditors to ensure that their claim amount meets the threshold requirement at the time of filing, rather than at the time of default occurrence. This temporal distinction has important implications for cases involving interest accrual, penalty charges, and other time-dependent components of debt calculation.

High Court Interventions

The Kerala High Court’s intervention in the threshold limit controversy added another dimension to the judicial discourse. In a case involving insolvency proceedings initiated with respect to an alleged default of Rs. 31 lakhs, the Kerala High Court stayed an NCLT order that had applied the prospective application principle [8]. This intervention highlighted the ongoing judicial debate about the appropriate application of the enhanced threshold limit and suggested that the issue may require definitive resolution by higher judicial authorities.

Regulatory Framework and Current Status

Current Threshold Limit Status under IBC

As of 2025, the enhanced threshold limit of Rs. 1 crore continues to remain in effect, despite the gradual normalization of economic conditions following the pandemic. The persistence of this enhanced threshold has raised questions about whether the temporary pandemic-relief measure has effectively become a permanent feature of the IBC framework.

The continuation of the higher threshold limit suggests that the government may have determined that the enhanced threshold provides benefits beyond pandemic relief, including reduced frivolous litigation and improved judicial efficiency. However, this decision continues to be debated among insolvency practitioners and legal experts.

Regulatory Considerations for Reform

The current threshold framework under the IBC presents several regulatory considerations that may warrant future reform. The stark differential between the original Rs. 1 lakh threshold and the current Rs. 1 crore threshold suggests that an intermediate threshold level might better balance the competing interests of creditor access and debtor protection.

Some legal experts have suggested implementing a graduated threshold system that differentiates between various types of creditors or industries, similar to the approach adopted in some international insolvency jurisdictions. Such an approach could provide tailored threshold limits that reflect the specific characteristics and needs of different sectors of the economy.

Comparative Analysis with International Practices

International Threshold Practices

International insolvency regimes typically employ varying approaches to threshold limits, reflecting different policy priorities and economic contexts. The United States Bankruptcy Code, for instance, does not impose specific monetary thresholds for initiating bankruptcy proceedings but instead relies on other eligibility criteria and procedural safeguards to prevent abuse.

In contrast, the United Kingdom’s insolvency framework employs multiple threshold levels depending on the type of procedure being initiated. For company voluntary arrangements, the threshold is relatively low, while compulsory liquidation requires higher statutory demand amounts. This graduated approach provides flexibility while maintaining appropriate protective mechanisms.

Lessons for Indian Reform

The international experience suggests that threshold limit design should consider sector-specific characteristics, creditor types, and overall economic conditions. A one-size-fits-all approach, as currently employed under the IBC, may not adequately address the diverse needs of India’s complex economic landscape.

Future reforms to the IBC threshold framework could benefit from incorporating flexible mechanisms that allow for periodic adjustment based on economic conditions, inflation indices, or sector-specific considerations. Such adaptive mechanisms could provide the regulatory agility needed to respond to changing economic circumstances without requiring frequent legislative or executive interventions.

Economic Impact and Policy Considerations

Impact on Credit Markets and Commercial Relationships

The enhanced threshold limit under IBC has had significant implications for credit markets and commercial relationships in India. Suppliers and service providers have been compelled to reassess their credit policies and payment terms when dealing with corporate customers, knowing that the IBC remedy may not be available for smaller defaults.

This change has likely contributed to more cautious credit extension practices among operational creditors, potentially affecting the overall liquidity and efficiency of commercial markets. Some businesses have reportedly shifted toward advance payment requirements or shorter credit terms to mitigate the risk of irrecoverable smaller debts.

MSME Sector Implications

The enhanced threshold has disproportionately affected the MSME sector, which typically operates with smaller transaction values and limited financial resources. MSMEs serving larger corporate clients have found themselves in a particularly vulnerable position, lacking effective legal remedies for debt recovery through the IBC process.

This vulnerability has broader economic implications, as MSMEs constitute a significant portion of India’s industrial base and employment generation. The inability of MSMEs to effectively utilize insolvency proceedings for debt recovery may have contributed to increased payment delays and working capital constraints in this crucial sector.

Future Outlook and Recommendations

Need for Balanced Reform

The experience with the enhanced threshold limit under the IBC highlights the need for a more nuanced and balanced approach to threshold design. Future reforms should consider implementing a graduated threshold system that recognizes the different characteristics and needs of various creditor categories.

A potential reform approach could involve establishing different threshold limits for financial creditors, operational creditors, and different industry sectors. Such differentiation could preserve the accessibility of insolvency proceedings for smaller operational creditors while maintaining appropriate safeguards against frivolous litigation.

Technological Solutions and Alternative Mechanisms

The digital transformation of India’s legal and financial systems presents opportunities for developing alternative mechanisms for smaller debt recovery cases. Online dispute resolution platforms, automated recovery systems, and digital payment enforcement mechanisms could provide efficient alternatives to formal insolvency proceedings for smaller defaults.

Integrating such technological solutions with the IBC framework could help address the access to justice concerns raised by the enhanced threshold while maintaining the efficiency benefits of filtering smaller cases out of the formal insolvency process.

Conclusion

The threshold limit provision under the Insolvency and Bankruptcy Code represents a critical balance point between creditor access and debtor protection in India’s insolvency framework. The dramatic increase from Rs. 1 lakh to Rs. 1 crore in response to the COVID-19 pandemic has fundamentally altered the landscape of insolvency proceedings, creating both intended benefits and unintended consequences.

The judicial interpretation establishing the prospective application of the enhanced threshold has provided important jurisprudential clarity while highlighting the constitutional principles governing executive power and retrospective legislation. However, the continued application of the enhanced threshold long after the pandemic emergency raises important questions about the appropriate permanent level for the IBC threshold.

The experience with threshold modification under the IBC offers valuable lessons for future policy development in insolvency law. The need for flexible, adaptive mechanisms that can respond to changing economic conditions while maintaining appropriate stakeholder protections is evident from the challenges experienced during this transition.

As India’s economy continues to evolve and mature, the IBC framework must similarly adapt to ensure that it continues to serve its fundamental objectives of facilitating efficient insolvency resolution while protecting the legitimate interests of all stakeholders. The threshold limit provision, as a key gatekeeping mechanism, will undoubtedly continue to play a crucial role in shaping the effectiveness and accessibility of India’s insolvency regime.

Future reforms should focus on creating a more nuanced and balanced threshold framework that recognizes the diverse needs of India’s complex economic ecosystem while maintaining the efficiency and integrity of the insolvency process. Only through such thoughtful evolution can the IBC continue to serve as an effective tool for economic development and commercial confidence in India’s dynamic business environment.

References

[1] The Insolvency and Bankruptcy Code, 2016, Section 4.

[2] Ministry of Corporate Affairs, Notification S.O. 1205(E) dated March 24, 2020. 

[3] M/s Arrowline Organic Products Pvt. Ltd. v. M/s Rockwell Industries Limited, NCLT Chennai. Available at: https://ibclaw.in/m-s-arrowline-organic-products-pvt-ltd-vs-m-s-rockwell-industries-ltd-nclt/ 

[4] Bakul Cashew Co. vs. Sales Tax Officer Quilon, Supreme Court of India. 

[5] Indramaniyarelal Gupta v. W. R. Nath, Supreme Court of India. 

[6] Kirti Kapoor v. Union of India, Rajasthan High Court.

[7] Udit Jain vs. Apace Builders and Contractors Pvt. Ltd, NCLT Delhi. Available at: https://taxguru.in/corporate-law/ibc-minimum-threshold-rs-1-crore-date-filing-petition.html 

[8] Kerala High Court intervention in threshold limit case. Available at: https://www.livelaw.in/news-updates/ibc-threshold-march-24-notification-one-crore-kerala-high-court-stays-nclt-167125 

[9] Analysis of threshold limit developments. Available at: https://ibclaw.in/important-judgments-on-threshold-limit-increased-from-1-lakh-to-1-crore-for-filing-cirp-application-under-section-7-or-9-of-insolvency-and-bankruptcy-code-2016-ibc/ 

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Introduction

Judiciary in India is the system of courts which interpret and apply the law and settle various legal debates that citizens linger upon from time to time. The Indian Judiciary System administers a common law system which encompasses into the law of the land customs, securities and legislations. The Supreme Court is the apex court, and the last appellate in India while the High Courts are the top judicial bodies in the states controlled and managed by the Chief Justices of the state. Tribunals on the other hand are set up for meting out various administrative and tax related disputes.

Appeal

• High Courts: 

1. The decree or judgment passed by the court can be challenged on the basis of the facts of the case and the legal interpretation of the legal provisions.
2. In the cases where the party to the dispute raises any objection with respect to the territorial and pecuniary of the court passing the judgment and the decree.
3. On the basis of the failure of justice relating to the incompetence of the court.
4. In the cases where the parties to the dispute have not joined in the original suit, in such matters appeal lies against the judgment/ decree of such court.
5. Where there is a challenge to the interpretation of law which are applied by the subordinate court
6. On the grounds of any defect or error or irregularity in the legal proceedings of the case
7. In the cases where the substantial question of law exists and it is affecting the rights of the parties.

• Supreme Court:

The appellate jurisdiction of the Supreme Court can be invoked by a certificate granted by the High Court concerned under Article 132(1), 133(1) or 134 of the Constitution in respect of any judgement, decree or final order of a High Court in both civil and criminal cases, involving substantial questions of law as to the interpretation of the Constitution. Appeals also lie to the Supreme Court in civil matters if the High Court concerned certifies : (a) that the case involves a substantial question of law of general importance, and (b) that, in the opinion of the High Court, the said question needs to be decided by the Supreme Court. In criminal cases, an appeal lies to the Supreme Court if the High Court (a) has on appeal reversed an order of acquittal of an accused person and sentenced him to death or to imprisonment for life or for a period of not less than 10 years, or (b) has withdrawn for trial before itself any case from any Court subordinate to its authority and has in such trial convicted the accused and sentenced him to death or to imprisonment for life or for a period of not less than 10 years, or (c) certified that the case is a fit one for appeal to the Supreme Court. Parliament is authorised to confer on the Supreme Court any further powers to entertain and hear appeals from any judgement, final order or sentence in a criminal proceeding of a High Court.

The Supreme Court has also a very wide appellate jurisdiction over all Courts and Tribunals in India in as much as it may, in its discretion, grant special leave to appeal under Article 136 of the Constitution from any judgment, decree, determination, sentence or order in any cause or matter passed or made by any Court or Tribunal in the territory of India.

• Tribunals:

The Central Government shall constitute an Appellate Tribunal to be called the Customs, Excise and Service Tax Appellate Tribunal consisting of as many judicial and technical members as it thinks fit to exercise the powers and discharge the functions conferred on the Appellate Tribunal by this Act. A judicial member shall be a person who has for at least ten years held a judicial office in the territory of India or who has been a member of the Indian Legal Service and has held a post in Grade I of that service or any equivalent or higher post for at least three years, or who has been an advocate for at least ten years.

Powers

• High Courts:

1. It has the power to control over all the courts and tribunals within its jurisdiction except in the matters of Armed Forces under Article 227.
2. It has the power to withdraw a case pending before any subordinate court if it involves the substantial question of law.
3. It is a Court of Record like the Supreme Court which involves recording of judgements, proceedings etc (Article 215).
4. Under the Article 13 & 226 High Court has the power of judicial review. They have the authority to declare any law or ordinance as unconstitutional if it seems to be against the Constitution of India.
5. It can appoint the administration staff according to the need and can decide their salaries, allowance etc.
6. It issues the rules and regulations for the working of subordinate courts.

• Supreme Court:

1. Power to punish for contempt (civil or criminal) of court with simple imprisonment for 6 months or fine up to Rs. 2000. Civil contempt means wilful disobedience to any judgment. Criminal contempt means doing any act which lowers the authority of the court or causing interference in judicial proceedings.
2. Judicial review to examine the constitutionality of legislative enactments and executive orders. The grounds of review are limited by Parliamentary legislation or rules made by the Supreme Court.
3. Deciding authority regarding the election of President and Vice President.
4. Enquiring authority in the conduct and behaviour of UPSC members.
5. Withdraw cases pending before High Courts and dispose of them themselves.
6. Appointment of ad hoc judges- Article 127 states that if at any time there is a lack of quorum of Judges of Supreme Court, the CJI may with the previous consent of the President and Chief Justice of High Court, concerning request in writing the attendance of Judge of High Court duly qualified to be appointed as Judge of the Supreme Court.
7. Appointment of retired judges of the Supreme Court or High Court – Article 128 states that the CJI at any time with the previous consent of the President and the person to be so appointed can appoint any person who had previously held the office of a Judge of SC.
8. Appointment of acting Chief Justice- Article 126 states that when the office of CJI is vacant or when the Chief Justice is by reason of absence or otherwise unable to perform duties of the office, the President in such a case can appoint a Judge of the court to discharge the duties of the office.
9. Revisory Jurisdiction- The Supreme Court under Article 137 is empowered to review any judgment or order made by it with a view to removing any mistake or error that might have crept in the judgement or order.
10. Supreme Court as a Court of Record- The Supreme Court is a court of record as its decisions are of evidentiary value and cannot be questioned in any court.

• Tribunals:

1. A Tribunal shall not be bound by the procedure laid down in the Code of Civil Procedure, 1908 (5 of 1908), but shall be guided by the principles of natural justice and subject to the other provisions of this Act and of any rules made by the Central Government, the Tribunal shall have power to regulate its own procedure including the fixing of places and times of its inquiry and decided whether to sit in public or in private.
2. A tribunal shall decide every application made to it as expeditiously as possible and ordinarily every application shall be decided on a perusal of documents and written representations and after hearing such oral arguments as may be advanced.
3. A Tribunal shall have, for the purposes of discharging its functions under this Act, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit, in respect of the following matters, namely :

(a) Summoning and enforcing the attendance of any person and examining him on oath;

(b) requiring the discovery and production of documents;

(c) receiving evidence on affidavits;

(d) subject to the provisions of section 123 and 124 of the Indian Evidence Act, 1872 (1 of 1872), requisitioning any public record or document or copy of such record or document from any office;

(e) issuing commissions for the examination of witnesses or, documents;

(f) reviewing its decisions;

(g) dismissing a representation for default or deciding it ex parte;

(h) setting aside any order of dismissal of any representation for default or any order passed by it ex parte; and

(i) any other matter which may be prescribed by the Central Government.

Limitations

• High Courts:

The limitation for filing an appeal from a sentence of death passed by court of sessions or the High Court in its original jurisdiction is 30 days and from any other sentence or order to the High Court is 60 days and to any other court is 30 days.

The period of limitation against an order of acquittal is 90 days but where appeal against such order has to be made after seeking special leave of the court, the period of limitation is 30 days.

• Supreme Court:

1. If an appeal under Section 37 is preferred against an arbitral award in arbitration less than the Specified Value, the same would be governed by Article 116 / Article 117 of the Limitation Act. Under these provisions, the limitation period is computed in the manner recorded in Table I above.
2. If an appeal under Section 37 is preferred against an arbitral award in arbitration of a dispute of the Specified Value, the appeal will be governed by Section 13(1A) of the Commercial Courts Act, 2010(hereinafter referred as “CC”) . The limitation period provided under the CC Act being a special law would apply as compared with the Limitation Act which is a general law, as per section 29(2) of the Limitation Act. Section 13(1A) of the CC Act lays down a period of limitation of 60 days for all appeals; this would therefore be the limitation period for filing an appeal under Section 37 of the A&C Act. The Supreme Court considered the judgment in Kandla Export Corpn. v. OCI Corporation, to deal with the interplay between Section 13 of the CC Act and Section 37 of the A&C Act.

• Tribunals

1. Against the Rule of Law: It can be observed that the establishment of the administrative tribunals has repudiated the concept of rule of law. Rule of law was propounded to promote equality before the law and supremacy of ordinary law over the arbitrary functioning of the government. The administrative tribunals somewhere restrict the ambit of the rule of law by providing separate laws and procedures for certain matters.
2. Lack of specified procedure: The administrative adjudicatory bodies do not have any rigid set of rules and procedures. Thus, there is a chance of violation of the principle of natural justice.
3. No prediction of future decisions: Since the administrative tribunals do not follow precedents, it is not possible to predict future decisions.
4. Scope of Arbitrariness: The civil and criminal courts work on a uniform code of procedure as prescribed under C.P.C and Crpc respectively. But the administrative tribunals have no such stringent procedure. They are allowed to make their own procedure which may lead to arbitrariness in the functioning of these tribunals.
5. Absence of legal expertise: It is not necessary that the members of the administrative tribunals must belong to a legal background. They may be the experts of different fields but not essentially trained in judicial work. Therefore, they may lack the required legal expertise which is an indispensable part of resolving disputes.

       Submitted by

        Roshi Surele

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Introduction

The customs administration in India operates under a robust legal framework that empowers officers with extensive enforcement capabilities to ensure compliance with customs laws and prevent violations. The primary source of these powers emanates from the Customs Act, 1962, which serves as the cornerstone legislation governing customs operations in India. This comprehensive statute, along with allied legislation, creates a sophisticated enforcement mechanism designed to protect national economic interests, prevent smuggling, and ensure proper collection of customs duties. The enforcement powers of customs officers represent a critical component of India’s trade regulation system. These powers have evolved significantly since the enactment of the Customs Act in 1962, adapting to changing trade patterns, technological advancements, and emerging challenges in international commerce. The officers derive their authority not only from the primary customs legislation but also from various allied statutes that address specific aspects of trade regulation and national security. Understanding the scope and limitations of these enforcement powers is essential for legal practitioners, trade professionals, and customs officers themselves. The powers are designed to strike a balance between effective enforcement and protection of individual rights, operating within the broader framework of constitutional principles and procedural safeguards.

Legal Framework Governing Customs Officers

Primary Legislation

The Customs Act, 1962, stands as the principal statute governing customs operations in India. This Act was enacted to consolidate and amend the law relating to customs duties and to provide for matters connected therewith or incidental thereto. The Act comprises 162 sections divided into various chapters, each addressing specific aspects of customs administration and enforcement.

Section 3 of the Act provides for different classes of customs officers, establishing a hierarchical structure within the customs department. The classification system ensures proper delegation of powers and maintains administrative efficiency. The Act recognizes various categories of officers, including Chief Commissioner of Customs, Commissioner of Customs, Additional Commissioner, Joint Commissioner, Deputy Commissioner, Assistant Commissioner, and other subordinate officers as may be appointed by the Central Board of Indirect Taxes and Customs.

Section 4 empowers the Board to appoint such persons as it deems fit to be officers of customs. This provision grants the administrative authority necessary flexibility in human resource management while ensuring that only qualified individuals are entrusted with enforcement responsibilities. The appointment process typically involves competitive examinations and training programs to ensure officers possess the requisite knowledge and skills.

Section 5 of the Act delineates the general powers of customs officers, subject to conditions and limitations imposed by the Board. This section establishes the fundamental principle that customs officers can exercise only those powers that are specifically conferred upon them by law, ensuring that their actions remain within legal boundaries.

Allied Legislation

Customs officers derive additional powers from various allied statutes that complement the primary customs legislation. The Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPS Act), empowers customs officers to take action against drug trafficking and related offenses. This integration of enforcement powers across different statutes reflects the interconnected nature of various forms of illegal trade and the need for coordinated enforcement efforts.

The Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act, 1988 (PITNDPS Act), further extends the enforcement capabilities of customs officers in combating drug trafficking. This Act provides for preventive detention of persons involved in illicit trafficking, and customs officers play a crucial role in its implementation.

The Chemical Weapons Convention Act, 2000, represents another important piece of allied legislation that grants specific powers to customs officers. This Act implements India’s obligations under the Chemical Weapons Convention and empowers customs officers to prevent the import, export, and transit of prohibited chemicals and related materials.

Specific Enforcement Powers of Customs Officers Under the Customs Act

Power of Search and Examination

The power of search constitutes one of the most significant enforcement tools available to customs officers. Section 100 of the Customs Act empowers any officer of customs to search any person who has landed from, or is about to depart by, a vessel or aircraft, if such officer has reason to believe that such person has secreted about his person any goods liable to confiscation under the Act.

This power extends beyond personal searches to include the examination of goods, baggage, and conveyances. The Act provides detailed procedures for conducting searches, ensuring that they are carried out in a manner that respects individual dignity while serving the enforcement objectives. The search power is not unlimited but is circumscribed by reasonable grounds for suspicion and must be exercised in accordance with established procedures.

Section 102 specifically deals with the power to search suspected persons. When any officer of customs has reason to believe that any person has secreted goods liable to confiscation, he may search such person. However, this power comes with important safeguards, including the requirement that searches of women be conducted only by women officers and that searches be conducted with due regard to the dignity of the person being searched.

The power to examine goods is provided under Section 99 of the Act. This section enables customs officers to examine any goods to satisfy themselves that the goods are not liable to confiscation and that the proper duty has been paid. The examination power is essential for ensuring compliance with customs laws and preventing the entry or exit of prohibited or restricted goods.

Power of X-ray Examination

Modern customs enforcement has embraced technological solutions to enhance the effectiveness of search procedures. The power to conduct X-ray examinations of persons represents a significant advancement in non-intrusive search methods. Section 103 of the Customs Act provides for X-ray examination of persons when there are reasonable grounds to believe that they have secreted goods within their body.

This power must be exercised with extreme caution and is subject to strict procedural safeguards. The X-ray examination can only be conducted with the consent of the person or on the order of a Magistrate. The procedure must be conducted by qualified medical personnel in proper medical facilities, ensuring the safety and dignity of the individual.

The introduction of this power reflects the evolving nature of smuggling methods and the need for customs enforcement to adapt to new challenges. However, the potential for abuse of this power has led to the establishment of comprehensive guidelines governing its exercise, including mandatory medical supervision and documentation requirements.

Power of Summons

Section 108 of the Customs Act grants customs officers the power to summon any person to give evidence or produce documents. This provision states that any officer of customs empowered in this behalf by general or special order of the Commissioner of Customs may summon any person whose attendance he considers necessary either to give evidence or to produce a document or any other thing in any inquiry which such officer is making in respect of any matter relevant to any proceeding under this Act.

The power of summons is crucial for evidence gathering and fact-finding in customs proceedings. Every person so summoned is bound to attend either in person or through an authorized agent and is required to state the truth upon any subject respecting which he is examined. The person is also obligated to produce such documents and other things as may be required.

This power operates similarly to the summons power available to courts but is specifically tailored to customs enforcement needs. The summoned person has the same privileges and obligations as a witness appearing before a court, including protection against self-incrimination in certain circumstances.

The scope of the summons power extends to both documentary evidence and oral testimony. Officers can require the production of books, papers, documents, and other records that may be relevant to customs proceedings. This comprehensive evidence-gathering power is essential for building strong cases against customs violations.

Customs Officers’ Power of Arrest

The power of arrest represents one of the most serious enforcement tools available to customs officers. Section 104 of the Customs Act empowers any officer of customs to arrest any person if such officer has reason to believe that such person has been guilty of an offense punishable under Section 135 of the Act.

The offenses covered under Section 135 include various forms of customs violations, such as evasion of duty, smuggling, and attempts to export or import prohibited goods. The arrest power is not automatic but requires reasonable grounds for belief that an offense has been committed.

Once a person is arrested under this provision, he must be produced before a Magistrate within twenty-four hours of arrest, excluding the time necessary for the journey to the Magistrate’s court. This safeguard ensures that the arrest power is not misused and that arrested persons receive prompt judicial oversight.

The arrested person may be released on bail by the customs officer if the offense is bailable, or by the Magistrate in appropriate cases. The Act also provides for the grant of bail in non-bailable offenses, subject to certain conditions and the discretion of the judicial authority.

Power to Obtain Search Warrants

While customs officers possess significant search powers that can be exercised without warrants in many circumstances, the Act also provides for obtaining search warrants from judicial authorities. Section 105 empowers customs officers to obtain search warrants from Magistrates when there are reasonable grounds for suspecting that any goods liable to confiscation are secreted in any place.

The search warrant procedure provides an additional layer of judicial oversight and is particularly useful in cases involving searches of private premises where the immediate search powers of customs officers may not be sufficient. The warrant must specify the place to be searched and the nature of goods suspected to be concealed.

The warrant-based search power complements the other search powers available to customs officers and ensures that enforcement actions are conducted within appropriate legal boundaries. The requirement of judicial authorization for certain types of searches reflects the balance between enforcement needs and individual rights.

Evidentiary Value of Statements Recorded by Customs Officers

Legal Status of Customs Statements

The statements recorded by customs officers during the course of their investigations possess significant evidentiary value in subsequent proceedings. Unlike statements recorded under Section 161 of the Criminal Procedure Code, which are generally not admissible as substantive evidence, statements recorded under Section 108 of the Customs Act can be used as material evidence in customs proceedings.

This distinction is crucial for understanding the enforcement effectiveness of customs officers. The ability to use recorded statements as substantive evidence enhances the investigative capabilities of customs authorities and strengthens their ability to establish violations and secure appropriate penalties.

The evidentiary value of these statements stems from the specific statutory framework governing customs proceedings, which differs from general criminal procedure. The Customs Act creates a specialized enforcement regime that recognizes the unique nature of customs violations and the need for effective evidence-gathering mechanisms.

Judicial Interpretation and Precedents

The Supreme Court of India has provided important guidance on the evidentiary value of statements recorded by customs officers. In the landmark case of Naresh J. Sukhawani v. Union of India, the Supreme Court clarified that statements made before customs officials are not statements recorded under Section 161 of the Criminal Procedure Code, 1973, but constitute material pieces of evidence collected by customs officials under Section 108 of the Customs Act.

The Court held that such material can incriminate a person and establish complicity in contraventions of customs laws. The statement can be used as substantive evidence connecting the person with customs violations, provided it meets the requirements of reliability and relevance. This judicial pronouncement significantly strengthened the enforcement capabilities of customs officers by confirming the admissibility of recorded statements.

The Court emphasized that the statement must clearly inculpate the person in the contravention of customs provisions to be used as substantive evidence. The quality and content of the statement, rather than merely its existence, determine its evidentiary value in proceedings.

In Commissioner of Customs v. Ghanshyam Gupta, the Patna High Court Division Bench reaffirmed the legal position that statements recorded under the scheme of the Customs Act are admissible evidence in terms of Section 108. This consistent judicial interpretation has provided clarity and certainty to customs enforcement practices.

Standard of Proof in Customs Proceedings

The Supreme Court has also addressed the standard of proof required in customs proceedings, recognizing that it differs from the standard applied in criminal cases. In Collector of Customs v. D. Bhoormull, the Supreme Court held that the customs department is not required to prove its case with mathematical precision.

The Court established that all that is required is that the occurrence and complicity of an individual should be established to such a degree of probability that a prudent person may, on its basis, believe in the existence of the fact at issue. This standard recognizes the practical challenges faced by customs authorities in establishing violations while ensuring that enforcement actions are based on credible evidence.

This pragmatic approach to the standard of proof reflects the understanding that customs violations often involve complex schemes and may not leave direct evidence. The preponderance of probabilities standard allows customs authorities to take effective action while maintaining appropriate safeguards against arbitrary enforcement.

Procedural Safeguards and Limitations

Constitutional Constraints

While the enforcement powers of customs officers are extensive and critical to regulating cross-border trade, these powers are subject to important constitutional limitations. The fundamental rights guaranteed under the Constitution of India, particularly those relating to personal liberty, equality before law, and protection against arbitrary state action, apply to customs enforcement activities.

Article 21 of the Constitution, which guarantees the right to life and personal liberty, has been interpreted by the Supreme Court to include protection against arbitrary detention and the right to due process. These constitutional principles impose important constraints on the exercise of customs enforcement powers and require that all enforcement actions comply with established procedures.

The right to legal representation, the right against self-incrimination, and the right to be informed of the grounds of arrest are among the constitutional safeguards that apply to customs proceedings. These rights ensure that enforcement actions are conducted in a manner consistent with constitutional principles and democratic values.

Procedural Requirements

The Customs Act itself contains numerous procedural safeguards designed to prevent abuse of enforcement powers. These include requirements for proper documentation of enforcement actions, time limits for various procedures, and mandatory reporting obligations.

For instance, when conducting searches, customs officers must follow prescribed procedures, maintain proper records, and provide appropriate receipts for seized goods. The Act also provides for supervisory mechanisms to ensure that enforcement powers of customs officers are exercised appropriately and within legal boundaries.

The requirement for judicial oversight in certain enforcement actions, such as the production of arrested persons before magistrates and the obtaining of search warrants, provides additional safeguards against potential abuse of power.

Rights of Affected Persons

Persons subject to customs enforcement actions retain important rights throughout the process. These include the right to legal representation, the right to be informed of the charges, and the right to present their case before appropriate authorities.

The Act provides for appeal mechanisms that allow affected persons to challenge enforcement actions and seek redress for any violations of their rights. These appellate procedures ensure that enforcement actions are subject to independent review and that errors can be corrected.

Allied Laws and Cross-Empowerment

Integration with Other Enforcement Agencies

The customs enforcement framework operates in coordination with various other law enforcement agencies. The integration of enforcement powers across different statutes enables comprehensive action against complex violations that may involve multiple legal frameworks.

For example, cases involving drug trafficking may simultaneously involve violations of customs laws, the NDPS Act, and other relevant statutes. The cross-empowerment of officers from different agencies facilitates coordinated enforcement action and ensures that violators cannot escape liability by exploiting jurisdictional gaps.

Specialized Enforcement Areas

Certain areas of customs enforcement require specialized knowledge and coordination with technical agencies. The enforcement of chemical weapons prohibitions, for instance, requires coordination with scientific institutions and international organizations to ensure effective implementation of treaty obligations.

Similarly, enforcement actions related to endangered species protection involve coordination with wildlife authorities and environmental agencies. This multi-agency approach reflects the complex nature of modern trade regulation and the need for comprehensive enforcement strategies.

Modern Challenges, Technology, and International Cooperation in Customs Enforcement

Digital Evidence and Cyber Customs

The digitization of trade processes and the increasing use of electronic documentation have created new challenges and opportunities for customs enforcement. Officers must now be equipped to handle digital evidence, electronic records, and cyber-related violations.

The integration of technology in customs procedures has also enhanced enforcement capabilities through automated risk assessment systems, electronic surveillance, and data analytics. These technological tools enable more targeted and effective enforcement while reducing the burden on legitimate trade.

International Cooperation

Modern customs enforcement increasingly requires international cooperation and coordination. The global nature of trade and the sophisticated methods employed by violators necessitate cross-border collaboration between customs authorities.

India participates in various international customs cooperation mechanisms, including information sharing arrangements, joint operations, and mutual assistance agreements. These international frameworks enhance the effectiveness of domestic enforcement efforts and help address transnational customs violations.

Training and Capacity Building

Professional Development Requirements

The effective exercise of enforcement powers requires comprehensive training and ongoing professional development for customs officers. The complexity of modern trade, evolving legal frameworks, and technological advancements necessitate continuous learning and skill upgradation.

Training programs cover legal knowledge, investigation techniques, technology usage, and ethical considerations. Officers must be equipped not only with technical knowledge but also with the understanding of procedural safeguards and human rights principles.

Quality Assurance Mechanisms

The customs administration has established quality assurance mechanisms to ensure that enforcement powers are exercised competently and ethically. These include supervision systems, performance monitoring, and accountability mechanisms.

Regular audits and reviews of enforcement actions help identify areas for improvement and ensure compliance with established standards and procedures. These quality assurance measures are essential for maintaining public confidence in customs enforcement and ensuring effective protection of trade interests.

Conclusion

The enforcement powers of customs officers under Indian law represent a comprehensive framework designed to protect national economic interests while respecting individual rights and constitutional principles. The powers derived from the Customs Act, 1962, and allied legislation provide officers with the necessary tools to combat customs violations effectively.

The judicial interpretation of these powers, particularly regarding the evidentiary value of statements recorded by customs officers and the standard of proof required in customs proceedings, has strengthened the enforcement framework while maintaining appropriate safeguards. The cases of Naresh J. Sukhawani v. Union of India and Collector of Customs v. D. Bhoormull have provided important guidance that continues to shape customs enforcement practices.

However, the exercise of these powers must always be balanced against constitutional requirements and procedural safeguards. The rights of individuals subject to customs enforcement actions must be respected, and officers must operate within the boundaries established by law and constitutional principles.

The evolution of customs enforcement continues as new challenges emerge in international trade and technology. The framework must adapt to address these challenges while maintaining its core principles of effectiveness, fairness, and respect for individual rights. Ongoing training, capacity building, and international cooperation remain essential elements in ensuring that customs enforcement powers serve their intended purpose of protecting national interests while facilitating legitimate trade.

The comprehensive nature of customs enforcement powers reflects the important role that customs administration plays in national security, economic protection, and trade facilitation. As global trade continues to evolve, the enforcement framework must continue to adapt while maintaining its commitment to the rule of law and constitutional governance.

References

1. The Customs Act, 1962 (Act No. 52 of 1962)
2. Naresh J. Sukhawani v. Union of India, AIR 1996 SC 522
3. Collector of Customs v. D. Bhoormull, Supreme Court of India
4. Commissioner of Customs v. Ghanshyam Gupta, Patna High Court
5. The Narcotic Drugs and Psychotropic Substances Act, 1985
6. The Prevention of Illicit Traffic in Narcotic Drugs and Psychotropic Substances Act, 1988
7. The Chemical Weapons Convention Act, 2000
8. Central Board of Indirect Taxes and Customs Guidelines and Circulars
9. Constitution of India, Articles 14, 19, 21
10. The Criminal Procedure Code, 1973

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Authorized by Vishal Davda 

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Introduction

The significance of committee of creditors (hereinafter referred to as ‘CoC’) can be seen throughout the different stages of the Corporate Insolvency Resolution Process (‘CIRP’), in Part II (corporate persons) and Part III (individuals and partnership firms) of the IBC. However, Part II of the IBC does not explicitly define CoC for corporate persons, though CoC is a defined term for individuals and partnership firms in Part III of the IBC.

As per, Sections 18(c) read with 21, once all claims against the corporate debtor are collated the Interim Resolution Professional is duty bound to constitute a CoC. Generally, all the financial creditors make up the CoC and each financial creditor wields voting rights in proportion to the financial debt owed to them. In the situation where a corporate debtor does not have any financial creditors, the proviso to Section 21(8) contemplates and envisages that a CoC will be constituted in terms of Regulation 16 of The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (‘2016 Regulations’).

The committee of creditors has been enabled and empowered as board of directors under the Insolvency and Bankruptcy Code ( hereinafter referred to as ‘Code’ ), to take the decisions in respect of the Corporate Debtor, during the process of the corporate insolvency resolution process. In pursuance of this enabling system, the adjudicating authority while initiating the process of CIRP for a company, appoints a resolution professional, who executes and co-ordinates all the decision making during the CIRP and thereby conducts the CIRP of the company. As per Section 28 of the code, it is mandatory for Resolution  professionals to take prior approval of the CoC.

Brief history

The primary objective of the codification of Insolvency and Bankruptcy was based on time-bound resolution of debt, maximization of asset-value and revival of the corporate debtor. In the furtherance of the aforementioned objective, the Banking Law Reforms Committee has accentuated upon the “rights of creditors” under the Code. In 2015 report BLRC emphasized on the following-

“… When default takes place, control is supposed to transfer to the creditors; equity owners have no say.”

Not only, BLRC acknowledge the weakness of creditors under the prevalent bankruptcy regime but also, they contended to vest power in the hands of the creditor at the time of financial distress. The same was upheld by the Supreme Court of India in the case of Innoventive Ind. v. ICICI Bank. Thus, further empowering the creditors of the corporate debtor; in order to promote effective resolution of debts and to ensure the revival of the company.

Recent Changes and pertinent Judgements

In the case of Innoventive Industries v. ICICI Bank, the court reiterated and upheld the viewpoint of BLRC committee stating “when the company or a corporate entity makes any kind of default, the control shall necessarily shift to the creditors and shall not remain in the hands of the management of the company.” Further, in the case of Swiss Ribbon v. Union of India, the court ruled that the Financial creditor are involved in the processes of Corporate Debtor from the beginning and hence their presence in restructuring is essential to ascertain and remove the financial stress, which is not present with the operational creditors.” In the case, Phoenix Arc Private Limited v. Spade Financial Services Ltd., the question of law involved was  Section 21 (8) of the Code regarding the creation and constitution of the CoC. The issue demurred, was whether the related party status if extended to a FC shall be as per the present status or shall be as per the time when the financial debt was incurred. In the instant case the court has taken a purposive interpretation rather than literal interpretation and held that if an FC who is a related party tries to do away with such tag of related party through any act and acts in such manner with a sole motive of entering the CoC, shall not be the part of the CoC and will be restricted through provision first of Section 21(2).

Comparison with International Scenarios

As defined under section 21(2) of the Insolvency and Bankruptcy Code, 2016, “the Committee of Creditors(CoC) shall comprise of all financial creditors of the financial debtor provided that…..” this means composition of the committee is already defined under the given code.

However, in the US bankruptcy code, the Creditor’s Committee’s  composition is not predefined, rather a US Bankruptcy trustee is in charge of choosing who will be included in the same.

In Germany, the provisional committee is taken as a compulsory committee according to Sec. 22a para. 1 of the German Insolvency Code. The appointment is resolved upon by the Creditor’s Assembly.

Therefore, the procedure for the appointment of the committee varies vastly when it comes to the appointing body.

Suggestions

There are instances where CoC exercises certain unbridled powers, such as, at the  time of change of Resolution Professional in terms of Section 27 of the IBC, CoC is not obliged to record its reasons. Additionally, the IBC does not subject the resolution plan per se to judicial scrutiny and the limits of judicial review have been circumscribed to the parameters in Section 30(2) and Section 61(3) of the IBC.  IBC has cordoned off the entire bankruptcy framework in such a way that once the Coc is constituted under  Section 21, it exercises exclusive access to negotiations and retains the final hand in dealing business decisions.

Conclusion

The recent judgements explaining the purview of appointment of committee of creditors shall certainly be a boon for the insolvency regime in the country and will lead to development of trust in the same. The above mentioned judgments clear the standpoint regarding who can be appointed in the Committee of Creditors, ensuring that the Resolution Proceedings be not only expeditious but also genuine and fair. 

Submitted by-

  ROSHI SURELE

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Introduction

The provisions of the Insolvency and Bankruptcy Code, 2016 (IBC) regulating the obligation of personal guarantors to corporate debtors were affirmed in a recent decision by the Hon’ble Supreme Court in Lalit Kumar Jain v. Union of India. With the judgement in place, creditors can now file insolvency proceedings against people such as promoters, managing directors, and chairpersons who act as personal guarantors on loans made to corporate debtors or goods and services provided to them.

A personal guarantor is a person or an organization who agrees to pay another person’s debt if the latter fails to do so. This concept of ‘guarantee’ is derived from Section 126 of the Indian Contracts Act, 1872.[1] When banks want collateral that equals the risk they are taking by lending to a company that may not be performing well, a promoter or promoter entity is most likely to provide a personal guarantee. It differs from the collateral that businesses provide to banks in order to obtain loans, because Indian corporate law stipulates that individuals, such as promoters, are distinct from businesses, and that the two are distinct entities.

Brief Legal History

The Ministry of Corporate Affairs published a Notification on November 15, 2019, bringing personal guarantors into the scope of insolvency proceedings under the IBC. The goal was to hold the promoters of the defaulting enterprises accountable for providing personal guarantees for the loans taken out by their enterprises. The lenders filed bankruptcy claims against India’s leading business tycoons, including Anil Ambani, Kapil Wadhawan, and Sanjay Singal, in accordance with the requirements. Many promoters opposed the new laws in several high courts, alleging that the promoters alone should not be held accountable for loan repayment failure.

 In October 2021, the Supreme Court reassigned to itself a slew of writ petitions contesting the IBC’s personal insolvency rules that had been pending in several high courts. When the government issued the notification on personal insolvency in December 2019, the provisions were challenged in court by as many as 19 promoters, who claimed that the company was always run by a management board and that the promoters alone should not be held liable for debt repayment default. As many as 75 promoters and guarantors had challenged the personal insolvency provisions by the time the Supreme Court moved all the cases to itself in December 2020.

Outlook of the petitioners

Firstly, the petitioners believed that the Central Government had overstepped its authority by issuing the Notification, which changed Part III of the IBC in an unjustifiable manner. . Because the legislature made the law in its entirety, leaving nothing for the executive to legislate on, it was referred to as “conditional” rather than “delegated.”[2] Further, the petitioners argued that the rules of the Notification, establish a single procedure for a personal guarantor’s insolvency resolution, regardless of whether the creditor is a financial creditor or an operational creditor. In Swiss Ribbons (P.) Ltd. v. Union of India,[3] the court determined that the nature of loan arrangements executed by a corporate debtor with financial creditors differed significantly from contracts with operational creditors for the supply of products and services. Combining financial and operational creditors equates to treating unequal’s alike and a breakdown of the categorization carefully formed by the Parliament.

Lastly, the promoters and guarantors were of the opinion that the guarantor’s obligation was co-extensive[4] with the corporate debtor’s, and if a resolution plan was approved, the personal guarantor’s responsibility would be extinguished as well. The petitioners relied on the decision in the case of Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta[5] wherein the court observed that an approval of a resolution plan in respect of a corporate debtor amounted to the extinction of all outstanding claims against the debtor.

Supreme Court Judgment

The Supreme Court stated that it was clear that the mechanism used by the Central Government to implement certain provisions of the Act had a specific purpose: to achieve the IBC’s objectives in relation to the priorities. “The apex court said there was an intrinsic connection between personal guarantors and their corporate debtors and it was this “intimate” connection that made the government recognize personal guarantors as a “separate species” under the IBC.”[6]

According to the Hon’ble Supreme Court, there appeared to be compelling grounds why the forum for adjudicating insolvency processes should be common which should be through the NCLT. The NCLT would thus be able to look at the big picture, so to speak, of the nature of the assets available, whether during the corporate debtor’s insolvency proceedings or afterward. The Committee of Creditors would be better able to frame realistic resolution plans if they had a complete picture, keeping in mind the possibility of recovering some of the creditor’s dues from personal guarantors. Based on this discussion, the Court concluded that the contested notification was neither a legislative act nor an instance of improper and selective application of the IBC’s provisions.

The court also cleared up a misunderstanding among petitioners that acceptance of a resolution plan for corporate debtors would also discharge the personal guarantor’s obligations and said that The release or discharge of a principal borrower from his or her obligation by operation of law, or as a result of a liquidation or bankruptcy procedure, does not absolve the surety/guarantor of his or her duty arising from an independent contract. As a result, the Notification was found to be legal and valid, and the writ petitions, transferred cases, and transfer petitions in this case were all dismissed.

Analysis and aftermath

The government has started the procedure and currently offers a full solution for the Corporate Debtor’s CIRP as well as the individual who has supplied a guarantee for that Corporate Debtor. As a result, the gap or limitation in the IBC that had previously limited the adjudication of cases involving corporate guarantors solely has been lifted, and creditors will now be entitled to seek repayment from either of them, i.e. the Corporate Debtor or the Personal Guarantor of the Corporate Debtor. Though the obligations were always coextensive legally in accordance with established principles of law, MCA has now brought Corporate Debtor and Personal Guarantor into the same operational platform. Following that, such personal guarantors might file a claim for insolvency with NCLT.

This will be a significant boost because lenders will now be empowered to pursue funds from promoters/personal guarantors if the amount recovered from the Corporate Debtor is insufficient, and in cases where bankers initiate IBC procedures, they may have to re-evaluate the entire ground scenario. Though the development is exactly as expected, it may cause some anxiety among promoters, particularly those who are either facing IBC procedures (or are expecting to face IBC due to defaults) or who are likely to face IBC due to defaults. This may also force promoters to consider and strategize about the extent to which they might use their personal assets to obtain corporate financing.

Similarly, despite such notification, advisers’ jobs may not be easy due to unanswered questions such as how to handle dual legal cases; to what extent can a creditor collect money from a personal guarantor, and the practical challenges of pursuing both for recovery, among others. As a result, these issues may be presented in a court of law shortly, and the appropriate honorable courts will investigate these issues in accordance with the law and equity principles.

Conclusion

Many famous industrialists who are the promoters of debt-ridden enterprises would be concerned by the ruling but many creditors will breathe a sigh of relief as a result of the immediate judgement, which has opened the door to the personal guarantors’ asset pool under the IBC. Personal guarantors are more likely to “arrange” for the payment of the debt to the creditor bank in order to achieve a quick discharge if insolvency proceedings are filed against them.

Though only time will tell how such things develop and how honest courts administer justice, the government appears to be on the right track to achieve its goal of instilling financial discipline among borrowers, particularly corporate borrowers.

[1] Indian Contract act, 1872, Act No. 9, Section 126

[2] Vasu Dev Singh & Ors. v. Union of India & Ors., 2006 12 SCC 753.

[3] Swiss Ribbons (P.) Ltd. v. Union of India, 2019 4 SCC 17

[4] Kundanlal Dabriwala v. Haryana Financial Corporation, 2012 171 Comp Cas 94

[5] Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, 2019 SCC 1478

[6] Lalit Kumar Jain v. Union of India and Ors., Transfer Case (Civil) No. 245/2020

Written by: Aditya Sharma

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 Introduction: 

A creditors’ committee is a group of people who represent a company’s creditors in a bankruptcy proceeding. As such, a creditors’ committee has broad rights and responsibilities, including devising a reorganization plan for bankrupt companies or deciding whether they should be liquidated. The creditors’ committee is usually further divided between secured and unsecured creditors.

Brief Legal history: 

The Bankruptcy Law Reforms Committee (‘BLRC’) was tasked with the onerous responsibility of rewiring the insolvency and bankruptcy framework in India. The BLRC presented an exhaustive report in November 2015 (‘BLRC Report’) for crafting a comprehensive code.

The Committee of Creditors (‘CoC’) was fashioned as one of the steering bodies driving the insolvency process under the Insolvency and Bankruptcy Code, 2016. Part II of the IBC does not define CoC for corporate persons, though CoC is a defined term for individuals and partnership firms in Part III of the IBC.

Recent Changes: 

Generally, as per IBC, the COC consists of the financial creditors only. In other words, all the Creditors who have financed the corporate debtor against the consideration of time value of money are included in the Committee of Creditors. In case if there are no financial creditors, in such case eighteen largest Operational Creditors along with one representative from workmen and from employee will be the members of the COC. The powers of these members are quite akin to the powers of the members of the financial creditors. The Operational creditors will not find any place in the COC except in case if the debt of the operational creditors are more than 10%, in such case the operational creditors will participate the COC through a representative. after supreme court’s judgement on Essar Steel case, it can be concluded that the Code is moving towards achieving its intended goal of swift redeployment of productive assets trapped in insolvent companies, and discouraging the notion that big loans are the lenders’ problem, not the borrowers’. The net result is significantly positive for credit discipline in India.

Important Judgement:  

Committee of Creditors of Essar Steel India Limited through Authorized Signatory v. Satish Kumar Gupta

A petition for initiating the insolvency resolution process against Essar was admitted by the National Company Law Tribunal. ArcelorMittal was the successful resolution applicant. The resolution plan submitted by ArcelorMittal provided that the operational creditors with an exposure of above INR 1 crore would not be entitled to any distributions. The NCLT approved ArcelorMittal’s resolution plan and asked the CoC to distribute 85% of the amount under the resolution plan amongst financial creditors and the remaining 15% amongst the operational creditors. The decision of NCLT was subsequently challenged. Hon’ble supreme court upheld the primacy of the Committee of Creditors (‘CoC’) in distribution of funds of INR 42,000 crore received under the resolution plan submitted by ArcelorMittal.

Role the COC in CIPR (corporate insolvency resolution process): The Supreme Court upheld the concept of supremacy of the commercial wisdom of the CoC in approval of the resolution plan, provided they take into consideration/ account for interest of all stakeholders.

 Comparison with International Scenarios: 

The Bankruptcy Law Review Committee report 2015 pondered upon various aspects of the Code including the formation and composition of the CoC, concluding that members of the CoC have to be creditors both with the capability to assess viability, as well as be willing to modify terms of existing liabilities in negotiations. With this reasoning, operational creditors were intentionally left out of the CoC under the presumption that such creditors would neither be able to decide on matters regarding the insolvency of the entity, nor would they be willing to take the risk of postponing payments for better future prospects. This reasoning of the BLRC stands in stark contrast with the Legislative Guide on Insolvency Law (“LGIL“) proposed by The United Nations Commission on International Trade Law (“UNCITRAL“), wherein the UNCITRAL recognised that the first key objective of a resolution process is to balance the advantages of near-term debt collection through liquidation against preserving the value of the debtor’s business through reorganization.

UK Insolvency laws: Secured creditors are generally not represented on a creditor committee if they are fully secured or over-secured. Where they are under-secured, however, their interests are more likely to align with those of unsecured creditors and their participation in the committee or in voting by creditors may be appropriate, at least to the extent that they are under-secured. An example of this would be the Company Voluntary Arrangement (CVA) mechanism under UK insolvency laws, where secured creditors are entitled to vote only in specific circumstances.

Under German insolvency law: the creditors vote by groups. The consent of every group is needed. Within a group the majority of creditors (as headcount) and creditors having the majority of debt need to approve the insolvency plan.

Changes and Suggestions:

 The legislature was quick to amend the Code to protect the interests of homebuyers by according them the status of a financial creditor, allowing each and every homebuyer irrespective of the quantum of his financial debt to a vote on the CoC. it has is tilted the already lopsided scales further against operational creditors, ultimately leading to frequent challenges to resolution plans by operational creditors before courts and delaying the resolution process.

Conclusion: 

A comprehensive overhaul of the constitution of the CoC is thus urgently required to preserve the purpose and the actual intent of the Code. A reference could be made to Section 230 of the Companies Act, 2013, where certain provisions are made that secure the interests of all creditors. This security is however, contingent on the actual appointment of operational creditors to the CoC which is the primary need of the hour.

Submitted by: Purvi Goyal

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Introduction

On 4th April 2015, the Commerce and Industry Minister, Govt of India, Mrs. Nirmala Sita Raman, introduced the Indian Foreign Trade Policy for 2015-20. The Foreign Trade Policy has been formulated for five years. It appears into, regulates and legal guidelines are enacted for the export and import of goods. The creation of the Foreign Trade Policy is incorporated with the imaginative and prescient of the Honorable Prime Minister of India on ‘Make in India’, ‘Digital India’, and ‘Skills India’. The government of India has formulated the trade policy as a way to improve ‘ease of doing business’.
Improving export and import will assist India in being a contributor to the prevailing technology of globalization. The approved framework of Foreign Trade Policy is Directorates General of Foreign Trade. The state of the external environment and new features of the global trading landscape such as mega regional agreements and global value chains will profoundly affect India’s trade. Aim is to help various sectors of the Indian economy to gain global competitiveness.

Legal framework

According to Section 5 of the Foreign Trade ( Development and Regulations) Act 1992, the government of India can from time to time formulate laws relating to Foreign Trade Policy. This section also specifies that the laws made should have special provisions or exceptions should be included for Special Economic Zones. The provisions below Foreign Trade Policy are unique provisions and could be successful over well known ones. If any benefits were provided earlier than the date of graduation of the Foreign Trade Policy then it’ll continue.

● DGFT has been assisting the clients by giving them time schedules. It has also provided email id, phone number, a website for the stakeholders to communicate and to facilitate  them. Further, help desks have also been established in different zones. DGFT has also been modernized by allowing an online complaint system. The online complaint system allows users to register complaints and see its status.

● The trading, export, import, development, multilateral and bilateral relations via way of means of the Special Economic Zone is also sorted by the Department.

Trade facilitation

• A system of online complaint has also been formulated wherein the exporters can file online applications who are seeking to get their issues resolved. The Export Data Processing and Monitoring System has been started by the Reserve Bank of India  to look into the exports.

• The Foreign national trading policy additionally introduced the construct of city of Export Excellence that acknowledges cities that have a production of quite Rs. 750 Crore. These cities have the potential to extend quality exports from the country. These cities that are notified are being supplied with financial backing from the Central Government.

•The policy has also resulted in the formation of a National Committee for Trade Facilitation. This Committee was established in response to India’s signature on the World Trade Organization’s Trade Facilitation Agreement. The Committee is in charge of putting the terms of the WTO Trade Facilitation Agreement into action.

World Trade Organization

In 2018, the United States filed a complaint against India at the world trade center The criticism become concerning the guidelines which might be selling exports within side the country. The United States claimed that guidelines to sell exports are in opposition to the guidelines of the World Trade Centre. The United States claimed that the export subsidies can not be maintained and is in opposition to the guidelines of WTO. A document become made after analyzing the criticism by the WTO Panel on this
issue which stated that the provisions of Foreign Policy of India which might be promoting export by making use of export subsidiaries are illegal.

The report launched through the WTO panel may affect the export market of India. These promotional export subsidiaries had usually been a stimulant for the exports. The subsidiaries have supported exports by decreasing the price of exports. This may highly effect the diverse exporting sectors, given the modern scenario of the awful monetary fitness of the us of a and uncertainty because of the change struggle fare of America and China.

Ceasing the advancement of trade might lead to deplorable results within the trade and moment showcase of India. Hence, the nation ought to point to define such remote approaches which are congruent with the approaches of the World Exchange Organization. The Government ought to carefully define.

Objectives of the Foreign Trade Policy in India

1. To enable substantial growth in exports from India and import to India to boost the economy.
2. To improve the balance of payment and trade.
3. To increase the technological ability for manufacturing and cost-effectiveness of enterprise and services, thereby enhancing their aggressive electricity in evaluation to different countries, and to motivate the accomplishment of internationally commonplace requirements of quality.
4. Creation of opportunities by engaging in good and ethical practices.
5.  To ensure long-term growth by providing access to critical raw materials, as well as other components, consumables, and capital goods needed to boost production on and deliver efficient services.
6. provide buyers or clients with high-quality goods and services at globally
competitive rates and quality. ‘Canalization’- an important feature of Foreign
Trade Policy under which specific classes of goods can be imported only by
designated agencies.
7. Creation of opportunities by engaging in good and ethical practices.
8. Establishing the Advance Licensing System for foreign products required for producing numerous products for export. associate degree Advance License is issued by the board General of Foreign Trade to permit nontaxable import of inputs, that ar physically integrated with the export product
9. Allow the import of technology and equipment’s which may help in achieving better international standards of quality and reduce the cost of production.
10. Accelerating the economy’s transition from low-  to high-level economic activities by transforming it into a globally focused and thriving economy

Simplification and Merger of Reward Schemes:

1: Merchandise Exports from India Scheme(MEIS)

The earlier 5 schemes for worthwhile products exports with exceptional styles of responsibility script with various conditions (sector precise or real consumer only) connected to their use, namely, Focus Product Scheme, Market Linked Focus Product Scheme, Focus Market Scheme, Agri – Infrastructure Incentive Scrip and VKGUY have now been changed with the aid of using a unmarried scheme referred to as Merchandise Export from India Scheme (MEIS). It is critical to be aware that there could
be no conditionality connected to the scrips issued beneathneath the scheme. For supply of rewards beneathneath MEIS, the international locations had been classified into 3 groups, while the costs of rewards beneathneath MEIS could variety from 2% to 5%. Notified items exported to notified markets could be rewarded on realized FOB price of exports in loose overseas exchange. The debits closer to simple customs responsibility and further responsibility of customs/ excise responsibility/carrier tax could additionally be allowed adjustment as responsibility drawback/CENVAT credit, as in keeping with as per the department of revenue rule.

The basic objective of Merchandise Exports from India Scheme (MEIS) is to offset infrastructural inefficiencies and associated costs involved in export of goods/products, which are produced/manufactured in India, especially those having high export intensity, employment potential and thereby enhancing India’s export competitiveness.

Service Exports from India Scheme (SEIS)

Service Exports from India Scheme (SEIS) has changed in advance Served from India Scheme (SFIS) and pursuits to inspire export of notified offerings from India. It applies to ‘provider vendors placed in India’ as a substitute of ‘Indian provider vendors’. Service vendors placed in India covers exporters who’re presenting offerings from India, irrespective of the charter or profile. Under the brand new policy, the advantage is likewise prolonged to airport operations and floor dealing with offerings protecting seventy seven offerings. Under SEIS, the chosen offerings might be rewarded on the
fees of 3% on internet forex earned. The fee of praise beneathneath SEIS might be primarily based totally on internet forex earned. The praise issued as responsibility credit score script might be freely transferable and usable for all kinds of items and provider tax debits on procurement of offerings/items. Debits might be eligible for CENVAT credit score or drawback.

Conclusion

With the help of foreign trade policies, a country can lead to equality of pricing to ensure a stable demand and supply situation within the economy. Foreign trade policy also enables a nation to import certain products at the time of a natural calamity and therefore manage scarcity when demand is high by providing better quality and quantity of goods. It also assists in raising the standard of living and making commodities available at a lower cost. Therefore, the Foreign Trade Policy in India is a complete policy to enhance the position of India in the international market and create benefits
for all.

India has also been one of the most sought after foreign investment destinations. The MEIS and SEIS are great initiatives to enhance the export of goods and services and has consolidated the various schemes which existed before.

By Sneha Samarpita

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CORPORATE GROUP INSOLVENCY

A corporate group is a cluster of companies existing in various structure formats. A corporate group structure may have several operational advantages over isolated entities, such as greater efficiency, better management control and tax incentives. Corporate groups operate through a variety of forms, which may include: operational links such as a dependency on the supply of essential goods; and financial links, which include inter-corporate guarantees or inter-corporate loans and advances. From an economic perspective, these corporate groups are ‘one organism.’ ’ But, from a legal perspective, the principle set forth by Salmon v. Salmon of a separate legal entity is still followed. When one entity of a corporate group enters insolvency, it may make the operations of the entire group difficult. However,` the Insolvency and Bankruptcy Code 2016 (IBC) does not provide for the insolvency resolution of corporate group entities. Group insolvency resolution is said to be a complex subject and it was decided by the law makers in our country that the new Insolvency Law i.e. IBC, being new to India, it may be too soon to introduce such a complex subject like the group insolvency. The rationale being that group insolvency could involve lifting of the corporate veil which could affect the corporate debtor significantly and hence could be taken up after the present system is well established. While the Code is silent about group insolvency, the courts are attempting to fill in this gap through legal professions. The courts had to deal with prayers for consolidation of cases of group companies, notwithstanding the fact that there are no provisions in IBC at present for the same. At the point when the Videocon Group went insolvent, fifteen distinctive resolution applications were filed against its fifteen diverse group companies. The case was State Bank of India Vs Videocon Industries Limited (VIL) & Ors (MA/2385/2019 in C.P.(IB)-02/MB/2018 dated 12.02.2020 of NCLT, Mumbai Bench

The court stated that,” considering the high stakes of the stakeholders and the lengthy arguments raised by various parties demanding a verdict urgently on the issue of ‘ Consolidation’ , no choice is left but to take the call, although with due care that not to exceed the jurisdiction enshrined in the Insolvency Code.”

Further in another case of ArcelorMittal India (P) Ltd. vs. Satish Kumar Gupta reported in (2019) 2 SCC 1, the supreme court considered the matter of lifting of the corporate veil and deciding on group insolvency. The court held that “…where a statute itself lifts the corporate veil, or where protection of public interest is of paramount importance, or where a company has been formed to evade obligations imposed by the Law, the court will disregard the corporate veil. Further, this principle is applied even to group companies, so that one is able to look at the economic entity of the group as a whole…”

NCLAT

Furthermore, the recent collapse of the IL&FS Group, involving another 169 group entities or we can say that the collective default by the Videocon group entities, has further made sure that there is a need to lift the corporate veil for group entities in certain situations, and also regulate the insolvency of groups.

Also in another case of Adel Group, the NCLAT initiated procedural coordination to ensure simultaneous proceedings with a common Resolution Professional for various companies belonging to the same group.

The Insolvency and Bankruptcy Board of India in order to bring foe=rward the group insolvency in India has set up a  Working Group on Group Insolvency and this group has complied it’s recommendations for the introduction of the same in the country. The WG has suggested that the group insolvency framework may be introduced in two phases.

 PHASE I

•         It will introduce procedural co-ordination and rules against perverse behaviour.
•         Procedural co-ordination may be implemented via joint CIRP application against group entities and further the formation of group CoCs without supplanting ‘substantive rights of creditors’ at the individual CoC level.
•         Further the WG recommended that claims of group entities should stand subordinate to claims of unrelated creditors in ‘exceptional situations of fraud, diversions of funds, etc.’

PHASE II

•         The WG noted that the second phase should introduce substantial consolidation and cross border insolvency 
•         Substantive consolidation refers to the pooling of assets of all group entities into a single estate to fulfil payment obligations. 

Conclusion

To conclude, modifications to the Prudential Framework for Resolution of Stressed Assets released by the Reserve Bank of India on June 7, 2019, may also be considered in relation to asset restructuring for group entities. But till group insolvency is not well recognized by the code in India, the courts, through its capacity of legal translation or judicial interpretation will act as saviors in this field. In any case, specific provisions identified with this concept should be incorporated in the code so as to get sureness and consistency in the law.

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Introduction

Multi-Level Marketing (MLM) represents a complex business model that has gained significant traction in India while simultaneously raising regulatory concerns. The term refers to a sales strategy employed by direct sales companies where existing members are encouraged to recruit new participants while selling products or services to consumers. This business model creates a hierarchical structure where distributors earn commissions not only from their direct sales but also from the sales made by their recruited downline members.

The regulatory landscape governing Multi-Level Marketing operations in India has evolved considerably over the years, primarily in response to numerous fraudulent schemes that masqueraded as legitimate MLM businesses. The distinction between legitimate direct selling and illegal pyramid schemes remains a critical concern for regulatory authorities, businesses, and consumers alike. Understanding this distinction requires a thorough examination of the existing legal framework, judicial precedents, and regulatory guidelines that govern MLM operations in India.

Historical Context and Legal Evolution

The regulation of Multi-Level Marketing and similar schemes in India began with the enactment of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 [1]. This legislation was introduced to combat fraudulent investment schemes that promised quick returns to participants. Initially, many MLM companies found themselves scrutinized under this Act, leading to significant legal challenges and the need for clearer regulatory guidelines.

The Prize Chits and Money Circulation Schemes (Banning) Act, 1978, was designed to protect consumers from schemes that primarily focused on money circulation rather than genuine product sales. Under Section 2(c) of this Act, a “money circulation scheme” is defined as “any scheme, by whatever name called, for the making of quick or easy money, or for the receipt of any money or valuable thing as the consideration for a promise to pay money, on any event or contingency relative or applicable to the enrolment of members into the scheme” [1].

The evolution of Multi-Level Marketing regulation gained momentum when the Department of Consumer Affairs, Ministry of Consumer Affairs, Food & Public Distribution, Government of India, issued comprehensive guidelines for Direct Selling in 2016 [2]. These guidelines were formulated to distinguish between legitimate direct selling operations and illegal money circulation schemes, providing much-needed clarity to the industry.

Regulatory Framework Under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978

The Prize Chits and Money Circulation Schemes (Banning) Act, 1978, serves as the primary legislation governing schemes that involve money circulation. Section 2(c) of the Act provides the definition of money circulation schemes, which has been extensively interpreted by Indian courts in various judgments.

The Supreme Court of India, in State of West Bengal v. Swapan Kumar Guha [3], provided an authoritative interpretation of Section 2(c) of the Act. Justice A.N. Sen, who delivered the leading judgment, established four essential ingredients that must be present for a scheme to fall under the definition of a money circulation scheme:

First, there must be a scheme in existence. Second, the scheme must have members who participate in it. Third, the scheme must be designed for making quick or easy money based on events or contingencies related to member enrollment, or it must involve receiving money or valuable items as consideration for promises to pay money contingent on member enrollment. Fourth, the dependency on enrollment-related events or contingencies remains unaffected by whether the money comes from entrance fees or periodic subscriptions.

The Supreme Court emphasized that not every activity involving quick or easy money automatically falls under Section 2(c) of the Act. The critical factor is whether the money-making opportunity depends on events or contingencies specifically related to member enrollment into the scheme. This distinction has become fundamental in determining the legality of various business models, including MLM operations.

Judicial Interpretation and Landmark Cases

The Amway India Enterprises v. Union of India case [4] represents a significant judicial pronouncement on MLM operations in India. The Andhra Pradesh High Court, in this case, examined the Amway business model and concluded that it constituted a money circulation scheme under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978.

The court observed that the scheme provided easy and quick money to distributors, with each member paying INR 4,400 upon enrollment. The judgment noted that this enrollment fee, combined with future earnings through marketing and recruiting other members, constituted events or contingencies related to enrollment. The court stated, “from the whole analysis of the scheme and the way in which it is structured it is quite apparent that once a person gets into this scheme he will find it difficult to come out of the web and it becomes a vicious circle for him” [4].

This judgment established important precedents for evaluating MLM schemes. The court emphasized that when a business model primarily relies on enrollment fees and recruitment-based earnings rather than genuine product sales to end consumers, it falls within the prohibited category of money circulation schemes.

Direct Selling Guidelines 2016: A Regulatory Milestone

The Department of Consumer Affairs issued comprehensive Direct Selling Guidelines in 2016 [2], marking a significant shift in the regulatory approach toward MLM and direct selling businesses. These guidelines were developed to provide clarity and establish standards for legitimate direct selling operations while preventing fraudulent schemes.

The guidelines mandate that direct selling companies must submit an undertaking to the Department of Consumer Affairs before commencing operations. This undertaking serves as a declaration of compliance with the established guidelines and provides regulatory authorities with oversight capabilities.

One of the fundamental principles established by these guidelines is that participation in direct selling must be entirely voluntary. Companies are prohibited from charging participation fees, including entry fees, registration fees, or any other charges for joining the business opportunity. This requirement directly addresses one of the key concerns identified in judicial pronouncements regarding money circulation schemes.

The guidelines also mandate that direct selling companies cannot compel consumers to purchase products or services in quantities exceeding what they can reasonably sell or consume. This provision ensures that the business model focuses on genuine product distribution rather than inventory loading, which has been a common practice in fraudulent schemes.

Written agreements complying with the Indian Contract Act, 1872, must be provided to all participants, clearly stating the terms and conditions of participation. These agreements must include comprehensive cancellation and refund policies, ensuring that participants have clear exit options if they choose to discontinue their involvement.

Product-Based vs. Enrollment-Based Revenue Models

The distinction between product-based and enrollment-based revenue models lies at the heart of MLM regulation in India. Legitimate MLM operations must demonstrate that their primary revenue source comes from actual product sales to end consumers rather than from recruitment activities or enrollment fees.

Product-based MLM models focus on distributing genuine products or services through a network of independent distributors. These distributors earn commissions based on their personal sales volume and may receive additional compensation based on the sales performance of their recruited team members. The key requirement is that products must have real market value and be sold to genuine consumers who are not part of the MLM network.

Enrollment-based models, which are prohibited under Indian law, primarily generate revenue from recruitment activities and enrollment fees. These schemes typically require participants to pay significant joining fees and emphasize recruitment over product sales. The compensation structure in such schemes is heavily weighted toward recruitment bonuses rather than retail sales commissions.

The regulatory framework requires MLM companies to maintain detailed records demonstrating that a significant portion of their revenue comes from product sales to non-participants. This requirement helps distinguish between legitimate business operations and illegal money circulation schemes.

Compliance Requirements for Multi-Level Marketing Companies

MLM companies operating in India must adhere to stringent compliance requirements established by the Direct Selling Guidelines 2016 [2]. These requirements encompass various aspects of business operations, from organizational structure to consumer protection measures.

Companies must establish a physical office in India to conduct their operations, ensuring local presence and accountability. This requirement facilitates regulatory oversight and provides consumers with accessible recourse mechanisms for addressing grievances.

Transparency in compensation structures represents another critical compliance requirement. MLM companies must provide clear and unambiguous information regarding how fees, remunerations, and salaries are calculated. This transparency enables participants to make informed decisions about their involvement and helps prevent misleading earnings claims.

The establishment of comprehensive buyback policies ensures that participants can return unsold products for refunds, typically within specified timeframes and under reasonable conditions. These policies protect distributors from inventory risks and demonstrate the company’s confidence in product marketability.

Consumer protection measures include detailed disclosure requirements regarding business opportunities, potential earnings, and associated risks. Companies must provide realistic earnings disclosures based on actual distributor performance data rather than theoretical projections or exceptional success stories.

Regulatory Challenges and Enforcement

The enforcement of Multi-Level Marketing regulations in India faces several challenges, primarily due to the sophisticated nature of modern MLM schemes and the global reach of many operations. Regulatory authorities must continuously adapt their oversight mechanisms to address evolving business models and technological platforms.

State-level enforcement agencies play a crucial role in investigating suspected violations and taking appropriate action against non-compliant operations. However, the interstate nature of many MLM businesses requires coordination between multiple regulatory authorities, which can complicate enforcement efforts.

Consumer awareness represents another significant challenge in MLM regulation. Many participants lack sufficient understanding of the legal distinctions between legitimate and illegal schemes, making them vulnerable to fraudulent operations. Educational initiatives and public awareness campaigns have become essential components of the regulatory framework.

International Perspectives and Best Practices

India’s approach to MLM regulation reflects international best practices while addressing specific domestic concerns. Many countries have implemented similar regulatory frameworks that distinguish between legitimate direct selling and illegal pyramid schemes.

The United States Federal Trade Commission has established guidelines that emphasize product sales to non-participants as the primary criterion for legitimate MLM operations. Similar approaches have been adopted by regulatory authorities in Australia, Canada, and European Union member states.

These international perspectives have influenced India’s regulatory development, particularly in areas such as earnings disclosure requirements, product return policies, and prohibition of enrollment fees. The adoption of globally recognized standards helps protect Indian consumers while facilitating legitimate international MLM operations.

Technology and Digital Platforms

The emergence of digital platforms and social media has transformed MLM operations, creating new regulatory challenges and opportunities. Modern MLM companies increasingly rely on online platforms for recruitment, training, and sales activities, requiring regulatory frameworks to address digital-specific concerns.

Online recruitment practices must comply with the same standards as traditional methods, including prohibition of misleading earnings claims and mandatory disclosure of risks. Social media promotions by MLM participants are subject to advertising regulations and must include appropriate disclaimers.

Digital payment systems and e-commerce platforms have simplified MLM operations while creating new compliance requirements. Companies must ensure that their digital infrastructure supports required record-keeping, reporting, and consumer protection measures.

Consumer Protection and Redressal Mechanisms

Consumer protection remains a central focus of MLM regulation in India. The regulatory framework provides multiple avenues for consumers to seek redress for grievances related to MLM operations.

The Consumer Protection Act, 2019 [5], provides consumers with comprehensive protection against unfair trade practices, including those related to MLM operations. Consumer forums at district, state, and national levels have jurisdiction to hear complaints related to deficient services or unfair practices by MLM companies.

The establishment of dedicated grievance redressal mechanisms within MLM companies ensures that consumer complaints are addressed promptly and effectively. These internal mechanisms must meet specific standards regarding response timeframes, escalation procedures, and resolution outcomes.

Economic Impact and Market Dynamics

The MLM industry in India has experienced significant growth, contributing to employment generation and economic development. Legitimate MLM operations provide income opportunities for millions of participants while facilitating product distribution across diverse geographic markets.

However, the economic impact of fraudulent schemes creates substantial negative consequences, including financial losses for participants and reduced consumer confidence in direct selling as a whole. Regulatory measures aim to maximize positive economic contributions while minimizing adverse effects from illegal operations.

Market dynamics in the MLM sector are influenced by regulatory changes, consumer awareness levels, and technological developments. Companies must continuously adapt their business models to remain compliant while maintaining competitive positions in evolving markets.

Future Regulatory Developments

The regulatory landscape for Multi-Level Marketing operations in India continues to evolve in response to changing market conditions and emerging challenges. Future developments may include enhanced digital compliance requirements, stricter enforcement mechanisms, and expanded consumer protection measures.

Regulatory authorities are considering amendments to existing guidelines to address issues such as cryptocurrency-based MLM schemes, international operations targeting Indian consumers, and sophisticated fraud techniques that exploit regulatory gaps.

The integration of technology in regulatory oversight, including data analytics and artificial intelligence, may enhance the ability to identify and investigate suspected violations. These technological tools could improve enforcement efficiency while reducing regulatory burden on compliant operations.

Conclusion

The regulation of Multi-Level Marketing in India represents a complex balance between protecting consumers from fraudulent schemes and allowing legitimate direct selling businesses to operate effectively. The legal framework, anchored by the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, and supplemented by the Direct Selling Guidelines 2016, provides comprehensive standards for distinguishing between legal and illegal operations.

The distinction between product-based and enrollment-based revenue models remains fundamental to regulatory compliance. Companies must demonstrate that their primary focus is on genuine product sales rather than recruitment activities to avoid classification as prohibited money circulation schemes.

Compliance with regulatory requirements demands ongoing attention to multiple aspects of business operations, from organizational structure to consumer protection measures. Companies that prioritize transparency, product quality, and consumer welfare are more likely to achieve long-term success within the regulatory framework.

The evolving nature of MLM operations, particularly with the integration of digital platforms and global reach, requires continuous adaptation of regulatory approaches. Future developments will likely focus on enhancing enforcement capabilities while maintaining support for legitimate business operations that contribute positively to India’s economy.

Understanding and complying with MLM regulations in India requires careful consideration of legal requirements, judicial interpretations, and best practices. Companies, participants, and consumers all benefit from a clear understanding of the regulatory framework and their respective rights and responsibilities within it.

References

[1] The Prize Chits and Money Circulation Schemes (Banning) Act, 1978. Available at: https://www.indiacode.nic.in/handle/123456789/1628 

[2] Direct Selling Guidelines 2016, Department of Consumer Affairs, Ministry of Consumer Affairs, Food & Public Distribution, Government of India. Available at: https://consumeraffairs.nic.in/ 

[3] State of West Bengal v. Swapan Kumar Guha, (1982) 1 SCC 561. 

[4] Amway India Enterprises v. Union of India, 2007, Andhra Pradesh High Court. 

[5] The Consumer Protection Act, 2019. 

[6] Reserve Bank of India – Guidelines on Money Circulation Schemes. 

[7] Ministry of Consumer Affairs – Consumer Protection Guidelines. Available at: https://consumeraffairs.nic.in/ 

[8] Indian Kanoon Database – Legal Judgments and Acts. Available at: https://indiankanoon.org/ 

[9] Direct Selling Association of India – Industry Guidelines. Available at: https://www.indiandsa.in/ 
                                                                           

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Introduction

The Income Tax Informants Rewards Scheme 2018 represents a significant enhancement in India’s approach towards combating tax evasion through citizen participation. This scheme, introduced by the Central Board of Direct Taxes (CBDT) under notification F.No. 292/62/2012-IT (Inv.III)/26 dated 23rd April 2018, superseded the earlier Guidelines for grant of rewards to Informants, 2007 [1]. The scheme operates alongside the e-portal based Tax Evasion Petition (TEP) mechanism, creating a dual framework for reporting substantial tax evasion in India.

The constitutional and statutory framework governing these mechanisms draws its authority from the Income Tax Act, 1961, and the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. These provisions collectively establish a comprehensive system designed to incentivize public participation in tax compliance enforcement while maintaining appropriate safeguards and procedural transparency.

Historical Context and Legislative Evolution

The concept of informant rewards in Indian tax law has evolved significantly since its inception. The original Guidelines for grant of rewards to Informants were issued in 2007, but the need for a more robust and transparent system led to the comprehensive revision that resulted in the 2018 scheme. This evolution reflects the government’s commitment to strengthening tax administration through enhanced citizen participation and technological advancement.

The legislative intent behind these mechanisms is rooted in the principle that tax evasion constitutes a serious economic offense that undermines the fiscal foundation of the state. The Supreme Court has consistently recognized the state’s authority to implement measures for effective tax collection, as established in various landmark judgments dealing with the constitutional validity of search and seizure provisions under the Income Tax Act.

Legal Framework Governing the Informants Rewards Scheme 2018

Statutory Authority and Scope

The Income Tax Informants Rewards Scheme 2018 derives its authority from Section 119 of the Income Tax Act, 1961, which empowers the CBDT to issue guidelines for the administration of direct taxes [2]. The scheme’s scope extends to substantial tax evasion cases under both the Income Tax Act, 1961, and the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

The scheme defines “substantial tax evasion” based on specific monetary thresholds that vary according to the investigating directorate involved. For cases handled by the Directorate General of Income Tax (Investigation), the threshold for substantial tax evasion is set at Rs. 1 crore, while for certain specialized directorates, this threshold may extend up to Rs. 5 crores depending on the nature and complexity of the investigation.

Procedural Requirements and Jurisdictional Framework

Under the scheme, informants must furnish information through prescribed channels to designated authorities. The hierarchical structure involves the Directorate General of Income Tax (Investigation) (DGIT-Inv), Principal Director of Income Tax (Investigation) (PDIT-Inv), and Joint Director of Income Tax (Investigation) (JDIT-Inv). The scheme mandates that all information must be submitted in the prescribed format specified in Annexure-A, and informants must appear in person before the JDIT (Inv) when called upon to do so.

The jurisdictional distribution includes investigation directorates posted across major cities including Ahmedabad, Vadodara, Surat, Rajkot, Bengaluru, Mumbai, Delhi, Chennai, Hyderabad, Kolkata, and numerous other locations as specified in Annexure-B of the scheme. This extensive network ensures comprehensive coverage across India’s major economic centers.

Reward Structure and Payment Mechanisms

The scheme establishes a bifurcated reward structure comprising interim and final rewards, with specific percentage-based calculations and monetary ceilings. Under the Income Tax Act, 1961, interim rewards are calculated at 1% of additional taxes realizable, subject to a ceiling of Rs. 10 lakhs for information provided in a single Annexure-A form. However, where specific information leads to seizure of unaccounted cash exceeding Rs. 1 crore during search and seizure operations under Section 132 of the Income Tax Act, the ceiling increases to Rs. 15 lakhs [3].

For cases under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, interim rewards extend up to 3% of additional taxes levied, with a maximum ceiling of Rs. 50 lakhs. The final reward structure can reach up to Rs. 5 crores, making this one of the most lucrative informant schemes in Indian administrative law.

Tax Evasion Petition E-Portal Mechanism

Digital Infrastructure and Accessibility

The CBDT launched the e-portal for filing Tax Evasion Petitions as part of its e-governance initiative, accessible through the Income Tax Department’s e-filing website at https://www.incometaxindiaefiling.gov.in/ under the section “Submit Tax Evasion Petition or Benami Property holding” [4]. This digital platform represents a significant advancement in citizen-centric governance, allowing both registered and unregistered users to file complaints.

The e-portal accommodates complainants with and without PAN/Aadhaar credentials, ensuring universal accessibility. The system employs OTP-based validation through mobile and email verification, establishing a secure and authenticated complaint filing process.

Categorical Framework for Complaints

The e-portal provides three distinct forms corresponding to different types of violations:

Form-1 addresses complaints regarding tax evasion under the Income Tax Act, 1961. This form captures information about undisclosed income, assets, and related tax evasion activities within the domestic jurisdiction.

Form-2 specifically targets complaints regarding undisclosed foreign assets and income, operating under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. This form addresses the growing concern of offshore tax evasion and hidden foreign wealth.

Form-3 handles complaints regarding Benami properties and transactions, governed by the Prevention of Benami Transactions Act, as amended. This form targets complex property arrangements designed to conceal beneficial ownership.

Status Tracking and Transparency Measures

Upon successful filing, the system generates a unique complaint number, enabling complainants to track the status of their submissions through the department’s website. This transparency mechanism represents a significant improvement over traditional complaint systems, providing complainants with visibility into the progress of their submissions.

Search and Seizure Provisions Under Section 132

Constitutional Validity and Judicial Scrutiny

The constitutional validity of search and seizure provisions under Section 132 of the Income Tax Act was upheld by the Supreme Court in Pooran Mal v. Director of Inspection (1974) 93 ITR 505 (SC) [5]. The Court recognized that these provisions serve the essential purpose of protecting social security and are regulated by law, making them constitutionally permissible despite their intrusive nature.

However, the legal landscape has evolved significantly since this judgment, particularly following the Supreme Court’s recognition of privacy as a fundamental right in Justice K.S. Puttaswamy (Retd.) v. Union of India (2017) 10 SCC 1. This development has introduced new dimensions to the constitutional analysis of search and seizure provisions, requiring a more nuanced application of the proportionality doctrine.

Procedural Safeguards and Due Process

Section 132 establishes comprehensive procedural safeguards to prevent abuse of search and seizure powers. These include requirements for authorization by specified senior officers, maintenance of detailed inventories of seized materials, provision of copies to affected persons, and adherence to timelines for retention of seized assets [6].

The section mandates that searches be conducted in the presence of two or more independent witnesses, ensuring transparency and accountability in the process. Additionally, the Code of Criminal Procedure, 1973, applies to the extent applicable to searches and seizures under Section 132, providing additional procedural protections.

Evidentiary Value and Assessment Implications

Statements recorded during search proceedings under Section 132(4) carry significant evidentiary value and may be used in any proceedings under the Act. This provision distinguishes search statements from survey statements recorded under Section 133A, which do not carry the same evidentiary weight.

The search and seizure provisions also trigger special assessment procedures under Sections 153A and 153C of the Income Tax Act, requiring assessment of six assessment years ending with the year in which the search is conducted. This comprehensive assessment framework ensures thorough examination of the assessee’s tax compliance history.

Right to Information Act Applicability and Limitations

Statutory Exemptions for Investigation Directorates

The Directorate General of Income Tax (Investigation) enjoys exemption from the Right to Information Act, 2005, under Section 24(1) read with the Second Schedule of the Act [7]. This exemption recognizes the sensitive nature of investigation work and the need to protect ongoing investigations from premature disclosure.

The Delhi High Court’s judgment in Central Board of Direct Taxes v. Satya Narain Shukla clarified that any information received from DGIT (Investigation) by other public authorities also falls within the exclusionary provisions of Section 24(1). This interpretation ensures comprehensive protection for investigation-related information while maintaining the integrity of ongoing proceedings [8].

Limited Disclosure Under Specific Circumstances

Despite the general exemption, the RTI Act provides for limited disclosure in cases involving allegations of corruption and human rights violations, as specified in the first proviso to Section 24(1). This exception balances the need for transparency in cases of public interest against the legitimate requirements of investigation secrecy.

The practical application of this exception requires careful evaluation of each request to determine whether the information sought relates to corruption allegations and whether disclosure would serve the public interest without compromising ongoing investigations.

Comparative Analysis: Informant Scheme vs. E-Portal Mechanism

Procedural Distinctions and Strategic Considerations

The fundamental distinction between the Informant Rewards Scheme and the e-portal mechanism lies in their respective approaches to citizen participation in tax enforcement. The Informant Scheme requires direct interaction with investigation authorities and follows a formal assessment process for reward determination, while the e-portal mechanism provides a more accessible but less incentivized reporting channel.

Under the Informant Scheme, the informant must appear before designated authorities and submit detailed information in the prescribed format. The scheme provides for substantial monetary rewards but requires more rigorous procedural compliance and verification. The discretionary power of the PDIT (Inv) to ignore information based on the informant’s antecedents and past conduct introduces an element of subjective evaluation that may impact the scheme’s effectiveness.

The e-portal mechanism, conversely, offers greater accessibility and anonymity but lacks the financial incentives of the Informant Scheme. This mechanism serves more as a public grievance redressal system than a targeted enforcement tool, though it provides valuable intelligence for tax administration.

Effectiveness and Enforcement Outcomes

The effectiveness of both mechanisms depends significantly on their implementation and the quality of follow-up action by tax authorities. The Informant Scheme’s success can be measured by the quantum of additional taxes recovered and the number of successful prosecutions resulting from informant intelligence. However, the confidential nature of investigation proceedings makes public evaluation of effectiveness challenging.

The e-portal mechanism’s effectiveness lies more in its role as an early warning system for tax authorities, enabling proactive identification of potential evasion cases. The transparency provided through status tracking enhances public confidence in the system, though the absence of RTI applicability limits oversight possibilities.

International Perspectives and Best Practices

Comparative Legal Frameworks

International tax enforcement systems provide valuable insights into best practices for informant schemes and citizen reporting mechanisms. The United States Internal Revenue Service operates a comprehensive whistleblower program under Section 7623 of the Internal Revenue Code, offering rewards of 15-30% of collected proceeds for information leading to successful tax enforcement actions.

The European Union’s framework for tax transparency includes provisions for cross-border information sharing and citizen reporting mechanisms, though these vary significantly across member states. The United Kingdom’s approach through HM Revenue and Customs includes both formal and informal reporting channels with graduated reward structures.

Lessons for Indian Implementation

International experience suggests that successful informant schemes require careful balance between incentives, procedural safeguards, and enforcement capabilities. The quantum of rewards must be sufficient to motivate reporting while ensuring cost-effectiveness for tax administration. Additionally, robust protection mechanisms for informants, including identity confidentiality and legal safeguards, are essential for scheme success.

The integration of digital platforms with traditional enforcement mechanisms, as demonstrated in India’s dual approach, represents a progressive model that combines accessibility with targeted incentives. However, the success of this model depends on effective coordination between different reporting channels and consistent follow-up procedures.

Challenges and Reform Considerations

Procedural Gaps and Implementation Issues

Several procedural gaps in the current framework may impact effectiveness. The discretionary power granted to investigation authorities to ignore information based on subjective assessments of informant credibility may lead to inconsistent application and potential abuse. Clear guidelines for exercising this discretion would enhance transparency and fairness.

The timeline for reward payments, particularly for interim rewards, requires streamlining to maintain informant confidence in the system. Delays in reward disbursement may discourage future participation and undermine the scheme’s objectives.

Technology Integration and Modernization

The current framework would benefit from enhanced technology integration, particularly in linking the e-portal mechanism with the formal Informant Scheme. A unified digital platform that allows seamless transition between anonymous reporting and formal informant participation could significantly enhance system efficiency.

Artificial intelligence and data analytics capabilities could improve the preliminary assessment of reported information, enabling more efficient allocation of investigation resources and faster response times to credible intelligence.

Legal and Constitutional Considerations

The evolving jurisprudence on privacy rights requires careful reconsideration of search and seizure provisions in light of the proportionality doctrine. While the current legal framework has withstood constitutional challenge, future developments may require more nuanced approaches to balancing enforcement needs with fundamental rights protection.

The interaction between informant schemes and constitutional principles of due process, equal protection, and fair trial rights requires ongoing evaluation to ensure that enforcement mechanisms do not undermine the broader constitutional framework.

Conclusion and Future Directions

The Income Tax Informants Rewards Scheme 2018 and the Tax Evasion Petition e-portal represent significant advances in India’s approach to tax enforcement through citizen participation. These mechanisms provide complementary channels for reporting tax evasion while offering different levels of engagement and incentivization.

The legal framework governing these mechanisms demonstrates sophisticated understanding of the balance required between enforcement effectiveness and procedural fairness. The integration of traditional investigation methods with modern digital platforms creates a comprehensive system that addresses various aspects of citizen engagement in tax administration.

However, the success of these mechanisms ultimately depends on effective implementation, consistent application of procedures, and maintenance of public confidence through transparent and fair processes. The exemption of investigation directorates from RTI provisions, while necessary for operational effectiveness, places additional responsibility on tax authorities to maintain high standards of accountability and procedural compliance.

Future developments should focus on enhanced technology integration, streamlined procedures, and regular evaluation of effectiveness metrics. The international experience suggests that continuous refinement based on empirical evidence and stakeholder feedback is essential for maintaining the relevance and effectiveness of citizen-centric tax enforcement mechanisms.

The legal framework established through these initiatives provides a solid foundation for combating tax evasion through citizen participation. However, the ongoing evolution of constitutional jurisprudence, technological capabilities, and international best practices requires continuous adaptation to ensure that these mechanisms remain effective tools for maintaining fiscal integrity while respecting fundamental rights and due process principles.

References

[1] Central Board of Direct Taxes, Income Tax Informants Rewards Scheme, 2018, F.No. 292/62/2012-IT (Inv.III)/26, dated 23rd April 2018. Available at: https://taxguru.in/income-tax/income-tax-informants-rewards-scheme-2018-reward-rs-5-crore.html 

[2] Income Tax Act, 1961, Section 119, Government of India. Available at: https://www.indiacode.nic.in/bitstream/123456789/2435/1/a1961-43.pdf 

[3] Income Tax Act, 1961, Section 132 – Search and Seizure provisions. Available at: https://indiankanoon.org/doc/1277726/ 

[4] Central Board of Direct Taxes, Press Information Bureau, Government of India, “CBDT launches e-portal for filing complaints regarding tax evasion/Benami Properties/Foreign Undisclosed Assets,” January 12, 2021. Available at: https://www.business-standard.com/article/economy-policy/cbdt-launches-e-portal-for-lodging-complaints-on-tax-evasion-benami-assets-121011201439_1.html 

[5] Pooran Mal v. Director of Inspection (1974) 93 ITR 505 (SC)

[6] Taxmann, “FAQs on Search & Seizure provisions under the Income Tax Act,” February 18, 2023. Available at: https://www.taxmann.com/post/blog/faqs-on-search-seizure-provisions-under-the-income-tax-act/ 

[7] Right to Information Act, 2005, Section 24(1) read with Second Schedule. Available at: https://rti.gov.in/rti-act.pdf 

[8] Central Board of Direct Taxes v. Satya Narain Shukla, Delhi High Court, as reported in Taxscan, “Information from Director General of Income Tax is exempt from Disclosure under RTI Act: Delhi High Court,” March 9, 2018. Available at: https://www.taxscan.in/information-from-director-general-of-income-tax-is-exempt-from-disclosure-under-rti-act-delhi-hc/18696/ 

[9] Right to Information Wiki, “Where You cannot get Information – RTI Wiki.” Available at: https://righttoinformation.wiki/guide/applicant/application/where-you-cannot-apply-rti 

Authorized by Rutvik Desai

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