In digital lending, a small trader may apply for a 40,000 loan on a weekday evening. He downloads an app, enters his details, gives consent and accepts the offer. Within minutes, the money is in his bank account.

For the customer, it feels effortless.

But behind that screen sits a whole chain of businesses. One company owns the app. Another provides the credit-scoring technology. A third stores the customer’s data. A lending partner may have found the customer, and another agency may handle collections.

The customer sees one lender. The RBI sees the entire chain.

A loan may be approved in minutes, but the NBFC stays accountable for that decision for years: through a customer complaint, an RBI inspection, a cyber incident, a data breach, or a slow deterioration in the loan book.

Digital lending, therefore, is not just a technology story. It is a test of institutional control.

In a branch, managers can see the customers, documents and process. In digital lending, this is not possible. So, controls must be built into the digital process itself.

The growth is real. So is the risk.

According to the RBI’s Financial Stability Report, June 2026, fintech firms held 56.8% of small personal loans below 50,000 as of March 2026. Their lending in this segment grew 41.6%, against 20.1% for the segment overall.

But there is another side. The delinquency rate on these loans, meaning the share falling behind on repayment, stood at 6.4%, and about 70.5% were unsecured. The RBI has flagged the possible risk to asset quality.

This does not make digital lending a problem. It shows why speed must be backed by strong credit and compliance controls. The opportunity is significant: digital platforms reach gig workers, first-time borrowers and small traders who may never walk into a branch, and bank statements and transaction data help assess them faster. The challenge is making sure growth never moves faster than control.

Where can things go wrong?

1. The partner can be outsourced. The responsibility is not.

An NBFC may outsource customer acquisition, technology, underwriting support or collections, but it cannot outsource accountability. Under the RBI framework, the NBFC is responsible for the acts and omissions of its lending partners. Checks therefore cannot stop at signing the agreement. The NBFC must know who the partner is, what it is doing, what data it can access, what customers are being told, and whether the agreed process is actually being followed.

2. A credit decision should not become a black box.

Automated tools now influence many lending decisions. Imagine a borrower asking, “Why was my loan rejected?” If nobody inside the NBFC can explain, the technology has created a governance problem. The RBI also sets clear limits on what lending apps may access: contacts, files and call records are off limits, and customers must be able to give, refuse or withdraw consent. The practical test: can we explain what data was used, why it was used and how it is protected?

3. Technology vendor can be NBFCs weakest link.

In the RBI’s cyber survey of 33 banks and 10 large NBFCs, 93% depended, partly or substantially, on outside vendors for cybersecurity functions. Three-fourths reported moderate to very high dependence on third-party technology for critical applications, and attacks aided by artificial intelligence were seen as the leading near-term concern. The reality is uncomfortable: the NBFC may own the loan, but someone else may own the technology that processes it. Vendor risk is business risk, not just an IT issue.

4. A guarantee is not a substitute for good underwriting.

A partner may guarantee some of the losses, but only within limits. The cover is capped at 5% of the loans disbursed, must be held as cash, a bank-locked deposit or a bank guarantee, and must be claimed within 120 days of the loan becoming overdue. It can never replace the NBFC’s own credit assessment. And when selling is unfair or recovery is harsh, this is where all these risks finally reach the customer.

What should an NBFC compliance team actually do?

Compliance works best when it is part of the lending process, not a checklist completed afterwards.

1. Know every digital lending arrangement. Keep a complete and accurate record of every lending app and partner arrangement, report it to the RBI as required, and show the details on your website. The officer who certifies the list should have actually reviewed the apps.
2. Monitor partners after onboarding. Due diligence does not end with the agreement. Review customer communication, sourcing practices, data access, underwriting, collections and complaints regularly. A partner that was compliant six months ago may not be compliant today.
3. Walk through the journey like a customer. Use your own app. Can a borrower easily find the Key Fact Statement (the one-page loan summary), the true yearly cost, the cooling-off period of at least one day, and the grievance details?
4. Minimise data, maximise control. Take only the data the loan needs, with clear and recorded consent that the borrower can refuse or withdraw. Partners should hold only minimal data, and data should be stored in India.
5. Make documentation automatic. The Key Fact Statement, sanction letter, terms and account statements should reach the borrower digitally, without the customer having to ask repeatedly.
6. Follow the money. Disburse directly into the borrower’s bank account and take repayments directly into the NBFC’s account, with no partner-controlled pool account in between. Partner fees should be paid by the NBFC, not collected from borrowers.
7. Track guarantees and credit reporting. Report every digital loan to the credit bureaus. For guarantees, obtain the partner’s auditor-certified statement at the start and at each renewal, stay within the limit, and track the 120-day period.
8. Treat grievances as an early warning. Publish the grievance officer’s details. If a complaint is rejected or left unanswered for 30 days, the borrower may approach the RBI. Tell borrowers who the recovery agent is before contact, and watch complaints partner by partner, because a rising count often signals trouble ahead.

A question for Management

Boards and management should ask not only how quickly a loan can be approved, but whether the institution can show the customer, the auditor and the regulator how each step was carried out and who was responsible for it. Speed is what the customer sees. Accountability is what the regulator sees. The strength of the whole chain is what the balance sheet eventually reflects.

In digital lending, technology can be borrowed. Accountability cannot.

Sources

1.         Reserve Bank of India, Financial Stability Report, June 2026

2.         Reserve Bank of India (Non-Banking Financial Companies – Credit Facilities) Directions, 2025

The article is written by Mr. Ashok Pathak

The post Digital Lending: Where Speed Meets Accountability first appeared on MMJC.

Q.1 What is the purpose of the 2026 Settlement Regulations?

These Regulations provide SEBI’s statutory process for settlement of specified administrative and civil proceedings. The Regulations set out who may submit an application, when it may be considered, how settlement terms are computed and approved, and the legal effect of the resulting order. The specified proceeding must fall within the definition in Regulation 2; settlement is subject to SEBI’s assessment of the case and the statutory restrictions.

Q.2 Do the Regulations apply only after SEBI issues an SCN?

No. The settlement framework is not limited to applications made after issuance of a show cause notice (SCN). Applications can be considered at a voluntary or pre-notice stage, after issuance of a show cause notice, and in certain appellate matters. The filing stage affects the stage factor in Regulation 12; where a matter is already under examination or investigation, Regulation 6 may restrict an ordinary settlement application.

Reference: Regulation. 2(1)(l), 3–5

Q.3 What is covered by the expression “securities laws”?

“Securities laws” has the meaning expressly assigned by Regulation 2(1)(i). It covers the SEBI Act, the Securities Contracts (Regulation) Act, the Depositories Act and other laws administered by SEBI to the relevant extent, together with the applicable rules, regulations, master circulars, circulars, orders and guidelines issued under them. The alleged act or omission must attract a “specified proceeding” within the meaning of Regulation 2.

Reference: Regulation2(1)(i)

Q.4 What does “stage of proceeding” mean?

“Stage of proceeding” is the stage at which the specified proceeding is pending on the filing date. Regulation 12 assigns different values depending on whether the matter is voluntary, pre-SCN, post-SCN or at an appellate stage; the most advanced applicable stage governs connected proceedings.

Reference: Regulation. 2(1)(m), 12

Q.5 Are time periods expressed in calendar days?

Yes. Regulation 2(1)(d) defines “days” as calendar days.

Reference: Regulation2(1)(d)

Chapter II | General: application and limitation

Q.6 Who can apply for settlement?

Under Regulation 3(1), any person or entity, including a company, promoter, director, KMP, intermediary or individual, may apply for settlement of a specified proceeding initiated or proposed to be initiated by SEBI for an alleged violation of securities laws.

However, Regulation 6 prescribes the following restrictions:

• Ineligible applicants: Wilful defaulters, fraudulent borrowers and fugitive economic offenders cannot settle proceedings.
• Pending investigations: Settlement applications are generally not considered while an examination, investigation, inspection or audit is pending, except for confidentiality applications.
• Previously rejected applications: A fresh application for the same alleged default is permitted only under the exceptions in Regulations 4(3) and 7(4).
• Serious violations: SEBI may decline settlement for violations affecting market integrity, causing widespread investor losses or having market-wide impact, subject to Regulation 18(2).

Thus, eligibility depends on the applicant’s status, nature of the proceeding and restrictions under Regulation 6. Even where an applicant is eligible, settlement is subject to the discretion of the Panel of Whole-Time Members under Regulation 6(3).

Reference: Regulation3(1)

Q.7 How is a settlement application filed?

The application must be filed in the prescribed Form (Part A of Schedule I), accompanied by the Undertaking and Waiver (Part B of Schedule I) and the basis of computation of the settlement amount (Part C of Schedule I).

The following requirements must be complied with:

1. Application fee: A non-refundable application fee of Rs. 25,000 for a natural person and Rs. 35,000 for other entities must be paid through the designated payment gateway.

2. Single application: The applicant must submit one consolidated application covering all specified proceedings arising from the same cause of action.

3. Authorization: Where the applicant is an entity other than a natural person, the application and undertaking and waiver must be executed by a duly authorized person responsible for the conduct of its business. Relevant board resolution should be in place to file settlement application.

4. Time limit: Under Regulation 4, an application relating to proceedings pending before SEBI must generally be filed within 90 days from service of the Show Cause Notice or supplementary Show Cause Notice, whichever is later. This limitation does not apply where the proceedings are pending before the Tribunal or Supreme Court. Where SEBI issues a settlement notice before Show Cause Notice under Regulation 5, the application must be filed within 60 days of receiving that notice.

5. Rectification of defects: If the application is incomplete, inaccurate or does not comply with the Regulations, SEBI may return it with reasons. The applicant may submit a complete and revised application within 15 days of SEBI’s communication, failing which the application will be deemed withdrawn.

Relevant provisions: Regulations 3, 4 and 5 read with Schedule I, Parts A, B and C, of the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2026 (Gazette pages 73–75).

Q.8 Does the applicant need to calculate the settlement amount?

Yes. As per Regulation 3(2) the applicant is required to submit the basis of computation of the proposed settlement amount in the prescribed format under Part C of Schedule I, along with the settlement application and undertaking and waiver. However, the amount calculated by the applicant is not necessarily the final settlement amount. The settlement amount is subject to SEBI’s assessment and determination in accordance with the Regulations.

The proposed settlement amount is to be calculated in accordance with the methodology prescribed under Regulation 10, read with Regulations 11 to 16, considering the applicable factors such as the nature of the alleged default, relevant amount and other applicable adjustments.

Reference: Regulation3(2); Schedule I, Part C

Q.9 Can separate applications be made for the same cause of action?

The applicant must submit one application in respect of all specified proceedings arising from the same cause of action. Regulation 3(5) requires one application covering all specified proceedings in respect of the same cause of action. This prevents fragmented applications for closely connected proceedings, though the settlement amount is computed separately for each applicant under Regulation 10(4).

Reference: Regulation3(5)

Q.10 What if an application is incomplete?

An application which is incomplete or does not satisfy the requirements may be returned with reasons. SEBI must communicate the reasons for returning an incomplete or non-conforming application. A compliant revised application must be submitted within 15 days of that communication; otherwise it is deemed withdrawn, so the applicant should consider the consequences of Regulation 7(5) before refiling.

Reference: Regulation. 3(6)–(7), 7(5)

Q.11 Who signs an application for a company or entity?

Where the applicant is a company or any other non-natural-person entity, the settlement application and the accompanying undertaking and waiver must be signed by a duly authorised person who is in charge of and responsible for the conduct of the business of such entity. The application shall bind the company.

Reference: Regulation3(8)

Q.12 What is the filing deadline after an SCN?

The ordinary post-SCN deadline is 90 days from service of the SCN or supplementary SCN, whichever is later. Regulation 4(1) is a limitation on consideration of late applications, and Regulation 42 relaxation is not applicable for 90-day period.

Reference: Regulation4(1)

Q.13 Does the 90-day limit apply to appeals?

No. Regulation 4(2) excludes eligible proceedings pending before SAT or the Supreme Court from Regulation 4(1). An application involving a pending SAT or Supreme Court appeal is not subject to the ordinary 90-day bar under Regulation 4(1).

Reference: Regulation4(2)

Q.14 What is the pre-SCN settlement notice mechanism?

Regulation 5 provides for a settlement notice before an SCN and a 60-day period from its receipt. The notice is intended to communicate the substance of probable charges and contemplated enforcement action so the recipient can decide whether to apply before the SCN stage. The 60-day clock runs from receipt of the settlement notice; within which period application must be filed.

Reference: Regulation5(1)

Regulation 5 expressly excludes some categories of cases from the ordinary pre-SCN settlement notice requirement. Regulation 5(2) provides exceptions for contemplated interim directions, prosecution and cases under Regulation 27. Regulation 5(3) also preserves right to modify nature of enforcement action to be initiated or probable charges stated in the notice. Such notice shall not confer right to seek settlement.

Reference: Regulation5(2)–(3)

Chapter III | Scope, rejection and withdrawal

Q.15 Who is eligible for settlement under the 2026 framework?

Any entity against whom specified proceedings have been initiated or may be initiated is eligible to file an application proposing settlement, subject to compliance with the requirements of the Regulations.

Accordingly, individuals, companies, intermediaries and other entities may apply for settlement at any stage of the proceedings, provided the matter is eligible for settlement under the Regulations.

Regulation 6(1)(iii) excludes wilful defaulters, fraudulent borrowers and fugitive economic offenders. The defined terms for wilful defaulter/fraudulent borrower and fugitive economic offender refer to the external legal classifications identified in the explanation to Regulation 6.

Reference: Regulation6(1)(iii)

Q.16 Can an application be considered while SEBI’s investigation is pending?

Regulation 6(1)(ii) bars settlement while the relevant examination, investigation, inspection or audit is pending, except for the confidentiality route. The confidentiality route is specifically carved out of the pending-examination/investigation bar.

Reference: Regulation6(1)(ii)

Q.17 Can serious market-wide violations be settled?

As per Regulation 6(2), specified proceedings may not be settled where the alleged default:

1. Has a market-wide impact;
2. Has caused losses to a large number of investors; or
3. Has affected the integrity of the market.

However, Regulation 18(2) provides an exception. Where the impact of the violation on investors or market integrity can be adequately remedied through monetary settlement and appropriate remedial and regulatory terms, SEBI may consider settlement of such violations.

Further, Regulation 6(3) preserves the discretion of the Panel of Whole Time Members to accept or reject a settlement application in the interest of investors or the development of the securities market.

Reference: Regulation. 6, 18(2)

Q.18 Can a settlement application be rejected??

A settlement application may be rejected or returned on various grounds, including:

1. Ineligible proceedings: Where the alleged default is not eligible for settlement under Regulation 6.
2. Non-compliance with requirements: Where the application is incomplete, inaccurate or does not comply with the prescribed requirements. Under Regulation 3(6), SEBI may return such an application, and failure to submit a revised application within 15 days results in deemed withdrawal.
3. Non-cooperation: Where the applicant fails to cooperate with SEBI or comply with the settlement process.
4. Failure to comply with settlement terms: Where the applicant fails to fulfil the settlement conditions, including payment of the settlement amount within the prescribed time.
5. Public interest considerations: Where SEBI considers settlement inappropriate in view of the nature, gravity or market impact of the alleged violation.

Further, Regulation 6(3) empowers the Panel of Whole Time Members to accept or reject any settlement application in the interest of investors or the development of the securities market.

Reference: Regulation3(6), 3(7), 6, 7

Q.19 Can a rejected application be filed again?

Yes. As per Regulation 7(4), a rejected settlement application may be filed again, subject to the following conditions:

1. Subsequent stage: The application can be refiled only when the proceedings have progressed to a subsequent stage specified under Regulation 12(1). For example, if an application filed before issuance of a Show Cause Notice (SCN) is rejected, it may be refiled after issuance of the SCN.
2. Reason for rejection: The reason for the earlier rejection must no longer exist.
3. Additional settlement amount: The applicant must pay an additional 20% of the settlement amount otherwise payable.

Thus, a rejected application may be refiled only at a subsequent stage after the reason for rejection ceases, with 20% additional amount. The new application must be at a subsequent “stage of proceeding” within Regulation 2(1)(m), and the original cause of rejection must have ceased to exist. The extra 20% is calculated over the applicable settlement amount; the transitional opportunity under Regulation 4(3) is a separate route with separate conditions.

Reference: Regulation. 7(4), 4(3)–(4)

Q.20 Can a withdrawn application be filed again?

A withdrawn settlement application may be refiled at the same or a subsequent stage of proceedings, subject to payment of an additional 20% settlement amount under Regulation 7(5). An applicant may withdraw the application at any time before communication of the Panel of Whole Time Members’ decision accepting or rejecting it, as provided under Regulation 7(3). Further, under Regulation 7(6), withdrawal does not affect the continued validity of the undertakings and waivers relating to limitation or laches furnished by the applicant.

Reference: Regulation7(5)

Q.21 Does filing for settlement stop SEBI proceedings?

As per Regulation 8 of the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2026:

1. Application filed after issuance of Show Cause Notice (SCN): Proceedings may continue, but passing of the final order shall be kept in abeyance until the settlement application is disposed of or withdrawn.
2. Application filed before issuance of SCN: Issuance of the SCN shall be kept in abeyance until the settlement application is disposed of or withdrawn.
3. Interim directions: SEBI retains the power to issue interim civil and administrative directions to protect investors’ interests and maintain market integrity.
4. Multiple entities involved: Filing of a settlement application by one entity does not affect proceedings against other entities that have not applied for settlement.

Reference: Regulation8

Chapter IV | Settlement terms and amount

Q.22 What can settlement terms include?

Settlement terms may include the following, as applicable:

1. Settlement amount: Payment of the settlement amount calculated in accordance with Regulation 10.
2. Disgorgement and compensation: Disgorgement of wrongful gains made or losses avoided, or compensation for losses caused to investors, as alleged in the Show Cause Notice or determined in the order.
3. Remedial and regulatory measures: Measures prescribed under Regulation 17, such as strengthening internal compliance systems, enhanced disclosures, suspension or cessation of business activities, exit from management, refund of money, restrictions on accessing the securities market, or voluntary debarment.
4. Joint and several liability: In cases involving joint and several liability, applicants seeking settlement may be required to pay the disgorgement amount or investor compensation, along with interest, jointly or individually, as applicable.

Reference: Regulation9

Q.23 What does “Settlement Amount” mean?

Settlement amount refers to the monetary amount payable by an applicant to settle specified proceedings initiated or proposed to be initiated by SEBI for an alleged violation of securities laws.

In simple terms, it is the amount paid to SEBI to resolve regulatory proceedings without going through the entire adjudication or enforcement process.

How is the settlement amount calculated?

As per Regulation 10(1), the settlement amount is calculated using the following formula:

Where:

Under Regulation 10(2), if the combined factor is less than 1, it is taken as 1.

Reference: Regulation10(1)–(2)

Q.24 How is the base amount determined?

The base amount is ordinarily derived from the relevant statutory minimum penalty and the prescribed applicant-category multiplier. Regulation 11(1) starts with the applicable statutory minimum penalty multiplied by the applicant-category multiplier. Regulation 11 then addresses overlapping violations, several counts, penalties already imposed, appellate cases and specified situations counted as a single default.

Reference: Regulation11

Q.25 How do prior warnings or orders affect settlement?

The regulatory action factor is 0.10 per administrative warning, 0.20 per settlement order and 0.30 per adverse order. Regulation 13 separately counts specified prior regulatory actions, including qualifying orders whose operation has been stayed. Applicants should review the complete history of administrative warnings, settlement orders and adverse orders before computing R; each qualifying order can affect the calculation.

Reference: Regulation13

Q.26 What is the gravity factor?

Regulation 14 contains separate gravity values for prescribed violation categories, as well as the specified factor for settlement without admitting the violation. The specified gravity factors apply in addition to the prescribed reputation-related factor for applications made without admitting the violation. The correct Gravity factor [G] depends on the charges, so applicants should match each allegation carefully to the listed violation category rather than apply every factor automatically.

Reference: Regulation14

Q.27 What are aggravating and mitigating factors?

Aggravating and mitigating factors are prescribed additions and reductions to the settlement factor. Aggravating circumstances increase the relevant part of the formula, while mitigating circumstances reduce it, subject to the limits and conditions in Regulations 15 and 16. The application should explain the evidence supporting any mitigation claim rather than simply asserting that the conduct was inadvertent.

Reference: Regulation. 15–16

Q.28 Are there minimum settlement amounts?

Yes. The minimum is Rs. 3 lakh for a first-time applicant and Rs. 7 lakh for other applicants. The first-time test is conjunctive: the applicant must have no prior adverse order and must never have obtained a settlement order as of the present application date.

Reference: Regulation10(3)

Q.29 Can settlement amounts be calculated separately for a company and its directors?

Yes. The settlement amount must be calculated separately for each applicant, although payment may be individual or joint. For a single enforcement matter naming the company, promoter and individual directors, the relevant category multiplier and other factors are determined for each applicant.

Reference: Regulation10(4)

Q.30 How is the amount calculated when an order is under appeal?

Where a SEBI order is challenged before the Securities Appellate Tribunal (SAT) or the Supreme Court, the Base Amount for settlement is calculated based on the violations upheld in the order under challenge, rather than all the violations originally alleged.

However, where SAT has granted relief by setting aside certain violations and SEBI has appealed against such relief before the Supreme Court, 50% of the Base Amount attributable to each violation not upheld by SAT must also be considered in the calculation.

For example, if SEBI upheld three violations and SAT subsequently set aside two of them, the Base Amount would ordinarily be calculated for the one violation upheld by SAT. However, if SEBI challenges SAT’s relief before the Supreme Court, 50% of the Base Amount for each of the two violations set aside by SAT would also be included.

This determines the Base Amount, which is then used to calculate the settlement amount under the applicable provisions of the Regulations. It does not mean that the final settlement amount is necessarily equal to the Base Amount.

Reference: Regulation11(5)–(6)

Q.31 Can the WTM Panel depart from the formula?

Yes, but only in the exceptional circumstances described in Regulation 10(7). Regulation 10(7) is an exception for cases where the prescribed calculation cannot be used because of the peculiar default or particular circumstances.

Reference: Regulation10(7)

Q.32 Can SEBI impose additional compliance or corrective measures as part of the settlement terms?

Apart from payment of the settlement amount, SEBI may impose remedial and regulatory measures depending on the nature and gravity of the violation. These may include strengthening internal controls, appointing independent consultants, enhanced audits, refunds, restrictions on management roles or voluntary market debarment.

Where violations affect audited financial statements, SEBI may require appropriate stock exchange disclosures and explanatory notes in financial statements. In cases involving diversion or siphoning of funds, the applicant may be required to return the diverted funds along with interest.

The measures are determined considering factors such as the applicant’s conduct, investor losses, market impact and steps already taken to prevent recurrence. The applicant must comply with the prescribed conditions within the stipulated timelines.

Reference: Regulation. 17–18

Q.33 When is interest payable on amounts arising from violations in settlement proceedings?

Where an applicant is liable to pay any amount, including disgorgement of wrongful gains, losses avoided or losses caused to investors, interest is payable as follows:

• Where no final order has been passed: Interest at 9% per annum from the date of the transaction or violation until the date of filing the settlement application.
• Where a final order has been passed: Interest at 9% per annum from the date of the transaction or violation until the final order, and at 12% per annum thereafter until the date of filing the settlement application.

Interest is calculated only on the principal amount payable, without charging interest on unpaid interest.

Reference: Regulation 20

Q.34 What is the time limit for passing a settlement order?

As per Regulation 34(2) the Panel of Whole Time Members shall dispose of specified proceedings by passing a settlement order in a suo motu manner, where the application is filed pursuant to a settlement notice issued under Regulation 5 or a notice issued under Regulation 27, in accordance with the settlement terms approved by the Panel.

However, the Regulations do not prescribe a specific time limit for passing a settlement order after filing of the application or approval of the settlement terms.

Chapter V | Committees and approval

Q.35 How much time is allowed for revised settlement terms?

The applicant may submit revised settlement terms within the period prescribed under Regulation 22(5)(e), up to 21 calendar days. This is the prescribed period to submit revised terms within the applicable Internal Committee process, not an additional general deadline for initially applying under Regulations 4 or 5. Missing a procedural deadline can affect the application, subject to any permissible relaxation under Regulation 42.

Reference: Regulation 22(5)(e)

Q.36 Does HPAC make the final decision?

No. HPAC’s role is recommendatory; the WTM Panel decides in accordance with Regulation 25. HPAC examines the IC recommendation and may recommend acceptance, modification or rejection as prescribed. The WTM Panel retains the power to make the determination under Regulation 25.

Reference: Regulation. 23–25

Q.37 When is the settlement amount paid?

Once the Panel of Whole Time Member approves the settlement, SEBI issues a demand notice within 10 days of such approval. The applicant must pay the settlement amount within 30 calendar days from receipt of the demand notice, only through the dedicated payment gateway provided by SEBI.

The applicant must also comply with any other settlement conditions or submit the required undertakings within the prescribed timelines.

Failure to pay within the stipulated period may result in rejection of the settlement application. However, under Regulation 42, an extension of up to 30 days may be granted, subject to an increase of 1% in the settlement amount. 

Reference: Regulation 25

Q.38 Can the timeline for payment of the settlement amount be extended?

Yes. As per Regulation 42(3) of the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2026, the Panel of Whole Time Members may grant an extension of up to 30 days for payment of the settlement amount, subject to an additional charge of 1% of the settlement amount.

The extension must be provided for in the notice of demand, and the extended period cannot exceed 30 days.

Thus, the payment timeline may be extended, but such extension is discretionary and subject to the additional payment requirement.

Reference: Regulation 42(3)

Q.39 Can a settlement application be rejected if the settlement amount is not paid?

Yes. As per Regulation 7(1)(e) of the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2026, a settlement application may be rejected if the applicant fails to remit the settlement amount within the prescribed period.

However, under Regulation 42(3), the Panel of Whole Time Members may grant an extension of up to 30 days for payment, subject to an additional charge of 1% of the settlement amount.

Thus, failure to pay the settlement amount within the prescribed or extended timeline may result in rejection of the application, and SEBI may continue the enforcement proceedings.

Reference: Regulations 7(1)(e), 7(6) and 42(3)

Chapter VI | Fast-track settlement

Q.40 What are the two fast-track routes?

As per Regulation 26(2) of the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2026, fast-track settlement is classified into two routes:

1. Violation-based fast-track settlement (Regulation 27): SEBI may issue a fast-track settlement notice before initiating proceedings for specified violations, such as delayed disclosures, non-filing of returns, non-compliance with prescribed disclosure formats and delayed compliance with regulatory requirements.

2. Monetary threshold-based fast-track settlement (Regulation 28): Where the Internal Committee determines that the settlement amount calculated under the Regulations is up to Rs. 1 lakh, and no disgorgement or remedial and regulatory terms are applicable, the applicant may be offered settlement through the fast-track mechanism.

Thus, the first route is based on the nature of the violation, while the second is based on the settlement amount and absence of additional settlement obligations.

Reference: Regulation 26–28

Q.41 What types of violations may be covered by Regulation 27 fast-track settlement?

As per Regulation 27(1) of the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2026, SEBI may offer violation-based fast-track settlement for the following defaults:

1. Delayed disclosures, including filing of returns, reports, documents, etc.
2. Non-disclosure by companies exclusively listed on regional stock exchanges that have exited.
3. Disclosures not made in the prescribed formats.
4. Delayed compliance with requirements of securities laws or directions issued by SEBI.
5. Such other defaults as may be determined by SEBI.

Under this mechanism, SEBI may issue a fast-track settlement notice before initiating specified proceedings. However, issuance of such notice is discretionary, and SEBI may withhold it where the entity has failed to make full and true disclosure of facts or cooperate as required.

Reference: Regulation 27

Q.42 Is HPAC review required in fast-track settlement cases?

No. As per Regulation 26(3) of the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2026, the provisions relating to the Internal Committee and the High Powered Advisory Committee (HPAC) under Regulations 23 and 24 do not apply to fast-track settlement proceedings.

Accordingly, HPAC review is not required for either violation-based fast-track settlement under Regulation 27 or monetary threshold-based fast-track settlement under Regulation 28.

However, under Regulation 28, the Internal Committee has a limited role in identifying cases eligible for monetary threshold-based fast-track settlement.

Reference: Regulation26(3); Regulation. 27–28

Q.43 What if an applicant does not complete fast-track settlement?

As per Regulation 29 of the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2026, where an applicant fails to complete the fast-track settlement process by:

1. Not filing the settlement application under Regulation 27;
2. Not paying the settlement amount within the time specified in the fast-track settlement notice; or
3. Not paying the settlement amount or submitting revised settlement terms as required under Regulation 28;

SEBI may initiate or continue the specified proceedings against the applicant.

Further, the applicant shall be permitted to file a settlement application only at a subsequent stage of the proceedings, as specified under Regulation 12(1).

Reference: Regulation 29

Chapter VII | Settlement with confidentiality

Q.44 What is settlement with confidentiality?

It is a special mechanism in which the applicant seeks settlement by giving substantial assistance to SEBI. This is a cooperation-based settlement mechanism, not an ordinary route for paying to close an default.

Settlement with confidentiality is a mechanism under which SEBI may grant confidentiality benefits to a person who provides substantial assistance in an examination, investigation, inspection or audit concerning violations of securities laws by another person.

In return, the applicant may be permitted to settle specified proceedings by admitting the default for the limited purpose of settlement.

To avail this benefit, the applicant must:

1. Make complete and truthful disclosure of relevant information, documents and evidence.
2. Cooperate fully and continuously with SEBI.
3. Cease participation in the securities law violation upon disclosure, unless otherwise directed by SEBI.
4. Not conceal, destroy or manipulate relevant evidence.

Under Regulation 33, the applicant’s identity and information furnished are treated as confidential, subject to specified exceptions, including disclosures required by law.

An application under this Chapter shall be made only in cases prior to or pending an examination, investigation, inspection, or audit. Grant of confidentiality is discretionary and subject to SEBI’s satisfaction.

Reference: Regulation 30–33

Chapter VIII | Settlement orders

Q.45 Can a settlement order be revoked?

Yes. SEBI may revoke a settlement order on the following grounds:

1. Non-compliance: The applicant fails to comply with any term of the settlement order.
2. Incomplete or false disclosure: SEBI subsequently discovers that the applicant did not make full and true disclosure.
3. Violation of undertakings or waivers: The applicant breaches any undertaking or waiver furnished during the settlement process.

Before revoking the settlement order, SEBI must provide the applicant an opportunity of hearing, as required under Regulation 39(2).

Upon revocation, SEBI may restore or initiate proceedings relating to the settled matter. Further, any amount already paid under the settlement shall not be refunded, as provided under Regulation 39(3).

Reference: Regulation39

Q.46 What is the consequence of revocation?

Where a settlement order is revoked:

1. Restoration or initiation of proceedings: SEBI may restore or initiate proceedings against the applicant in respect of the matter covered by the revoked settlement order.
2. No refund of settlement amount: Any amount already paid by the applicant under the settlement shall not be refunded, as expressly provided under Regulation 39(3).
3. Loss of settlement protection: The applicant can no longer rely on the revoked settlement order to claim that the specified proceedings have been conclusively settled.

Further, under Regulation 40(3), the protection against using settlement proposals or representations as evidence under Regulation 40(2) ceases to apply where the settlement order is revoked.

Thus, revocation removes the protection arising from settlement, exposes the applicant to renewed enforcement proceedings and results in forfeiture of the amount already paid.

Reference: Regulation39

Q.47 Can a settlement application be refiled after revocation of the settlement order?

The SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2026 do not expressly provide for refiling a settlement application after revocation of a settlement order.

Regulation 39(1) provides that upon revocation, SEBI may restore or initiate proceedings relating to the settled matter. However, unlike Regulation 7(4) and 7(5), which expressly permit refiling of rejected or withdrawn applications, Regulation 39 contains no corresponding provision for refiling after revocation.

Therefore, there is no express right to refile a settlement application after revocation.

Chapter IX | Miscellaneous [Transition provisions]

Q.48 Is there a new power to relax procedural timelines?

Yes. The WTM Panel may relax certain procedural timelines under Regulation 42. Both conditions in Regulation 42(1) matter: the missed deadline must not be more than 30 days old, and failure must result from circumstances beyond the applicant’s control. The Panel may impose conditions, and the rule does not create an automatic extension.

Reference: Regulation42(1)

Q.49 Can the 60-day pre-SCN and 90-day post-SCN deadlines be relaxed?

No. Regulation 42(2) expressly excludes these filing limits. These two initial filing periods are expressly carved out by Regulation 42(2).

Reference: Regulation42(2)

Q.50 Is there a one-time application opportunity for pending proceedings?

Yes. As per Regulation 4(3), entities against whom specified proceedings were pending as on the commencement date of the Regulations are eligible to avail the one-time settlement opportunity, if settlement application was previously not filed or if filed earlier application was rejected, returned or withdrawn under the 2018 Regulations.

Such application must be filed within 90 days from commencement of the Regulations, and the settlement amount shall be 20% higher than the amount calculated under Regulation 10, as provided under Regulation 4(4).

Example: ABC Ltd. received a show-cause notice from SEBI in 2025 for alleged non-compliance with securities laws. The company had filed a settlement application under the 2018 Regulations, but it was rejected. If the proceedings were still pending when the 2026 Regulations came into force, ABC Ltd. may avail itself of the one-time opportunity by filing a fresh settlement application within the prescribed 90-day period.

If the settlement amount calculated under Regulation 10 is Rs. 10 lakh, the amount payable under this special opportunity would be Rs. 12 lakh, reflecting the additional 20%, subject to other applicable settlement terms.

Reference: Regulation4(3)–(4)

Q.51 What happens if the WTM Panel had already approved terms before commencement?

Approved terms continue to govern that pending application under Regulation 44(i). Regulation 44(i) preserves the already approved terms even if payment or final administrative steps remain pending. The applicant should follow the approved terms and relevant communication rather than independently recalculating the amount under the new formula.

Reference: Regulation44(i)

Q.52 What happens if the Panel of Whole Time Members had already approved the settlement terms before commencement of the 2026 Regulations?

Where the Panel of Whole Time Members (WTM Panel) had already approved the settlement terms under the 2018 Regulations, the application shall continue to be processed as per those approved terms, even if payment or issuance of the final settlement order is pending.

Example: ABC Ltd. filed a settlement application under the 2018 Regulations, and the WTM Panel approved a settlement amount of Rs. 15 lakh on 1 November 2026. However, the company had not paid the amount before the commencement of the 2026 Regulations. In such a case, ABC Ltd. would continue with the already approved settlement amount of Rs. 15 lakh, without recalculation under the 2026 Regulations.

Reference: Regulation 44(i).

Q.53 What happens if the HPAC had recommended settlement terms but the WTM Panel had not approved them?

Where the High Powered Advisory Committee (HPAC) had recommended settlement terms under the 2018 Regulations but approval of the WTM Panel was pending, the applicant has two options:

Continue processing the application with the settlement amount recommended by HPAC under the 2018 Regulations; or

Opt for fresh processing of the application under the 2026 Regulations.

The applicant must exercise either option within 30 days from receipt of SEBI’s notice.

Example: XYZ Ltd. filed a settlement application under the 2018 Regulations, and HPAC recommended a settlement amount of Rs. 20 lakh on 2 November 2026. However, the WTM Panel had not approved the recommendation when the 2026 Regulations commenced. XYZ Ltd. may either continue with the HPAC-recommended amount of Rs. 20 lakh or opt for fresh processing under the 2026 Regulations, where the settlement amount would be determined afresh. The company must communicate its choice within 30 days of receiving SEBI’s notice.

Reference: Regulation 44(ii).

Q.54 What happens if HPAC had not recommended settlement terms before commencement of the 2026 Regulations?

Where a settlement application was pending under the 2018 Regulations and HPAC had not made any recommendation before commencement of the 2026 Regulations, the application shall be processed under the 2026 Regulations, including a fresh meeting of the Internal Committee.

Example: PQR Ltd. filed a settlement application under the 2018 Regulations in September 2026. Although the application was under consideration, HPAC had not recommended any settlement terms by the commencement of the 2026 Regulations. In such a case, the application would be processed under the 2026 framework through a fresh Internal Committee meeting, and the settlement terms would be determined in accordance with the new Regulations.

Reference: Regulation 44(iii).

The article is written by Ms. Radhika Varade

The post Chapter-wise frequently asked questions on SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2026. first appeared on MMJC.

An InvIT releases capital from infrastructure assets, but its funding needs continue after the initial portfolio is transferred. Further acquisitions, asset improvements, maintenance and refinancing require access to fresh capital, while distribution obligations limit the cash retained within the trust.

SEBI has developed this funding framework through amendments to the InvIT Regulations and circulars that translate those permissions into issue procedures, pricing rules and reporting requirements. This article traces the development of unit fundraising and debt funding separately, highlights the main changes and examines the policy direction they reveal. The central trend is greater access and flexibility, accompanied by more specific safeguards and accountability.

1. Fundraising through units

The original regulations already recognised subsequent unit-issue routes. Later reforms made them more usable by widening investor access, specifying transaction procedures and addressing pricing and execution constraints. The table combines regulatory amendments with material circular-based developments. Historical entries explain the evolution; operative requirements must be read with subsequent amendments and consolidations.

Highlights of the unit funding reforms

The circulars filled the gap between permission to issue units and the steps needed to complete an issue. Public-offer and private-placement documentation, rights-issue procedures, UPI applications and shorter listing timelines progressively reduced execution friction. Preferential-issue and institutional-placement refinements addressed pricing, sponsor participation and lock-in, rather than creating fresh fundraising routes each time.

Investor access widened alongside these procedural changes. Lower public-offer entry thresholds and a broader strategic-investor category expanded the potential subscriber base. Private-to-public conversion provided another route to public capital. Subordinate units addressed acquisition consideration and valuation gaps, rather than bringing fresh cash into the trust. DRs represent a further channel for foreign participation; consultation or Board approval must be distinguished from final operational requirements.

What the unit funding trend shows

The direction is towards repeat access to capital across the life of an InvIT. SEBI has progressively adapted issue procedures to different investor groups and transaction situations. NAV-linked pricing for privately placed InvITs and the conversion reforms show that the framework is also responding to differences in liquidity and market access.

Greater flexibility has been paired with pricing benchmarks, disclosure, valuation and approval conditions. The development is therefore broader than adding instruments: it is building a more workable unit market in which an InvIT can return for capital and investors can assess the terms on which they participate.

2. Debt funding

SEBI expressly permitted listed InvITs to issue listed debt securities in 2017. Debt funding also covers eligible loans from banks, financial institutions, NBFCs and other lenders, as well as overseas borrowing where permitted, at trust, HoldCo or SPV level. The table traces changes affecting consolidated capacity, debt-market access, permitted uses and debt-related reporting. Lender rules and FEMA conditions continue to apply separately.

Highlights of the debt funding reforms

The main expansion was the conditional increase in the borrowing ceiling from 49% to 70% in 2019. SEBI’s Board memorandum recognised that distribution obligations left limited retained cash for acquisitions and that the existing cap constrained growth. Listed debt securities and commercial paper added market-based channels, while the consolidated framework continued to capture borrowing across the trust and underlying entities.

Later changes focused on the quality and use of debt capacity. The 2023 cash-equivalent and denominator clarifications refined leverage measurement; netting cash against borrowings was not first introduced that year. The 2025 issuer-rating and distribution-record changes clarified eligibility for higher borrowing, while hedging permission addressed interest-rate risk on existing debt.

The 2026 changes recognised expenditure over an asset’s life, including specified enhancement, major maintenance and eligible refinancing. The August NDCF circular connected debt-funded road maintenance with distribution calculations, subject to approvals, auditor certification and disclosure of future effects. This is not a general permission to distribute borrowed money.

What the debt funding trend shows

The direction has moved from a borrowing ceiling towards a more complete framework covering how debt is raised, measured, deployed and monitored. Capacity has expanded, but higher leverage still depends on eligibility, approvals and specified uses. Reporting and valuation requirements make the associated obligations more visible.

The later reforms also recognise that infrastructure financing continues after acquisition. Maintaining and improving an asset, managing interest-rate exposure and refinancing eligible liabilities are part of that cycle. SEBI’s approach accommodates these needs while requiring the finance team to account for their effect on consolidated leverage and future cash available for distribution.

Conclusion

Drawing from the development of the equity market, SEBI’s next focus for InvIT units may increasingly be on making existing fundraising routes quicker and more effective, widening investor participation and improving liquidity and price discovery. Further alignment with equity-market practices could support this progress, while retaining safeguards suited to the InvIT structure.

For debt, the next stage may focus on easier repeat issuance, better access to longer-term funding and greater visibility over repayment obligations and their impact on distributions.

Source references

The tables combine regulatory amendments with relevant fundraising circulars, including historical requirements subsequently amended or consolidated. General governance circulars are excluded unless materially connected with fundraising. The 2026 DR entry describes framework development rather than assuming operational availability.

1. SEBI InvIT Regulations and amendment footnotes
2. SEBI InvIT Master Circular dated 11 July 2025 Chapters 2 to 16 and 21
3. Institutional-placement pricing circular dated 8 February 2024
4. Financial disclosure review dated 7 May 2025
5. Private-to-public conversion review dated 8 August 2025
6. Permitted borrowing uses circular dated 15 May 2026
7. NDCF circular dated 14 August 2026

The article is written by Ms. CS Rutuja M Umadikar

The post The Evolution of InvIT Fundraising Through Units and Debt first appeared on MMJC.

From eligibility criteria and financial track records to shareholder readiness, investor allocation, fundraising costs and listing timelines — these proposals could require companies to revisit their IPO strategies.

For promoters and companies preparing to go public, the key is to evaluate these potential changes early rather than wait until the filing stage.

Swipe through to explore six key areas that may need attention.

Click here to read more!

The post SME IPO rules may be changing. Is your IPO preparation keeping pace? first appeared on MMJC.

Section 252(3) of the Companies Act, 2013 empowers the National Company Law Tribunal (NCLT) to restore a struck-off company and make just directions to place affected persons, as nearly as possible, in their position without the strike-off.

However, it is pertinent to note that restoration is often accompanied by cost. Rule 87A(4)(c) of the NCLT Rules, 2016 empowers the tribunal with discretion to pass a restoration order to direct the applicant or appellant to pay the Registrar of Companies “his costs of, and occasioned by, the appeal or application, unless the Tribunal directs otherwise”.

Restoration costs beyond making good the default:

The financial burden of restoration extends beyond making good the original default. The company must ordinarily complete its pending filings and pay the applicable filing fees and additional fees. Costs imposed as a condition of restoration are a further outlay, apart from the professional and procedural expenses of pursuing restoration. Rule 87A(4)(d) separately requires pending financial statements and annual returns to be filed within the time directed by the Tribunal. Payment of restoration costs does not replace those obligations or, by itself, extinguish liability for the underlying default.

It is therefore advisable for companies to comply with their filing requirements within the prescribed time. Eligible inactive companies should consider dormant status under Section 455, while continuing to meet the applicable requirements. A notice under Section 248(1) should also be addressed promptly with supporting documents within thirty days, to help avoid strike-off and the expense of seeking restoration.

If the company has already been struck off, restoration must be sought through the applicable remedy under Section 252. Where the NCLT allows restoration, but the applicant is aggrieved by the costs imposed, the cost direction may be challenged before the National Company Law Appellate Tribunal (NCLAT) under Section 421.

A power requiring a basis for assessment:

Rule 87A links the costs incurred by the Registrar of Companies with the proceedings and also preserves discretion of tribunal to direct otherwise. It specifies neither detailed assessment factors nor a monetary ceiling. A reasoned assessment should therefore consider the relevant expenditure, the facts and circumstances, and the identity and purpose of the person seeking restoration before fixing the cost condition.

The meaning of “costs” is therefore important to the exercise this discretion.

Definition of “Cost” – Law Lexicon :

Costs as meaning legal expenses. In the prosecution and defense of actions, the parties are necessarily put to certain expenses, or as they are commonly called costs; consisting of money paid to the Government for stamp duties to the officers of the Courts, and to the counsel and attornies for their fees, etc. (Tomlin)

For restoration, the question is what connected expenditure the applicant should reasonably bear.

Variation in restoration costs before NCLT Mumbai

The orders discussed below were passed between the period April’2026 to September 2026 by the NCLT, Mumbai bench. The cost imposed ranged between Rs. 25,000 to Rs. 3,00,000. The fourteen orders are grouped by the amount imposed.

These orders highlight the additional financial exposure that may accompany restoration. The variation does not, by itself, establish that the costs were excessive, since the facts and defaults differed. Some orders refer broadly to the company’s size, operations and conduct, or to continued business without statutory compliance. However, the orders do not consistently explain the computation or connect the particular amount with expenditure occasioned by the proceedings. Reasons for restoring a company, such as existing assets or pending litigation, do not by themselves explain the quantum of costs. These amounts relate only to the orders reviewed and do not represent a standard rate or cover all restoration orders passed by the Bench.

Reasonableness as the guiding consideration:

General Section 35 of the Code of Civil Procedure, 1908 (CPC) recognizes discretion over who pays costs and to what extent, subject to applicable law and rules.

A more detailed framework appears in Section 35 CPC as substituted for commercial disputes of specified value through Section 16 and the Schedule to the Commercial Courts Act, 2015, and in Section 31A of the Arbitration and Conciliation Act, 1996. Both expressly define costs by reference to “reasonable costs”.

These include witness expenses, legal fees and other connected expenditure; Section 31A additionally covers arbitration-specific expenses. Reasonableness calls for assessment of justified expenditure, rather than automatic recovery of the amount claimed.

Both provisions allow the court to decide whether costs should be paid, how much should be paid and when they should be paid. This is useful guidance when considering whether an applicant should bear restoration costs and, if so, what amount is justified.

The term “reasonable” as defined in Law Lexicon:

By the term “reasonable” is not meant expedient, nor that the conditions must be such as the Court would impose if it were called on to prescribe what should be the conditions. They are to be deemed reasonable where, although perhaps not the wisest and best that might be adopted, they are fit and appropriate to the end in view, and are manifestly adopted in good faith for that purpose.

The frameworks discussed above provides persuasive guidance; they do not directly govern Section 252. Rule 87A ordinarily places the costs incurred by the Registrar of Companies’ on the successful restoration applicant. An unsupported or disproportionate condition may be challenged before NCLAT.

Interestingly sub-section (3) of Section 35 of CPC as substituted for commercial disputes through Section 16 and the Schedule to the Commercial Courts Act, 2015 and Section 31A of the Arbitration and Conciliation Act, 1996 also provide factors that a court should consider while imposing the costs. The factors stated are stated below:

1. the conduct of the parties;
2. whether a party succeeded on part of its case, despite not being wholly successful;
3. whether a frivolous counterclaim caused delay;
4. whether a reasonable settlement offer was made and unreasonably refused; and
5. whether a frivolous claim was made and a vexatious proceeding instituted, wasting the court’s time.

The additional factor in (e) is expressly stated in commercial Section 35, but not separately listed in Section 31A(3). These factors should be adapted to restoration only where relevant.

In restoration proceedings, the useful guidance is to assess relevant conduct and the circumstances causing expenditure, while keeping Rule 87A’s specific wording and the applicant’s role in view.

Appellate relief from inadequately justified costs:

In the light of above, let us discuss some orders where appeal was preferred on the cost imposed while restoring the name.

NCLAT’s restoration decisions illustrate how these considerations can guide the assessment:

Income Tax Department v Registrar of Companies[13]

• Discretion based on the applicant’s role. NCLT Amaravati imposed Rs. 25,000 in each of four Income Tax Department applications for Gazette publication and counsel fees. NCLAT noted that the Department sought restoration for statutory tax assessments and was distinct from the defaulting companies. One government body was facilitating another’s functions. The amount also lacked adequate determination and justification. NCLAT quashed all four directions and ordered refund within four weeks, demonstrating the importance of the applicant’s identity and purpose.

Ganton Projects Private Limited v Registrar of Companies (NCT of Delhi and Haryana)[14]

• Determination before quantification. In Ganton Projects, NCLT Delhi imposed Rs. 10 lakh. The company challenged the amount as disproportionate and unreasoned, referring to additional filing fees, natural justice and the Companies Compliance Facilitation Scheme, 2026. NCLAT rejected inadvertence as an excuse for serious filing defaults but required a rational correlation between the costs imposed and those occasioned by the proceedings. It reduced the amount to Rs. 5 lakh because the original direction lacked a reasoned computation. The Rs. 2 lakh interim deposit was adjusted, leaving Rs. 3 lakh payable.

VIP Farms Private Limited v Registrar of Companies (NCT of Delhi and Haryana) [15]

• Rationality and proportionality in VIP Farms. NCLT Delhi imposed Rs. 7 lakh by multiplying Rs. 25,000 by the years considered for default. NCLAT found no explanation for that annual rate and no determination connecting it with the Registrar of Companies’ costs occasioned by the proceedings. Filing defaults were established but did not justify this calculation. Referring to section 35 CPC, NCLAT required reasons and logic and a balance between the magnitude of default and the financial burden. It reduced costs to a consolidated Rs. 4 lakh while retaining the finding of filing default. The reduction addressed an unsupported assessment however, the judgment gives no itemized calculation or formula explaining precisely why Rs. 4 lakh was chosen.

Conclusion:

The orders discussed offer a practical lesson: the cost of keeping a company compliant can be much lower than the cost of bringing it back onto the register. Timely action can therefore save companies’ avoidable expense. A Company Secretary plays an important role in this process by monitoring filing requirements, advising on dormant status where appropriate, and ensuring prompt responses to strike-off notices.

When restoration is sought, Tribunals should explain the basis for the costs imposed, taking guidance from the principles discussed above. This would help ensure that the amount reflects the circumstances of the case and places a reasonable and proportionate burden on the applicant.

The article is written by Ms. Kavita Dosani

The post Restoration Comes at a Cost: Reasonableness and Judicial Discretion under Rule 87A of the NCLT Rules, 2016 first appeared on MMJC.

An InvIT may hold its infrastructure investments in two ways. It may directly hold an SPV which owns the infrastructure project, or it may invest through an intermediate Holding Company (“HoldCo”), which in turn holds one or more underlying SPVs.

The HoldCo layer, however, was not part of the original InvIT framework introduced in 2014. It was subsequently added after market participants represented to SEBI that the original structure did not fully accommodate the manner in which infrastructure businesses were actually organised in India. The introduction of the HoldCo therefore represents an important stage in the evolution of the InvIT framework.

This article looks at why the HoldCo layer became necessary, the concerns considered by SEBI while allowing it, how the structure is being used by InvITs today and, how the tax framework has adapted to this additional layer

How did the HoldCo layer come into the picture?

Under the original InvIT Regulations, an SPV was required to hold at least 90% of its assets directly in infrastructure projects and was not permitted to invest in another SPV. Thus, the structure originally contemplated was broadly:

InvIT
↓
SPV
↓
Infrastructure Project

After the Regulations were notified, market participants represented to SEBI that this structure did not always match the manner in which infrastructure businesses were actually organised.

SEBI’s consultation paper dated August 20, 2015, recorded that infrastructure assets in India were commonly held through different project-specific SPVs, with promoters often creating one or more holding companies above these SPVs. In some cases, separate Holdco were also used for different categories of projects, such as operational and under-construction assets. Market participants therefore requested that an InvIT should be permitted to acquire the infrastructure portfolio through the existing Holdco instead of necessarily acquiring each SPV directly.

The industry identified the following practical reasons for permitting such a structure:

• Restrictions under concession agreements: In infrastructure projects, particularly PPP projects, the concession agreement may restrict a direct change in control of the project SPV. If the InvIT were required to directly acquire the SPV, such a restriction could make the transaction difficult or even prevent it. A transfer at the Holdco level could, depending upon the contractual terms, allow the existing project SPV structure to continue without disturbing the concession arrangement.

• Consent requirements under project contracts: Certain project agreements, such as Power Purchase Agreements in the power sector, may require prior consent where there is a direct change in control of the project SPV. Obtaining such consents for several SPVs could make the InvIT transaction more time-consuming and operationally difficult. Retaining the existing Holdco–SPV structure could reduce the need for restructuring each project company separately.

• Existing lender security over SPV shares: Infrastructure projects are commonly financed on a project-finance basis, under which lenders may have a pledge over the shares of the project SPV. If the InvIT were to directly hold those shares, the InvIT’s investment itself could become subject to such lender security. Market participants therefore considered it preferable in some cases to preserve the lender security at the existing HoldCo–SPV level rather than bringing it directly onto the InvIT’s holding.

• Tax, financing and investor-exit considerations: Market participants also pointed to possible tax inefficiencies, lender-related issues and difficulties in providing an exit to existing financial investors if the existing HoldCo could not be retained. Requiring every portfolio to be reorganised into a direct InvIT–SPV structure could therefore involve both transaction costs and commercial complications.

Thus, the request for a HoldCo was not simply a request to permit another corporate layer. The broader concern was that the InvIT Regulations should be capable of accommodating existing infrastructure ownership and financing structures without requiring unnecessary restructuring of the underlying projects

How did SEBI’s original HoldCo proposal change after consultation?

When SEBI first proposed the HoldCo structure in August 2015, it sought to permit one additional layer between the InvIT and the underlying SPVs, but subject to conditions intended to preserve the InvIT’s control over the infrastructure assets. Comments received during the consultation process led SEBI to modify some of these conditions before the HoldCo framework was finally introduced. The important changes are summarised below:

Yes. The content can be retained while cutting repetition and making each cell more direct.

The comments received on SEBI’s original proposal show that the challenge was two-sided. On one hand, the proposed HoldCo had to be flexible enough to accommodate existing infrastructure structures. For this reason, the final framework moved away from treating the HoldCo merely as a passive entity holding SPVs and allowed it to directly hold infrastructure projects and undertake activities pertaining or incidental to such holdings. The distribution requirement was also modified so that the HoldCo could retain a limited portion of cash generated from its own activities, while cash received from underlying SPVs continued to be required to flow entirely upwards to the InvIT.

At the same time, allowing an additional layer also increased the need for control and oversight. Therefore, while greater flexibility was given at the HoldCo level, the governance requirements were strengthened—for example, the original requirement of having only one authorised representative on the board of an underlying SPV was replaced with a requirement for majority board representation. The final framework therefore represented a balance between commercial flexibility on one side and control, governance and cash-flow protection on the other.

How is the HoldCo structure being used today?

The HoldCo has now been part of the InvIT Regulations for almost a decade. However, market practice shows that it has not become the default structure for every InvIT.

SEBI’s register presently contains 27 registered InvITs. A review of the latest publicly available structures identified six InvITs presently using a disclosed HoldCo layer. Securities and Exchange Board of India

This table tells us something interesting. The HoldCo is not merely an additional layer used by every InvIT. Its utility becomes more visible where a portfolio contains a number of project-specific entities which can be held through an intermediate corporate structure. Citius and IndiGrid are good examples of this use.

Importantly, an InvIT does not have to choose exclusively between a direct-SPV structure and a HoldCo structure. Both can exist within the same InvIT.

Sustainable Energy Infra Trust (“SEIT”) provides a good example of an InvIT using both structures at the same time. SEIT directly holds two SPVs—Emergent Solren Private Limited and Mega Suryaurja Private Limited. In addition, SEIT directly holds Megasolis Renewables Private Limited, which functions as the HoldCo. Megasolis Renewables, in turn, holds three underlying SPVs—Astra Solren Private Limited, Neo Solren Private Limited and Brightsolar Renewable Energy Private Limited. Thus, in the same InvIT structure, some project SPVs are held directly by SEIT, while another group of project SPVs is held indirectly through the HoldCo, Megasolis Renewables

Its investment structure can therefore broadly be represented as:

SEIT

Direct route:

→ Emergent Solren

→ Mega Suryaurja

HoldCo route:

→ Megasolis Renewables

    ↓

    Astra Solren

    Neo Solren

    Brightsolar Renewable Energy

This shows that the HoldCo is not necessarily an alternative to the direct-SPV structure. It can operate alongside direct holdings within the same InvIT, depending upon the manner in which individual assets or groups of assets are structured.

Market practice therefore suggests that the HoldCo is being used as a flexibility mechanism rather than a default layer. This is broadly consistent with the reason for its introduction—the Regulations permit the InvIT to retain or accommodate an intermediate holding structure where the underlying commercial structure requires it.

The tax angle – did tax law also adapt to the HoldCo?

Tax was one of the issues SEBI itself identified when the HoldCo structure was being considered. In 2016, the tax framework had largely been designed around a single SPV → Business Trust structure. SEBI specifically noted that adding another corporate layer could have tax implications because the then-existing dividend distribution tax concessions applied to distributions by the SPV to the business trust.

The position subsequently became more accommodating. With effect from 2020, Dividend Distribution Tax was abolished and section 80M of the Income-tax Act, 1961 provided a deduction for inter-corporate dividends to the extent the receiving domestic company redistributed the dividend within the prescribed period. This helped reduce the cascading tax effect where dividend moved SPV → HoldCo → InvIT. The Income-tax Act, 2025, applicable from April 1, 2026, continues this principle through section 148, while section 223 read with Schedule V continues the special business-trust framework for qualifying income received from an SPV. Etds

The framework was further changed in August 2026 so that the exemption of qualifying dividend in the hands of a business-trust unitholder is no longer dependent on whether the SPV has opted for the concessional corporate tax regime under section 200.

Thus, tax law has over time reduced some of the tax friction caused by an additional corporate layer, particularly for dividend flows. However, it has not created a separate tax pass-through merely because an entity is called a “HoldCo” under the InvIT Regulations. The nature of the income and the entities through which it moves therefore continue to matter.

Conclusion

The introduction of the HoldCo layer shows how the InvIT framework has developed in response to practical market requirements. The original Regulations contemplated a relatively direct relationship between the InvIT and the project SPV. However, existing infrastructure businesses were often already organised through holding companies because of concession requirements, financing arrangements, contractual restrictions and other commercial considerations.

SEBI therefore permitted the additional layer, but with safeguards intended to ensure that the InvIT continued to retain control over the underlying SPVs and that cash flows, governance and regulatory oversight were not diluted merely because another entity had been inserted in the structure.

Current market practice also shows that the HoldCo has remained an optional structuring tool rather than becoming the standard InvIT structure. Some InvITs hold several SPVs through HoldCos, some continue to hold SPVs directly and some use both structures simultaneously. The HoldCo framework therefore reflects an attempt to give InvITs structural flexibility while preserving visibility and control over the infrastructure assets ultimately held for the benefit of unitholders.

The article is written by Ms. Rutuja Umadikar

This article is published on the Taxguru link below.

https://taxguru.in/sebi/sebi-invit-borrowing-limits-rbi-bank-lending-conditions.html

The post The HoldCo Layer in InvITs – Why was it introduced and How is it used Today? first appeared on MMJC.