Archive for year: 2025
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Open in new tab Representation on Consolidation of Directions
– Team Finserv | finserv@vinodkothari.com
In line with the Statement on Development and Regulatory Policies released by the Reserve Bank of India on October 10, 2025, we have submitted our representation on the draft directions issued thereunder. The submission presents our detailed observations, analysis, and suggestions aimed at facilitating the finalisation of a balanced and practical regulatory framework for Non-Banking Financial Companies (NBFCs).
Our recommendations are intended to support the regulatory objectives of transparency, prudence, and stability, while ensuring operational feasibility for the industry.
Digi to dizzy highs: Digital gold shines in regulatory dark spot
– Vinod Kothari & Dayita Kanodia | finserv@vinodkothari.com
An industry report on a digital gold seller website estimates the FY 25 digital gold volume of 25 tons, which is a whopping Rs 30 lakh crores. While that number may be mind-boggling and may be inclusive of other forms of electronic gold (gold ETFs for example), there is no doubt that digital gold, sold on platforms from Paytm to Google Pay, to a wide variety of electronic platforms, has attracted the fancy of crores of investors. Turnover reported on the financials of some of the digital gold sellers[1] is almost 90% in FY 24-25. Looking at these volumes, one may ask – What exactly are the consumers actually buying and who is accountable for all these investments if anything goes wrong?
In this article the author discusses the current regulatory void in which digital gold is surging, and why it is so surprising that SEBI has acquired powers to regulate commodity exchanges, while a regulated digital gold scheme called Electronic Gold Receipts (EGRs) has already been launched under the aegis of that regulatory power.
The golden shine
The love that Indians have for gold doesn’t need elaboration; India is the world’s largest household gold holding country. The Morgan Stanley report that the stock of gold with Indian households may be Rs 336 lakh crores was cited all over. At the same time, the prices of gold have continued to surge.
With gold becoming increasingly unaffordable for a large section of the Indian population, many have turned to digital gold, a concept that allows individuals to invest with amounts as low as ₹100 and own a fraction of the “gold commodity.”
The three major platforms offering digital gold let you buy gold with Re 1, Rs 10 and Rs 100 – whatever infinitesimals fractions of the virtual yellow metal that you want to buy, and these sales have reached dizzy heights. One such digital gold seller reported a FY 24-25 sale of Rs 66230 crores, registering an increase of 89% over the previous year.
Current Regulatory Vacuum:
The typical search for law about any new instrument would be – which of the existing laws cover a new-age instrument called digital gold? It would be counter-intuitive to expect that laws would always house the provisions for transactions that evolve in a dynamic world. Laws evolve much slower than situations, transactions, dealings, interests or the way people perceive or deal in value or wealth.
However, some of the potential laws would be – is it a “security” under the Securities Contracts Regulation Act? Is it a “deposit” being a financial transaction, and may come under the bar of the Banning of Unregulated Deposit Schemes Act? Given the fact that digital gold is backed, at least supposedly, by a physical gold, is it similar to trading in warehousing receipts under the Warehousing Development and Regulation Act? And so on.
The easiest to dismiss will be the Warehousing law, which was obviously intended for warehouse keeping and transferability of warehousing receipts. It was mostly intended for agricultural commodities. Some metals have also been notified by the WDRA, but gold is not one of them, and for very understandable reasons.
The content about transactions in digital gold being deposit transactions also seems easy to dismiss, at least theoretically, as the intent of a digital gold seller is not to receive money with a promise to return it. In fact, there is nothing to return, as the money has been exchanged for a right over an infinitesimal portion of gold. The digital gold seller makes a purported sale; a sale is not a deposit. The one who sells digital gold is actually selling the gold backing it. But that itself may be fallacy, because a sale requires appropriation and ascertainment of the goods, and given that the transactions in digital gold are for sizes as small as Rs 100, it is unlikely that physical gold of as much quantum would have been separated. So, if it is not appropriation or segregation of the underlying goods, then it may very well be construed as a receipt of money without the transfer of goods, and hence, deposit regulations may be brought in.
Clearly, digital gold is being traded as an investment product, and not as a device to actually take take or give delivery of the gold. Therefore, instinctively, the focus should be on the Securities Contracts (Regulation) Act (SCRA). It is bought and sold in fixed denominations of money; therefore, it also has the optical similarity with a typical financial instrument. If one sees the definition of “securities” under the SCRA, it is an inclusive definition – meaning thereby that the law does not define what a security is, but lists out what securities are covered by the law. Two points – that list itself has continued to expand over time, either because of statutory enlistment of new items, or because of the power granted to Central Govt under sec. 2 (1) (h) (iia).
In 2015, powers to regulate commodity exchanges and commodity derivative transactions were conferred on SEBI, by amending the SCRA. SEBI itself has framed a scheme for Electronic Gold Receipts, discussed below. Hence, dealing with digital gold is not alien to SEBI’s domain. In any case, the Central Govt has the power to notify digital gold as a security.
On 8th Nov., 2025, SEBI issued a press release, less than even the old text form statutory warning cigarette packets, saying that digital gold is unregulated, and investors need to be aware that investor protection mechanisms under securities market purview shall not be available for such digital gold investments. However, what is the reason for the regulators waiting and watching a ballooning market, without a definitive regulatory clarity?
This unregulated nature of digital gold was also highlighted in the case of Nishchay Babu Arkalgud vs Jar Gold Retail Private Limited, wherein the Karnataka High Court observed:
The evolution of digital gold, as a commercial concept, is not in dispute. However, the materials on record disclose that serious allegations are surfaced, including assertions that physical gold could not be traced when demanded, notwithstanding the assurances to the contrary.
Further, several customer complaints about dealings by the digital gold platform were noted as a part of the judgment, such as:
“This app has absolutely no credibility, you keep getting prompts that you’ve saved enough money to buy a gold coin, but every time just before placing order for gold coin, you get a message that gold coin is not deliverable. Also you can’t withdraw the amount you’ve saved, it only allows to withdrawal almost half of the amount. I mean, what even is the point of this application, why wouldn’t anyone just use a savings account? Lost case.”
Such comments are largely because of the unregulated nature of the product.
SEBI imposed ban for stock brokers
Earlier, digital gold was offered not only through digital payment applications but also by stock brokers registered with SEBI. However, under Rule 8(3)(f) of the Securities Contracts (Regulation) Rules, 1957 (SCRR), members of a stock exchange are prohibited from engaging in any business other than that of securities or commodity derivatives, except as a broker or agent, and only if such activity does not involve any personal financial liability.
SEBI observed that certain stock brokers were facilitating the buying and selling of digital gold for their clients, an instrument that does not qualify as a ‘security’ under the Securities Contracts (Regulation) Act, 1956 (SCRA). Consequently, through a letter dated August 3, 2021, SEBI informed stock exchanges that such activity violated Rule 8(3)(f) of the SCRR and directed members to refrain from undertaking it.
Pursuant to SEBI’s communication, the NSE issued a circular dated August 10, 2021, instructing its members to discontinue the offering of digital gold and ensure strict compliance with applicable regulations. Members who were engaged in such activities were granted one month to cease facilitating the buying and selling of digital gold on their platforms.
No for stock brokers, but no holds-barred for electronic platforms
SEBI barring its regulated securities intermediaries from dealing in or advising on digital gold did not stop the whole range of other popular public places having millions of hit every day – the e-commerce platforms, payment gateways, wallets or online payment devices. Almost all of them are aligned to some or the other digital gold seller, and permit both buying and selling of digital on or through their platforms.
RBI, has till now maintained silence on such activities, and therefore, several NBFCs have been offering digital gold on their platforms.
The rule is simple – wherever there is a footfall, there is an opportunity to make money by selling digital gold.
In a regulatory blackhole, investors continue to flock to a market where there is least oversight. There is supposedly a deposit of gold, a custodian and trustee mechanism, but nowhere do any of the rules require these custodians or the trustees to be regulated, which, in fact, they are not. In short, even if the existing major players abide by some unwritten self-assumed rules of fair game, there is no entry barrier in the business, nor are there any mechanics of clearing or settlement of trades done on the multitudes of platforms which are now freely selling such digital gold. The scenario, if the past history of unregulated instruments is any indication, is the perfect recipe for an implosion.
As a key principle, wherever someone markets an investment-based product to the public, there is a fiduciary relationship. Which means there is someone on whom investors are putting their trust. Investors can put trustin an eco-system which has regulators, supervisors, capital requirements, mechanics to ensure that the digital paper at no point is less than the real metal behind. If neither of these are there, how can each regulator keep looking sideways for the other regulator to rise to the occasion?
Creation of a Self-Regulatory Organisation for digital gold
On December 2, 2025, the India Bullion and Jewellers Association (IBJA) announced the establishment of a self-regulatory division for the digital gold industry. This may have been influenced by SEBI’s warnings (referred above) to investors that digital gold products are neither regulated as securities nor as commodity derivatives, with SEBI feigning lack of jurisdiction.
Among others, the self-regulatory framework has proposed rules on minimum purity, physical backing, insurance, and segregation of the underlying bullion in addition to consumer Protection rules on clear communication of risks, fees, and a defined grievance redressal mechanism.
Further, IBJA will establish a Digital Gold Transparency Portal to publicly display anonymized, aggregated compliance data and summaries of audit findings.
The final self-regulatory framework is set to be published by March 31, 2026.
The key features of an SRO, essential for its credibility, as pointed out in RBI’s Omnibus Framework for recognising Self-Regulatory Organisations (SROs) for Regulated Entities (REs), include the following:
- Authority & Governance: Power to set/enforce standards with strong, transparent governance.
- Rule-making & Oversight: Clear, consultative rules and monitoring of members.
- Conduct & Discipline: Defined codes with non-monetary penalties (e.g., reprimand, expulsion).
- Compliance Focus: Promote adherence to Reserve Bank of India regulations.
- Dispute Resolution: Standardized and transparent mechanisms.
- Surveillance: Effective monitoring of members and sector.
- Ecosystem Development: Promote best practices aligned with regulations.
. SROs are, of course, bodies consisting of the industry participants, but in order to be optically and substantively having the right to introduce code of conduct, these bodies need to have leadership that is sufficiently empowered to lay such code. It is the constitution and independence of the SRO that will render it credibility.
In any case, self regulation is not the alibi for lack of regulation – therefore, the author still strongly feels that the instrument has become far too retail-centric and far too popular for the regulators to keep shunning from action.
Electronic Gold Receipts (EGRs)
While digital gold is currently in a state of regulatory blackhole,SEBI recognises EGRs, a scheme which was launched after a 2023 Budget announcement. Till 2024, SEBI was still fine tuning the Master Circular, which was issued in June, 2024. This has elaborate mechanism for registered vault managers who store the physical gold against which EGRs are issued, complete with insurance, grievance redressal mechanisms, etc. All of this atypical of a regulated instrument. But given the competition EGRs face from their unleashed brother, EGRs are nowhere in the range of visibility, compared to digital gold.
Concluding Remarks
The volumes of digital gold keep rising while the instrument itself continues to stay in a state of regulatory dark spotwith some warning circulars issued by the SEBI such as the one on Nov 8. However, it lacks any regulatory clarity, any authority which can take accountability if anything goes wrong.
In this prevailing environment for digital gold, every player continues to revel and make money. The digital gold sellers are reporting PAT rises of over 200%; the GST department must be enjoying the 3% GST it charges on the trades, and each of the multiple platforms that facilitate the trades likewise make money. If gold is one of the metals that has least bid-ask spreads, then the question is – where is all this profit, for so many of the players, coming from?
[1] Some of the digital gold sellers are private companies, whose annual reports are not in public domain. Many of the numbers stated in the article are, therefore, based on the financials/other reports on the website of Augmont.
Guide to Cross Border Mergers
– Neha Malu and Anushka Ganguly | resolution@vinodkothari.com
India FSAP 2025: Key Takeaways and Policy Recommendations
– Chirag Agarwal, Assistant Manager | chirag@vinodkothari.com
A joint World Bank-IMF team visited India in 2024 to update the findings of the Financial Sector Assessment Program (FSAP), which took place in 2017. World Bank on October 30, 2025 released the report1 which summarises the main findings of the mission, identifies key financial development issues, and provides policy recommendations.
We were in touch with the FSA team for our recommendations on certain aspects. The FSA recommendation on leasing (discussed below) is based on our feedback.
This article discusses in brief the key takeaways from the FSA Report.
Key Takeaways:
- Stronger and More Diversified Financial System: As per the report, India’s financial system has become more resilient, inclusive, and diversified since the previous 2017 assessment. Non-bank financial institutions (NBFIs) and market financing (other than from banks) now account for 44% of total financial assets—up from 35% in 2017—reflecting deeper financial intermediation beyond banks.
- Reforms Critical for India’s 2047 Growth Vision: The report suggests that to achieve the target of a USD 30 trillion economy by 2047, India must modernize its financial architecture to channel both domestic and foreign savings into productive investment, deepen capital markets, and attract long-term infrastructure and green financing2.
- Macroprudential Tools: The assessment highlights rising systemic risks due to financial diversification and interlinkages. It recommends expanding data collection and deploying macroprudential tools—including introducing Debt Service to Income (DSTI) limits across banks and NBFCs and building counter-cyclical capital buffers (CCyBs) for banks to manage liquidity, intersectoral contagion, household credit risks, and climate-related financial risks
- Regulatory and Supervisory Enhancements: While India’s regulatory oversight framework for banks, insurers, and markets is broadly sound, lingering issues include state influence on regulators, limited powers over governance of state-owned entities, and gaps in conglomerate and climate-risk supervision. The report suggests that efforts should be made to ensure better coordination between regulators and extending the scope of the regulatory and supervisory frameworks.
- Banking and NBFC Reforms: The report stresses adoption of IFRS 9, enforcing Pillar 2 capital add-ons, and elimination of prudential exemptions for state-owned NBFCs. It also suggests considering additional liquidity requirements tailored to different business models.
- Tax treatment of leasing: The report suggests that to diversify MSME finance the tax treatment of leasing should be reviewed to ensure an equal treatment between lease and debt transactions. At present, interest on loans is exempted under the GST laws and hence, there is no GST levied on the loan repayments, however, the entire rentals are subject to GST in case of financial leases.
- Transfer of oversight function of NHB to RBI: While regulation of HFCs moved to RBI in 2019, supervision still rests with NHB, which follows a limited, compliance-based approach. Shifting supervision to RBI would strengthen oversight and remove the conflict of interest since NHB also acts as promoter and refinancer for HFCs.
- MSME Finance: The report recommends integrating TReDs with the e-invoicing portal for automatic invoice uploads. It also suggests incentivizing large buyers and mandating state-owned enterprises to upload invoices to improve cash flow for MSMEs. Further, the report also mentions that SIDBI’s funding support to NBFCs, including NBFC factors, should be increased, along with developing credit enhancement and guarantee facilities for NBFC bonds and MSME loan securitizations.
- https://documents1.worldbank.org/curated/en/099103025110514063/pdf/BOSIB-606133f7-2e00-4696-9b41-57f3737d140d.pdf
↩︎ - See our resources on sustainable financing: https://vinodkothari.com/resources-on-sustainability-finance/ ↩︎
Exempting IFSCA-registered Finance Companies from section 186
Ayush Kumar – Executive | corplaw@vinodkothari.com
Background:
With a view to promoting ease of doing business for Finance Companies (FCs) operating in the IFSC jurisdiction, the MCA, upon the request of the IFSCA, has vide its notification dated November 3, 2025, extended the exemptions available under section 186 of the Companies Act, 2013, to FCs registered with the IFSCA – similar to those already available to NBFCs registered with the RBI.
Exempted companies – existing exemption list
Under the existing framework, the following companies were exempted from section 186 (except sub section (1)), if loan given, guarantee made, security in connection with loan given, investment in securities done was in the ordinary course of business of:
- Banking company
- Insurance company
- Housing finance company
- Registered NBFCs
- which is in the business of giving loans or providing any guaranty or security for due repayment of any loan
- Company established with the object of and engaged in the business of providing infrastructural facilities
Finance Companies registered with IFSCA – added in the exemption list
Finance Companies are defined under Rule 2(1)(e) of IFSCA (Finance Company) Regulations, 2021.
- FCs should be separately incorporated
- It is not a Banking Unit registered with IFSCA
- It deals in permitted activities under Reg 5(1)
- It cannot accept public deposit from residents / non-residents
FCs engaged in the following permitted activities (Eligible FCs) are exempted from the applicability of sec 186:
- Lend in the form of loans, commitments and guarantees, credit enhancement, securitisation, financial lease, and sale and purchase of portfolios
- Global/Regional Corporate Treasury Centres
The condition for availing the exemption remains the same as that for NBFCs and other companies i.e the loan / guarantee / security in connection with loan should be extended in the ordinary course of its business.
Related articles:
- IFSC Finance Company: Section 186 Compliance Not Required for Routine Financial Activities
- Two’s cute, three’s a crowd?
- Companies (Amendment) Act, 2017 brings relief under sections 185 and 186
Our resource centre on IFSCA – https://vinodkothari.com/resources-on-ifsca/
IFSC Finance Company: Section 186 Compliance Not Required for Routine Financial Activities
– Clarification provided in line with exemptions available to NBFCs
– Payal Agarwal, Partner | payal@vinodkothari.com
Section 186 of the Companies Act, 2013 specifies compliance requirements to be followed by a company in granting of loans, making investments, providing guarantee or security to any person or body corporate. For entities engaged in such activities in its “ordinary course of its business”, exemptions are provided through sub-regulation (11) of section 186.
Clause (a) of section 186(11) provides exemption for:
to any loan made, any guarantee given or any security provided or any investment made by a banking company, or an insurance company, or a housing finance company in the ordinary course of its business, or a company established with the object of and engaged in the business of financing industrial enterprises, or of providing infrastructural facilities;
The use of the expression “business of financing industrial enterprises” is explained to include:
- NBFC which is in the business of giving of any loan to a person or providing any guarantee or security for due repayment of any loan availed by any person in the ordinary course of its business. [existing provision]
- Finance Companies registered with IFSCA engaged in eligible permissible activities in its ordinary course of business (read more on Finance Companies here). [inserted vide the Companies (Meetings of Board and its Powers) (Amendment) Rules, 2025 notified on 6th November, 2025 (date of publication in Official Gazette)]
This brief snapshot provides an overview of the amendment:
Our other resources on Section 186 include:
- Two’s cute, three’s a crowd?
- Companies (Amendment) Act, 2017 brings relief under sections 185 and 186
See our Resource Centre on IFSCA here – https://vinodkothari.com/resources-on-ifsca/
Disclosure of ESG ratings – automated or still needs manual disclosure?
Ankit Singh Mehar, Assistant Manager | corplaw@vinodkothari.com
Background
Pursuant to the recommendations of the Expert Committee and as discussed in the SEBI Board meeting held on Sep 30, 2024 and outlined in SEBI Circular dated December 31, 2024, stock exchanges (‘SEs) were mandated to specify the process and timelines for system-driven disclosure (‘SDD’) for any new ratings or revision in ratings. Pursuant to this, NSE and BSE issued their respective circulars specifying the procedural requirements with respect to system-driven disclosures for the ratings (‘SDD Circulars’) on August 1, 2025.
The receipt and/ or change in ESG ratings is a disclosable event in terms of Regulation 30 of the Listing Regulations read with clause (3) of Sch. III.A.A thereof. Hence, a question arises on whether or not the same is also covered by the SDD Circulars, or whether a manual disclosure is still required on receipt/ change of ESG ratings.
What is an ESG rating?
ESG rating is defined under Reg 28B(1)(b) of SEBI (Credit Rating Agencies) Regulations, 1999. To put it simply, an ESG rating is essentially an opinion about (a) either an ‘issuer’ or (b) a security. The ESG ratings provide an opinion on the ESG profile or characteristics, and may either refer to the ESG risks faced by the entity or the impact it may have on the environment and the society, or both.
As per SEBI’s framework for ESG rating provider, an ESG rating provider (‘ERP’) uses either of the below-mentioned models:
- Subscriber-pays model – wherein ratings are solicited by the subscribers that may include banks, insurance companies, pension funds, or the rated entity itself.
- Issuer-pays – wherein the ratings are solicited by the rated entity, in terms of a written contractual agreement between such entity and the rating provider.
Disclosure requirement under Reg 30 of Listing Regulations
Any receipt of rating or revision in existing ESG rating is a ‘deemed material event’ and covered under clause (3) of Sch. III.A.A of Listing Regulations. Since the event emanates from outside the listed entity, such event is required to be disclosed to the SEs within 24 hours of such receipt / information.
Here, the following needs to be noted w.r.t. the disclosure requirements under Reg 30:
- Ratings received under both subscriber-pays and issuer-pays model (solicited as well as unsolicited) are required to be disclosed.
- Both upward and downward revision in ratings is required to be informed.
- Withdrawal of an existing rating is required to be disclosed
- Re-affirmation of an existing rating is required to be disclosed as well.
Automation of ESG rating disclosure
The SDD Circulars referred above, are applicable to both credit ratings and ESG ratings. Pursuant to the same, the ERPs are required to report the ESG ratings provided by them to the SEs. The manner of reporting by ERPs has also been provided in the SDD Circular itself. Once reported to the SEs, the ESG rating shall be automatically reflected on the website of the BSE and NSE.
Therefore, since SEs will get the ratings from the ERPs itself, both solicited and unsolicited ratings will be disclosed on the SE platform.
When does this SDD come into effect?
In terms of SDD Circulars, the disclosure of credit and ESG rating has become effective from August 2, 2025.
Actionable for the LEs?
Since the ESG rating shall be consumed by the SEs from the ERPs and auto disseminated on the website, there is no actionable for the LEs in relation to the disclosure of ESG rating under reg 30. However, LEs should monitor whether the ratings provided to them are reflected on SEs. In case any rating is not reported by the ERP, the LE may proactively disclose the same at its end.
Refer our resources below: