Tax deductions barred for legal settlements under select laws
In a notification issued on 23 April 2025, the CBDT stated that taxpayers cannot claim deductions for settlement payments arising from legal proceedings under the Securities and Exchange Board of India (SEBI) Act, 1992, the Securities Contracts (Regulation) Act, 1956, the Depositories Act, 1996, and the Competition Act, 2002.
This move seeks to settle long-standing ambiguity over whether such payments could be treated as deductible business expenditures under Section 37(1) of the Income-tax Act, 1961. The issue has been at the center of various legal debates, particularly in cases such as Income Tax Officer v. Reliance Share & Stock Brokers, where consent fees paid to SEBI were allowed as business expenses on grounds of commercial expediency.
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Mint
an hour ago
- Mint
Lost money to securities fraud? Don't count on a payout from investor protection fund
India's special fund to compensate investors harmed by securities violations has seen its corpus balloon over the years, but it has rarely been deployed. Expenditure from the Investor Education and Protection Fund (IEPF) dropped from ₹11.9 crore in FY23 to ₹2.8 crore in FY24, according to the annual report of the Securities and Exchange Board of India (Sebi) for 2023-24. That's when the number of awareness drives and educational campaigns has increased. The fund's balance doubled from ₹240.2 crore at the close of FY23 to over ₹533 crore as of March 2024. Constituted by an executive order in 2007 and formalized under the Sebi (IPEF) Regulations, 2009, to serve investor interests, it started with just ₹10 crore. This trend is mirrored at stock exchanges and depositories. Exchange protection funds, which pay out in the event of broker defaults, climbed to ₹2,793 crore by FY24 as spending declined. Depository-led investor protection funds also rose to ₹127 crore. Outside cases of broker insolvency, direct returns to harmed individual investors remain rare. Compensation is only made after Sebi issues a public invitation for claims, and investors have up to seven years to apply with proof of direct loss. Only 'eligible and identifiable" investors who can document their investment and the loss from the violation may be considered, and the ultimate decision lies squarely with the regulator. Above all, the payouts are discretionary, not mandatory. 'In practice, this makes it difficult for many investors to access the fund. Furthermore, proving a direct loss and establishing that actual restitution is a rare occurrence," saidRavi Prakash, securities lawyer at Corporate Professionals. 'While the law allows for it, the combination of Sebi's discretion, documentary requirements, and procedural delays has meant that restitution is still the exception rather than the norm." The Investor Education Protection Fund Authority (IEPFA) is entrusted with the responsibility of the IEPF. Emails to IEPFA and Sebi went unanswered till press time. Sumit Agrawal, founder of Regstreet Law and former Sebi officer, said, 'Sebi maintains that it lacks the authority to identify, verify, or compensate affected investors, arguing that it is not a 'Court' empowered to adjudicate claims or award restitution." According to Agrawal, rare exceptions such as the Roopalben Nareshbhai Panchal initial public offering scam or the Sahara case were possible only when the Supreme Court or special committees intervened and directly authorized refunds to victims. The Roopalben Panchal IPO scam highlighted both ambition and limits in enforcing restitution. Between 2003 and 2005, Panchal used over 14,000 fake demat accounts to corner shares across 16 IPOs—including Tata Consultancy Services Ltd and Yes Bank Ltd. Sebi identified over 1.2 million eligible beneficiaries and distributed over ₹23 crore by 2010, but some funds remained undistributed. In the Sahara case, as of early 2025, only ₹2,025.75 crore has been disbursed to about 1.16 million depositors via the CRCS-Sahara Refund Portal out of a potential ₹5,000 crore transferred for that purpose. Other cases, such as the Hindustan Unilever Brook Bond Mutual Fund insider trading matter, illustrate the long, uncertain journey that even obvious victims face trying to claim their due in India—the case remains stuck in litigation more than two decades after the alleged violation. 'How will you identify someone after 3-4 years of the scam, if and when Sebi would get the disgorged money?" asked. Abhiraj Arora, partner at Saraf & Partners. 'For market-wide frauds or manipulation—often affecting thousands over years—by the time regulatory action concludes, identifying and quantifying the losses of each investor is a daunting—often impossible—task." India's compensation mechanism, he said, is limited to instances of broker default. 'For market-wide breaches, the system offers little hope of direct recovery... Sebi's powers are primarily regulatory, not compensatory. The law does not mandate automatic restitution." Unlike in the US or the European Union, where regulatory authorities regularly compensate victims from disgorged sums, Indian investors watch from the sidelines as such money is typically routed to the IPEF for education and market-wide initiatives. Jane Street deposit On 3 July, the Sebi barred US-based Jane Street Group from trading in Indian securities, finding evidence of massive, systematic manipulation of the Nifty and Bank Nifty indices. The quantitative trading firm was accused of deploying aggressive algorithmic strategies timed to expiry days, inflating or deflating index prices to benefit their derivatives book, and making net profits of over ₹36,500 crore in India between January 2023 and March 2025. Sebi ordered the impounding of ₹4,840 crore worth of alleged illegal gains made by the firm. Indian retail investors reportedly suffered historic losses. Over ₹1.05 lakh crore was wiped out in derivatives trading in FY25 alone. Even though investigation is underway, despite the magnitude of the case, the amount will be sent to Sebi's IPEF or the Consolidated Fund of India, but may not reach the investors who lost in trades during the alleged index manipulation. Experts have called for the introduction of a US-style mechanism—akin to the SEC's Fair Fund—to transparently distribute disgorged gains to victims. 'The Finance ministry and Sebi could consider adopting a dedicated restitution mechanism akin to the SEC's Fair Fund in the US to pool and transparently distribute disgorged amounts to investors", Agrawal said. Legislative amendments to the Sebi Act, SCRA, and Depositories Act could embed a statutory right to compensation, clearer eligibility, and simpler processes, possibly through online dispute resolution platforms. 'Ultimately, the government needs to make legislative changes to create a statutory right to compensation for investors," said Prakash of Corporate Professionals. 'These changes could make sure that the IPEF fulfills its promise of protecting investors."
Time of India
6 hours ago
- Time of India
CM: Dedicated Maha Agency Soon To Tackle Investor Fraud Cases
Nagpur: Maharashtra govt will create a specialized investigation mechanism to focus solely on investor fraud cases, announced chief minister Devendra Fadnavis on Tuesday while replying to a discussion in the assembly on the alleged fraud by Maitreya Group of Companies, a matter brought up by Sangamner MLA Amol Khatal. Highlighting the increasing number of financial scams affecting small and medium investors across the state, Fadnavis said the new unit will provide the police with technical, legal, and property valuation expertise to ensure timely and effective action. "These crimes are growing rapidly, and the police alone cannot manage the complexity of asset tracing and recovery. A specialized investigation wing will be established to support law enforcement," he said. The proposed agency will consist of financial analysts, legal experts, and property valuation professionals. Its main role will be to work with the police after FIRs are filed, assisting in tracing both movable and immovable assets, evaluating them, initiating seizure under MPID (Maharashtra Protection of Interest of Depositors) Act, and facilitating auction and recovery proceedings. "While we already have the MPID Act to protect depositors, its implementation has produced limited results," Fadnavis noted. "The new agency will ensure the law is enforced more effectively and that asset recovery processes aren't delayed due to lack of technical or legal support," he said. The CM also said that the govt is reviewing penal structure under the MPID Act to increase punishments and financial penalties for economic offences. "We are considering amendments to increase both the duration of imprisonment and the amount of fine imposed in such cases," he added. The announcement came in response to supplementary questions raised by legislators Prakash Solunke and senior BJP leader Sudhir Mungantiwar, who supported the need for a systemic crackdown on fraud targeting investors. Over the past few years, Maharashtra has witnessed a surge in deposit frauds, with several high-profile cases dragging on due to delays in identifying and liquidating assets. Officials say current systems lack the domain expertise and infrastructure to follow through complex financial investigations, leaving victims without relief for years. The proposed agency, expected to operate under home or finance department, will be empowered to provide end-to-end assistance in enforcement — from forensic financial audits to auction of seized assets.
United News of India
7 hours ago
- United News of India
SC upholds Bengal's takeover of 395 acres from Hindustan Motors at Uttarpara
New Delhi, July 16 (UNI) The Supreme Court today upheld the West Bengal government's decision to reclaim over 395 acres of land earlier allotted to Hindustan Motors in Hooghly's Uttarpara, where the iconic Ambassador car manufacturing plant was located. A Bench of Justice BV Nagarathna and Justice KV Viswanathan dismissed a plea filed by Hindustan Motors challenging the May 2025 judgment of the Calcutta High Court, which had affirmed the State's right to resume the unused land. The Court declined to entertain the company's arguments, observing that it found no ground to interfere with the High Court's reasoning, which was based on the automobile manufacturer's decades-long non-utilisation of the land. This brings an end to the long-standing legal dispute that began when the State issued a resumption order under Section 6(3) of the West Bengal Estates Acquisition Act, citing prolonged disuse of the land. The order was first upheld by the West Bengal Land Tribunal and later by the Calcutta High Court. The Supreme Court also upheld the High Court's endorsement of the constitutional validity of Explanation II to the proviso to Section 6(3) of the Act, which formed the legislative basis for the State's resumption proceedings. The Court recorded that it saw no infirmity in the High Court's interpretation and refused to interfere. Senior Advocate Shyam Divan, appearing for Hindustan Motors, argued that the resumption order was arbitrary and that the land continued to be part of the company's industrial estate despite being unused. However, the Court was not inclined to disturb the concurrent findings of the Tribunal and the High Court, which held that the resumption served a larger public interest. The decision comes amid the West Bengal government's push for optimal utilisation of industrial land. Just four days ago, the State leased out 40 acres of the resumed 395-acre parcel to Titagarh Rail Systems to set up a state-of-the-art coach manufacturing facility at Uttarpara. According to the State, this facility will augment Titagarh's existing unit and become the largest such plant in Asia outside China. The State was represented by Senior Advocates Abhishek Manu Singhvi, Rakesh Dwivedi, and Shadan Farasat, along with a team from Fox & Mandal led by Debanjan Mandal and Kunal Vajani. Hindustan Motors was represented by Senior Advocate Shyam Divan and advocate Divyanshu Kumar Srivastava, while Titagarh Rail Systems was represented by Senior Advocate Mukul Rohatgi and advocate Mahesh Agarwal. UNI SNG RN
