Banking & Finance

– Somya Saxena, Associate White-collar crime refers to financially motivated, non-violent crimes committed by individuals, businesses, or government officials. In India, the rise of economic offenses, such as financial fraud, corporate scandals, and tax evasion, has necessitated the use of forensic accounting as a critical investigative tool. With increasing financial irregularities in banking, corporate, and government sectors, forensic accounting plays a pivotal role in maintaining transparency and accountability in financial systems. What is Forensic Accounting? Forensic accounting is a specialized field of accounting that involves investigating financial records, detecting fraud, and providing legal support in criminal and civil cases. It merges accounting, auditing, and investigative skills to uncover financial discrepancies and provide evidence in legal proceedings. The Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), and other regulatory bodies rely on forensic accountants to detect financial crimes and enhance corporate governance. Recent Developments and Cases In a landmark decision, the Delhi High Court mandated an Amazon unit to pay $39 million in damages for infringing on the “Beverly Hills Polo Club” trademark. This ruling not only emphasizes the judiciary’s stance on protecting intellectual property rights but also highlights the necessity for meticulous financial scrutiny in ecommerce operations. Another significant case involves allegations against the Adani Group. U.S. authorities have charged members of the Adani family with orchestrating a $265 million bribery scheme to secure energy contracts in India. Forensic accountants have been instrumental in unraveling the complex financial transactions underpinning these allegations, showcasing the indispensable nature of forensic investigations in such high-profile cases. To bolster the fight against financial misconduct, the Institute of Chartered Accountants of India (ICAI) introduced the Forensic Accounting and Investigation Standards (FAIS), effective from July 1, 2023. These standards provide a structured framework for professionals, ensuring consistency and integrity in forensic accounting practices. By adhering to FAIS, auditors and investigators can enhance the reliability of their findings, thereby strengthening the overall financial reporting ecosystem in India. Role of Forensic Accounting in White-Collar Crime Investigations in India Key Techniques Used in Forensic Accounting Notable White-Collar Crime Cases in India and Related Case Laws Challenges in Forensic Accounting in India Future of Forensic Accounting in India With rising financial crimes and corporate frauds, forensic accounting will play a crucial role in safeguarding the Indian economy. Government initiatives such as the Fugitive Economic Offenders Act, 2018, and digital forensic advancements will enhance the effectiveness of financial investigations. Increased collaboration between forensic experts, law enforcement agencies, and regulatory bodies will strengthen fraud detection and prevention mechanisms. Conclusion Forensic accounting is an essential tool in white-collar crime investigations in India. By leveraging advanced investigative techniques, forensic accountants help uncover fraud, support legal proceedings, and enhance corporate governance. As economic offenses continue to evolve, forensic accounting will remain vital in ensuring financial integrity and legal accountability in India’s corporate and banking sectors.

– Nitya Prabhakar, Associate With the advent of climate change, the long-standing debate on its challenges and impacts has gained mainstream traction in the business realm due to the heightened risks to corporate liquidity and solvency. With businesses becoming increasingly vulnerable to climate-related disruptions, insolvency laws must adapt to ensure comprehensive risk management and sustainable recovery. This article explores the comparative analysis of insolvency laws across the globe, with a particular focus on the Indian perspective, highlighting how climate change impacts the insolvency process. Global Trends in Insolvency Laws and Climate Change Globally, insolvency laws have evolved to address not only traditional financial distress but also the emerging challenges posed by climate change by incorporating climate risk into insolvency frameworks by jurisdictions like United States, United Kingdom and Australia. One notable trend is the shift towards Debtor-in-Possession (DIP) Financing, adopted by USA and UK, which enables companies to restructure its debts while remaining in control of its business operations, subject to the oversight and jurisdiction of the court. In United States, the Pacific Gas and Electric Company (PG&E) voluntarily filed for reorganization in 2019 due to billion dollars liability from wildfires that were aggravated by climate change. PG&E emerged from bankruptcy in June 2020 after a comprehensive restructuring plan was approved, which included compensation for wildfire victims and substantial investments in wildfire mitigation measures. Another global trend is the increased use of Pre-Packaged Insolvency, which can be used as a strategic tool to manage environmental risks/liabilities, facilitate asset transactions and streamline the restructuring process. By transferring environmental liabilities to specialized third-party firms under a guaranteed fixed-price remediation contract, companies can separate these burdensome obligations from their core assets. This not only enhances the attractiveness of these assets to potential buyers but also ensures that environmental remediation is fully funded and compliant with regulatory standards. As a result, this approach helps achieve the rehabilitative goals of bankruptcy by preserving asset value while addressing environmental responsibilities, making it a vital strategy in new-age corporate restructuring. However, critics argue that pre-packaged insolvencies may not always prioritize creditor interests or ensure fair outcomes. Similarly, another growing global trend is Creation of Environmental Trust, which is different from an environmental risk/liability transfer, as it is set up specifically to handle environmental cleanup obligations. These trusts are established as a financial mechanism to ensure the cleanup and remediation of contaminated sites, particularly in cases where the responsible party may be insolvent or unable to fulfil their obligations. These trusts are often created during bankruptcy proceedings to allocate funds specifically for addressing environmental liabilities, ensuring that the necessary remediation work continues even after the company’s assets are liquidated or restructured. A notable example is the case of In re Tronox Inc., where the court approved the creation of custodial trusts funded with $115 million. These trusts were designed to manage and remediate contaminated sites, allowing Tronox to resolve its environmental liabilities while focusing on its core business operations post-bankruptcy. Additionally, countries are increasingly revising their insolvency frameworks to tackle the emerging climate-related challenges affecting corporate solvency. The integration of climate-related financial disclosures, as per the Task Force on Climate-related Financial Disclosures, is enhancing transparency and helping stakeholders assess climate risks. Sustainable finance initiatives and carbon pricing mechanisms are being adopted to incentivize green investments and penalize high-emission practices, thus reshaping industry dynamics. Further, climate risk disclosure regulations and ESG standards are driving companies to align with environmental goals influencing their financial health. Indian Perspective on Insolvency Laws and Climate Change In India, the Insolvency and Bankruptcy Code (IBC), 2016, has been an instrumental legislation in resolving insolvencies, emphasizing restructuring and rehabilitation over liquidation. However, climate change poses new challenges for Indian businesses, particularly micro, small, and medium enterprises (MSMEs), which are vulnerable to climate-related disruptions. The Supreme Court has recently in the judgment of Hari Babu Thota, allowed promoters to submit resolution plans even if their entities were registered as MSMEs post-CIRP commencement, which paves the way for a more dynamic interpretation of the IBC, aligning it with contemporary economic and environmental realities. The Essar Steel India Ltd. case which affirms the primacy of Committee of Creditors (CoC) in decision-making process for any concern under insolvency, emphasizes the necessity of considering broader economic and social factors in insolvency resolutions. This principle can be extended to include climate risk assessments as part of the CoC’s evaluation criteria. In the case of Gujarat Urja Vikas Nigam Ltd., where the Corporate Debtor was constrained to file a petition under Section 10 of the IBC due to the adverse effects of rainfall and floods on its solar power plant, the Supreme Court upheld the preservation of the Power Purchase Agreement. The Court ruled against the attempt of Gujarat Urja Vikas Nigam to terminate the agreement solely on the grounds of insolvency. This decision stresses the impact of climate change on business operations and highlights the necessity for insolvency laws to adapt to emerging challenges, including, but not limited to the rise in non-performing assets due to climate-related stress in the banking sector, the complexities involved in asset valuation and debtor viability assessment. Climate Change and Insolvency: A Need for Proactive Measures The impact of climate change on businesses is multifaceted, affecting supply chains, asset valuations, and overall financial stability. As such, there is a growing consensus on the need for insolvency frameworks to be more resilient to climate-related risks. This necessitates a proactive approach, including legislative reforms, regulatory guidance, and judicial activism. In India, the incorporation of Environmental, Social, and Governance (ESG) criteria into corporate governance and insolvency proceedings could be a significant step forward. The Securities and Exchange Board of India (SEBI) has already introduced mandatory ESG disclosures for listed companies, in alignment with global best practices. Extending these requirements to the insolvency process would ensure that climate risks are adequately assessed and managed. Furthermore, the integration of climate risk assessments into the resolution plans approved by the CoC could enhance the resilience of the restructured entities. This would involve conducting comprehensive environmental impact assessments

– Vishvendra Tomar, Principal Associate Corporate governance is essential for the smooth operation of companies and the broader financial system. It involves the frameworks, policies, and practices that ensure companies operate with integrity and transparency. This is particularly vital in combating white-collar crimes such as fraud, embezzlement, and insider trading. Individuals in positions of trust often commit these crimes, which can significantly damage financial markets and institutions, leading to extensive economic fallout. This article explores the relationship between corporate governance and white-collar crimes in India, focusing on recent regulatory updates like the Master Directions on Fraud issued by the Reserve Bank of India (RBI) in July 2024. These guidelines aim to bolster the framework for managing fraud and highlight the importance of strong corporate governance practices. White-Collar Crimes and Corporate Governance White-collar crimes are often sophisticated and difficult to detect, involving methods that obscure illegal activities. Such crimes can result in more than just financial loss; they also damage a company’s reputation and erode stakeholder trust. Effective corporate governance is crucial in addressing these risks through: 1. Implementing Strong Internal Controls: Effective internal controls and audit procedures are vital for detecting and preventing fraud. Regular audits and compliance with financial reporting standards are essential for spotting discrepancies and potential fraudulent activities. 2. Promoting an Ethical Culture: A culture grounded in strong ethical values, supported by clear policies, helps reduce the incidence of white-collar crimes. Organizations should foster an environment where ethical behavior is encouraged and unethical actions are penalized. 3. Enhancing Transparency: Transparency in operations and reporting helps ensure all financial transactions are properly documented and scrutinized. This openness can reveal unusual patterns or anomalies indicative of fraudulent behavior. Key Aspects and Implications of the 2024 RBI Master Directions 1. Scope of Directives: 2. Treatment of Accounts Under Resolution: 3. Penal Measures: 4. Governance Structure for Fraud Risk Management: 5. Framework for Early Detection of Frauds: 6. Red-Flagged Accounts and Fraud Reporting: 7. Reporting Fraud Incidents: Category of bank Amount involved in the fraud LEA to whom complaint should be lodged Remarks Private Sector / Foreign Banks Below ₹1 crore State / Union Territory (UT) Police ₹1 crore and above In addition to State/UT Police, Serious Fraud Investigation Office (SFIO), Ministry of Corporate Affairs, Government of India Details of fraud are to be reported to SFIO in Fraud Monitoring Return (FMR) format. Public Sector Banks / Regional Rural Banks (a) Below ₹6 crore25 State / UT Police (b) ₹6 crore and above Central Bureau of Investigation (CBI) 8. Reporting and Investigation: 9. Closure of Fraud Cases: 10. Special Committee: 11. Staff Accountability: 12. Additional Directives: The revised RBI Master Directions on Fraud Risk Management from July 2024 represent a significant advance in strengthening fraud prevention and control within India’s financial sector. By emphasizing natural justice and providing a comprehensive framework for reporting and compliance, these guidelines aim to enhance transparency and accountability, protecting the integrity of the financial system.

With the rapid pace of automation and integration of artificial intelligence in the workplace, employers across the globe have found it both expensive and unnecessary to limit workforce engagement to the traditional employer-employee model. New-age on-demand business models are rapidly evolving, from taxi services to salon and spa services, from chefs to grocery delivery, all creating fluid and dynamic workforce structures, including the ‘gig workers’. Section 2(35) of the Code on Social Security, 2020 defines a ‘gig worker’ as someone who performs tasks or participates in work arrangements and earns from such activities independently. A gig economy is a market that depends largely on temporary and part-time roles, filled by freelancers and independent contractors instead of traditional full-time employees. The gig economy conventionally doesn’t fall in the employee-employer model, where professionals are hired and given specific designated roles in an organisation, and thereby challenges the very notion of the employment contract, blurring the distinction between an independent contractor and an employee. This distinction is of immense importance, as it determines which labour laws are applicable to gig workers, and it outlines the employer’s obligations towards gig workers with regard to wages, social security, working conditions, and the resolution of employer-employee disputes. Disputes in the Gig Economy Some of the disputes which are raised by the gig workers in a gig economy are as following: · Income fluctuation: As Most of the gig workers don’t have a fixed job and neither are their jobs fixed, they have to face income fluctuations. This inconsistency often forces them to overwork to meet their ends. · Lack of Legal Protection & Social Security: Gig workers in India are not covered under labour laws, leaving them without legal protection against discrimination, unfair termination, or workplace harassment and are deprived of crucial benefits such as health insurance, retirement benefits, and paid leave, which leaves them with no safety nets for health emergencies, financial instability during retirement, or time off for illness or personal needs. · Work Conditions: Working conditions of gig jobs are detrimental to workers’ health. Many drivers face demanding work hours, leading to physical exhaustion and a heightened risk of road traffic accidents. This risk is further intensified by stringent policies like the ’10-minute delivery at the doorstep’ enforced by some e-commerce platforms. · Social isolation: Gig workers often experience social isolation due to the nature of their work. Unlike traditional employees, they typically operate independently and lack a physical workplace, which limits opportunities for social interaction and the development of professional relationships and networking opportunities that can be beneficial for career growth and personal well-being. Legal System in Place 4 labour codes were passed to provide benefits to the workers working in unorganized sector. The Code on Social Security Code, 2020, one of the 4 labour codes defines an “Unorganized Worker” under Section 2(86)12, “self-employed worker” under Section 2(75), and “platform worker” under Section 2(61). Under Section 6 of this code, a National Social Security Board is formed by the Central government which shall recommend the Central Government on framing suitable schemes for the for unorganised workers to exercise the conferred powers, and to perform the assigned functions etc. The board’s composition varies in different cases to make recommendations about the unorganized workers and Gig and Platform workers. The Industrial Relations Code, 2020 a further codification that has been streamlined and unified the law, replaces three of India’s current labour regulations. The Code regulates terms of employment, dismissal, layoffs, strikes, lockouts, collective bargaining, trade union registration and recognition, and the resolution of labour disputes, the code intends to simplify and harmonize India’s industrial relations system. All employees – including platform and gig workers who are defined as individuals who carry out work or take part in a work arrangement outside of a conventional employer-employee relationship or contractual relationship – are subject to some of the provisions of the code. They do not, however, have the same rights and protections as ordinary employees because the code does not identify gig workers and platform workers as either labourers or employees. The Code on Wages, 2019, and the Code on Social Security 2020, indicates a forward-thinking stride in the direction of acknowledging and attending to the distinct requirements of freelance workers. The purpose of these protocols is to provide safeguards to individuals working in the gig economy. These protections will include minimum wage requirements, social security benefits, and accident compensation. Despite these developments, such protections continue to be inconsistently enforced, primarily due to the ever-changing nature of the freelance economy. Loopholes in the Law The principal flaw in the current legal structure pertains to its insufficient delineation and classification of contract work, resulting in an absence of preciseness concerning the obligations of digital platforms in relation to their employees. Due to the lack of legislation specifically designed for the contract economy, employees lack knowledge regarding their rights and the procedures necessary to pursue resolution for complaints. Also, the overlap in definitions and the layout of the Code makes it complex, particularly when it comes to which specific schemes apply to specific categories of workers. Furthermore, the code fails to address the issues regarding fluctuation in income. For example, provisions related to provident funds are only beneficial in the long run but how are workers expected to pay for these from the already dwindling income from these sources? There is a section of gig workers that do not want social security if the workers themselves have to pay for it from their income. Conclusion One of the pivotal challenges faced by gig workers in India is the ambiguity surrounding their employment status. Traditional labour laws often do not adequately cover gig workers, leading to gaps in social security protections such as health insurance, maternity benefits, and pension schemes. The legal definition of who qualifies as a ‘gig worker’ or a ‘platform worker’ remains a contentious issue, impacting their entitlement to fundamental labour rights. The regulatory framework governing the gig economy in India is gradually evolving to address