CAN NCLT AND NCLAT CAN RELAY ON NON‑EXISTENT, AI‑GENERATED CASE LAW? NO SAYS SUPREME COURT OF INDIA IN ESSEL INFRAPROJECTS INSOLVENCY CASE

 CAN NCLT AND NCLAT CAN RELAY ON NON‑EXISTENT, AI‑GENERATED CASE LAW? NO SAYS SUPREME COURT OF INDIA IN ESSEL INFRAPROJECTS INSOLVENCY CASE

FACTS

The Supreme Court of India has struck down insolvency orders against Essel Infraprojects Ltd after finding that the National Company Law Tribunal (NCLT) and Appellate Tribunal (NCLAT) relied on fake, AI‑generated case law.

NO DECISION IN THE EYES OF LAW

The Court declared such reliance “no decision in the eyes of law” and ordered a fresh fact‑based hearing, setting a precedent of zero tolerance for AI hallucinations in judicial proceedings.

SUPREME COURT DECISION:

·       Set aside both tribunal orders.

·       Restored the Section 7 application for fresh adjudication.

·       Declared that even an iota of fake or hallucinated material vitiates adjudication.

·       Directed the Bar Council of India to investigate AI misuse

SUPREME COURT’S OBSERVATIONS

ZERO TOLERANCE:	Any reliance on unverified AI‑generated precedents is misconduct by advocates and a serious lapse by judges.
INTEGRITY OF ADJUDICATION:	Fake citations “strike at the lifeblood of judicial determination” and contaminate justice like a toxic leak.
PROFESSIONAL MISCONDUCT:	Lawyers citing fabricated judgments without verification risk disciplinary action.
HUMAN CONTROL:	AI may assist but cannot replace judicial reasoning; adjudication must remain under total human oversight.

 

COMPLIANCE CHECKLIST POST‑SUPREME COURT RULING

1. VERIFICATION PROTOCOLS

MANDATORY SOURCE CHECK:

Every citation must be verified against authentic repositories (SCC Online, Manupatra, official Supreme Court/NCLT websites).

NO AI‑ONLY RELIANCE:

 AI outputs can be used for research but must be cross‑checked before submission.

CITATION AUDIT

Maintain records of where each case law was sourced.

2. LAW FIRM PRACTICES

Internal AI Usage Policy: Define permissible use of AI (research aid, drafting assistance) and prohibited use (generating precedents).

TRAINING & AWARENESS:

Conduct workshops for associates on risks of AI hallucinations.

PEER REVIEW:

Introduce a second‑lawyer check for pleadings involving case citations.

ETHICS COMPLIANCE:

 Align with Bar Council directives on professional misconduct.

WHY IT MATTERS

This is India’s first case where AI‑generated fake case law contaminated judicial reasoning. The SC’s strong stance sets a precedent for:

HUMAN‑IN‑LOOP PRINCIPLE:

 AI can assist but not replace judicial reasoning.

This ruling is a watershed moment in India’s legal system, ensuring that AI cannot undermine judicial integrity. It signals stricter compliance standards for advocates, tribunals, and corporate litigants alike.

#YOUR COMPLIANCE PARTNER R V SECKAR, FCS, LLB 79047 19295,

A PRIVATE COMPANY CANNOT ALLOT ESOPS IN EXCESS OF WHAT IS APPROVED BY THE BOARD, AND THERE MUST BE A MINIMUM GAP OF 1 (ONE) YEAR BETWEEN THE GRANT OF ESOPS AND THEIR VESTING. ROC GUJARAT Vs KRAZZY FIN PRIVATE LIMITED.

 A PRIVATE COMPANY CANNOT ALLOT ESOPS IN EXCESS OF WHAT IS APPROVED BY THE BOARD, AND THERE MUST BE A MINIMUM GAP OF 1 (ONE) YEAR BETWEEN THE GRANT OF ESOPS AND THEIR VESTING.

ROC GUJARAT Vs  KRAZZY FIN PRIVATE LIMITED.

KEY COMPLIANCE POINTS FOR ESOPS IN PRIVATE COMPANIES

BOARD APPROVAL:	ESOPs must be approved by the Board of Directors. Any allotment beyond the approved limit is invalid.
SHAREHOLDERS’ APPROVAL:	ESOP schemes also require approval by shareholders through a special resolution.
MINIMUM VESTING PERIOD:	As per Rule 12(6)(a) of the Companies (Share Capital and Debentures) Rules, 2014, there must be at least one year between the grant of options and their vesting.
NO IMMEDIATE ALLOTMENT:	ESOPs are not shares at the time of grant; they only become exercisable after vesting.
RESTRICTIONS ON TRANSFER	ESOPs granted to employees are not transferable, pledged, or hypothecated

FACTS OF THE CASE

IN MATTER OF M/S. KRAZZY FIN PRIVATE LIMITED.

➡️Company comes up ESOP Scheme name (KFPL ESOP 2021) for issue 1379 equity Shares of company during 2021-22 on 03.09.2021. and approved the 500 equity shares (ESOP) Rs.10/- under ESOP scheme to Abhishek Kandoi.

➡️Further, on 13.09.2022, Company again approved the allotment of 1,095 ESOP equity shares, comprising 200 shares to Abhishek Kandoi and 895 shares to Divyansh Mathur.

➡️Accordingly, after allotting a total of 700 shares to Abhishek Kandoi, only 679 shares remained available under the scheme. However, 895 shares were allotted to Divyansh Mathur, resulting in an excess allotment of 216 shares (895- 679 = 216).

➡️As per rule, private company cannot allot ESOPs in excess of what is approved by the Board, and there must be a minimum gap of 1 (one) year between the grant of ESOPs and their vesting. But the Company failed to comply with these requirements.

Rs 1.75  LAC PENALTY LEVIED

➡️As a result, ROC Gujarat imposed a penalty of ₹1 lakh on the Company and ₹25,000 each on its three Directors.

#YOUR COMPLIANCE PARTNER R V SECKAR, FCS, LLB 79047 19295,

PEENY WISE POUND FOOLISH A ₹300 "SAVING" CAN BECOME A ₹1.40 CRORE HORRENDOUS. A BUSINESSMAN, ALLEGEDLY ATTRACTED BY AN OFFER TO FILE HIS GST RETURNS BY A FRAUDSTER FOR JUST ₹300 LANDED IN WHOOPING SCAM OF ₹1.40 CRORE

PEENY WISE POUND FOOLISH

A ₹300 "SAVING" CAN BECOME A ₹1.40 CRORE HORRENDOUS.

A BUSINESSMAN, ALLEGEDLY ATTRACTED BY AN OFFER TO FILE HIS GST RETURNS BY A FRAUDSTER FOR JUST ₹300 LANDED IN WHOOPING SCAM OF ₹1.40 CRORE

WHAT HAPPENED ?

A businessman shared his GST login credentials and later even the OTP to a fraudster. According to the FIR, the accused allegedly changed the registered mobile number and email ID, gained complete control of the GST account, and generated fake invoices exceeding ₹7.06 crore, leaving the taxpayer facing an alleged GST liability of around ₹1.40 crores.

CREATION OF FORGED BUSINESS DOCUMENTS AND FAKE E-INVOICES

During the inquiry, the complainant suspected that the accused had misused access to the GST portal to create forged business documents and fake e-invoices, illegally using his GST registration to show bogus commercial transactions worth more than ₹7.06 crore.

FRAUDULENTLY OBTAINED OTPS

The complaint alleged that between November 30, 2025, and February 20, 2026, the accused, along with unidentified accomplices, fraudulently obtained OTPs, accessed the GST portal, changed the registered mobile number and email ID, and misused the complainant's GST credentials to generate fake e-invoices and fraudulent business transactions exceeding ₹7.06 crore.

THIS INCIDENT HIGHLIGHTS A FEW CRITICAL LESSONS FOR EVERY BUSINESS:

·       Appoint only trusted professionals with proven credentials.

·       Regularly monitor your GST portal, e-invoice dashboard, and registered contact details.

·        Enable strong security practices and immediately investigate any unexpected OTPs or profile changes.

·       Remember that restoring a compromised GST account and defending against investigations can consume enormous time, money, and management bandwidth.

KEY TAKEAWAYS

·       Too-good-to-be-true offers often are. Ultra-low prices for complex services like tax filing should raise red flags.

·       Due diligence matters: Always verify the credibility of service providers, especially for financial or legal compliance.

·       Short-term savings vs. long-term losses: A small upfront cost-cutting measure can snowball into catastrophic consequences.

·       Trust and security > price: When dealing with sensitive data like GST returns, prioritize reliability and accountability over discounts.

·       It’s a reminder that in business (and life), the cheapest option can sometimes be the most expensive mistake.

#YOUR COMPLIANCE PARTNER R V SECKAR, FCS, LLB 79047 19295,

FAILURE TO FILE FORM DOWNSTREAM INVESTMENT (“DI”) BY FOCC WITHIN 30 DAYS OF ALLOTMENT OF SHARES TO A DOWNSTREAM SUBSIDIAR WILL ATTRACT PENALTY UNDER FEMA – CASE STUDY OF SOCIAL WORTH TECHNOLOGIES LIMITED

FAILURE TO FILE FORM DOWNSTREAM INVESTMENT (“DI”) BY FOCC WITHIN 30 DAYS OF ALLOTMENT OF SHARES TO A DOWNSTREAM SUBSIDIAR WILL ATTRACT PENALTY UNDER FEMA – CASE STUDY OF SOCIAL WORTH TECHNOLOGIES LIMITED

SUBSEQUENT INVESTMENTS MADE BY FOCC IN THEIR MATERIAL SUBSIDIARY WERE REQUIRED TO BE TREATED AS DOWNSTREAM INVESTMENTS, ATTRACTING FILING OF FORM DOWNSTREAM INVESTMENT (“DI”)

 FOREIGN-OWNED AND CONTROLLED COMPANY (“FOCC”) under FEMA NDI RULES. ALL SUBSEQUENT INVESTMENTS MADE BY FOCC IN THEIR MATERIAL SUBSIDIARY WERE REQUIRED TO BE TREATED AS DOWNSTREAM INVESTMENTS, ATTRACTING FILING OF FORM DOWNSTREAM INVESTMENT (“DI”) IN RESPECT OF SUCH DOWNSTREAM INVESTMENT.

KEY CONCEPTS

FOCC:

A company incorporated in India but owned/controlled by non-residents.

DOWNSTREAM INVESTMENT:

When such a FOCC invests in another Indian entity (its subsidiary or otherwise), that investment is considered indirect foreign investment.

FORM DI FILING:

Every downstream investment requires intimation to the Reserve Bank of India (RBI) through filing of Form Downstream Investment (DI).

COMPLIANCE REQUIREMENT

ONCE A COMPANY QUALIFIES AS FOCC:

Any subsequent investment it makes in its material subsidiary (or any other Indian company) is automatically treated as downstream foreign investment.

This triggers the obligation to file Form DI with RBI within the prescribed timeline (usually 30 days of the investment).

INDIAN INVESTEE COMPANY TO FILE FORM DI

The responsibility for filing lies with the Indian investee company receiving the downstream investment, not the FOCC itself.

CASE STUDY

DRHP FILED BY SOCIAL WORTH TECHNOLOGIES LIMITED DT JUNE 29 2026

Additionally, commencing from August 26, 2022, the aggregate shareholding of non-resident shareholders exceeded 50% of the issued, subscribed and paid-up share capital of our Company, THEREBY RESULTING IN CLASSIFICATION OF OUR COMPANY AS A FOREIGN-OWNED AND CONTROLLED COMPANY (“FOCC”) IN TERMS OF FEMA NDI RULES.

FAILURE TO FILE FORM DI

ACCORDINGLY, ALL SUBSEQUENT INVESTMENTS MADE BY OUR COMPANY IN OUR MATERIAL SUBSIDIARY WERE REQUIRED TO BE TREATED AS DOWNSTREAM INVESTMENTS, ATTRACTING FILING OF FORM DOWNSTREAM INVESTMENT (“DI”) IN RESPECT OF SUCH DOWNSTREAM INVESTMENT. Such filing of form DI was required to be made within 30 days of each of the allotment of equity shares for our downstream investments in our Material Subsidiary, pursuant to Regulation 11 of the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019.

A LATE SUBMISSION FEE OF ₹2.39 MILLION

Basis the internal compliance review by our Material Subsidiary, it had identified delays in filing of form DI and rectified the corresponding reporting in relation to DOWNSTREAM INVESTMENTS MADE BY OUR COMPANY IN OUR MATERIAL SUBSIDIARY BETWEEN SEPTEMBER 2022 AND OCTOBER 2025 FOR WHICH IT WAS REQUIRED TO PAY A LATE SUBMISSION FEE OF ₹2.39 MILLION.

FILING OF COMPOUNDING APPLICATION FOR NOT FILING FORM DI WITHIN 30 DAYS OF ALLOTMENT OF SHARES TO SUBSIDIARIES.

IN THIS REGARD, OUR COMPANY HAS FILED A COMPOUNDING APPLICATION DATED JUNE 17, 2026, with the RBI in relation to the downstream investments made and the corresponding delay in filing Form DI. The application is currently pending before the RBI"

WHY THIS MATTERS?

·       Ensures transparency in tracking indirect foreign investment flows.

·       Helps RBI monitor compliance with sectoral caps, entry routes (automatic vs. approval), and other FEMA regulations.

·       Non-compliance (failure to file Form DI) can attract penalties under FEMA.

#YOUR COMPLIANCE PARTNER R V SECKAR, FCS, LLB 79047 19295,

INCREASED EMPLOYER COMPLIANCE AND DIGITAL REPORTING, ONLINE NOMINATION AND MANDATORY DIGITAL KYC & ENGAGE A CA TO CONDUCT PF TRUST AUDITS ARE THE SALIENT FEATURES OF NEW EPF SCHEME, 2026

 INCREASED EMPLOYER COMPLIANCE AND DIGITAL REPORTING, ONLINE NOMINATION AND MANDATORY DIGITAL KYC  & ENGAGE A CA TO CONDUCT PF TRUST AUDITS  ARE THE SALIENT FEATURES OF NEW EPF SCHEME, 2026

WHAT IS NEW IN THE EPF SCHEME, 2026 ?

Employees' Provident Fund (EPF) Scheme, 2026, which replaces the seven-decade-old EPF Scheme, 1952. Effective 29 June 2026.

MANDATORY EPF CONTRIBUTION LIMITED TO ₹1,800

WHAT HAPPENS IF AN EMPLOYEE WISHES TO CONTRIBUTE MORE?

Employees are free to contribute beyond the mandatory ₹1,800 towards their retirement savings. However, the EPF Scheme, 2026 clearly categorizes any contribution above the statutory amount as a voluntary contribution.

MEMBERS MAY WITHDRAW FUNDS FOR:

·       Essential personal and family needs such as illness, education, and marriage.

·       Housing-related purposes including purchase, construction, renovation, or repayment of housing loans.

·       Other specified circumstances, subject to the prescribed eligibility conditions.

DIGITAL-FIRST EPFO

A defining feature of the EPF Scheme, 2026 is its emphasis on digital governance.

·       THE NEW FRAMEWORK PROMOTES:

·       Aadhaar-based authentication.

·       Electronic filing and compliance.

·       Online claim processing.

·       UAN-based service integration.

·       Digital KYC and e-Passbooks.

·       Faster, paperless service delivery.

SOME KEY UPDATES INCLUDE:

·       Full PF withdrawal after 12 months of unemployment.

·       EPS withdrawal after 36 months.

·       Increased employer compliance and digital reporting.

·       Online nomination and mandatory digital KYC.

·       More structured contractor compliance.

WHAT HAS NOT CHANGED?

Despite widespread discussions, several key aspects remain unchanged:

·       Employee contribution rate continues at 12%.

·       Employer contribution rate continues at 12%.

·       The statutory wage ceiling remains ₹15,000.

·       Universal Account Number (UAN) remains unchanged.

·       Existing PF balances continue without interruption.

·       Interest on EPF deposits will continue to be declared separately by the Central Board of Trustees and the Government.

In other words, the scheme modernizes administration rather than reducing employee benefits

EMPLOYER ACTION CHECKLIST (2026)

·       File PF returns via ECR 2.0 with proper wage bifurcation (EPF, EPS, EDLI).

·       Engage a CA to conduct PF trust audits, ensuring compliance with EPFO’s risk-based framework.

·       Monitor interest rates declared by the trust (≤2% above EPFO rate).

·       Maintain accurate records of contributions, withdrawals, and member accounts.

·       Prepare for risk-based inspections by EPFO, especially if flagged for irregularities.

#YOUR COMPLIANCE PARTNER R V SECKAR, FCS, LLB 79047 19295,

NOW ANNUAL POSH AUDITS IS MANDATORY FOR ALL WORKPLACES IN INDIA EMPLOYING 10 OR MORE PEOPLE.

 NOW ANNUAL POSH AUDITS IS MANDATORY FOR ALL WORKPLACES IN INDIA EMPLOYING 10 OR MORE PEOPLE.

NOW POSH AUDIT IS MANDATORY

As of June 19, 2026, the National Commission for Women (NCW) has made annual POSH audits mandatory for all workplaces in India employing 10 or more people. Non-compliance will now be treated as a violation of the POSH Act, 2013.

AUDIT SCOPE:

·       Functioning of Internal Committees (ICs)

·       Complaint handling and confidentiality safeguards

·       Awareness and training initiatives

·       Workplace safety infrastructure

·       Mandatory disclosures and use of the SHe-Box platform

THE AUDIT SHALL ASSESS:

- Constitution and legal compliance of the Internal Committee (IC)

- Appointment of a female Presiding Officer

- Functioning of the IC

- Number, status and timely disposal of complaints

- Confidentiality safeguards

- Training and awareness programs

- Display of mandatory disclosures

- Workplace safety and infrastructure

 - She-Box registration and updation.

COMPLIANCE REQUIREMENTS FOR ORGANIZATIONS

REQUIREMENT	DETAILS
INTERNAL COMMITTEE	Must exist in every workplace with 10+ employees; minimum 50% women representation required.
ANNUAL AUDIT	Mandatory; covers compliance, complaints, awareness, and infrastructure.
MONITORING CELLS	States/UTs to set up POSH Monitoring Cells or digital dashboards.
DISTRICT OVERSIGHT	District Officers to track compliance and awareness locally.
TRAINING	Specialized training for IC members and awareness programs for employees.

 

TO WHOM THE AUDIT REPORT WILL BE SUBMITTED

The Audit report shall be submitted to:

- District Officer

- District Magistrate/ Deputy Commissioner

- Concerned Administrative Department

NON-COMPLIANCE

Failure to conduct the POSH Audit shall be treated as non-compliance

REPUTATIONAL DAMAGE:

 Organizations risk public scrutiny and loss of trust.

OPERATIONAL PENALTIES:

Possible fines, stricter monitoring, and escalation to higher authorities.

ACTION STEPS RECOMMENDED FOR EMPLOYERS

·       Schedule Annual POSH Audit immediately for FY 2026–27.

·       Review Internal Committee composition — ensure 50% women representation.

·       Document and disclose compliance via audit reports to district authorities.

·       Conduct awareness sessions for employees and training for IC members.

·       Integrate SHe-Box platform into grievance redressal mechanisms.

SUMMARY

The NCW’s move signals the end of “paper compliance” — organizations can no longer rely on having a POSH policy without active implementation. This is a nationwide accountability push to ensure workplaces are genuinely safe, inclusive, and respectful for women.

#YOUR COMPLIANCE PARTNER R V SECKAR, FCS, LLB 79047 19295,