LIJDLR

Regulatory Arbitrage

REGULATORY INNOVATION OR LEGAL EROSION? INVESTIGATING THE ACCIDENTAL ARBITRAGE CREATED BY GIFT CITY’S DUAL FINANCIAL REGIME

Volume III Issue II /

REGULATORY INNOVATION OR LEGAL EROSION? INVESTIGATING THE ACCIDENTAL ARBITRAGE CREATED BY GIFT CITY’S DUAL FINANCIAL REGIME Devesh, Fourth Year B.Com LL.B. (Hons.) Student at Institute of Law, Nirma University, Ahmedabad Radhika Dinesh, Fourth Year B.Com LL.B. (Hons.) Student at Institute of Law, Nirma University, Ahmedabad Download Manuscript doi.org/10.70183/lijdlr.2025.v03.54 This paper provides a comprehensive analysis of the legal and constitutional ramifications arising from establishing and operating the Gujarat International Finance Tec-City (GIFT City) and its International Financial Services Centre (IFSC). Conceived as a flagship initiative to position India as a global financial hub, GIFT City offers a suite of regulatory exemptions, tax incentives, and operational flexibilities designed to attract international capital and financial institutions. However, the paper argues that these exceptional measures have created a parallel regulatory regime that contrasts India’s unified financial architecture. Through doctrinal and comparative legal analysis, the authors explore how GIFT City’s unique framework facilitates regulatory arbitrage, enabling entities to bypass domestic regulations related to taxation, capital controls, and insolvency. The paper highlights the risks of forum shopping, tax base erosion, and the dilution of investor and creditor protections, drawing on both Indian and international precedents. It further examines the constitutional questions raised by the selective privileges granted to GIFT City entities, particularly about the principles of equality before law, fiscal federalism, and the separation of powers between the legislature and the executive. The study also assesses the broader policy implications of allowing such regulatory enclaves within the Indian legal system, including potential impacts on market integrity, regulatory coherence, and public accountability. In conclusion, the paper offers targeted policy recommendations to reconcile GIFT City’s operational objectives with India’s constitutional and regulatory commitments. These include enhancing transparency, instituting robust economic substance requirements, and ensuring integrated oversight by domestic regulators to prevent the emergence of enclave exceptionalism and to safeguard the integrity of India’s financial and legal systems.

REGULATORY INNOVATION OR LEGAL EROSION? INVESTIGATING THE ACCIDENTAL ARBITRAGE CREATED BY GIFT CITY’S DUAL FINANCIAL REGIME Read More »

ROUND TRIPPING UNDER THE GRAB OF OVERSEAS DIRECT INVESTMENT (ODI): A LEGAL AND REGULATORY ANALYSIS

Volume III Issue I /

ROUND TRIPPING UNDER THE GRAB OF OVERSEAS DIRECT INVESTMENT (ODI): A LEGAL AND REGULATORY ANALYSIS Vidushi Dubey, 10th Semester, B.A.LL.B Student at Amity Law School, Amity University, Uttar Pradesh Dr. Rajeev Kumar Singh, Assistant Professor at Amity Law School, Amity University, Uttar Pradesh Download Manuscript doi.org/10.70183/lijdlr.2024.v03.22 This research paper examines the phenomenon of round tripping under the guise of Overseas Direct Investment (ODI) from India, analyzing its legal and regulatory implications. Round tripping involves the circular movement of domestic funds that exit India and return disguised as foreign investment to exploit regulatory arbitrage opportunities and preferential treatment accorded to foreign capital. The paper scrutinizes the evolving regulatory framework under the Foreign Exchange Management Act, 1999, and related notifications that govern ODI. It evaluates landmark enforcement actions by the Enforcement Directorate and dissects high-profile case studies involving corporate entities. Through comparative analysis of international regulatory approaches from jurisdictions including the United States, European Union, and China, the paper identifies best practices for addressing round tripping concerns. Despite significant regulatory enhancements, persistent challenges include beneficial ownership transparency, valuation manipulation, and emerging digital pathways for round tripping. The research proposes comprehensive reforms including a unified regulatory framework, enhanced beneficial ownership disclosure requirements, blockchain-based transaction monitoring, and strengthened international cooperation mechanisms. The paper concludes that effective regulation requires balancing legitimate business expansion needs with robust safeguards against regulatory circumvention through a substance-over-form approach to cross-border investment structures. Type Information Research Paper LawFoyer International Journal of Doctrinal Legal Research, Volume III, Issue I, Page 482-513. Creative Commons Copyright This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License. © Authors, 2024

ROUND TRIPPING UNDER THE GRAB OF OVERSEAS DIRECT INVESTMENT (ODI): A LEGAL AND REGULATORY ANALYSIS Read More »