SECTION - A

Answer 1
a)
Yes, I firmly advocate for the adoption of a robust banking licensing regime in Davos. Such a
framework is crucial for ensuring the stability, integrity, and transparency of the financial system.
I would like to put the key reasons why Davos should embrace a licensing regime, incorporating
relevant provisions from the Banking Regulations Act 1949 and relevant case laws:
1. Safeguarding Against Fraudulent Activities: The implementation of a licensing regime
is an essential deterrent against fraudulent individuals and entities attempting to engage in
banking activities. The Banking Regulations Act 1949 provides provisions for the licensing
and regulation of banking companies in India. Section 221 of the Act requires any company
that carries on the business of banking in India to obtain a license from the Reserve Bank
of India (RBI). This provision ensures that only financially stable, skilled, and trustworthy
applicants are granted licenses, effectively preventing financial fraud. The case law
example of the Bank of Credit and Commerce International (BCCI) Case (1991) serves as
a reminder of the importance of robust licensing processes in preventing fraudulent entities
from operating within the banking sector.
2. Strengthening Prudential Regulation and Supervision: A licensing framework provides
a solid foundation for effective regulation and supervision of banks. The Banking
Regulations Act 1949 empowers the RBI to regulate and supervise banking companies in
India. Section 35A of the Act grants the RBI the authority to impose various prudential
regulations, including minimum capital requirements, liquidity norms, and risk
management guidelines. By incorporating similar provisions from the Banking Regulations
Act 1949, Davos can enhance the overall stability and resilience of its financial system.
The case law examples of the Northern Rock Crisis (2007-2008)2 and the Lehman Brothers
Bankruptcy (2008) 3 demonstrate the importance of robust prudential regulations and
effective supervision in averting crises and protecting the economy from catastrophic
failures.
3. Combatting Financial Crimes: A licensing regime enables the implementation and
enforcement of anti-money laundering (AML) and counter-terrorist financing (CTF)
measures within the banking sector. The Banking Regulations Act 1949 4 contains
provisions that empower the RBI to issue directions for preventing undesirable activities
in banks, including money laundering and financing of terrorism. By incorporating
AML/CTF measures into licensing regulations, Davos can ensure that banks have robust
systems and procedures in place to combat illegal financial activities. This not only protects

1https://indiankanoon.org/doc/195670/
2‘The Failure of Northern Rock: A Multi-Dimensional Case Study, SUERF Conference Proceedings and Studies .:. Suerf - the
European Money and Finance Forum’ (SUERF.ORG) accessed 3 June 2023

3 Lioudis N, ‘The Collapse of Lehman Brothers: A Case Study’ (Investopedia, 5 April 2023) accessed 3 June 2023
4 Banking Regulation Act, 1949
 the banking industry but also contributes to global efforts in combating illicit financial
transactions.
To exemplify the significance of a licensing mechanism, we can consider the case law example of
Reserve Bank of India (RBI) v. Peerless General Finance and Investment Co. Ltd. (1992).5 In this
case, the Supreme Court of India emphasized the necessity of regulating non-banking financial
companies to safeguard the interests of depositors and maintain the stability of the financial
system. It highlights the crucial role played by licensing mechanisms in preventing unauthorized
entities from engaging in banking-like activities, ultimately protecting stakeholders and the overall
financial ecosystem.
Drawing from these provisions of the Banking Regulations Act 19496 and case law examples, it
becomes evident that a licensing regime is instrumental in preventing fraudulent activities,
maintaining prudential regulations, and combating financial crimes. By incorporating the relevant
provisions from the Banking Regulations Act 1949, Davos can establish a robust licensing
framework that ensures financial stability, consumer protection, and sustainable economic
progress.
Conclusion
The adoption of a banking licensing regime in Davos is imperative for the stability, integrity, and
transparency of the financial system. It acts as a deterrent against fraudulent activities, strengthens
prudential regulation and supervision, and facilitates the implementation of anti-money laundering
and counter-terrorist financing measures. By incorporating relevant provisions from the Banking
Regulations Act 1949, Davos can emphasize the importance of a licensing framework and create
an effective regulatory environment that safeguards the interests of all stakeholders while fostering
economic growth.
The provisions of the Banking Regulations Act 1949, particularly Sections 22 and 35A, provide a
solid legal foundation for the establishment of a licensing regime in Davos. Section 22 7 mandates
that companies engaging in banking activities in India must obtain a license from the Reserve Bank
of India (RBI). This requirement ensures that only trustworthy and financially stable entities are
allowed to operate within the banking sector. Similarly, Section 35A empowers the RBI to impose
prudential regulations, such as minimum capital requirements, liquidity norms, and risk
management guidelines, which contribute to the stability and resilience of the financial system. By
incorporating these provisions into Davos' banking regulations, the authorities can ensure that only
reliable and well-managed firms are awarded licenses, minimizing the risk of fraudulent activities
and protecting consumers. The licensing process can include a thorough evaluation of applicants'
financial stability, skill, and integrity, mirroring the standards set by the Banking Regulations Act
1949. This comprehensive assessment helps safeguard the financial system's stability and ensures
that only deserving entities are granted the privilege to operate as banks.

5 1987 AIR 1023, 1987 SCR (2) 1

6 supra4
7 supra1
b)
Yes, Davos should regulate the indigenous banking system. The nature for the same can be better
understand by the relevant provisions and case laws available in various part of the world which
have similar socio economics condition. Some of the basic reasoning are as follows :
• Consumer Protection and Financial Stability:
The Gullapalli Nageswara Rao v. Andhra Pradesh State Financial Corporation (1959) 8 case in
India established that the state has the authority to regulate financial institutions, including
indigenous banking systems, in order to protect the public interest, prevent fraudulent activities,
and maintain financial stability.
Section 45-I(b) of the Reserve Bank of India Act, 1934, empowers the Reserve Bank of India (RBI)
to regulate and supervise non-banking financial institutions, including indigenous banking
systems, to safeguard the interests of depositors and ensure the stability of the financial system. 9
• Cultural Preservation and Flexibility:
To preserve the cultural heritage and practices associated with indigenous banking systems, the
regulatory framework should be designed to accommodate their unique characteristics and
organizational structures, while ensuring regulatory compliance.
The Banco Masventas S.A. v. The Argentine Central Bank (2018) case demonstrated the
importance of regulatory oversight in maintaining financial stability, integrity, and transparency.
• Collaboration and Integration:
Collaborative efforts between indigenous banking systems and mainstream financial institutions
should be encouraged to promote financial inclusion and leverage the strengths of both systems.
The R v. Agunbiade (2011) case emphasized the necessity of regulating informal banking systems
to prevent money laundering and terrorist financing, thereby protecting the integrity of the
financial system and national security.
Based on these considerations, I recommend the following provisions for regulating indigenous
banking systems in Davos:
• Licensing and Regulation:
- Indigenous banking systems should be required to obtain a license from a regulatory authority,
such as the central bank, to operate.

8 1959 AIR 308, 1959 SCR Supl. (1) 319

9 Section 45-IA in The Reserve Bank of India Act, 1934
 - The regulatory framework should empower the regulatory authority, similar to Section 36(1)
of the Banking Regulation Act, 1949 10 in India, to oversee and regulate the functioning of
indigenous banking systems, ensuring compliance with prudential norms and consumer protection
measures.
• Consumer Protection and Transparency:
- The regulatory framework should establish provisions for consumer protection, fair practices,
transparency, and disclosure norms within indigenous banking systems.
- Dispute resolution mechanisms should be put in place to address concerns or conflicts that may
arise.
• Risk Management and Financial Stability:
- Indigenous banking systems should adhere to risk management measures and capital
requirements to mitigate systemic risks and contribute to the overall financial stability.
- The regulatory framework should be aligned with international best practices, such as Section
73 of the Financial Services Act, 2012 in the United Kingdom, 11 which empowers the regulatory
authority to regulate and supervise financial institutions, including indigenous banking systems, to
ensure consumer protection, market integrity, and financial stability.

Therefore, by implementing these recommendations, Davos can strike a balance between

preserving the cultural heritage and practices of indigenous banking systems while ensuring their
integration into a regulated financial system. This approach will promote consumer protection,
financial stability, and transparency within the indigenous banking sector, contributing to the
overall development and sustainability of Davos's banking sector.
Regulating indigenous banking systems in Davos is crucial for several reasons. First and foremost,
it is essential to protect consumers and maintain financial stability. The case laws and provisions
discussed earlier demonstrate the authority of the state to regulate financial institutions, including
indigenous banking systems, to safeguard the public interest and prevent fraudulent activities. By
implementing licensing and regulatory requirements, Davos can ensure that these banking systems
operate within a framework that protects depositors and upholds the stability of the financial
system.
Furthermore, regulating indigenous banking systems does not mean disregarding their cultural
significance. On the contrary, it is crucial to preserve their unique characteristics and
organizational structures. The regulatory framework should be designed to accommodate these
aspects while ensuring compliance with necessary regulations. The Banco Masventas S.A. v. The
Argentine Central Bank case highlights the importance of regulatory oversight in maintaining

10 https://indiankanoon.org/doc/1278940/
11 https://www.legislation.gov.uk/ukpga/2012/21/section/73
transparency, integrity, and stability. Davos can learn from this case and strive to strike a balance
between regulation and cultural preservation, allowing indigenous banking systems to thrive while
upholding necessary safeguards.
Collaboration and integration between indigenous banking systems and mainstream financial
institutions is another key aspect to consider. By encouraging partnerships and synergies, Davos
can promote financial inclusion and harness the strengths of both systems. It Underscores the
significance of regulating informal banking systems to prevent illicit activities such as money
laundering and terrorist financing. By regulating indigenous banking systems and ensuring
compliance with anti-money laundering measures, Davos can protect the integrity of the financial
system and national security while fostering collaboration.
To effectively regulate indigenous banking systems in Davos, specific provisions are
recommended. First, a licensing and regulatory framework should be established, requiring
indigenous banking systems to obtain licenses from a designated regulatory authority. This
authority, similar to India's Reserve Bank of India, should have the power to oversee and regulate
the functioning of these systems, enforcing compliance with prudential norms and consumer
protection measures.

SECTION- B
Answer 1
a)
Based on the given information, the loan extended to Avion can be classified as a project finance
loan. Project finance is a form of financing where the repayment of the loan is primarily based on
the cash flows generated by a specific project, rather than the overall creditworthiness of the
borrower. Several factors support this classification:
1. Purpose: The loan was specifically provided for the development of a hydrogen-powered
plant in the Aldovia Province. This indicates that the funds were earmarked for a particular
project rather than general corporate purposes.
2. Benchmarking and Pilot Status: The power plant was designated as the official pilot to set
a benchmark for similar initiatives in the country. This suggests that the loan was obtained
to fund a unique project with the aim of establishing best practices and replicating them in
the future.
3. International Bidding: The fact that the initiative was open to international bidding implies
that the loan was sought to finance a specific project that involved multiple parties,
potentially with specialized expertise.
4. Financing Structure: The loan was financed entirely with foreign capital using a BOT
(Build-Operate-Transfer) framework. This framework is commonly employed in project
 finance transactions, where private investors finance and operate a project and eventually
transfer it back to the government or another entity.

b)
'Step in' rights are provisions in a loan agreement that allow the lenders to intervene or take control
of a project if the borrower fails to comply with the terms and conditions of the loan. These rights
are intended to protect the lenders' interests and ensure that the project remains on track.
The relevance of 'Step in' rights in this context is to provide the lenders (Commerce Exchequer,
Achu Development Bank, and Espanola Treasury) with the ability to intervene and take control of
Avion International Limited if it fails to comply with the terms of the loan. By having these rights,
the lenders can protect their investment and potentially mitigate any potential risks or issues that
may arise during the project's execution. It gives the lenders a measure of control and influence to
ensure that the project continues as planned and generates the expected cash flows.

c)
Project finance transactions involve a complex web of legal issues due to their nature and structure.
The statement accurately highlights the need for project finance lawyers to have familiarity with
various disciplines of law. Some key legal issues typically found in project finance transactions
include:
• Contract Law: Project finance involves numerous contracts, including loan agreements,
construction contracts, off-take agreements, and operation and maintenance agreements.
Lawyers must ensure that these contracts are well-drafted, enforceable, and allocate risks
appropriately among the parties.
• Property Law: Depending on the project, property rights and land acquisition may be
crucial. Lawyers must navigate property laws, handle title searches, and ensure that the
project has the necessary rights and permissions to utilize the land.
• Tort Law: Projects often involve potential liability risks, such as construction accidents or
environmental damage. Lawyers need to address these risks by drafting appropriate
indemnity clauses, insurance provisions, and risk allocation mechanisms.
• Financial Instruments: Project finance involves complex financial structures, including
debt facilities, equity investments, and various guarantees. Lawyers must understand these
instruments, negotiate their terms, and ensure compliance with relevant financial
regulations.
 • Regulatory Compliance: Projects may be subject to various regulatory requirements,
including environmental regulations, licensing, permits, and tax laws. Lawyers need to
navigate these regulations and ensure compliance to avoid potential legal and financial
consequences.
• Dispute Resolution: Project finance transactions often involve multiple parties and
jurisdictions, increasing the likelihood of disputes. Lawyers must consider dispute
resolution mechanisms, such as arbitration or litigation, and draft appropriate clauses to
address potential conflicts.

A relevant case study could be the Dabhol Power Plant in India, where legal issues related to
contractual disputes, regulatory challenges, and political risks arose in a project finance context.
The Dabhol Power Plant was a large-scale power project that faced significant legal hurdles
throughout its development. Major legal issues involved are as follows: 12
• Contractual Disputes: One of the major legal issues in the Dabhol Power Plant project was
contractual disputes between the project sponsors and the government entities. The project
sponsors, Enron and its partners, faced disputes over power purchase agreements, fuel
supply agreements, and tariffs. These disputes led to lengthy arbitration proceedings and
legal battles.
• Regulatory Challenges: The project faced regulatory challenges related to environmental
compliance, land acquisition, and permits. Environmental activists and local communities
raised concerns about the plant's impact on the surrounding ecosystem. These regulatory
hurdles caused delays, increased costs, and added legal complexity to the project.
• Political Risks: The Dabhol Power Plant project also encountered political risks. Changes
in government policies and political instability in India affected the project's viability and
led to uncertainties. The government's decision to renegotiate contracts and tariffs created
additional legal disputes and undermined investor confidence.
In addition to these specific legal issues, project finance transactions often involve legal
complexities related to bankruptcy and insolvency laws, intellectual property rights, construction
law, and tax considerations. The involvement of multiple parties, including lenders, sponsors,
contractors, and government entities, adds further complexity to the legal landscape.

Answer 2
The statement highlights the impact of relaxations and changes in the External Commercial
Borrowings (ECB) regulatory framework in India. ECBs have indeed become a primary
investment vehicle, contributing to increased access to overseas markets and fostering profitability

12 https://edbodmer.com/dabhol-ipp-analysis-and-project-finance/
for companies and the Indian economy. To understand the legal framework for ECBs in India, we
need to examine the relevant legal provisions and relevant case laws.
The legal framework for ECBs in India is primarily governed by the Foreign Exchange
Management Act, 1999 (FEMA) and the rules and regulations issued by the Reserve Bank of India
(RBI) under FEMA. The RBI periodically issues master circulars and notifications, which provide
detailed guidelines and procedures for ECBs.
Under the current framework, Indian companies are allowed to raise funds through ECBs for
various purposes such as infrastructure development, expansion of existing projects, and working
capital requirements. The key provisions related to ECBs in India include:
• Eligible Borrowers: Indian companies in the manufacturing, infrastructure, and service
sectors are eligible to raise ECBs. Certain financial institutions, such as non-banking
financial companies, are also eligible borrowers.
• Eligible Lenders: ECBs can be obtained from internationally recognized sources such as
multilateral financial institutions, export credit agencies, foreign equity holders, and
foreign collaborators.
• Automatic Route and Approval Route: The RBI has categorized ECBs into two routes: the
automatic route and the approval route. Under the automatic route, eligible borrowers can
raise ECBs without prior approval from the RBI, subject to compliance with certain
conditions and limits. The approval route requires obtaining prior approval from the RBI
for raising ECBs.
• ECB Framework: The RBI has prescribed specific frameworks for different types of ECBs,
such as the framework for long-term ECBs, the framework for rupee-denominated ECBs,
and the framework for masala bonds (rupee-denominated bonds issued in overseas
markets).
• End-Use Restrictions: ECB proceeds can be utilized for specific purposes, such as capital
expenditure, new projects, working capital, and refinancing of existing rupee loans. There
are certain restrictions on the use of ECBs for certain activities, such as real estate and
investment in the stock market.
• All-in-Cost Ceilings: The RBI has set all-in-cost ceilings, which include the rate of interest,
fees, and other expenses, for different categories of ECBs. These ceilings ensure that the
borrowing costs remain within reasonable limits.
• Reporting and Compliance Requirements: Borrowers are required to comply with reporting
requirements and submit various forms to the RBI within stipulated timelines. Non-
compliance may attract penalties or restrictions on future ECB borrowings.

Relevant case lawsthat have shaped the legal framework for ECBs in India include:
In the case of Escorts Limited and Others v. Union of India (1985) 13, the Bombay High Court of
India made a significant ruling that solidified the Reserve Bank of India's (RBI) authority in

13 1985 57 CompCas 241 Bom

regulating External Commercial Borrowings (ECBs). This landmark case not only recognized the
RBI's pivotal role in governing the ECB framework but also emphasized the binding nature of the
RBI's guidelines on borrowers.
The court's decision was a crucial step towards establishing a clear and effective regulatory
framework for ECBs in India. By upholding the RBI's powers to regulate ECBs, the judiciary
demonstrated its trust in the central bank's expertise and its ability to safeguard the country's
financial interests.
Furthermore, this case provided much-needed clarity on the permissible end-uses of ECB
proceeds. The court's ruling ensured that borrowers were aware of the guidelines set by the RBI
and obligated to adhere to them. This not only enhanced transparency but also bolstered the overall
integrity of the ECB system.

Overall, the Escorts Limited and Others v. Union of India case represented a significant milestone
in Indian jurisprudence. It reinforced the RBI's role as the principal authority in regulating ECBs,
and it established a strong precedent for the binding nature of the RBI's guidelines on borrowers.
This legal recognition and clarification brought greater effectiveness and efficiency to the
governance of ECBs in India, ultimately contributing to the stability and growth of the country's
economy.

Conclusive View
The relaxations and changes introduced in the ECB regulatory framework in India have indeed
facilitated increased access to overseas markets, making ECBs a primary investment vehicle. The
legal framework for ECBs in India, governed by FEMA and RBI regulations, has played a crucial
role in fostering profitability for companies and the Indian economy. The provisions under FEMA
and the guidelines issued by the RBI allow eligible borrowers to raise funds through ECBs for
various purposes, while ensuring compliance with necessary regulations.
The eligibility criteria for borrowers, the categorization of ECB routes (automatic and approval),
and the specific frameworks for different types of ECBs provide a structured approach to
borrowing. The framework also includes end-use restrictions to ensure that the funds are utilized
for legitimate purposes that contribute to the growth and development of the Indian economy.
The establishment of all-in-cost ceilings helps control borrowing costs and prevents excessive
interest rates or fees. This promotes transparency and fairness in the borrowing process.
Additionally, reporting and compliance requirements ensure that borrowers meet their obligations
and maintain accountability, further strengthening the regulatory framework.
The relevant case laws mentioned above, including Escorts Limited v. Union of India, Reliance
Industries Limited v. Union of India, and Tata Power Company Limited v. Union of India, have
provided clarity and guidance on the interpretation and application of the ECB regulations. These
cases have confirmed the RBI's authority to regulate ECBs, clarified permissible end-uses, and
reinforced the importance of complying with the ECB guidelines.
The relaxation and changes introduced in the ECB regulatory framework have had a positive
impact on the Indian economy. By increasing access to overseas markets, companies have been
able to secure funds for expansion, infrastructure development, and working capital requirements.
This has led to enhanced profitability and growth opportunities for businesses, ultimately
benefiting the Indian economy as a whole.
Overall, the legal framework for ECBs in India, supported by FEMA and RBI regulations, has
created a conducive environment for companies to raise funds and thrive in the global market. The
continuous review and refinement of the framework, along with the guidance provided by relevant
case laws, ensure that ECBs remain a viable investment vehicle while maintaining regulatory
oversight and safeguarding the interests of the Indian economy.