KAAND 26: The Jurisdiction Kaand TACTIC: Incorporate the holding company abroad, keep operations in India, ensure any legal action faces a 15-year international chase
THE TACTIC IN ONE PARAGRAPH The tactic is simple: structure a business so that the legal entity controlling assets sits in a foreign jurisdiction—often a tax haven or a country with slow, opaque courts—while operations, liabilities, and disputes remain in India. The holding company abroad owns Indian subsidiaries through layers of intermediate entities, often in Mauritius, Singapore, or the UAE. When creditors, regulators, or litigants seek redress, they must navigate a maze of cross-border legal proceedings, mutual legal assistance treaties (MLATs), and conflicting jurisdictions. The goal isn’t to win in court but to exhaust the opponent’s time, money, and patience. A 22-year-old should immediately think of companies that vanished after defaults, promoters who fled abroad, or cases where Indian courts issued orders that foreign banks ignored.
HOW IT WORKS IN INDIA SPECIFICALLY This tactic thrives in India because of three structural weaknesses: the glacial pace of Indian courts, the gaps in cross-border enforcement, and the regulatory silos that allow foreign-incorporated entities to slip through cracks. Indian courts take an average of 15 years to resolve commercial disputes, while foreign jurisdictions—especially those with no extradition treaties or weak MLATs—can drag proceedings indefinitely. The Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) have limited jurisdiction over foreign-incorporated holding companies, even if their subsidiaries are listed in India. The Double Taxation Avoidance Agreement (DTAA) with Mauritius, for instance, has historically allowed round-tripping of capital, where Indian money is routed abroad and reinvested as "foreign" to claim tax benefits. The Enforcement Directorate (ED) and the Serious Fraud Investigation Office (SFIO) can investigate, but their powers stop at India’s borders unless foreign authorities cooperate—which they often don’t, citing "banking secrecy" or "lack of evidence."
The Companies Act, 2013, requires Indian subsidiaries to disclose their ultimate beneficial owners (UBOs), but compliance is patchy, and shell companies in tax havens obscure ownership. The Insolvency and Bankruptcy Code (IBC) can attach assets of Indian subsidiaries, but if the holding company abroad holds the real assets—intellectual property, trademarks, or cash reserves—creditors are left chasing shadows. Even if an Indian court orders a foreign bank to freeze assets, the bank can claim it lacks the authority to act without a local court order, triggering another round of litigation.
THE HISTORICAL RECORD The tactic has been documented in at least three high-profile cases. The first is the Kingfisher Airlines default, where Vijay Mallya’s United Breweries Holdings Ltd (UBHL) was incorporated in India, but the real assets—brands, aircraft leases, and cash—were held by offshore entities in the UK, the US, and the British Virgin Islands. When lenders moved the Debt Recovery Tribunal (DRT) and later the IBC, Mallya fled to the UK, and Indian banks spent years trying to extradite him. The UK courts eventually ruled in India’s favor, but by then, the assets had been dissipated. The ED attached properties worth ₹9,000 crore, but recovery remains minimal.
The second case is Nirav Modi’s Punjab National Bank (PNB) fraud, where the diamantaire’s firms—Firestar International, Solar Exports, and Stellar Diamonds—were incorporated in Hong Kong and the British Virgin Islands. The fraud involved fake Letters of Undertaking (LoUs) issued by PNB’s Mumbai branch, but the proceeds were routed through foreign entities. When PNB filed a complaint, Modi fled to the UK. Indian authorities secured a freezing order on his assets, but the UK’s High Court ruled that the assets could not be seized without a local court order. The case dragged on for years, with Modi’s legal team arguing that the Indian charges were politically motivated. As of 2024, PNB has recovered only a fraction of the ₹14,000 crore lost.
The third case is Satyam Computer Services, where founder Ramalinga Raju confessed to inflating profits by ₹7,000 crore. While the fraud was executed through Indian subsidiaries, the holding company structure involved entities in the US and the UK. When investors sued, they found that the real assets—cash reserves and intellectual property—were held by foreign entities. The US class-action lawsuit took years to settle, and Indian shareholders received only partial compensation.
THE INSTITUTIONS THAT ENABLED IT No tactic works in isolation. In these cases, auditors like PricewaterhouseCoopers (PwC) and Deloitte signed off on financial statements without flagging offshore transactions. Banks like PNB and State Bank of India (SBI) issued LoUs and guarantees without verifying the ultimate beneficiaries. Rating agencies like CRISIL and ICRA assigned investment-grade ratings to companies with opaque holding structures. The RBI, which regulates banks, failed to detect the PNB fraud for seven years, while SEBI, which oversees listed entities, did not question the offshore ownership of Satyam’s subsidiaries. The Ministry of Corporate Affairs (MCA) had the power to demand UBO disclosures but rarely enforced them. Foreign banks in jurisdictions like Hong Kong and the UK facilitated the movement of funds, citing "client confidentiality" when Indian authorities sought information.
THE CURRENT STATE The tactic is still in use, but regulators have tightened some loopholes. The DTAA with Mauritius was amended in 2016 to remove the capital gains tax exemption, reducing round-tripping. The Fugitive Economic Offenders Act, 2018, allows Indian courts to confiscate assets of absconding promoters, but enforcement remains weak. The RBI now requires banks to verify the UBOs of foreign entities, and SEBI has mandated stricter disclosures for listed companies with offshore parents. However, the core issue—slow cross-border enforcement—remains unresolved. India’s MLATs with tax havens are rarely invoked, and foreign courts still demand local orders before acting. Until India signs stronger treaties or builds faster enforcement mechanisms, the tactic will persist.
WHAT TO WATCH FOR If you’re evaluating a company or deal, look for these red flags: (1) A holding company incorporated in Mauritius, Singapore, or the UAE with no clear business purpose, (2) Indian subsidiaries that pay "royalty" or "management fees" to offshore entities without transparent pricing, and (3) Promoters who frequently travel to tax havens or have residences in countries with no extradition treaties. These are not proof of wrongdoing, but they are structural vulnerabilities that make the jurisdiction tactic possible.
This newsletter describes documented business tactics and systemic patterns based on public records, regulatory orders, and published financial journalism. It does not make allegations against any individual or entity. Readers are encouraged to consult primary sources and form their own conclusions.