Written by Myra Tyagi.

I. Introduction

The Hindenburg report triggered a $150 billion market wipeout. Securities and Exchange Board of India (“SEBI”) consequently issued Show Cause Notice (“SCN”) to Hindenburg Research LLC amongst other foreign entities, which has no Indian offices, assets, or operations. But without an Indian footprint, how can SEBI enforce its orders? This SCN, made public by Hindenburg itself, rests on Section 11(1) of the SEBI Act, 1992, which empowers SEBI to take measures  “as it thinks fit” to protect Indian investors. The Supreme Court in SEBI v. Pan Asia Advisors Ltd AIR extended this power under the “effects doctrine“ to cover foreign conduct which have an “effect” on the Indian markets & investors. But the SEBI Act contains no explicit provision conferring extraterritorial jurisdiction.

This raises two critical questions: First, does judicial interpretation alone provide sufficient legal basis for extraterritorial reach? Second, even if jurisdiction exists, how can SEBI enforce its orders against entities with no Indian presence? This piece thus addresses both concerns: Part II traces the doctrinal foundations of SEBI’s “extraterritorial reach”, Part III examines the limitations of this foundation, before concluding in Part IV, which also contrasts India’s enforcement gap with US. 

II. Jurisprudential Foundations: The Effects Doctrine

To understand SEBI’s authority over foreign entities, it is essential to trace the legal basis of this power. Article 245(2) of the Constitution provides that no Indian law shall be invalidated merely because it has extraterritorial operation. Indian courts have since evolved two principal doctrines to determine when such a law may validly extend overseas.

First, as the SC in Electronics Corpn. of India Ltd. v. CIT noted, the territorial nexus doctrine requires a territorial connection with India. It observed that the law must be motivated by something within India, and to achieve that object, it may apply to “persons, acts, persons, outside… India” (Para 8-9).

Second, the effects doctrine, by contrast, allows Indian law to reach foreign acts that produce consequences within India. This was affirmed in Haridas Exports v. All India Float Glass Mfrs. Association (“Haridas Exports“), where Indonesian exporters, acting under an anti-competitive agreement abroad, dumped float glass in India. The Supreme Court held that while the Monopolies and Restrictive Trade Practices (“MRTP“) Commission had no “extraterritorial jurisdiction” over acts done entirely abroad (Para 57), jurisdiction could arise once the imports entered India and a restrictive trade practice is carried out, in relation to those goods (Para 60).

Notably, Parliament later codified the effects doctrine in Section 32 of the Competition Act, 2002, which now explicitly empowers the Competition Commission of India to regulate foreign conduct that causes or is likely to cause an appreciable adverse effect on competition in India.

Building on Haridas Exports, the Supreme Court affirmed SEBI’s authority under the effects doctrine in SEBI v. Pan Asia Advisors Ltd. (“Pan Asia“). In this case, Pan Asia Advisors, a foreign lead manager, structured overseas Global Depository Receipt (“GDR”) issuances for Asahi Infrastructure, an Indian entity. These GDRs were later converted into Indian shares through on-market and off-market transfers designed to manipulate liquidity and mislead Indian investors. The Court held that SEBI had jurisdiction under Section 11(1) of the SEBI Act because the fraudulent scheme, though executed abroad, directly affected Indian investors and the securities market (Para 102, 104). While the judgment confirms SEBI’s power over the Indian aspects of such transactions, the Court’s ruling however, operates in a statutory vacuum. The SEBI Act contains no explicit extraterritorial clause.

The question remains: should extraterritorial jurisdiction be defined by statute, or may courts infer it where the statute is silent? Legislative intent matters, as is evident from both Section 1(3) of Foreign Exchange Management Act, 1999 and Section 32 of the Competition Act, 2002, which expressly provide for extraterritorial operation. It is true that Haridas Exports read the effects doctrine into the MRTP Act, which also lacked an express provision. That interpretation operated for over a decade before Parliament codified it in the Competition Act. By the same logic, SEBI’s extraterritorial reach would be better grounded in an explicit effect-based provision rather than on mere judicial interpretation. Yet even this approach may carry certain risks.

III. Limitations of the Effects Doctrine

While Pan Asia provides doctrinal support, SEBI’s extraterritorial authority faces at least three significant constraints.

First, although subsequently affirmed in subsequent tribunal orders, Pan Asia remains the only Supreme Court decision applying the effects doctrine to securities regulation, and even there, the ruling was highly fact-specific: the overseas GDR issuances were converted into equity shares of an Indian listed company, Indian investors were directly counterparties, and the rights in question were GDR-specific, all these facts likely influencing the Court’s reasoning. Even commentators note the judgment’s limited application  and any broader use warrants caution. In practice too, expanding Pan Asia’s scope can be problematic. For instance, in cases like Hindenburg, where a foreign short-seller published research with no actual issuance structure or even a relationship with any Indian entity, the application of this doctrine would be stretched well beyond its factual basis.

Secondly, the threshold for sufficient “effect” remains unclear. This is a common critique especially in the antitrust context, where the doctrine has been applied extensively, as, in Pan Asia as well, the principle is transported from an antitrust case (Haridas Exports). Even in US, the statutory threshold of “direct, substantial, and reasonably foreseeable” has been criticised as vague and inconsistently applied. In practice as well this could raise issues, for instance, Jane Street’s systematic market manipulation of NSE prices harming domestic traders would appear to satisfy the threshold, but what about a research report causing reputational harm without measurable price impact. Without statutory clarity, SEBI’s jurisdiction boundaries remain undefined.

Lastly, the effects doctrine can extend to conduct that is entirely legal in the foreign jurisdiction but produces economic consequences in India. This raises the possibility of conflicts between two legal systems. For instance, in the Wood Pulp case before the European Court of Justice (“ECJ”), US exporters argued that their price coordination was exempt from US laws (paragraph 7), but treated as cartelization under EU. Although the ECJ upheld its jurisdiction over non-EU cartels, finding no contradiction in the laws (paragraphs 20-1), it has been noted that the Court was reluctant to “expressly adopt the effects doctrine… to avoid the conflict that the effects doctrine often creates between a sovereign’s rights and international law”   Similar concerns may arise if SEBI asserts authority over foreign entities acting lawfully under their home jurisdiction.

Moreover, on a practical note, even if the effects doctrine supports SEBI’s jurisdiction, a more fundamental problem remains: enforcement. If a foreign entity ignores SEBI’s orders, what remedies does the regulator have? Here, the US experience offers a useful contrast: statutory clarity paired with unilateral enforcement mechanisms.

IV. The Enforcement Gap: Lessons from the US

Historically, “conduct-and-effects” test has been used by US Courts to assert jurisdiction over foreign conduct affecting U.S. investors. However, after the Supreme Court’s decision in Morrison v. National Australia Bank (2010) narrowed the tests application to domestic transactions, Congress restored extraterritorial reach through Section 929P(b) of the Dodd-Frank Act. This extended SEC’s jurisdiction over conduct by foreign investors involving “significant steps” in the U.S. or where foreign conduct has a “foreseeable substantial effect” domestically, thus codifying jurisdictional authority with clarity.

But what actually drives US enforcement is not just the explicit statutory backing, but its enforcement toolkit. US regulators employ both cooperative tools (such as MLATs, letters rogatory) as well as unilateral tools. The Bank of Nova Scotia line of cases enables the SEC to compel foreign banks with U.S. correspondent accounts to produce records without foreign government approval. The Department of Justice can pursue criminal prosecution , enable asset freezes, forfeitures, and imprisonment.

In SEC v. Passos (2022), the SEC pursued a Brazilian executive who fabricated Berkshire Hathaway investment claims. In two separate actions, SEC froze Hong Kong defendants’ assets and arrested foreign traders for insider trading In 2024, SEC even established a Cross-Border Task Force  for countering transnational fraud. This combination of cooperative and coercive mechanisms exemplifies enforcement architecture that SEBI fundamentally lacks i.e. authority backed by execution.

But despite its limitations, SEBI also has a structural framework for cross-border coordination. Its Office of International Affairs maintains Memorandum of Understanding (“MoU”) with foreign regulators such as that of U.S, China’s, Singapore and others to facilitate information exchange. SEBI has also signed 27 MoUs with EU securities regulators and is a signatory to International Organization of Securities Commission’s Multilateral Memorandum of Understanding, enabling formal cross-border evidence requests.

However, these MoUs aren’t legally binding, and enforcement depends entirely on voluntary cooperation. The constraint cuts both ways: while SEBI pursues Hindenburg, Indian authorities have ignored SEC requests to serve summons to Adani executives in a parallel U.S. bribery probe. This seems to be because every jurisdiction wants extraterritorial reach, but few actually cooperate.

As opposed to SEC, SEBI lacks unilateral enforcement tools, no subpoena power abroad, no account seizure authority, no criminal prosecution arm. Without foreign cooperation, SEBI’s orders against purely offshore entities remain declaratory: devoid of any legal enforceability outside of perhaps reputational harm.

V. Conclusion

The Hindenburg episode exposes an uncomfortable truth about extraterritorial securities regulation: every jurisdiction wants reach; but none wants reciprocity. Extraterritorial claims tend to be more of a statement of regulatory intent rather than enforceable authority. Thus, without binding frameworks (especially owing to India’s own reluctance to honour reciprocal requests), SEBI lacks the practical tools to freeze assets, compel testimony, or enforce penalties.

At least in theory, two paths exist: statutory reform and bilateral treaties. Explicit statutory reforms may grant SEBI’s extraterritorial reach, but it does very little to solve the enforcement gap. By contrast, bilateral treaties require reciprocity, meaning SEBI would have to accept foreign regulatory reach within India, something Indian authorities have resisted. Resultantly, for now, SEBI’s extraterritorial jurisdiction remains mostly aspirational: a warning without teeth, a claim without architecture.