Introduction:

This paper examines the dual role of arbitration in corporate law, particularly in the context of securities issuance and disclosure obligations, and how it can either slow or facilitate regulatory intervention. It begins by notifying the problem: arbitration clauses, foreign seats, and party-driven procedural design can create a regulatory veil, delaying the flow of material information relevant to compliance with the PFUTP Regulations, 2003, the LODR, 2015, and the SEBI Act, 1992. When proceedings are confidential, discovery is limited, and clauses allow parties to control tribunal powers, regulators and investors may receive critical information only after awards are rendered.

The paper then explores the alternative framework of arbitration as a regulatory mirror, where targeted transparency, tribunal authority to direct limited document production, and carefully structured clauses allow material facts to be surfaced while maintaining procedural efficiency and confidentiality. Finally, it offers recommendations for parties, tribunals, and regulators to align private dispute resolution with public disclosure obligations,showing how arbitration can reflect corporate conduct more accurately, and still preserve procedural efficiency.

Research Question:

How does private arbitration, particularly international arbitration, interact with regulatory enforcement, and can it hinder or support SEBI’s role?

Arbitration as a Regulatory Veil
When companies issue shares or securities, disputes often arise from misleading statements, omissions, or non-compliance with regulatory obligations. In India, the Securities and Exchange Board of India (SEBI) governs corporate conduct through the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 (PFUTP Regulations) and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR). These regulations require prompt disclosure of material events to prevent misrepresentation, and ensure transparency. Breaches invite investigation, enforcement action, and penalties under, for instance, Section 11C of the SEBI Act, 1992, which empowers SEBI to investigate fraudulent practices, and Section 12A, which authorises SEBI to issue directions to intermediaries or companies in public interest. At the same time, many subscription or shareholder agreements include arbitration clauses to resolve disputes privately. Such clauses are intended to make dispute resolution faster and procedurally simpler.

A typical clause reads:

“Any dispute shall be referred to and finally resolved by arbitration in accordance with the fast-track arbitration (to the extent applicable) under the rules of arbitration of the Singapore International Arbitration Centre then in effect (‘Rules’), which Rules are deemed to be incorporated by reference into this clause.”

Here, the term “regulatory veil” refers to the informational opacity created when private arbitration procedures delay/restrict access to material facts necessary for enforcement. A practical example can better show how arbitration and SEBI oversight would intersect. Suppose a listed company fails to disclose a pending government investigation before completing a preferential allotment. An investor later invokes arbitration, alleging misrepresentation under the subscription agreement. While the arbitral tribunal may decide contractual liability, SEBI can (and will) simultaneously investigate whether the company breached Regulation 30 of the LODR or Sections 12A and 15G of the SEBI Act by withholding a material event.

The two proceedings operate parallelly, while arbitration decides private rights; SEBI enforces public duties. But these dual proceedings may not operate in isolation. Confidential arbitral proceedings may keep material facts from investors and regulators until after awards are rendered. This effect is particularly found in international arbitration. Procedural and jurisdictional limits on discovery and enforcement can make it difficult for SEBI to access information. The result is a practical “veil.” It exists not because SEBI’s mandate is suspended, but because the flow of information it depends on is slowed.

In October 2023, SEBI issued an interpretative letter to GAIL (India) Ltd., clarifying that arbitral proceedings, though confidential under Section 42, must be disclosed under Regulation 30 of the LODR if they materially affect investors or involve enforcement of an award. This revises the idea that confidentiality cannot override disclosure duties and that SEBI’s powers under Sections 11(1), 11C, and 12A of the SEBI Act remain active during arbitration. This followed SEBI’s 2022 circular on disclosure of material events, which required listed companies to report litigation or arbitration developments that materially affect their financial position or investor perception,

These reactions were shaped in part by cases such as SEBI v. Ricoh India Ltd., where delayed and incomplete disclosures about ongoing disputes and defaults misled investors. SEBI held that the company’s failure to report these developments violated its disclosure obligations. The same regulatory dilemma has also appeared abroad. In Nigeria v. Process & Industrial Developments (P&ID), the English High Court noted how confidentiality in arbitration had allowed evidence of bribery and procedural misconduct to remain undiscovered by Nigerian regulators and the public for years. It can be observed from the judgment that strict confidentiality, combined with limited regulatory access to arbitral materials, delayed the detection of fraudulent conduct to regulators as well as the public. So, the Nigerian experience shows when arbitration operates in completely secrecy without any protective oversight, it risks becoming our regulatory veil against the purpose of the law.

Party control over arbitrator appointment and procedural design also creates several routes for evasion. A company seeking to conceal misconduct can select a seat with weak pre-award discovery and strict confidentiality norms. Choosing institutional rules that limit tribunal initiative, or appoint arbitrators who interpret their fact-finding powers narrowly is another way. One possible reform is giving tribunals a more active role in evidence collection and witness examination to reduce the information gap between regulated entities and investors. Yet the reach of this approach remains limited: arbitrators lack coercive power over non-parties, so orders for documents or testimony usually need court enforcement. For example, under Section 7 of the U.S. Federal Arbitration Act, arbitrators may issue subpoenas, but enforcement rests with federal courts, and even there, courts might differ on whether it extends to pre-hearing discovery. Emergency arbitrators face similar limits, as their orders are short-lived and unevenly recognised across jurisdictions. In the end, the form of arbitration is still dictated by party choice, by appointing arbitrators and designing procedure, a company intent on hiding misconduct can avoid any active fact-finding model, leaving the issue primarily for regulators to address.

Yet arbitration does not necessarily have to be a veil. It can also be viewed as a regulatory minority. The next section shall see if arbitration, when designed with regulatory cooperation in mind, can reveal rather than facilitate improper conduct, and in doing so, address the very veil it is argued to create.

Arbitration as a Regulatory Mirror
Turning arbitration from a veil into a mirror requires structural alignment between contractual design and regulatory oversight. The term “regulatory mirror” is used deliberately as a metaphor. It describes a form of arbitration that reflects corporate conduct back to regulators instead of concealing it. The mirror does not represent a new doctrine, but a procedural design where transparency and limited regulatory cooperation make arbitration an instrument of factual accuracy. Every weakness that created opacity under the veil model, namely seat shopping, rigid confidentiality, and jurisdiction must be met with precise counterweights built into law, as well as clause. The first step is transparency of process. Listed entities should be legally obliged to notify SEBI when arbitration begins and disclose the chosen seat and procedural rules under Regulation 30 of the LODR. This not only prevents breach of confidentiality but also creates a regulatory record, enabling SEBI to request sealed access if market disclosure duties under Regulation 4(2)(e) are implicated. A limited consent waiver attached to this notice ensures that regulators can seek access to tribunal orders or summaries without disturbing arbitral confidentiality. Combined, notice and waiver convert the private act of initiating arbitration into a monitored event within the securities framework. 

The second step could introduce a “regulated-issuer track” that borrows from the Inquisitorial Rules of Taking Evidence (Prague Rules), allowing tribunals a modestly active role in fact-finding. This would let them direct focused document production, question witnesses, and identify undisputed facts early on.  They may also appoint independent accounting experts, and record concise written reasons when disclosure is restricted. These records, kept under seal, could create an auditable trail that courts might review under Section 34 of the Arbitration and Conciliation Act, 1996. It may also be desirable for this track to include at least one neutral member with relevant expertise in compliance or accounting, enhancing credibility while maintaining party autonomy. Confidentiality could retain a controlled exception, whereby tribunals might deposit redacted exhibits or sealed summaries in a secure regulatory repository accessible only to authorised SEBI officials. While there is no statutory requirement to adopt such a track, parties would find it in their interest to do so. By facilitating targeted regulatory access, they can reduce the risk that later enforcement or disclosure challenges delay recognition of an award. It can also help prevent corrective orders, and even reduce the risk of reputational uncertainty. Courts could continue to enforce awards, with the procedural understanding that regulators have a limited window to inspect materials and raise concerns of nondisclosure or misrepresentation. This approach demonstrates that a measured balance between transparency and efficiency can protect both party interests and market confidence.

The final layer is incentive and consequence. The mirror holds only if concealment is predictably costly. Regulators must publish clear guidance that failure to notify, deposit, or cooperate will trigger specific responses: fines calibrated to market capitalization, corrective disclosure orders, and temporary suspension of market privileges under Section 11B of the SEBI Act. Courts should treat non-notified arbitrations involving listed companies as irregular for enforcement until the omission is cured. At the same time, institutions should log and publish anonymised summaries of regulator-access requests and procedural refusals, giving the market a sense of accountability without revealing sensitive facts. Cross-border cooperation can reinforce the same standard through bilateral memoranda that speed recognition of preservation and production orders. None of these steps requires new doctrine; they work within existing principles of separability, party autonomy, and public policy. What changes is the allocation of visibility: regulators gain early notice, tribunals gain limited authority to ensure factual integrity, and courts gain a narrow audit trail to test concealment. In that configuration, arbitration ceases to be a private blind spot and becomes a reflective mechanism that captures the factual conduct of regulated entities. It does not sacrifice efficiency or confidentiality but reorders them around enforceable transparency, ensuring that procedural design cannot be used to outrun or outgun the regulator.

Conclusion:

This paper examined the dual role of arbitration in corporate law, especially in the context of securities issuance and disclosure obligations, and how it could either delay or support regulatory action. It identified that arbitration clauses, foreign seats, and party-driven procedural design could create a regulatory veil, slowing the flow of material information needed for compliance with the PFUTP Regulations, 2003, the LODR, 2015, and the SEBI Act, 1992, and that when proceedings were confidential, discovery was limited, and tribunals were controlled by parties, regulators and investors often received key information only after awards were issued. The paper explored arbitration as a regulatory mirror, showing that targeted transparency, tribunal authority to order limited document production, and carefully structured clauses allowed material facts to surface while preserving procedural efficiency and confidentiality. It offered recommendations for parties, tribunals, and regulators to better align private dispute resolution with public disclosure duties, showing that arbitration could reflect corporate conduct accurately and support timely regulatory engagement without compromising efficiency.