Sejal Sahu and Anenya Sinha
Introduction
In the recent judgement of Hyeoksoo Son v. Moon June Seok & Anr., the Supreme Court (SC) emphasized that “the rule of law has a responsibility to protect the investments of foreign investors”. While reiterating that the accused had a right to a fair trial, the SC expressed a wider systemic responsibility to depict that fraud on foreign entities should not be left unexamined. The reinstitution of criminal charges in this matter is an indication of a departure in our system of purely procedural adjudication to one that consciously considers the economic impact of legal outcomes. This reflects a shift towards a substantive conception of the rule of law, where justice is not only procedural but also considers investor protection and legal integrity.
Does this signal an evolving jurisprudence where constitutional values like the rule of law and due process merge with the economic goal of becoming an attractive and secure hub for foreign investment? This piece examines how judicial justice is beginning to define the boundaries of a legal environment responsive to the demands of investments. The first part highlights the judicial shift, followed by an analysis of the SC’s verdict. The second part explores India’s legal system in fostering investors’ trust. The third part provides a comparative analysis of investor rights in other jurisdictions. Lastly, recommendations are proposed to strengthen investor protection and create a safe environment for them.
Analyzing The SC’s Verdict as A Beacon for Investor Protection
The Indian subsidiary of the South Korean company Daechang Seat Automotive Pvt. Ltd. experienced a significant financial fraud involving the siphoning of GST money by outsourced advisors and former Chief Financial Officer (CFO) Moon June Seok. The High Court ruled in favor of the accused CFO due to the absence of direct evidence, raising concerns about investor protection. However, the Supreme Court interpreted the situation as an institutional failure with wider implications and recognized that leniency could undermine investor confidence and the credibility of India’s legal system.
The SC cited the case of State of Haryana v. Bhajan Lal, where the limited scope of judicial interference was applied to Section 482 of Cr. P.C. and held that the apex court must refrain from conducting the mini-trial at the preliminary stage and assess only if a prima facie case exists. In its reasoning, the SC carefully balanced the interests of investors and constitutional fairness. It did not want the sheer enormity of the alleged financial wrongdoing to be used as an excuse to circumvent legal protections. This finding indicates that the SC was reluctant to prejudge guilt solely based on the presence of foreign investment. Instead, it reaffirmed that procedural fairness, grounded in the presumption of innocence, should guide the process.
More importantly, the SC acknowledged that the validity of the Indian investment environment depends not only on the ability to prevent financial wrongdoing but also on upholding the legal rights of all stakeholders. By emphasizing this dual obligation, the SC conveyed to both domestic institutions and international investors that the Indian legal system is committed to due process, transparency, and accountability, a system where economic governance and constitutional integrity work in unison.
Where’s the Safety Net? India’s Rule of Law Deficit in Investor Protection
Investors have long been accustomed to structuring their regulatory compliance around contractual obligations. The transactions, hence, majorly depend upon the party’s legal ability to perform. The major portion of the A.T. Kearney 2025 index underscores the importance of legal and regulatory efficiency as the top two most important factors for investors when choosing where to make their investment. India’s performance has fallen short of attracting investments, where it manages to come in at the 24th position out of 25 countries that make up the index. Hence, the judgment comes in to save the picture and provides hope in the clouded Indian investment landscape. A significant lack of the judiciary’s protective armor rests in its blunt-edged approach, with no relief to investors in terms of pivotal democratic rights. Even when upholding the rights of investors against illegal use of power by tax authorities in the case, the SC reasoned that “the case is of considerable public importance, especially on Investment, which is indispensable for a growing economy like India”, hence, outlining a very narrow and incentive-driven approach to the legal protection of investors in the country. The only relatively useful safeguard that emerges is Section 125 of the Companies Act, 2013, which offers limited relief through the Investor Education and Protection Fund (IEPF). It requires investors to transfer any unclaimed dividends or other amounts to the IEPF, which is further used to create awareness among investors and to clear any valid dues. It aims to stop the possible misappropriation of unutilized funds by the business institutions and offer a platform in which the rightful owners can reclaim their legitimate cash. However, the refund process through the IEPF is usually bureaucratic and opaque, and thus discourages a large number of small investors from going forward with their claim. Furthermore, the outreach and education programs facilitated through the IEPF are regarded as small-scale and short-lived, particularly outside of urban centers. Above all, Section 125 only addresses the issue of unclaimed financial entitlements, but not the broader problem of fraudulent investment schemes, inadequate transparency, and weak enforcement of prosecutions against corporate misconduct in India’s investor protection system.
Moreover, western investors are desirous of rule of law protections for their investments; however, India still lags in attracting Foreign Direct Investment (FDI), despite retaining a longstanding democracy with a stable rule of law. The SC had taken cognizance of this need back in 2011 by declaring, “Even if the foreign investor has no fundamental right, let them know that the rule of law prevails in this country. Let the message be loud and clear”. The judgment was, though focused on the legislative control of the host country on foreign investors, it did not fall short of underlining the importance of strict adherence to constitutional standards of equality and reasonableness. However, judicial promises and statutory commitments have only achieved this in substance, severely lacking in ensuring procedural fairness. For instance, landmark judgements such as the Ethiopian Airlines vs. Ganesh Narain Saboo make a direct mention of the rule of law, but only to increase the power held by domestic legislation in increasing accountability in contractual and commercial activities of all investors who have obligations, referring to equal application to foreign investors. The SC in this case could only go to the extent of making the rule of law integral for saving a degrading international business, as far as normal market rules are concerned. What emerges is a judiciary that invokes the rule of law but fails to operationalize it as a consistent legal standard, leaving investor confidence tied more to selective activism than to systemic reliability.
Comparative Perspectives: Rule Of Law as a Systemic Shield for Investor Protection
Interestingly, the home country of the investor in the case, South Korea, provides much greater legal protection to investors than India. The recent amendments of the Korean Commercial Act, 1962, have not only made the procedures to claim audits, call general meetings, and bring derivative actions simple, but also that access to these remedies will no longer be accompanied by undue procedural burden. This willingness is a sharp contrast to the traditionally cautious approach to litigation in India, where judicial delays and unwillingness to intrude on the decisions of the management are constant sources of loss of investor confidence. This is a lesson that needs to be internalized by the Indian legal system that protection of investors, especially foreign, is not just about legal rights but enforcement by the courts and a straightforward intent. The Daechang case is an indication that the courts are willing to accept that investor confidence should not be a situation that is only corrected at the cost of mopping up after the event- it proposes a deliberate adjustment to our corporate legal framework.
In the United Kingdom (UK), the Companies Act 2006 is more comprehensive in its statutory method of dealing with oppressive conduct by providing an action under Part 30, Sections 994-996 to deal with unfair prejudice. The decision made by the House of Lords in O Neill v. Phillips brought forward a more powerful and subtle doctrine of legitimate expectations that had long been in operation, making the court recognize that shareholder relations were not just founded on legal form but also on equitable estimation. A similar provision, though superficial in nature, can be found under Section 241 of the Companies Act, 2013 of India, but the judicial interpretation has been lacking in the doctrinal refinement and consistency to make it a reliable tool.
Besides, where the UK represents a pattern of doctrinal elaboration, Singapore provides an approach in which the rule of law is internalized into economic policy as such. In the case of Ho Yew Kong v. Sakae Holdings, the Singapore Court of Appeal elaborated on fiduciary duties and fairness that must be provided to the minority shareholders, making it clear that the courts are a team player in economic governance. What Singapore demonstrates is how the constitutional principles, such as fairness and non-arbitrariness, can be aligned with the commercial policy, which India will have to follow to transform the ad hoc judicial rulings into an institutionalized investor assurance.
Reforms for Robust Investor Protection in India
To strengthen investor protection in India and prevent them from being defrauded, a set of proactive measures should be considered.
One effective step would be adopting pre-court mechanisms from the APEC Best Practices Guidebook would improve complaint resolution, responsiveness, and investor confidence. Establishing a dedicated foreign investment ombudsman, functioning as a neutral, single-window body, could address investors’ complaints about fraud, delays, regulatory gaps, or other issues. A similar practice exists in South Korea, which set up the investor ombudsmen as part of Korea Trade-Investment Promotion Agency (KOTRA), 1999. Building on this, India should also consider introducing downside protection clauses and regulatory safeguards for investors, both foreign and domestic, to be embedded in India’s investment regime. The downside protection safeguards investors from downside risk by virtue of adverse regulatory market changes. America’s Treasury Inflation Protected Securities bonds protect investors against inflation erosion while OECD promote frameworks that will balance the expectations of investors with public interest. India could adopt statutory provisions that require impact assessment, grandfathering clauses, and compensation remedies for any change in policies that are materially harmful.
Conclusion
The decision made by the SC in the present case indicates a positive change in the approach of Indian courts to the complex of legal procedure and investor confidence. Having said that, a single case will not reverse the systematic investor skepticism. This must form a pattern of consistent judicial approach in case India is to be regarded as a credible and safe place to invest foreign capital. The courts are required to make prompt, straightforward judgments in commercial and economic issues and take a balanced perspective that favors enforcement and fairness. This decision should not remain an isolated case in future. It must promote more far-reaching reforms- judicial, legislative, and administrative, which would complement each other to instill confidence in the legal and regulatory systems of India. It is only then that the hope of rule of law can effectively be turned into greater investor confidence and sustainable economic participation.
Sejal Sahu and Anenya Sinha are both third-year undergraduate students pursuing a B.A. LL.B. (Hons.) degree at Hidayathullah National Law University, Chhattisgarh, India.
NUALS Law Journal 