COURTKUTCHEHRY SPECIAL ON GIFT CITY CRACKDOWN ON INACTIVE COMPANIES
GIFT City Regulator Orders Inactive Companies to Surrender Licenses
IFSCA Tightens Rules to Ensure Transparency in India’s Financial Hub
Inactive Entities Face Exit as Compliance Standards Strengthen
By Our Legal Reporter
New Delhi: February 20, 2026:
The International Financial Services Centres Authority (IFSCA), the unified regulator for GIFT City, has directed inactive companies operating within the hub to surrender their licenses. This move is part of a broader effort to strengthen compliance, ensure transparency, and maintain the credibility of India’s first international financial services centre. The decision comes after a review revealed that several entities had either stopped operations or failed to comply with regulatory requirements, raising concerns about misuse of licenses and reputational risks for the financial hub.
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Background of the Action
- GIFT City, located in Gandhinagar, Gujarat, was established to position India as a global financial hub.
- The IFSCA regulates all financial products, services, and institutions within the city under the IFSCA Act, 2019.
- In April 2025, the Authority issued a circular directing regulated entities to comply with licensing norms and surrender inactive registrations.
- The move follows routine inspections that identified companies holding licenses without conducting meaningful business activities.
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Why the Action Was Taken
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The regulator’s decision is rooted in three key concerns:
- Inactive Entities: Several companies had obtained licenses but remained dormant, creating a false impression of activity in the hub.
- Regulatory Compliance: Some firms failed to meet ongoing obligations such as reporting, capital adequacy, and operational standards.
- Reputation Management: Allowing inactive or non‑compliant firms to retain licenses could undermine investor confidence in GIFT City’s credibility as a global financial centre.
Rules Governing the Decision
The IFSCA acted under powers granted by the IFSCA Act, 2019, specifically:
- Section 12: Grants authority to regulate financial products, services, and institutions.
- Section 13: Allows the regulator to issue directions to entities for compliance.
Additionally, the following regulations apply:
- IFSCA (Banking) Regulations, 2020 – governing banks and financial institutions.
- IFSCA (Market Infrastructure Institutions) Regulations, 2021 – covering exchanges and clearing corporations.
- IFSCA (Global In‑House Centres) Regulations, 2020 – regulating captive service centres.
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These frameworks require entities to maintain active operations, submit periodic reports, and comply with international standards. Failure to do so can result in suspension or cancellation of licenses.
Impact on Companies
- Entities that are inactive must surrender their licenses voluntarily or face regulatory cancellation.
- Active firms are required to demonstrate compliance through regular filings and audits.
- The move is expected to reduce the number of registered firms but improve the overall quality and credibility of those operating in GIFT City.
- Companies planning to re‑enter the hub will need to apply afresh, ensuring stricter scrutiny.
Strategic Importance for India
- Global Positioning: By cleaning up inactive entities, GIFT City strengthens its image as a serious global financial hub.
- Investor Confidence: Transparent regulation reassures foreign investors and multinational corporations.
- Legal Certainty: The enforcement of rules under the IFSCA Act provides a clear legal framework for compliance.
- Alignment with Global Standards: Similar measures are common in international hubs like Singapore and Dubai, where regulators routinely weed out inactive firms.
Conclusion
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The IFSCA’s directive to inactive companies in GIFT City is a decisive step toward building a transparent and credible financial ecosystem. By enforcing compliance and requiring license surrender, the regulator ensures that only serious, active players remain in India’s premier financial hub. This move not only strengthens investor confidence but also aligns GIFT City with global best practices in financial regulation.
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