1. What is DLT Settlement?

Traditional settlement: T+1 in NSDL/CDSL, cash leg via RTGS, securities leg via depository transfer, reconciliation in batches.

DLT Settlement: Both legs on chain, atomic DvP (Delivery vs Payment).

Sept 2026 - India officially launched:

At Global Fintech Fest 2026 in Mumbai, RBI Governor Sanjay Malhotra and SEBI Chairman Tuhin Kanta Pandey jointly launched national tokenised corporate bond pilot combining blockchain / distributed ledger technology with RBI's wholesale central bank digital currency (CBDC) for securities settlement.

Features:

• Tokenized corporate bonds issued on permissioned DLT
• Cash leg settled in Wholesale Digital Rupee (e₹-W)
• Securities leg settled on DLT maintained by depository
• Same day settlement, automated corporate actions, lower operational friction
• Three companies already issued tokenised bonds aggregating Rs 10.25 billion (around $108 million): REC was first issuer on Sept 7, 2026 raising Rs 5 billion from 18 investors; L&T, IIFL etc.

SEBI calls it Demat 2.0 - from electronic ownership records to programmable securities infrastructure.

2. Legal Framework for Compliance

India does not have separate DLT Act yet. Compliance is through existing laws + pilot exemptions:

A. Depositories Act, 1996

• Section 2(1)(e) - depository must maintain record. SEBI FAQ now says distributed ledger entries maintained by registered depositories to be recognised as conclusive proof of title. Proposal: Formally amend Depositories Act to recognise DLT entries as conclusive proof.
• NSDL/CDSL are node operators.

B. Payment and Settlement Systems Act, 2007 (PSS Act)

• RBI is regulator for payment systems. Governs regulation and supervision of payment systems in India, RBI is designated authority.
• Under Sec 23, RBI/SEBI must issue joint notification granting atomic DLT DvP transactions statutory settlement finality - otherwise if chain reorgs, settlement can be reversed.
• For Demat 2.0, RBI gives finality to e₹-W leg.

C. SEBI DLT Regulations & History:

• Aug 2021: SEBI mandates DLT-based system for corporate debt - NSDL and CDSL go live with it for security and covenant monitoring.
• Oct 2025: RBI launches Unified Market Interface (UMI) to standardise settlement including for tokenized assets.
• May 2026: SEBI proposes pilot specifically for tokenized debt securities.
• Sept 2026: Tokenized bond pilot - SEBI press release + FAQs.

D. EU / Global Reference for Case Law:

• EU DLT Pilot Regime allows creation of DLT-based trading venues and settlement systems, providing temporary exemptions from certain EU financial rules to test innovations.
• Luxembourg Blockchain Law IV recognises issuance of dematerialised securities through DLT such as blockchains, introduces Control Agent to maintain issuance account in DLT and monitor chain of custody.
• US SEC No-Action Relief for private permissioned distributed ledger to facilitate settlement via digital collateral records representing book-entry interests.

3. Compliance Checklist for Bank / Issuer / Depository Participant

If you are a Bank acting as Issuer, Investor, or Custodian:

1. Technology Compliance:

• Permissioned DLT only, not public chain - SEBI mandates.
• SEBI accreditation regime for independent smart-contract auditors before mainnet deployment mandatory.
• Control Agent appointed by issuer to maintain issuance account in DLT and carry out reconciliation between aggregate amount issued and sum in holders' accounts.

2. Settlement Finality Compliance:

• Need atomic DvP - securities and cash move simultaneously. Otherwise settlement risk.
• Must get statutory finality under PSS Act - file with RBI.

3. KYC / AML / Data:

• Depositories Act + PMLA applies - on-chain KYC still required, wallet != anonymous.
• Reasonable security practices under Sec 43A IT Act - if ledger leaks, compensation.

4. Tax & Accounting:

• Token is security, not crypto - taxed as bond interest, not VDA 30% tax.

4. Case Laws / Analogous Disputes (DLT-specific case law still evolving, but these apply)

There is no SC judgment yet on DLT settlement failure because pilot just started Sept 2026. But these analogous cases will be cited:

A. Securities Settlement Failure - NSE/ BSE Default Cases

• Principle: If settlement fails, depository liable under Depositories Act Sec 16 - indemnity for loss due to depository negligence. Same will apply to DLT node operator.

B. Smart Contract as Contract under Indian Contract Act, 1872

• Sec 10 - Smart contract code is valid contract if offer, acceptance, lawful consideration satisfied. If code bug causes wrong settlement, error in consensus ad idem - Sec 20 voidable.
• Oxford Law paper on Demat 2.0 notes same-day settlement promises lower friction but raises questions concerning control, reversibility, privacy, cybersecurity, record integrity, and legal authority to amend or correct ownership data.

C. PSS Act Finality - Sahara vs RBI type cases

• Once settlement is final under Sec 23 PSS Act, cannot be unwound even in insolvency. For DLT, joint notification granting atomic DLT DvP transactions statutory settlement finality is critical - without it, liquidator can claw back.

D. Deemed Demat - NSDL vs SEBI

• If DLT entry fails to match beneficial owner record, depository liable. Control Agent concept borrowed from Luxembourg law will make Control Agent liable.

5. Risk / Failure Scenarios and Liability

6. Practical Advice for Banks

If you are a bank participating in Demat 2.0 pilot:

1. Sign up as client of NSDL DLT node, not independent chain.
2. Open e₹-W account with RBI for wholesale settlement - your treasury must have CBDC wallet.
3. Get smart contract audit report from SEBI-empanelled auditor - mandatory before mainnet.
4. Update your Board approved securities dealing policy to include tokenized bonds as eligible under Depositories Act.