Author name: CBCL

Unlocking Knowledge: Advocating for Copyright Reform and the Science Commons

Intellectual Property Law /

[By Tanisha Raval] The author is a student of Nirma University, Ahmedabad.   Restrictions on Copyright: Implications for Scientific Research  Imagine a vast repository of scientific breakthroughs that deepen understanding. These discoveries are kept in private vaults and enforced by copyright law rather than displayed on shelves to encourage exploration. Inaccessible barriers frustrate and hinder researchers, enthusiastic adventurers, in their pursuit of knowledge. Unfortunately, copyright restrictions can hinder scientific research in the 21st century.  Deciphering the Code: An Open Knowledge Sharing Model based on “Science Commons”  What if, instead of secure vaults, there was a dynamic “science commons”? An online platform where knowledge is shared without restrictions, data sets are exchanged openly, and research papers reveal their insights to anyone who is curious. The utilization of this model, which involves the dissemination of information accompanied by appropriate acknowledgment and protective measures, has the capacity to completely transform scientific advancement. It can expedite the process of discovery and bring us nearer to resolving the most urgent global issues.  Discovering the Appropriate Solution: Promoting Equitable Copyright Reform  However, changing the environment is not enough to fully utilize the science commons. We need a new copyright reform strategy that promotes open access while protecting researchers’ and publishers’ rights. Though difficult, this task has many benefits. By achieving harmony, we can unlock vast knowledge reserves and launch a new era of scientific cooperation and exploration.  Paywalls in subscription-based journals restrict access to research materials due to copyright. This divide restricts knowledge to wealthy individuals and institutions. Publisher embargo periods delay access to new research, hindering ongoing projects that need current data. Copyrighted datasets restrict use, collaboration, and study replication, compounding these issues. Researchers’ ability to use materials is further lireformsmited by restrictive licensing agreements. Digital Rights Management (DRM) technologies can hinder legitimate users, hindering scientific research’s collaborative and open nature. Copyright laws restrict text and data mining, making it difficult for researchers to use automated tools to analyze large datasets. A “digital dark age” in certain fields may result from copyright protection preventing access to out-of-print or orphan works, which contain valuable knowledge.  evident repercussions of copyright restrictions on ongoing research projects and the subsequent postponement of valuable discoveries are well-documented. For instance, let’s consider a medical research endeavor that seeks to create a treatment using the most recent discoveries from a specialized journal that requires a subscription fee. The project’s progress is hindered by the paywall, which restricts access to crucial information. Researchers are facing financial constraints as they strive to obtain the necessary subscriptions. In the same vein, it has been demonstrated that embargo periods impede the swift dissemination of vital research. An investigation centered on public health interventions revealed that the implementation of time-sensitive measures was significantly hindered by the delay caused by embargo periods, which could potentially impact patient outcomes. Within the field of environmental science, limitations on accessing copyrighted datasets have impeded collaborative endeavors to investigate climate change. Obtaining and exchanging crucial datasets is challenging for researchers due to restrictive licensing agreements, which impede the thorough comprehension of environmental changes and their consequences. These examples highlight how copyright-related obstacles can directly hinder the speed of scientific investigation and restrict the potential for revolutionary discoveries by obstructing prompt access to vital information and resources.  Scientific researchers and institutions struggling to access materials due to copyright restrictions face significant financial burdens. Research budgets are stretched by journal and database subscription fees, copyright clearance costs, and permissions. Small or underfunded institutions may struggle to keep up with these costs, resulting in unequal access to vital research materials. Researchers may struggle to explore diverse perspectives, limiting their work’s robustness and inclusivity.  Opposing views often focus on open access’s drawbacks for researchers and publishers. Some researchers believe open access could lower peer review and editorial standards. They worry that without subscription fees, rigorous review standards may not be funded, compromising research reliability. Publishers worry about traditional publishing models’ financial viability. They claim that without subscription revenues, they may struggle to cover publication, distribution, and online platform costs, lowering scientific publishing quality.  Data exploitation concerns also fuel the debate. Open access opponents claim that sharing research data could lead to misuse, unauthorized replication, or commercial use. Privacy, intellectual property rights, and unethical practices are legitimate concerns when handling sensitive or proprietary information. Balancing open access and researcher and publisher interests is difficult, requiring careful ethical consideration and mechanisms to prevent exploitation.  For a collaborative and sustainable research environment, solutions that promote equitable access to research materials and address stakeholder concerns are essential.  Solution: Science Commons Promise  Imagine a world without paywalls or exclusivity for scientific knowledge. The science commons model envisions open data and research access. The science commons promotes transparent knowledge sharing, ensuring proper attribution and safeguards while democratizing access.  This ambitious vision builds on past successes. Open-access journals like PLOS One and PLOS pioneered high-quality research without subscriptions. Secure open access research datasets are stored on Dryad and Zenodo. These models show that the science commons works, paving the way for faster scientific progress.  A strong science commons has many benefits. Faster dissemination of research findings would accelerate progress and build on previous discoveries. As researchers across borders and institutions could easily access and use data and findings, collaboration would flourish. Open data accessibility improves reproducibility, a key scientific integrity factor. Perhaps most importantly, the public, the driving force behind much scientific research, could finally meaningfully engage with its results, fostering trust and informed decision-making.  Naturally, this open paradigm shift is difficult. Finding sustainable funding for research and knowledge curation without subscription models is difficult. Data quality control is essential because open access shouldn’t compromise standards. Fairly recognizing researchers’ contributions requires proper attribution. Finally, open data misuse and misinterpretation require strong safeguards and education.  However, these obstacles are surmountable. We can build a strong science commons by collaborating across the scientific community, developing innovative funding models, and prioritizing data quality and ethics. This collaboration promises to revolutionize scientific research and democratize knowledge,

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Ramkrishna Forgings Case – SC Upholds CoC’s Commercial Wisdom

Insolvency Law /

 [By Naman Kasliwal & Vaibhav Kesarwani] The authors are students of Gujarat National Law University.   Introduction In a recent case of Ramkrishna Forgings Limited v Ravindra Loonkar & Anr., the Supreme Court has set aside an order of the NCLT and NCLAT that had put the approval process of a resolution plan on hold. While the judgment has been lauded for its affirmation of the commercial wisdom of the Committee of Creditors (“CoC”) and the limited scope of judicial interference, a critical examination reveals underlying pitfalls that demand our attention. This blog seeks to delve into the intricacies of the judgment, shedding light on inherent drawbacks. By doing so, it aims to provide a comprehensive understanding of potential repercussions that could extend well beyond the immediate case, significantly impacting the landscape of insolvency resolution practices in India.  Background of the Case  ACIL, the Corporate Debtor, underwent the Corporate Insolvency Resolution Process (“CIRP”) under the Insolvency Bankruptcy Code (“IBC”). The CoC approved the Resolution Plan submitted by Ramkrishna Forgings Limited, referred to as the Successful Resolution Applicant (“SRA”). Subsequently, the Resolution Professional submitted an application under Sections 30(6) and 31 of the IBC to the NCLT, seeking approval for the resolution plan.  On September 1, 2021, the NCLT passed an order instructing the revaluation of the Corporate Debtor’s assets. As a result, the application seeking approval of the Resolution Plan was kept in abeyance, and the Official Liquidator was instructed to furnish exact value of assets. Against this order of NCLT, an appeal was filed by the SRA before the NCLAT under section 61 of the IBC. The NCLAT dismissed the appeal while noting the discovery of an avoidance transaction worth approximately Rs. 1000 Crores, justifying intervention due to the involvement of crores of rupees. Aggrieved by the NCLAT order, the SRA filed an appeal to the Supreme Court, arguing that the IBC inherently includes a mechanism for asset valuation of the Corporate Debtor, as outlined in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Thus, the appointment of an Official Liquidator for asset valuation, which is a creation of the Companies Act, 2013, is unnecessary.   Supreme Court’s Ruling  The Supreme Court, in its judgment, addressed the core issue of the extent of the NCLT’s jurisdiction and the role of the CoC in the insolvency resolution process. The Court emphasized that the Adjudicating Authority, in this case, the NCLT, has a limited role, primarily focused on approving resolution plans that align with the requirements of the IBC.  The Court rejected the NCLT’s order for re-valuation, highlighting that there were no objections raised by any party regarding the valuation or the resolution plan. It underscored the importance of the CoC’s commercial decision-making, stating that unless the resolution plan violates the provisions of the IBC, the NCLT should refrain from intervening. The Court referred to previous judgments, such as K Sashidhar v. Indian Overseas Bank, reinforcing the principle that the CoC’s decisions should not be subject to unnecessary judicial scrutiny unless there is a clear violation of statutory provisions, particularly the Sections 30 and 31 of IBC.  In allowing the appeal, the Supreme Court set aside the orders of both the NCLT and the NCLAT, directing the NCLT to pass appropriate orders on the approval application within three weeks. The Court’s ruling essentially upheld the commercial wisdom of the CoC, emphasizing that interference by the NCLT should be limited to cases where statutory provisions are infringed upon.  Harmonizing CoC Autonomy with Stakeholders Rights  Undoubtedly, the court’s emphasis on recognizing the commercial wisdom of the CoC is deeply rooted in the conviction that those with a significant financial stake are inherently best positioned to navigate the complexities of decisions in insolvency resolution processes. This recognition reflects an acknowledgment of the CoC’s intimate understanding of the financial intricacies involved and their vested interest in ensuring a successful resolution.   However, while this emphasis on financial acumen appears logical on the surface, it sparks legitimate concerns about potential biases within the decision-making framework. The considerable influence wielded by financial creditors, if left unchecked, introduces a risk of decisions that prioritize their interests at the expense of other stakeholders, particularly operational creditors or minority shareholders. The autonomy granted to the CoC, if not subject to adequate checks and balances, carries the inadvertent risk of fostering a decision-making culture that might lack the ethical scrutiny necessary to ensure fairness and equity. Striking a delicate balance between financial prudence and ethical considerations becomes paramount in maintaining the integrity of insolvency resolution processes and safeguarding the interests of all stakeholders involved.  The ruling in the Ramkrishna Forgings case appears to adopt a positivist stance on judicial intervention in the CoC’s decision-making process. The court underscores that the resolution plan does not exhibit any of the specific flaws outlined in section 31. However, this approach needs to be assessed in the context of the low recovery rates observed under the IBC. Instances exist where creditors are compelled to walk away with minimal returns, experiencing haircuts as substantial as 99%. Such outcomes might potentially result in non-financial creditors losing faith in the CIRP, as they lack a voice in endorsing resolution plans that entail significant haircuts. This might inadvertently create a chilling effect on challenges to CoC decisions. Stakeholders, including dissenting voices or those with legitimate concerns, may feel discouraged from raising objections if they perceive a reluctance on the part of the judiciary to intervene. This potential deterrence poses a risk to the checks and balances essential for a fair and transparent insolvency resolution process. The fear of facing an uphill battle against entrenched decisions could stifle dissent and hinder the constructive scrutiny that is integral to refining and improving the resolution process.  The potential drawbacks of unquestioningly relying on the commercial wisdom of the CoC have been acknowledged by the Insolvency and Bankruptcy Board of India (IBBI), which has therefore come up with a Code of Conduct and ethical framework for the

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Navigating SEBI’s Directive on MITC: Simplifying Broker-Client Relationships

Capital Markets and Securities Law /

[By Subhasish Pamegam & Hrishikesh Goswami] The authors are students of Gujarat National Law University.   Introduction  While advertisements regularly encourage retail investors to ‘read all investment related documents carefully’ prior to investments in the securities markets, reading through voluminous documents and making sense of the complex legalities discussed in them is nearly impossible for an uninitiated individual. Wouldn’t it be simpler if there were a set of terms and conditions that were declared as the most important ones? Keeping these concerns in mind, the Securities Exchange Board of India (SEBI), through its November 13, 2023 circular, declared that the Most Important Terms and Conditions (MITC) shall be notified by competent authorities in order to simplify the following documents which were declared to be crucial in formalizing the broker-client relationship-  i. Account opening form ii. Rights and obligations iii. Risk disclosure documents   iv. Guidance note v. Policies and procedures vi. Tariff sheet This circular revises the Master Circular for Stock Brokers and marks a pivotal shift in the broker-client relationship within the Indian securities market. This also represents the initiation of a concerted effort to streamline and enhance transparency in the often complex and voluminous documentation governing these relationships to make sure clients understand the important terms and conditions associated with the investments they make. Additionally, SEBI has set strict timelines for brokers to intimate both new and existing clients about the MITC guidelines. This was done after considering the readiness of the market participants with the an intention to allow a smooth transition to the new regime. The authors in the present article attempt to analyze the dynamics of broker-client relationships and the implications of MITC on these relationships. This article also examines SEBI’s role in protecting investor’s interests and MITC’s conformity with this function.  Additionally, this paper aims to explore the potential challenges that might arise out of this circular and suggest appropriate measures to mitigate them.    Broker-Client Relationship A broker is legally defined as a ‘member of the stock exchange’ who is duly certified by SEBI. However, for a layman, a stock-broker is a person who acts as an intermediary and assists retail investors in buying and selling securities from registered stock exchanges.   Brokers in India are bound by a code of conduct which specifies standards of professional conduct and holds brokers responsible for faithfully executing orders on behalf of investors without discriminating based on the volume of business involved. This code further rests a responsibility on brokers to refrain from engaging in malpractices that can prove detrimental to the interest of investors and also requires them to fairly disclose details, including conflicts of interest, while also holding that brokers shouldn’t provide investment advice to investors.   SEBI, over the years has expressly recognized the fact that the securities markets often fall prey to fraudulent activities, which endanger the interests of retail investors, who are often unfamiliar with the technical intricacies involved. In recognition of this threat, Mr. U.K Sinha, ex-chairman of SEBI, stated that the protection of retail investors from such exploitation is one of the key objectives of the regulator.  MITC as a Solution to Voluminous Documentation:  When considering MITC as a solution to voluminous documentation, it is crucial to acknowledge the challenges SEBI faces in effectively regulating intermediaries like stock brokers. Brokers form the backbone of the capital market, yet instances of technical glitches caused by errors on the part of these intermediaries have inflicted significant losses upon investors. These documents often distract investors from noticing critical aspects of their relationship with brokers due to their complex and voluminous nature. This surplus of information tends to obscure the essential terms and conditions, making it difficult for investors to discern the crucial elements, which exposes them to risk. MITC emerges as a focused solution to mitigate this issue by streamlining the extensive and complex documents governing these broker-client relationships. By providing the most critical terms and conditions in a standardized format, MITC will provide investors with clearer and more comprehensible information. This focused approach not only simplifies the information overload but also provides a shield against potential misinterpretation or manipulation by stock brokers.   In Reliance Securities Ltd vs Vivek Sharma, the stock brokers were made liable for losses incurred by investors due to technical glitches and lack of understanding of their online trading platform. This case highlighted the responsibility of brokers to protect investors from losses due to technical shortcomings.  The complexity and volume of documentation often exacerbate these technical issues. MITC’s implementation would also solve such issues by formalizing the broker-client relationship with clearer terms. SEBI’s Role in Protecting the Rights of Investors In Adjudicating Officer, Securities and Exchange Board of India v. Bhavesh Pabari, the Court underscored the objective of the SEBI Act to establish a board for protecting the interests of the investors in the securities market. SEBI mandates that stockbrokers safeguard the investors by ensuring protection regarding dividends, bonus shares and similar rights related to transactions. They are obligated to reconcile accounts, issue detailed contract notes promptly after trades and ensure swift payout of funds or securities within prescribed timelines, thereby securing the interests of the investors/clients. The mandate upon stockbrokers under Schedule II of the SEBI (Stock Brokers And Sub-Brokers) Regulations, 1992, to act in the interests of the investors and ensure fairness to their clients is in line with the role of MITC to ensure transparency and simplifying the broker-client relationship. In line with SEBI’s mandate to protect investors, MITC focuses on critical aspects and empowers investors to make informed decisions, which aligns with SEBI’s commitment to promote transparency and investor awareness through initiatives like the Investor Charter. This charter ensures that investors have access to standardized and understandable documentation, fostering trust, confidence and informed decision-making in the market. But the real challenge for SEBI will lie in ensuring compliance to these standards across the vast spectrum of brokers and investors, thereby raising concerns about uniformity and consistent adherence to MITC. This will impose a new obligation on

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The Personal Guarantors Saga: Analyzing the Supreme Court’s Decision in Dilip B. Jiwrajka v. Union of India

Insolvency Law /

[By Nidhi & Pratham Mohanty] The authors are students of National Law University, Jodhpur.   Introduction  Over the years following the enactment of the Insolvency and Bankruptcy Code, 2016 [“IBC”], the position of the creditors has been strengthened with respect to realizing their dues, including in the case of the position of personal guarantors under the Indian insolvency regime. Personal guarantors were incorporated under Part III of the IBC related to individuals and partnerships firms vide Central Government Notification dated November 15 2019, which was upheld in the landmark Lalit Kumar Jain v. Union of India.  Through another significant decision in Dilip B. Jiwrajka v. Union of India [“Judgement”], the Hon’ble Supreme Court [“Court”] has upheld the validity of Section 95 to Section 100 under Part III of the IBC, pertaining to the insolvency of individuals, including personal guarantors. The judgement brought an end to the long-standing debate regarding the constitutionality of the key provisions related to the insolvency of personal guarantors.   Personal guarantors under IBC  Under the law of contract, the liability of the principal debtor and the guarantor is co-extensive. However, IBC allows creditors to move against the personal guarantors at various stages, including after the conclusion of the Corporate Insolvency Resolution Process [“CIRP”] of the principal borrower. In Lalit Kumar Jain v. Union of India, the Supreme Court clarified that the discharge of the principal borrower upon the sanction of a resolution plan or conclusion of CIRP does not lead to ‘discharge’ of the liability of the guarantor. This can be justified because often the creditors are driven to initiate IRP against the personal guarantors to remedy excessive haircuts incurred in the CIRP of the principal borrower. Due to such dynamics, the creditors are afforded enhanced rights to invoke personal guarantees.   Furthermore, the NCLAT has clarified that “guarantors cannot exercise the right of subrogation conferred upon them in contract law, since proceedings under IBC are not recovery proceedings” as in the cases of Lalit Mishra v. Sharon Biomedicine Ltd. and in State Bank of India v. Jayaprakash, by excluding guarantors from the ambit of secured creditors under the code. Moreover, the right of subrogation can be extinguished in the resolution plan while preserving the liabilities of the personal guarantors.  As the judiciary continued curtailing the rights of personal guarantors, they tried challenging the very provisions governing their insolvency under the IBC. Before understanding the recent judgement, it is important to understand the scheme of insolvency provided under Chapter III, Part III of the IBC, governing personal guarantors.   The Operation of Chapter III of Part III of IBC  The procedure provided under the Insolvency Resolution Process [“IRP”] for Corporates and Individuals, under Part II and Part III of the IBC, respectively, differs substantially.   Unlike Part II, under Part III of the Code, upon filing an application for IRP under Section 95, the following steps automatically take place, without admission of the same by an Adjudicating Authority [“AA”]:  An automatic interim moratorium:  As per Section 96 of the IBC, upon filing of an insolvency application under Section 95, an automatic interim moratorium is put in place in relation to all the debts of the debtor, and any legal action or proceeding pending in respect of any debt shall be deemed to have been stayed.  The appointment of a resolution professional  Section 97 provides for the appointment of a Resolution Professional [“RP”], by the AA nominated by the Board. On the other hand, if the application is filed through a RP, the Board shall confirm his/her appointment.   Report by the Resolution Professional  The RP is required to investigate the application and furnish a report to the AA, recommending approval or rejection of the application. Only after the submission of such a report by the RP are the doors of the AA are knocked open for judicial determination to confirm the validity of the application.  The Judgement: Dilip B. Jiwrajka v. Union of India  On November 9th, 2023, the Supreme Court, in the landmark decision of Dilip B. Jiwrajka v. Union of India, upheld the validity of Section 95 to Section 100 of the IBC, pertaining to the insolvency of individuals, including personal guarantors.   Arguments by the Petitioners  The petitioners challenged the validity of Chapter III of Part III of the IBC, primarily on the following three grounds:  Firstly, the scheme under Part III provides for the appointment of a RP, even prior to the admission of the petition and without judicial determination of jurisdictional questions such as the existence of debt by the AA.   Secondly, the powers provided to the RP under Section 99 of the IBC are too wide and are judicial in nature, making them ultra vires to the object of the IBC.   Thirdly, the appointment of the RP and the initiation of an interim moratorium without providing an opportunity for the PG to be heard in front of a judicial body are arbitrary, a violation of principles of natural justice, and a violation of Art. 14 of the Constitution.   Judgment of the Court  The court analyzed the contentions of the petitioners and divided its observations into primarily four parts, covering primarily four issues. The judgement can thus be summarized as follows:  The role of the resolution professional in corporate as opposed to individual insolvency  The Court, in its analysis, noted that the RP exercise any judicial role under Part III, but that of a facilitator and is limited to the collection of information. The Court highlighted that the IBC specifically used the terms “examine the application,” “ascertain,” “satisfies the requirements,” and “recommend” in relation to the acceptance or rejection of the application. These statements clearly indicate that the resolution professional is not meant to engage in an adjudicatory role or make any judicial determinations regarding facts.   It further noted that since the threshold of default for filing an application is only Rs. 1000, as per Section 78 of the IBC, the AA would be overburdened if all amounts of alleged defaults as low as one thousand

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SEBI Greenlights REIT Way: Approval for Fractional Ownership of RE

Capital Markets and Securities Law /

[By Shaswat Kashyap & Snigdha Dash] The authors are students at Gujarat National Law University and National Law University, Odisha respectively.   Introduction  In recent years, India has seen a rise in web platforms, such as WiseX and others, offering investors the chance to invest in real estate (RE) assets through fractional ownership. Recognizing the growing value of investments and the increasing number of investors, the Indian watchdog deemed it crucial to formalise the sector. In a move to safeguard the interest of investors, the Securities and Exchange Board of India (SEBI) in its 203rd board meeting dated 25 November 2023, took a crucial step by granting approval for the implementation of a regulatory mechanism governing fractional ownership of RE assets. This strategic move followed the issuance of a Consultation Paper (CP) on May 12, 2023, which proposed the inclusion of Fractional Ownership Platforms (FOPs) within the purview of SEBI (Real Estate Investment Trust) Regulations 2014 (The Regulations) through necessary amendments.   In the CP, the regulatory watchdog proposed Real Estate Investment Trusts (REITs) type registration including listing, terming it as Micro, Small and Medium (MSM REITs). In common parlance, REITs are types of trusts or corporations that invest in real estate directly by purchasing properties or buying mortgages.  The Board approved the amendments to the Regulations for SM REITs with an asset value of at least 50 crores as opposed to a threshold of 500 crores for existing REITs. SM REITs shall have the facility to formulate mechanisms for real estate asset ownership through Special Purpose Vehicles (SPVs) constituted as companies. This aims at providing investor protection measures that will thereby ensure the orderly development of the Real estate sector and the market. The move would be beneficial, especially for retail investors unfamiliar with such a structure.   Understanding Fractional Investment  A concept still at its nascent stage in India, Fractional Investment is an investment strategy wherein the acquisition cost is divided among various investors who invest in securities issued by SPV established by the FOP.  Such investment serves investors with a limited appetite for real estate who desire focused investment in a specific location through multiple SPVs and helps one maintain a diversified portfolio when one has a low capital to invest. FOPs play a vital role by providing investment in pre-leased real estate by bringing a pool of investors on the same paradigm.  Fractional Investment in real estate or property provides an alternative to engaging in the real estate sector via REITs and reduces the financial burden on single investors while allowing them to generate a steady stream of cash flow and long-term returns.  Decoding the Rationale behind this Approval: Addressing the Challenges  The regulatory oversight of FOPs is either ambiguous or absent. SEBI, with recent approval, is making efforts to address various other challenges that include:   First, In most cases, the SPVs are constituted as private limited companies and are thus subjected to the regulations outlined in the Companies Act, 2013. However given how the FOPs obtain the interest of participation from members of the public, the SPV may have undertaken a Deemed Public Issue (DPI) without complying with issuing a prospectus and filing and registering with SEBI. It may further breach the maximum number of shareholders permitted for the private companies as per the Companies Act, i.e., 200.   Second, even though the FOP provides fractional ownership to purchase real estate, it doesn’t necessitate any uniformity of disclosures regarding the valuation of RE and other disclosures. Such Fractional Investment mainly targets Non Institutional Investors (NII) but the investor has to depend on the FOP for the necessary information to aid diligence by potential investors Insufficient transparency and disclosure of essential information to an investor could result in financial losses for the investor. This may occur due to misrepresentation, the sale of real estate assets/securities from SPVs without accurate valuation awareness, and similar factors.  Third, the mode and manner of completion of the purchase/ acquisition of RE is ambiguous and doesn’t have a mandatory independent review or assurance mechanism. The CP suggest that such an amendment will rescue the investors who fall prey to mis-selling and provide an end-to-end regulatory mechanism for grievance redressal.  Further, the migration of current SPVs or other structures established by FOPs to the REIT may result in the treatment of such investment by investors as investment in Business Trusts under the Income Tax Act which provides certain tax benefits which are otherwise not granted to the SPV in the existing scenario. Therefore, the proposed amendment will also ensure to reduction of the complexity attached to the issuance through SPVs.  Proposed Scope of Regulation: A Brief Overview  1. It facilitates a provision for registration and regulation of FOPs under REIT Regulations: Any person or legal entity including FOPs who facilitate fractional investment by any structure is required to register with SEBI to work as SM REIT in the manner specified by SEBI in its standard format.  2. It is optional to come under the ambit of REIT: The chairman of SEBI, Madhabi Puri Buch clarified that the existing fractional ownership has the option to either navigate to the ambit of REIT or stay under the company structure. The better explanation to register under REIT will reach a wider audience ensuring credibility and attracting overseas flows.   3. It ensures investor interest: There is an expectation that the FOPs will comply with the new framework and further upgrade their scale, the new framework is investor-friendly. While still trying to evolve from a nascent stage, the investors will get the right investment option and attract larger portfolios ensuring continued assets to meet the increasing demand. It will also make sure that investors are protected, common practices are disclosed and there is a robust redressal mechanism.   4. Another proposal suggests setting a minimum subscription of Rs. 10 lakh. Currently, most platforms maintain a minimum ticket size of Rs. 25 lakh. The regulator is considering further reductions as the market matures.  Critical Analysis  The NIIs apart from having limited

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Decoding MCA’s move allowing Direct Listing of Indian Securities on Foreign Exchange

Company Law /

[By Anand Vardhan & Piyush Raj Jain] The authors are students of Gujarat National Law University.   Introduction   The Ministry of Corporate Affairs has enforced section 5 of The Companies (Amendment) Act, 2020, through a notification dated 30th October, 2023 . This has led to an addition to section 23 of The Companies Act 2013 . It is a welcome move as it seeks to boom the Indian Economy by opening the routes for Indian Companies to raise funds by directly listing their equity on foreign stock exchanges and also opening a million-dollar Indian market for foreign Investors. There is a need for diversification of investors across the Indian economy given ongoing evolution and internationalization of capital market across the globe.   As foreign competitiveness being the need of the hour for our corporate culture, this post analyzes the earlier regime, present amendment and its analysis along with our suggestions for the proposed framework by uncovering the lacunae in the proposal and the regulatory framework needed to address such lacunae.  Earlier regime  Under the existing framework, if an Indian company wished to access the global market to list its equity capital, it can only get listed through the American Depository Receipts (ADR) and Global Depository Receipts (GDR). These depository receipts acted as a security certificate representing a certain number of a share of a company of other country, not listed on stock exchange of that country, which can be purchased by investors. Further, an Indian company can directly list its debt securities on foreign stock exchange through Foreign Currency Convertible Bonds (FCCB), also known as masala bonds, and foreign currency exchangeable bonds, which are issued by companies in currencies other than the domestic currency of the company issuing it.   Present Amendment   The new provision allows direct listing of the public companies registered in India on foreign stock exchanges as permitted by the government. The added provision also empowers Central Government to exempt certain classes of public companies from following the procedural requirement prescribed in the Companies Act to get listed on the stock exchange, which may include declaration by beneficiary to the company share, filing return of significant beneficial owners of the company, punishment on non-payment of dividend etc.  Analysis  Implications  One of the most important implications and benefits which this amendment would provide to Indian Companies, especially startups is the option of a new jurisdiction to raise funds. Further, this will also help the companies in increasing their valuation. The option for companies incorporated in India to list their shares on Foreign Exchanges will enhance and diversify their sources and pool of capital as well as provide them with a larger and diverse base of investors. This will help the Indian Companies to trade their securities in major currencies across the world, like Euro, Dollar, or Renminbi.   As discussed earlier, for raising funds overseas in the earlier regime, ADR and GDR were used to list in the foreign exchanges, but it required a complex procedure even a complex restructuring such as externalization, but this amendment may do away with any such requirements by providing an alternate route to raise funds overseas. Further, this will even allow companies incorporated in India to access foreign funds at a lower cost. In the earlier regime, Indian companies had to invest cost and time for accounting in Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) for ADR and GDR respectively, but the direct listing will allow Indian companies to prepare accounts in Indian Accounting Standards (IndAS) only which will help them to reduce the cost and time involved as IndAS is now globally accepted.   The implications that this amendment will have on the Indian Economy are threefold, i.e., it will lead to the spreading of the strength of the “India” brand across the globe. Along with it, the amendment will also lead to boost competitiveness for Indian Companies which will further lead to boost efficiency and growth for Indian Economy.   This amendment to the Companies Act will also contribute to the development of a clear and advanced legal regime for reverse-flipping the holding structure of companies incorporated in India by allowing the shifting of such holdings’ domicile to India.   Lacunae  There are certain lacunae concerning the amendment. These need to be clarified by the MCA at the earliest through detailed rules and regulations so that the companies incorporated in India can get the benefits of listing in a foreign exchange and explore the foreign market.  Certain points which need to be clarified by MCA at the earliest are that which kind of securities can be listed in the foreign exchanges, in which foreign exchanges could the listing be done and by which class of companies it can be done.  The amendment even talks about the power of the Central Government to exempt any class of public companies from procedural requirements under the Companies Act, but it doesn’t talk about what kind of exemptions and the procedure to give those exemptions along with the eligibility of the companies to avail those exemptions.   The other lacunae that revolve around these amendments are will the investors give the valuation same to the company listed on foreign exchange same as that they would have provided in India and also what will be the commercial benefits of the listing of a company incorporated in India on a Foreign Exchange.   There are other legal challenges, mainly related to the disparities between the compliances required by the companies in the Indian regime vis-à-vis the securities regime of the overseas countries where the company intend to be listed.   The implementation of the amendment will also require the amendments to the current legal regime governing the listing of securities on stock exchanges and foreign exchanges, namely FEMA, Companies Act and SEBI Regulations.   Suggestions for Proposed Framework  In order to do away with the above-discussed lacunae, the MCA could take its route through the following proposed frameworks.  The main question before the MCA being the criterion to choose the

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Regulatory Dynamics and Operational Impacts: Navigating India’s Fin-tech Landscape with the Latest Payment Aggregator Cross-Border Guidelines

Banking Law /

[By Sibasish Panda & Janhavi Mahalik] The authors are students of National Law University Odisha. Introduction India had been touted to bring a digital technology revolution in this decade with the Central Bank playing a pivotal role. It is at the cusp of a Fin-tech revolution with the market expected to hit $150Bn by 2025. It had to play a balancing role to facilitate innovative approaches by the Fin-tech companies vis-a-vis protection of consumer rights. To further this goal, the Reserve Bank of India (RBI) has also set up separate Fin-tech units under the Department of Payments and Settlement of Systems. Securing the cross-border payments was at the helm of the RBI’s focus. In light of recent judicial pronouncements, the RBI has overhauled the regulatory framework governing cross-border payment service providers. Formerly requiring partnership with an authorised dealer bank, Online Payments Gateway Service Providers (OPGSPs) are now directly overseen by the RBI and renamed Payment Aggregators – Cross Border (PA-CB). In this article the authors aim to analyse the stance of the Fin-tech companies post the guidelines. Understanding the Scope of the Regulations Under the new regulations, entities involved in the processing of import and export activities of cross-border payment transactions must comply with the instructions laid out by the RBI. This includes Authorised Dealer (AD) banks, Payment Aggregators (PAs), and PA-CBs.  Non-banks aiming to operate as Payment Aggregators for cross-border transactions need RBI authorisation by April 30, 2024. This authorisation categorised as import-only, export-only, or both, is essential for offering cross-border payment services. Existing non-bank providers of these services must notify the RBI about their activities within 60 days and seek approval to continue. Entities offering cross-border trade settlement services must have a minimum net worth of Rs 15 crore at the application time, increasing to Rs 25 crore by March 31, 2026. Non-bank lenders without prior business in the segment must have a minimum net worth of Rs 15 crore when applying. Payment aggregators are now under the PMLA microscope. The current RBI regulations require all Payment Aggregators and Payment Gateways to undergo registration with the Financial Intelligence Unit India (FIU-IND) before seeking authorization. Consequently, they will be categorized as “reporting entities” by the Prevention of Money Laundering Act (PMLA). From now any payment transaction deemed suspicious will be reported to the Financial Intelligence Unit as per the new guidelines.  This finally comes as a clear stance from the RBI on the issue that was contested in PayPal Payments Private Limited v Financial Intelligence Unit India. The tussle of whether PayPal qualified to be a “payment system operator” under the act was answered in affirmative by the court, thus qualifying it to be a reporting entity as defined under section(1)(a) of the act. This move is aimed at bolstering India’s position which is under the Financial Action Task Force (FATF) review which was scheduled in November this year. Payment aggregators asserted their role as mere “transaction interfaces,” facilitating import-export transactions between Indian and overseas parties without directly handling payments between payer and beneficiary. Despite this, classifying them as reporting entities increases compliance burdens, especially for Fintech startups with modest business plans. The start-up Fintech companies with a small goal business plan now have to rewire their finances and meet the costs that come with setting the infrastructure to maintain and furnish records of all the transactions.  The broad definition of reporting entities encompasses banks and payment firms conducting their Know Your Customer (KYC) checks, extending to technology service providers. Now to mandate even technology service providers to do the same will increase the cost of compliance and will also be burdensome on the state machinery to process the data multiple times. The authors however feel that keeping in mind the stringent nature of the PML act, Fintech companies must take a conservative reading of the same before reporting any transaction to the FIU-IND. Balancing stringency and the ease of doing business. The recent stringent control by regulators on Fin-tech companies, coupled with current guidelines, underscores India’s aim to secure cross-border transactions giving paramount importance to customer data, privacy, and security. The payment aggregator business is heavily influenced by merchant onboarding policies and adherence to anti-money laundering (AML) and counter-terrorist financing (CFT) regulations. While the BIS-CPSS principles may not cover AML/CFT and customer data privacy, these factors directly impact merchant operations and customer safeguarding. When designing a payment aggregator business model, considerations extend to regulations like data privacy, competition policy promotion, and specific investor and consumer protections. The PA-CB Guidelines mandate payment aggregators to comply with KYC/AML/CFT regulations outlined by the RBI, following the “Master Direction – Know Your Customer (KYC) Directions,” and now by categorising them as “reporting entities” also adhere to the provisions of Money Laundering under the PMLA act and rules. The added due diligence checks during merchant onboarding along with KYC and transaction monitoring added to the woes of these Fin-tech companies. While the compliance checks seem burdensome, the RBI has made an attempt to ensure the seamless processing of all trade payments efficiently. The latest guidelines have streamlined fund flows, making transactions more convenient. Such as the OPGSP guidelines, which aim to simplify transactions, PA-CBs are required to uphold an Import Collection Account (ICA) and an Export Collection Account (ECA) for their corresponding transactions. Notable distinctions include the OPGSP guidelines, which required the transfer of balances in the ICA to the overseas exporter’s account within two days of receiving funds. The RBI, as per the PA – CB Directions, has aligned the timelines for fund settlement from the ICA with those specified in the Payment Guidelines for settling funds from domestic payment aggregators’ escrow accounts. This adjustment provides greater flexibility to PA–CBs, allowing settlement timelines from the ICA to be tied to the receipt of delivery confirmation intimation or the expiration of relevant refund periods. Additionally, PA-CBs involved in export transactions are not obliged to establish separate Nostro accounts for fund flows. It is also felt that applying as an export PA-CB will

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Implications of Cross Border Data Sharing: The UPI Case

Banking Law /

[By Aryan Dash & Rishita Sinha] The authors are students of National Law University Odisha. INTRODUCTION: In the bustling landscape of India’s financial technology sector, the crescendo of UPI transactions have reached a staggering 9.3 billion in June 2023. Projections paint a vibrant future for the Indian fintech industry, eyeing a valuation surpassing $2 trillion by 2030. The meteoric rise of UPI has not only transformed the payment ecosystem within India but has also sparked a global ripple effect. The primary purpose of the extension of UPI abroad is to boost cross-border transactions, foster financial inclusion, and reduce reliance on cash transactions. However as the National Payments Corporation of India (NPCI) extends UPI services beyond borders, a critical conversation emerges – one that delves into the implications of managing vast data under the existing data protection regulations and the recently introduced Digital Protection & Data Privacy Act 2023 (DPDP Act). THE NPCI’S ROLE AND GLOBAL UPI EXPANSION: In an era where global connectivity is paramount, the expansion of UPI services abroad marks a pivotal step in revolutionizing cross-border transactions. Founded in 2008 as a not-for-profit under the RBI and Indian Banks’ Association, the NPCI has been a linchpin in providing cutting-edge payment system technologies, including RuPay and UPI. In a bid to cater to Indian tourists and the diaspora abroad, NPCI’s wholly-owned subsidiary, NPCI International Payments Limited (NIPL), has embarked on an ambitious initiative to extend UPI services globally. Agreements with countries like Singapore, France, Malaysia, South Korea, and Japan underline NPCI’s intent to facilitate cross-border transactions, enhance financial inclusion, and reduce dependence on traditional payment methods. The NPCI envisions a two-pronged approach, developing international interoperability for travellers and collaborating with central banks to fortify UPI ecosystems worldwide. RBI’S STANCE ON DATA LOCALIZATION: In an era dominated by digital transactions, robust data privacy regulations are imperative, especially for sensitive information like banking transactions. Safeguarding critical data ensures not only the security of individuals but also the integrity of financial systems. Preceding the current surge in data protection concerns, in 2018, the RBI introduced the Storage of the Payment System Data circular to regulate data storage in the context of cross-border transactions. RBI’s Guidelines for In-Country Storage with Foreign Transaction Exceptions This circular mandates banks and payment service providers to store data within India, with exceptions for foreign components in a transaction. For foreign data processing, there is a 24-hour limit set for data storage abroad, after which it must be deleted and brought back to India. Real-Time Settlements and In-Country Data Storage: Regarding payment settlements, transactions settled outside India require real-time basis settlement with exclusive data storage within the country. The RBI’s circular encompasses all banks, payment system providers, and third-party applications providing UPI services, with the data stored in India being eligible for limited sharing, subject to necessary permissions. CROSS-BORDER DATA SHARING AND THE DPDP ACT: The DPDP Act, in its current form, introduces some shifts in data-sharing dynamics. Section 16 of the Act allows unrestricted data sharing with countries whitelisted by the government, while blacklisted countries are ineligible for such arrangements. Undefined Territories: The Need for DPDP Rules Presently, the DPDP Act lacks a predefined roster of countries classified as either blacklisted or whitelisted. The government aims to address this gap by formulating detailed DPDP rules. These regulations will outline the criteria for categorizing countries onto the blacklist, based on considerations the government deems necessary to safeguard the data of Indian citizens and businesses. Consent Matters: Obligations of Data Fiduciaries However, data fiduciaries, including third-party applications and payment service providers, are obligated to obtain valid consent from users before sharing sensitive financial data. DPDP Act vs. RBI Circular The Act seemingly contradicts the RBI’s circular, especially in terms of data localization and sharing. While the RBI circumscribes cross-border data transfer, the DPDP Act presents a more lenient approach, opening avenues for data sharing under consent. This creates a nuanced landscape where reconciling the differences between the two becomes imperative. BALANCING ACT: RBI CIRCULAR VS. DPDP ACT: In the intricate regulatory dance between the DPDP Act and the RBI’s Circular, achieving a delicate balance becomes paramount. DPDP’s Section 16, permitting global data sharing with consent, collides with the RBI’s stringent data localization directives. The DPDP Act seemingly contradicts the RBI’s data localization directive, which requires deleting processed data abroad within 24 hours. While the RBI allows data sharing for processing outside India, the DPDP Act prohibits exporting Indian data, even for processing. Despite government assurances that RBI regulations will endure, reconciling these disparities in practice remains a challenge. Notably, DPDP’s Section 17 introduces exceptions, aligning with the RBI’s circular, allowing data sharing for legal claims or breaches. Crafting a cohesive framework that respects user privacy, aligns with global standards, and adheres to financial data mandates is a crucial task in this evolving regulatory landscape. EXPANSION OF UPI SERVICES: NRIS AND FOREIGN TOURISTS: In a move to broaden UPI services, the RBI, in a circular dated 10 February 2022, greenlit the extension of UPI services to Non-Resident Indians (NRIs) and foreign tourists. NRIs can set up a UPI ID using their international numbers, linked to NRE/NRO accounts, provided they comply with KYC regulations. Similarly, foreign tourists can avail themselves of Prepaid Payment Instruments (PPIs) from banks or corporate entities, loaded using various methods, adhering to RBI’s guidelines. The Indian government has been actively forging strategic agreements to enhance cross-border transactions and simplify fund transfers for the Indian diaspora worldwide. Under NPCI’s global UPI initiative, services have been extended for foreign remittances, exemplified by the UPI-PayNow linkage between India and Singapore. the collaboration between India and France marked a milestone, allowing Indian tourists to effortlessly make payments in INR using their UPI apps, even from the iconic Eiffel Tower. Early on, Bhutan joined hands with India to introduce UPI-based transactions, initially limited to the BHIM app for Indian travelers and residents in the country. This move showcased the early adoption of UPI technology beyond India’s borders. A significant leap forward

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Vision for Special Situation Funds: Decoding the SEBI Consultation Paper

Capital Markets and Securities Law /

[By Nikita Singh & Aishana] The authors are students of Gujarat National Law University.   Introduction In the dynamic landscape of India’s financial sector, the persistent challenge of stressed loans has prompted regulatory interventions and innovative strategies to revitalize the economy and banking system. The exploration from Asset Reconstruction Companies (ARCs) to the emergence of Special Situation Funds (SSFs) as a specialized avenue for addressing the complexities of stressed assets meticulously designed to inject capital and release funds entangled in stressed loans within Banks and NBFCs. The blog navigates through the unique role of SSFs in the resolution and recovery of stressed loans and sheds light on the recent proposed amendments by the RBI in the consultation paper released by the Securities and Exchange Board of India (SEBI) and their potential impact on SSFs, investors, and the broader financial ecosystem. Unveiling the challenges and implications, this exploration aims to provide a comprehensive understanding of the regulatory framework surrounding SSFs and their pivotal role in fostering financial stability and efficient resolution mechanisms. Stressed Loan Conundrum: Evolution from ARCs to Special Situation Funds India grapples with a prolonged issue of stressed loans, significantly impacting the banking system and the economy. The Reserve Bank of India (RBI) reports a surge in the gross Non-Performing Assets (NPAs) ratio of Scheduled Commercial Banks (SCBs) from 3.8% in March 2015 to 11.5% in March 2018.[1] The stressed loan ratio, encompassing NPAs and restructured loans, reached 12.6% as of June 2021, with the total stressed loans in SCBs exceeding Rs 93,240 crore by September 2020. In response to this challenge, Asset Reconstruction Companies (ARCs) were established, supported by frameworks like the one in 2014 for revitalizing distressed assets, the 2015 Strategic Debt Restructuring Scheme, the 2016 Scheme for Sustainable Structuring of Stressed Assets,[2] and the 2018 Revised Framework for Resolution of Stressed Assets. ARCs, mandated by the RBI and governed by the SARFAESI Act, 2002, aimed to acquire stressed assets from financial institutions for resolution and recovery. However, hindered by capital constraints, funding issues, market illiquidity, valuation gaps, and legal and operational challenges, ARCs encountered limitations in effectively addressing the complexities of stressed loans. Special Situation Funds: A Specialized Approach to Stressed Asset Resilience Special Situation Funds (SSFs), a sub-category of Category I Alternative Investment Funds (AIFs) regulated by the Securities and Exchange Board of India (SEBI), exclusively focus on stressed assets. These assets include securities from investee companies whose stressed loans are acquired either through the RBI Master Directions on Transfer of Loan Exposures or an approved resolution plan under the Insolvency and Bankruptcy Code, 2016 (IBC). Unlike Asset Reconstruction Companies (ARCs), which acquire stressed assets from banks, SSFs invest in the securities of these companies. Classified under Category I AIFs, which target socially or economically desirable sectors, SSFs offer flexibility in their investment approach,[3] allowing them to engage in equity and equity-linked instruments of investee companies, as well as Security Receipts (SRs) issued by ARCs[4]. This flexibility, along with the ability to act as resolution applicants under the IBC, positions SSFs to bring in capital, expertise, and diverse strategies, facilitating improved price discovery, valuation, and reducing the burden on lenders. This distinctive role enables SSFs to complement and supplement the efforts of ARCs and other resolution applicants in addressing the challenges associated with stressed assets.[5] SEBI-RBI Synergy: The Framework for Special Situation Funds Special Situation Funds (SSFs), a distinctive category of Alternative Investment Funds (AIFs), operate in the domain of securities for companies undergoing financial distress or insolvency resolution. Regulated by both the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI), SSFs must comply with stringent regulations outlined by these authorities. Classified as a sub-category under Category I AIFs by SEBI, SSFs adhere to guidelines specified in the SEBI (Alternative Investment Funds) Regulations, 2012, and the SEBI circular dated 27 January 2022, governing eligibility, investment, transfer, monitoring, and supervision norms. Simultaneously, the RBI, through its Master Directions on Transfer of Loan Exposures and Prudential Framework for Resolution of Stressed Assets, delineates criteria, valuation, disclosure, and prudential norms for loan transfers from financial institutions to SSFs. However, a critical condition for SSFs to acquire stressed loans under RBI Master Directions is their inclusion in the Annex, a list of entities permitted by lenders for transferring stressed loan exposures. Despite the condition outlined in SEBI’s circular dated 27 January 2022, yet to be acknowledged by the RBI, the SEBI Consultation Paper highlights multiple suggestions for changes in the regulatory framework for SSFs, emphasizing eligibility criteria, valuation methodology, disclosure requirements, and prudential norms. Proposed Amendments: Enhancing AIF Regulations for Special Situation Assets and Oversight SEBI’s Consultation Paper, released on 28 November 2023, outlines crucial amendments to the regulatory framework for Special Situation Funds (SSFs).[6] The proposed amendments encompass key areas, starting with the definition and scope of Special Situation Asset (SSA), including it within the permissible investment scope for SSFs with specified conditions. Notably, the eligibility criteria for SSFs and their investors are under scrutiny, with proposals allowing SSFs with prior investments in stressed companies’ securities to acquire stressed loans, provided it aligns with regulatory guidelines. It emphasizes adherence to Section 29A of the IBC to ascertain investor eligibility, advising SSFs to refrain from investing in or acquiring SSA if any investors are disqualified under Section 29A of the IBC. Further, the proposed amendments explicitly bar SSFs from investing in their related parties, as per the Companies Act, 2013, defining related parties for SSFs as entities sharing common investors, directors, key managerial personnel, or sponsors with the SSF or its manager. Moreover, the minimum holding period for SSFs to retain SSA is set at one year, contingent upon the resolution of the stressed company. Moreover, SSFs can only transfer or sell SSA to entities enlisted in the Annex of the RBI Master Directions, subject to lender and resolution professional approval. To enhance transparency and oversight, the paper mandates SSFs to submit pertinent information to a designated trade reporting platform, including details

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