Author name: CBCL

Banks must hear Borrowers before classification of accounts as fraud: Supreme Court verdict on SBI v. Rajesh Agarwal

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[By Pranay Bhattacharya] The author is a is a lawyer focusing on banking & finance and insolvency & bankruptcy laws.   Introduction In a significant ruling, the division bench of the Supreme Court (“SC”) in State Bank of India & Ors v. Rajesh Agarwal & Ors, (Civil Appeal No. 7300 of 2022) on 27 March 2023 considered the long pending issue that whether the principles of natural justice should be read into the provisions of the Reserve Bank of India’s (“RBI”) Master Directions on Frauds – Classification and Reporting by commercial banks and select FIs dated 1 July 2016 (“Master Direction”). The SC disposed of a bunch of petitions challenging the orders before several High Courts on the contention that no opportunity of being heard is given to borrowers before classifying their accounts as fraudulent. Background of the Case In Rajesh Agarwal v. Reserve Bank of India and Others (writ petition no 19102 of 2019) (“Rajesh Agarwal case”) dated 10 December 2020, the Telangana High Court allowed a writ filed by the chairman and managing director of BS Limited under Article 226 (Power of High Courts to issue certain writs) of the Constitution of India, 1949 (“Constitution”) on the contention that the principles of natural justice must be read into the Master Direction and an opportunity of hearing should be given to a borrower before the declaration of its account as fraudulent. As a background, the BS Limited engaged in the business of power transmission failed to meet its payment obligations to lender banks, thereby defaulting in repayment of credit facilities. In accordance with the Master Direction, the lender banks formed a joint lenders forum with SBI as the lead bank and declared the assets of BS Limited as non-performing assets (“NPA”) by invoking Clause 2.2.1 (Classification of Frauds) of the Master Directions. Judgment of the Telangana High Court In view of the above, the Telangana High Court directed the lender banks: (i) to give an opportunity of a hearing to the borrowers after furnishing a copy of the forensic audit report; and (ii) to provide an opportunity of a personal hearing to the borrower before classifying their account as fraud. However, this judgment was challenged by the banks before the Supreme Court and the order that a personal hearing be given was stayed by the SC. It is to be noted that the Telangana High Court in Yashdeep Sharma vs. Reserve Bank of India and Ors. dated 31 December 2021 took a contrary view of the above judgment underling that the Master Direction already provides a comprehensive mechanism on fraud classification with the participation of the borrower and the banks. Further, it was also observed that the forensic audit prepared by the auditor is based upon the documents supplied by the borrower and the fraud classification is not a unilateral exercise on part of the forensic auditor of the bank. Therefore, the court took a contrary opinion from the earlier judgments highlighting that the manner of classification of fraud under the Master Direction is in line with the due process of law. As against the Rajesh Agarwal case, this judgment created a dichotomy for banks and lenders for grant of opportunity of hearing before classification of account as fraud owing to the fact that the Master Direction is silent on the issue. SC Judgment The SC made the following observations upholding the Rajesh Agarwal case: 1. Violation of principles of natural justice: Principles of natural justice are not mere legal formalities but are substantive obligations that need to be followed by the decision making and adjudicating authorities. Therefore, principles of audi alteram partem has to be read into the Master Direction to save it from the vice of arbitrariness. SC placed reliance on Union of India v. Col. J N Sinha dated 12 August 1970, stating that the rule of audi alteram partem applies to administrative actions, apart from judicial and quasi-judicial functions as applicable in this case. SC also relied on State of Orissa v. Dr (Miss) Binapani Dei dated 7 February 1967 wherein it held that “every authority which has the power to take punitive or damaging action has a duty to give a reasonable opportunity to be heard”. Further, an administrative action which involves civil consequences must be made consistent with the rules of natural justice. Therefore, in view of nature of the procedure adopted by the banks, it is practicable for the lenders to provide an opportunity of a hearing before classifying borrowers account as fraud. 2. No implied exclusion of audi alteram partem: Master Direction does not expressly exclude the right of hearing to the borrowers before classification of an account as fraudulent. The principles of natural justice can be read into a statute or a notification where it is silent on granting an opportunity of a hearing to a party whose rights and interests are likely to be affected by the orders that may be passed. 3. Civil and Criminal Consequences: Classification of an account as fraud may lead to serious civil and criminal consequences against the interest of borrowers even though the Master Direction is conceived in public interest. It amounts to “blacklisting” a borrower from availing any credit and affect an individual’s CIBIL score. SC also opined that the judgment in State Bank of India v. Jah Developers dated 9 May 2019 will be squarely applicable in the present case since the effect of declaring a borrower as wilful defaulter under Master Circular on wilful defaulters dated 1 July 2015 has similar consequences when the borrowers accounts is classified as fraud under the Master Direction. 4. Violation of Article 19(1)(g) of the Constitution: Classification of an account as fraud debars the borrower from raising institutional finances, thus, adversely affects the fundamental rights of a promoter/director to carry on a trade or a business, which is guaranteed under Article 19(1)(g) of the Constitution. Therefore, unilateral power to banks to declare a person/company as ‘a fraudulent borrower’ violates Article 19(1)(g) of the

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The Distinct Idea of Super-Dominant Undertaking: Judgment of Google Shopping

Leave a Comment / Competition Law /

[ByShubham Gandhi and Adhiraj Lath] The authors are students of National Law University, Jabalpur.   Introduction The Google Shopping Judgment (“Google Shopping”), passed by the General Court of the European Union, has once again brought to light the much-debated concept of the Super-Dominance of an undertaking. The judgment,while addressing how Google allegedly used its dominance in the overall internet search market to keep competitors out,     , meaning thereby that in the general internet search towards a product, Google was promoting its services or the services of the enterprise that paid Google in this behalf and was demoting the access links of other competitors, thereby abusing its dominance in the market and leading to violation of Article 102 of Treaty on the Functioning of the European Union (“TFEU”). The judgment, though concluded upon the principle of the effect-based approach of an enterprise, which means that the effect of the abuse by the dominant undertaking in the market will be the considerate factor, interestingly discusses the scope of the concept of super-dominance, which was denounced by the European Court of Justice (“ECJ”) in its judgment of TeliaSonera, passed in the year 2011. The authors, while dealing with the rationale of the judgment, will succinctly lie down the historical development of the concept of super-dominance in the European competition law jurisprudence, highlight the importance it may bring to the new advent of digital market and digital players’ dominance, and will finally comment whether roots of super-dominance can be interpreted from the existing Competition Act, 2002. The Historical Development of Super-Dominance In simple terms, the concept of abuse of dominance means that if an enterprise has a significant share of power in the market, it will construe that the enterprise dominates the relevant market. Suppose they abuse this power by conducting their practice against the principles in Article 102 of Treaty on the Functioning of the European Union; then, it will be liable for punishment for abusing its dominance in the market. It becomes important to mention the four elements which may lead to abuse by a dominant enterprise as provided under Article 102, namely: – (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, markets, or technical development to the prejudice of consumers; (c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (d) concluding contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. It is interesting to note that Article 102 of TFEU nowhere distinguishes between a dominant enterprise and a super-super dominant enterprise, as the creation of this characterization is the result of the judgment passed in the case of Compagnie Maritime Belge SA v Commission of the European Communities by the European Court of First Instance. However, the concept was briefly discussed for the first time in ECJ’s decision in Tetra Pak International SA v Commission of the European Communities, wherein the Court held that “the actual scope of the special responsibility imposed on a dominant undertaking must be considered in the light of the specific circumstances of each case.” This new distinction implies that the same conduct may breach Article 102 when performed by a super-dominant but not by the “regular” dominant undertaking. Although this further differentiation might seem to follow from the distinction between dominant and non-dominant undertakings, the super-dominance concept sits uneasily with the text and the enforcement of Article 102. The rationale is because it might impose obligations on super-dominant enterprises that regular dominant undertakings do not have, which would mean that obligations might be applied to undertakings based on their market position rather than their actual conduct, something that the treaty does not contemplate. These two judgments succinctly described the concept of super-dominance, wherein the enterprise has a monopolistic or quasi-monopolistic position and that the undertaking with an exceedingly high degree of dominance has a “particularly onerous special obligation” towards the market and they shall not abuse the same. The European Union commissions followed this position in cases such as Football World Cup and Deutsche Post. In the case of  Microsoft, the Commission deemed that Microsoft’s market share of over 90% in the client PC operating systems market put it in a “quasi-monopoly” and an “overwhelmingly dominant” position. However, the transition towards a more “economic approach” soon occurred in the European Union Commission. After that, the TeliaSonera’s judgment soon ended this discriminatory concept by holding that there is no textual existence of such distinction. In the opinion, it was noted that “…the degree of market power of the dominant undertaking should not be decisive for the existence of the abuse. Indeed, the concept of a dominant position arguably already implies a high threshold, so it is unnecessary to grade market power based on its degree.” The inception of super-dominance in the digital market space The judgment in Google Shopping discusses the scenario where Google acts both as a gateway to the internet space and a player in the market. It is in a super-dominance position, offering the platform to access the online market sphere and acting as a digital market player. The platforms such as Meta, Google, Amazon, and Microsoft have taken a structure wherein they act as a quasi-monopolistic player and take a superior position that having a competitor does not necessarily affect their dominance. The author argues in favor of bringing a separate class or distinction wherein the fintech platforms and the digital market player who holds ‘significant dominance’ must be viewed not as per the traditional approach of ‘effect-based principle’ but viewed from the sphere of super-dominance which may result in abuse if kept unregulated. The court also highlighted their potential dominance of abuse in the market by referring to Google’s case. The general internet search market in the countries considered in the Commission’s investigation has almost entirely tipped towards Google; as there was

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Critiquing the Evidentiary Burden Jurisprudence vis-a-vis Insider Trading Regime in India

Leave a Comment / Capital Markets and Securities Law /

[By Aditya Mehrotra] The author is a student of Symbiosis Law School, Pune.   Abstract Insider trading is essentially the unlawful trading of stocks having access to non-public information that, if published, would alter the market price of shares. In light of prior rulings on insider trading, the Supreme Court and SAT have rejected the use of circumstantial evidence in identifying insider trading offences, however they have given due weight to circumstantial evidence when exonerating corporations. In their own way, these instances constitute the establishment of a “new standard of proof” to be upheld by SEBI in insider trading cases, but they also cause doubt over the application of the law. To identify insider trading violations, it is necessary to do further assessments of the stated UPSI’s relevance, its application, and the trading behaviour of the companies. Curiously, the SEBI Rules, 2015 do not define the term “insider trading,” but a person is found guilty of insider trading if all of the following conditions are met: (i) this person is an insider of a firm whose listed securities he trades; and (ii) this person traded directly or indirectly in the listed securities with respect to which he holds unpublished price-sensitive information (“UPSI”). If these two conditions have been satisfied, the duty of establishing innocence shifts to the insider, who may use any of the permitted defences. In this study, the author will thus give a basic criticism of the current Insider Trading Regulation in India while assessing its legitimacy. In addition, the author will investigate the basis of Judicial Dictums on Insider Trading and provide proposals and recommendations for their proper implementation. Introduction Indian securities rules ban insider trading, which happens when a person “possesses” unpublished price-sensitive information (“UPSI”) on a publicly listed company’s shares and then trades in those equities. The restriction is triggered by “possession,” which does not require “use,” of the information. This regulation is meant to maintain “even playing fields” in securities trading. In other words, it aims to prevent an insider from gaining an unfair advantage over public investors by just holding UPSI, which is referred to as “information asymmetry” in the context of insider trading. Insider trading is defined as “the use of material non-public knowledge to trade business shares by a corporate insider or any other person having a fiduciary duty to the firm.” Hence, the 2015 SEBI (Prohibition of Insider Trading) Regulation has superseded the 1992 SEBI (Prohibition of Insider Trading) Regulation. SEBI enacted these limits upon the proposal of a high-level committee. Former head of the Securities Appellate Tribunal, Justice Shri N.K. Sodhi presided over the committee (SAT) which elaborated that, “the obvious need and understandable concern about the damage to public confidence that insider dealing is likely to cause, as well as the clear intention to prevent, to the greatest extent possible, what amounts to cheating when those with inside information use that information to profit in dealings with others”. The Insider Trading Regulations establish two offenses: first, the communication offense, wherein an insider is liable for communicating price-sensitive information to a third party, and second, the trading offense, wherein an insider is liable for trading while in possession of price-sensitive information. The communication violation not only creates an insider trading barrier for the person who communicates the information, but also penalizes anybody who attempts to induce or compel an insider into revealing the information. There are, though, exceptions that must be considered. Although evidence of malicious intent is not required, the trade crime has a high threshold and stringent standard. It presume that a person with the knowledge has traded on it, rather than needing evidence that price-sensitive non-public information was used to trade. Evidentiary Burden vis a vis Insider Trading Jurisprudence SEBI as a regulator is unable to garner sufficient support from the language of the Insider Trading Regulations, particularly in terms of evidence presentation, for establishing the insider trading offense. In the case of Mr. V.K. Kaul v. The Adjudicating Officer, SEBI, the Supreme Court of India ruled that relying on circumstantial evidence to establish an insider trading offense is not in conflict with the regulatory framework prescribed by SEBI, and that SEBI/SAT may consider circumstantial evidence when deciding an insider trading case. While attempting to show the previously enumerated aspects of the breach, the quantity of evidence necessary for a conviction for insider trading is the most important factor to consider. In Samir C. Arora v. SEBI, for instance, the Supreme Court of India ruled that in cases involving securities market breaches, SEBI is not needed to prove its case beyond a reasonable doubt; nonetheless, “legally sustainable evidence” must be present in order to convict an individual of such accusations. In contrast, in Dilip S. Pendse v. SEBI (‘Pendse’), SAT said that “the charge of insider trading is one of the most serious infractions relating to the securities market, and given the gravity of this breach, the preponderance of likelihood required to prove the same must be larger.” But, the Supreme Court’s judgement in SEBI v. Kishore R. Ajmera (Ajmera) has ruled in favor of the lower criterion. In this case, while addressing a violation of the SEBI (Prohibition of Fraudulent and Unfair Trading Practices Relating to Securities Market) Regulations, 2003, the Supreme Court said that “the test would always be what inferential approach a reasonable/prudent man would use to reach a conclusion.” In a related case, the Supreme Court determined, based on its own decision in Ajmera, that the appropriate standard of proof would be the preponderance of responsibility rather than proof beyond a reasonable doubt, despite the fact that the relevant violations would result in criminal penalties for the defaulters. The Supreme Court’s announced opinion is incontestable. In circumstances where only a monetary penalty is imposed under the SEBI Act, submitting SEBI to the criminal standard of proof would make the Insider Trading Rules essentially ineffective due to the difficulties of gathering evidence to support an insider trading accusation. Analysing the Underpinnings of

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SEBI Consultation Paper on Strengthening Corporate Governance: How Fullproof?

Leave a Comment / Capital Markets and Securities Law /

[By Muskan Madhogaria, Lavanya Bhattacharya and Srishti Gupta] The authors are students of Jindal Global Law School.   Introduction  The Securities and Exchange Board of India (“SEBI”) recently by way of a Consultation Paper dated 21st February 2023, proposed mandatory disclosure requirements for listed entities by amending Regulation 30 of the LODR along with certain other shareholder approval mechanisms. This has prompted several suggestions for consideration, some of which are discussed in this paper. What amounts to ‘impact’? Listed entities are required to disclose agreements that have an ‘impact on the management and control’ of their businesses, but the use of the word “impact” lacks a threshold value to avoid imposing unnecessary compliance burdens on companies. Under such a broad scope, investors are prone to receiving information that is irrelevant and distracting to their investment and voting decisions. Additionally, listed entities must ensure that the information they disclose is not misleading, false, or deceptive and does not omit anything that may affect the interpretation of such information. Discrepancies with the Pre-Existing Framework Under Regulation 30 of the LODR, any disclosure requirements must meet the standard of materiality laid down in Clause 2(e) of Chapter II. This requires the listed entity to provide accurate and timely disclosure on all significant matters, including the financial situation, performance, ownership, and governance of the listed entity. However, it’s uncertain whether agreements that ‘impact management or control’ or impose any restrictions or liabilities would always be deemed material to the company. In cases where such agreements don’t meet the materiality standard, the listed entity won’t be liable for informing its shareholders about them. SEBI should also clarify the distinction between transactions covered under this regime and the Related Party Transactions (RPT) regime and adopt a more nuanced approach that is able to harmonize the pre-existing regulatory framework to better compliance. It is also important to note that SHAs typically include change in control clauses as they can provide important protections and mechanisms for shareholders in the event of a change in ownership or control of the company. However, the specific terms of these clauses can vary widely depending on the preferences of the shareholders involved and the nature of the company’s business and ownership structure. Whether a particular SHA requires disclosure of change in control should be pertinent to decide whether such disclosures are to be made to the shareholder. Additional Compliance and Regulatory Burden The board or audit committee members will be held responsible for determining whether a detailed opinion on the proposed agreements requiring disclosure is necessary for seeking shareholder approval. This expanded role of evaluating these agreements would primarily be assigned to the audit committee, independent directors, and the Board, as executive directors are usually representatives of the promoter group, which would inevitably increase the regulatory burden on them. Insufficient Time Period for Disclosure Compared to the US and UK frameworks, which allow for up to 4 business days and 21 calendar days, respectively, the 24-hour time period is very short and puts a burden on both the listed entity and the shareholders to ensure timely disclosure. Industry standards suggest that the time period for such disclosures should be reasonably extended to allow for more thoughtful and informed decision-making by shareholders. Obtaining Shareholder Approval for Agreements That Impose a Restriction or Liability Agreements of such nature are typically subject to incorporation into the company’s AoA, which itself requires shareholder approval. Creating a double requirement for shareholder approval in all those situations will only add to the compliance burden. Without reference to the nature, magnitude or materiality of these restrictions/ liability, any and all agreements at the shareholder level having any impact on a listed entity, will trigger the specified disclosure and approvals. Consequently, this renewed shift of power shall be susceptible to challenges such as the risk of decision-making errors and shifting of agency costs by retail shareholders upon institutional shareholders. For any agreement that might really inflict restrictions or obligations, regardless of whether the listed entity is directly engaged, the proposed update also demands shareholder approval. While this is a good corporate governance measure, applying it retrospectively to existing agreements could create compliance issues. Shareholders may have vested interests in past agreements and revisiting them now could cause complications for the company, especially if significant business decisions have already been made based on these agreements. However, for agreements that provide protective rights or board seats to the listed entity and are not already included in the company’s articles of association, disclosure and approval will be required at the first AGM or EGM meeting after April 01, 2023. Future obligations arising from such agreements will depend on shareholder ratification. Status of Special Rights issue to Directors in the United States and key takeaways for SEBI Stock markets work on the basic principle that all shareholders are created equal. Therefore, any special rights that are negotiated at the PE stage usually fall away post listing. However, it is usual for some governance rights to be negotiated to remain in effect after a company goes public. Private equity investors may request a position on the board or observer rights, and sometimes they retain veto power in specific situations after the IPO. In the United States, there existsa proper difference between dual class and single class IPOs since the former is subjected to more scrutiny. A dataset created by searching the IPO documents of around 1,870 companies in the United States that went public from 2000 to 2020 suggested that companies often grant disproportionate rights to shareholders through a combination of agreements. These control rights typically exist in tandem with other control rights relating to the board of directors, which allows insider shareholders to have the power not only to choose who sits on the board, but also to control their decision-making process. However, these shares are treated as single class in form and therefore subject to a lower threshold. Empirical literature suggests that the option of issuing dual class shares has pushed a

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Social Stock Exchange: A Rendezvous of Philanthropy and Finance

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[By Saumya Mittal] The author is a student of Gujarat National Law University.   Introduction The implementation of the Social Stock Exchange (“SSE”) in India exemplifies a point where socialism and capitalism intersect with the appropriate balance, providing a fitting illustration. Although in existence for more than two decades around the globe, SSE was mentioned for the first time in India in the Union Budget of 2019-20. The then-Finance Minister had declared the objective of SSE to be realisation of the social goal by way of our capital markets. Consequently, SEBI constituted a Working and a Technical group, which submitted their reports and recommendations on 1st June 2021 and 6th May 2021, respectively. Finally, on 22nd February 2023, SEBI gave its final approval to NSE for the constitution of SSE. But what exactly is an SSE?; What are the regulations that SEBI has mandated, and how is this whole concept going to be realised in the end? These are some aspects that this article shall try to address. Meaning of Social Stock Exchange Regulation 292A of the SEBI (ICDR) Regulations, 2022 defines SSE as a separate segment of a recognised stock exchange with which a Non-Profit Organisation (“NPO”) can be registered and/or its securities can be listed with SSE. But what is SSE? It is a stock exchange, where NPOs shall be listed rather than commercial entities. Like a company listed on a stock exchange for raising capital, an NPO gets listed on SSE for raising funds for its operations. The amount it receives is a donation which people donate without expecting any monetary return. Definition of NPO NPO stands for- Not-For-Profit Organisation. Their main objective is social welfare, and their primary sources of income are donations, subscriptions, etc. Regulation 292A(e) defines NPO as any entity constituted under the Indian Trust Act, 1882; the Public Trust statute of the relevant state; the Societies Registration Act, 1860; Section 8 of the Companies Act, 2013; or as may be specified by the Board. Definition of For-Profit Social Enterprise (FPE) It is an enterprise whose primary objective is to do social service in a specified way and, at the same time, earn profit through such activities. It aims to maximise both profit and social welfare. An instance of such an organisation can be a business that employs marginalised people to manufacture jute bags (to act as an alternative to plastic bags). Regulation 292A defines it as a company/body corporate operating for profit and within the purview of a social enterprise. FPEs and NPOs are collectively called ‘social enterprises.’ Brief History SSE has been introduced in 7 countries till now, of which only three exchanges are currently active. SSE in Brazil, Portugal, South Africa and the UK failed and thus became non-functional, whereas the same in Canada, Jamaica, and Singapore are still operational. The focus of Canada and Singapore is solely on helping small and mid-cap companies raise capital through SSE. Social organisations, in general, are excluded from getting listed on the exchange. On the other hand, Jamaica is gearing up to introduce NPO under the aegis of SSE. The failure of SSE has been observed to be due to a lack of focus on NPOs and diversion of funding towards FPEs only, major project-based funding and a dearth of social funding culture. India needs to learn from the mistakes of such predecessors. Objectives of SSE SSE intends to reduce the adverse economic impact of COVID-19 by utilising social finance to restore the lives of pandemic-hit people. It aims to address this urgent issue by unlocking vast reserves of social finance and fostering collaboration between social and commercial capital. It emphasises the importance of generating profits for social goals as a critical component of sustainability (this rationale only applies to an FPE). How will the SSE function? SEBI (ICDR) Regulations, 2022 state that SSE regulations apply only to NPOs registered and/or listed with it and to FPEs that want to be recognised as social enterprises. It is important to note here that it neither talks about registering FPEs nor listing their securities on SSE. This is because Regulation 292G (b) states that if an FPE wants to raise funds, it shall do so via the main Board (NSE/BSE), the SME platform, Alternative Investment Fund or by issuing debt securities. So, it can be inferred that, at present, SEBI has no intention of allowing FPEs to raise capital directly from SSE or even be registered with it. The Listing and Registration at present are limited to NPOs only, although the SSE framework provisions apply to FPEs as well. Also, SSE can only be accessed by institutional and non-institutional investors. Along with this, an SSE Governing Council shall also be constituted to monitor its functions. Further, in 292E, areas of social work have been provided from which political or religious organisations, corporate foundations and housing companies have been explicitly excluded. The framework provides for only two securities through which money can be raised by NPO – Zero Coupon Zero Principal Instruments and donations through mutual funds. The former is a financial instrument in which no coupon is provided, and no principal money is paid on maturity. It can be compared to a bond. Generally, when an entity issues a bond (which is a debt security), it has to make interest payments on the same and there’s final payment of principal money on the maturity of bonds. In Zero Coupon Zero Principal instrument, any interested investor can purchase these securities but he shall receive neither the interest nor the principal money. So instead of a debt, it’s a donation in essence. But it’s still similar to a bond due to its structure i.e. it shall be issued for a certain time or a certain project, albeit the monetary returns. Similarly, donations can be made in the form of investment in mutual funds offered by the NPOs. For issuance of any security, NPO is required to file a draft fundraising document with SEBI. Advantages of SSE in

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Reverse Mortgage Loans in India: The Need For Regulatory Reform

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[By Chytanya S Agarwal] The author is a student of National Law School of India University, Bangalore.   I.          Introduction The rationale behind Reverse Mortgage Loans (‘RMLs’) is to ensure adequate retirement income for senior citizens, whose wealth is majorly confined in the form of home equity, . RMLs are essentially the ‘reverse’ of conventional mortgages and entail periodic payments from the mortgagee (and not the mortgagor) for several decades. Under RMLs, the mortgagor is permitted to reside in his/her mortgaged property and there is no obligation to service the debt during one’s lifetime. When the mortgagor dies or the RML ends due to other reasons (contractual or statutory), the mortgagee has the right to recover the mortgage money by liquidating the mortgaged home. RMLs are normally provided only to senior citizens since their wealth is majorly confined in the form of home equity and, thus, is illiquid. They are the most suited for them  due to their inadequate current income, lower remaining lifetime, and tax incentives (Rajagopalan, pp.3-4). Particularly popular in developed nations with a pro-house ownership stance, RMLs ensure the release of locked private wealth for stimulating consumption and bearing old-age expenses like nursing and medical costs. In a context where RMLs are being mooted as an attractive source of retirement income (see here, here and here), in this article, the author argues that the current RML regulations in India are fraught with inconsistencies and employ a model of regulation that hightens market risks instead of mitigating them. To make this argument, firstly, I would explain the features, rationale, and risks associated with RMLs through a brief literature review; secondly, I would highlight the internal inconsistencies and ambiguities in the provisions governing RMLs in India and analyse their implications; and lastly, I espouse the ‘product governance’ model of regulation as the ideal approach for mitigating the risks intrinsic in the RML market. To make that argument, I would juxtapose Indian RML regulations with those of the US and delve into the theories of financial regulation. Kindly note that this article synonymously uses the terms ‘borrower’ and ‘mortgagor’, and ‘lender’ and ‘mortgagee’. II.          Explaining RMLs – Characteristics, Rationale, and Risks A.    Characteristics of RMLs RMLs, as explained, are the opposite of traditional mortgage loans as, in RMLs, it is the lender and not the borrower who makes periodic payments (or gives a lump-sum or line of credit) for a fixed period of time or till the latter’s death. The borrower is not bound to service such debt during his/her lifetime. The mortgage money is recovered by the sale of the property at the end of the borrower’s lifetime, although his heirs have the right to redeem the mortgaged property before its sale. It is considered extremely attractive source of income for senior citizens who are ‘house-rich’ but ‘cash-poor’. Per Syzmanoski (pp.6-10), due to the lack of periodic debt servicing, RMLs are characterised by ‘rising debt’ and ‘falling equity’ – which is the reverse of what happens in a conventional mortgage (see Figures 1 and 2). They are also non-recourse loans, implying that nothing beyond the value of the mortgaged home can be recovered by the mortgagor (see here and here). Figure-1 (Conventional loan): This graph shows that conventional mortgages have falling debt and rising equity. Figure-2 (RML): This graph shows rising debt and falling home equity in an RML.   B.    The economic rationale underlying RMLs Understanding RMLs involves delving into economic theories such as Modigliani’s Life Cycle Hypothesis (‘LCH’) and Friedman’s Permanent Income Hypothesis (‘PIH’) which argue that people tend to smoothen their consumption over the course of their lifetime. Modigliani (pp.305-306) posits that people save part of their income as wealth until retirement. After they retire, they dissave their accumulated savings (or wealth) for maintaining the same level of consumption till the end of their lifetime (see Figure-3). LCH can properly explain the purpose behind RMLs. This is because in RMLs, senior citizens subsequent to retirement follow LCH by expending their accumulated wealth or home equity (and, thus, dissaving) to source income for their remaining life (Sehgal, pp.170-171). Similar conclusion can be reached using PIH because of the income-smoothening rationale of RMLs (see Baily et al, p.24 and Bergman et al, p.27). Figure-3 (Life Cycle Hypothesis and RMLs): The graph shows how individuals maintain the same level of consumption throughout their lifetime. They save part of their income as wealth until their retirement. The triangle depicts rising wealth till retirement. Upon retirement, this wealth is expended/dissaved till the end of lifetime. RMLs work as a mechanism that gradually dissave this self-acquired wealth (in the form of home equity) to maintain a constant level of consumption. C.    Risks associated with RMLs Cross-over risk is the principal concern faced by RML lenders (Wang et al, p.346). It happens when the value of the loan exceeds the property’s value. It can happen due to three reasons (see Syzmanoski, pp.351-345): (a) the unexpected longevity of the borrower (Bank for International Settlements, pp.8-13), (b) fluctuating interest rates, and (c) when the property’s value did not rise as expected. Risk-averse lenders take mortgage insurance to avoid such losses (Syzmanoski, pp.347-349). In addition to the cross-over risk faced by lenders, borrowers also face longevity risk in fixed-term RMLs since they (and their spouses) face the risk of eviction on early loan termination. This can happen when the RMLs have a fixed period and this period does not extend till the end of the borrower’s lifetime. In addition, although most borrowers seem to favour lump-sum RMLs with fixed exchange rates, these are considered riskier than the other remaining modes of disbursing RMLs, namely, annuities and floating interest rates (Fuente et al, p.185). Moreover, the costs and interest rates of RMLs are generally higher than those of conventional loans (see Jakubowicz, p.184 and here). III.          Indian RML Regulations: Inconsistencies and Blind-spots The Central Board of Direct Taxes introduced the Reverse Mortgage Scheme (‘RMS’) through a notification under Section 47(xvi) of the Income-tax (Amendment) Act, 2008,

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The Intersection of Intellectual Property and Antitrust Law in the Tech Industry

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[By Arghya Sen] The author is a student of Amity University.   Introduction The intersection of intellectual property and antitrust law is an increasingly important issue in the tech industry. On the one hand, intellectual property protection can incentivize innovation and drive economic growth. On the other hand, antitrust law is designed to promote competition and prevent monopolies. When these two legal frameworks intersect, they can have a significant impact on the tech industry’s future.[1] In this article, we will explore the intersection of intellectual property and antitrust law in the tech industry. First, we will define intellectual property and antitrust law and explain how they intersect. Next, we will examine the benefits and risks of intellectual property protection, as well as the role of antitrust law in balancing innovation and competition. We will then analyze case studies that illustrate how these legal frameworks have intersected in the tech industry and their implications for the future. Finally, we will conclude by summarizing the main points and offering insights and recommendations for policymakers and stakeholders. Understanding Intellectual Property and Antitrust Law India has a robust legal framework for intellectual property and antitrust law. Understanding these frameworks and how they intersect in the tech industry is critical to navigating legal issues and promoting innovation and competition. In India, Intellectual property refers to creations of the mind, such as inventions, literary and artistic works, and symbols, designs, and names used in commerce.[2] In India, intellectual property is protected by various laws, including: The Patents Act, which provides for the grant of patents for inventions and specifies the rights and obligations of patent holders. The Copyright Act, which protects original works of authorship, including literary, dramatic, musical, and artistic works. The Trade Marks Act, which provides for the registration and protection of trademarks, including logos, names, and symbols used to identify goods and services. The Designs Act, which provides for the registration and protection of industrial designs, such as the shape and appearance of a product. Antitrust law in India is governed by the Competition Act, 2002.  The Act aims to promote competition and prevent anti-competitive practices in the market. The Competition Commission of India (CCI) is responsible for enforcing the Act and ensuring that businesses do not engage in activities that harm competition. Examples of antitrust violations under the Competition Act include: Cartels, where businesses collude to fix prices or restrict output. Abuse of dominance, where a dominant company engages in practices that prevent or restrict competition. Anti-competitive mergers and acquisitions, where a merger or acquisition may result in a significant reduction in competition in the market.[3] In the tech industry, intellectual property and antitrust law intersect in various ways. For example, a company may hold a patent for a technology that gives it a competitive advantage in the market. However, if the company uses its patent to prevent competitors from entering the market or to charge excessive licensing fees, it may violate antitrust law. Similarly, a dominant tech company may use its market power to acquire other companies, which may harm competition in the market. To balance innovation and competition, Indian authorities have taken steps to ensure that intellectual property and antitrust law work together effectively. For example, the CCI has issued guidelines on the intersection of intellectual property and antitrust law to provide clarity to businesses and promote competition. Additionally, Indian courts have recognized that the abuse of intellectual property rights can lead to antitrust violations and have taken steps to prevent such abuse. Overall, understanding the intersection of intellectual property and antitrust law in the tech industry in India is critical to promoting innovation, competition, and economic growth.[4] The Role of Antitrust Law in Balancing Innovation and Competition Antitrust law plays a critical role in promoting competition and preventing monopolization in the tech industry. In India, the Competition Act, 2002 governs antitrust law and the Competition Commission of India (CCI) is responsible for enforcing the Act and ensuring that businesses do not engage in activities that harm competition. Antitrust law in India aims to promote competition by prohibiting anti-competitive agreements and abuse of dominance.[5] The Competition Act prohibits cartels, abuse of dominance, and anti-competitive mergers and acquisitions. The CCI can impose penalties on businesses that engage in anti-competitive behavior and may order them to cease their anti-competitive practices. Antitrust law in India also aims to prevent monopolization by ensuring that dominant companies do not use their market power to harm competition. For example, a dominant company may engage in practices that prevent or restrict competition, such as price-fixing, exclusive dealing, or tying arrangements. The Competition Act prohibits such practices and the CCI can impose penalties on businesses that engage in them. Antitrust law and intellectual property law can intersect in various ways in the tech industry. Intellectual property protection can give a company a competitive advantage, but if the company uses its intellectual property to prevent or restrict competition, it may violate antitrust law. In practice, antitrust authorities in India examine whether a company’s intellectual property rights are being used in a way that harms competition. For example, if a company holds a patent on a technology that is essential to a particular industry, it may be required to license that technology to other companies to prevent it from obtaining a monopoly. Similarly, if a dominant company uses its market power to acquire other companies that could harm competition in the market, antitrust authorities may block the acquisition or impose conditions on it to preserve competition. The reports[6] emphasize the need for a balanced approach to ensure that competition and innovation are not compromised in the tech industry. The CCI report suggests that antitrust law should be used to prevent anti-competitive conduct, including the abuse of intellectual property rights by dominant players. It recommends that competition authorities should carefully scrutinize the conduct of dominant players in the market and take appropriate remedial measures to promote competition and innovation. Similarly, research[7] has highlighted the importance of balancing the interests of

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ESG implementation in Corporate India: Progress, Challenges, and Solutions Compared to the EU Approach

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[By Basil Gupta] The author is a student of National Law University, Jodhpur.   Introduction The idea of Corporate Social Responsibility (‘CSR’) was introduced to the Indian corporate world to include social and environmental issues in their business practices. Initially, CSR was a popular topic in corporate law and governance, but recently there has been a shift towards Environmental, Social, and Governance (ESG) factors. This change occurred as “sustainability” became a major focus in corporate and financial law. Companies now aim to have portfolios that have taken the ESG factors into consideration, including environmental (such as climate change), social (such as human rights), and governance. The environmental factor refers to how a company manages its impact on the environment, such as its carbon emissions, resource consumption, and waste management practices. The social factor refers to how a company manages its impact on society, such as its labour practices, human rights record, and community engagement. The governance factor refers to how a company is managed, including its leadership structure, transparency, and accountability to shareholders. Professor MacNeil and Esser introduced the concept of the financial model of ESG, which puts emphasis on the role of capital and investors and reduces the attention on the responsibilities of directors while broadening the interests of stakeholders by focusing on sustainability. The shift from CSR to ESG can be attributed to three main reasons. First, CSR was given a prescriptive status through the Companies Act, 2013, which emphasized the stakeholder vs. shareholder debate in the context of CSR, with proponents on both sides arguing for their perspectives. However, there is growing recognition that a stakeholder-centric approach to CSR can be beneficial for both the corporation and the broader community. Second, with the amendment of CSR regulations in 2019, CSR became legally binding and turned into a form of corporate philanthropy. Finally, the CSR regime in India failed to address negative externalities due to being too broad, a lack of monitoring and enforcement mechanisms, and a reliance on philanthropy, leading to dissatisfaction with CSR, which paved the way for ESG to gain prominence. In this article, the author discusses the current framework of ESG norms in India, the ESG principles adopted in the European Union (EU), and the recommended solutions for the proper implementation of ESG in India. The author has also analysed through statistics whether corporate India is doing enough in ESG. ESG and Corporate India Although Indian companies and investors have come to recognize the significance of “sustainability” in their operations, ESG is still in its early stages in India. The government of India has implemented policies to promote sustainability reporting, such as the introduction of “Voluntary Guidelines” by the Ministry of Corporate Affairs (MCA) in 2011. This was later transitioned into a regulatory requirement by the Security and Exchange Board of India (SEBI) in 2012, which mandated “the top 100 listed companies based on market capitalization” to include Business Responsibility Reports (BRR) in their annual company reports. Then in 2020, SEBI went a step further by mandating companies to not only to report their financial compliance but also to disclose the social and environmental impact of their business operations in their annual report, replacing BRR with Business Responsibility and Sustainability Report (BRSR) for the top 1000 listed companies based on market capitalization for the financial year 2022-23. In India, where there are over 1.45 million registered companies, the requirements set by SEBI only apply to a small fraction of companies that comply with ESG norms, which is less than 0.1%. When discussing ESG in India, a question often arises: is Corporate India doing enough? While it is difficult to make generalizations about ESG compliance across all Indian businesses as it varies by company and industry, Indian businesses have been working to improve their ESG performance in recent years. For example, CRISIL, a leading analytical company in India, conducted a risk assessment across 53 sectors for the fiscal year 2021 and found that Indian companies have improved their ESG score and better disclosed ESG information compared to previous years. It has been discovered that complying with ESG standards can result in value creation for a company. Adherence to ESG norms by companies can improve their public image, attract more investment, and allow them to raise capital at a lower cost. On the other hand, investing in a company that does not follow ESG standards has been found to expose investors to 28% more risk compared to investing in a company which is ESG compliant. ESG in the European Union (EU): Comparative Analysis In India, while the BRSR requirement mandates companies to disclose information on their sustainable practices, there is no other mandatory legislation in place to ensure compliance with ESG norms, thus providing little incentive for integrating ESG factors into their operations. However, in EU they adopted a mechanism through which ESG became a central part of their economy. They did that by formulating an Action plan on “sustainable financing”. Sustainable financing is the practice of considering the impact on the environment and society in the investment decision-making process, which results in increased investment in sustainable and long-term initiatives, which also partakes ESG investing. In order to increase financial strength of the companies based on sustainability, the EU Commission developed a unified classification system known as EU taxonomy, creation of EU ECO labels and a green bond standard. Through EU Taxonomy, the investors and the stakeholders could know whether the company’s profits are from sustainable activities or not. EU ECO labels protect the companies trust in the sustainable financial market. Currently, there are no rules that mandate an issuer to clarify the reason for issuing a green bond, or any requirement for regular reporting. Therefore, the European Union Green Bond Standard (EU GBS) is a prospectus regulation that provides guidance on a standard for green bonds. Recommended Solutions for the Proper Incorporation of ESG Standards in Corporate India Whether the Indian corporate system could incorporate the above-mentioned mechanisms in order for the companies to

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Recession Slows M&A: Prosus-BillDesk Deal and Long-Term Effects

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[ByHarsh Mittal] The author is a student of Hidayatullah National Law University.   Introduction We see that recessionary fears have started impacting M&A deals and there has been a considerable slowdown in merger deals as a result of the same. There exists a huge gap between what private investors are willing to offer for different Merger deals now as compared to Pre- Recession period. The latest victim of this meltdown was the online payments gateway firm Bill Desk. On 31 August,2021 Prosus announced that an agreement has been reached between Bill Desk and Pay U, a subsidiary of Prosus to acquire Bill Desk for a staggering $4.7. However, Prosus terminated the contract one year later stating that certain conditions were not met. This sudden termination of the agreement was largely due to the huge ongoing correction in the global markets which has resulted into transactions being termed overpriced. There has been hesitation in the mind of investors before executing M&A deals after this recession. In this article, the author shall be analysing how recession has resulted in a slowdown in M&A deals. We would also try to understand whether this Recession would be having any long-term impact on the transactions or is a short-term hiccup with special reference to the Prosus and Bill desk deal. Impact of Recession on Mergers and Acquisitions While we do not have any Universal definition for Recession, we define it as “Negative Gross Domestic Product in two consecutive quarters”. Given that a significant portion of Indian IT revenue is derived from the US, worldwide recessions in general and recession in the US in particular, are a threat to India’s Merger deals in the current fiscal year. The majority of Fintech Startups operating in the US and other countries have seen their valuations decline by more than 50% in recent years.[1] Investors’ perspectives on value have even shifted as a result of the global market crash for freshly listed companies’ equities. Numerous M&A deals that were announced before the most recent market crisis are being rethought due to the disparity between what the public markets are ready to pay for the company and what private investors are paying. We see that the fear of recession is preventing people from executing M&A deals. Following the pattern of past Recessions, what one can predict is that there will be a huge downturn in mergers and acquisitions deals in this period.  But it’s clear that this recession differs from other ones. The 2008 Financial Crisis was primarily driven by debt-related excesses in the housing and internet infrastructure markets, whereas the current one is primarily driven by excess liquidity as a result of COVID-led fiscal and monetary stimulus that is fuelling inflation and encouraging speculation in financial assets . We do not need to worry about a complete collapse as it happened in previous cycles. Merger deals and the Economy does not have a tight connection due to multiple of factors existing in the market. As a consequence to which we won’t see a major impact on M&A activity even if economy has to go through long periods of Recession. Pay U and  Bill Desk Deal There have been numerous instances where the impact of the Recession is seen in Merger and Acquisition deals. We will try to analyse one such example where the acquisition was called off due to a steep fall in the valuation of the company. On 30th September when Prosus NV terminated the $4.7 billion agreement to purchase Bill Desk, every shareholder was in disbelief as no one could have dreamt this coming. M&A Agreement contains a set of conditions that   were required to be fulfilled before completion of the transaction such as regulatory approvals, business not suffering Material Adverse Effect and various Due Diligence Formalities. Prosus contended that Bill Desk was not able to satisfy some of these conditions which were precedent for execution of the contract. The deal which was announced more than a year ago had received the approval of the Competition Commission of India just days before the cancellation. Certain plausible reasons for the cancellation of the deal are- Steep fall in Valuation India markets are highly sensitive to the United States economy and they generally follow the trend of their system. Expecting a deal of this magnitude to be executed after such a huge contraction was very challenging. Though Bill Desk is one of rare profitable companies, the valuation of 4.7 Billion which is 19xof Bill desk revenue would have been a major hurdle in execution of this deal due to existing sentiments of investors for M&A deals. Approval time taken by CCI On 5th September, 2022, the wait was finally over for both the parties as the acquisition was approved by Competition Commission of India One of the reasons for the cancellation of the deal was the long period taken by CCI. Prosus was left frustrated due to the duration of time taken for the approval. Due to the time gap between the announcement and execution, we saw a dip in the valuation of Bill Desk which eventually led to the cooling-off of Pay U’s interest in executing this deal. Failure of New Age Companies To know the real reason behind the failure of such a deal, it is important to look at what is going on in the Indian Economy. Paytm’s big fall after its public listing is one event that has shaken the faith of global investors all around the world. Fintech Sector runs on very thin margins and is all about customer conversion but the Paytm debacle has led to a very conservative approach by investors. Implications of this deal – An analysis This deal was supposed to elevate the fintech sector to new heights. Prosus had already strengthened its position in the Indian payments industry through Pay-U  and the acquisition of Bill desk would have given Prosus access to a large customer base of small merchants in India. If we look at the implications of

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