Author name: CBCL

[By Ayushika Sinha] The author is a student of Symbiosis Law School, Pune. Introduction India’s IPO market in 2025 has shown remarkable resilience despite global uncertainties, with 108 IPO deals raising $4.6 billion in the first half of the year and a surge expected in the second half. A key factor is the trend of reverse flipping where startups are redomiciling their holding companies from overseas jurisdictions back to India. The Securities and Exchange Board of India (SEBI) held its 210th board meeting on 18 June 2025, following the public consultation undertaken in March 2025 introduced changes to simplify the IPO path in India’s maturing capital markets. This article examines SEBI’s recent regulatory overhaul to accelerate startup listings and ease capital flows. It focuses on three areas, including ESOP retention for founders, OFS eligibility for converted securities and accreditation under the AIF regime. While the reforms strengthen India’s position as a global innovation hub, the article critically examines both the opportunities and challenges it poses. Catalyzing Innovation: SEBI’s Bold Steps Firstly, SEBI approved a proposal for founders to retain Employee Stock Options (“ESOPs”) even after being designated as promoters and the company becoming a listed entity. It addressed the ambiguity of ‘one year look back period’ surrounding the proposed amendment on March 20, 2025, clarifying that now for retaining ESOPs must be granted at least one year prior to the filing of Draft Red Herring Prospectus (“DRHP”). Secondly, it has clarified regulation regarding investors holding Compulsorily Convertible Securities (“CCS”) under an approved scheme. According to previous guidelines such investors were subject to wait for at least a year following the IPO before selling their equity in the OFS. With the revised norms, SEBI has now permitted equity shares arising from converted CCS to be included in the OFS. Additionally, certain non-promoters (AIFs, FV, insurance companies, etc) can contribute converted shares towards the Minimum Promoter Contribution (“MPC”). Thirdly, SEBI mandated accreditation of all investors in Angel Funds without the requirement of a minimum investment threshold and will be conducted by SEBI-recognized agencies based on their financial strength and risk appetite. Under the new framework, an investor must meet one criterion: annual income exceeding ₹2 crore, annual income above ₹1 crore and a  net worth exceeding ₹5 crore (including at least ₹2.5 crore in financial assets), or a net worth exceeding ₹7.5 crore (including at least ₹3.75 crore in financial assets), replacing the earlier qualification based on net tangible assets of ₹2 crore, experience-based eligibility and a minimum ₹25 lakh investment. Lastly, Accredited investors (AIs) will be treated as “Qualified Institutional Buyers” (QIBs) solely for investments in angel funds pursuant to consultation paper issued on February 21, 2025. This circumvents the 200-investor cap imposed under Section 42(2) of the Companies Act, 2013. Decoding the Reforms This development has been welcomed across the startup ecosystem as it resolves regulatory hurdles ensuring that provision including amendments allowing startup founders to retain ESOP post-IPO under the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, exemptions for equity converted from CCS from open offer requirement under Regulation 10(1)(d)(ii) of the SEBI Takeover Regulations and facilitation of accreditation of investors for participation under the SEBI (Alternative Investment Funds) Regulations, 2012 to incentivize long-term commitment rather than short-term structuring From a market standpoint, the reform will accelerate the IPO pipeline by making the public listing process more founder and investor friendly and reducing key deterrents such as ESOP forfeitures, compliance of heavy cap tables, delayed exits due to OFS and CCS restrictions and accredition hurdles for early investors for domestic IPO for high growth startups. The regulatory shift modernizes capital markets and attracts more startups to Indian exchanges in the current increase of volume of startups preparing for IPOs in India, especially companies like PhonePe, Zepto and Pine Labs.. ESOP Retention: Previously, SEBI listing rules made no distinction between traditional promoters and startup founders barring both from holding ESOPs once made public. Under Rule 12 of the Companies (Share Capital and Debenture) Rules, 2014, and Regulation 2(1)(i) of SEBI (Shared Based Employee Benefits and Sweat Equity) Regulations, 2021 promoters are not considered employees and thus cannot receive ESOPs, except in the case of startups within 10 years of incorporation. However, under Section 62(1)(b) of the Companies Act, 2013 and ICDR norms, founders are reclassified as promoters upon DRHP filing, As promoters they are no longer considered employees making them ineligible to hold ESOPs creating confusion and forcing them to forfeit ESOPs before an IPO.. This regulatory conflict hindered founders of startups because they often earned lower salaries depending upon ESOPs after equity dilution. This would happen across multiple fundraising rounds, especially in tech-driven startups. This forced many to rework their cap tables ahead of IPO just to maintain eligibility increasing complexity and uncertainty for deferred compensation. The recent approval aims to protect legitimate remuneration preventing regulatory misuse. The change enables founders to maintain their ESOPs post-listing aligning their incentives with the long-term performance of the company and remaining committed post-IPO. Although through new rules existing ESOPs can be retained, there are still no provisions for granting ESOPs post-IPO. Such limitation discourages long term incentives to promoters resulting in further dilution of their ownership with each new issuance. Approval of fresh ESOPs grants after listing would therefore provide greater protection and incentive for founders. Furthermore, critics also argue from a corporate governance standpoint that this can lead to double dipping wherein promoters already benefit from control, voting rights, Dual-class shares and often sweat equity (Section 54 of the Companies Act, 2013). This change will allow them to retain from employee-focused ESOPs creating conflict of interest. As it will enable promoters to extract disproportionate wealth at the expense of minority shareholders and prioritizing personal gains over company performance. For example, ESOPs could allow promoters profit from stock price appreciation driven by their strategic decisions along with their existing control potentially leading to self-benefitting actions such as inflating valuations or delaying exits to maximize ESOP gains. These may

[By Ayushman Shrivastava] The author is a student of Hidayatullah National Law University (HNLU), Raipur Introduction In July 2025, the Reserve Bank of India (“RBI”) issued its Master Direction – Reserve Bank of India (Electronic Trading Platforms) Directions, 2025 (“2025 Master Directions”), replacing the 2018 framework and the earlier 2024 draft. At its heart, this latest framework signals a decisive pivot: steering ETP activity firmly onshore. The RBI’s rationale is twofold. First, by bringing more trading within domestic regulation, it seeks to enhance transparency, prevent market abuse and strengthen risk controls—goals first signalled in its 2017 Statement on Developmental and Regulatory Policies.           Some of the key procedural refinements include scrapping the two-stage in principle approval (a six‑to‑twelve‑month preliminary hurdle) and shifting applications to the RBI’s PRAVAAH portal. Yet beneath this aim for efficiency lies a more stringent regime at its core. Banks and primary dealers enjoy an exemption but still remain subject to the RBI’s discretionary mandates. While the regulator’s Alert List has expanded, due diligence has been strengthened through cross-agency information-sharing, and selective licensing is now established as a “will” rather than a “may”. That is to say, where previous drafts implied the RBI would be at liberty to exercise discretion in determining who would be authorized to carry on ETPs, the 2025 Master Directions leave no doubt that the RBI will be selective.  Code, Compliance, and Control: RBI’s Stepwise Redesign of ETP Norms (2017–2025) India’s journey to regulate Electronic Trading Platforms (ETPs) is not just a chronological evolution, but also a systematic tightening of regulatory precision and technological scrutiny.. Its origin lies in RBI’s 2017 Statement on Developmental and Regulatory Policies, where it identified the necessity for a strong ETP framework—designed to promote transparency, prevent settlement risk and contain market manipulation. This was followed by the Electronic Trading Platforms (Reserve Bank) Directions, 2018, which further categorised ETPs as any electronic system (other than recognised stock exchanges) to carry out transactions in “eligible instruments” such as government securities, money market instruments and forex derivatives. The 2018 guidelines mandated ETP operators to have strong audit trail mechanisms, ensure end-to-end encryption, achieve uptime and latency standards and keep data locally. However, partial exemptions were chiselled out for scheduled commercial banks, which were exempted from similar eligibility criteria. In response to the emergence of new grey zones – especially those involving offshore operators and algorithmic trading – the 2024 Draft Directions were introduced by the Central Bank. Furthermore, these directions also marked a departure from old practices. They prescribed model risk management practices, pre- and post-trade measures and even mandatory FATF-country integration for offshore ETPs. Quarterly detailed disclosures were also required, which included spikes in latency, market abuse and cyber-attacks. The recent 2025 Master Directions, however, go further, not through rule volume, but precision, emphasising targeted controls over broad prescriptions.The residency clause has now been removed, and it has also subtly shifted the definition of “entity” to include anyone, anywhere. Algorithmic trading is now subject to specific control layers: message throttling, price collars, execution slippage analysis and audit logs. The requirements of information security are no less strict-compulsory CISA or CERT-In empanelled IT audit, BC-DR drills, real-time SIEM logging and role-based access governance are now a necessity. Most importantly, perhaps, RBI now has the authority to tap into the intelligence of any Indian regulator, SEBI, FIU, or the Ministry of Corporate Affairs, as the case may be. This sneaky insertion of cross-regulatory due diligence reflects a regulatory environment that is no longer content with surface-level compliance-based regulation, but one that is based on systemic control and traceability. Digitising Control: RBI’s Authorisation Framework Enters a New Era The 2025 Master Directions are a paradigm shift in the manner in which the Reserve Bank of India (RBI) exercises its gatekeeping functions over Electronic Trading Platforms (ETPs), namely by digitising its procedures and by tightening its  discretionary thresholds. On one hand, the administrative streamlining is being presented positively on the surface; on the other hand, the regulatory position is more discriminatory and control-oriented. Among the most important procedural innovations, it is worth noting the shift of the entire authorisation process to the PRAVAAH portal. Unlike the traditional manual filing system mandated  under the 2018 guidelines and reiterated in the 2024 Draft Directions, PRAVAAH enables streamlined processing through real-time monitoring, automated data entry, and document standardisation standardised documentation. As a matter of commercial law, this reduces procedural opacity, while formalising the way RBI gathers data and audit trails. This gives the regulator systematic visibility into applicant behaviour and compliance preparedness. Just as important is the elimination of the “in-principle” approval process, which under the 2024 Draft was a soft filter with a six-month shelf life. The 2025 Directions subsume the two-step model into one full-fledged application. Although this might eliminate procedural exhaustion, it also requires the institutional world to be fully ready from the beginning. Significantly, the RBI has changed its stance from permissive to selective. The text of Section 9(b) of the 2025 Directions is that RBI “will be selective” in granting ETP authorisations, abandoning the discretionary “may” of the previous draft. This transition from optional discretion to mandatory selectivity has profound commercial implications. Legal entities including entities with pre-existing foreign approvals are now required to prove capital adequacy, operating resilience and strong systems of compliance attuned to Indian legal standards. In effect, RBI’s digitalisation drive is not merely administrative, but also structural. Authorisation is no longer just a compliance formality; it is a threshold test for market entry, tightly guarded by centralised, data-driven discretion. Jurisdictional Retrenchment: Phasing Out Offshore ETPs and Redrawing Boundaries One of the major policy changes that is evident in the 2025 Master Directions is the explicit removal of the extensive offshore ETP system proposed in the 2024 Draft Directions. The draft proposed a systematic form of regulatory regime on offshore platforms, which included incorporation in a jurisdiction identified by FATF, individual registration by RBI and prohibition on rupee derivatives trading. It also comprised the requirement of continuous monitoring, reporting

[ By Anikait Chawla and Chinmaya Saraswat] The authors are students of Gujarat National Law University On 7 August 2025, the Securities and Exchange Board of India released a consultation paper called, “Proposals for Ease of Doing Business for Investment Advisers and Research Analysts” (the Paper). The Paper aims to lower procedural barriers for advisers and analysts while keeping investor protections in place. It builds on changes from December 2024 that gave advisers more fee flexibility and cleared up onboarding steps. The Paper addresses six persistent market concerns: the limited ability to share past performance, unclear rules on second-opinion services, short corporatization timelines, narrow qualification criteria, and repetitive documentary checks. SEBI tied these easing measures to safeguards such as certification, disclaimers and time limits. The regulator wants to make life easier for advisers while keeping verification where it matters. Regulatory backdrop and principal proposals The Investment Advisers Regulations, 2013 (IA) and the Research Analysts Regulations, 2014 (RA) set rules for who may advise, how research should be published, and what disclosures advisers must make. Those rules helped professionalise a market that had relied on informal practice. As advisory work evolved, the rules showed strain. Firms and solo advisers report repeated documentary checks, academic thresholds that block experienced practitioners, and disruption when individuals convert to a corporate form. Small advisers feel these burdens most because they lack in-house compliance teams. SEBI responds with a significant change aimed at broadening eligibility. Any graduate could register if they pass the relevant NISM exam. That keeps a baseline of competence while allowing more professionals to enter the market. The Paper would permit one-to-one sharing of certified past-performance data when a prospective client requests it. Advisers may present certified results to interested clients, with mandatory disclaimers and a time-limited allowance. The approach lets advisers show a genuine track record without enabling mass-market promotion of unverified returns. The Paper also formalises second-opinion services. Advisers often give informal second opinions on products distributed by others. SEBI would let advisers charge for those services within capped arrangements and with clear disclosure. The Paper references a 2.5 percent ceiling as a guardrail. It also proposes annual consent for ongoing fee arrangements so clients stay informed about layered charges. On corporatization, SEBI proposes a longer transition window and limited client onboarding during conversion. The current short period often forces advisers to pause or alter services. Extending the window, while requiring continued professional-liability cover and client notice, aims to smooth the process without reducing accountability. Additionally, the Paper aims to prune redundant documentary checks. Repeated proofs of address, multiple credit reports and duplicate tax submissions add time and cost without improving oversight. SEBI suggests replacing many routine checks with digital verification, sworn declarations and targeted spot checks. That approach redirects supervisory effort toward risks that matter for investors. Taken together, these measures show SEBI trying to reduce admin friction while keeping guardrails. Certification, templates and sunset clauses serve as those guardrails. The outcome depends on how precise and operable the implementing rules become. Implementation challenges and standardisation requirements The reforms will succeed only if SEBI provides clear technical guidance and reasonable timelines, beginning with standardisation, since past-performance disclosures help clients only when advisers calculate and report returns uniformly.. SEBI should mandate a template that shows one-, three- and five-year gross returns, the corresponding net returns after fees, the benchmark used for each period, start and end dates, and a short note on the calculation method. The template should explain how to treat cash flows and whether to use time-weighted or money-weighted returns. It should also describe how to present multi-asset strategies. Without that clarity, numbers will be hard to compare and easy to manipulate. Verification should remain proportionate, and while chartered-accountant certification provides a strong safeguard, its costs weigh most heavily on small advisers. . SEBI should provide tiered options wherein larger firms can use full certification, mid-sized firms can rely on accredited third-party verifiers or audited internal reports and the small advisers can face random audits or accept higher liability if they self-certify. These alternatives keep oversight while avoiding a one-size-fits-all burden. Record-keeping and consent require fundamental digital systems. To track consent renewals, provide client-specific performance, and maintain auditable records, advisers will require secure solutions. SEBI ought to establish minimal technical requirements and permit gradual adherence. In order to prevent smaller firms from falling behind, the regulator can also promote open-source toolkits and low-cost vendors. Supervisory inspections will be sped up and conflicts will be decreased with the explicit guidelines on encryption, retention periods, and access limits. Digital verification can reduce documentation without compromising oversight. By connecting checks to trustworthy databases like PAN and verified tax records, SEBI can implement a verify-once paradigm. This lessens the need for duplicate checks, but it also necessitates privacy protections, backup plans in case of system failures, and a clear understanding of who is responsible for automated checks that go wrong. Efficiency and safety would be balanced by a hybrid architecture that automates regular inspections and saves manual review for outliers. The chartered-accountant requirement raises timing and cost questions such as who bears the charge and when must certification occur? SEBI could allow phased certification, for example a short self-certification period followed by formal attestation within a defined window, or it could permit accredited data providers to give standard attestations. Both options would maintain verification while easing the burden on small firms. Surveillance and enforcement must match a lighter prescriptive approach. A disclosure-led model needs better detection tools such as sample audits, anomaly detection and proportionate penalties that deter misuse. SEBI should build risk-scoring systems that flag outliers and support those systems with periodic manual checks. Targeted enforcement will keep the regime credible without reverting to blanket paperwork requirements. Finally, continuing competence matters. NISM exams can remain the baseline, but advisers should complete modest annual training and face occasional competency checks. Regular education and random assessments will keep standards current and reduce the risk of persistent low-quality advice. These measures, precise templates, tiered