CBCL, Author at NLIU CBCL

Structural Exclusion in Digital Markets: Rethinking the Scope of Section 3(3)(c)

[by Vashmath Potluri and Shubhranshu] The authors are students of NALSAR Hyderabad. Introduction India’s e-commerce market has rapidly consolidated, with Amazon and Flipkart controlling over 67 percent of the market. While this dominance is often attributed to scale and logistics, the Director General’s (“DG”) 2024 investigation report reveals deeper structural concerns. Both platforms exercise infrastructural control over warehousing, logistics and algorithmic discoverability in ways that consistently privilege select sellers and marginalise unaffiliated rivals. Practices such as exclusive launches, fulfilment-linked visibility boosts and restricted consumer access reflect a broader pattern of selective gatekeeping. However, the Competition Commission of India (“CCI”) continues to assess such conduct under Section 3(4)(c) of the Competition Act, 2002 (“the Act”), treating the platforms as vertically aligned intermediaries. With August 2025 marking one year of the DG report and the CCI’s final order still pending, similar concerns have emerged against quick commerce platforms like Zepto and Blinkit. Therefore, the Amazon–Flipkart case marks a turning point for Indian competition law as it could shape regulatory responses to infrastructural exclusion across platform markets. This article proceeds in two parts. Part I argues for an ex post reclassification of the conduct under Section 3(3)(c), treating selective infrastructural access as a form of horizontal market allocation. This would invoke a per se presumption of appreciable adverse effect on competition (“AAEC”) once coordination is shown. Part II offers a forward-looking, ex ante regulatory framework by drawing from global models such as the EU’s Digital Markets Act (“DMA”) and the UK’s Strategic Market Status regime (“SMS”), it proposes structural and behavioural tools to prevent infrastructural foreclosure at the design stage. Together, these approaches aim to restore open competition in India’s platform market economy. Ex-Post: Establishing Horizontal Market Allocation The DG’s 2024 investigation revealed that the exclusion on Amazon and Flipkart was not incidental; it was embedded in platform design. Both companies consistently privileged a small cohort of sellers, six on Amazon and thirty-three on Flipkart to be precise by providing them early inventory access, algorithmic prioritisation and subsidised warehousing. These advantages were especially visible during exclusive launches, where unaffiliated sellers were systematically denied access to high-demand stock keeping units, despite having similar operational capabilities. The DG’s conclusion that “no seller other than its preferred seller can survive” highlights that this was not sporadic favouritism but a deliberate exclusionary structure. This exclusionary design is best understood as a form of “Hub-and-Spoke coordination,” with platforms acting as hubs and preferred sellers as spokes. While the sellers may not directly communicate, the platform facilitates alignment through observable and repeatable incentives. In CCI v. Coordination Committee of Artists, the Supreme Court held that tacit arrangements may constitute agreements when reflected in sustained, parallel conduct facilitated by a central structure. Here, algorithmic favouritism and real-time visibility generate constructive knowledge. Sellers observe which behaviours are rewarded, such as integrating with platform logistics or participating in exclusivity, and calibrate their conduct accordingly. This form of indirect alignment, stabilised by the platform and repeated across cycles, supports an inference of agreement under Section 2(b) of the Act. At the centre of this arrangement is infrastructural segmentation. In digital marketplaces, search visibility, fulfilment logistics and promotional tools are not neutral; they are levers that shape competition. While Indian jurisprudence has not yet defined these as standalone markets, international regulators increasingly treat them as critical gatekeeping mechanisms. The European Commission, in its enforcement under the DMA, flagged Apple’s restrictions on interface functionalities, such as preventing developers from linking users to external purchase options, as materially distorting market access even in the absence of total foreclosure. Similarly, the OECD has recognised that platform-controlled tools such as ranking systems, algorithmic design, and fulfilment infrastructure can act as structural barriers by controlling visibility and consumer access. When allocated selectively, particularly during launch cycles, these tools replicate the exclusionary impact of classic market-sharing. Recognising this infrastructural segmentation as a form of horizontal coordination is therefore a doctrinal interpretation grounded in functional realities. In FHRAI v. MakeMyTrip, the CCI held that algorithmic prioritisation of OYO, combined with suppression of competitors, amounted to an exclusionary agreement. The same logic applies here because algorithmic and logistical design choices made by Amazon and Flipkart repeatedly favour the same seller cohort. This enables parallel outcomes among competing sellers, driven not by direct collusion but by their mutual orientation to platform-curated incentives. Such structurally induced alignment occurs “in any other similar way” as contemplated under Section 3(3)(c), fulfilling the evidentiary threshold for coordination even in the absence of a traditional horizontal agreement. Importantly, this interpretation also aligns with the second proviso to Section 3(3), which extends liability to entities that act “in furtherance of” anti-competitive agreements,” even if they are not engaged in “identical or similar trade.” By designing and enforcing exclusionary infrastructures, Amazon and Flipkart move beyond the role of passive intermediaries and become active participants in market segmentation. Classifying their conduct as horizontal market allocation ensures that Indian law can respond effectively to structural exclusion embedded in platform design. Shifting the standard from the rule of reason to Per Se Once Amazon and Flipkart’s conduct is reclassified under Section 3(3)(c) of the Act, the standard of liability undergoes a fundamental shift. Currently assessed under Section 3(4), such conduct requires a “rule-of-reason analysis,” where the CCI must affirmatively demonstrate that an agreement causes or is likely to cause an AAEC. This approach places the evidentiary burden on the regulator. In contrast, Section 3(3) adopts a “per se rule” because once a horizontal agreement with an exclusionary object is established, AAEC is presumed, and the burden shifts to the parties to provide compelling evidence of overriding pro-competitive justifications. This presumption is more than a procedural shortcut; it reflects a structural understanding of platform markets. In these markets, tools like fulfilment access, algorithmic ranking and promotional placement are not ancillary. They define the terms of competition itself because when such tools are selectively allocated to a few preferred sellers, the result is not mere inequality but systemic distortion of competition. The per

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Invisible Credit Networks – India’s Algorithm-Driven Shadow Banking Ecosystem

Company Law / CBCL

[By Ojas Sharma] The author is a student of Maharashtra National Law University, Nagpur. INTRODUCTION The Non-Banking Financial Company Peer-to-Peer Lending Platform (NBFC-P2P) has gained a significant standing in the Indian money lending scenario. India’s ambitious financial inclusion drive, combined with regulatory arbitrage opportunities, has led to the emergence of an unconventional ecosystem of shadow credit providers operating outside the purview of traditional banking oversight. Often, algorithms are used for decision-making, credit scoring, underwriting, and risk pricing, which generally operate through NBFC-P2P structures or partnerships with unregulated digital platforms. RBI’s Master Directions of 2017 struggle to address the opacity and systemic risks in these structures, as the directions cater to conventional institutions, and the P2P structure is an ever-evolving contemporary subject. This article seeks to map the legal and regulatory landscape governing algorithm-driven shadow banking in India and to identify the business risks and regulatory gaps. Ultimately, this article proposes reforms from comparative jurisdictions. EXISTING SCHOLARSHIP Existing scholarship on shadow banking emphasises traditional NBFCs and their systemic risks. These risks are often noted, but the scope is very limited. There is very limited scholarship on algorithm-driven credit intermediaries and their financial implications on consumer protection and systemic stability. There is data available highlighting emerging risks in P2P digital lending, but a lack of granular analysis of business model innovations like embedded finance is observed. This article addresses this gap. LEGAL FRAMEWORK The NBFC-P2P Master Directions serve as a statutory framework through which registration, prudential norms, and operational limits of P2P platforms are regulated. The direction describes P2P as an intermediary providing loan services via an online platform and an NBFC-P2P as a non-banking institution carrying P2P work. The aim is to cover unregulated lending under legal purview, but with the emergence of artificial intelligence and AI-based underwriting and embedded finance partnerships, the regulation appears to be redundant. RBI’s Digital Lending Guidelines introduced restrictions on first-loss default guarantees and mandated disclosure norms in 2025. An attempt was made to set up a grievance redressal mechanism; however, enforcement against algorithmic opacity remains weak even in the recent RBI guidelines. Even in the DPDP Act 2023, only the baseline is touched for data protection, algorithmic transparency and auditability in financial services. P2P remains highly unregulated even after constant guidelines by the RBI and the DPDP Act. A striking need for inclusion of specific provisions for algorithmic transparency and auditability is the need of the hour in the legal framework. LEGAL IMPLICATIONS AND ANALYSIS Primarily, fintech platforms engage in regulatory arbitrage by structuring their operations to escape the purview of conventional banking regulations. Often, partnering with licensed NBFCs to act like a legal front while these companies drive credit decision-making, customer acquisition and repayment collection through digital interfaces is one of the prominent strategies used by the fintech companies. By operating through this mode, bypassing RBI scrutiny while accessing credit markets becomes possible, ultimately allowing platforms to circumvent caps on exposure norms, risk-weighted capital requirements, and provisioning obligations to banks and larger NBFCs. The most common model for many digital lenders is to engage in ‘Bank NBFC-Fintech-Tri-Paritite-Structures’ where the NBFC originates the loan, but it is the fintech that handles disbursement, collections, and risk modelling, ultimately proving to be a grey zone not properly regulated under the current RBI guidelines. The Buy Now, Pay Later (BNPL) credit service is also used to exploit a legal vacuum via e-commerce or aggregator platforms operating as unregistered lenders. These products have a tendency to mimic credit offerings, putting on a façade to adhere to compliance standards, which include risk disclosure obligations and Know Your Customer (KYC). RBI, through its guidelines in 2022 and 2025 attempts to limit this arbitrage by using various measures like imposing sanctions, enhancing disclosure requirements, and mandating direct loan disbursements. However, these measures remain inconsistent for entities bypassing jurisdictions, often failing to unravel shell NBFCs through layered partnerships and fintechs. The existing arrangements, while showing a promising intention, lack clear, structured directions, which result in systematic vulnerability and ambiguity. This ambiguity can have grave consequences like consumer harm, default spikes, data misuse and serious litigation. ALGORITHMIC BIASES AND OPACITY The opaque nature of proprietary credit algorithms deployed by fintech platforms serves as a poignant risk in India’s invisible credit networks. These models are often trained on unregulated data and non-traditional data points like social media activity, smartphone metadata and behavioural patterns, operating as black boxes with minimal regulatory compliance or consumer transparency requirements. These underwriting systems, while positioned to be neutral, can perpetuate social and economic biases present in the historical data, as there is barely any regulation. This risk is amplified in India because there is a sheer lack of formal credit histories, as India is still a growing economy with a majority relying on informal credit sources to avoid hassle in obtaining loans. Empirical reviews indicated that first-time borrowers, women-led enterprises and applicants from certain geographical locations suffer from this algorithmic bias, which makes obtaining credit from these models a hassle. As of now, no regulation discusses algorithmic biases. While the DPDP Act is empowered to enforce data rights, it lacks jurisdiction over algorithmic accountability, creating a regulatory vacuum in decisions for credit and loan disbursements, affecting financial access and compromising the right to equality. Australia’s Consumer Data Right and the EU’s proposed Artificial Intelligence Act classify credit underwriting as a highly risky AI application, mandating transparency to mitigate bias and including robust grievance redressal mechanisms. However, Indian regulators are yet to formally acknowledge these risks in the digital lending context. This lack, clubbed with the lack of auditability, exacerbates legal risks for platforms, causing fintech firms to face potential class actions, consumer complaints and data privacy violations. Without transparent creditworthiness parameters, borrowers are often discouraged and denied procedural fairness, a fundamental right under Indian constitutional jurisprudence as enshrined in Article 19(1)(g) of the Indian Constitution. SYSTEMIC RISK CONTAGION A key vulnerability in this interconnected lending arrangement of invisible credit networks is the widespread practice of risk layering through

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RBI’s New AePS Guidelines: A Precarious Road Ahead?

Banking Law / CBCL

[By Yash Somraj Roy] The author is a student of Hidayatullah National Law University, Raipur. Introduction Recently, the Reserve Bank of India (“RBI”) under the Payments and Settlements Systems Act, 2007 has issued new due diligence guidelines for its Aadhaar-enabled Payment System (“AePS”) touchpoint operators. Enforceable from 1st January 2026 the guidelines look to reinforce the regulatory oversight of banks, regarding agents transacting with them. The new, stringent directives come as a solution to the high occurrences of identity theft and fraud in the AePS and Business Correspondent Model ecosystem. An AePS touch point operator in brief, is an agent who facilitates banking transactions of customers through their Aadhar number and Biometric data. The RBI to ensure credibility and better functioning of the AePS touchpoint operators, has introduced a new set of guidelines for improved due diligence. The guidelines primarily introduce four significant safeguards as a way to reduce fraudulent attempts. To begin with, the guidelines stipulate for rigorous due diligence methods for AePS touchpoint operators before onboarding them with a bank. Furthermore, the guidelines also advocate for a “one-operator-one-bank” rule establishing that an agent would not be able to operate with multiple banks simultaneously. In addition to this, the guidelines also propose for a constant risk-based monitoring of AePS touchpoint operators by banks as part of their fraud-control framework. Ultimately, the guidelines state that every AePS touchpoint operator (“ATO”), idle for a period of more than three months must undergo Re-Know Your Customer (“KYC”) and must be re-verified subsequently before resuming transactions. Interestingly, while the RBI has taken a positive approach to curb fraudulent practices by reinventing the AePS. It has blindsided several challenges and implications which arise out of the new guidelines. The author through this blog analyses the several shortcomings vis-à-vis the newly issued guidelines and delves into the implications arising out of it. Additionally, the blog analyses the quandary on how the absence of a central registry, indirectly makes it stricter for banks to prove their non-liability. Lastly, the author through this blog recommends several policy responses along with solutions and explores the way ahead for the seamless execution of the newly issued guidelines. The Lack of Centralised Monitoring Platform: A Major Inadequacy As set forth above, there are several lapses and implications which arise out of the newly issued AePS guidelines. One such major implication is the lack of a centralised monitoring platform. In absence of a central database, each bank only has the option of relying on its own modalities even in instances of inadequate competency. One such subsequent major challenge which arises due to the lack of a centralised monitoring platform is duplicate onboarding. Duplicate onboarding is when, an ATO who is already affiliated with one bank, registers themselves with another bank using a slightly altered name or identity. The absence of a centralised platform plays a key role here, as without it there is no automated screening of ATOs, and each bank’s KYC process is forced to evaluate each application independently. Thus, this eventually also acts as a threat to the RBI’s “one-operator-one-bank” policy as the lack of a centralised monitoring system makes it easier for ATOs to commit fraud. Perhaps most consequentially, the lack of a centralised monitoring platform fragments fraud detection and renders it rather ineffective. Although the National Payments Corporation of India (“NPCI”) provides banks with a mechanism to report and flag non-compliant agents. It does little to stop these said agents, to re-enter the AePS with altered identities. Hence, this allows for an ATO to simply function indefinitely by utilising numerous identities in multiple banks. In essence, while the RBI’s newly introduced guidelines take initiative to strengthen the defences of individual banks. The guidelines due to the absence of a nation-wide platform to monitor ATOs, do little to curb fraudulent practices which operate across multiple institutions. Exploring the Lesser-Noticed Implications in the Framework Owing to the centralised monitoring concern, there are several other ramifications which arise, that the RBI might have failed to notice. The absence of specificity vis-à-vis the three-month inactivity rule and the uneven standards of monitoring across banks give rise to several loopholes and legal lacunae which ATOs could use to rationalize acts of fraud. At the outset, the three-month inactivity rule is susceptible to manipulation. An ATO with minimal effort could circumvent this provision by executing dummy transactions once, within an interval of two or three months. This in turn means, that an ingenuous ATO by making a small withdrawal every three months would be able to bypass the Re-KYC protocols. Due to the transactions occurring within the stipulated time, the legitimacy of them are not under suspicion by the banks and no pattern of misuse is detected. Resultantly, ATOs who are practically inactive, could continue to function indefinitely exploiting the aforementioned provision stated by the guidelines. Thereby, this loophole acts as a detrimental force against the AePS and the transparency which the guidelines look to implement. Another subsequent loophole arises from the ambiguity which lies within the standards of monitoring across banks. Although, the new guidelines allow for banks to implement risk-based controls as they deem fit, it fails to consider the dissimilarity in manpower and competency each bank may have. This consequently implies, that while some banks with higher resources and manpower may actively flag anomalies, others would not be able conduct regulatory oversight to that extent. Hence, an operator that does not meet the criteria of one bank would be able to continue operations in another. At its core, the RBI’s new guidelines for ATOs has inadvertently created a disparity which could lead to incorporation of increased fraudulent practices and illicit conduct in the AePS. Who Pays When ATOs Go Rogue? Under Section 7 of the Aadhaar Act, 2016 it is permittable by law to conduct Aadhar-based withdrawals for customer benefits and banking needs. Hence, the need of guidelines for the governance of ATOs is of utmost importance in the AePS. But a major conundrum which arises due to

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Navigating Related Party Transactions in Indian Listed Companies: Clarity, Compliance, and Challenges

Capital Markets and Securities Law / CBCL

[By Aditya Pandey] The author is a student of National Law University Odisha. Introduction Related-party transactions (RPTs) – deals between a company and persons or entities in its orbit (promoters, relatives, subsidiaries, etc.) – pose inherent conflict-of-interest risks. Under India’s Securities and Exchange Board of India (SEBI) rules and the Companies Act, these must be scrutinized and disclosed to protect minority shareholders. In recent years SEBI has dramatically broadened the RPT regime. The 2015 LODR Regulations (as amended) now sweep in not only a listed company’s dealings with its own related parties, but also inter-group arrangements and even certain third-party transactions that “benefit” insiders. For example, SEBI’s January 2021 amendments defined RPTs to include transactions between either a listed company or any of its subsidiaries and any related party of any group entity. In practice, this means a listed parent must track and approve a wide variety of inter-corporate deals at both Indian and foreign subsidiaries. SEBI’s rationale – echoed by experts – is that effective RPT oversight requires a group-wide lens. The obligations have cascading effects: the listed parent must identify its own related parties and inform its subsidiaries, while subsidiaries (even unlisted ones) must identify their related parties and report any material RPTs up the chain. As one law firm analysis explains, “to carry out the implementation of the RPT framework at the holding company level, the subsidiaries are also required to identify their related parties” and track their own RPTs against the approval thresholds of the listed parent. This group-wide definition promotes consistency but also creates ambiguity, especially for unlisted or foreign subsidiaries that are not directly governed by LODR. SEBI itself acknowledged this gap: in October 2024 it informally advised that unlisted subsidiaries must nonetheless use the LODR definition to identify related parties and RPTs. This “entity-agnostic” approach promotes uniformity; however, it gives rise to complex questions (discussed below) regarding the applicable legal framework in specific contexts. Key Regulatory Developments SEBI has continuously tightened RPT rules, particularly since 2021. Key changes include: Expanded scope (2021–22). Effective April 2022, SEBI’s amendments swept in cross-entity transactions. RPTs now cover, for example, deals between a listed company and the related parties of its subsidiaries, or between a subsidiary and related parties of the parent or another subsidiary. In other words, all group-related transactions are “RPTs” subject to audit committee and shareholder approvals under LODR. Similarly, any individual holding equity in the company on a beneficial basis was classified as a related party: initially, this applied to those with 20% ownership (from April 2022), and later, the threshold was reduced to 10% (from April 2023). These changes mirror global practices (for example, LODR borrowed the UK rule that a third-party deal is an RPT if its “purpose and effect” benefits an insider). Subsidiaries and thresholds. SEBI added detailed rules for subsidiaries’ RPTs. If a subsidiary (including foreign ones) transacts with any related party beyond certain thresholds, the listed parent’s audit committee must approve it. Specifically, any deal by a subsidiary (with its own related party) exceeding 10% of the listed parent’s consolidated turnover (or 10% of the subsidiary’s standalone turnover from Apr 2023) must get the parent audit committee’s nod. This effectively gives the Indian-listed parent oversight – even veto power – over large transactions by its overseas subsidiaries. Analysts note this raises potential conflicts (a parent’s directors approving deals in foreign subsidiaries) but also ensures uniform governance across the group. Approval processes and disclosures. SEBI has beefed up information and approval requirements. Audit committees must review long-term or “material” modifications to RPTs and obtain detailed information (business rationale, financial terms, valuations, etc.) before approval. Investor-level scrutiny also increased: in 2022, SEBI made it easier to trigger the requirement for shareholder approval by lowering the applicable threshold. Now any RPT exceeding ₹1,000 crore or 10% of consolidated turnover (whichever is lower) must go to shareholders – dramatically expanding the number of RPTs on which the public votes. (Previously the threshold was simply 10%.) Shareholders must receive detailed explanatory statements, including external valuation reports, to justify why even arms-length RPTs are in the company’s interest. Recent streamlining (2024). Late in 2024, SEBI responded to industry feedback for ease-of-doing-business. The December 2024 LODR amendments introduced some relief: routine transactions like uniform retail purchases by promoters or employees can be excluded from “related party” treatment if made on arm’s-length terms. Companies may now ratify small RPTs (under ₹1 crore annually) after the fact, whereas before every RPT required pre-approval. Remuneration to directors/KMPs below materiality need not go to the audit committee each time. Importantly, SEBI formally extended its omnibus approval mechanism to cover RPTs by subsidiaries. And new compliance was eased by integrating RPT disclosures into a single “integrated filings” framework. Overall, these amendments aim to balance transparency and efficiency. They underscore that RPT regulation is still evolving – most recently SEBI has issued model “Industry Standards” for the information to be given to committees/shareholders (effective late 2025) to further standardize disclosures. In practice, vigilant boards and audit committees must scrutinize RPTs. Audit members should demand justification and valuation reports for any significant deal, ensuring shareholders understand the rationale. As analysts have noted, post-amendment companies face a “sea-change in the regulatory framework for RPTs,” meaning they must step up internal processes – from identifying related parties to pre-approving and reporting transactions. In particular, audit committees now bear extra duty: beyond routine approvals they must actively review subsidiaries’ transactions (even foreign ones) and their material modifications. Compliance Challenges Despite these rules, practical challenges abound. A key issue is identification of related parties across the group. Under LODR Reg.2(1)(zb), a “related party” of a listed company includes anyone in its promoter/promoter-group, persons holding ≥10% (beneficial) shares, and others (including as per accounting standards). But what about unlisted or foreign subsidiaries? SEBI’s recent informal guidance says yes – even unlisted subsidiaries must follow the same LODR definition to identify their related parties for RPT compliance. This group-wide approach ensures consistency but can over-extend the law.

Unlocking Capital and Control: Reforming Bank Acquisition Rules in India

Contemporary Issues / CBCL

[By Shashwat Shukla & Kumar Aryan] The authors are students of National Law University Delhi. Introduction India is emerging as one of the world’s fastest growing economies incentivizing global markets to claim a piece of this pie. Foreign banks are keen on deals in India especially as it angles for regional trade agreements. Such pacts could open up new opportunities in India for global lenders elsewhere in Asia and the Middle East. Moreover, the Indian banking regulator has shown willingness towards the entry of these foreign banks in the Indian banking sector in order to introduce a fresh stream of long-term capital into the market. The RBI last month relaxed its rules to let a Japanese bank, Sumitomo Mitsui Financial Group Inc., acquire 20% stake in YES BANK amidst reports of two foreign institutions vying for a stake in IDBI Bank. In light of these developments, certain impediments can act as deterrents for such stake sales. We can trace the policy architecture when it comes to letting foreign banks enter the Indian market back to 1991 when Committee on the Financial System (CFS) was established to examine the existing financial system and make recommendations for reforms in India. One of the objectives of the CFS was to introduce competition into the banking system by encouraging the entry of new foreign banks and the expansion of existing foreign banks. This objective becomes all the more crucial to adopt and formulate a regulatory approach in alignment with the current economic ambitions of the state. While there are norms established by the RBI which puts a cap of 26% on voting rights of a promoter of a registered banking company, which serves as protection from excessive control by a single entity over a sector which is of national economic relevance. The same, as will be argued in this article, is not in consonance with the overall regulatory framework and the objective which the regulator seeks to achieve. Hence, an objective reconsideration of the quantum of these caps is required. This article is structured into four key sections, the next section examines the regulatory framework with a focus on RBI and FDI norms. Following this, the section critically analyses the rationale and drawbacks of the voting rights cap, drawing on the global best practises. The article concludes by offering a forward-looking perspective on recalibrating regulatory policy to align with India’s growth ambitions. Regulatory Framework Governing Foreign Ownership in Indian Banks When identifying structural regulatory flaws, it becomes crucial to look at the entirety of the regulatory framework governing any concerned transaction. In the case of foreign banks or entities seeking to acquire a stake in Indian private sector banks, FDI rules are the primary regulations that govern all foreign long term capital investments in Indian entities. While FDI rules do permit acquisition of up to 74% of any Indian private bank by a foreign entity with government approval (up to 49% through automatic route), the rules of RBI on holding and acquiring of Indian banks puts a cap of 26% of voting rights for promoters and a cap of 15% on investments by financial institutions. Furthermore, the SEBI Takeover Code mandates that if any company acquires a 25% stake in another company, then they will be required to further make an open offer to acquire 26% of that entity, effectively giving the acquiring company a majority stake of the acquired company. This is done to give other shareholders an opportunity to leave their stake in the company where the leadership is changing. However, in the context of the present transaction, the dilemma for foreign companies arises when they try to acquire an Indian bank, as soon as they hit the 25% mark, they will be mandatorily required to make an offer for majority stake meanwhile the RBI rules will not let them have voting rights proportional to the stake they will be required to acquire due to the 26% cap. Therefore, any increase in the 26% cap on voting rights, or the 15% investment threshold could encourage foreign bank investors. There could be opportunities for investments in India’s mid-sized banks by foreign banks looking to expand their presence in India, although it can be inferred that the RBI’s preference is for foreign banks with a strong performance and governance record to acquire stakes larger than 26% through wholly owned Indian subsidiaries regulated in India. Therefore, the current regulatory framework severely discourages any foreign entity to acquire a stake of more than 25% because of the takeover code, effectively defeating the objective RBI is seeking to achieve. Reforming the Cap: A Case for Phased Liberalisation The regulations were brought to ensure diversification and prevent the shareholders from dominating bank policy or ownership. This was in line with protecting financial stability and public interest. The regulator is trying to ensure bank governance remains dispersed by capping it acts as a shield against the takeovers and instability that may be created by the exit of a single investor. Though the RBI’s framework stresses on having a cautious approach to foreign control by the diversification route, the 26% voting cap is a unique feature, as major countries allow shareholders voting rights in sync with their equity. The capping, as a result, leads to a situation where even highly capable foreign banks cannot control the board decision and have to comply with strict voting limit requirements, and this deters them from entering the Indian ecosystem. The ownership restrains are codified in the Banking Regulation Act and the RBI Guidelines, which fit into a broader Indian framework, emphasising fit and proper test and RBI approvals for any significant bank investor. These legal safeguards have created major impediments for the burgeoning economy, which currently finds itself in a capital shortfall. As per one of the RBI reports, the credit to GDP ratio in India, i.e., 90% lags much behind the global average of approximately 113% highlighting the loan deficit market. Strategic investments by way of long-term infusion of capital

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Governance, Trust and Trouble: SEBI’s Scrutiny of AIFs

Capital Markets and Securities Law / CBCL

[By Prayas Das] The author is a student of National Law University, Odisha. Introduction The Securities and Exchange Board of India (the Board), in recent times, has provided numerous investment options for the people, such as Mutual Funds, which offer stable returns with less risk to investors, thanks to tighter regulations under SEBI’s supervision. As temporal tides advance with the growth in the economy and increasing number of High Net-worth Individuals (HNIs) who can afford to take more risk in terms of investment, SEBI introduced the SEBI (Alternative Investment Funds) Regulations, 2012 to cater to the requirements and needs of the HNIs who wanted to invest beyond the stock market to gain more profit by taking more risk with less regulations from the board. The AIF is defined under Regulation 2(1)(b) as a privately pooled investment vehicle that collects funds from investors (Indian or Foreign). The minimum investment amount is Rs 1 Crore for investors, and for Directors, Employees, and Managers, the limit is Rs 25 Lakh. Recent SEBI investigations into HDFC Capital Affordable Real Estate Fund- I, which is a Category II AIF, sparked curiosity about the governance lapses, bias and influence of the sponsor, which can jeopardise the investors’ investment in the respective AIF. This article explores the structures of AIFs, SEBI’s governance rules, what went wrong in a recent case, and how the sponsor can influence the investment decision-making for its benefit at the expense of investors. Structure and Types of Alternative Investment Funds Under Regulation 3(1) of Chapter II, an AIF has to obtain a certificate of registration mandatorily from the Board, and only upon completion of that step can it perform as an AIF. Any entity shall seek registration as an AIF under three categories, which are given below: – Category I Alternative Investment Fund – This category is viewed as a nation builder, as it promotes socially and economically desirable sectors that the government or regulators want to encourage. The AIFs under this category are generally perceived to have a positive spillover effect on the economy, with the government considering providing such funds, incentives, or concessions. These funds include venture capital funds, social impact funds (SME Funds), etc. Category II Alternative Investment Fund – These types of funds do not fall under category I or III. They do not take on leverage or borrowing other than to meet daily operational requirements. These funds invest in long-term assets that offer good returns with manageable risks to knowledgeable investors. These consist of funds such as private equity funds (buying of shares in unlisted companies), debt funds (earning interest on capital, the funds used to buy bonds or debentures), etc. The funds registered under this category are ineligible to receive any specific concessions from the government. Category III Alternative Investment Funds – This type of fund is for those who want to employ diverse or complex trading strategies by employing leverage or borrowings. They are famous for their risk control strategies to make a profit during unstable market situations. One such fund is a hedge fund, which trades to make short-term returns with high risk. It also receives no specific concessions from the government. SEBI permits an Alternative Investment Fund under SEBI (AIF) Regulations, 2012 to be established as a trust, a limited liability partnership (LLP), or as a company. In these three structures, we can find trust as the most common mode of formation of an AIF, and popular due to the tax pass-through benefits it offers, where the investors have to pay taxes on the profit, not the trust under which as AIF is legally formed. Why AIFs Matter An AIF has a diverse portfolio as it invests in assets beyond the stock market, such as investing in unlisted companies, venture capital and infrastructure, which are not available through mutual funds or direct stock investing. With a high risk, it offers a higher return than other investment options due to the large pooled amount and flexible investment options with fewer regulations. The system of investments allows a company or organisation to seek investments, even if it is an unlisted one. This system of investment allows the investee and investors to grow more efficiently with less regulation from the regulator. The SEBI May 2025 Order: What Went Wrong Being a Category-II AIF is significant because such funds typically invest in long-term unlisted assets like real estate and private equity, and are subject to specific restrictions on leverage and regulatory exemptions that shape both their risk profile and fiduciary obligations. In this context, HDFC Capital Advisors Limited (Applicant No. 1) acted as the Investment Manager for HDFC Capital Affordable Real Estate Fund – I (Applicant No. 2), which is categorized as a Category-II Alternative Investment Fund, with HDFC Bank Ltd. designated as its sponsor. Applicant No. 2 allocated Rs. 200 crores towards Non-Convertible Debentures (NCDs) of Acme Realties Pvt. Ltd (ARPL), in addition to Rs. 99 crores further invested in NCDs issued to ARPL by Ascent Construction Private Ltd. (ACPL). Both ARPL and ACPL were subsidiaries of Acme Housing (India) Pvt. Ltd (AHIPL), with HDFC Bank Ltd., as a sponsor of Applicant No. 2 being an existing lender to both subsidiaries of AHIPL. To simplify, both ARPL and ACPL (both subsidiaries of AHIPL) received funds from the AIF managed by HDFC Capital, which was sponsored by HDFC Bank, a creditor to all three entities. The amount invested by Applicant No. 2 in the NCDs of ARPL was transferred to the loan accounts (credit lines) of ARPL and AHIPL with HDFC (sponsor). These funds were utilized not only for the construction projects but also to repay existing loans and interest owed to HDFC Bank. It violates Regulation 21 (1) of the SEBI (AIF) Regulations, 2012, which mandates that the sponsor and investment manager must act in the best interest of the investors and disclose conflicts of interest. Redirecting investor capital to settle sponsor dues breaches fiduciary obligations and raises governance concerns. Why was this a governance

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Refund of Unutilized ITC on Business Closure: Progressive Ruling, Precarious Foundation

Taxation Law / CBCL

[By Ishtmeet Kaur] The author is a student of Rajiv Gandhi National University of Law, Patiala. Introduction Since the introduction of GST in 2017, Input Tax credit (ITC) has consistently remained at the centre of litigation and policy debates. Although ITC was envisioned as a mechanism to avoid the cascading effect of taxes and provide relief to the taxpayers, however in practise, it has produced the exact opposite outcomes. In the past few years, a plethora of cases have come forward where ITC has been denied by the department to bona-fide purchasers either due to the default of the supplier or because of retrospective cancellation of supplier’s registration. In this context, the recent judgment of Sikkim High Court in the case of SICPA India (P.) Ltd. v. Union of India provides a ray of hope to the taxpayers who are facing uncertainties surrounding ITC entitlement. In this landmark ruling, a single-judge bench of the High Court has allowed the assessee to claim refund on unutilized ITC on the closure of business after the same was denied by the adjudicating and appellate authorities under the GST regime. While the judgment is progressive and aligns with the interests of the taxpayers, however the rationale given by the court appears legally inadequate and therefore deserves scrutiny. This article intends to critically examine the judgment of the court, contending that despite being tax-payer friendly it may not withstand appellate scrutiny due to the absence of a robust legal foundation. At the same time, through this piece the author advocates that the core idea underlying the judgment, which is the recognition of refund of ITC on business closure should be legislatively codified, subject to certain safeguards to ensure that such refunds are only granted in genuine cases. A Closer Look at the HC’s ruling In the present case, the petitioner upon shutting down its manufacturing unit in Sikkim, sought a refund of the unutilized balance of Input Tax Credit lying in its Electronic Credit Ledger (ECL). However, the same was denied by the Assistant Commissioner on the ground that exists no statutory provision which allows the refund of ITC on the closure of business. On an analysis of the provisions governing refunds, Section 49(6) of the Central Goods and Service Tax (CGST) Act, 2017 permits the refund of ITC but in accordance with the conditions laid down in Section 54. Specifically, Section 54(3) of CGST Act, 2017 clearly lays down two conditions in which the refund of unutilized Input Tax Credit can be claimed, i.e., (i) in case of zero-rated supplies and (ii) inverted-duty structure (rate of tax on inputs being higher than the rate of tax on outputs). Therefore, there is no express provision in the CGST Act which allows the assessee to claim ITC refund in situations like cancellation of registration or closure of business. Despite the absence of a legal provision providing for refund of ITC on business closure, the court allowed the refund by relying on Karnataka High Court’s judgment in Union of India v. Slovak India Trading Company Private Limited in the erstwhile regime. The rationale adopted by the Court was that there is no express prohibition either in Section 49 or 54 which does not allow such refunds. While the intention of the court may have been to prevent undue burden on taxpayers, however the judgment appears to be overstepping the judicial boundaries especially in absence of a statutory basis or even robust reasoning by the court. Fault Lines in the Judgment Flawed Interpretation of Section 54(3) The High Court in its judgment has held that Section 54(3) does not expressly prohibit the refund of unutilized Input Tax Credit on closure of business. However, this reasoning of the court appears to be erroneous. The language of the first proviso to Section 54(3) has been framed by the Parliament in the following terms: “Provided that no refund of unutilised input tax credit shall be allowed in cases other than”. The critical expressions used here: “no refund shall be allowed” and “in cases other than”, clearly indicate that the legislature intends to allow refund only in these two situations as provided. Hence, the construction of the proviso is prohibitory and exhaustive in nature. This interpretation has also been affirmed by the apex court in the case of Union of India & Ors. V. VKC Footsteps India Pvt. Ltd. where the court has clearly held that “A refund can be allowed only in the eventualities envisaged in clauses (i) and (ii). The expression “in cases other than” is a clear indicator that clauses (i) and (ii) are restrictive and not conditions of eligibility.” It remains uncertain as to how the High Court’s judgment would withstand judicial scrutiny when its interpretation of Section 54(3) clearly diverges from the one already laid down by the apex court. A case of Judicial Overreach Taxation statutes are required to be strictly interpreted. The rationale behind this is that the fiscal policy of the government is often shaped by various economic and administrative considerations which may not necessarily align with the broader principles of equity usually applied by the courts. In such a context, courts through their judgments must remain confined to the text of law and should not dictate fiscal policy making by the government. By disregarding the rule of literal interpretation, the High Court appears to have overstepped these boundaries, particularly when the intention of the Parliament was unambiguously expressed in the language of the proviso to Section 54(3). Introduction of an additional ground by the Court on which refund of ITC can be claimed serves as judicial encroachment on the powers of the legislature. This view also finds support in the decision of Supreme Court in the case of C.I.T. v. Calcutta Knitwears, where strict interpretation of a taxing statute was emphasized. “Common sense approach, equity, logic, ethics and morality have no role to play. Nothing is to be read in, nothing is to be implied; one can only look fairly at

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Transaction Fragmentation And Shadow Capital Arbitrage In Reverse Mergers

Capital Markets and Securities Law / CBCL

[By Adeeb Bakhtavar] The author is a student of Dr. B.R. Ambedkar National Law University, Sonepat. Introduction Early 2025 saw the ‘reverse flip’ of RazorPay from its US-based holding company to an indian parent entity after receiving the nod from the Ministry of Corporate Affairs. Zepto, a quick commerce startup, also received formal approvals from both the Singapore court and India’s National Company Law Tribunal to execute its cross-border merger, thereby becoming an Indian parent entity. According to a recent white paper published by Bay Capital shows that the value of India’s publicly listed digital-first firms is $90 million. While headlines celebrated it as a win for the startups and indian markets, what remained unsaid was that, how such structural shifts like these can cloak opaque capital arrangements under the guise of regulatory compliance? Reverse mergers that were once deployed as alternative IPO routes, are now being strategically used to embed shadow capital, exploit jurisdictional leniencies, and bypass regulatory gatekeeping. This blog will examine how the entities are leveraging the gaps in Indian corporate and securities law to channel shadow capital via reverse mergers. Conceptual Prelude: Reverse Mergers & Shadow Capital Reverse mergers, traditionally used as listing shortcuts (also known as reverse takeovers, RTOs) can be referred to as transactions where a private company acquires a publicly listed shell company. It allows the private company to bypass lengthy regulatory scrutiny and gain access to capital markets through corporate restructuring. According to the OECD Shadow Banking Report, “Shadow Capital” refers to the opaque, non-traditional sources of private capital that are not regulated, are often outside the regulated fund structure, and mimic institutional capital but are under grey zones. Shadow capital lacks fiduciary supervision as the investors may not be bound by LPAs (Limited Partner Agreements) or SEBI audit rules, which can be used to bypass the disclosures regarding the beneficial ownership or voting rights to SEBI, MCA, or the exchanges. The National Company Law Tribunal’s 2024 ruling in Hologram Holdings Private Limited v. NCLT introduced what is now referred to as the “Substantive Business Purpose Test” under Section 232 of the Companies Act, 2013. Moving beyond the formalities of statutory compliance, the Tribunal held that merger schemes must demonstrate a genuine business rationale or contribute meaningfully to the public interest. The court concluded that such arrangements constituted “merely accommodation entries or paper transactions” designed to “artificially increase the share prices and use the merged company as a vehicle of tax evasion and money laundering” 2025 Regulatory Framework Landscape The Stock Exchange Board of India (SEBI) amended the Issue of Capital and Disclosure Requirements (ICDR) regulations in March 2025, which marked the most significant regulatory evolution in reverse merger oversight since the original framework was established. As per the technical analysis of these amendments, the regulations struggle to be comprehensive yet contain some fundamental structural deficiencies that continue to enable sophisticated shadow capital deployment. The amended pre IPO transaction reporting framework, that is the regulation 58B(1): “(1) Every issuer shall, within twenty-four hours of such transaction, disclose to the recognised stock exchange(s) and simultaneously on its website, all pre-issuance placements of equity or convertible securities which aggregate to an amount in excess of ₹25 crore” Mandates all pre-IPO transactions exceeding ₹25 crore to must be reported to stock exchanges within 24 hours, despite this regulatory framework shadow capital operators can exploit the regulations through the method called “cascade structure” method, according to which a private entity involves structuring a transaction through multiple sub-₹25 crore tranches across different entities throughout a 12-month period in order to inject shadow capital into a listed shell company. While each transaction on its own is below the requirement for reporting threshold, the total amount of shadow capital deployed is significant. Such structured transactions are not recognised by SEBI’s current monitoring systems simply because of their lack in real-time aggregation capabilities. This is the concept of “connected transactions,” that very crucial in determining shadow capital but is not defined in ICDR regulations, and is not included by amended Regulation 58B(1). The subsidiary companies can subsequently merge with their parent company through simplified merger procedures under Section 233 of the Companies Act 2013, which can effectively infuse substantial shadow capital without triggering enhanced disclosure obligations. The enhanced materiality thresholds under the regulation 32A(4) introduce tiered materiality thresholds which includes ₹10 crore or 2% of net worth (whichever is lower) for companies with net worth below ₹500 crore, and ₹25 crore or 1% of net worth for companies with net worth exceeding ₹500 crore. In contrast, the U.S. Securities and Exchange Commission’s Aggregation Rule under Section 13(d) of the Securities Exchange Act codified in 17 C.F.R. § 240.13d‑3(c) mandates the disclosure of beneficial ownership by aggregating holdings across related entities and coordinated investors, while the European Union’s transparency regime under the Shareholder Rights Directive and Disclosure Regulation (EU 2017/1129) requires consolidated reporting of financial exposures, thereby preventing circumvention through fragmented sub-threshold structures, a safeguard currently absent in India’s regulatory framework. As per the subsidiary parking strategy, for example, any XYZ Limited, a listed shell company with net worth of ₹450 crore, can create multiple wholly-owned subsidiaries. Then, shadow capital is injected through transactions of ₹9.5 crore each into different subsidiaries over a 18-month period. Each transaction remains below the 2% materiality threshold, avoiding consolidated disclosure requirements. This successfully infuses shadow capital through reverse mergers, without triggering SEBI regulations. Furthermore, the amended LODR Regulation 27B Related Party Transaction (RPT) requires disclosure of all RPTs exceeding ₹1 crore on a consolidated basis, quarterly monitoring of cumulative RPT exposure, and an Independent director certification of arm’s length pricing. The current RPT disclosure requirements focus on individual transaction materiality rather than cumulative economic impact. For example, A sophisticated shadow capital scheme involving Entity A (shadow capital source) creating apparent arm’s length transactions with Entity B (reverse merger target) could include Entity A providing “consultancy services” to Entity B at inflated rates (₹95 lakh per quarter to remain below disclosure thresholds). Then, Entity B could lease

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Material Adverse Change Clauses in M&A: Navigating Risk Allocation, Materiality, and Enforceability

Mergers & Acquisitions / CBCL

[By Anushree Srivastava & Shravasti Yadav] The authors are students of Gujarat National Law University. Introduction In 2020, LVMH sought to withdraw its $16.2 billion acquisition of Tiffany & Co., citing a Material Adverse Change (“MAC”) and breaches of conditions due to the COVID-19 pandemic’s effect on retail. The dispute ended with a $425 million price reduction, highlighting the influence of such provisions on deal outcomes. MAC clauses are provisions in a contract that allow a buyer in a merger and acquisition (“M&A”) deal to walk away from the transaction if a material adverse event happens to the target company between when the agreement is signed and the transaction is completed. MAC clauses protect a buyer against unexpected detrimental alterations to the business of a target company. However, these provisions in the M&A contract must be read in conjunction with other contractual provisions therein, as they collectively provide for the buyer’s possible grounds for withdrawal. Specifically, those clauses which are similar to MAC clauses, for instance the clauses addressing conditions for execution, backing out and damages in the event of backing out from the contract. It is in light of this that, this blog examines three critical intersections that shape modern MAC clause drafting: its interplay with break fee provisions, bring-down conditions, and the debate between quantifiable versus subjective materiality thresholds. Indian jurisprudence on the MAC clauses is limited, given that they are rarely litigated and often lead to price renegotiations rather than a termination, which can lead to litigation. However, Delaware courts have continuously refined their interpretation of MAC clauses, making it crucial for M&A practitioners to understand these relationships. Risk Allocation Mechanism in M&A: Break Fees and MAC Clauses A Break Fee, or a termination fee, is a penalty paid in M&A transactions if the seller withdraws from the deal, compensating the buyer for the time and resources invested in negotiating the deal. The existence of a break fee and MAC clause in a contract provides the parties with opportunities to develop timing strategies. For instance, buyers may deliberately delay closing of the contract to see if market conditions trigger a MAC (additionally, a MAC claim requires the proof of adverse change over a period of time) while knowing the break fee provides a financial safeguard if their MAC claim is unsuccessful. Conversely, sellers might rush to close the transaction before potential adverse circumstances may materialize, to avoid MAC disputes altogether. It has been observed that MAC clauses are more frequently enforced during periods of high market volatility, as was evidenced during the 2008 financial crisis and the COVID-19 outbreak. Conversely, break fee clauses are typically invoked in stable market conditions. This is so because, in case of market volatility, the buyers face higher uncertainty about the target’s future performance, making MAC clauses more valuable as an “insurance policy” against deterioration. In case the market is stable, break-fee clauses are enforced because there are fewer opportunities to invoke MAC. This reflects the optimal relationship between break fee size and MAC clause scope. Further, does a more restrictive MAC clause (harder to invoke) correspond with a larger break fee? Usually, a higher break fee is paired with a broader MAC clause, as issues are expected to be addressed under the MAC clause without triggering the fee payment. This higher fee protects against third-party offers and incentivizes sellers to enforce the contract, enabling the buyers to exit without significant penalties during extraordinary events like COVID-19. For instance, in some highly volatile market periods, we’ve seen larger break fees tied to MAC clauses to discourage opportunistic deal abandonment. On the other hand, a reverse break fee is a penalty that a buyer pays if they cannot complete the transaction due to reasons within their control. The inclusion of a reverse break fee with a MAC clause provides buyers a clear monetary framework for evaluating the risk of invoking the MAC clause. This fee acts as a cost of exercising the MAC “option” if market conditions deteriorate, serving as a de facto limit on their deal risk. Moreover, courts also tend to construe these provisions cumulatively rather than in isolation. For example, some jurisdictions such as the Delaware Courts consider a higher break fee combined with a wide MAC clause as an unconscionable penalty rather than a legitimate liquidated damages provision. In such cases, the MAC clause is viewed merely as an attempt to avoid paying the break fee. This was the case in Sallie Mae Litigation where the purchaser sought to trigger the MAC clause to escape paying higher reverse break fee. Conversely, a broad MAC clause with a low break fee provides buyers more flexibility to exit under adverse conditions. Risk Management through Intersection of MACs and Bring-Down Conditions A bring-down condition requires parties to confirm that the representations and warranties in an agreement remain accurate on the closing date. MAC clauses allow buyers to escape unforeseen crises, while bring-down conditions ensure a seller’s representations remain accurate until closing. Their interplay influences negotiations and transaction risks. The standards of evidence to prove a breach of representation differ significantly from those required to establish a MAC, creating a strategic option for buyers: pursue the more specific representation breach or establish the more general but higher-threshold MAC. Courts in different jurisdictions interpret the interaction of these provisions differently. Delaware courts tend to interpret them as complementary but distinct provisions, while some international jurisdictions, such as the England Courts view them as more integrated concepts. M&A agreements often include a MAC provision to adjust the bring-down conditions regarding its business operations by specifying that nothing material enough to cause a MAC has occurred, thereby establishing a materiality threshold. This is usually done through negative modification or affirmative modification. The MAC clause qualifies a negative statement as “The holding’s records contain no inaccuracies except for those not expected to result in a MAC.” On the other hand, an example of affirmative modification is that “The Holding is not a party to any litigation

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Author name: CBCL