Author name: CBCL

Neo-Banks and Its Regulations: How Long Can the Present Symbiotic Arrangement Sustain

Leave a Comment / Banking Law /

[By Avinash Kumar] The author is a student of Dr. RML National Law University.   INTRODUCTION All it took two and half decades, the internet and digital technology have become the backbone of modern living. Much like the world grew from conventional settings to digital platform-based service, the financial setting worldwide is going through a sweeping revision primarily driven by fast-paced innovation in digital technology. The semblance of conventional brick-mortar banking institutions with the growing distrust ever since the global financial crisis of 2008 is slated to be phased out by advancing FinTech institutions. At the frontline of this changing time are neo-banks, financial service providers breaking new ground in banking services. To grasp what the future of banking will look like in the years to come, this blog points out the current position of neo-banks and a significant opportunity to bridge the credit gap through accessible funding options. It further highlights the current regulation of which neo-banks face operational challenges depending on traditional banks. The paper explores several countries that have dedicated licenses for neo-banks and how the evolution of digital banking has the potential to shape India’s FinTech market. In general terms, neo-banks are not “banks,” but technology driven Financial Service Providers FSPs that rely on relationships with accredited local banks to provide financial services. They are distinct from traditional banking institutions by exhibiting their digitally exclusive operations and carrying out without storefronts i.e., no physical branch presence. The worldwide unfolding of neo-banks, around 2013-2015 in UK and Germany was rooted mainly by advancing technology, changing customer base especially from Gen Z preferring convenience and personalised experiences and a business model focused on lower interest rates. The global neobank market was worth $ 18.6 billion in 2018 and is expected to accelerate at a compounded annual growth rate (CAGR) of around 46.5% between 2019 and 2026, generating around $394.6 billion by 2026. India’s financial landscape also mirrors the dynamics of digital transformation seen in other parts of the world. In India neo-banking sector has gained strong momentum with the presence of competitors like Jupiter, Fi Money, Open and Razorpay X. The early emphasis of these banks is not only a market capture approach but also a sign of systemic weakness within the existing banking structure. Consider the TransUnion findings of 2021 which reports more than 160 million consumers were deemed credit underserved in India lacking access to mainstream financial products due to thin credit files or low formal engagement. The credit inaccessibility is even more burdensome in the Micro Small and Medium Enterprises (MSME) sector. An EY report states that among the 64 million MSMEs, there is an overall finance demand of around $1955 billion. This demand is supported by a leverage ratio of 3.8, i.e, for every $1 they put in equity, they require $3.80 in loans. Yet, only 14% of these MSMEs can secure credit from conventional banking sources. This leaves an estimated $1,544 billion in the form of debt financing of which nearly 47% MSMEs’ debt demand is unaddressable due to low financial viability. The debt leads them to rely on shadow lenders, charging a higher rate of interest. These gaps have created a shortfall of $819 billion, of which $289 billion is currently backed by private banking institutions. There remains an unmet financial debt of $530 billion offering a window entry point for FinTech companies and Non-Banking Financial Companies (NBFCs). REGULATORY MECHANISM- THE PARTNERSHIP MODEL Neobanks in India are not yet licensed by the Reserve Bank of India. Section 22 of the Banking Regulation Act, 1949 stipulates that to conduct bank operations an RBI License is required. With RBI’s “Mobile Banking Transactions in India – Operative Guidelines for Banks (2014)” Circular, the functioning of neobanks is further challenged for Clause 6 specifies physical presence of bank to offer the mobile banking services. These FSPs (neo-banks) partner with RBI-approved banks and NBFCs to deliver banking solutions. Under this mechanism, the core financial services such as accounts, deposits, and savings instruments are provided by the partner bank or NBFC managing customers’ funds under RBI oversight. To go with that, neo-banks technology driven interface offers a user-centric platform leveraging AI and data analytics for financial services like account opening, payments, expense tracking and personalised insights through mobile and online platforms. This Banking-as-a-Service model outlined in Section 4 (Authorization of Payment Systems) as per the Payment and Settlement Systems Act, 2007 ensures customers’ digital interaction through neo-bank with the core banking operations limited under the purview of licensed partner banks. Alongside the sector-specific regulation under the RBI, all of this brings a layered “principal-agent” relationship, complicating the division of regulatory duties and liabilities. The lending service provider (the agent) incurs compliance risk and reputational damage if the licensed partner bank (the principal) faces RBI action, and neo-bank services can be abruptly disrupted. Consider the RBI action against the State Bank of Mauritius back in 2023. The disruption affected Niyo’s international forex services, leaving users stranded without any direct recourse overseas. With the regulatory licensed bank that bore scrutiny, this highlighted neobanks lack direct regulatory oversight for cybersecurity and incident response, relying instead on partner banks, highlighting a compliance and consumer protection gap in the current partnership model. The Information Technology Act, 2000 highlights the legal recognition of electronic records, electronic signatures and electronic contracts (Sections 4, 5, 10) essential to the paperless operations of neo-banks. Section 43A imposes liability on entities for compensation where the failure to implement reasonable security practices results in the misuse or loss of sensitive personal information. The Act also outlines various cybercrimes i.e, identity theft under Section 66C, punishment for information breach of a lawful contract under Section 72A, and liabilities applicable to neo-banks for security lapses. While neo-banks operate as technological innovation agents in this partnership, it is yet to be determined how they will comply with user data privacy, likely the Digital Data Protection Act, 2023 and AML/KYC regulations over time if granted a license. Guidelines on Outsourcing of Financial

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SEBI Flexes Its Muscles Again: Freezing Demat Accounts

Leave a Comment / Capital Markets and Securities Law, Employment Law, Technology Law /

[By Priyanshu & Mahek Gupta] The authors are students of Hidayatullah National Law University, Raipur. INTRODUCTION In a recent regulatory crackdown, the Securities and Exchange Board of India (‘SEBI’) froze the demat accounts of the designated persons in the Gensol Engineering fiasco related to diversion of loans and corporate misconduct. The Board exercised its power to freeze someone’s account for non-compliance with the SEBI Regulations from circular number SEBI/HO/CFD/CMD/CIR/P/2018/77 dated May 3, 2018, which outlines the procedure for suspension or revocation of trading in specified securities in case of non-compliance with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘LODR Regulations’).  On May 9, 2025, the affected persons appealed to the Securities Appellate Tribunal (‘SAT’) to direct SEBI to unfreeze the unlisted securities held by them in such demat accounts. The appeal presented a critical question before the SAT: Can SEBI validly freeze demat accounts, particularly those holding unlisted securities? Given the increased use of demat-based enforcement and the lack of clarity on its limitations, the authors attempt to investigate this regulatory gray area, its repercussions, and comparative views on SEBI’s authority. WHY GENSOL ENGINEERING LTD. IS IN TROUBLE? Gensol Engineering Ltd. (‘Gensol’) is currently under serious financial and regulatory trouble. On 15 April 2025, the SEBI passed an interim order, prohibiting Anmol Singh Jaggi and Puneet Singh Jaggi, the promoters of Gensol, from occupying board positions or accessing the securities market. SEBI also ordered a freeze on their demat accounts and shareholding. SEBI alleged that a major chunk, i.e., Rs. 262 crores of a loan for Rs. 978 crores taken from various creditors for the purchase of EVs was diverted for personal use. The order was based on credit agencies downgrading their rating for Gensol on the issue of a falsified debt servicing track record and concerns over corporate governance practices. The order was challenged before the SAT, however, the Tribunal refused to grant relief, noting that SEBI was within its rights to take preventive steps and instructed the regulator to pass a confirmatory order within four weeks. Soon after, the Indian Renewable Energy Development Agency (‘IREDA’), one of the creditors of Gensol, filed an insolvency application against Gensol under Section 7 of the Insolvency and Bankruptcy Code, claiming a loan default of ₹510 crore. The National Company Law Tribunal (‘NCLT’) issued a notice to the company to file its reply and scheduled the next hearing on June 3, 2025. Most recently, Gensol’s Chief Financial Officer, Jabirmahendi Mohammedraza Aga, resigned, citing that his decision was linked to internal turmoil and the ongoing regulatory probes. POWERS OF SEBI: DOES IT INCLUDE FREEZING OF DEMAT ACCOUNTS? The enormous powers of SEBI are not unknown to the securities market. In Sahara India Real Estate Corporation Limited v. SEBI, the Supreme Court affirmed that the Board has a vast range of powers under the Securities & Exchange Board Act, 1992 (‘the Act’). The Board is given enormous responsibilities under the Act to develop and regulate the securities market. Section 11A of the Act specifically empowers SEBI to take such measures as it deems fit in the interest of the investors. Banning parties from trading, freezing of demat accounts, or holding of securities are activities bound to severely impact any investor. Three notable circulars were passed by SEBI on November 30, 2015, October 26, 2016, and finally, the last on May 3, 2018. The third and last circular deals with the freezing of securities of the promoter(s) or promoter group. It is pertinent to refer to the circular passed on May 3, 2018, that superseded the earlier two circulars. Specifically, the circular proposes three main actions against an entity that fails to follow certain provisions of the LODR Regulations. They are – imposition of fines under Annexure I, freezing of holdings of the promoter(s) or promoter group as per paragraph 5 of Annexure I, and suspension of trading in the shares of such entity as per paragraph 1 of Annexure II. The holdings of the promoter(s) or the promoter group are generally frozen if the fine(s)/penalty imposed based on non-compliance with the LODR Regulations are not paid by the concerned entity. WHY DOES THIS POWER STAND OUT IN COMPARISON TO OTHER REGULATORS? The power of SEBI directing the depositories to freeze demat account(s) of an investor is rather unique. It is pertinent to compare such power with the powers of other financial market regulators across the world, especially the United States of America and the United Kingdom, as the Financial Regulators operating in these countries are believed to be some of the most powerful financial market regulators. USA Arguably one of the most powerful financial markets regulators, the United States of America’s Securities and Exchange Commission (‘SEC’) has never directly ordered the freezing of someone’s demat account. Such actions usually require judicial sanction. There have been numerous occasions on which the SEC has sought freezing of assets or accounts of individuals from a district court. In a press release dated June 21, 2021, the SEC notified an action of asset freeze on two individuals on the charges of offshoring of funds to the shell companies and defrauding the investors. The key point to note here is that the said action was taken in pursuance of an emergency court order, and the SEC did not act on its own. Similarly, in a press release dated April 14, 2017, the SEC announced a freeze of assets in two brokerage accounts that were used to generate a benefit of more than $1 million in an alleged insider trading case. The SEC undertook this move after getting an emergency court order from the District Court for the Southern District of New York. It is apposite to note that the SEC has never obtained such an order for non-disclosure of information. The Commission usually obtains such orders in cases of, but not limited to, fraud and insider trading. UK When it comes to the United Kingdom’s Financial Conduct Authority (‘FCA’), their powers are similarly constrained. As per

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Ticking Boxes or Transforming Culture? The MCA’s 2025 Posh Overhaul

Leave a Comment / Company Law /

[By Arjun Kapur & Sameep Baral] The authors are students of Maharashtra National Law University Mumbai. Introduction What does it really mean for a workplace to be “safe”? Is it the lack of complaints or a culture where employees feel comfortable raising issues? In India’s fast-changing corporate world, where investor expectations, public scrutiny, and employee voices unite, companies discover that silence is not always beneficial. The Ministry of Corporate Affairs (MCA) has recently pushed for more transparency and accountability, particularly regarding workplace behaviour. A clear example appeared in September 2023 when the Registrar of Companies in Karnataka fined Ceeta Industries for not revealing the structure of its Internal Complaints Committee (ICC) in the Board’s report. Introduced in 2013 after the Supreme Court’s Vishaka judgment, the POSH Act requires employers to keep a workplace free from sexual harassment and to set up formal ways to address complaints. For example, every organization needs an ICC, with at least half of the members being women. Over the past ten years, the law has become stricter and broader, including requirements for regular training, applying to more types of businesses, and setting tighter deadlines. For businesses, following POSH has shifted from a moral choice to a legal necessity within corporate governance. In this context, the MCA’s 2025 amendments indicate a significant change in the reporting requirements under POSH law for corporate entities. By requiring detailed POSH disclosures in the Board report, regulators expect companies to go beyond basic compliance. This blog discusses the regulatory shift from the 2025 MCA amendments, discussing its practical effects on corporate POSH compliance. It also identifies issues in compliance and suggests fundamental reforms to rethink workplace safety as part of corporate governance, rather than just a legal requirement. Understanding the 2025 MCA Update One can see this enforcement trend in the landmark Ceeta Industries case. In September 2023, the Karnataka Registrar of Companies penalized Ceeta Industries for not including the required Board Report statement on its POSH ICC. The company faced fines in several lakhs of rupees, and its key officers were also penalized. This case highlighted that even minor procedural lapses under the POSH framework can lead to strict enforcement. By law, any default in reporting can lead to a penalty of up to ₹3 lakh on the company and ₹50,000 on each defaulting officer per year. This underscores the financial stakes of POSH compliance. Building on this, the MCA’s Companies (Accounts) Second Amendment Rules, 2025, effective July 14, 2025, represent an apparent policy shift. Unlike the previous compliance regime, which simply confirmed the ICC’s structure in the annual report, the new rules require detailed data-driven disclosures. Under the amended regulations, every company must now report the number of sexual harassment complaints received during the year, how many were resolved in that year, and how many are pending beyond 90 days. The Board’s Report must also state that the company has met the POSH Act’s requirements regarding its ICC formation. This increase in disclosure turns POSH compliance into a performance measure. Companies must carefully track and record case data since these figures will become part of public filings. The data-driven approach raises the stakes, many unresolved or pending cases can indicate governance problems and damage a company’s reputation, while mistakes or missing information in reporting can lead to legal and financial penalties. This update effectively transforms POSH reporting from a simple formality into a significant corporate responsibility and risk management source. Why This Update Signals a Governance Shift By requiring transparency on workplace harassment statistics, the 2025 rules bring POSH into the spotlight. Annual reports will now feature POSH disclosures alongside financial results and governance statements. This change allows the independent directors, auditors, and investors to identify trends in the data. For instance, an increase in complaints or many pending cases may raise questions about oversight or company culture. Board members might actively seek explanations when POSH figures do not meet expectations, turning a previously hidden issue into a key topic of corporate governance. Annual board reports are usually public documents, making each metric visible to stakeholders and the media. For institutional investors and ESG analysts, these disclosure numbers become the new social metrics. Poor outcomes or unresolved cases could impact a company’s social rating and reputation. Leading governance frameworks consider worker safety a vital issue. Companies are now providing standardized data in this area. Because these reports are public, a pattern of low complaints or numerous backlogs will be noticed. This visibility creates a feedback loop. Companies must review their own processes and culture. Boards may require a closer look at delayed case resolutions or rethink ineffective training programs. Rather than being hidden in the Human Resources (HR) files, POSH has become part of regular corporate reporting. The 2025 update marks a significant step in governance, acknowledging that employee safety and respect are essential for a company’s integrity and performance. Corporate Blind Spots in POSH Despite the POSH law and its roots in the Supreme Court’s Vishaka judgment, many Indian companies view compliance as just a simple checklist. It is common to find ICCs that do not function well. For example, they may meet only occasionally, lack diverse representation, or fail to conduct proper training and awareness programs. Some organizations meet the requirement for the number of women and include an HR nominee, but they do not give the ICC the authority to act independently. Employees often do not know their rights or fear backlash, leading to many incidents going unreported. Poor record-keeping and documentation mean that even submitted complaints may go unnoticed. HR departments that manage ICCs can create conflicts of interest when investigations involve their managers. Employees may wonder if an HR-led committee can handle the case fairly if the accused is a supervisor. In some cases, victims perceive the process as biased, which fosters a culture of silence. From a governance perspective, a reported count of zero complaints in a year can be just as concerning as a backlog. This may reflect fear or

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Hey Siri! Sue the Car: Understanding Standard Essential Patents and India’s Antitrust Policy

Leave a Comment / Competition Law /

[By Rishita Chatterjee] The author is a student of Jindal Global Law School, O.P Jindal Global University. Part I: Introduction to India’s Contentious Affair with Standard Essential Patents India’s digital economy is growing at an unseen scale, confirming that rapid technological innovation can have an impactful, lasting leapfrog effect, inducing economic growth even as physical infrastructure continues to lag. As the digital economy goes through this seismic shift, a pertinent question surfaces whether India is equipped for this growth. An important part in India’s digital economy toolbox is Industrial Internet of Things (‘IoT’) – a market that is to surge over 28 Billion USD by 2033 and consequently the connected vehicles market poised to become a USD 27 Billion industry by 2033. This transformation is enabled by a common language of standardized technologies like but not limited to 5G, LTE and Wi-Fi. The critical function of interoperability is safeguarded by a rather intricate framework of Standard Essential Patents (SEPs); however, the enforcement of these patents has proven to be a conundrum for both antitrust and patent regimes. Although not defined under the Patent Act, courts in India ensured robust discourse around it to ensure proper adjudication. In simple terms, a SEP is defined as a patent whose claim encompasses technology that is deemed “indispensable for the implementation of a technical standard”. This invites a very foundational legal tension. On one hand, the patent regime confers upon the patentee a statutory monopoly, including an “exclusionary right” to prevent third parties from utilising the patent. Conversely, the principles of antitrust law are designed to structure the exercise of market power derived from this status, ensuring that essential technology functions within a competitive market framework. It is also crucial to recognise that Indian law and policy on SEPs has been forged almost exclusively in the crucible of telecommunication disputes, a market dominated by a handful of mobile phone giants as licensors and handset manufacturers as the primary licensees. This results in a legal framework tailored to the said industry, however implementing this in the industrial landscape of IoTs and the automative sector places the licensing model in a classic  “square peg in a round hole” conundrum. This paper delves further into this problem, attempting to underscore policy implication, value propositions and the future of India’s regulatory role in the digital economy. Part II: Does India have a ‘Legacy Framework’ for SEPs ? The first leg of SEP litigation in India was dominated by a protracted legal battle between the Swedish telecom giant Ericsson and Indian handset maker Micromax and Intex. In response to SEP proprietors seeking compensation for investments primarily on R&D, Indian courts developed a distinctive equitable remedy of pro tem deposits, which orders a temporary and provisional financial arrangement pending the financial resolution of a dispute. The mechanism secures the patentee’s interest during litigation via a court mandated payment structure. The Delhi High Court pioneered these conditional injunctions, making relief contingent upon securing fair, reasonable and non-discriminatory (‘FRAND’) licensing fee. A reading of the initial Ericsson v Micromax decision shows that the judiciary favors to recognize the complementary, rather than the contradictory nature of the Patents Act, 1970 and the Competition Act, 2002, enabling the Competition Commission of India (‘CCI’) to launch investigations into alleged abuse of dominance by SEP holders. The case further highlights the remedies that are put forth by the respective statutes, while the Patent Act provides for in personam remedies (like compulsory licensing for specific party), the Competition Act provides for in rem remedies (such as market wide cease and desist orders, notably structural remedies). A. Trouble in Paradise? The balance in jurisprudence has been thrown into disarray. The landmark judgment by a Division Bench of the Delhi High Court pertaining to Ericsson and Nokia cases held that the Patents Act of 1970 constitutes a separate and distinct self-content law that effectively trumps the jurisdiction of the Competition Act of 2002 in SEP licensing transactions and the enforcement of patent rights. The judgment, appealable before the Supreme Court of India, has created unprecedented uncertainty. If upheld, it would considerably reduce the adjudicatory function of the CCI, thus challenging the ability of the antitrust regulator to police potentially anti-competitive licensing conduct by dominant SEP owners. Looking back  at the telecommunications conflict, arises a prevalent licensing pattern: the licensing of the end-product, that is, the mobile phone. This approach directly gave rise to the central, and contentious, disagreement regarding the proper royalty base. Two competing principles largely characterize this conflict. The Smallest Saleable Patent Practicing Unit (SSPPU) principle argues that a FRAND royalty must be determined based on the value of the smallest unit that utilizes the patented technology, e.g., the cellular chipset. Supporters of this approach, as established in seminal U.S. case law such as LaserDynamics v. Quanta Computer, argue that this approach avoids the patent owner from appropriating value associated with discrete innovations, branding, and features integrated in the final product. In contrast, the Entire Market Value Rule (EMVR), an approach frequently adopted by SEP owners, argues that the royalty should be derived from the entire retail value of the final device. Supporters of this approach found their position grounded in the argument that the standardized connectivity is the key feature driving the overall market value of the product and consumer demand. Adopting the EMVR route, could potentially inflate end device costs, slowing mass adoption of crucial technologies like 5G. The SSPU principle aligns for India’s national objective of prioritizing widespread digital penetration, encouraging lower licensing costs, fostering affordability and accelerating the very technological integration essential for building infrastructure. B. Bespoke or All-Purpose Competition: The Value Chain Conundrum This legacy design, tailored to smartphone industry, is poorly suited for India’s digital future. A radical redesign of markets is the very first real issue. Telecom wars were a rather concentrated industry of a few dozen industry behemoths around the world. The IoT ecosystem continues to grow, beyond what the infrastructure can handle, and key applications are emerging

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Progress With Pitfalls: Rethinking CCI’s New Cost Regulations in Digital Markets

Leave a Comment / Competition Law /

[By Priyal Jain & Harshita Jindal] The authors are students of Rajiv Gandhi National University of Law.   Introduction Digital platforms have emerged as a focal point of debate in the evolving digital economic landscape, especially in the context of predatory pricing, where determining the cost of services remains an idea that defies consensus. It has again made headlines as the Competition Commission of India (CCI) notified the (Determination of Cost of Production) Regulations, 2025 (hereinafter, “New Cost Regulations”) which replaced its 2009 predecessor. These regulations assume high significance as they try to cater to the changing pricing strategies that have been on the rise with the advent of digital markets. The Indian Competition Watchdog, i.e., CCI, has been using the dual test of assessing predatory pricing as provided in the case of MCX v. NSE, focusing on prices below cost measure and the likelihood of recovering losses incurred. The assessment criteria needs to be outlined with refined discernment as deep discounting, which is done to expand the network of customers by giving heavy discounts and incentives, is a fundamental characteristic of digital markets and often leads to atypical deductions while determining predatory pricing in these markets. Consequently, to regularize the concept of cost, CCI adopted a mechanism based on the Areeda-Turner test, according to which the price of the product should be below Average Variable Cost (“AVC”) to establish predatory pricing. However, jurisprudence laid down in Bharti Airtel and Fast Track Call Cab (Ola case) takes an opposite stance where zero pricing was not a determining factor in accessing predatory pricing. These cases mark differential standpoints taken by CCI in applying cost regulation to e-commerce or digital platforms and create an ambiguous haze around the subject. This blog delves into the implications of the newly introduced cost regulations on the digital marketplace and what dual-edged effect it can create for the future of pricing strategies. Analysis of the New Cost Regulations The CCI in its recently notified New Cost Regulations has brought several changes with respect to the framework of cost determination, which it has also explained through its General Statement, used to assess predatory pricing in any market. The new regulations have amended the definitions of various cost benchmarks like Long Run Average Incremental Cost (“LRAIC”), Average Avoidable Cost (“AAC”), etc., removed the term market value, and introduced Average Total Cost. Moreover, CCI has adopted a sector agnostic, cost based framework allowing for case-by-case assessment of predatory pricing, as proclaimed by the General Statement. Predatory pricing is one of the many pernicious forms of abuse of dominance where a dominant entity, sets the prices of goods/services below the cost of production where an “as-efficient competitor” could not match the prices without incurring significant losses. Such conduct is taken by a dominant enterprise to drive existing market players out of the market, thereby hampering competition. Thus, to establish a case of predatory pricing, establishment of a dominant position in the relevant market, pricing below cost, and intention to reduce or eliminate competitors is essential. To satisfy the pre-requisite of demonstrating pricing below cost, an appropriate measure of determining the cost of the product is imperative, hence, CCI has formulated the Cost Determination Regulations to provide a structured and uniform framework for assessment of the same. The Cost Determination Regulations, elucidate various cost measures like LRAIC, AAC, AVC, etc., although CCI has only been using AVC to examine whether the pricing was below cost or not. However, now with the New Cost Regulations accompanied by the General Statement, CCI has stated that it will examine predatory pricing using other cost measures as well depending upon each case. How will CCI translate its statement into practice is yet to be seen. A Forward Step: Impact of the New Cost Regulations on the Digital Market Digital markets are characterised by certain unique features with respect to their cost and prices due to which the traditional Areeda-Turner or AKZO rule can notbe applied to them. The new regulations have opened a fresh chapter in competition compliance by such industries. CCI has clarified that the case-by-case assessment would enable the consideration of unique features and evolving dynamics of digital markets while evaluating predatory conduct. The cost structure of digital markets, particularly characterised by network effects, is quite different than most other industries since they are distinguished by higher fixed costs, lower variable costs, larger common and joint costs, etc. For instance, Instagram incurred high initial costs in developing the app but it does not incur any additional cost with an increase in the number of users, Netflix incurs costs for acquiring global content, and building algorithms and interface, however, these costs are not tied to any individual subscriber or content piece. Hence, in such a kind of market using the conventional AVC concept contradicts the intended reasoning. In digital markets, relying exclusively on the cost benchmark established in the AKZO rule may allow the pricing strategies to bypass scrutiny as prices can easily be set above AVC and still cause genuine harm to the competition. In various judgments of India as well as European Union (“EU”) , courts have concurred with the above-mentioned rationale. In MCX v NSE, the Director General report stated that since stock exchanges work on the basis of the high level of network externalities and incur huge sunk costs, the use of ATC or LRAIC to assess predation in their cases is more justified. Moreover, in the Qualcomm case, the General Court of EU while endorsing the LRAIC standard, expressed that technologically intensive markets are marked by substantial fixed costs, primarily from R&D, while variable costs remain low and since these fixed costs are closely associated with the specific product sold, LRAIC would be a suitable measure to assess below-cost pricing as it incorporates both fixed and variable costs along with the sunk cost. The European Case of Post Danmark also establishes that in certain cases pricing below AAC and AIC displays evidence of a plan for eliminating competitors

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AI’s Market Dominance: Built on Data, Driven by Control

Leave a Comment / Capital Markets and Securities Law /

[By Vashmath Potluri & Shubhranshu] The authors are students of NALSAR, Hyderabad.   Introduction In December 2024, Asian News International (ANI) filed a copyright infringement suit against OpenAI, alleging that its large language models (“LLMs”) had reproduced ANI’s news content without consent. While the case is widely perceived as a test of India’s copyright regime, it reveals a deeper and more systemic competition law issue: OpenAI, backed by Microsoft’s infrastructural and financial resources, enjoys exclusive control over high-quality training data through Reddit and Stack Overflow, and privileged integration into Microsoft’s software and cloud ecosystems as its models power AI features across Microsoft 365 Copilot and GitHub Copilot via the Azure OpenAI Service.. In 2024, over 60% of professionals in India reported using tools like ChatGPT and Microsoft Copilot, signalling the rapid mainstreaming of generative AI. Yet Indian AI startups attracted only $92 million in funding that year, compared to $13 billion in the United States, an imbalance that highlights the structural disadvantage domestic firms face in accessing essential AI inputs like data, computing, and distribution. This article uses the ANI v. OpenAI dispute as a lens to introduce a competition law perspective that has been largely overlooked. It argues that OpenAI’s conduct may amount to abuse of dominance under Section 4 of the Competition Act, 2002 (“The Act”), and calls for a suo motu investigation by the Competition Commission of India (“CCI”). This argument proceeds in two parts. First, it defines the relevant market as upstream and downstream, comprising access to training data and development of Application Programming Interface (“API”) which are software tools that enable developers to integrate AI models into their products and services, to establish a denial of market access and vertical leveraging which refers to the use of dominance in one market, such as access to data, to gain an unfair advantage in another, such as enterprise-facing AI services. Secondly, it highlights doctrinal gaps in the Act to deal with non-pricing exclusionary conduct, which conduct restricts rival participation not through higher prices, but through control over essential inputs, technical lock-ins, and bundling arrangements. Accordingly, it proposes a two-pronged reform drawing inspiration from the EU, UK, and USA to strengthen the ex-ante framework of India’s competition regime in the era of AI. Delineating the Relevant Market: A Layered Approach A scrutiny of potential abuse of dominance by the CCI against OpenAI should begin with defining the relevant market under Sections 2(r), 2(s), and 2(t) r/w 19(7) of the Act. These sections together provide for traditional factors like substitutability, price sensitivity, and consumer choices, but they become inadequate in the context of generative AI, where market power is determined by access to high-quality training data and compute infrastructure. To address this, the article adopts a layered market structure: an upstream market for access to training data and a downstream market for API’s. This approach finds support in Shamsher Kataria v. Honda Siel Cars India Ltd., where the CCI held that the aftermarket for spare parts and services was distinct from the primary car market due to structural lock-in, limited alternatives, and information asymmetry. Though linked technologically, the markets were considered economically independent by the CCI. This reasoning directly applies here. In Upstream, access to high-value training data is scarce and non-replicable, granting early movers like OpenAI a durable edge. In Downstream, developers integrating proprietary models via APIs face high switching costs, limited interoperability, and opaque performance metrics. These conditions result in technical and contractual lock-ins, which create sustained reliance on the dominant provider’s ecosystem. Together, these combined features justify treating the training and deployment layers as separate, yet interrelated, markets. Upstream Market: Denial of Access to Training Data Section 4(2)(c) of the Competition Act, 2002 prohibits a dominant company from doing anything that leads to the denial of market access “in any manner.” In Umar Javeed, Sukarma Thapar, Aaqib Javeed v. Google LLC & Ors, this phrase was interpreted broadly to hold that unfair conditions, creation of technical barriers, or lack of transparency constitute denial of access. This applies directly to OpenAI’s conduct in the upstream market of generative AI, which involves access to large, high-quality datasets like news articles, coding forums, and online discussions. These data sources are essential for training LLM’s. However, the real advantage lies not in general access to data, but in control over high-quality, non-replicable datasets that significantly improve model performance. OpenAI’s exclusive deals with platforms like Reddit and Stack Overflow give it early access to high-quality conversational data crucial for fine-tuning large language models. Indian developers, however, face major hurdles: India’s copyright law lacks a text and data mining (TDM) exception, annotated datasets in local languages are scarce, and compute access remains prohibitively expensive. While there’s no formal refusal of access, these combined legal and infrastructural barriers make it commercially unviable for domestic firms to compete. This amounts to a constructive denial of market access, which constitutes an abuse under Section 4(2)(c) of the Act where exclusion occurs not through outright refusal but through systemic disadvantage. This pattern of exclusion is reinforced by OpenAI’s own GPT-4 Technical Report, which acknowledges the use of a mix of public and licensed data, highlighting the importance of access to curated datasets. Similarly, the UK Competition and Markets Authority (CMA) has cautioned that exclusive control over high-quality, non-public datasets can give certain firms an undue competitive advantage and restrict market competition. In its recent assessments of foundation models, the CMA has treated such data as a core input and highlighted the risk of market foreclosure resulting from closed data ecosystems. This framework provides a valuable basis for the CCI in applying Section 19(4) of the Act, which focuses on factors such as control over key inputs, barriers to entry, and the ability to operate independently of competitive constraints. Recognising data as infrastructure allows the CCI to identify exclusionary conduct even in markets where price or output manipulation is absent. OpenAI reflects this structure: it controls critical training data, is deeply integrated into Microsoft’s infrastructure, and

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Beyond the Named Few: Dissecting SEBI’s MII Reform Circular

Leave a Comment / Capital Markets and Securities Law /

[By Anenya & Yash Sharan] The authors are students of Hidayatullah National Law University, Raipur. Introduction On 26 May 2025, the Securities and Exchange Board of India (“SEBI”) issued a circular (“the Circular”) outlining the regulatory framework for the appointment and transition of Key Managerial Personnel (“KMPs”) within Market Infrastructure Institutions (“MIIs”), such as stock exchanges, clearing corporations, and depositories. The Circular aims to develop and enforce a better process for the appointment, re-appointment, termination, and resignation of certain KMPs in MIIs and add a cooling-off period for these KMPs so they cannot work for competing MIIs shortly afterward. It also tries to maintain consistency, transparency, and autonomy in managing MIIs using a defined process, even for Public Interest Directors (“PIDs”). Thus, it becomes imperative to analyse this circular and highlight SEBI’s reforms that seek to overhaul the framework and align India with global standards. Through this article, the author delves into the intricacies of the circular in three parts. Firstly, it discusses the major terms and tenets of the Circular and the changes it aims to bring. Secondly, it underscores the shortcomings and hurdles of the Circular. Thirdly, it also puts forth authors’ suggestions to resolve these roadblocks. Lastly, the article concludes with a summary and a way forward for moving upward and ahead. From Mandates to Monitoring: Unpacking SEBI’s Circular on MIIs Firstly, the Circular to oversee how KMPs transfer from one company to another, especially when the new institution is a competitor. With increased focus on monitoring how MIIs are run, it becomes important to enforce a sharper separation of interests and strengthen accountability in MIIs’ procedures. The Circular asks MII boards to go through formal stages with the , the main board and also seek SEBI’s approval ahead of any KMP transition. Using this system, unnecessary influence from board politics would be removed when decisions about appointments and resignations are made. KMPs within the scope of the Circular include Managing Director, Chief Regulatory Officer, Chief Technology Officer, Chief Operating Officer, and Chief Risk Officer among others, though the list may vary depending on the nature of the MII The aim is to safeguard confidential details or working methods from a person’s earlier job. In contrast to common practice, SEBI has decided that the burden of enforcing non-compete clauses belongs to the institution instead of any one individual. Hence, each MII must set up internal rules to define what counts as a ‘competing MII’ and ensure they deal with it according to relevant contractual commitments. With this regulation, SEBI is continuing to prevent a small group of individuals from gaining too much power and control in the market ecosystem. Secondly, another notable part of the Circular relates to the renewal of PIDs. PIDs are supposed to act as guardians of neutrality in MIIs’ governance. However, concerns have been increasing over their continued re-appointments which prompt questions about the independence of the institution. Now, SEBI has required that when an extension is granted, there needs to be a detailed evaluation of performance and a new approval from the regulator involved. The aim is to maintain a good mix of what was learned before and new ideas brought in. It demonstrates SEBI’s desire to ensure that public interest roles are active and not just a comfortable job for some people. Even though the initiative aims to improve accountability, some practical issues exist. For instance, SEBI has not prescribed a uniform duration for the cooling-off period. Such flexibility gives MIIs the float to select different standardisation schedules which could weaken the goal of being consistent. In addition, having the Circular go through many internal and external approvals can result in decision delays that limit the ability to respond to needs as they arise. Lastly, the scope of the term ‘key managerial personnel’ remains restricted to specific functions. In today’s digitised and risk-sensitive market environment, roles such as Chief Information Security Officer, Head of Surveillance, or Legal Compliance Officer are equally crucial. Hence, it becomes essential to assess whether SEBI’s substantial progress will effectively preserve the structural integrity of MIIs and to identify what further reforms may be necessary to ensure long-term stability and growth. Cracks in the Code: The Hidden Gaps in SEBI’s MII Overhaul and Plausible Solutions While the Circular is a watershed reform and has profound implications on the financial landscape, concerns persist over potential risks that could challenge its effectiveness. The Circular, while enhancing transparency, poses risks which this section elucidates on. Firstly, the Circular does not take into account the regulatory difference between publicly-held and privately-controlled MIIs. The Circular ensures that the selection, re-selection and cooling-off periods for KMPs are identical in all MIIs, regardless of who owns them. Such oversight matters significantly, now that private MIIs are often run by conglomerates, since this may increase the risk of conflicts, excessive regulation and policy changes. Instead of treating all situations equally such as SEBI does, the law, as interpreted in Swiss Ribbons Pvt. Ltd. v. Union of India, requires that all situations should be judged differently. The Financial Sector Legislative Reforms Commission in the financial sector also advised that the amount of regulatory oversight should depend on the ownership, size, and how connected market intermediaries are. Thus, the Circular does not take these systemic indicators into account. A plausible solution is to create a “Risk-Tiered KMP Transition Framework” that is based on how many shares are owned and the company’s history with regulators. So, when a single promoter group owns more than 25% of the MII or when the MII is a part of a financial conglomerate, as with the NSE co-location scandal, such MII should be obliged to disclose more, have longer cooling-off periods, and be audited for board independence. The Systemically Important Financial Institutions approach under Basel III and the IOSCO Principles 2 and 22 are both consistent with this method. A framework such as this would strengthen the rules that govern the markets and reassure investors about the security of India’s capital

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Balancing Risk and Reward: The Potential of Specialised Investment Funds

Leave a Comment / Capital Markets and Securities Law, Employment Law, Technology Law /

[By Siddhanth Singhi & Harsh Mishra] The authors are students of Gujarat National Law University. Introduction SEBI has propelled India’s mutual fund landscape to evolve, by introducing a new asset class, Specialised Investment Funds or SIFs. This investment class is making headlines due to its multidirectional nature of investment such as equity, debt, debentures, REITs, InvITS etc. It was brought in with the aim of “bridging up the gap that existed between Portfolio Management Service (PMS) and Mutual Funds (MF)”, and allowing the investors to increase and diversify their investment, by not just restricting themselves to the equity market through Mutual funds. It primarily caters to High-Net-Worth Individuals (HNIs) and sophisticated investors, who are well aware and informed about the market dynamics. The primary objective for the introduction of this asset class is to cater to those investors who lie between the void of PMS and MF because PMS is for the HNIs whereas the MF is more appropriate for retail investors due to its standardised structure. The PMS offers more diversification but requires high investment as it is high-risk contrary to Mutual Funds which are highly regulated and are suitable for retail investors who seek long-term returns. So, to bridge the gap and facilitate the investors to gain access to various niche markets such as real estate, energy, infrastructure etc, this asset class was conceptualised by the SEBI. It is intended for those who have higher investment capabilities than the MFs but less than the PMS, and in order to provide sophisticated investors more flexibility in investing, it allows for great diversification, ensuring regulatory oversight. The SEBI’s recent circular serves as a significant step towards addressing existing gaps in the framework. This piece aims to respectfully highlight these concerns and suggest constructive recommendations for enhancing the new asset class’s effectiveness. Overlapping of Regulations SIFs have a minimum investment requirement of Rs.10 lakhs, positioning it between Mutual Funds, PMS and Alternate Investment Funds (AIFs). AIFs function as a privately pooled investment vehicle which invests across an array of asset classes such as startups, venture funds, hedge funds etc. The significant point of contention between SIFs and AIFs lies in the fact that Category III AIF allows investment in hedge funds and derivatives, which is now being offered by SIF. Although the ticket size between both of them is vast, i.e. Rs. 10 lakhs for SIF and Rs. 1 crore for AIF, there exists a risk of overlapping between these investment vehicles as both allow investment in derivatives and hedge funds, which can lead to dilution of their identity. This is because SIFs permit up to 25% investment (Regulation 5 and 6) in derivatives and unlike AIFs, it requires less corpus to invest, which allows Fund Managers to repackage the Category III AIF as the SIF, to capture the investors with less corpus. As a result, the fund managers will have the leeway to revamp the Category III AIF as SIF, as AIF requires a large investment and has no restriction on hedging, thereby increasing risk, contrary to SIF’s 25% limit. Hedging is a risk management strategy, similar to an insurance policy, used by investors to minimise their losses by investing in a position opposite to the existing investment. This allows the investors to offset any potential risk of losing in the existing investment. (Refer here for better understanding.)This restriction has the ability to attract investors as the fund managers will try to capture these large numbers of small investors, thereby broadening the reach of SIFs. However, this can create a problem of regulatory oversight as it can lead to confusion for investors and managers in the allocation of funds. Also, SIFs can “cannibalise” the AIF/PMS, by promoting sophisticated investment strategies into retail-like structure, which might confuse the investor. It is also pertinent to note that SIFs could divert the flows of AIFs towards themselves, as it has low investment requirements with high returns. However, this poses a challenge, that the AIFs were specifically brought in to cater for the needs of HNIs, due to their ability to invest in high-intensive investment sectors, such as start-ups, venture funds, Social Venture Funds etc. Also, investors are likely to then invest more in SIFs as it is more liquid in nature as compared to the AIFs, which have a longer lock-in period. Now, if the flow of funds starts diverting from AIFs to SIFs, it will impede the development of these AIF categories, as they will not get adequate funding. Therefore, it becomes necessary for SEBI to bring in certain rules for the differentiation of AIFs and SIFs, or else the SIFs may become “AIFs Lite”. Regulatory Arbitrage With the introduction of SIFs in the market, it can potentially take over the AIFs due to their low investment barrier and tax benefits. The SIFs are taxed like the Mutual Funds, meaning investors are only liable for taxes upon redemption or sale of their investments. Therefore, MFs are taxed in the hands of investors, and this same structure is devised for the SIFs. However, unlike SIFs, Category III AIFs are taxed at every transaction, sometimes rates varying as high as 30%, and need to pay long-term or short-term tax accordingly. Furthermore, AIFs are taxed at the fund level along with being taxed on dividends. This means that despite AIFs giving high returns, there will be substantial outflows from AIFs towards the SIFs, for the reason that it has low investment requirements and are taxed similarly to Mutual funds, thereby saving a lot of money for the investor. Any prudent or rational investor having Rs.1 crore will invest in ten different schemes of SIFs, each worth Rs.10 lakhs, rather than locking in one AIF. This structure will particularly harm the Category III AIFs, as it invests in derivatives, hedge funds, and will redirect the investments coming towards it to the SIFs due to its liquid and flexible nature. This creates a regulatory arbitrage and may pave the way for SIFs to become a simplified

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Impact of Publicity and Advertising on IPOs: A Regulatory Perspective

Leave a Comment / Capital Markets and Securities Law, Employment Law, Technology Law /

[By Aditi Srivastava] The author is a student at National Law Institute University, Bhopal.   Introduction In IPOs, media plays a crucial role in disseminating information to investors who may lack the expertise to interpret prospectuses. Media coverage can influence investment decisions and IPO performance, particularly affecting the opening price on listing day. Recently, CFA Institute’s March 2025 report has brought to light the significant challenges and misleading information pervading India’s expanding financial influencer landscape, where countless individuals are increasingly turning to social media for investment guidance. The draft red herring prospectus (“DRHP”) is the most important document, which contains all the information about the company, along with the details of the initial public offering.[1] The information given in the DRHP, is mainly advertised in brief for the investors in the form of newspaper articles, videos, banners, websites etc. The Indian securities market is regulated by the Securities and Exchange Board of India (“SEBI”), a governmental body that primarily exercises its authority through the enactment of regulations. Notably, Regulation 42 read with Schedule IX of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, (“ICDR Regulations”) provides specific regulations for public communication, publicity, advertisements, and research reports related to IPOs. This article will discuss the various requirements of the advertisement rules and regulations and analyse the impact of the advertising with the help of various market studies along with the recent developments with the challenges that are faced in relation to advertising an IPO. Applicability of the regulation and its ambit Regulatory provisions governing IPO communications are structured around a temporal bifurcation, delineating between the ‘Pre-Filing Period’ (from board approval to DRHP filing with SEBI) and the ‘Post-Filing Period’ (from DRHP filing to IPO share allotment), with each period subject to distinct rules regarding permissible communications.[2] Pre-filing restrictions protect investors by curbing premature promotions and unverified information, preserving market integrity. Post-filing rules ensure timely, accurate disclosures while preventing deceptive or manipulative practices, balancing investor information needs with fair, transparent market conduct. Within the context of these regulations, ‘Public communication or publicity material’ and ‘Advertisement’ are construed expansively, encompassing corporate and IPO advertisements of the company, documentaries about the company, periodical reports, press releases, newspaper insertions, and films in any print or electronic media, radio, television programs etc. Navigating the Publicity during the Pre-Filing Period and Post-Filing Period Prior to filing the DRHP, advertising must be consistent with established company practices, defined as the company’s historical approach to communicating with the public and its stakeholders. Any deviation necessitates a prominent disclaimer indicating that the company is ‘under process of filing a DRHP,’ contingent upon necessary approvals and prevailing market conditions.[3] This disclaimer must be presented legibly and with a prominence commensurate with the communication. All advertising materials, including recirculated materials, are subject to pre-clearance by Lead Managers and legal counsel of the company preparing for the IPO.[4] During this pre-filing period, advertisements are prohibited from referencing the IPO, except for the disclaimer, or alluding to share valuation or future financial projections. Within two days of filing the DRHP with SEBI, companies must publish a public announcement in widely circulated English, Hindi, and a regional language newspaper.[5] This informs the public of the filing and solicits feedback for SEBI regarding the DRHP’s disclosures. The RHP is the final version of the preliminary prospectus, incorporating SEBI’s observations and approvals on the DRHP. After filing the RHP with the jurisdictional Registrar of Companies (“RoC”), a pre-IPO advertisement is mandated in the same newspapers, formally announcing the forthcoming IPO. If the RHP doesn’t include the price band (share price range), a separate price band advertisement is obligatory, published at least two working days before the IPO opens.[6] This price band advertisement, disseminated through the same newspapers as the pre-IPO advertisement, must specify the floor price or price band, incorporate relevant financial ratios for both ends of the band, and direct investors to the ‘Basis of Issue Price’section in the RHP, which elucidates the pricing rationale.[7] Following DRHP filing, advertising (excluding product/service advertisements) must prominently disclose the company’s IPO proposal and DRHP/RHP/Prospectus filing with SEBI/RoC. It must also state where these documents are accessible online (SEBI and Lead Managers’ websites).[8] A prescribed disclaimer, adapted for each IPO stage, must be legible and commensurate with the communication, and confined to factual information from the filed documents, precluding projections, estimates, forecasts, or extraneous material. The requirement for advertising to align with established company practices before filing the DRHP ensures that communications remain factual and consistent, preventing companies from using promotional content to mislead or unduly excite investors before regulatory review. Formats for IPO advertisements principal restrictions Pre-IPO advertisements, IPO opening and IPO closing advertisements have to be in the format and contain the minimum disclosures as specified in Parts A, B and C of Schedule X of the ICDR Regulations respectively on the letterhead of the Company along with details prescribed under Section 12(3)(c) of the Companies Act, 2013.[9] Any advertisements which contain highlights or information, other than the details contained in the format as specified in Parts A and B of Schedule X of the ICDR Regulations shall contain risk factors which outlines the potential risks and uncertainties associated with investing in the company and the IPO, such advertisements, must also comply with the provisions of Section 30 of the Companies Act, 2013, which require disclosures regarding the Company’s objects as per its memorandum of association, the liability of members, the amount of share capital of the Company, the names of the signatories to the memorandum of association and the number of shares subscribed for by them and details of the capital structure of the Company.[10] Stringent guidelines, in line with Schedule IX of the Act, govern all company communications during the IPO process, aiming for transparency and preventing misleading promotion. Routine business communications are allowed but cannot promote the IPO, the closure announcements are permissible only after lead manager confirmation of sufficient subscription, registrar certification, and completion of allotment. Website content must align with

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