Author name: CBCL

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

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

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

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

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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Addressing Gaps in Indian Shareholder Litigation: The Imperative for Double Derivative Suits

Company Law /

[By Dhiren Gupta] The author is a student of Rajiv Gandhi National University of Law.   Introduction Evolution of the Indian corporate structure has gone through several stages. From the Companies Act of 1956 to the economic reforms of 1991, which underscored the need for greater corporate transparency and accountability, which was addressed by bringing in the Companies Act, 2013. A plethora of changes were bought in by the new legislation which imposed additional compliances on the companies, but the issue of shareholder litigation persists due to the sophisticated growth of corporate malpractices for which the current legal system seems increasingly ill-equipped. There has been a large number of cases pertaining to corporate mismanagement and fraud, where the shareholders, especially the minority, have suffered due to Sections 241, 242 and 245 being riddled with procedural flaws leading to an excessive burden of proof on the shareholders. In this piece, the author will discuss the shortcomings of shareholder litigation in India and how improvements can be made while analysing different jurisdictions and how they deal with derivative and double derivative suits. Shortcomings of the Indian Shareholder Litigation System The inclusion of Sections 241, 242 and 245 was a step forward for corporate litigation in India which theoretically aligning them with other jurisdictions. However, the practical approach reveals the actual issues. Section 245, which deals with class action suits, empowers the shareholders to move against companies, directors, auditors and other associated persons against their deleterious effects on the company or shareholders. This section was formulated to provide support to the minority shareholders. But it soon became an underutilized legal tool as most of the shareholders were unaware that they possessed such an entitlement within the Act. Additionally, structural complexities, like the minimum number of applicants required to institute a suit is difficult to attain – especially in companies where the shareholding is diffused with minority shareholdersbeing present. Lastly, it only covers harm caused by direct actions of a company and excludes any indirect harm that may be caused by the actions of a subsidiary or the parent company. Section 241 lets shareholders approach the National Company Law Tribunal (NCLT) if they feel the company is being run poorly or in a way that harms the company or its members. Section 242 gives the NCLT the power to take corrective action, which can include serious steps like removing directors or even shutting down the company in severe situations. However, the success of either of these sections has been limited because of the disproportionate burden of proof on the shareholders. The essential of providing substantial evidence to prove oppression against the minority shareholders is complicated, as the management may act elusive and take decisions which might not seem wrong on paper. Additionally, the implementation of these sections extends to the company where the shares of the person lie and not when the harm is done to a subsidiary, leaving a significant gap in corporate governance remedies. Therefore, these provisions of the Companies Act, 2013, reflect a sincere effort to strengthen shareholder protection. A large number of procedural impediments, coupled with ineffective judicial operations and labyrinthine of corporate structures, will frustrate the aforementioned  provisions in law that protect shareholders’ rights and prevent oppression, which is worse in case of minority shareholders. In India, a multitude of companies operate through highly complex holding structures, often involving a large number of minority shareholders. When such multilayered parent-subsidiary frameworks exist, the key concern becomes identifying those minority shareholders who are unable to establish their locus standi at the subsidiary level. This point therefore highlights the urgent need for a complete overhaul that shall transform litigation processes and offer relaxation in evidentiary requirements, along with policy changes to truly ascertain that these laws protect shareholder rights and enforce corporate responsibility. The Absence of Double Derivative Suits in Indian Law The exclusion of double derivative suits from the Companies Act creates a significant legislative gap, especially given India’s complex corporate structures. Such provisions would empower shareholders of the parent company to sue the holding company on behalf of the subsidiary. Governance and ownership structures often become opaque because subsidiaries can have other subsidiaries beneath them. Minority shareholders of the parent company find themselves unable to do anything when a wrong occurs at the subsidiary level and the parent company chooses not to act. This creates an accountability vacuum, which allows for misconduct in the subsidiaries to run amok. The absence of double derivative suits thus aggravates the plight of minority shareholders, practically leaving them bare to any kind of corporate malpractice, whilst reiterating the inherent weaknesses within the corporate governance system of India. The Case for Introducing Double Derivative Suits While layered corporate structures in India allow conglomerates to administer operational flexibility and incorporate risk management benefits, they also pose significant challenges to shareholder oversight and accountability. By allowing deals that may amount to fraud or mismanagement to take place at the subsidiary level, shareholders of the parent company, with no direct holding in the shares of that particular subsidiary, become deprived of any meaningful remedy regarding the wrongdoing. In order to redress such imbalance, it is pertinent that India include provisions for double derivative suits, i.e. suits wherein the shareholders of the parent firm are entitled to sue a subsidiary on whose behalf they have a substantial interest. Such provisions shall not only be useful for providing remedy but would also act as a deterrent against such corporate malpractices. Wrongdoers exploit the separation of parent and subsidiary companies to shield themselves from liability, knowing that normally only the direct shareholders of a subsidiary can avail this right. However, in the light of modern corporate governance, particularly in India’s rapidly changing economy, it is increasingly clear that double derivative suits are more a matter of necessity than some legal novelty. While layered corporate structures grant large conglomerates increased operational flexibility and help in managing risks, they also create significant hurdles for shareholder oversight and accountability. When mismanagement or fraud

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Correcting the Anomaly Created by Amit Metaliks in Section 30(2) of the IBC Through the Cathedral Model

Insolvency Law /

[By Aakriti Rikhi] The author is a student of National Law School of India University, Bengaluru.   Introduction Section 30(2) of the IBC provides that the resolution plan must provide for a certain minimum amount to the operational creditors and dissenting financial creditors (‘FCs’). For the latter, it states that they must be paid at least the amount that they would have received, had the corporate debtor been undergoing liquidation under section 53. However, the interpretation of minimum liquidation value has been a contentious issue when it comes to payment to dissenting secured FCs. There are two positions as of now. First is that dissenting secured FCs are entitled to receive a payout as per the resolution plan and it is not necessary to pay them the value of their security interest. This position was laid down in India Resurgence Pvt. Ltd. v. M/s Amit Metaliks Ltd. & Anr. The Court here held that the amount to be paid to such creditors is to be decided by the commercial wisdom of the Committee of Creditors (‘CoC’) and a dissenting secured FC cannot claim a higher amount based on the value of their security interest.  The second position is that dissenting secured FCs must be paid the value of their specific security interest as minimum value. This position was laid down in DBS Bank Ltd. v. Ruchi Soya Industries Ltd. & Anr. The Court here held that section 30(2) ensures that dissenting creditors receive the payment of the value of their security interests as that was the legislative intent behind introducing this minimum value through the 2019 amendment. Both the decisions are conflicting and have been referred to a larger bench for consideration. To that end, this paper analyses the issue of minimum payout to dissenting secured FCs from a law and economics perspective. It uses the Cathedral Model to argue that dissenting secured FCs have an entitlement that is protected by a liability-rule where their consent is not necessary for the relinquishment of their security interest when a plan is approved under section 30(4). Since the liability-rule mandates the payment of an objective fair value as compensation, by paying the dissenting secured FCs below this value (i.e., their security interest), Amit Metaliks has created an anomaly within the IBC framework. If not paid this value, there will be high social costs and a failure of the distributive goal envisaged by the introduction of section 30(2). Approaching section 30(2) through the Cathedral Lens To put forth this argument, this paper has been divided into two parts. It first lays down the framework proposed by Calabresi and Melamed and then, applies this framework to section 30(2) in a way that is consistent with the overall objective of the IBC i.e., balancing the interests of all stakeholders. I. Laying down the basics: The type of entitlements and their general application The Cathedral Model was developed to help decide that in a dispute between parties having conflicting interests, which interest should be entitled to prevail. It has divided entitlements into three categories: entitlements protected by property rules, entitlements protected by liability rules and inalienable entitlements. For the purposes of this paper, the first two entitlements are relevant. A property-type entitlement is one where someone who wishes to remove the entitlement from its owner must buy it by bargaining with the holder of the entitlement. It requires the consent of both the parties on the value of the entitlement. An entitlement protected by the liability rule, on the other hand, is one where someone may take away the entitlement if she is willing to pay an objectively determined value for it. This objectively determined value is determined not by the parties but by one of the organs of the state. The application of each type of entitlement depends on economic efficiency, distributional goals and “other justice reasons”. Economic efficiency entails an outcome consistent with Pareto optimality. Pareto optimality asks that the rule that we follow should lead to such an allocation of resources that a further change could not improve the condition of those who have gained by such an allocation, that they could compensate those who have lost from it and still be better off than before. In other words, it is the most optimal situation, assuming that it is not possible to make someone better off, without making the other worse off. So, Pareto optimality’s goal is to minimize the aggregate social costs, which is the sum of damages incurred as a consequence of harm and the costs incurred in preventing this harm. The Cathedral Model does so by putting the costs on the party which can most cheaply avoid them. However, since markets do not function ideally, we do have transaction costs. In light of these transaction costs, the Model presents us with two options: market transactions or collective fiat. Either of these have to be chosen keeping in mind the economically efficient outcome. The second factor is distributional goals. These are grounds which decide the distribution of entitlements. These grounds vary with the purposes that a society seeks to achieve. Lastly, “other justice reasons” includes those reasons which cannot be described in efficiency or distributional terms but are linked with both. Using these factors, the authors contend that when the cost of establishing the value of an entitlement by negotiation is high, then a voluntary transaction will not be able to occur due to high transaction costs. In such a scenario, it is better that collective fiat should prevail, instead of a mutually beneficial transfer. While this provides us with the economic justification for preferring a liability rule over a property rule, there are distributional reasons for doing so as well. As per the authors, the choice of a liability rule is often made because “it facilitates a combination of efficiency and distributive results”[iv]. Distributional reasons play an integral role in deciding the compensation value in a liability-rule as we shall see in the next section. Keeping the above framework

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Balancing the Scales: Rethinking Shareholder Primacy in Hostile Takeover Defences

Mergers & Acquisitions /

[By Chaitanya Vohra] The author is a student of Rajiv Gandhi National University of Law, Punjab.   Introduction In the corporate realm, one of the pertinent factors that affect the Ease of Doing Business is an investor-friendly environment. Hostile takeovers are successful acquisitions of a target without the green signal from the management of the target, thereby being viewed as pro-investor and anti-management of the target. Investors have a potential to benefit from hostile takeovers by virtue of receiving premium for their shares in cases of sell-out or a natural boost to their dividends in cases of threats of hostile takeover, thereby positively contributing to that investor-friendly environment, which will causally improve the Ease of Doing Business. Nevertheless, the route of hostile takeover is very rarely taken and is considered uncommon in India.  Although hostile takeovers are not expressly recognized and classified in SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (‘Takeover Code’), there are no statutory hurdles to the same under the Takeover Code. Upon scrutiny, the answer to the obvious question of the non-prevalence of hostile takeovers can be accredited to the combination of strong promoter influence, mandatory disclosure requirements, and strict regulatory controls over takeover offers. It is important to note that hostile takeover attempts will rise in future with increasing corporate restructuring and foreign investment, and such a change is considered inherently beneficial as it would facilitate corporate competence and foster capital market development.  The advent of hostile takeovers in India means the emergence of defence strategies adopted by the management of the target to deter the potential acquirer from a successful acquisition. This article highlights the prevalence of promoter-driven companies, which immensely help in the effectuation of the defence strategies.  However, the promoter-driven companies appear to have been reduced in numbers as per the latest trends. This calls for the need for a robust and effective regulatory framework and, subsequently, the much-needed changes are effectively proposed. Thereupon, a reasonable argument is built which supports the need to expressly accommodate the proposed amendments in its existing regulatory framework. Moreover, these proposed changes will better equip the corporate entities for a shift towards a liberal environment with the surge of global interest in the M&A landscape in India.  The Shift from Promoter-Driven Shareholdings: Implications for Hostile Takeover Defences The shareholders are ultimate arbiters in scenarios which require the adoption of defence strategies to hostile takeover, given the shareholder-centric nature of Indian law. In this regard, one of the effective ways to defend against a hostile takeover can be having a shareholding structure such that substantial control is in the hands of promoters. It is pertinent to note that such was the case in the recent past, as concentrated promoter shareholdings were a norm in this sense. However, these promoter-driven companies are no longer seen to be in trend due to the advent of investments by virtue of private equity funds and institutional investors. Acknowledging these changes, SEBI released a consultation paper seeking comments with respect to shifting from the concept of ‘promoter’ to ‘person in control’. In support of such changes, it has been prudently observed by SEBI that there has been a substantial reduction of companies having major promoter shareholding in the top-500 listed companies, from 58% in 2009 to 50% in 2018. These statistics heavily indicate the shift, which is the elephant in the room as the regulatory framework does not allow the nascent companies without the traditional shareholding structure to fully avail the defences in cases of a hostile takeover. It is pertinent to note that these defences to hostile takeover are numerous, ranging from poison pill to golden parachutes. However, these defences are toothless in the present regulatory structure. For instance, Regulation 26(c) of Takeover Code prohibits the practical application of poison pill defence mechanism and Regulation 26(d) of Takeover Code prohibits the employment of leveraged recapitalization defence. Thus, it can be implied in the present circumstances that the companies are encouraged to vest a major shareholding with promoters to ensure stability in the company. This is not ideal due to the fact that it emboldens the ongoing norm of promoter-driven companies, thereby punishing those who choose not to follow such a norm with the persistent threat of a hostile takeover. This threat persists due to the lack of a robust regulatory framework that provides for the feasibility of availing defences against hostile takeovers.  Therefore, based on the latest trends, the upcoming companies going away from the concept of promoter-driven shareholdings are put at a significant disadvantage as they cannot avail the appropriate defence strategies of hostile takeovers.  Pinpointing Hiccups in Effective Adoption of Hostile Takeover Defences Upon a deeper dive, the Indian law appears to rely heavily on the concept of shareholder democracy, which was introduced in the Indian framework by the J.J Irani Committee. While the introduction of such a governance model can be attributed to past events such as the Satyam scandal case, and it presently acts as a safeguard for protecting the interests of shareholders, its application in certain circumstances can be deemed skeptical. One such specific circumstance can be taking the crucial decision of employing a certain defence strategy to avert a hostile takeover.   The shareholders acting as sole arbiters in this regard can amount to gross injustice to the future of the company due to the indifferent attitude of Indian shareholders towards understanding the policies and future objectives of the company. Hence, Indian shareholders appear to be gullible when their interests lie in reaping monetary benefits, as opposed to corporate successand preservation, thereby implying the slow death of the practicality of availing defences. It can be said that the shareholders who are not personally invested and associated with the company, as opposed to promoters, tend not to represent the class of long-term investors, which means that they are much more likely to bend to the will of potential acquirers in a hostile takeover by virtue of selling their shares at a premium, as opposed to

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Unpacking the Dormancy of India’s Patent Box Taxation Regime

Taxation Law /

[By Megha Bhartiya & Sneha Bharti] The authors are students of Rajiv Gandhi National University of Law, Punjab and Symbiosis Law School, Noida respectively. Introduction India introduced the patent box taxation regime through Section 54 of the Finance Act, 2016. It presents itself as a unique tool to promote and foster innovation by emerging from the conflux of taxation law and intellectual property (“IP”) rights law. The patent box regime is a tax incentive mechanism and offers reduced tax rates on certain qualified incomes which are generated from patented innovations.  This blog pivots around the Organization for Economic Cooperation and Development (“OECD”)’s Action 5: Agreement on Modified Nexus Approach for IP Regimes and its resultant implications for India. With the recent buzz around a potential new law for direct income tax in India, this is a crucial time for the legislature to consider reworking the patent box provision i.e., Section 115BBF of the Income Tax Act, 1961, in order to better utilize it. The blog will thus focus on determining the reasons behind the dormancy of the regime in India. This will be done through a critical appraisal of Section 115BBF which would lead us to two fatal flaws in the provision that have long been overlooked. What is the Patent Box Regime? The separate and patent specific taxation provision in India is referred to as the patent box regime. It allows the companies that qualify its requirements to avail a decreased tax rate for the profits they have generated from their patented inventions. The rationale behind allowing a different reduced tax rate for profits on patents is rooted in the objectives of the IP Rights regime, i.e., it acts as a strong incentive for the companies to invest into innovation, and research and development (“R&D”) activities.  ​Why do we need a Patent Box Taxation Regime? At present, the dominating school of thought is that reducing subsidies and substituting them for a lower corporate tax is a more effective approach as opposed to offering outright subsidies as it interferes less with the market mechanism and is hence termed as a market-friendly instrument.   It is accepted by economists that if industrial R&D is primarily conducted by private sectors, then it comes with the risk that they will under invest in the area, resulting in lesser research than what is socially and scientifically desirable. This tendency to underinvest stems from the issue of appropriability where the private sectors are unable to fully appropriate the returns of their investments. In addressing this, governments worldwide have incorporated patent box regimes as one method to encourage businesses to continue investing in R&D.  OECD’s Modified Nexus Approach In 2015, the OECD released its Action 5 report as part of the Base Erosion and Profit Shifting (“BEPS”) project, which aimed to combat tax avoidance strategies used by multinational enterprises. The OECD guidelines on the patent box regime emphasise the importance of aligning tax benefits with substantial economic activities. According to the guidelines, countries should ensure that their patent box regimes are compliant with the “nexus approach,” which requires a direct link between the R&D activities that generate the income and the income that benefits from the reduced tax rate. ​According to the nexus approach, only the income generated through qualifying R&D activities should be eligible for the subsidized tax rate.-​     ​​​​​​. This means that countries implementing a patent box regime must establish a clear criteria for determining which R&D activities qualify for tax benefits, hence ensuring a level and fair playing field.   The Nominal and Ineffective Patent Box Regime in India Recent years have witnessed India grow as a centre for innovation globally in light of the increasing number of firms investing in the R&D activities. In India, the potential benefits of the patent box regime were recognized and introduced via the Finance Act, 2016, which inserted Section 115BBF in the Income Tax Act, 1961. The section provides a 10% tax rate on income by way of a royalty for the patent developed and registered in India. The provision provides for certain qualifying requirements – firstly, the Company must have the patent granted under the Indian Patents Act, 1970, and secondly, the patentee must be a resident of India. Additionally, the aspect of the patent being “developed” in India alludes to the mandatory condition of R&D also being conducted in India. These conditions together align India’s patent box regime with OECD’s 2015 modified nexus approach which posits that the income arising from the exploitation of a certain IP should be taxed in the jurisdiction where substantial R&D activities were undertaken, not simply where the legal ownership lies. This has also been attributed as one of the rationales behind the introduction of the regime in India.  The Fatal Flaws: Challenges to the Use of the Patent Box Taxation Provision in India While the patent box regime offers significant tax benefits to companies engaged in R&D activities, it also poses challenges in terms of implementation and compliance. There are several reasons for the current dormancy of the patent box provision in India, one of them being its restricted scope of application. The complete lack of use of the provision in the past several years directs us to the first flaw –   FLAW 1: Missing Links in Definitions of Key Terms ​​Section 115BBF of the Income Tax Act, 1961, provides for tax on income from patents and refers to the assessee as an “eligible assessee.” ​Subsequently, the definition of “eligible assessee” can be referred to in Explanation (b) of the section, which defines it as a person who is an Indian resident and who is a patentee. ​​​​​The use of “and” indicating that both conditions must be fulfilled. ​     ​​T​he definition of “patentee” which is provided in explanation (f) indicates, in explicit phrasing, that patentee means the person who is the true and first inventor. According to the principles of patent law, a true and first inventor can only be a natural person. The same has also been upheld

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Revamping Space Exploration in India with SPACs: A New Epoch 

Mergers & Acquisitions /

[By Shaurya Jha] The author is a student of Hidayatullah National Law University, Raipur.   Introduction With the Indian Space Industry’s expected target to reach $40 billion by 2040, funding roadblocks stand as the major hurdle. Conventional financial mechanisms are misaligned with the commercial requirements of space ventures. Bank loans require collateral and predictable income, constraining early-stage space startups. Venture capital, on the other hand, demands short-term to medium-term exit (5–7 years). This has necessitated the industry to react with the accelerated usage of Special Purpose Acquisition Companies, or SPACs – a mechanism that facilitates the company to go for a public listing and fundraising even before the acquisition target is recognized. The end goal of a SPAC is to capitalize on shareholders and PIPE funding to purchase an operating company, which has marked a watershed phase in modern corporate capital acquisition, breaking outside conventional methods like IPOs.   SPACs, informally known as “blank-check companies,” are publicly listed entities created entirely to converge with or take over a pre-existing corporation, thereby aiding its swift transition to public trade venues. Space technology has surfaced as an alluring industry for cooperatives focusing on developing satellite constellations, reusable rockets, and space travel industry services that conventional funding avenues falter to provide. Notable space technology SPAC transactions include Virgin Galactic, the first publicly traded commercial spaceflight company, which went public via a $1.5 billion SPAC merger in 2019. Similarly, Rocket Lab’s SPAC merger underscored the sector’s promise, enabling the company to expand its small satellite launch capabilities. However, India lacks regulations dedicated to SPACs, resulting in uncertainties for the investors of space-tech markets, and the current legislation makes the process of capitalizing on the financing model difficult due to the imposition of compliance barriers.  Through the means of this article, the author analyses the convergence of SPACs and Space technology. Subsequently, the author deliberates on the legal regulatory dimensions of space technology SPACs in the Indian context and the challenges and risks of space technology SPACs in India, and the author concludes the article by discussing the future of SPACs in India’s space industry.  The Intersection of SPACs and Space Technology The concept remains to be evolving in India, despite gaining global traction, India is yet to develop a definitive legislation for SPACs within concrete guidelines. The vacuum further limits the Indian startups, specifically the capitally intensive ones, from exploring this alternative route to markets.   Unlike traditional IPOs, SPACs enable privately listed companies—particularly those in fledging industries—to circumvent lengthy supervisory scrutiny and facilitate significant funding within months. In 2020 and 2021, SPACs collectively raised over $160 billion globally, with several transactions targeting innovative industries such as the space sector. The SPACs are now venturing into innovative sectors, with space technology being a key area of focus. For instance, Lynk Global, a company specializing in satellite communications, announced its merger with Slam Corp, a SPAC. The convergence, valuing Lynk at $800 million, aims to finance the low earth orbit satellite constellation. The space sector has its unique impediments, like substantial capital requirements coupled with long development deadlines, thus making SPACs an ideal financial mechanism to close the divide between pioneering cooperatives and funding ecosystems in India. These deals reflect the rising investor confidence in private space companies and highlight SPACs’ role in democratizing access to the space economy. The promising convergence of SPAC and the Space technology of India provides a humongous opportunity for technological advancement and growth. SPACs, which provide an efficient process for private cooperatives to be open to the public or civic and access capital, have been and will be pivotal in developing the global space industry. Companies such as SpaceX have demonstrated the commercial viability of reusable rockets, while satellite ventures promise to bridge the global digital divide. SPACs enable these firms to secure the necessary capital to scale operations and innovate rapidly. As projected, the space economy is estimated to reach $ 1 trillion by 2040, facilitated by space-based internet systems, satellite technology, and even lunar exploration.   The Indian space economy targets a fivefold expansion in the next two decades; harnessing the prowess of SPACs could accelerate the transition to a full-scale commercial enterprise, strengthening global competitiveness. SPACs allow the private Indian space-tech corporations to step into the humongous market, making sure that the Indian space-based industry is suitably financed so that India remains at the place of prominence in space exploration. As the aspirations mature, the regulation of SPACs should not be assessed economically but legally as the determinant of their success.    Legal and Regulatory Dimensions of Space Technology SPACs in India In defiance of the global acceptance, the regulatory environment of India persists to be limited. In contrast to major countries like the United States of America, where SPACs have been accepted as a major tool of financial transactions.   Despite the readiness around investments driven by SPAC in the space sector, the Indian  Investor continues to face intimidating difficulties due to the lack of a formalized and dedicated framework which engender legal roadblocks for the space-tech corporations willing to go public via SPAC.   Assessing Section 26 of SEBI ICDR Regulations, 2018, which places a requisite of exhaustive financial disclosures as well as past earnings, presents an overwhelming challenge for space-based startups as unlike the conventional commercial corporation, these startup make take years to make the transition from prototype to product due to the long term R&D investment with limited immediate funds, making the adherence to the IPO eligibility, counterproductive. \  While Regulation 2(s) of the International Financial Services Centres Authority (Issuance and Listing of Securities) Regulations, 2021 defines a SPAC and allows SPACs to be listed on IFSCs, it lacks the sectoral guidance for the capital-intensive sectors. In defiance of a consultation paper issued by SEBI, no formal rules have yet been notified. Absence of such provisions prevents the alignment with the upfront R&D investment and extensive development cycles of commercial space in India. By contrast, in major jurisdictions such as the United States of America, the Securities

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