Capital Markets and Securities Law

[By Renuka Nevgi]  The author is a student at Maharashtra National Law University, Mumbai.  Introduction: Meaning and Nature Front running is an illegal act of buying or selling securities based on non-public information regarding a substantial future transaction likely to influence the price. It includes entering into options or futures contracts before an imminent transaction while anticipating the fluctuation in the price after the information will become public. This term has been defined in the SEBI Circular dated 25th May 2012. Regulation 4(2)(q) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 classifies front running as a manipulative, fraudulent and unfair trade practice. Furthermore, Sec. 12A(e) of the SEBI Act also lays down that a person shall not deal in securities directly or indirectly while possessing non-public information. Front running may take place in several ways through intermediaries as well as non-intermediaries. Orders can be placed in tranches and all such tranches placed before the last tranche of the Big Client will classify as front running transactions. This practice involves illegal usage of confidential information given to an intermediary resultantly amounting to unfair leverage. This article critically analyses the extant legal provisions as well as judicial decisions dealing with front running by non-intermediaries and juxtaposes it with those in the other jurisdictions. The author also attempts to provide constructive suggestions in order to impose effective strictures on this manipulative practice. Kinds of Front running According to the decision in case of SEBI v. Shri Kanaiyalal Baldevbhai Patel and Ors, front running consists of three forms of conduct: (1) ‘tippee trading’ which means trading by third parties who are given information or tipped on an impending block trade, (2) ‘self- front running’ implying the transactions wherein the purchasers or owners of block themselves involve in offsetting options or futures transaction by indulging in ‘hedging’, and (3) ‘trading ahead’ refers to a transaction in which an intermediary trades for own profit ahead of an impending customer block order. When confidential information is passed on to a third party, it results in the breach of duty prescribed by law. Specifically, if the tippee is cognizant of the breach and thereby induces the person to share such information, it is considered to be a ‘fraud’ by the recipient tippee. Front running behaviour can be classified into two categories as confirmed by a SEBI Order in the matter of Reliance Securities Ltd.: (i) ‘BBS’ or Buy-Buy-Sell: This is when the front-runner places own buy order preceding the last tranche of Big Client’s buy order. Subsequently, the front runner keeps selling the securities bought earlier at an escalated price. And (ii) ‘SSB’ or Sell-Sell-Buy: This happens when the front-runner places own sell orders preceding the last tranche of Big Client’s sell order. Consequently, the front-runner buys securities at a reduced price as and when the Big Client’s sell order gets executed. Indian judicial pronouncements w.r.t. non-intermediaries If only intermediaries are held responsible for front running, then the manipulators will get the leeway to engage in iniquitous activities through name lending or by masking their identity. However, as decided in the matter of Manish Chaturvedi & Ors., name lending is a serious offence and one cannot be absolved of the liability simply by claiming obliviousness. If these activities remain uncontrolled, then those who aid and abet such unfair practices will also detrimentally affect the interest of investors. When the accounts are rented out to third parties, they become the custodians of those securities or funds. Although the account holder still remains as the technical owner, the non-intermediary or third party employs its own resources which may be utilised for illegal purposes. The account holder may also receive direct or indirect gratification in return for the same. This deceitful practise helps the third parties to carry out fraudulent activities while concealing their identity. Under Indian law, the standard of proof required to establish front-running by third parties is a preponderance of probability, whereas any clinching evidence is not needed. The modus operandi is determined by collective analysis which leads to inference in relation to the conduct of the manipulators in the securities market. Circumstantial evidence including the pattern of trading could suffice to prove a fact. Different participants in the front running are broadly categorised as (1) ‘information carriers’ which have access to the content of non-public information (2) ‘front runner holder accounts’ that are registered owners of the trading accounts. (3) ‘mule account holders’ are the entities employed by the information carrier which operates the account set comprising of the trading account, Demat account and bank account. In case of defiance of PFUTP regulations, SEBI had also imposed penalties that that act as a deterrent to all those who indulged in serious violations. A maximum penalty of INR 25 crores or three times of profits generated from such practice can be imposed under the SEBI Act. Along with this, SEBI is also vested with the power to institute other civil suits under the SEBI (Intermediaries) Regulations, 2008 and criminal proceedings under Sec. 24 of the SEBI Act. Regulations in foreign countries In the jurisdiction of U.S., front running has been classified as a separate offence by the Financial Industry Regulatory Authority. The brokers or firms are not allowed to place their interests after gaining knowledge of an imminent trade. However, if such a trade is necessary to facilitate the execution of the client’s order, they can do it with the client’s free consent. Rule 5270 includes mule account holders because it has a wide scope since it includes members as well as the persons associated with members. Thus, the third-party traders are also impliedly included within the purview of frontrunning under the FINRA Rules. Likewise, under the EU Market Abuse Regulations, Rules 23 and 24 categorically include third parties whose account is used by the trader to obtain unfair gains indirectly. It also contains a presumption of the traders themselves placing the orders if such confidential information is used to

[By Sanchit Singh]  The author is a student at Vivekananda School of Law and Legal Studies, GGSIPU, Delhi.  The Dodd-Frank Wall Street Reforms and Consumer Protection Act, which came in response to the 2008 financial crisis, removed a historic exemption enabling the Securities and Exchange Commission (SEC) to regulate hedge funds and private fund, advisors. However, this included a new provision that required the SEC to define family offices in order to exclude them under Section 202(a)(11)(G) of the Investment Advisers Act, 1940. Among other aspects, family offices were not required to disclose their size or leverage as a result of this exemption. The family office, Archegos Capital Management’s extreme leverage led to a reported $10 Billion loss to some of the biggest banks globally in March 2021. This has attracted a great deal of discourse regarding the lack of transparency of family offices, especially the ability of these invisible whales to hurt the U.S. economy. The March 2021 Meltdown The losses resulted from the family office’s inability to meet margin calls relating to total return swap agreements and such positions that were financed by prime brokers. The U.S. Federal Reserve had raised attention to such practices in its May 2020 Financial Stability Report, noting that the concentration for hedge fund leverage had “increased markedly”where the top 25 hedge funds accounted for 50 per cent of industry borrowing. The reason for this concentration the report mentions “dealers have reportedly given preferential terms to their most-favoured hedge fund clients” and that “hedge funds with disproportionately high leverage can have outsized effects”. Despite this, the price decline in Archegos’ concentrated positions led to margin calls which prompted the sale of positions which further led to the decline of affected stocks, finally leading to the losses for the banks to bear. Japan’s largest investment bank, Nomura and Credit Suisse have been hit the hardest with them collectively facing losses close to $6 Billion alone. Other banks like JP Morgan, Goldman Sachs and Deutsche Bank were prompt to avert significant financial impact by de-risking their exposure to Archegos Capital. Were Disclosure Standards the Real Problem? As previously discussed, family offices are exempted from any registration with the SEC due to its exclusion under the Investment Advisors Act. Consequently, hedge funds like Archegos Capital do not need to file quarterly financial reports on their performance or the size of equity holdings including the types of assets. This hampers the ability for prime brokers of banks to evaluate risk and oversight by market regulators including the Federal Reserve and SEC. Despite this, many believe that adequate disclosure standards were not the main problem resulting to collapse. There has indeed been an evolution in the relationship between family offices and these banks. Deutsche Bank v. Sebastian Holdings Inc. (2013) was consequential for banks to realise that family offices were not significant institutional players, where the Deutsche was sued for $8 Billion in 2008 over margin calls arising from trades with the prime brokerage division. The court dismissed the entire claim and ordered the payment of $240 Million in dues. Thereafter, family offices were treated more like private clients which meant less leverage and higher trading costs. The preferential relationship with Archegos depicts a major change in attitude ever since. Clearly, banks with prime brokerages had loosened up restrictions in search of lucrative clients by providing high leverage, especially considering the staggering increase in the number of family offices where assets under management stood at $5.9 Trillion as of 2019, significantly larger than all U.S. private equity firms put together. In an independent review conducted by a law firm at the behest of Credit Suisse, there was enough evidence to suggest that the bank slept on multiple warning signals that could have prevented their burden of losses. Archegos Capital had begun frequently breaching its PE limit and by April 2020 it was ten times more than its $200 million limits. This evidently indicates highly volatile and under-margined swap positions of significant risk to the Bank. There does not seem to be any sign of fraudulent activities or corruption but rather rises questions on the Bank’s competence to identify and appreciate the scale and urgency of Archegos’ risk. While typically most family offices are risk-averse and their main objective is to preserve wealth but a different breed of such offices have come out that demonstrate speculative aggression much similar to some of the most competitive hedge funds. It becomes difficult to truly categorise Archegos Capital as a family office or a hedge fund outrightly, considering the scale of leveraging. The industry has come to refer to them as “invisible whales” equipped with great capabilities to move and influence the markets. With Credit Suisse’s specific example, one can imagine the systemic problem in the manner in which these large banks conduct business and manage risk. Potential Legislative Correction and the Exclusive Grandfather Clause HR 4620, the Family Office Regulation Act of 2021 was introduced in the House Financial Services Committee on 22 July 2021. The Bill has sought to reflect on the Archegos Capital meltdown and address the exemptive and exclusive clauses. As amended, HR 4620 would limit family office exclusion from “investment adviser” to a more comprehensively defined “covered family office” which includes family offices with less than $750 Million in assets under management. Offices with more than $750 Million under management would be exempted from registration with the SEC under the new legislation but will be required to submit reports in accordance with the Commission as exempted reporting advisors (ERA). Further, Section 409 of the Dodd-Frank Wall Street Reform and Consumer Protection Act that allowed clients who were not members of the family to be eligible for the family office exclusion would be repealed. Lastly, the Bill would authorize the Commission to exclude a family office from the “covered family office” definition when the family office is highly leveraged and/or engages in high-risk activities in the interest to protect investors. While the legislative expectation for HR 4620

[By Raj Shekhar & Krati Gupta]  Raj Shekhar is a student at NUSRL, Ranchi and Krati Gupta is a student at NLU, Jodhpur.  The Securities and Exchange Board of India (SEBI, hereinafter) has recently released the SEBI (Alternative Investment Funds) (Third Amendment) Regulations, 2021 on August 03, 2021. The amendment seeks to introduce a new category of investors in an Alternative Investment Fund (AIF, hereinafter) called Accredited Investors (AIs, hereinafter). This move can be seen as a successor to the initial SEBI consultation paper on AIs, released in February 2021. The aim of the consultation paper was to seek comments from industry experts that were largely positive. The experts considered the introduction of AIs as a powerful tool to distinguish sophisticated investors who are capable of independently managing risk without the need to adhere to strict regulatory prescriptions, thereby making Indian regulations more aligned with capital market regulations in more mature markets.  In one of its recent board meetings, SEBI which has been deliberating on the concept of AIs for quite a while now has accepted the proposal. In furtherance of the same, it has released an amendment regulation that tries to introduce AIs as a completely new category of investors. In light of this recent notification, the article seeks to elucidate upon the concept of AIs in the Indian securities market, its advantages and disadvantages through a global comparative study. Accredited Investors: The “Experienced” Players AIs are based on the concept of a class of investors who, due to their prior experiences and other allied factors, have an understanding of various financial products and the risks- returns associated with investments that they make in the market. Thus, they are able to make an informed choice regarding their investments, unlike other investors in the market. This concept of ‘experienced’ or ‘professional’ investors is recognized by many securities and financial market regulators around the globe who have their own names for such categories of investors like Qualified Investors, Accredited Investors or Professional Investors. This class of investors is seen as one that has the capacity to deal in relatively riskier investment products due to their stable financial status and ability to bear financial losses which may be incurred. The majority of the time, investments made by such players are closely monitored by fund managers who have financial acumen or are directly overseen by the AI who is well aware of the risks involved, owing to his experience of the market. Thus, AIs are those investors who are presumed capable of making risky investments with minimal regulatory protection. The Accredited Investor Tag: Why it Matters? When we look at the functioning of SEBI or any international market regulator, we find that their function is not just limited to the smooth functioning of the market. Their other prime duty is to provide necessary protection by introducing regulatory requirements that help investors in making a more informed choice. While the idea behind disclosure requirements, filing of offer document/ prospectus, flexibility in respect of investor reporting, etc. is to ensure a safe and conducive investing environment, these are time-consuming at the same time. Further, the main aim of such stringent requirements is generally to ensure that the investors are making an informed choice. So, for experienced investors, such requirements are redundant for they are already well acquainted with the risks/prospects of their investments. The concept of AI, as per SEBI, envisages that such accreditation can lead to identifying a class of sophisticated investors who have the ability and willingness to invest in the securities market, particularly in investment products that are relatively riskier and have minimal regulatory oversight. What adds to the benefit is that the redundant restrictive practices are relaxed for this class of investors. However, the advantage that the AI tag offers is exactly the same element that forms the core of its disadvantage. The minimal intervention by the regulator means that the chances of financial losses are much higher in spite of the fact that AIs have a better understanding of investments. Thus, we can rightfully assert that the tag of AI enables the holder to enter into a trade-off between investment security and ease of investing. Accredited Investors Around the World: A Global Comparative Analysis As discussed above, the idea of AI is not new and has been operational in various global jurisdictions. The following discussion provides a brief understanding of how the concept of AIs differs in these jurisdictions from that in India. United States of America An AI in US is an investor who satisfies one or more of the conditions that the US Securities Commission has laid down. Some of them include the condition that a potential AI should have an annual income that exceeds $200,000 in each of the two most recent years (or $300,000 in joint income with a person’s spouse) and who reasonably expects to reach the same income level in the current year. Further, his net worth should exceed $1 million and other allied requirements. Singapore  In Singapore, an individual whose net personal assets exceed Singaporean $2 million; an individual whose income in the preceding 12 months exceeds Singaporean $300,000; or corporations with assets exceeding S$10 million can apply for accreditation and become an AI. The problem till 2018 in Singapore was that anyone with above-stated requirements was made an AI without the need for an explicit request. This led to a lot of controversies where investors complained that they were unaware of the risks involved as an AI in the market. This led to the introduction of the opt-in requirements where an investor can only become an AI once he has explicitly made an application in writing. European Union EU similar to the USA has tried to include the essence of experience, but unlike the USA which has kept such a requirement as an alternative path, EU has made it mandatory. For an individual to get accredited as a ‘Profession Investor’, he needs to have carried out transactions of significant size on the

[By Aman Jha & Anurag Shah]  Aman Jha is a student at the National Law University, Delhi and Anurag Shah is a student at the School of Law, Christ (Deemed to be University).  The Securities and Exchange Board of India (“SEBI“), in its board meeting dated 6th of August 2021, resolved multiple changes in the regulatory framework of the capital market in India. Two of the most notable include the reduction in the minimum lock-in period that has to be observed by a promoter following an initial public offering (“IPO“) and approving the principle of ‘Person in Control’ which would replace the concept of promoters in India. These changes have been resolved in pursuance of a consultation paper rolled out in May 2021, which proposed changes related to the promoter regime in India. This article analyzes these changes and the effect they would have on the capital market of India while also drawing analysis from different jurisdictions. Reduction in mandatory promoter lock-in: At present, Regulation 16 of the SEBI (Issue of Capital and Disclosure Requirements), 2018 (” ICDR“) provides that there should be a minimum promoter’s contribution of 20%, which should be locked in for 3 (three) years. The lock-in period starts from the date of commencement of commercial production or the date of allotment of the IPO, whichever is later. Further, ICDR also prescribes that a promoter holding more than the minimum requirement of 20% should have his excess holding subject to lock-in for one year starting from the date of allotment. The rationale behind such a lock-in system can be attributed to the regulatory regime before the globalization era in India. Setting up companies before the globalization reforms required special permissions. The pre-condition for such permission was a minimum equity contribution by the founder until the money taken from the lender was paid off. This was done to ensure that the founders had their skin in the game during incorporating companies and raising money. This skin-in-the-game concept was retained even in post-globalization India in the form of mandatory promoter lock-in. However, this requirement to have promoter’s skin in the game started becoming a hindrance for the capital markets since it also made going public difficult for the promoters. In the pre-globalization era, funds were raised to finance a project or for a Greenfield project which would be a new start, and thereby there was a lack of surety of the company’s performance. Having the promoter’s skin in the game would provide surety for the lenders in such a scenario. It would act as an incentive for the promoter to ensure the performance of the company. In today’s competitive start-up ecosystem, where companies going public are matured businesses and have gone through several series of funding, the promoters already have had their skin in the game. Therefore, a further lock-in would only make going public burdensome for the promoters. In a bid to solve this issue, the SEBI decided to reduce the mandatory lock-in period for the promoter’s contribution from 3 (three) years to 18 (eighteen) months. Further, the board also resolved to reduce the lock-in for pre-IPO shareholders who were not promoters from 1 (one) year to 6 (six) months. The transition from the concept of promoters to Person in Control: Having understood the rationale behind promoters and mandatory lock-in, it becomes imperative to know why SEBI has resolved an in-principle shift from the concept of a promoter to Person in Control (“PIC“). The primary reason for this shift can be attributed to the change in the investment landscape in India. The Indian start-up market now is one of the most attractive investment markets, with multiple businesses raising huge capital from investors all across the globe. Unlike the pre-globalization era when companies raised money from family, friends, or lenders, the start-ups now focus on institutional investors such as private equity funds. This shift has also changed the dynamics in the board room of companies. Traditionally promoters used to have significant control over businesses even after listing. However, many institutional investors have considerable control over the board in today’s landscape through their representative directors. The latter is not considered promoters as a result of the definition provided under Indian law. As a result of the aforementioned, situations arise wherein persons who do not have any controlling rights or are minority shareholders are still classified as promoters. This would have a two-faceted effect. Firstly, the responsibility and liability would be placed on the wrong party who does not control the decisions. Secondly, by virtue of being considered a promoter, the person may have disproportionate influence over the board. Therefore, the shift from promoter to PIC would ensure that the regulatory regime identifies the correct person and places responsibilities and liabilities on a person who has significant control over the board. The prime benefit of this shift would be the improved and better quality of corporate governance in the Indian regulatory regime. Removing the concept of promoters would ensure that the shareholders can place trust in the board, which would constitute of PICs and independent directors to keep a check on the board. This would change the Indian regulatory regime from a promoter-based system to a professionally managed company system. Keeping up with international standards: The changes resolved by SEBI have been received positively by the stakeholders. These changes showcase how the regulator is trying to undertake progressive steps to ensure that the regulatory system is at par with international practices even in the post-pandemic economy. The concept of promoter has been unique to India as most of the other capital market regulators do not have a system of promoters, and they focus on control. A shift from a system of promoters to PIC would bring the Indian regulatory regime at par with different jurisdictions. However, at present, SEBI has retained the idea of promoter lock-in and just halved the period. International practices concerning post-IPO lock-in have been to allow the market forces to decide the lock-in period. Most of the

 [By Aashirwa Baburaj]  The author is a student at NMIMS Kirit P. Mehta School of Law, Mumbai.  With the rise of unicorns, such as PayTM, in the fintech industry and the emergence of a new shareholding pattern comprising of private equity (“PE”) and institutional investors; the controlling powers that were long vested in the hands of promoters in India, have begun to steadily slip through the fading Indian concentrated ownership structure. In light of this shift, and at a time when many new-age companies from the startup world are making their way to the Indian IPO market, the Securities and Exchange Board of India (“SEBI”) has issued a consultation paper proposing a transition from the concept of a “promoter” to that of a “person in control”. The aforementioned proposal merits a thorough examination on account of multiple reasons. To begin with; if this proposal were to come to life, it would result in a substantial reform of the Indian corporate regime as the idea and notion of promoters runs very deep in the Indian regulatory framework. Consequently, this move may have severe repercussions on laws administered by other regulators such as the Ministry of Corporate Affairs, the Competition Commission of India, and the Reserve Bank of India. Furthermore, while the proposal also contemplates reducing and minimizing the lock-in obligations for promoters and shareholders investing in an IPO and SEBI is clearly in favour of these reforms, it is important to assess whether the Indian corporate market is ready to adopt them. Preface: Current Legal Framework & Proposed Changes At the outset, it is pertinent to note that the changes proposed by SEBI presently are restricted to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR”).  Thus, while SEBI has highlighted that some of these recommendations may affect other legislations, it has not explicitly evaluated the implications of the same. As per the current legal framework, promoters play a key role in the listing process since the ICDR regulations impose significant obligations on promoters to ensure their involvement in the company. The consultation paper proposes 4 major changes: Shifting from the concept of ‘promoter’ to the concept of ‘person in control’. A ‘promoter,’ according to Regulation 2(1)(za) of the ICDR, is a person named in the offer document who is instrumental in the formulation of the plan on the basis of which securities are offered,      or promotes or sponsors mutual funds in the case of financial institutions, scheduled banks, and foreign institutional investors. The proposed change from ‘promoters’ to ‘persons in control’ by eliminating references to promoters and promoter groups, whilst adding the terminology of the person in control or controlling shareholders in numerous SEBI Regulations, is the centrepiece of SEBI’s proposal. Reduction in lock-in periods Presently, as per Regulation 16 of the ICDR, a minimum shareholding of 20% in the company’s post-issue share capital is required, as is a three-year lock-in period on such shareholding. Additionally, a lock-in requirement of one year from the IPO has been listed for persons other than promoters under Regulation 17 of the ICDR. If SEBI’s proposal is adopted, then the lock-in period for persons other than promoters will be reduced to six months from the date of allotment in IPO; the current three-year threshold for promoters will be whittled down to one year. Further,  the Promoters’ holding in excess of minimum promoters’ contribution will only be locked in for a period of six months as opposed to the current requirement for one year. Streamlining the disclosures of group companies Currently, a ‘group company’ intending to list its shares must disclose comprehensive details of the previous three years for its five largest listed group companies or five largest unlisted group companies based on the turnover where no listed group companies are involved. This includes information such as date of incorporation,  nature of activities,  equity capital,  reserves,  sales,  profit after tax, earnings per share and diluted earnings per share,  net asset value,  pending litigation involving the group company which has a material impact on the issuer etc. SEBI has proposed that the detailed disclosure requirement be eliminated and the IPO Offer Document merely includes the names and registered office addresses of all Group Companies. However, these disclosures — slated to be eliminated — may continue to be made available on the websites of the listed companies. Rationalization of the definition of ‘Promoter Group’. Regulation 2(1)(pp)(iii)(c) of the ICDR stipulates  ‘promoter group’ to include “[a]ny   body corporate  in  which  a  group  of  individuals  or  companies  or  combinations  thereof acting in concert, which hold twenty per cent or more of the equity share capital in that body corporate and such group of individuals or companies or combinations thereof also holds twenty per cent or more of the equity share capital of the issuer and are also acting in concert.” In order to rationalize the disclosure burdens upon companies, SEBI has suggested eliminating the norm of mentioning the aforementioned corporate bodies as part of the promoter group vide the deletion of the aforementioned regulation, thereby diluting this concept. Addressing This Wave Of Reform Is The Promoter Landscape Changing in India? As stated earlier, this proposed transition from ‘promoters’ to ‘persons-in-control’ lies at the heart of SEBI’s proposal. It is worth noting that the existence of a promoter-driven regulatory mechanism across the Indian legal framework is largely attributable to the prevalence of ‘family’ held companies in the Indian market, formerly. Due to this, promoters or founders ended up retaining a majority of the shares in a company. However, with a large number of institutional investors (both foreign and Indian) penetrating the Indian market, numerous enterprises, particularly new age and tech companies, are now embracing a rather diversified shareholding pattern. These institutional investors are made up of thousands and thousands of investors who amass money from individual investors and invest it in companies with the sole purpose of maximizing returns. As a result, there has been a      paradigm shift in the ownership structure as these companies are not family-owned and/or lack a distinctly identifiable promoter/ promoter group. This suggested change can

[By Simran Lunagariya & Unnati Jain]  The authors are students at the Institute of Law, Nirma University.  Introduction Covid-19 has created unprecedented and irreversible business and regulatory disruptions across the globe. At this juncture, India is in dire need to stabilize its global economic position. The Indian economy has been adversely affected, and the GDP for the year 2020-21 went down by 7.7%. Also, a job loss of 20% was witnessed in Urban India during 2020-21. The loss of jobs has attracted people to generate side income creating a greater spike in crypto trading. Additionally, the institutional investment wave is also increasing at a greater pace; in such a scenario, the Environmental, Social and Governance regime of the crypto industry must be addressed with a comprehensive approach in India. For mitigating the value-driven uncertainty from this emerging asset class. Especially when India is aspiring to become a $5 trillion economy, however, the co-existence of cryptocurrency and the ESG has often been debated globally. In the Indian scenario, this would be a nightmare in the absence of an effective regulatory framework. This blog explores the avenues of potential regulatory requirements that could address the ESG aspect of Cryptocurrency in India. Environment  The mining of cryptocurrency involves proof-of-work methods to transact and verify the transactions. This method requires high-power systems to solve the complex calculations, thereby creating a highly energy inefficient system. The amount of carbon dioxide released by such power-hungry systems is considerably high and affects the environment negatively. Although massive energy consumption of crypto-mining forms to primary environmental issue, the increasing usage of coal for this energy driven process also proves to be analogous to this issue. According to a study the annual carbon footprint of cryptocurrency is almost parallel to the carbon footprint of Mumbai. Moreover, cryptocurrencies account for 0.40% of the world’s total electricity consumption. Hence, these digital assets undoubtedly oppose the principles of Environment sustainability. Various responsible investors are withdrawing from investing in cryptos at the global level due to their catastrophic environmental effects. Recently, Elon Musk, CEO of Tesla, affirmed that the Bitcoin consumes a great amount of fossil fuels, hence making it an environmentally weak crypto. Consequently, he suspended the use of Bitcoin for trading. However, until now, India has not taken any steps to regulate cryptocurrency mining for its harmful effects on environmental sustainability. Although SEBI recently, in March 2021, had issued new guidelines on disclosure norms on sustainability-related reporting for the top 1,000 listed companies by market cap, which includes Environment-related disclosure, the regulation of crypto mining seems not to be affected by the SEBI guidelines. In India, despite the speculation of banning cryptocurrency, the trade is subsequently rising. The matured growth of crypto as an asset class in India needs strong regulation to force market players to create portfolios attracting greater environmental benefits. The regulations must include : Stricter Disclosure Regulations with respect to crypto-mining methods would foster a greater sense of responsibility in the minds of market players. For instance this can be done under the aegis of the SEBI norms on sustainability-related reporting released in March,2021. A guidance mechanism and up to date database displaying the on-going mining operations (for market players and investors respectively) would make crypto-mining a transperant process with respect to environment. Eventually, this would attract responsible investors towards crypto-trading/investing. A comprehensive and stringent compliance mechanism promoting environmental friendly crypto-mining would help in avoiding alarming situation in future. Inclusion of monetary penalties and prohibiting crypto-trading for the entity who performs severe non-compliance would imbibe sense of responsibility in the minds of crypto investors/traders. Promoting more intelligent methodologies like Proof-of-Stake (PoS) method would reduce the ill-effects of Proof-of-Work method. Also, a guide to PoS methodology would make it an approachable and performable method for market players. This shift would help in restricting the entry of crypto-miners and motivate more responsible and well-equipped crypto-miners. Social  On the social front swift transacting ability of the crypto has attracted the masses due to economic disruptions in recent times. The cryptocurrency network provides flawless transactions across the world along with minimal hindrance from the financial regulators. However, the conflict between private and sovereign propriety over crypto is primary to the cryptocurrency struggle in India. The lift of the RBI ban and Supreme Court verdict of 2020 has raised the hopes of Private Crypto start-ups. Almost 300 start-ups in India have created huge job opportunities for youth, boosting tech infrastructure. The Indian government’s stance to centralise the crypto in order to transfer stability to crypto investing/trading in India would make the industry more restricted. Eventually, this would keep India behind other countries and adversely affect Indian economy. The swift transacting capacity and no hinderance from intermediaries is characteristic to crypto. Centralisation of crypto would highly affect this unique feature, juxtaposing it to a car without fuel. Hence, promoting a decentralised crypto is equally important as the centralised crypto to create a balance in the industry and cope up with worldly developments in crypto regime. The wide usage of Etherium Crypto has fostered investment opportunities like Decentralised Finance (DeFi). Consequently, smart contracts have brought in the innovation-driven Non-fungible Tokens, a more secured and un-replicable asset with unique identities. DAO is another trending avenue for investment with great scope to boost the economy and shrink the externalities like inflation and depreciation. Amongst all these innovations, fintech and DeFi regimes of crypto have certain associated risks of their own. For the Indian scenario, an intact mechanism addressing investor safety, market integrity, and prevention of financial crimes to boost crypto’s social and financial credibility are vital. The mechanism must include : Guidance and infrastructure along with resources must be provided to the market participants through efficient policies. Strict enforcement regime for market players would help foster financial safety in the industry accompanied by KYC and anti-money laundering mechanisms in DeFi. Stricter capital rules regarding crypto may include minimum capital standards for private banks to maintain liquidity and prevent a shortage in the market. Similar conservative prudential

 [By Shaivi Nihal Shah & Palash Moolchandani] The authors are students at the National Law University Odisha. Introduction Infrastructure Investment Funds (“InvITs”) and Real Estate Investment Trusts (“REITs”), collectively referred to as ‘business trusts’, have recently witnessed increased popularity in the country. Over the past few months, Indigrid, an Indian InvIT (“I-InvIT”), put out a Rs. 1284 crore – rights issue and Brookfield India, an Indian REIT (“I-REIT”), listed a Rs. 3800 crore – public issue, showcasing the growing traction of business trusts. Some of the reasons investors find such trusts attractive are the tax benefits offered and the mandatory requirement to pay out 90% of distributable cash flows on a semi-annual basis. Recently, the government has made significant efforts to promote these trusts and make them more accessible to retail investors. For instance, in 2019, the Security and Exchange Board of India (“SEBI”) notified certain amendments to the SEBI (Infrastructure Investment Trusts) Regulations, 2014 and the SEBI (Real Estate Investment Trusts) Regulations, 2014 whereby a number of positive changes to the existing regime were introduced. In February 2021, the Finance Minister of India, Ms Nirmala Sitharaman, while releasing the Budget 2021-22, announced that business trusts would be exempted from Tax Deducted at Source, and advance tax payments would only be needed to be made when the amount of dividend income was announced. Notably, business trusts were also permitted to raise debt funds from foreign portfolio investors to reduce the liquidity crunch. However, despite the impetus given to business trusts by the government, India is still in a fairly nascent position as only 15 InvITs and 4 REITs are registered with the SEBI. This article attempts to analyse the regulatory framework of more mature business trust regimes and determine the key takeaways that India can replicate. Structure of Business Trusts In essence, business trusts can be considered to be collective investment schemes formulated as trusts. They are multi-tiered and comprise sponsors, trustees, investment managers and project managers. Certain requirements have been laid down by the SEBI to determine the eligibility of individuals and entities to qualify for these positions. The factors for eligibility are based on assets owned, net-worth and the relevant work experience. In terms of tiers, the sponsor acts as the anchor and creator of the trust. The sponsor then appoints the trustee, who is expected to oversee the work of the project manager and the investment manager. The investment manager typically supervises, manages and makes decisions regarding the investments and divestments of these trusts, and guarantees their activities. The duties of the project manager are to manage the assets of the trust and ensure that the projects undertaken by it are concluded in a timely manner. Deconstructing the Best Practices from Other Jurisdictions: Key Takeaways for India            I.         Investment in foreign assets All mature business trust regulatory jurisdictions do not restrict investments in foreign assets. Jurisdictions like Singapore have benefitted greatly from this and have experienced exponential growth in the last decade. In fact, its last 10 REIT IPOs have 100% of their assets outside Singapore while 80% of all the REITs in the country have investments in foreign assets. This is a clear indication of its transformation into an international hub for REIT listings. I-REITs/I-InvITs should also be allowed to invest in offshore assets as this would help them diversify their portfolio and explore different avenues of generating income. Further, the recent addition of institutional investors like mutual funds and insurance intermediaries as ‘strategic investors’ will ensure less shortage of funds for investments in foreign assets. This would also lead to higher investments from foreign and non-resident holders, as was observed in the case of Singapore. However, introducing such a provision should come with a caveat. Permitting investments in foreign assets can take attention away from Indian projects, contravening the very objective of introducing business trusts in India- to revive the cash strapped real estate and infrastructure sectors. Therefore, it is suggested that there should be a maximum limit on investment in foreign assets.         II.         Minimum Subscription Size SEBI has recently amended the minimum allotment and trading lot requirements for publicly issued business trusts. The minimum subscription for I-InvITs has now been reduced to 1 lakh from 10 lakhs and for I-REITs to 50,000 from 1 Lakh. However, in order to attract a larger base of retail investors, there is a need to further dilute the amount under this threshold or completely do away with it. The SEBI should take a cue from advanced jurisdictions like the United States (“US”), Australia, the United Kingdom, Germany, etc., who do not follow the principle of minimum subscription threshold.       III.         Internally Managed v. Externally Managed The question of whether business trusts should be managed internally or externally has always been proffered to regulators around the world. The US-REIT market, which is the largest in the world, predominantly follows an internal management system, whereas in the Asia Pacific region, apart from Australia, REITs are mostly externally managed. The latter has historically faced challenges regarding fee structures and conflicts of interest between the external management and the unitholders of the REIT. Thus, while an external manager offers better expertise, resources, personnel and influence than an internal manager, it is extremely difficult to align the interests of the manager with that of unitholders. To counter these challenges, countries have adopted strong corporate governance requirements to ensure better market discipline and accountability of business trust managers to the unitholders. For instance, the Monetary Authority of Singapore’s (“MAS”) Licensing Guidelines require licensed management companies registered on the Singapore Exchange to mandatorily conform to the country’s Code of Corporate Governance. In India, in order to prevent any unscrupulous activities by trust managers, a minimum of 50% of the managing company’s governing board must be independent directors who are not directors on the board of another business trust. However, the regulations do not envisage the responsibilities and explicit liabilities of independent directors of such companies. In this regard, a cue can be