Contemporary Issues

[By Priyanshi Jain] The author is a student of Institute of Law Nirma University.   Introduction Insider Trading is an illegal act of dealing in securities of a company using Unpublished Price Sensitive Information (‘UPSI’) to gain an unfair advantage over other stakeholders. In September 2022, the Hon’ble Supreme Court (‘SC’) in Securities and Exchange Board of India v. Abhijit Rajan held that motive to derive profit should be an essential precondition in determining an offence of Insider Trading. In February 2023, the Securities Appellate Tribunal (‘SAT’) in Quantum Securities Pvt. Ltd. v. Securities and Exchange Board of India, put weight on the position of the Hon’ble SC and reaffirmed that there must exist a motive to utilize UPSI to derive profit for attracting liability in insider trading cases. However, there exists a plethora of contradictory judgements and opposing stances taken by the Securities and Exchange Board of India (‘SEBI’). Consequently, this has led to an uncertainty in the applicability of regulations in ascertaining the role of motive in insider trading cases. This post aims to highlight the regulatory overreach exercised by SEBI in insider trading cases by, time and again, applying the concept of strict liability even when trades are not intended to gain profits from UPSI, but rather are merely fulfilling pre-existing legal or contractual obligations. The post also highlights the constant efforts made by the Hon’ble SC and the SAT to bridge the gap caused by the inconsistent approach adopted by SEBI. It concludes by suggesting reforms to establish a rational system based on motive as an essential precondition to provide a coherent understanding of the conduct that attracts criminal liability in insider trading cases. Motive to derive profit as an essential condition in insider trading cases Regulation 3(1) of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 (‘PIT Regulations’) provides that an insider is a person who has access to UPSI. However, the legislature fails to consider the usage of such information that brings no advantage to the tipper or the tippee by not taking into account the element of motive in such transactions. The communication of such information unknowingly or without personal benefit is also considered to be a ground for liability under the PIT Regulations. Contradicting Opinions of the Court prior to Abhijit Rajan v. SEBI The interpretation of Regulation 3 of PIT Regulations saw a short-lived silver lining in the case of Rakesh Agarwal v. SEBI, wherein, the SAT reversed the decision of SEBI by acknowledging that the PIT Regulations do not take motive into consideration while deciding insider trading cases. However, the views stipulated by the SAT in the above-mentioned case have been impliedly overruled by a series of judicial decisions. The Bombay High Court, in the case of SEBI v. Cabot International Corporation observed that there exists no element of criminal offence under the SEBI Act, 1992 or the PIT Regulations as observed under criminal proceedings. The penalty prescribed is merely pertaining to breach of a civil obligation or failure of statutory obligation. Hence, there does not exist a requirement of considering mens rea as an essential element for prescribing penalty under the SEBI Act, 1992 and PIT Regulations. The Hon’ble SC, yet again, in Rajiv B. Gandhi and Others v. SEBI, observed that implication of motive as an essential precondition of penalty in ‘insider trading’ cases shall act as an immunity for various insiders to violate their statutory obligation and later plead lack of motive. The court opined that this shall consequently frustrate the objective of the SEBI Act 1992 and the PIT Regulations. Balance of Actus Reus and Motive to Derive Profit However, the author argues that, in cases of insider trading, the actus reus element of a crime is well established. In order to draw a line between a conduct that warrants criminal liability and a conduct that is mere possession of UPSI, it is quintessential for the judiciary to incorporate an element that acts as a balance between the above-mentioned conducts. Such balance can be sought by incorporating motive to derive profit or lack of such motive as an essential precondition. Insider trading cases function on the assumption that the perpetrator acts with (a.) specific intent to obtain profit or divert loss (b.) knowledge that the leaked information is price sensitive and (c.) that the information is likely to illegally benefit either the tipper or the tippee; thereby making it an intentional crime. The willingness to obtain an illegitimate profit by unfair means gives insider trading a similar characteristic to that of fraud. The linkage between actus reus and motive in insider trading cases, thus, does not merely indicate a breach of civil or statutory obligation, but also indicates a criminal liability, like that of fraud. The Author believes that the legislature, by not considering the element of motive, is focused on policing business-information rather than preventing individuals from engaging in trade using UPSI with the intention of acquiring profit. Supreme Court’s Attempt to Bridge the Gap: SEBI’s Regulatory Overreach After considering the dilemma, the Hon’ble Supreme Court, in the case of SEBI v. Abhijit Rajan definitively established that the intention to gain profit should be regarded as a fundamental requirement when deciding insider trading cases. The court, in the above-mentioned case, interpreted the foregone SEBI (Prohibition of Insider Trading) Regulations, 1992. However, the judgement is likely to have a severe impact on the recent PIT Regulations. The Hon’ble SC and SAT upheld the opinion that the sale of shares of Gammon Infrastructure Projects Ltd. (‘GIPL’) made by Mr. Abhijit Rajan was in the nature of a distress sale necessitated as part of a Corporate Debt Restructuring (‘CDR’) requirement that would prevent GIPL’s parent company from bankruptcy. SEBI, in the above-mentioned case, has failed to recognize the fact that the sale neither prevented loss nor did it assist in accruing profit, but was merely transpired as a CDR obligation. The SEBI, in yet another case involving Quantum Securities Pvt. Ltd. did

[By Yuvraj Mathur and Ayush Singh] The authors are students of Rajiv Gandhi National University of Law, Punjab.   Introduction Within the first two months of going live, AI-powered chatbots like ChatGPT and Google Bard became worldwide sensations with over 100 million users. While offering great opportunities, there is already a great deal of conjecture on how it might disrupt several industries, democracy, and our everyday lives. With AI gaining consciousness and taking decisions, users have reported that the chatbot is claiming to have feelings, gaslighting them, refusing to accept its mistakes, threatening them, and so on. As per a Fox News report, Microsoft Bing not only indulged in hostile exchanges but also wanted to steal nuclear access codes and engineer a deadly virus. These Large Language Models learn natural language sequences and patterns from vast amounts of text data culled from existing sources like websites, articles, and journals to generate intricate results from simple input. In order to achieve this, it uses a modified version of the “Generative Pre-Trained Transformer” (GPT) neural network Machine Learning (ML) model. As AI systems like ChatGPT trained by OpenAI become more advanced and sophisticated, their potential applications in the legal domain continue to expand. In order to assess the necessity of implementing an AI-centric policy in India, this article critically evaluates the potential uses of the AI system in the field of law as well as its legal ramifications. Revolutionising the Commercial Landscape In light of the buzz Generative AI creates on media platforms, it can have a wide range of use cases in the commercial sector. 1. Customer service: Conversational AI can be used to provide automated customer support via chatbots, helping customers with frequently asked questions, order tracking, and other inquiries. It can also assist in lead generation and conversion by providing personalized recommendations and engaging in conversational marketing with potential customers. 2. Legal Research: AI Chatbot ChatGPT can provide general legal information on a wide range of topics and can also help with legal research by providing relevant cases, statutes, and regulations. After feeding it 50 prompts to test the reliability of its legal assistance, Linklaters, a magic circle law firm, concluded that legal advice is often context-specific and relies upon several extrinsic elements. 3. Legal Drafting: The software might theoretically be used to produce early drafts of documents that do not entail significant creativity. Nevertheless, since it does not grasp the law, correlate facts to the law, or employ human abilities like emotional intelligence and persuasion, it is likely to be deceptive in more intricate and nuanced legal documentation. Allen & Overy (A&O), another magic circle law firm by incorporating Harvey, a cutting-edge AI platform based on a subset of Open AI’s most recent versions optimised for legal work, has made significant strides in the field of artificial intelligence. Harvey is a program that automates and optimizes several aspects of legal work, including regulatory compliance, litigation, due diligence, and contract analysis by employing data analytics, machine learning, and natural language processing. Another machine learning software, Kira, assists in precisely and effectively identifying, extracting, and analysing contract and document information. 4. Data analysis and insights: Generative AI can analyse large volumes of customer data and provide insights on consumer behaviour, preferences, and trends, helping businesses make informed decisions. It can also be used to generate content such as product descriptions, marketing copy, and social media posts, saving time and effort for businesses. 5. Personal assistants: Virtual Assistants can act as digital subordinates, helping with tasks such as scheduling, reminders, and managing emails, despite being quite generic and superficial. ChatGPT can provide employees with personalised training and development content, helping them learn and upskill in their jobs. The Liability Conundrum ChatGPT’s position in the legal diaspora has been in question since its origination. The concept of liability of AI Chatbot’s has been in news recently after the revelation of certain racially discriminating content by ChatGPT in a prompt raised by a U.C. Berkeley professor, which revealed the inherent biases within the software. Any act of discrimination fundamentally goes against the tenets of Article 14 of the Indian Constitution. For the same, the question of the ownership of the content provided by ChatGPT and these Large Language Models becomes pivotal. In a reply created by ChatGPT in response to a prompt by the authors, the AI-based Chat Box’s reply reflected that it lacked indexing of data and was unable to provide the authors with the source of the information as presented by the Chatbot. Furthermore, these Large Language Models can be observed as aggregators of the information provided by them, and the makers of such AI models can be held accountable for the same. A similar case of a platform being observed as an aggregator was visible in the case of Facebook, where the social media giant acted as an aggregator and undertook racial profiling as a method to identify the target audience for advertisements. As aggregators, these Large Language Models can be held on the same footing as Facebook, as both act as a medium of information between the content creator and content consumer The Predicament of Ownership An offshoot of the accountability dilemma is the issue of Ownership of the created content. The issue revolves around the fact that AI-generated content is created from pre-existing copyrighted data sets. Certain lawsuits, such as HiQ Labs v. LinkedIn and Warhol v. Goldsmith, and others, revolve around the issue of data harvesting from copyrighted content to train AI systems. For instance, Goldsmith established her contention in the Warhol ruling by demonstrating how Warhol’s prints violated the copyright of her images, notwithstanding Warhol’s argument that they were transformed in terms of size and colour. The U.S. authority should be used as a strong justification in this case even though Indian courts have not yet dealt with this question. Moreover, Section 43 of the IT Act, 2000 makes it illegal to retrieve data without permission. The AI models create certain data by amalgamating various sources of information but

[By Tanvi Shetty] The author is a student of O.P. Jindal Global University.   Globally speaking, the position maintained by online applications such as Uber with respect to their drivers is that they are independent third parties and the scope of their agreements with such drivers falls outside the purview of a standard employer-employee relationship. In holding so, the companies are able to navigate through their consumer and employer obligations. However, a recent consumer dispute case, Kavita Sharma v Uber India [“Kavita Sharma”] decided on August 25 2022 analysed liability of Uber India with respect to its drivers. While the judgement does not essentially deem the drivers as employees, it does introduce an aspect of agency by focusing on certain factors within the Uber ‘Terms & Conditions’ which helps expand on the larger discussion of rights of platform workers with respect to such intermediaries. The Consumer Case The complainant (Kavita Sharma) had booked a cab to the airport through the Uber Application on June 12, 2018. Pursuant to certain delays on the end of the driver, the complainant missed her flight. The complainant cited that the driver was unresponsive and caused unnecessary impediments by taking a route longer than the one stipulated by the mobile application itself. The result of the same was an inflated cab fare, showing an amount of Rs.702.54/- instead of Rs.563/- which was reflected on the Uber App at the time of booking. Aggrieved by the same, the complainant filed a consumer dispute against Uber India deeming them to be liable for the acts of the driver. The global stance retained by platforms such as Uber is that they are merely an ‘intermediary’ and do not share an employee-employer relationship, thereby dodging liability for acts of their drivers who are termed as independent third-party partners. However, contrary to their stance, the consumer court in the present case imposed liability on Uber India for the actions of their driver citing that the ‘controlling authority’ is Uber India. The court delved into the ‘Terms & Conditions’ of the Uber application and analysed that even though the drivers are not employees of Uber, it is Uber India that manages and controls the application and fare prices and offers transportation and logistics services to the customers. Further, the drivers are mandated to act as agents and collect payments on behalf of Uber India for the services offered by Uber India. In looking at the substance and form of transaction between the customer and Uber India, the consumer court held that the customer is paying Uber India for its services and not the driver itself. Subject to the above listed reasons, the consumer court held Uber India liable for the defective services provided by the driver thereby making the complainant entitled for compensation as well. UK Judgement Interestingly, a 2021 United Kingdom judgement (Uber BV and Ors v Aslam and Ors,[2021] UKSC 5) was cited by the complainant in her submissions to the consumer court which has gone ahead to establish drivers to be workers of Uber itself, eliminating the scope of debate on vicarious liability of Uber and other social security obligations that drivers are entitled to. The court in the judgement assessed the relationship between Uber London and its drivers to determine whether the drivers could be brought under the purview of a ‘worker’. The court’s rationale was centred around analysing the degree of subordination of drivers and the control Uber London had over their work. While the Uber model allows drivers to have a certain level of independence and autonomy, the drivers are bound and controlled by Uber terms every time they log into the application. The court assessed how Uber regulates and monitors the details pertaining to the rides accepted or rejected by each driver. Aside from the fare prices being determined by Uber London, Uber London also holds the right to automatically log off the drivers from the application if they do not meet a specific rate of accepted rides[1]. Further, even though the vehicles were purchased by the drivers themselves, the vehicles were vetted by Uber London and the business of the drivers and use of the vehicles were reliant on the Uber application itself. The idea of “irreducible minimum of obligation” was re-visited in the judgement wherein courts are to look for a minimum obligation to do work[2]. The court tied this with the obligation of the drivers to maintain a certain rate of accepted rides to come to their conclusion that the drivers were in fact ‘workers’ under the UK Labour legislations. Statutory Solutions and Lacunae The Kavita Sharma case is a small step in the larger debate of liability of platforms such as Uber and rights of platform workers. While the case is centred around a consumer liability perspective of an intermediary service provider such as Uber, India is yet to streamline the labour laws surrounding platform workers. The Code on Social Security 2020 [“Code”] has defined “platform work”[3] to be work centred around organisations or individuals accessing online platforms to access other individuals or organisations for a specific service or to solve a specific problem. The Code confers the central government[4] with jurisdiction to formulate social welfare and beneficial schemes such as that on accidental insurance, health/maternity benefit, life and disability cover, old age protection and education whereas vests the power with the state government[5] to frame schemes on matters such as provident fund, employment injury benefit, housing, skill upgradation of workers and others. Further, there is a registration process[6] for platform workers via an online portal on which platform workers between the age of 16 years to 60 years must mandatorily register. The primary issue that arises with regards to platform workers is that the Code does not separate platform workers from gig workers and workers in the unorganised sector. While the three segments of work have been defined individually, the provisions pertaining to central and state government formulating schemes have been clubbed together. It must be understood that

[By Aayushi Choudhary & Bhanupratap Singh Rathore] The authors are students of Gujarat National Law University, Gandhinagar. Three months after the withdrawal of the Digital Personal Data Protection Bill from the Lok Sabha, the government has come up with revamped legislation. This is the fourth time the government has proposed a bill on digital data protection. The first bill was introduced in 2018 based on the recommendations of the Justice BN Srikrishna Committee. After making some modifications, the government introduced the Personal Data Protection Bill in 2019, which was referred to the Joint Parliamentary Committee. The Committee submitted its report along with a draft for 2021 titled “Data Protection Bill, 2021.” After the committee made extensive changes to the draft, the government withdrew the bill. The purpose of the upcoming bill, as mentioned in the draft, is to provide for the processing of digital personal data. This is done in a manner that recognises both the right of individuals to protect their personal data and the need to process personal data for lawful purposes. Some of the highlights of the bill are: Regulatory Body: The proposed regulatory body framework resembles the European Union’s General Data Protection Regulation. Although the functions and duties of the board are not clearly explained in the bill, the present Data Protection Board has simpler functions than the earlier bills. Child Protection: Every person below the age of 18 years will be considered as a child under the Act. The bill prohibits the tracking of children or targeting advertisements. The bill provides a penalty up to Rs 200 crore for non-fulfillment of any obligation provided under it. Penalties: In the previous draft, penalties were proportional to the company’s global turnover. It was 4% per breach and 2% per breach for non-compliance with any provision. This is done away with in the proposed draft, which provides a fine up to 500 crore instead. Many experts have expressed reservations about such a high penalty. In reality, it would be in the range of 50 to 500 crores. It would be in proportion to the kind of breach, kind of impact that it can create on the end user, and the involvement of the company. The Data Protection Authority and Board will analyse the breach and determine whether a penalty will be imposed. In fact, these penalties are low for tech giants. For example, if the Board fines Google $500 million, it is a very small sum in comparison to the penalties imposed on it by various jurisdictions around the world. If companies can justify that they have managed data well and, despite all the safeguards, a breach has happened, they will not be penalised because there is a finite probability that despite all the security provisions, a breach can happen. Twitter, for example, can be hacked despite spending billions of dollars on security and adhering to numerous security protocols. There should always be room for improvement, and any such industry should be given flexibility. Difference from previous bill: The previous bill was drawn from the EU General Data Protection Regulation (EU GDPR), whereas the present bill is drawn from Singapore’s Personal Data Protection Authority. This is a shorter version with only 30 provisions, whereas the earlier draft had 90 or more. The thirty sections cover areas that are needed for the enforcement of the right to privacy and data protection in a holistic way. It keeps the bill short and simple with simple language to make it understandable. The previous bill lost its essence as cumbersome amendments kept on happening. Data portability, which allowed users to view quotes from one platform to another, has been eliminated under the new bill. The earlier draft also included non-personal data, a concept that is not clear even at the global level, hardware certification, or algorithmic accountability. The revised proposal eliminates all of this and focuses solely on personal data regulation. The “right to be forgotten” is likewise not specifically mentioned in the present bill. Cross-border data flow: The bill eliminated previous restrictions on the flow of data from one jurisdiction to another. In any case, the flow of data is restricted to countries that the government has designated as friendly to the flow of data. Therefore, this will apply to all personal information, not just sensitive and critical data. Centre’s uncontrolled power: Placing a large portion of the important functional section of the legislation for future regulation by the national administration and some sections of the act is indicative of the administration’s unrestrained authority. For example, section 19 of the draft mentions the Data Protection Board of India. Under the bill’s rules, the regulator, which will be granted the same control and authority as a civil court, will be established by the government. Instead of that, the regulator should operate separately from the state and be capable of implementing individuals’ basic liberties while safeguarding due process. Moreover, the measure empowers the government to exclude any government institution from it that it considers appropriate. This power will blatantly contradict natural justice principles. Analysis: For the first time, the government has introduced legislation that makes the person providing the data responsible for its accuracy. It is not only the duty of the data processors or those who are keeping the data to protect it; it is also the primary duty of the individuals to provide accurate data and not file frivolous complaints. The Constitution includes a chapter on citizen responsibility, which has yet to be implemented. This bill has made those duties a part of the law. Section 30(2) of the bill proposes an amendment to Section 8(j) of the RTI Act. As per the present Act, information that relates to personal information is exempt from the Act. However, if the Central Public Information Officer finds that it would serve a larger public interest, the exemption can be revoked. If the proposed bill is approved, personal information will be completely exempt, even if the CPIO otherwise finds that disclosure to be consequential

[By Tanish Gupta and Shubham Gandhi] The authors are students at the National Law University, Jabalpur. In an intriguing case of Lifestyle Equities CV v Hornby Streets (MCR) Ltd., the English Court of Appeal, in addition to other issues, was called upon to decide the applicable law in determining the binding effect of the arbitration agreement on a non-signatory, arising out of a trademark assignment,  viz. the law governing the arbitration agreement or the law governing the assignment of the trademark. While the majority ruled in favour of the former, Snowden LJ, in his dissent, found the latter to be the applicable law since the contractual consensus of the parties to the agreement does not answer the issue raised. In this article, the authors aim to elucidate the controversy, the cogent dissent of Snowden LJ, and the inadequate analysis provided in the majority opinion. Facts of the Case The present suit has been instituted against the alleged infringement of the registered trademark by Santa Barbara Polo & Racquet Club (“Respondent”). Lifestyle Equities C.V. (“First Appellant”) and Lifestyle Licensing B.V. (“Second Appellant”) is the registered proprietor and licensee, respectively, of the concerned trademarks, which include the figurative mark – the “Beverly Hills Logo” and a wordmark – “Beverly Hills Polo Club” in the UK and the EU. The above-stated trademarks were originally owned by a California-based company, BHPC Marketing Inc. After many assignments in 2007 and 2008, the concerned trademarks were ultimately assigned to the first appellant in 2009. The respondent owns and uses the “Santa Barbara Logo,” similar to the appellants. Given the similarity between the two logos, a dispute arose between the original owner and the respondent in 1997, and to resolve the same, both parties entered into a co-existence agreement. The agreement, in its Clause 7, provided for an arbitration clause and laid out the Californian law as the governing law: “Any controversy, dispute or claim with regard to, arising out of, or relating to this Agreement, including but not limited to its scope or meaning, breach, or the existence of a curable breach, shall be resolved by arbitration in Los Angeles, California, in accordance with the rules of the American Arbitration Association. Any judgment upon an arbitration award may be entered in any court having jurisdiction over the parties.” In 2015, the first appellant obtained a consent letter from the respondent to register the concerned trademarks in Mexico. The Reasoning of Lower Court The Appellants, earlier reached the courts of the United Kingdom and the European Union, praying for relief for infringement of their trademarks by the respondents. The arguments advanced by the appellants in support of their claim were that they were not parties to the 1997 Agreement, that they were not aware of its existence at the time of undertaking assignments of trademarks, and that they were not bound by the arbitration agreement by virtue of Article 27(1) of Regulation 2017/1001 on the EU Trade Mark, and Section 25(3)(a) of the Trade Marks Act 1994. The provisions state that until the agreement is registered, it would remain “ineffective as against a person acquiring a conflicting interest in or under the registered trademark in ignorance of it.” On the other hand, the respondent presented an application for a stay and referred the matter to arbitration, pursuant to Section 9 of the Arbitration Act, 1996. The respondent, while relying on Californian law and the doctrine of equitable estoppel in regard to the 1997 Agreement to obtain the consent letter in 2015, contended that the 1997 Agreement bound the appellants as assignees of the trademarks. In light of the arguments of both parties, Hacon J, who delivered the Lower Court’s judgment, decided to stay the claim and reasoned that under English law, the appellants had become parties to the 1997 agreement by virtue of having dealt with the respondent in 2015. Alternatively, with the application of the governing law, i.e., the Californian law, the parties were bound by the 1997 agreement as it was a burden attached to the trademark assignment and thus passed with it. Lastly, the doctrine of equitable estoppel precluded the appellants from disputing the binding effect of the 1997 Agreement on them. The Judgment of the Court of Appeal The three-judge Bench, though while granting a stay, disapproved of the reasoning of Hacon J. with regard to the first issue. The Bench affirmed that since neither party had argued on the matter of the appellants being parties to the 1997 Agreement under English law, the Judge should not have decided on the same. On the issue of equitable estoppel, the Bench agreed that reliance on the doctrine was misplaced since the appellants did not rely on the 1997 agreement but rather on the consent letter, and their conduct was not “inextricably intertwined with the obligations imposed by” the 1997 Agreement. The second issue pertained to whether the parties were bound by the 1997 Agreement on account of the applicability of Californian law. It is at this point that the Bench had divergent opinions. Though the Bench agreed that the issue was not of ‘interpretation’ of the arbitration agreement, the majority characterized the issue of whether a non-signatory is bound by the arbitration agreement “as an aspect of the scope of the agreement.” Referring to Kabab-Ji SAL v Kout Food Group (“Kabab-Ji”), wherein the U.S Supreme Court held that the governing law of arbitration agreement also governs the question of who are parties to the agreement, the majority opined that the logical corollary would be that the question of who is bound by the arbitration agreement is governed by the governing law as well. The Compelling Dissent of Snowden LJ Snowden LJ’s dissent is premised on the distinction between the issues, namely, who is a party to an arbitration agreement and who is bound by it. The questions pertaining to ‘interpretation’ and ‘scope’, which deal with matters covered under the arbitration agreement, are to be resolved based on consensus between the parties to the agreement. The parties’