Contemporary Issues

[By Akhil Raj & Ekta Gupta] The authors are students of National Law University Odisha.   INTRODUCTION  If a person frequently purchases airline tickets online, they have probably encountered websites that use the phrase “I will stay unsecured” in the event that the buyer declines insurance coverage. This is a classic example of how dark patterns function to nudge people into making forced choices thereby generating commercial gains for the sellers, advertisers, or any such platform.   According to data revealed by the Advertising Standards Council of India (ASCI), 29% of the advertisements they processed between 2021 and 2022 were influencers’ covert advertisements, indicating a kind of dark pattern. Hence, in a virtuous endeavor to regulate the e-marketplace and to rein in the use of dark patterns, the Central Consumer Protection Authority (CCPA) introduced the ‘Guidelines for Prevention and Regulation of Dark Patterns, 2023’ (The Dark Patterns Guidelines). The Dark Patterns Guidelines pique interest owing to its admirable aims and purpose but this blog strives to go beyond the fine print and unveil the limitations in terms of its applicability, stringency, and obscure provisions.   NOTABLE ASPECTS OF THE GUIDELINES  The Dark Patterns Guidelines representing an important attempt to regulate deceptive interfaces and protect ‘users’, define dark patterns as manipulative digital design practices that are used to deceive users to influence their decisions and choices. Such devious practices shall amount to misleading advertisement, unfair trade practice, or violation of consumer rights. In other words, it states that engaging in any dark pattern practice for commercial gain that impairs user choice amounts to an unfair trade practice or misleading ad under consumer protection law. The applicability of the Dark Patterns Guidelines extends to all platforms, advertisers, and sellers and it unequivocally forbids any person from indulging in the practice of dark patterns.  The Dark Patterns Guidelines provides illustrations of specific dark pattern practices. For instance, online travel sites may use ‘false urgency’ tactics like claiming “only 1 room left!” to pressure users to make quick purchases. Food delivery apps can engage in ‘basket sneaking’ by automatically adding a small donation amount during checkout without consent. Platforms can use ‘confirm shaming’ by displaying messages like “No thanks, I want to stay uninformed” when users try to reject newsletter signups, guilting them into accepting. ‘Nagging’ tactics can be seen when education sites relentlessly prompt users to share emails or accept cookies to access services, persistently disrupting the experience. These demonstrate how various dark pattern techniques exploit users through deceptive design elements on online platforms.  Although, these specific dark patterns have been recognized but the definitions and the interpretation of their functionality as mentioned in the Guidelines are not legally binding and may change from case-to-case basis  RECONCILING INCONSISTENCIES AND GAPS WITH EXISTING LAWS:  E-market platforms and consumer data are the prime focus of the Guidelines and these aspects also fall within the scope of other statutes including the Information Technology Act, 2000 (IT Act), the Digital Personal Data Protection Act, 2023 (DPDP Act), and the Guidelines for Prevention of Misleading Advertisements and Endorsements for Misleading Advertisement, 2022 (Advertisement Guidelines).  To begin with, the wide definition provided for ‘platforms’ in the Dark Patterns Guidelines brings within its ambit, all sorts of platforms which are an online interface in the form of any software, making such platforms liable for any dark patterns that they indulge in. This implies that even intermediaries which can also be an online-market place fall within the scope of the definition. However, the inconsistency is that Section 79 of the IT Act extends safeguard to an intermediary from any information or data from third parties, presented in any way, that they provide access to or store on their platforms.   Further, the Dark Patterns Guidelines prohibits the practices where the user is forced to enter some personal details (for example, email Id and contact information) in order to avail of the services offered by the platform. However, it overlaps with the DPDP Act which is quite particular about the requirement of explicit consent of the person to whom such data relates.   Before the Dark Patterns Guidelines, the Advertisement Guidelines defined non-misleading and valid ads, banning false and dishonest ads. This intent and objective intersects with the Dark Patterns Guidelines.   The CCPA did not consider the prospect of amendments in the existing Advertisement Guidelines or the existence of other coinciding legislations before the release of the Dark Patterns Guidelines leading to an ambiguity in its implementation. The Dark Patterns Guidelines specify that the provisions under the guideline should not be interpreted to be in derogation of any other law which has been regulating dark patterns. But, even the existence of coinciding legislations would amount to confusion. In this case, the regulatory authorities could issue clarifications in the form of FAQs or notifications and should adopt a phased implementation in order to avoid market disruption.   SUBSTANTIAL SHORTCOMINGS  Despite having noble intentions behind the introduction of the Dark Patterns Guidelines, the dearth of appropriate provisions in its substantive part makes its effective execution challenging. For instance, in case of violation of the Dark Pattern Guidelines, it does not allude to the forum to be approached in that case. Albeit, when the draft was released, it stated that in case of any violation, the provisions of the Consumer Protection Act, 2019 (CPA), shall apply.  By removing this provision, the CCPA left the Dark Patterns Guidelines toothless.   Additionally, the absence of specific penalties for the contravention of the Dark Patterns Guidelines strips away the enforcement authority. Since, in a general scenario, corporate entities in the form of e-commerce platforms indulge in such practices, thereby demanding the existence of penal provisions. Although, the exact amount of the compensation to be awarded would depend on the facts and circumstances of each case, levying a specific penalty can be the way forward. For instance, penalizing the alleged entity to disgorge a certain percentage of its average turnover in the last preceding years and increasing it for the repeat offenders. The non-existence

[By Sibasish Panda & Disha Bandyopadhyay] The authors are students of National Law University Odisha.   Introduction India’s economy stands as one of the fastest-growing major economies worldwide. The growth in the investment market has been impeccable especially with the Alternative Investment Funds (AIFs) now surpassing the mutual funds (MFs) in terms of growth rate. With transparent structures, a diversified portfolio, and a promise of superior returns the industry has attracted investment from a wider spectrum of investors encompassing High Net individuals (HNIs) and Ultra High Net Individuals (UHNIs). AIFs have experienced a remarkable Compound Annual Growth Rate (CAGR) of 26%, resulting in impressive assets under management (AUM) of ₹13.74 lakh crore as of June FY24. SEBI as of June 2023 reported the total commitment by the AIF industry to stand at Rs 8.44 trillion. The Security Exchange Board of India (SEBI), and the Reserve Bank of India (RBI) are working hand in hand to make the market more investor-friendly by curbing shoddy practices such as “Evergreening of loans” through AIFs. SEBI was reported to investigate such cases involving Rs15,000 crores to Rs 20,000 crores. In November 2022 it also banned the priority distribution (PD) model of the AIFs and now the RBI has come up with a circular directing lenders investing in alternative investment funds to liquidate their holdings if the funds invest in a debtor firm.  The authors in this blog try and analyse the impact of the RBI guidelines on the players involved in the industry. Background  RBI noticed a practice whereby banks or Non-Banking Finance Companies (NBFCs) when they find that a borrower is unable to repay, float an AIF, invest funds in that AIF, and lend the money to the stressed company so that it can repay the bank or the NBFC. Now since AIFs redeem themselves after six or seven years the borrower company has enough time to turn A naround. This practice of extending new loans to a borrower to pay the existing loans thereby concealing the status of non-performing assets is known as the Evergreening of loans. In May 2023 SEBI floated a consultation paper highlighting the regulatory arbitrage of “priority distribution (PD)” among AIFs. It envisages that AIFs maintain the pro-rata rights of the investors since they are privately pooled investment vehicles. Now in a PD model an investor who subscribes to a junior tranche suffers loss more than the one who subscribes to a senior tranche thus disrupting the pro-rata harmony.  This arrangement is used by regulated lenders to offload the bad loans to the AIFs and to mitigate the initial impact on their books.    The regulated lenders subscribe to the junior class of investors and their investment is equivalent to a loss on the loan portfolio given to the borrower. The AIF then onboards other investors to its senior class and subscribes to the Non-convertible Debentures (NCDs) of the borrower company. This investment, representing the expected loss or haircut on the loan portfolio, is shown at par with senior class units in the lender’s books. This structure potentially helps regulated lenders avoid compliance requirements related to defaulting loans, while also deferring the recognition of the deteriorating creditworthiness of the investee company. Now the junior class of AIFs is structured to absorb losses hence by subscribing to the junior class the lender also ensures that in case of any further default by the borrower, the risk is proportionately distributed among the whole class of investors of the AIF and bad loan is not reflected in the books of the lender.   Although the borrower may still default on the AIF, the AIF can hold defaulted debt for extended periods, waiting for potential recovery. The risk is somewhat concealed as the NBFC’s exposure to the AIF doesn’t immediately reflect the default, and the AIF can take several years before declaring the debt as unrecoverable. This process allows the NBFC to maintain the appearance of a healthy portfolio by avoiding the immediate recognition of bad loans and creating a situation commonly known as “evergreening,” where the default is obscured over time.  RBI’s Stringent Measures: Impact on Regulated Entities, Market Disruptions, and Investor Confidence  To prevent this regulatory arbitrage, the RBI in the recently released circular takes a restrictive stance. It has directed investor Regulated Entities (REs) and NBFCs not to invest in any AIFs that have a downstream investment in debtor companies that have loans or investment exposures from the same REs in the preceding 12 months. It further directs the REs to liquidate their investment in the AIFs within 30 days of the AIF’s investment in the debtor company. This timeline applies to both investments as of the issuance of the circular and also in case of any future investments. This short timeline would trigger panic selling among the investors and they would rush to comply with the directive. Such abrupt liquidation of investments and mis-selling in such a short period can cause market disruptions and negatively impact asset prices. The 30-day timeline would be inadequate to carry out thorough due diligence. This raises the risk of undervaluation of assets and diminished return as a result of forced selling.  Another flagged issue is the circular’s broad application to all REs would inadvertently impact Development Financial Institutions (DFIs) such as SIDBI, NABARD, NHB, NIIF, etc. These DFIs often have a developmental mandate to channel capital into specific sectors for economic growth. Unlike entities engaging in evergreening practices, DFIs may not have the intent of concealing non-performing assets. However, the circular, by applying uniformly to all REs, including DFIs, may unintentionally subject them to the same regulatory provisions. This could be counterintuitive to the primary purpose of DFIs, potentially hindering their ability to fulfill their developmental objectives by imposing restrictions meant to address issues unrelated to their specific operations.  In case of failure of the REs to comply with the above direction within the stipulated timeframe, RBI has mandated them to make 100% provision on their investments in AIFs. Now to make a

[By Divya Upadhyay] The author is a student of National University of Advanced Legal Studies, Kochi.   Introduction In the wake of the upcoming 18th G20 Summit being hosted by India, debt relief is one of the most significant changes posed to be brought in through India’s presidency for the 2022 – 23 tenure. Prime Minister Narendra Modi has recently highlighted India’s commitment to address matters of sovereign debt restructuring while at the same time decrying the advantage of debt crisis taken by “certain forces” – implying Chinese involvement through its massive lending programme under the Belt and Road Initiative to developing and emerging economies. In the South Asian region, particularly hit has been the Sri Lankan Economy with its external debt posed to reach a record high of  58.5 billion USD in 2023. There is substantial discourse surrounding China’s dual role as the single largest creditor to Sri Lanka and its non – involvement in the multilateral debt resolution process, which has led to a significant lack of transparency. However, there has been relatively little discussion about the ancillary consequences stemming from this situation. China’s avoidance to cut down on Sri Lanka’s debt through writing off, disrupts the larger multilateral process initiated by the International Monetary Fund and Paris Club – an informal group of official creditors, seeking to find sustainable solutions for the debtor nations. The Paris Club operates based on the principle of “comparability of treatment”. This means that a debtor country should not accept less favourable terms from non-Paris Club creditors, such as China, than those negotiated with the Paris Club. In essence, this principle aims to ensure that all creditors are treated equally and that no single creditor, like China in this case, receives preferential treatment. However, China’s unwillingness to participate in debt relief efforts can create a situation where private sector creditors are encouraged to demand more favourable terms from debtor nations. When China does not write off or reduce the debt, it sets a precedent where other creditors, especially private sector ones, may hold out for better repayment terms, further complicating the debt resolution process. Holdout creditors often reject the haircuts (or discounts) taken up by other creditors and insist on the full repayment of their debt. This reduces the debt relief received by the indebted country as well as increases the costs through disruptive individual litigation. Sri Lankan Single Series CAC Problem Thus far, the main policy response to solve this type of creditor coordination problem has been the introduction of Collective Action Clauses (CACs) in sovereign bond contracts. CACs are majority restructuring clauses, that alleviate the creditor coordination challenge by specifying threshold requirements for creditor approval and establishing a voting mechanism, often requiring a majority or supermajority vote. Once the threshold is met, the restructuring plan becomes binding on all creditors, preventing holdouts from obstructing the process. However, restructuring expert, Lee Buchheit has noted that a CAC on some of Sri Lanka’s older dollar bonds gives creditors a potential opening to hold the sovereign nation hostage and stall restructuring negotiations. This is a “single series” CAC, which allows a minority of bondholders to veto or demand terms in the negotiations. Single series CACs typically require a 66 ⅔% or 75% majority in “each individual series” irrespective of the aggregate acceptance rate. In Greece in 2012, in particular, more than half of the foreign-law bonds that had this type of bond-by-bond clauses did not reach the necessary voting threshold, resulting in large-scale holdouts despite CACs. As opposed to this, “enhanced” CACs in Argentina, Ecuador and Ukraine reduced the average duration of a sovereign debt restructuring from 3.5 years to 1.2 years. These enhanced CACs bind all creditors to any deal agreed to by a supermajority of creditors, making it easier to get to a deal, and removing the power of holdouts. Indian Intervention to Avert Hold Out The difficulty in Sri Lanka’s case is that while a majority of its private creditors hail from Western developed economies, the pivotal bilateral creditors originate from Asia. Middle-income countries such as China and India, alongside high-income Japan, wield notable significance. Effective collaboration between official creditors notably China and the Paris Club of Creditors, thus becomes paramount. To avoid a repeat of earlier debt crises and “a lost decade”, restructuring efforts should prioritize write-downs rather than emphasizing maturity extensions and interest rate reductions. The IMF relies on the Debt Sustainability Assessment as its primary tool to evaluate debt sustainability risks. If this assessment indicates the necessity of write-downs to restore sustainability, they should take precedence over other measures like extending maturities and reducing interest rates, a practice observed in China. Past major debt crises in the 1980s and 1990s were only resolved when the focus finally shifted to debt relief through write-downs, first with the Brady Plan and later the Heavily Indebted Poor Country Initiative. However, both these measures primarily accommodated low-income countries. While India through its G20 presidency has expanded the focus to even middle-income countries such as Sri Lanka, it can further establish a local South Asian threshold through its domestic framework. India could take from the three New York proposed legislations, which seek to address some of the challenges that sovereigns face when seeking to restructure their debt. This would address the efforts of some holdout creditors to frustrate or circumvent the consensual resolution of a sovereign debt crisis. The proposed legislations would apply a CAC-style collective voting process to a wide range of New York law-governed debt claims. Assembly Bill A2102A will retrospectively change debt contracts by introducing the statutory collective voting mechanism under a new Article 7 to the New York State Banking Law. This would override any existing CACs to make the mechanism binding. A second bill, A2970 aims to extend “burden-sharing standards” to include private creditors. Under these standards, private creditors would be required to absorb the same level of losses or haircuts, as the U.S. government, acting as a sovereign creditor, when a financially distressed low-income country

[By Pritha Lahiri & Ria Agrawal] The authors are students of Institute of Law, Nirma and University Symbiosis Law School, Noida   PROLOGUE: WHO ARE FINFLUENCERS The audience on social media platforms is growing worldwide, resulting in a more varied group of people. To sustain such engagement, creating diverse content is crucial, ranging from entertaining dance videos to educational lectures and even valuable financial advice. Individuals who use their social media presence or websites to discuss financial products and services and provide investment advice are referred to as “Finfluencer”. Finfluencers often generate income and receive incentives by endorsing specific financial information or products. Finfluencers have played a significant role in increasing financial literacy and engagement amongst  young people. According to a survey, 33% of people aged 18 to 21 follow a financial influencer on social media, while 64% changed their financial behaviors based on finfluencer’s advice. However, it is crucial to recognize that every concept has both positive and negative aspects, and the rise of finfluencers is no different. Trust is a fundamental component of the influencer-audience relationship, as the audiences’ trust allows the influencers to thrive. The concern arises when considering the extent to which finfluencers are maintaining the trust of their audience. According to Regulation 2(1)(l) of the Securities Exchange Board of India (“SEBI”) (Investment Advisers) Regulations 2013, “investment advice” encompasses guidance related to securities and investment products, including recommendations on buying, selling, and managing portfolios. However, this regulation explicitly excludes advice provided by finfluencers through social media. On a similar footing, such advice is covered under the SEBI (Research Analysts) Regulations 2014, specifically under the provision of research reports as stated in Regulation 2(1)(w). Unfortunately, financial advice offered by finfluencers does not fall within the purview of these regulations since research reports can only be provided by SEBI certified research analysts who hold a postgraduate degree from the National Institute of Securities Markets, as required by Regulation 7(1)(iii). Consequently, there is currently no precise definition or specific guidelines outlined in Indian legislation regarding the financial advice provided by finfluencers. In light of such enigma, the article explores the existing regulatory framework, identifies its limitations, proposes potential solutions and measures to address the concerns surrounding finfluencers. The authors have argued that by striking a balance between financial education and safeguarding investors, a regulatory environment can be created that promotes responsible behavior amongst finfluencers  upholding the integrity of the financial market. NEED FOR REGULATION Lately, Finfluencers have faced backlash from SEBI as well as the investor community for providing unsolicited stock recommendations on social media platforms without being registered as investment advisers. In the most recent instance, the regulatory authority punished PR Sundar, a YouTuber, for violating Investment Advisor norms by providing advisory services without obtaining the requisite registration from SEBI. Furthermore, it fined a self-styled investment advisor Gunjan Verma for offering unregistered services violating the SEBI Act. Earlier in the case of In Re: Sadhna Broadcast Limited[1], SEBI, under the provisions of the SEBI Act read with Prohibition of Fraudulent and Unfair Trade Practices (“PFUTP”) Regulations, had prohibited Arshad Warsi and his wife from accessing the securities market after allegations of stock manipulation through dubious and misleading youtube videos. Securities Appellate Tribunal[2], however, granted interim relief stating that the SEBI order was bereft of evidence. In the case of Marico Limited v. Abhijit Bhansali[3], wherein “social media influencers”  were regarded as a nascent category of individuals who have acquired a considerable follower base on social media and a certain degree of credibility in their space. The decision also noted the need to impose specific responsibility on such influencers, considering the power they wield over their audience and the trust placed in them by the public. The lack of transparency regarding the finfluencers’ qualifications and expertise raises doubts about the reliability of their financial advice. Additionally, there is uncertainty surrounding any potential financial transactions between finfluencers and the entities they endorse. This situation is concerning as the regulatory gap creates an opportunity for scammers to exploit the platform and manipulate stock prices and hence there is a pressing need for stringent regulation. A CLOSER LOOK: DISSECTING EXISTING REGULATORY FRAMEWORK SEBI Act read with PFUTP Regulations Through Section 12A of the SEBI Act, SEBI possesses the authority to investigate and take action against entities involved in fraudulent and unfair trade practices. This provision empowers SEBI to impose penalties and implement necessary measures to safeguard the interests of investors. Regulations 3 and 4 of the PFUTP Regulations offer specific guidelines and rules to prevent fraudulent and unfair practices in securities trading. These regulations outline prohibited activities, such as making misleading statements, manipulating prices, and engaging in insider trading. They also establish a framework for enforcement actions, including penalties and other disciplinary measures, with the aim of ensuring compliance with fair trading practices. SEBI’s utilization of Section 12A of the SEBI Act and the implementation of Regulations 3 and 4 of the PFUTP Regulations reflect its commitment to upholding the integrity of the securities market, protecting investors, and fostering transparency and fairness in trading activities. The Advertising Standards Council of India (“ASCI”), on 27th May 2021, released the final ‘Guidelines For Influencer Advertising In Digital Media’ wherein it laid down specific disclosure requirements and obligations and procedures for registering a complaint in case of violation of the guidelines. National Stock Exchange (“NSE”), in a circular dated February 2. 2023, stated that any payment made by brokers to influencers/bloggers would require prior approval of the exchange and should include specific standard disclaimers. Further, SEBI, vide its Circular dated April 5, 2023, introduced an advertisement code for IAs and RAs wherein it has stated the mandatory contents of the advertisement along with specific prohibitions and requirements of Prior Approval from SEBI before the advertisement. While Sebi has been discussing regulations to address the issue of financial influencers since January 2022, official guidelines have yet to be issued. In a recent Board Meeting held in June 2023, SEBI disclosed that it is in the

[By Arshia Ann Joy] The author is a student of the National University of Advanced Legal Studies (NUALS), Kochi.   Introduction The Micro, Small and Medium Enterprises Development Act, 2006 (hereafter ‘MSME Act’) envisages an effective and less time-consuming resolution mechanism for disputes pertaining to micro, small and medium enterprises in the country, thus facilitating the smooth functioning of these enterprises. Section 18 (2) of the MSME Act clearly specifies the procedure to be followed by the Facilitation Council (hereafter ‘the Council) when a dispute is referred to it. The section states that once the Council receives a reference under section 18 (1), the primary step is to conduct conciliation[i] followed by arbitration, should the conciliation attempts be unfruitful.[ii] This article attempts to discuss whether the scope of the powers envisaged under section 18 can be expanded expanded  to include the power to pass an ex parte order by the Council. This article delves into the nature of the Council as a civil court and its role within the realm of conciliation and arbitration. Furthermore, it examines the ramifications of procedural errors committed by the Council and explores potential remedies available in such circumstances. This article delves into the nature of the Council as a civil court and its role within the realm of conciliation and arbitration. Furthermore, it examines the ramifications of procedural errors committed by the Council and explores potential remedies available in such circumstances. The Council as a Civil Court Ex parte refers to a proceeding by one party in the absence of the other. The Civil Procedure Code under Order IX Rule 6 enables a court to issue an order that a suit shall be heard ex parte once it is proved that summons was duly served. While construing this provision, the Apex Court in Arjun Singh reiterated that if the defendant is absent after due service of summons, the court can proceed ex parte. Furthermore, an ex parte order has to contain the summary of the plaint, the issues and the findings arrived at by the court.[iii] The court further held that, “The burden becomes much more onerous in ex parte matters. The Court cannot blindly decree the suit on the ground that the defendants are ex parte.”[iv] Appreciating the evidence before the court is hence key to a valid ex parte order. The Facilitation Council is however not in the nature of a Civil Court as per the Civil Procedure Code and hence it does not have the authority to pass an order ex parte. This is because firstly, the CPC itself provides for a definition as to what constitutes a civil court. As the Apex Court rightly pointed out in Nahar Industrial Enterprises Ltd. “Which courts would come within the definition of the civil court has been laid down under CPC itself…..Civil courts are constituted under statutes like the Bengal, Agra and Assam Civil Courts Act, 1887.” The Supreme Court recently in Bank of Rajasthan Ltd. vs. VCK Shares and Stock Broking Services Ltd, affirmed the rationale in Nahar. Secondly, a parallel can be drawn between the Facilitation Council and other similar bodies like the Debt Recovery Tribunal and the Securities and Exchange Board of India (hereafter ‘SEBI’). A comparison can be made between these bodies as they are statutorily formed for specific purposes and have certain powers including powers of adjudication ordained to them by the legislature through those statutory provisions. The Apex Court in Nahar Industrial observed that the Debt Recovery Tribunal could not be treated as a civil court as under the relevant statute, the debtor or a third party does not have an independent right to approach it first nor can any declaratory relief be sought for by the debtor from the Tribunal. The court also noticed that there is no deeming provision in the relevant statute which allowed the Tribunal to be deemed a civil court. Applying the same rationale to the Facilitation Council would provide similar results except for the fact that the Facilitation Council can provide declaratory relief under section 18(3). However, the provision makes it clear that this power could be exercised by the Council when it acts as an Arbitral Tribunal and not as a Civil Court. Hence, as the name suggests, the powers entrusted with the Council is to act as a ‘Facilitator’ rather than as a court. Unlike the DRT, the SEBI is empowered to pass ex parte orders. However, it can do so only in extreme and urgent cases. As the Securities Appellate Tribunal (SAT), Mumbai has held, “We hasten to add that Respondent No. 1 (SEBI) is empowered to pass ex-parte ad-interim orders in urgent cases but this power is to be exercised sparingly in most deserving cases of extreme urgency.” The MSME Act however has no such enabling provision which allows the Council to pass an ex parte order. Further, it is a settled position of law that if a statute prescribes a mode of action, the act done must not deviate from the prescribed procedure. As the Apex Court reiterated in Babu Verghese, “It is the basic principle of law long settled that if the manner of doing a particular act is prescribed under any statute, the act must be done in that manner or not at all.” Since section 18 envisages a clear procedure of conciliation and arbitration, the Council cannot resort to passing an ex parte order without adhering to the specifications of the statute. Role of the Council during Conciliation The very heart of dispute resolution through conciliation lies in the mutual nature of the proceedings. Conciliation is a process of persuading the parties to reach an agreement.[v] In conciliation, the parties reach an agreement on the basis of mutual consent and not on the basis of legal propriety or legal reasonableness.”[vi] This follows that if either of the parties fail to cooperate, the entire proceedings will be vitiated. Thus, the Council acting as the Conciliator as per section 18, cannot pass an order

[By Madhav Goel] The author is an Advocate, Supreme Court of India, Delhi High Court & Tribunals.   Introduction An increasing proportion of litigation happening across Indian Courts, including the Hon’ble Supreme Court of India, is commercial and economic in nature. The manner in which the Courts interpret and apply commercial and economic laws, to myriad situations, affects how India Inc. does business. Be it insolvency, arbitration, intellectual property, or tax, the list is endless. The regulatory framework in each of these areas, affected by the legislature and the executive making the law, and the judiciary interpreting and applying it, has a direct and indirect impact on the “ease of doing business”. It determines how well the free market welfare state model that India has come to adopt post-1991 works for the collective interest and economic growth of Indian society. The need for economics to infuse judicial decision making – law is no longer an autonomous discipline Given the wide-ranging impact that judicial decisions have on India’s business environment, it is important to reflect on whether judicial decision-making is approaching the practice and interpretation of commercial laws in a manner conducive to that ultimate, collective goal. What does that mean? Judicial interpretation has generally treated law to be an autonomous discipline, i.e., the legal discipline has its own set of rules for analysing and interpreting the law, and reliance on other disciplines for this exercise is unnecessary. Indian jurisprudence especially, continues to treat law as an autonomous discipline. While that has been the Indian approach, the world over, things are changing, and changing fast. Law is no longer treated as a purely autonomous discipline but is one that is considered to learn from and derive from other disciplines such as sociology, philosophy, history, and economics. While its core principles remain unchanged, it is no longer considered immune from learning from these other disciplines. In the context of commercial laws, the need for legal interpretation to learn from economics is extremely crucial, i.e., the adoption of ‘Law & Economics’ as a tool of interpretation is critical in ensuring that laws are applied in a manner that helps achieve their underlying objectives. Unfortunately, while the knowledge of economics is considered important to law practitioners and regulators and the knowledge of law is important for an economist, the relationship between law and economics has never been given the consideration it deserves. Why should it be given such importance? The aim of these laws is to further economic goals – regulation and promotion of competition in the free market, healthy business practices, and efficiency. When that is accepted, why should the interpretation of the law continue to have a siloed, technical and legalistic approach? Instances of textual interpretation ruining the legislative objective The judiciary’s legalistic approach to interpreting commercial laws has often led to problematic situations arising for India Inc. Commercial laws have often received interpretation that is textually correct but has the effect of turning the law’s intent upside down, thereby defeating its very objective. As a consequence, the legislature has often had to intervene by amending the law and revamping the entire legal framework, thus leading to greater uncertainty of the law. Let us take, for example, the Insolvency and Bankruptcy Code, 2016 (“IBC” or “Code”). The Code, and the issues arising therefrom, have captured the bulk of the time and imagination of the Indian legal system in recent years. However, increasingly, there have been judgements of the Hon’ble Supreme Court, and consequently the Hon’ble National Company Law Appellate Tribunal and the Hon’ble National Company Law Tribunals that have gone against core principles of the IBC, for example, the decision to confer discretion on the Hon’ble National Company Law Tribunal to admit or reject applications by financial creditors to initiate corporate insolvency resolution processes of defaulting corporate debtors in spite of the existence of ‘debt’ and ‘default’, or the decision to give secured creditor status to the Government in respect of dues owed to it in certain cases in clear contravention of the waterfall mechanism. Each of these decisions fails to factor in and learn from basic principles of finance and insolvency economics, thus creating a framework that defeats the objectives it sought to achieve. By adopting a textual approach to statutory interpretation, rather than a purposive approach with its foundation in Law & Economics, the Hon’ble Apex Court has given greater fodder to its critics that question the judiciary’s expertise to suitably understand and interpret commercial and economic legislation. The fact that the Hon’ble Apex Court has erred in these instances is evident from the fact that industry-wide criticism has been supplemented by the Government of India’s decision to mend the Code suitably in order to undo the effect of these judicial decisions. This is not a new trend. Time and again, commercial legislation has been interpreted in India in a manner that has frustrated their purpose. Another example is the judgement of the Hon’ble Supreme Court in NAFED v. Alimenta S.A. whereby the Court refused to enforce a foreign arbitral award on the ground that it was in violation of the public policy of the country. In doing so, the Court expanded the public policy exception/defence against enforcement of foreign arbitral awards to such an extent so as to include mere violations of substantive provisions of Indian law. Consequently, the Court opened the door for arbitral award debtors to engage in speculative litigation and stave off enforcement of foreign arbitral awards by inducing the Court to engage in another review of the award on merits.The judgement, by ignoring the economic objective behind the Arbitration and Conciliation Act, 1996. The negative consequences of this approach are not limited to strictly commercial disputes, but have far reaching impact on private tort law as well. For example, rules pertaining to motor accident cases, that have otherwise proven to be efficient in the economic analysis of liability rules. However, the manner in which the Courts have interpreted the same have resulted in generating

[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