Foreign Direct Investment Regulations Archives

Tenders in Limbo: The High Cost of Judicial Outsourcing

[ByVidhanshu Tyagi] The author is a student of National Forensic Sciences University, Gandhinagar Introduction The bedrock of tender jurisprudence in India is the principle of judicial restraint. Courts have steered clear of functioning as an appellate authority over administrative decisions, specifically in contractual matters. The rationale behind this is clear: the executive being the author of the tender is the master of the process, and judicial interference should be confined to the narrow corridors of mala fides, arbitrariness, irrationality, or a palpable impact on public interest. However, a recent trend emerging from the High Courts, particularly in cases alleging “technical glitches” in e-tendering portals, threatens to erode this well-settled principle. The appointment of external expert committees, as seen in the recent orders of the Delhi High Court in Karix Mobile Private Limited v. Union of India & Ors. (Karix Mobile) and Anandam Minerals Private Limited v. Union of India & Ors. (Anandam Minerals), marks a significant departure from established precedent and risks entangling tender processes in protracted, expert-led investigations, thereby defeating the very objective of timely and efficient public tenders. The Established Law: A High Wall of Restraint The Supreme Court and various High Courts have built a formidable body of case law that strictly circumscribes the scope of judicial review in tender matters. It is settled law that the court should not interfere in tender matters except in the limited exceptions laid down by the Supreme Court. The foundational principles established in Tata Cellular v. Union of India is that the court’s role in judicial review is limited to checking for illegality, irrationality (in the Wednesbury sense), and procedural impropriety. Further, the Delhi High Court in Jindal Steel & Power Ltd. v. Union of India (Jindal Steel), relying on the Supreme Court’s decision in Jagdish Mandal v. State of Orissa, reiterated the triple test that constitutes these exceptions for interference: Is the decision-making process mala fide or intended to favour someone? Is the decision so arbitrary or irrational that no responsible authority could have reached it? Does the decision harm the public interest? If the answers are in the negative, interference is impermissible. This principle was also upheld by the Supreme Court in MHADA v. Shapoorji Pallonji & Co. (P) Ltd. (Shapoorji Pallonji), wherein it overturned the High Court’s decision that had allowed a bidder to participate despite a failed submission. The Supreme Court found that since other bidders had successfully submitted their bids, there was no evidence of a systemic glitch, and granting a “second opportunity” was improper. Furthermore, the Supreme Court has issued a direct procedural caution to High Courts, advising that they must be “extremely careful and circumspect” when entertaining such petitions, as granting stays “may seriously impede the execution of the projects of public importance.” This line of reasoning became the standard for adjudicating “technical glitch” claims. Courts adopted a pragmatic and evidence-based approach. The primary question was whether the glitch was at the bidder’s end or a systemic failure of the e-procurement portal. The determinative factor, as established in Jindal Steel (supra) and the Orissa High Court’s ruling in Mythri Infrastructure & Mining India (P) Ltd. v. State of Odisha (Mythri Infrastructure), was whether other bidders could place bids during the alleged period of the glitch. If the server logs showed successful concurrent bidding activity, the presumption was heavily against the petitioner. The burden of proof to demonstrate a server-side failure, rested squarely and heavily on the aggrieved bidder. This was a high threshold that was often not met, which in turn led to the dismissal of such petitions, sometimes with costs, as evidenced by the decisions in The New Approach: Outsourcing Adjudication to Experts The recent orders in Karix Mobile and Anandam Minerals signal a notable deviation from this established path. In Karix Mobile, the Delhi High Court, faced with an allegation of a technical glitch on the Government e-Marketplace (GeM) portal, directed the Director of the Indian Institute of Technology (IIT), Delhi, to nominate an Expert Committee to investigate the issue. The court deferred its own judgment pending the submission of a technical report. Similarly, in Anandam Minerals, a bidder claimed its screen went “blank/white” for 2-3 minutes, preventing it from placing a higher bid. The portal operator, MSTC, categorically refuted the claim, stating that no other bidder, including those in other simultaneous auctions, had reported any issue. Despite this strong prima facie evidence aligning with the principles laid down in Jindal Steel and Mythri Infrastructure, the Court observed that the matter was “highly technical in nature” and could not be “ascertained by the Court.” Consequently, it directed IIT Delhi to form an Expert Committee to examine the alleged glitch. This deviation is not merely a departure from precedent but also overlooks a fundamental jurisdictional principle, as such disputed questions of fact cannot, and should not, be raised in writ courts. A writ petition under Article 226 is a summary proceeding designed to address patent illegality, not to conduct a roving inquiry into complex factual disputes. The very fact that a court deems an issue “cannot be ascertained” based on affidavits is a strong indicator that the matter is not amenable to writ jurisdiction. Such fact-intensive disputes are not the proper subject matter for writ jurisdiction. If at all any issue exists, the appropriate remedy is a civil suit, where the court can decide the matter based on a full trial with documentary evidence, examination-in-chief, and cross-examination. This aligns with the Supreme Court’s long-standing position, as affirmed in both, Jagdish Mandal and By entertaining these disputes, writ courts are venturing into an evidentiary exercise for which they are not designed, effectively transforming a summary remedy into a fact-finding mission. This approach, sidestepping the established jurisprudence, raises several critical questions: Undermining the Primary Expert: Aren’t the portal operators, be it NIC, MSTC, or GeM, the primary technical experts? Their affidavits, server logs, and technical reports have historically been the primary evidence upon which courts have relied. Appointing an external body like IIT implies that the evidence from the portal operator is insufficient, thereby

Tenders in Limbo: The High Cost of Judicial Outsourcing Read More »

Hidden Charges in Delivery Apps: Legal or Deceptive?

[By Souvick Saha] The student is a student of National Law Institute Odisha 1.Introduction When you order a meal through an online delivery application, you may notice that the final amount you pay is often more than the listed price of the items. A closer look at the bill reveals the layers that compose this sum, other than the price of the meal: i) delivery fees and platform charges, collected by the app itself, ii) packaging costs imposed by the restaurant and iii) the ever-present GST, collected by the restaurant on behalf of the government. In essence, the customer is paying for the costs of the meal, the delivery of the meal, and the convenience of ordering a meal through the platform. However, there is another thing that the customer is made to pay for – the packaging of the meal, which is somewhat perplexing. This is just one example of drip pricing in the quick commerce sector, which has seen rapid growth through the entrance of the daily deliverables market. Besides the restaurants, the delivery platforms are also responsible for various additional charges added to the final price of the daily deliverables, which increases the cost of these deliverables to a much higher rate than the maximum retail price (MRP). 2.Legal Framework Restaurants are charging a fee on the packaging of the deliverable food item to the consumer, in addition to the full price of the items. However, the seller is responsible for the expenses incurred in or incidental to the preparation of the goods into a deliverable state, unless the buyer and seller have agreed otherwise, according to Section 36(5) of the Sale of Goods Act 1930 (Sale of Goods Act). Yet most restaurants get away with putting these charges on the consumer through the employment of dark patterns on the online delivery platforms. It is clear that the provision is only applicable to sellers who deal in goods. Hence, it is essential first to establish whether the food items offered by restaurants on online platforms qualify as a ‘good’ under the Act. Additionally, it is important to investigate whether hiding this charge is a dark pattern, and if so, who bears responsibility for its use – the restaurants themselves or the intermediary platforms. 3.Is food a good? Consumers would place reliance on the Sale of Goods Act to hold sellers liable for the cost of preparing goods for delivery. However, a possible argument is that the restaurants do not sell goods but offer a service for transactions on online platforms. Goods include every kind of movable property in the Sale of Goods Act, while food is explicitly included in the expansive definition provided in the Consumer Protection Act 2019 (Consumer Protection Act). Service has also been defined in inclusive terms as a service of any description which is made available to potential users. Restaurants provide dining as a service, which includes elements such as preparation, ambience, hygiene, and waiting on customers. The transaction is composite and contains elements of both goods and services. However, the serviceable aspects are generally absent in an online delivery since the food items are merely bought for consumption, and the dining service provided by restaurants is not available in this form of transaction. The element of service is minimal as food delivery is analogous to takeaway and is primarily a sale of goods. 4.Are the hidden charges a dark pattern? Dark Patterns are deceptive design practices in user interface or user experience that mislead or trick users into actions they did not intend, by subverting or impairing consumer autonomy, decision-making, or choice, amounting to misleading advertisement, unfair trade practice, or violation of consumer rights. Drip Pricing has been recognised as a dark pattern in the Guidelines for Prevention and Regulation of Dark Patterns 2023 (Guidelines). These guidelines are applicable to both the platforms and the sellers. It is considered ‘drip pricing’ when the elements of the full price are not revealed upfront or are revealed surreptitiously within the user experience. Most online delivery companies employ drip pricing to showcase the items in their application. After selecting an item, these applications show a different and often larger final price for the selected article. This is because the application adds various elements such as platform fees, packaging fees, processing fees, handling fees, delivery fees and taxes to the base price of the selected item, and these charges remain hidden in the final price. The breakdown of the full price is only revealed after the amount to be paid button is expanded. Since these guidelines are applicable to sellers and platforms, both the restaurants and delivery applications shall be liable for violations of these guidelines. 5.What do the courts say? Restaurants cannot use any unfair trade practices to sell their goods or services on an online platform or elsewhere. An unfair trade practice is defined as a trade practice that adopts any unfair method or unfair or deceptive practice, including the adoption of such practices in the provision of services. Moreover, those contracts between a service provider and a consumer having such terms which cause a significant change in the rights of such consumer are also barred as unfair contracts. Any contract that imposes any unreasonable charge, obligation, or condition on the consumer that puts them at a disadvantage would fall under the ambit of an unfair contract in the Consumer Protection Act. Consumer courts have consistently held that sellers on online platforms cannot charge for the packaging of food articles. The Government has also notified that the price of the product or the service at restaurants must include all operating costs involved in the making and delivery of the product or service. However, this was challenged in a recent case where the Delhi High Court affirmed the notification as constitutionally valid. It was held that the collection of mandatory service charges constitutes an unfair trade practice under the Consumer Protection Act. Likewise, packaging charges are also added by default in addition to the

Hidden Charges in Delivery Apps: Legal or Deceptive? Read More »

Navigating the Foreign Exchange Amendments: New Era for Cross-Border Investments

Leave a Comment / Foreign Direct Investment Regulations / CBCL

[By Lavanya Chetwani & Shriyansh Singhal] The authors are students of National Law University Odisha. Introduction The Ministry of Finance through its Department of Economic Affairs has introduced the Foreign Exchange Management (Non-debt Instruments) (Fourth Amendment) Rules, 2024 (‘Amended Rules’), which signifies a major shift in the regulatory framework in India. The amendments have been issued to somewhat modify the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (‘Existing Rules’). The announcement in the Union Budget 2024-2025 has led to the introduction of these amended rules. These changes will enhance India’s legal and regulatory landscape by bringing Indian regulations to align with international standards. A new provision on equity swaps, improved investment regulations, and alterations to some significant definitions are just a few of the important changes made to the rules. This article examines how the new amendments enable an Indian company to issue or transfer its shares in return for shares from a foreign corporation, facilitating cross-border share exchanges. Altogether, these changes are expected to improve the flow of cross-border M&A deals, help in attracting foreign investments, and allow Indian companies to increase their global footprint effectively. Interpreting the Amendments (i) Revised Definitions The amended rules added a new clause, Rule 2(da), which defines ‘control’. According to this provision, the meaning of control is the same as defined in the Companies Act 2013. Section 2(27) defines control as having the power to appoint the majority of directors and exercise control or influence the policy decisions of the company, either directly or indirectly, through shareholding, management rights, voting agreements, or any other means. Rule 2(da) when applicable to an LLP, defines control as the ability to appoint most of the directors who have the final say in the company’s decisions. Rule 2(an) of the amended rules has also defined ‘startup company’ as a private company incorporated under the Companies Act 2013 and is identified as a ‘startup’ to make it parallel with the definition given by the Ministry of Commerce and Industry and the Department for Promotion of Industry and Internal Trade. The objective of bringing the changes is to make the definitions in line with other laws like the Companies Act 2013 and other rules and regulations which several statutory bodies & ministries release from time to time. This ensures consistency in legal frameworks and helps in streamlining regulatory compliance for easier interpretation. (ii)Refined Rules for improved clarity The amendments have also brought some clarity over the treatment of downstream investments. The earlier guidelines provided for sectoral caps, prior government approvals and reporting requirements. According to the amended Rule 23(7)(i) explanation, an investment made by an Indian entity that is owned or controlled by non-resident Indians (NRIs), on a non-repatriation basis, would not be taken into account when determining indirect foreign investment (‘IFI’). Pursuant to this amendment, the investments by entities owned and controlled by OCI(s) will now be treated at par with entities controlled by NRI(s) and will not be considered for the calculation of IFI. It is expected to encourage more OCIs to invest in India through entities owned and controlled by them. Further, Rule 9(1) Proviso (i) has been amended and it states that for transfer of equity instruments, prior government approval is necessary in all cases where such approval is applicable. Prior to this amendment, approval was necessary if the target company was engaged in a sector that required government approval. Additionally, the amendments have lifted the 49% cap on aggregate foreign portfolio investments, now allowing investments up to the sectoral or statutory cap without needing government approval, provided that such investments do not result in a change of ownership or control of the entity. A change in the principal rules in Schedule I now permits an Indian company to offer equity instruments to a person residing outside of India in place of a swap of equity capital of a foreign company in compliance to the rules stipulated under the Foreign Exchange Management (Overseas Investment) Rules, 2022 and RBI regulations. These amendments aim to facilitate easier transfer or swap of equity instruments between entities. All these amendments are directed towards making cross-border swaps easier, expecting that this will lead to more foreign investment in India and will make Indian practices more in line with international practices. (iii) Addition of rules in relation to equity instruments and equity capital The introduction of Rule 9A allows the transfer of equity instruments between an Indian resident and a foreign resident through a swap of equity instruments or equity capital. Complying with the rules set by the Central Government and the Reserve Bank of India (‘RBI’) regulations is sine qua non. Strict adherence to the Overseas Investment Rules is required for the swap of equity capital of a foreign company, and Government approval is required in all cases where it is applicable. Earlier the act did not provide for authorizing swap of equity instruments of an Indian entity with that of a foreign entity. Therefore, by allowing this, the rule encourages more dynamic and flexible investment strategies. Additions have also been made to Schedule I, where White Label ATM Operations (‘WLAO’) is added to the table of permitted sectors for Foreign Investments. WLA is a term used for ATMs operated by Non-Banking Finance Companies (‘NBFCs’), allowing customers from multiple banks to make various transactions. The cap for foreign investment in this sector is put at 100% and the entry route is Automatic, meaning no government pre-approval is required. Investors in this sector must meet several requirements. They must have a minimum net worth of hundred crore rupees and comply with minimum capitalization norms if they are involved in other financial services. Additionally, any foreign direct investment in WLAO must adhere to specific criteria and guidelines established by the RBI under the Payment and Settlement Systems Act of 2007. Decoding the amendments: benefits and drawbacks The amendments will result in the expansion of Indian companies at the global level through mergers, acquisitions, and other strategic initiatives. The new definition

Navigating the Foreign Exchange Amendments: New Era for Cross-Border Investments Read More »

Cross-Border Mergers vis-à-vis Investment in the Indian Steel Industry

Leave a Comment / Foreign Direct Investment Regulations / CBCL

[By Karan Anand] The author is a student of OP Jindal University. Introduction The recent announcement by ArcelorMittal Nippon Steel (AMNS) India regarding itsambitious expansion plans at the Hazira steel plant presents a compelling juncture to explore the strategic dynamics within India’s steel industry.[1] In a landscape characterized by heightened industrial growth and governmental emphasis on self-reliance, the trajectory of investments in steel production assumes paramount significance. With AMNS India’s noteworthy investment of approximately Rs 60,000 crore towards capacity enhancement and technological modernization, the industry witnesses a confluence of global expertise and indigenous potential. This piece aims to delineate the viability and implications of cross-border mergers in contrast to greenfield investments within India’s steel industry. By leveraging the recent developments at Hazira as a transition point, we delve into the strategic imperatives driving investment decisions and their ramifications on industrial sustainability and national economic objectives. Greenfield and brownfield investment In the case of Greenfield investment, various ancillary regulations become pertinent and applicable because an entity is being created from scratch. Firstly, there exists a multitude of licensesand registrations that are required. These include MSME/SSI registration which is a mandatory registration for a business to start functioning in India, as per the Supreme Court’s judgmentin the case of Silpi Industries v Kerala State Road Transport Corporation.[2]This registration divides industries into Micro, Small and Medium Enterprises based on the amount invested. In addition, GST registration is compulsory for all businesses involved in the sale and purchase of goods in India. The tax slab for the steel industry stands at 18%.[3] Entities entering the Steel industry also need to meet certain environmental regulations, which are set in place by the Ministry of Environmental, Forest and Climate Change (MoEF&CC), EAC (Expert Appraisal Committee) and State PCB (Pollution Control Board).[4] The firm entering the Indian market is also required to identify land parcels and fulfill the requirements that are laid down by the Ministry of Steel. In the event that such land is forested, clearance is also required from the State Forest Department. The governing regulationsfor the same are the Forest (Conservation) Act, 1980[5] and Forest Conservation Rules, 2003.[6] The process of securing necessary clearances thus becomes extremely burdensome for firms, extending over 3-5 years, considering the interests of numerous stakeholders involved in the same. Firms entering the Indian market are also required to comply with the provisions that regulate labour and employment conditions. The Factories Act, 1948,[7] was introduced to regulate the working conditions for labour in factories and workspaces.Any entity setting up a plant must comply with the safety and welfare provisions mentioned in the Act. Such entities must also create a provident fund for employees, for their welfare, medical, maternity and disability benefits and maintain balances in accordance with the State Insurance Act, 1948[8] the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952.[9]The case of Hindustan Lever Ltd v Regional Provident Fund Commissioner,[10] laid down that it is the responsibility of the Employer to create a provident fund for employees, and that such compliance is mandatory. In the case of Brownfield investments, while there may not be compliance with regulations for starting a business, there are still authorities that monitor and regulate the effects and mode of such investment. The Indian regime for Merger control, is governed by the Competition Act 2002, the CCI and notifications from the Ministry of Corporate Affairs.[11] The Competition Act mandates the reporting of all combinations that would breach the prescribed asset and turnover threshold, set by the Commission. These thresholds vary based on the value of the assets and turnover of the parties to the combination and are put for review bi-annually as per Section 20(3) of the Act.[12] The motive of the Competition Act is to ensure that such brownfield investments are not anti-competitive. Moreover, the Competition Act also ensures that there is no abuse of dominant position in the market. If the combination pertains to a company that is publicly listed, i.e., listed on a stock exchange, then such a combination may also be subject to Securities Exchange Board of India (SEBI) regulations. One such regulation is the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, more commonly referred to as the Takeover Code.[13]As such the regulations pertaining to acquisitions under the code, being Regulation 3 and 4 must be complied with, and announcements must be made upon the meeting of the trigger requirements in the code as per Regulation 3(2). Comparison from a regulatory standpoint While the mode of investment that a company opts to use, is extremely subjective, it is also possible to deduce an ideal mode of investment based solely on the regulatory framework. This is especially true for the Steel industry; wherein regulatory compliances are not only capital intensive but time intensive as well.[14]One of the major challenges in this regard is the development and identification of land, fit for the construction and development of a plant. The same can be seen in the case of POSCO, a South Korean firm, which was the world’s fourth largest producer of steelthat sought to enter the Indian Steel market in 2005, by setting up a plant in Odisha. The investment, had it gone through would have been the largest Foreign Direct Investment into India at that time. After 12 years of trying, the deal eventually fell through, due to the unavailability of land that met the various regulations set in place.[15]Thus, greenfield investments aredaunting and often take longer to generate returns thancompanies may expect, due to its lengthy regulatory requirements. Conversely, Brownfield investments require fewer regulatory requirements, as the foreign entity buys into or redevelops an existing setup, which has already fulfilled the procedural regulations.4This can be seen in the case of the acquisition of Essar Steel which took place in 2017. ArcelorMittal Nippon Steel India (AM/NS India) has purchased infrastructural assets that provide “strategic advantages” to the joint venture in the steel business. The duo has entered into agreement with Essar Steel to purchase 3 ports, 2 power plants

Cross-Border Mergers vis-à-vis Investment in the Indian Steel Industry Read More »