The Recent Enforcement Directorate Investigations Into Technology Firms and Unicorns

The Enforcement Directorate (ED) has initiated investigation into 4 (four) technology firms and unicorns regarding potential violations of the Foreign Exchange Management Act, 1999 (FEMA). The primary focus of the investigation is the offshore fundraising structures employed by these companies, particularly the ‘gift’ of shares to Indian founders in such offshore entities. While the names of these companies have not been disclosed, this transaction mechanism has raised concerns over the legitimacy of Overseas Direct Investment (ODI) practices.

The transactions under scrutiny were primarily executed between the year 2014 to 2016. These transactions involved the creation of foreign holding companies by using the ‘gift route’ to Indian promoters, which subsequently established Indian subsidiaries to manage the actual business operations.

I. Legal Concerns Leading to ED Involvement

1. Regulatory Ambiguity: Due to a lack of clarity in the ODI regulatory regime, prior to 2022, on the ‘gift’ of shares view was that gifts of foreign securities would not be treated as ODI. Leveraging this ambiguity, Indian promoters, to attract foreign investors who preferred exposure in an overseas company than an Indian entity, adopted a structure whereby they acquired the shares of the overseas entity as a ‘gift, i.e., without any monetary consideration, from the non-resident business partners to acquire control of overseas holding firm.

2. Round-Tripping and FEMA Violation: The structure of these transactions involves round-tripping, i.e., where funds leave the country and return as foreign investment. The ‘gift’ of shares to Indian promoters constitutes ODI, which is prohibited in an overseas company with a step-down subsidiary in India.

3. RBI Clarifications: RBI issued new regulations in August 2022, which clarified the rules around ODI and Overseas Portfolio Investments (“OPI”). These regulations have brought past transactions under new scrutiny.

The erstwhile ODI regime did not specifically permit or prohibit acquisitions of shares of overseas entities by way of gift. However, under the current ODI regime, this position has been explicitly clarified and the relevant provisions in relation to the gift of securities of overseas companies are as follows:

(a) A resident individual, without any limit, may acquire foreign securities by way of gift from a person resident in India who is a relative and holding such securities in accordance with the provisions of FEMA.

(b) A resident individual may acquire foreign securities by way of gift from a person resident outside India in accordance with the provisions of the Foreign Contribution (Regulation) Act, 2010 (“FCRA”) and the rules and regulations made thereunder.

Further, according to the Master Direction on ODI, overseas investment by way of gift is categorized as ODI or OPI based on the nature of investment.

4. Non-Relative Gifts: FEMA and the FCRA stipulate specific conditions for gifts received in the form of foreign securities from non-relatives. The acquisition of shares by Indian promoters during the years 2014-2016 by way of ‘gift’ did not meet such conditions.

II. Implications

1. Potential Liability: Companies found in violation may be asked to regularize the contravention of FEMA by way of compounding and paying penalties, or by unwinding the structure. This can also result in reputational harm, impacting business operations and investor confidence.

2. Increased Regulatory Scrutiny: Companies will face heightened scrutiny regarding their fundraising methods and compliance with FEMA.

3. Impact on Investment Climate: The investigation could create a cautious investment environment, potentially affecting future foreign capital inflows into Indian tech firms.

III. Conclusion and Recommendations

The ED’s investigation underscores the critical need for regulatory compliance in offshore fundraising activities. Companies must navigate the complexities of FEMA by performing thorough reviews of their past and present fundraising activities to ensure compliance. This can be achieved by understanding the implications of the new ODI regulations, appointing legal experts to regularize any non-compliant structures, and engaging proactively with regulatory bodies to clarify ambiguities and seeking necessary approvals.


Credits: Pallavi Puri (Partner), Aishwarya Gupta (Senior Associate), and Ela Bharti (Associate)

Partial Enforcement: The Telecommunication Act, 2023

The Ministry of Communications, through the Department of Telecommunications (DoT), issued a notification to enforce certain provisions of the Telecommunications Act, 2023 (Act). The DoT will implement the Act in phases; therefore, the rules and orders under the Indian Telegraph Act, 1885, and the Indian Wireless Telegraphy Act, 1933, (Old Regime) will remain in force until replaced by new rules under the Act.

The enforced provisions are summarized below:

• Extra-territorial Applicability: Under Section 50 of the Act, its applicability has been extended to offenses committed outside India if the activities involve telecommunication services, networks, or equipment located in India. It is to be noted that this provision is in line with the extra-territorial provisions of the Information Technology Act, 2000.

• Scope of the Act: The scope of the Act has been expanded significantly, as ‘telecommunication,’ ‘telecommunication service,’ and ‘telecommunication network’ have been defined distinctly to accommodate the grant of authorization. Authorization under the Act means permission, by whatever name called, instead of the license framework under the Old Regime. However, the provisions regarding granting authorization are not yet enforced.

• Right of Way Framework: Under Chapter III of the Act, stricter legal enforceability of the Right of Way (RoW) framework is provided compared to the old regime dealing with RoW through rules. The RoW framework aims to curb the problem of the expansion of telecommunication networks. Here, the facility providers, i.e., the authorized entities by the DoT, including contractors or sub-contractors of such entities, will be able to enter into agreements with property owners to establish, operate, or maintain telecommunication networks. The facility providers will manage RoW operations for public and private properties. RoW will be granted in a non-exclusive and non-discriminatory manner.

• Powers of DoT: Under Chapter IV of the Act, the DoT has the authority to notify standards and conformity assessment measures concerning various aspects of telecommunication networks, equipment, and services, and to take measures during any public emergency, etc. Further, the provisions related to interception remain similar to those under the Old Regime; however, it is now explicitly stated that intercepted messages must be disclosed to the government in an intelligible format that supports decryption requirements.

• Protection of Users: Under Chapter IV of the Act, user protection has been enhanced, requiring contributions from both the users and the authorized entities. On one side, users are required to provide accurate information during the KYC procedure, and on the other side, authorized entities can introduce measures to prevent unwarranted promotional messages. Further, the authorized entities will provide an online grievance registration mechanism, and the DoT may also establish or approve an online dispute resolution system.

• Digital Bharat Nidhi: The Universal Service Obligation Fund, i.e., the obligation to provide access to telegraph services to people in rural and remote areas at affordable and reasonable prices, under the Old Regime is renamed as Digital Bharat Nidhi (DBN) under Chapter V of the Act. DBN’s scope has been expanded to include supporting research and development in telecommunication services, technologies, products, and pilot projects.

• Offenses: A stricter approach to offenses is adopted under the Act compared to the old regime, as the penalties have been significantly increased. All prescribed offenses under the Act are non-bailable and cognizable. For instance, Section 42 of the Act deals with the general provisions relating to offenses, which provide that establishing a telecommunication network without authorization can result in imprisonment of up to three years, a fine of up to INR 2,00,00,000 (Rupees Two Crores), or both.

To access the Gazette Notification, click here.


Credits: Shriya Sehgal (Associate)

Additional KYC Instructions in Respect of Business Connections

On May 20, 2024, Ministry of Communications, Department of Telecommunications (Access Services Wing) (DoT) issued a notification regarding additional Know Your Customer (KYC) instructions in respect of business connections (Additional KYC Instructions).

This is in continuation of instructions issued vide letter dated August 31, 2023, pursuant to which “bulk connections” were discontinued and replaced with “business connections”. To issue business connections, the telecom companies were, from the customers, required to obtain inter alia: (i) the corporate identity numbers (CIN)/ business license/ trade registrations of the customer; (ii) address of the customer; (iii) the goods and services tax (GST) registration certificate (if applicable); and (iv) list of end-users who would be using those business connections which list would include the end users’ name, designation and document details for proof of identity.

The key points in the Additional KYC Instructions are:

1. In scenarios where end-users are not identifiable in a business connection, such as SIMs obtained for research & development and testing activities for a specified purpose, the requirement of end user KYC is optional. However, for this category of customers, business connections shall be issued directly by the telecom companies’ employees.

2. Before issuing such business connections, the telecom companies shall obtain an undertaking from the customer detailing the use case scenarios having no end users of the business connections and the telecom companies should be reasonably satisfied that the undertaking from the customers detailing the end use is realistic.

3. The telecom company, during the physical verification of the customer’s address and premises before issuing the business connection, shall verify that the proposed use case scenarios are realistic. Further, the bonafide use of such business connections by the customer should also be monitored. The responsibility of the bonafide usage of the business connections lies with the customer and the same shall be communicated to the customer expressly in writing. If the misuse of such business connections by the customers comes to the notice of the telecom companies, then such business connections shall be discontinued immediately without prejudice to any other action that may be taken.

4. The telecom companies shall provide such connections with limited call/ SMS/ data facility with definite validity up to a maximum of 1 (one) year at a time as per the use case scenarios of the customers. During the renewal of validity, the telecom companies shall satisfy themselves by usage patterns from the past as well as proposed usage for the upcoming year.

5. The telecom companies shall issue up to a maximum of 100 (one hundred) business connections to a customer at a given time. Such business connections cannot be used for M2M communication services.

6. Re-sale of such SIM cards is prohibited, and telecom companies are expected to ensure that customers are obtaining such business connections for their own use and not for use by any third-party.

To access the notification, click here.

Master Circular for Alternative Investment Funds

The Securities and Exchange Board of India (SEBI) issued a Master Circular on ‘Alternative Investment Funds’ (AIFs) on May 7, 2024. This Master Circular incorporates the provisions of various circulars issued by SEBI under the SEBI (Alternative Investment Funds) Regulations, 2012, up until March 31, 2024, and supersedes the Master Circular for AIFs dated July 31, 2023.

In addition to the requirements under this Master Circular, AIFs must comply with other SEBI requirements for market intermediaries, for instance the ‘Levy of Goods & Services Tax (GST) on the fees payable to SEBI’, ‘Approach to securities market data access and terms of usage of data provided by data sources in Indian securities market’, ‘Digital mode of payment’, ‘Information regarding Grievance Redressal Mechanism’ and ‘Guidelines on Outsourcing of Activities by Intermediaries’, etc.

Any other directions or guidance issued by SEBI, specifically applicable to AIFs, will continue to remain in force in addition to the provisions of this Master Circular or any other law for the time being in force.

The trustee/sponsor of an AIF must ensure that the ‘Compliance Test Report’ prepared by the manager of the AIF includes compliance with the provisions of all chapters of this Master Circular.

To access the Master Circular, click here.

SEBI Launches SCORES 2.0, Reinforces Investor Protection

The Securities & Exchange Board of India (SEBI), in a press release dated April 1, 2024, announced the implementation of SEBI Complaint Redressal System (SCORES) 2.0. It seeks to utilize new technology to strengthen the existing grievance redressal mechanism in the securities markets. The new platform aims to streamline the redressal mechanism in a manner to bring uniformity in the timelines, make it user-friendly, and efficient.

Key takeaways from SCORES 2.0 includes:

● Reduced and uniform timelines for redressal of investor complaints across the Securities Market i.e. 21 Calendar days from date of receipt of complaint.
● Introduction of auto-routing of complaints to the concerned regulated entity to eliminate any time lapses in the flow of complaints.
● Monitoring of the timely redressal of the investors’ complaints by the ‘Designated Bodies’.
● Providing two levels of review: First review by the ‘Designated Body’ if the investor is dissatisfied with the resolution provided by the concerned regulated entity. Second review by SEBI if the investor is still dissatisfied after the first review.
● Introduction of auto-escalation of complaint to the next level in case of non-adherence to the prescribed timelines by the regulated entity or the Designated Body, as the case may be.
● Integration with KYC Registration Agency database for easy registration of the investor onto SCORES.

The website URL for SCORES 2.0 is

To access the press release, click here.

RBI Tweaks Rules for Investment in Alternative Investment Funds

The Reserve Bank of India (RBI) came up with a circular on December 19, 2023 (2023 Circular) putting restrictions on the Regulated entities (REs) making investments in units of Alternative Investment Funds (AIFs) to address concerns relating to possible evergreening through this route. Consequently, cautionary representations with regard to concerns arising out of the 2023 Circular were made before the Regulator by various stakeholders.

Subsequently on March 27, 2024, RBI released another circular Investments in AIFs (2024 Circular) to address the concerns flagged in various representations received from stakeholders by the RBI.

Exemptions / clarifications brought in by the 2024 Circular are briefly explained below:

1) The 2024 Circular provides that downstream investment in equity shares of the debtor company will now be excluded/exempted. However, other investments, including hybrid instruments, are still covered under the 2023 Circular.

Earlier, REs were not to make investments in any scheme of AIFs which has downstream investments, either directly or indirectly, in a debtor company of the RE. The debtor company of the RE, for this purpose, would be any company to which the RE currently has or previously had a loan or investment exposure anytime during the preceding 12 months.

2) The 2023 Circular provided that if an AIF scheme, in which RE is already an investor, makes a downstream investment in any such debtor company, then the RE is required to liquidate its investment in the scheme within 30 days from the date of such downstream investment by the AIF. If REs have already invested into such schemes having downstream investment in their debtor companies as on date, the 30-day period for liquidation would be counted from date of issuance of this circular. REs will forthwith arrange to advise the AIFs suitably in the matter. Moreover, in case REs are not able to liquidate their investments within the prescribed time limit, they would have to make 100 percent provision on such investments.

The 2024 Circular clarifies that the provision is to be made only of the portion of RE’s investment which is further invested by AIF in the debtor company and not entire investment of the RE in the AIF.

3) The 2024 Circular outlines that the deduction from capital will take place equally from both Tier-1 and Tier-2 capital. It is pertinent to mention that investment in subordinated units of AIF Scheme includes all forms of subordinated exposures, including investment in the nature of sponsor units. Earlier, as per the 2023 Circular, investment by REs in the subordinated units of any AIF scheme with a ‘priority distribution model’ were subject to full deduction from RE’s capital funds.

4) Furthermore, the 2024 Circular clarifies that investments by REs in AIFs through intermediaries such as fund of funds or mutual funds are not included.

To access the circular, click here.

SEBI Update: Repeal of Circular(s) Outlining Procedure for Cases Where Securities Were Issued Prior to April 01, 2014, Involving Offer/Allotment to More Than 49 but Up to 200 Investors in a Financial Year

On March 13, 2024 the Securities and Exchange Board of India (SEBI) repealed two circulars Circular No. CIR/CFD/DIL3/18/2015 dated December 31, 2015 and Circular No. CFD/DIL3/CIR/ P/2016/53 dated May 03, 2016.

The repealed circulars provide for procedural specifics for private placement of shares, viz., for refund to security holders, certification and relaxations in procedure. The circulars stated that in respect of cases under the Companies Act, 1956, involving private placement of shares, the companies may avoid penal action if they provide the investors with an option to surrender the securities and receive the refund amount at a price not less than the amount of subscription money paid along with 15% interest p.a. thereon or such higher return as promised to the investors. This opportunity to avoid penal action was provided to the issuer companies considering the higher cap for private placement provided in the Companies Act, 2013.

SEBI has deemed the repeal the said circulars given that considerable time has elapsed since the repeal of the Companies Act, 1956.

To access the circular, click here.

FATF High Risk and Other Monitored Jurisdictions

International Financial Services Centres Authority (IFSCA) has released the plenary documents issued by Financial Action Task Force (FATF) titled “High-Risk jurisdictions subject to a Call for Action” and “Jurisdictions under Increased Monitoring” (collectively referred to as “ public statements”). FATF came out with the public statements on February 23, 2024. The public statements on these jurisdictions were adopted earlier, in February, 2020 and October, 2022. They pertain to jurisdictions that have strategic AML/CFT deficiencies as part of the ongoing efforts to identify and work with jurisdictions with strategic Anti-Money Laundering (AML)/Combating of Financing of Terrorism (CFT) deficiencies.

Vide these public statements, FATF has identified certain jurisdictions as high-risk and accordingly urges all its members to apply enhanced due diligence and apply counter-measures to protect the international financial system from money laundering, terrorist financing and proliferation financing risks. This is often referred to as the “black list”. The high-risk jurisdictions subject to a FATF call on its members and other jurisdictions to apply countermeasures include Democratic People’s Republic of Korea (DPRK), and Iran. Myanmar has been identified as a jurisdiction subject to a FATF call on its members and other jurisdictions to apply enhanced due diligence measures proportionate to the risks arising from the jurisdictions.

Similarly, the public statements also notify the jurisdictions under increased monitoring which are actively working with the FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing. This is externally referred to as the “grey list”, viz., Bulgaria, Burkina Faso, Cameroon, Democratic Republic of the Congo, Croatia, Haiti, Jamaica, Kenya, Mali, Mozambique, Namibia, Nigeria, Philippines, Senegal, South Africa, South Sudan, Syria, Tanzania, Turkiye, Vietnam and Yemen. It is pertinent to note that Barbados, Gibraltar, Uganda, and United Arab Emirates have been removed from the grey list.

Read the FATF public statements dated February 23, 2024 here –

(1) High-Risk Jurisdictions subject to a Call for Action – February 2024

(2) Jurisdictions under Increased Monitoring – February 2024

RBI Update: Revisions to the Regulatory Sandbox Framework

The Reserve Bank of India (RBI) has placed the revised ‘Enabling Framework for Regulatory Sandbox’ on February 28, 2024. This framework provides for regulatory relaxations, elaborates on key design aspects, outlines the various stages of the Regulatory Sandbox process, and discusses guiding principles, benefits, as well as the risks and limitations of the Regulatory Sandbox.

RBI aims to foster responsible innovation in financial services, promote efficiency, and bring benefit to consumers, via the framework. Following are the key takeaways from the revised framework:

I. Eligibility Criteria for Regulatory Sandbox: The target applicants for entry to the Regulatory Sandbox, are FinTech companies including start-ups, banks, financial institutions, any other company, limited liability partnership and partnership firms, partnering with or providing support to financial services businesses, subject to the Regulatory Sandbox criteria laid down in these guidelines.

II. Regulatory Requirements/Relaxations for Regulatory Sandbox Applicants: The RBI may consider some relaxations for the duration of Regulatory Sandbox on a case-to-case basis in terms of liquidity requirements, board composition, management experience, financial soundness, track record and statutory restrictions. However, there will be no concessions given in terms of customer privacy and data protection, secure storage of and access to payment data of stakeholders, local data storage, security of transactions, know your customer/anti-money laundering/counter finance terrorism compliance, and statutory requirements.

III. Stages and Timelines in the Regulatory Sandbox process: The process has been divided into five stages, to be completed within nine months, as explained below.

• Preliminary screening phase may last ordinarily for one month from the submission of complete application form by the applicant. It is pertinent to note that this period is outside the overall Regulatory Sandbox cohort timeline of nine months.
• Application assessment and shortlisting stage may last for up to one and a half month.
• Formulation of test design and integration phase may last for one and a half month.
• Testing phase may last for a maximum of five months.
• Evaluation phase may last for one month.

To access the revised framework, click here.

SEBI Releases Consultation Paper on Proposals to Improve Ease of Doing Business with Respect to the Additional Disclosure Framework for FPIs

The Securities & Exchange Board of India (SEBI) on February 27, 2024, proposed two exemptions to additional disclosure framework for Foreign Portfolio Institutions (FPIs) specified under the August 24, 2023, circular (August Circular).

SEBI’s August circular mandated disclosure of granular details of all entities holding any ownership, economic interest, or control in an FPI, on a full look through basis, without any threshold, by FPIs that fulfilled certain criteria including holding more than 50 percent of their Indian Equity Assets Under Management (AUM) in a single Indian corporate group and individually, or along with their investor group hold more than Rs 25,000 crore of equity AUM in the Indian markets.

In the consultation paper, SEBI seeks to exempt Category I University Funds and University related Endowments FPI that meet certain objective criteria from the requirement of enhanced disclosures. The second proposal is to exempt enhanced reporting requirements for some funds with concentrated holdings in entities with no identified promoter group, where there is no risk of breach of Minimum Public Shareholding (MPS).

I. Exemption from Making the Additional Disclosures to University Funds and Universities Related Endowments.

The consultation paper proposes exemption of university funds and university related endowments, registered or eligible to be registered as Category I FPI, from the disclosure requirements prescribed under the August Circular, subject to the following additional conditions:
1. The university is listed in the Top 200 ranking as per the latest available QS World University Rankings issued by QS Quacquarelli Symonds Limited
2. Its India equity AUM is less than 25% of its Global AUM
3. Its global AUM is more than INR 10,000 crore.
4. It has filed appropriate return/filing to the respective tax authorities in their home jurisdiction to evidence that the entity is a non-profit organisation and is exempt from tax.
The said conditions have been proposed to ensure that the exemption is not misused through setting up of endowments for lesser-known universities in jurisdictions where no or minimal disclosures are available. Further, the AUM criteria is proposed to ensure that only the well-funded and diversified funds are eligible for the exemption.

II. Exemption in Case of Companies with No Identified Promoter and Low FPI Holdings

Firstly, the consultation paper proposes to relax the additional disclosure requirements for FPIs holding concentrated positions in corporate groups and listed companies where there is no room for circumvention of MPS requirements. However, the concerns regarding circumvention of SAST Regulations would persist.
Secondly, it proposes to relax the additional reporting requirement for FPIs with more than 50% of its India equity AUM in the following manner:
• If such FPI holds more than 50% of its India equity AUM in the corporate group, even after disregarding its holding in the apex company (with no identified promoter), it would come under the disclosure requirements of the August circular.
• If not, if the composite holdings of all such FPIs in the apex company in the group is less than 3% of the total equity share capital of the company, it would be exempted from the additional disclosure requirements.
It proposes that custodians and depositories will track the utilisation of this 3% limit for companies without an identified promoter at the end of each day. When the 3% limit is met or breached, depositories and custodians will make this information public before start of trading the next day. Thereafter, prospective positions in the company that breach the 50% concentration criteria in the corporate group will be required to either realign such positions below the 50% threshold within 10 trading days or provide disclosures prescribed under Para 7 of the August circular, provided that the aforementioned 3% cumulative FPI limit for the listed company continues to be in breach through the 10 trading days.

To access the consultation paper here, click here.

India Amends FDI Policy in Space Sector

India’s space industry is on the cusp of a major transformation with the cabinet approval of amendments to the Foreign Direct Investment (FDI) policy on the Space Sector dated February 21, 2024. The Government had notified the much-awaited Indian Space Policy, 2023 in April last year, to replace the existing Satcom policy, 1997.

The existing policy permitted FDI in the establishment and operation of satellites only through the Government approval route. The amended policy has eased the FDI policy on the Space sector by prescribing liberalized FDI thresholds for various sub-sectors/activities to balance the need for innovation in India with India’s wider strategic interests.

The amended policy allows 100% FDI under the automatic route for manufacturing components and systems for satellites, ground segments, and user segments. This eliminates the need for government approval, attracting global players and boosting technological advancements.

For satellites (manufacturing and operation), satellite data products, and ground and user segments, 74% FDI under the automatic route has been permitted. For launch vehicles and associated systems/subsystems, as well as the creation of spaceports, 49% FDI under the automatic route is permitted. It is pertinent to note that Government approval will be required in cases where FDI exceeds these thresholds.

To access the notification, click here.

IFSCA releases Circular Monitoring of Investments from Countries Sharing Land Border with India

The Government of India notified the Foreign Exchange Management (Non-debt Instruments) Amendment Rules, 2024 (NDI Rules) and the Companies (Listing of Equity Shares in Permissible Jurisdictions) Rules, 2024 on January 24, 2024, enabling direct listing of equity shares by public Indian companies on the International Exchanges at the GIFT International Financial Services Centre (IFSC).

Pursuant to the aforesaid notification, the International Financial Services Centres Authority (IFSCA) released a Circular for Direct Listing of Indian companies on the stock exchanges in IFSC – Monitoring of investments from countries sharing land border with India, dated February 9, 2024 (Circular). The Circular lays down the compliance mechanism for stock exchanges, broker dealers, depository, the depository participants, and custodians (hereinafter referred to as the Market Infrastructure Institutions/MIIs). The Circular is to be complied with, by the holders of equity shares of companies listed on International Exchange, including their beneficial owners, with proviso to clause 2 of Schedule XI of the NDI Rules.

The highlights of the Circular are enumerated here:

1. Know Your Customer (KYC) and Client Due Diligence (CDD) by Broker Dealers, Depository Participants and Custodians
• All MIIs will be required to conduct KYC & CDD including identification of beneficial owners, in accordance with IFSCA (Anti Money Laundering, Counter Terrorist Financing and Know Your Customer) Guidelines, 2022.
• The MIIs will maintain a list of the client who is a citizen of a country sharing land border with India, incorporated in a country sharing land border with India, or is a beneficial owner of the client situated in or is a citizen of a country sharing land border with India. It must be prepared within 30 days from the notification of the Circular and shared with the respective stock exchanges and depository in the IFSC.
• The list of clients must be updated every time a new client is onboarded and such updation must be informed to the depository and stock exchange within one working day.

2. Declaration by Clients
• Clients from countries sharing land border with India will be required to provide a signed declaration that they shall not hold equity shares of a public Indian company, listed or proposed to be listed on a IFSC stock exchange, without prior approval of the Central Government. The declaration will be taken at the time of initial onboarding and at the time of periodic updation of CDD.
• Clients from other countries will provide a declaration at the time of onboarding and updation of CDD that neither the client nor any of its beneficial owners, is situated in or is a citizen of a country sharing land border with India.

3. Primary Market Issuance: The recognised stock exchanges in the IFSC shall have adequate mechanisms to ensure that the identified Clients do not participate in the primary market issuance of equity shares of Indian companies listed on the recognised stock exchanges in the IFSC, without approval of the Central Government.

4. Secondary Market Trading: Broker dealers and custodians in the IFSC must ensure that their Identified Clients do not buy any equity shares of the Indian companies listed on IFSC recognised stock exchanges without the approval of the Central Government.

5. Off-Market Transfer: The depository in the IFSC will ensure that the Identified Clients do not hold equity shares in Indian companies listed on the recognised stock exchanges in IFSC, without the prior approval of Central Government, through off-market transfer.

6. Monitoring and Surveillance by stock Exchanges: The IFSC recognised stock exchanges will conduct market surveillance to monitor trading activity by Identified Clients in the secondary market and submit the report to the IFSCA on a monthly basis.

To access the Circular, click here.

IBBI Committee Releases Report on Mediation Framework under IBC

The Expert Committee, constituted by the Insolvency and Bankruptcy Board of India (IBBI), has made recommendations on the framework for use of mediation under the Insolvency and Bankruptcy Code, 2016 (IBC).

The expert committee considers that introduction of a non-adversarial approach helps in maintaining cordiality in business relationships and saves the Corporate Debtor (CD) from the stigma of insolvency while resolving conflicting interests through amicable settlement. Thus, it proposes a discrete mediation framework under IBC intended to align with its fundamental objectives, i.e., “time bound reorganization” and “maximization of value”, with the autonomy to parties to voluntarily opt for the “out-of-court” mediation process to enhance the efficiency of the insolvency resolution process.

The mediation process envisaged under the Mediation Act, 2023, based on a ‘one-size-fits-all’ approach, may not be made applicable to the insolvency resolution processes under IBC. Thus, the Central Government may specifically exclude proceedings under IBC from the ambit of the Mediation Act, 2023, and provide for a bespoke adoption of mediation in insolvency disputes for each process under IBC, or, alternatively, lay out tailored application to specific aspects of IBC.

Scope and Significance of the proposed mediation framework:

The proposed mediation framework is aimed at expediting resolution of insolvency cases and related disputes by legislative recognition of voluntary mediation under IBC while maintaining the sanctity of the timelines for various existing insolvency resolution processes. It would best operate as a self-contained blueprint within IBC, with independent infrastructure to ensure that the objectives of IBC are met without compromising or diluting the basic structure of IBC in terms of timelines, public rights, etc.

The proposed mediation framework provides for a specialist mechanism and infrastructure including specialist mediators for resolving insolvency disputes under IBC. Mediation will supposedly aid in reduction of caseload in the National Company Law Tribunal (NCLT) docket. It will be applied and implemented in a phased manner to address bottlenecks in current regime, with room for incorporation of implementational learnings.

Overall, it intends at increasing awareness of stakeholders and users in resolution of disputes via mediation and foster insolvency mediation culture by encouraging the use of mediation, especially in bilateral issues.

Key Recommendations of the Committee:

1. Enabling provisions for:

a. introduction of mediation as ADR method under IBC within existing statutory timelines and processes;
b. delegation of powers to Central Government and IBBI for making rules, regulations, notifications, etc., as may be required;
c. establishment of the (in-house) mediation secretariat at the NCLT;
d. specifying timelines for mediation;
e. clarifying role of the NCLT as AA , i.e., no scope for extension of timelines for mediation under IBC, interim relief, etc.;
f. recognition and enforcement of Mediated Settlement Agreements (MSA) under IBC; and
g. impact on moratorium.

2. Central Government may prescribe rules for:

a. the basic structure of the insolvency mediation framework, including specifying categories of disputes that are considered ‘mediable’ (if required);
b. the establishment of an NCLT annexed insolvency mediation cell/secretariat;
c. creating an infrastructure (including e-filings, e-hearings, etc.);
d. minimum qualifications for mediator appointments; etc.;
e. offering Operational Creditors (OCs) to mediate by suitably modifying the Form prescribed under the existing relevant Rules, etc.
f. any mediations conducted by the parties at appellate fora level under IBC i.e., NCLAT or the Supreme Court.

3. IBBI to specify enabling provisions.

a. The IBBI regulations must be aligned with the enabling provision to be introduced in IBC.
b. IBBI to specify procedures for:
(i) the conduct of mediations including automatic termination of mediation where timelines have expired;
(ii) the process of mediator appointment and removal;
(iii) the functioning of the secretariat;
(iv) capacity-building programmes for mediators;
(v) the enforcement of MSAs, etc.

4. Voluntary Mediation: Reference of a dispute to mediation by consensus of parties, is suggested to be the most suitable method to settle insolvency disputes.

5. Stage of reference

a. Voluntary mediation for post-institution matters filed by the OCs and enforcement of MSAs with the approval of NCLT.
b. At the present stage, voluntary mediation provisions may not include the Corporate Insolvency Resolution Process (CIRP) applications filed by Financial Creditors(FCs)/ CD itself.
c. Post institution reference of specific disputes/conflicts during the insolvency resolution process (‘process disputes’). These may include claims collation, intercreditor issues, etc.

6. Competent Authority

a. Reference at pre-institution stage by parties voluntary and falls outside the scope of IBC but remains subject to the dispute being identified as fit for mediation, for example, individual insolvency resolution process. While filing the application, reference to attempts at mediation undertaken, if any, needs to be mentioned in the application.
b. Reference post-institution but pre-commencement by parties with express intimation to the NCLT, subject to automatic termination of mediators’ mandate at the admission/ commencement of CIRP or 30 days from reference to mediation, whichever is earlier.
c. Reference of ‘process disputes’ post-commencement by 66% majority of the CoC, or by the creditor in case of claims collation process, subject to automatic termination of mediators’ mandate at the expiry of timeline of underlying stage under IBC. Post commencement, the current process of settlement under Section 12A would not be impacted by the mediation framework at the present stage.
d. Reference of disputes during plan implementation stage, as prescribed under the IBC or Rules.

7. Subject Matter for Reference

a. Identified insolvency resolution processes:
• CIRP, selective reference of applications by OCs and Corporate Applicants
• Pre-packs
• Fast track CIRP
• Individual insolvency – Personal Guarantee (PG) to CD cases
• Individual insolvency, other than PG to CD cases, as and when rolled out
b. Identified process disputes within the processes:
• Individual insolvencies

8. Timelines: Timelines for insolvency mediation to run parallel with the statutory timelines under IBC. For example, any mediation (ongoing or commencing) during the post-institution but pre commencement stage of CIRP will necessarily be subject to automatic termination of mediator’s mandate within 30 days of its reference or upon NCLT’s admission of the CIRP, whichever is earlier.

9. Operational Infrastructure

a. Establishment of a dedicated and specialized NCLT-annexed insolvency mediation cell with an independent secretariat to administer, oversee, and manage the conduct of insolvency mediations under IBC.
b. Provisions for staff, personnel, systems, including for the e-mediation process.
c. Adequate infrastructure, such as e-meetings and e-filings, for the conduct of online or paperless mediation, where appropriate.

10. Enforcement of MSA

a. Parties to approach the Adjudicating Authority or the relevant appellate authority without instituting separate legal proceedings, for enforcement of MSAs. MSAs to be enforced by way of incorporation of MSA in an order of the NCLT or the appellate authority), similar to the existing withdrawal process for pre-admission matters under Rule 8 of the AA Rules, 2016.
b. At the post-admission stage, process disputes can be settled as per Section 12A of IBC. Here, settlements are given statutory sanctity by being recorded in the order of the NCLT. In case of breach, the aggrieved party has the option to approach the NCLT for revival of CIRP.

11. Costs

a. Costs arising in connection with the mediation process to be borne by the parties equally. or as may be mutually agreed amongst them.
b. Costs incurred for the conduct of mediation during the CIRP process to be excluded from the purview of insolvency resolution process costs.
c. Introducing provisions for reimbursing expenses incurred by the parties at the NCLT (or NCLAT or the Supreme Court).

12. Mediators

a. Pool of mediators to include the following:
• retired members of the NCLT/NCLAT;
• senior advocates and/or advocates with advocacy experience in more than ten successful insolvency proceedings;
• ex-senior officials of financial sector regulators, such as IBBI, or scheduled commercial banks; and
• insolvency professionals with more than ten years of experience.
b. As additional pool of mediators, the following can be included:
• legal practitioners with at least ten years of experience in insolvency disputes;
• persons with experience as mediators or in mediation advocacy in commercial disputes for at least ten years; and
• persons with technical expertise in insolvency, accounting, valuation, and industry operations possessing experience of at least ten years may also be included in the pool of mediators.
c. Adequate training to be provided to the mediators for conduct of mediation under IBC. A Code of Ethics for Mediators may be formulated to enable mediators to perform their duties while upholding principles of professional ethics.

Compliance Update: Karnataka Compulsory Gratuity Insurance Rules, 2024

On January 10, 2024, the Karnataka Government published the Karnataka Compulsory Gratuity Insurance Rules, 2024 (“Rules”) (vide Notification No: LD 397 LET 2023).

The Rules prescribe the requirement for employers to obtain a valid insurance policy for the employer’s liability towards payment of gratuity to eligible employees in accordance with the provisions of the Payment of Gratuity Act 1972 (“Act”). It aims to establish a framework for gratuity insurance and ensure timely payouts to eligible employees.

Few key provisions are briefly explained below.

Obtaining Insurance for payment of gratuity: The employer of an establishment which is in existence will have 60 days, and every new employer will have 30 days from the date of commencement of these Rules to obtain a valid insurance policy. The insurance policy can be obtained from Life Insurance Corporation (“LIC”) or any other insurance company incorporated under applicable law for insurance companies.

The employer of the establishment who has obtained valid insurance policy is required to make all payments by way of premium to the insurance company and renew the same periodically and intimate the same to the Controlling Authority within 15 days from the date of renewal of the policy.

Recovery of amount of Gratuity: The Controlling Authority is authorized to recover the amount of gratuity payable to an employee from LIC or any other insurance company with whom an insurance has been taken.

Registration of establishment: Every employer must submit an application in the prescribed format (Form-I, annexed to the Rules), for registration of establishment within 30 days of obtaining the insurance along with the list of its employees insured;

Moreover, the employer must furnish the details of the employees insured, to the Controlling Authority or any other officer notified, in the prescribed format (Form-III, annexed to the Rules), at the time of registration of the establishment and thereafter whenever there is a change in the employees insured or policies or any other pertinent information.

Continuation of approved gratuity fund: Every employer who has already established an approved gratuity fund or has 500 (five hundred) or more employees employed, may opt to continue / adopt such arrangement by submitting an application in the prescribed format (Form-II, annexed to the Rules), provided that such approved gratuity fund covers the entire liability of all the employees of the establishment under the provisions of the Act.

Incorporation and conditions of gratuity trust

(i) Every employer of an establishment who had duly established an approved gratuity fund in respect of his employees and who desires to continue such arrangement and every employer employing 500 (five hundred) or more employees who establishes an approved gratuity fund will register the gratuity trust with five but not equal number of representatives of the employer and employees with the registration authority notified under the provisions of the Indian Trust Act, 1882 or any other applicable law.

(ii) The gratuity trust will be managed privately or by the insurance company or jointly by paying the calculated amount to the approved gratuity trust fund periodically by the employer. Provided that in case of privately managed gratuity trust, investment of funds will be done as per the provisions of the Income Tax Act, 1961 by the Board of trustees and entire administration of the gratuity trust including actual valuation will be the responsibility of the Board of trustees.

(iii) The gratuity trust must maintain separate gratuity fund. The inflow of contributions to the gratuity fund will be contributory from the employer and non-contributory for the employees. The out-flow of the gratuity fund will be only to the eligible employees at the time of their exit from service. The gratuity fund is totally protected fund and money will neither be withdrawn by the employer nor by the gratuity trust under any circumstances for any other purpose other than for the payment of gratuity to the eligible employees.

(iv) The bye-law of the gratuity trust will contain detailed procedures including performance for claiming and releasing of the calculated amount of gratuity to each of the eligible employees on their exit from the service.

(v) The gratuity trust will adhere to the Indian Accounting Standards 15 (Employee Benefits) and any law applicable to the trust.

(vi) The Board of trustees of the gratuity trust at the time of exit of an employee will duly send discharge letter and advise insurance company or make arrangement of payment of gratuity as per the scheme.

(vii) The employer gratuity trust and the insurance company are jointly and severally responsible for fulfilment of their liabilities under the Act.

(viii) The employer is required to maintain the gratuity trust and gratuity fund, as an irrevocable system, at all times.

Credits: Pallavi Puri (Partner)

Arnav Mittal (Associate), Jasmine Brar (Associate)

SEBI Streamlines Accredited Investor Registration Framework

The Securities and Exchange Board of India (SEBI), through a circular dated December 18, 2023, has simplified the requirements for the grant of accreditation to investors, along with an extension to the validity of the certification.

Who is an accredited investor?

A person or entity identified as an accredited investor based on net worth or income. Such investors can invest in securities that may not be available to retail investors.

Certification modalities

The accreditation agencies will grant accreditation solely based on the Know Your Customer (KYC) and the financial information of the applicants. Further, the accreditation certificate will include a following disclaimer, “the assessment of the applicant for accreditation is solely based on the applicant’s KYC and financial information and does not in any manner exempt market intermediaries and pooled investment vehicles from carrying out necessary due diligence of the accredited investors at the time of on-boarding them as their clients.”

Under the framework, accreditation agencies, which are also KYC Registration Agencies (KRAs), may access KYC documents of applicants for the purpose of accreditation.


Further, the validity of the accreditation certificate has been revised. If the applicant meets the eligibility criteria for the preceding financial year, the accreditation certificate issued will be valid for a period of two years from the date of issuance. It will remain valid for three years, if the eligibility criteria are met in each of the preceding two financial years.

For Individuals, Hindu Undivided Families, Sole Proprietorships, Body Corporates, and Trusts, the circular has provided that the copies of income tax return, net worth certificate, and audited financial statements will be required.

To access the circular:

Broadcasting Services (Regulation) Bill, 2023

Recognising the growing need to streamline the regulatory framework with the digitization of the broadcasting sector, the Ministry of Information and Broadcasting has proposed the Broadcasting Services (Regulation) Bill, 2023 (“BSR Bill”). This marks a significant stride towards revamping India’s broadcasting landscape. It seeks to replace Cable Television Networks (Regulation) Act, 1995 aiming to bring about a unified and contemporary legal framework for the expanding broadcasting sector. Unlike its predecessor, the BSR Bill extends its reach to include Over-the-Top (“OTT”) broadcasting services, digital news.

Key Provisions

• Self-Regulation: The BSR Bill introduces Content Evaluation Committees (“CEC”) mandating that every broadcaster or broadcasting network operator to establish CEC with members from various social groups, including women, child welfare, scheduled castes, scheduled tribes, minorities, and others as may be specified. Further it transforms the existing Inter-Departmental Committee into a participative ‘Broadcast Advisory Council’ (“BAC”) which will hear complaints regarding violation or contravention of the Programme Code or Advertisement Code. This shift aims to enhance self-regulation by engaging industry stakeholders in shaping and adhering to ethical broadcasting standards.

• Regulation of OTT Broadcasting Services: The BSR Bill defines OTT Broadcasting Services as broadcasting services made available on-demand or live to subscribers or users in India; and where a curated catalogue of programmes owned by, licensed to, or contracted to be transmitted, over the internet or a computer resource, not being a closed network; and where additional hardware or software or combination thereof including a set-top-box, or dongle and software keys may be required to access content on non-smart televisions or viewing devices. The definition specifically excludes social media intermediary, or a user of such intermediary, as defined in rules under the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021. Under the BSR Bill, the OTT Broadcasting Services will be required to ensure that their content is certified by a CEC and will have to comply with a multi-layered regulatory system such as conformity with the Programme Code and Advertisement Code (described below) refrain from functioning of the authorised telecommunication systems, maintenance of subscriber records, undertaking external audit etc. It is pertinent to note that while other kinds of broadcasting services are required to obtain a registration, OTT Broadcasting Services have not been asked to comply with the same requirements. Instead, they are required to provide an intimation to the government that they are providing OTT Broadcasting Services if they meet a certain threshold of subscribers/ viewers in India as prescribed by the government.

• Differentiated Programme Code and Advertisement Code: Under Section 19 of the BSR Bill, different Programme Code and Advertisement Code may be prescribed for programmes and advertisements broadcast through: (a) linear broadcasting services; (b)on-demand broadcasting services; (c) radio broadcasting services; and (d) any other category of broadcasting service as notified by the Central Government. The BSR Bill also mandates self-classification under Section 21 by broadcasters to ensure that programming and advertisements align with the unique characteristics of various broadcasting services therefore pioneering a differentiated approach, recognizing the diverse nature of broadcasting content and the responsibilities of different service providers.

• Accessibility for Persons with Disabilities: Acknowledging the specific needs of persons with disabilities, the BSR Bill mandates comprehensive accessibility guidelines. Broadcasters are required to take measures such as incorporating subtitles, providing audio descriptions, and translating content into sign language, fostering a more inclusive broadcasting environment.

• Infrastructure Sharing, Platform Services, and Right of Way: The BSR Bill incorporates provisions for infrastructure sharing among broadcasting network operators, facilitating efficient collaboration. It also streamlines the Right of Way section to enhance the relocation and alteration processes.

• Statutory Penalties and Fines: The draft BSR Bill introduces statutory penalties such as advisory, warning, censure, or monetary penalties for operators and broadcasters. The BSR Bill further provides for imprisonment and/or fines for very serious offenses outlined in Schedule III.

• Equitable Penalties: The BSR Bill recognises that monetary penalties and fines are intricately linked to the financial capacity of the entity and therefore considers the investment and turnover of the entity.

• Repeal: The BSR will repeal and replace the Cable Television Network (Regulation) Act, 1995.

The BSR Bill, represents a commendable effort by the Ministry of Information and Broadcasting to modernize and consolidate the regulatory framework for India’s broadcasting sector. The proposed legislation addresses the dynamic nature of the industry by encompassing emerging technologies, such as OTT content and digital news. It introduces differentiated codes, prioritizes accessibility for persons with disabilities, and emphasizes self-regulation through CEC and the BAC.


However, the BSR Bill has sparked debates and criticism, particularly regarding its potential impact on content autonomy, creativity, and the dual regulatory scenario for OTT platforms. Concerns about the subjective nature of codes, potential censorship, and the imposition of a pricing regime for OTT content have been raised. The provisions related to equipment seizure also raise operational concerns. As stakeholders engage in discussions and public consultations, addressing these criticisms and striking a balance between regulation and industry flexibility will be crucial to ensuring the effectiveness and fairness of the proposed regulatory framework for India’s broadcasting landscape.


Credits: Aditi Kumari (Associate) & Sarthak Kapur (Associate)

Facilitation of Small & Medium REITs – Amendments to SEBI (Real Estate Investment Trusts) Regulations, 2014 for creation of new regulatory framework

The Securities and Exchange Board of India (SEBI) has recently notified amendments to SEBI (Real Estate Investment Trusts) Regulations, 2014, via the SEBI Board Meeting Report dated November 25, 2023.

Earlier in August 2023, SEBI floated a consultation paper for regulating all web-based platforms offering fractional ownership of real estate assets to protect small investors. Such fractional ownership of real estate assets was proposed to be brought as micro, small, and medium Real Estate Investment Trusts (REITs) under SEBI’s REITs rules. Typically, fractional investment of real estate through Fractional Ownership Platforms (FOPs) is an investing strategy in which the cost of acquisition of real estate is split among several investors. These investors invest in securities issued by a Special Purpose Vehicle (SPV) established by an FOP and the SPVs purchase real estate assets.

The regulatory framework approved by the board for Small & Medium (SM) REITs provides for the structure, migration of existing structures meeting certain specified criteria, obligations of the investment manager including net worth, experience and minimum unit holding requirement, investment conditions, minimum subscription, distribution norms and valuation of assets. SEBI has approved the concept of SM REIT, allowing fractional ownership platforms for real estate with assets of at least INR 50 crore to come under the regulatory fold. Such SM REITs should be set up as a trust with the ability to establish separate scheme for owning real estate assets through wholly owned special purpose vehicles constituted as a company. It has kept the option of migration to the newly classified SM REITs framework voluntary. The key change is the reduction of the minimum asset value required for these trusts which was previously set at INR 500 crore. SEBI also proposed a minimum ticket size of INR 10 lakh. This move aims to create a framework for small and medium-sized REITs, making real estate investments more accessible to a broader range of investors.

Read More:

IFSCA (Fund Management) Regulations 2022 FAQs for a Seamless FME Registration Process

The FAQs on the Registration of Fund Management Entities (FMEs) and Authorization of Schemes or Funds under IFSCA (Fund Management) Regulations, 2022 provide comprehensive guidance for entities seeking registration and authorization within the International Financial Services Centres Authority (IFSCA) framework. The document outlines the necessary procedures, documentation, and key considerations for FMEs and their associated schemes or funds.

Key Takeaways
Covering crucial aspects such as documentation requirements, details of key executives, financial statements submission, net worth certification, and insights into shareholding and capital structure, the FAQs ensure a thorough understanding of the regulatory expectations. Emphasizing transparency and compliance, the guidelines offer entities a robust framework for successfully operating within the IFSCA ecosystem.

(a) Registration Documents: The document specifies the essential registration documents required based on the type of entity, such as companies, LLPs, and trusts. Details on existing registrations with IFSCA or other financial regulators need to be submitted as part of the application.

(b) Key Executives Details: Requirements for providing details of Key Executives, including the Principal Officer and Compliance Officer, are outlined. Emphasis is placed on presenting comprehensive profile of Key Executives, encompassing educational qualifications and professional experience.

(c) Financial Statements Submission: Clear guidelines are provided for submitting the previous three years’ consolidated/standalone audited financial statements. For newly incorporated entities, options include submitting Income Tax Returns and the Income Tax Return Acknowledgements in lieu of financial statements.

(d) Net Worth Certificate: The requirement for a Net Worth Certificate is explained, with specific details on submission depending on the nature of the applicant (branch, subsidiary, standalone entity).

(e) Shareholding and Capital Structure: Detailed information on share ownership, capital structure, Ultimate Beneficial Owners, and Controlling Shareholders is mandated.

(f) Business Profile and Plan: The FME application requires a detailed business profile providing insights into the applicant’s history, industry presence, and market position. A detailed business plan outlining proposed activities within the IFSC is necessary.

(g) Authorisation of a scheme or fund: The FAQs also include guidelines on borrowing and levering for schemes and funds clarifying any conditions and limitation for such borrowing. Further, it mentions the essential sections, clauses, and points to be included in a Private Placement Memorandum of a scheme or a fund.

(h) Accounting standards: The FMEs must maintain books of accounts for a minimum of ten years, annual report of accounts for schemes must be submitted to IFSCA within four months from the end of the financial year.

Access FAQs here:

Credits: Rashi Dhir (Senior Partner & Head of Corporate)

Harshit Kumar (Associate) & Astha Jindal (Associate)

Comprehensive IT Directions for Banking Entities

The Reserve Bank of India (RBI) on November 7, 2023, notified the Master Direction on Information Technology Governance, Risk, Controls and Assurance Practices (Directions) which will come into effect from April 1, 2024.

To whom does it apply?
The Directions apply to Non-Banking Financial Companies (NBFCs), all Banking Companies, Corresponding New Banks and State Bank of India, each as defined under the Banking Regulation Act, 1949 (collectively referred to as “commercial banks”); Credit Information Companies as defined under the Credit Information Companies (Regulation) Act, 2005 (“CIC” or “Credit Information Companies”); and EXIM Bank, National Bank for Agriculture and Rural Development, National Bank for Financing Infrastructure and Development, National Housing Bank and Small Industries Development Bank of India as established by the Export-Import Bank of India Act, 1981; the National Bank for Agriculture and Rural Development Act, 1981; the National Bank For Financing Infrastructure and Development Act, 2021; National Housing Bank Act, 1987 and the Small Industries Development Bank of India Act, 1989 respectively (collectively referred to as “All India Financial Institutions” or “AIFIs”). These will be collectively referred as “Regulated Entities” or “REs”. Local Area Banks and NBFC-Core Investment Companies have been specifically carved out from the applicability of these Directions.

Key Aspects
The Direction lays down the guidelines on information technology (IT) governance, risk management, controls, and assurance practices of REs and prescribes adoption of several procedures, process, and methodologies (some recommendatory).

Briefly set out below are some key takeaways and aspects laid down in the Directions:

(a) IT Service Management Framework: REs needs to put in place a robust IT Service Management Framework and a Service Level Management (SLM) to manage the IT operations while ensuring effective segregation of duties. The IT Service Management is to be undertaken by proper assessment security classification of information, managing risks related to third party arrangement, capacity management by way of infrastructure support and periodic assessment and effective project management specially at the stage of adopting new technologies or implementing any changes.

(b) IT and Information Security Risk Management Framework: RE’s risk management committee under the IT and Information Security Risk Management Framework, need to undertake steps to mitigate/ manage identified risks, define responsibilities of the stakeholders, identify critical information system and ensure secure storage/ transmission/ processing of data/ information. As a part of the risk assessment process REs are to periodically review their security infrastructure and security policies, factoring in their own experiences and emerging threats and risks.

REs are to undertake preventive measures to mitigate the risk of cyber incidents and should have reporting mechanisms to report the incidents to the board of directors, senior management, the customer, CERT-In and RBI in accordance with applicable law. Additionally, post such incidents, REs are to undertake proper analysis of the severity, impact and root cause of such incidents.

(c) IT Governance Framework: REs under the IT Governance Framework, are to maintain a framework specifying the governance structure, process to achieve business and strategic objectives, roles and responsibilities of the board of director, and mechanism to mitigate IT/ cyber and information security risk.

(d) Data Control: REs are to implement physical and environmental controls in their data centre and disaster recovery sites and ensure manual intervention or manual modification in data. Further, REs need to control access to the data, including in the case of teleworking.

(e) Duty of Board of Directors to Safeguard Customer Data: The REs’ board of directors are to approve and periodically review the policies related to policies related to IT, Information Assets, Business Continuity, Information Security and Cyber Security.

(f) Business Continuity and Disaster Recovery Management: REs as part of the disaster recovery management process, are to conduct disaster recovery drills at least on a half-yearly basis for critical information. Further, as business continuity measure, the entities have to back up data in a secured manner.

(g) Information System Audit: The audit committee of REs will be responsible for the information system audit of the regulated entity.

(h) Policies to be Implemented: REs are required to formulate the following policies in the manner and for the purpose set out in the Directions:

(i) Information Security Policy and Cyber Security Policy
(ii) Data Migration Policy
(iii) Change And Patch Management Policy
(iv) Risk Management Policy
(v) Cyber Incident Response and Recovery Management Policy
(vi) Disaster Recovery Policy
(vii) Information Security Audit Policy

(i) Committees to be Constituted by the Regulated Entities: REs are required to constitute the following committees in the manner and for the purpose set out in the Directions:

(i) IT Strategy Committee of the Board
(ii) IT Steering Committee
(iii) Information Security Committee

(j) Chief Information Security Officer: REs are to designate a senior level executive having no direct reporting relationship with the Head of IT Function as the Chief Information Security Officer. The responsibilities of the Chief Information Security Officer to include driving cyber security strategy, enforcing policies related to information security and ensuring compliance.

It is pertinent to note that the direction replaces the instructions/ guidelines set out in the followings circulars issued by RBI:

(i) Risks and Control in Computer and Telecommunication Systems (1988)
(ii) Information System Audit – A Review of Policies and Practices (2004)
(iii) Operational Risk Management – Business Continuity Planning (2005)
(iv) Business Continuity / Disaster Recovery Planning (2006), Phishing Attacks (2006)
(v) Business Continuity Plan (BCP), Disaster Recovery (DR) drill and Vulnerability Assessment-Penetration Testing (VAPT) (2010)
(vi) Business Continuity Plan (BCP) and Disaster Recovery (DR); Vulnerability Assessment-Penetration Testing (VAPT) (2012)
(vii) Sharing of Information Technology Resources by Banks – Guidelines (2013)
(viii) Business Continuity Planning (BCP), Vulnerability Assessment and Penetration Tests (VAPT) and Information Security (2013)
(ix) Security Incident Tracking Platform – Reporting (2014)
(x) Risk Governance Framework-Role of Chief Information Security Officer (CISO) (2017)
(xi) Master Direction – Information Technology Framework for the NBFC Sector (2017)

The long-awaited Directions are in-line with the revamping and strengthening of the IT legislative framework in the country and intend to address the alarming increase in data breaches within REs. The implementation and enforcement of these guidelines will only be seen in the time to come.

Credits: Rashi Dhir (Senior Partner & Head of Corporate)

Aishwarya Gupta (Associate) & Aditi Kumari (Associate)

Direct Foreign Listing of Indian Companies: MCA Imposes Key Company Law Provisions

What happened?

The Ministry of Corporate Affairs (MCA) has notified effect to the provisions of sub-section (3) and (4) of Section 23 of the Companies Act, 2013 vide notification dated October 30, 2023. The said provisions were proposed to be inserted vide the Companies (Amendment) Act, 2020.

Section 5 of the Companies (Amendment) Act, 2020, which amends Section 23 of the Companies Act, 2013, states as follows:

“Amendment of Section 23: In section 23 of the principal Act, after sub-section (2) and before the Explanation, the following sub-sections shall be inserted, namely:

(3) Such class of public companies may issue such class of securities for the purposes of listing on permitted stock exchanges in permissible foreign jurisdictions or such other jurisdictions, as may be prescribed.
(4) The Central Government may, by notification, exempt any class or classes of public companies referred to in sub-section (3) from any of the provisions of this Chapter, Chapter IV, section 89, section 90 or section 127 and a copy of every such notification shall, as soon as may be after it is issued, be laid before both Houses of Parliament.”


Previously, companies incorporated in India could only list their shares on foreign stock exchanges via American Depository Receipts and Global Depository Receipts. Direct listings on foreign exchanges were not permitted, and vice versa.

On June 12, 2018, an expert committee was constituted under the Securities and Exchange Board of India namely the “Expert Committee for listing of equity shares of companies incorporated in India on foreign stock exchanges and of companies incorporated outside India on Indian stock exchanges.” The committee was tasked to analyse the implications and carve a path for direct listing of shares from the perspective of the Indian companies.

The committee submitted its report on December 4, 2018. It recommended that direct listing would increase the competitiveness of Indian companies vis-à-vis their global competitors as it would help them get similar benefits in terms of capital and the cost of capital which are enjoyed by their international counterparts.

The expert committee suggested a list of the following permissible jurisdictions:
• United States of America- NASDAQ, NYSE
• United Kingdom- London Stock Exchange
• China- Shanghai Stock Exchange, Shenzhen Stock Exchange
• Japan- Tokyo Stock Exchange, Osaka Securities Exchange
• Hong Kong- Hong Kong Stock Exchange
• South Korea- Korea Exchange Inc.
• Switzerland- SIX Swiss Exchange
• France- Euronext Paris
• Germany- Frankfurt Stock Exchange
• Canada- Toronto Stock Exchange

Key Takeaways

Under the new law, a certain class of public companies would be given the right to list its permissible securities on foreign stock exchanges in permissible foreign jurisdictions and it also includes provision for exemption by Central Government. It aids to the agenda of ease of doing business, helps companies improve their valuation and serves as an alternative avenue for domestic companies to raise capital.

MCA and the Department of Economic Affairs have been working on the rules that will be framed for the purpose. The Government will accordingly notify a framework, specifying the kind of public companies which can issue such classes of securities that would be eligible for such overseas listing including the permissible jurisdictions.

Law on InvITs: Change in SEBI Guidelines for Achieving Minimum Public Unitholding Requirement


Regulation 14(1A) of SEBI (Infrastructure Investment Trusts) Regulations, 2014 mandates all listed InvITs having public unitholding below 25% to increase its public unitholding to at least 25% within a period of 3 (three) years from the date of listing of units pursuant to initial offer.

SEBI has issued a circular dated October 31, 2023 introducing certain amendments.

Key Aspects

a. Prior to the Amendment, the Master Circular for InvITs dated July 06, 2023, laid down 9 methods in order to facilitate achievement of such minimum public unitholding requirement. An additional method has been introduced to facilitate achievement of such minimum public unitholding requirement for privately placed InvITs through issuance of units through preferential allotment. However, this will be subject to the condition that only units issued to the public shall be considered for compliance with minimum unitholding requirement.

b. Moreover, modifications have been made to one of the existing methods for achieving the minimum public unitholding, i.e., sale of units held by Sponsor(s)/Investment Manager/Project Manager and their associates/related parties in the open market.

RBI’s New Regulatory Framework for NBFCs: Scale Based Regulation Directions 2023

RBI vide circular dated October 19, 2023, has issued Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 (NBFC Directions) which outlines the new regulatory framework for NBFCs.

The NBFC Directions intend to consolidate various regulations for NBFCs of different scales and functions in one place and eliminate the classification of ‘systemically important’ NBFCs. The consolidation has streamlined various regulations governing the different layers of NBFCs bringing clarity to compliance requirements and ensuring that all NBFCs operate within a framework that is consistent and transparent. The NBFC Directions also require the top 15 NBFCs to list on stock exchanges.

Under the erstwhile framework, even the relatively smaller sized finance companies were classified as systemically important because of the definition which included NBFCs with assets over INR 500 crores. This has now been done away with. Under the NBFC Directions, NBFCs with over INR 1,000 crore assets are part of the mid-layer, and only the top 10 NBFCs form part of the upper layer to which the stringent conditions will apply.

CCI Releases Draft Regulations to Bust Cartels Under Leniency-Plus Regime

The Competition Commission Of India has invited public comments on its draft lesser penalty regulations. These regulations set out the procedural aspects of the leniency plus regime which was introduced through the Competition (Amendment) Act, 2023.

Leniency plus mechanism allows a leniency applicant to avail an additional reduction in penalty (up to thirty per cent) in relation to the disclosed cartel on providing information and evidence relating to another undisclosed cartel.

The draft regulations also introduce provisions for cartel facilitators to avail the leniency mechanism and for withdrawal of leniency applications.

The regulations are open for public comments until November 6, 2023. You may review the regulations at:

You may reach out to our competition partner, Vivek Agarwal for a quick discussion or if you wish to submit your comments to the CCI.

SEBI Circular issued for Securities Market Intermediaries in relation to Anti-Money Laundering Standards and Combating the Financing of Terrorism Guidelines

The Securities and Exchange Board of India (SEBI) vide a circular dated October 13, 2023, has amended the Guidelines on Anti-Money Laundering (AML) Standards and Combating the Financing of Terrorism (CFT) obligations for Securities Market Intermediaries under the Prevention of Money Laundering Act (PMLA) and relevant rules.

Key takeaways:

1. Determining Beneficial Ownership:

– For companies, a natural person acting alone or together/through juridical person(s) who has controlling ownership or control through other means would be the beneficial owner.
– In partnership firms, a natural person acting alone or together/through juridical person(s) who has ownership to 10% of capital or profit or control would be the beneficial owner.
– For unincorporated associations or bodies of individuals, a natural person acting alone or together/through juridical person(s) who has ownership over 15% of property or capital or profits would be the beneficial owner.
– If no natural person is identified, the natural person holding the position of senior managing official would be the beneficial owner.
– For trusts, it is mandatory to identify the authors, trustees, and beneficiaries with over 10% interest, ensuring disclosure by trustees during the account relationship or specific transactions.

2. Obligations of Principal Officer:

The Principal Officer is responsible for ensuring registered intermediaries report suspicious transactions to the financial intelligence unit (FIU).

IBBI (Insolvency Resolution Process for Corporate Persons) (Second Amendment) Regulations, 2023

What happened?
The Insolvency and Bankruptcy Board of India notified the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Second Amendment) Regulations, 2023 on September 18, 2023.

The amendments have been introduced in order to make the process of corporate insolvency resolution smoother and with a view to curtail the scope of litigation.

Key Aspects and Implications
The key aspects which have been introduced are as follows:
(a) Regulation 2D: Details of debt, default and limitation in respect of applications under section 7 or section 9: This regulation mandates that a creditor, while filing an application under Section 7 or 9 of the Insolvency and Bankruptcy Code 2016 (as amended), has to set out the chronology of debt, default, part payments, limitation and date of acknowledgement of debt, along with the requisite evidence.
(b) Regulation 3A. Assistance and cooperation by the personnel of the corporate debtor: This regulation adds a provision regarding the assistance and cooperation expected from the personnel of the corporate debtor (CD) by providing a detailed procedure for taking custody and control of assets and records of the CD by the resolution professional (RP) including provisions for creating list and tracing the possession of assets and records of the CD.
(c) Amendments to Regulation 12 and Regulation 13: In order to reduce the burden on Adjudicating Authorities (AA), the amendments increase the timelines for creditors to file claims up to the date of issue of request for resolution plans under Regulation 36B or 90 days from the insolvency commencement date, whichever is later. The RP has also been empowered to give her view on the acceptance of claim for its collation even for claims submitted beyond this time and put such claims before the committee of creditors (CoC) to recommend their acceptance for inclusion in the list of claims and its treatment in the resolution plan before the same is adjudicated or condoned by the AA.
(d) Other amendments: The amendments also set out enhanced role and responsibilities of the authorised representative (AR) of creditors and include enhanced fees of AR, stipulate a fixed timeline for intimation to the RP of assignment of debt by a creditor, and to make the resolution process more transparent and robust, the amendment enables committee members to get an audit of the CD conducted and makes cost of such audit to be part of CIRP cost.

Rajasthan Platform Based Gig Workers (Registration and Welfare) Act, 2023

What happened?
The Government of Rajasthan, on July 24, 2023, passed the Rajasthan Platform Based Gig Workers (Registration and Welfare) Act, 2023 (“Act”). With this initiative, Rajasthan has become the first state in India to pass a legislation, which regulates the engagement of gig workers and aims to provide social security and other benefits to platform-based gig workers.

As on date there is no legislation governing the rights of the people engaged in the gig economy. While at the Central level, the Code on Social Security, 2022, recognizes gig and platform workers as a separate class of workers and seeks to extend a variety of benefits to them, the same is yet to be brought in force.

Key Aspects and Implications
The Act defines ‘gig workers’ and regulates the conduct of the ‘aggregators’ (digital intermediaries connecting buyers and sellers) and ‘primary employers’ (individuals or organisations engaging platform-based gig workers).

Key aspects of the Act are:

• Registration: All gig workers and aggregators in the state will be registered to provide gig workers with social security benefits and address their concerns.
• Welfare Board: The state will establish “The Rajasthan Platform Based Gig Workers Welfare Board,” comprising two members each from gig workers and aggregators, along with two civil servants. This board will oversee the registration process and create a social security fund for gig workers.
• Unique ID: The state government will assign a unique ID to every gig worker for efficient record-keeping.
• Welfare Fee: Aggregators will pay a fee based on the value of each transaction related to gig workers, which will contribute to the “Platform Based Gig Workers Fund and Welfare Fee.”
• Social Security Schemes: Gig workers will gain access to general and specific social security schemes.
• Grievance Redressal: The Act ensures gig workers can voice their grievances and participate in decisions related to their welfare through representation on the board.
• Penalties for Non-Compliance: Aggregators who fail to pay the welfare fee on time may face fines ranging from ₹5 lakhs for the first offence to ₹50 lakhs for subsequent violations.
• Welfare and Development Fund: A ₹200 crore fund will be created to support gig workers’ welfare and development.

Foreign Owned or Controlled Companies under RBI Scanner for Deferred Construct

Reserve Bank of India (RBI) seems to have issued notices to several Foreign Owned or Controlled Companies (FOCC) for structuring share purchases in Indian companies through the deferred (holdback) consideration construct. FOCCs being Indian companies but foreign-owned and controlled need to adhere to downstream investment guidelines (the famous DI guidelines) under the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, as amended (NDI Regs). The DI guidelines do not expressly permit deferred construct. However, considering that a FOCC is an alter ego of a non-resident entity (NR entity) and NDI Regs permit NR entity to hold back a certain percentage of consideration in share purchase transactions, industry view was to apply the same yardstick to FOCCs.

What is also noteworthy is that typically in transactions involving FOCCs taking the DI route there is no cross-border transaction. While the transactions are required to adhere to pricing and valuation norms, from a practical standpoint the money never leaves the country – it’s more or less a domestic transaction!

Such deferred constructs safeguard investors from valuation swings and ensure agreed milestones are met.

While RBI seems to have asked such FOCCs to compound the offence, this development will certainly impact foreign investment and structuring around share purchases going forward.

The United States Department of Justice Announced a Series of New Foreign Corrupt Practices Act (FCPA)-Related Charges, Resulting in Hefty Penalties and Fines Amounting to USD 91 Million for Various Companies

The United States Department of Justice announced a series of new Foreign Corrupt Practices Act (FCPA)-related charges, resulting in hefty penalties and fines amounting to USD 91 million for various companies.

A research and consulting services company was fined over $2.45 million for violating various provisions of FCPA in connection with a corrupt arrangement with a South African consulting firm to obtain and retain contracts from the South African Revenue Service. (5/26/2023)

A medical device manufacturer faced a staggering $62 million penalty for violating the books and records and internal accounting controls provisions of the FCPA through its subsidiaries in China. Employees in Chinese subsidiaries sought to improperly influence government hospital officials to secure tenders through questionable tactics. (05/11/23)

An oil services company settled for approximately $8 million after being charged with FCPA violations related to payments made by its subsidiaries to an Angolan government official through a purported sales agent. (4/26/23)

A Europe based gaming giant paid a $4 million civil penalty for violating the books and records and internal accounting control provisions of FCPA in connection with payments to consultants in Russia. The payments were linked to the company’s operations and efforts to have poker legalized. (03/06/23)

A global mining company agreed to a $15 million civil penalty for violating the FCPA’s provisions. The charges were related to payment of $10.5 made to a consultant to retain mining rights to certain mining blocks by offering or paying money to benefit government officials. (03/06/23)

Key Takeaway
The above charges are indicative that the FCPA-related risks continue to pose a serious compliance challenge to U.S-based businesses that operate in high-corruption-risk countries.

How DMD can help?
The professionals at DMD advocates help you by conducting compliance assessments, risk analysis, and developing tailored policies and procedures to ensure FCPA compliance. It is imperative to provide employee training, implement due diligence on third parties, review internal controls, and establish monitoring systems. Staying updated on regulatory changes, the firm can help companies maintain high governance standards and navigate international business confidently.

Companies with Better Governance Perform Better in Overall Corporate Performance vis-à-vis Companies with Low Governance Standards

In a research paper published in Harvard University’s Quarterly Journal of Economics in February 2003, researchers shared results of a nine-year study (1990-1999) conducted on 1,500 large companies. The study analyzed these companies based on 24 governance-related parameters and ranked them on a governance index (G). The results revealed that companies with higher G scores (Democracy portfolio) consistently outperformed companies with lower G scores (Dictatorship Portfolio) in terms of overall corporate performance.

The research found that the Democracy Portfolio outperformed the Dictatorship Portfolio by 8.5% per year. A $1 investment in a Dictatorship Portfolio would have grown to $3.39 over a period of 9 years which was a 14% annualized return. In contrast, a $1 investment in the Democracy Portfolio increased to $7.07 over the same period yielding a 23% annualized return, a difference of 9%. The Democracy Portfolio also had a better valuation than the Dictatorship Portfolio. This finding was also consistent with vast study conducted elsewhere that has found a positive correlation between corporate governance and company value.

How DMD Advocates can help?
Determining the adequacy of the corporate governance provisions can be a daunting task for any company as these provisions are usually very specific to a business and industry. Governance professionals can assess the current maturity level of a company’s corporate governance framework and recommend a desired state of maturity and an implementation plan to successfully get there.

Reach out to our corporate governance experts, Rashi Dhir & Varun Mowar for assessing adequacy of your company’s corporate governance framework.

JPMorgan Paid $175 Million for a Hot Startup, Now Claims CEO Faked 4 Million Clients!

What happened?

JPMorgan Chase sued Charlie Javice, Founder and CEO of Frank, a college financial aid start-up acquired two years ago for $175 million, for fabricating its scale of operations and number of users. The lawsuit claims that Charlie Javice duped the bank into believing Frank had more than 4 million customers. The startup had fewer than 300,000 customers, as stated by JPMorgan in its suit. The bank discovered the discrepancy when 70% of emails sent to a batch of about 400,000 Frank customers bounced back.

Why did this happen?

Insufficient forensic due diligence during pre-investment stage.

How this could have been avoided?

Conducting thorough forensic due diligence on the financial and operational data – including cross-checking user data with customer data or implementing authenticity checks on the user data.

Key Takeaway

It is imperative to conduct sophisticated forensic data analytics procedures on operational and financial data to ascertain whether data has been “massaged” or falsified. Data analytics procedures are adept at identifying trends and patterns that indicate falsification, regardless of how deep-rooted or organised data manipulation is.

How DMD can help?

DMD has an innovative Investigations and Governance Advisory practice. Our team has expertise in providing practical & in-depth analysis of complex financial transactions, conducting investigations, implementing and monitoring compliance programs, preparing comprehensive reports, and assisting in litigation and arbitration matters.

© DMD Advocates, 2023-24

Designed and maintained by Grapdes


This website has been designed only for the purpose of dissemination of basic information on DMD Advocates and is not meant for advertising or for soliciting work by DMD Advocates. The information provided through this website should not be construed as legal advice and is not intended to create any attorney-client relationship between DMD Advocates and the reader. Readers are requested to seek formal legal advice prior to acting upon any information provided herein.

I Agree