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Regulation of VC funding in India: A critical analysis

This blog post has been authored by Ms. Prerna Kashyap


The venture capital industry evolved in the late 1980s in India. Back in 1973, a committee on Development of Small and Medium Enterprises highlighted the need to foster venture capital as a source of funding new entrepreneurs and technology. The Government of India took a policy initiative and announced guidelines for venture capital funds (VCFs) in 1988 on the basis of a study undertaken by the World Bank. Slowly and gradually various rules and regulations were made to deal with the venture capital funding in India.[1]


Venture capital (VC) funds start-ups and early-stage emerging companies having significant potential for growth[2] but involves high risk.

Section 2(z) and 2(za) of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) defines “venture capital fund” as an “Alternative Investment Fund which invests primarily in unlisted securities of start-ups, emerging or early-stage venture capital undertakings mainly involved in new products, new services, technology or intellectual property right based activities or a new business model and shall include an angel fund as defined under Chapter III-A” and “venture capital undertaking” as “a domestic company which is not listed on a recognised stock exchange at the time of making investments” respectively.


Securities and Exchange Board of India (SEBI) is the nodal regulator for VCFs to provide a uniform, hassle free, single window regulatory framework. Various regulations such as the SEBI (Venture Capital Funds) Regulations, 1996 (“VCF Regulations”) and the SEBI (Foreign Venture Capital Investor) Regulations, 2000 have been issued on the recommendation of the Chandrasekhar committee fostering growth in the industry. As per the SEBI report relating to activities of VCFs until June this year, a total of Rs. 22,563.88 crores VCF has been raised.[3]


AIF Regulations has been brought in order to replace the VCF Regulations and has been notified vide PR no. 62/2012[4] dated May 12, 2012. As per the AIF regulations, the funds registered as VCF under VCF Regulations shall continue to be regulated by the same till the existing fund or scheme managed by the fund is wound up and such funds shall not launch any new scheme after notification of these regulations. VCF may seek re-registration, subject to approval of their investors.[5]

Registration of Venture Capital Fund

VCFs are included in “Category I Alternative Investment Fund”[6]. No entity or person shall act as a VCF unless it has obtained a certificate of registration from the SEBI. Form ‘A’ lays down the instructions for the application for the grant of the certificate. Eligibility criteria are prescribed for the purpose of the grant of certificate to an applicant. Vide Explanation[7] of sub- clause (a) of sub- regulation (4) of regulation 3 of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, states that a VCF can be organized in the form of a trust or a company.

Investment Conditions and Restrictions

The AIF Regulations specify that VCFs shall state investment strategy and any material alteration to the fund strategy shall be made with the consent of unit holders; they shall raise funds through private placement by issue of placement memorandum and may launch schemes subject to filing of placement memorandum. The minimum tenure is prescribed as 3 years. Units of close- ended VCFs may be listed on the stock exchange.[8]

VCFs may invest in securities of companies incorporated outside India subject to conditions issued by the Reserve Bank of India and the SEBI. They shall invest not more than 25% of investable funds in an investee company whereas a large value fund for an accredited investor may invest up to 50% of investable funds in an investee company. They shall not offer their units to other VCFs if they are investing in units of other VCFs.

If a VCF is investing in associates/ units of VCFs managed by manager/ sponsor/by associates, approval of 75% of investors by value for investment is required. The terms of co-investment by a manager/ sponsor/ co-investor, shall not be more favourable than the terms of investment of the VCF. Un-invested portion of investable funds and divestment proceeds pending for distribution to investors shall be invested as prescribed in regulations.

Investment by VCFs in the shares of entities listed on institutional trading platforms shall be deemed to be investment in ‘unlisted securities’ for the purpose of these regulations. They shall invest in investee companies, venture capital undertaking (VCUs), special purpose vehicles, limited liability partnerships (LLPs) in units of other Category I AIFs of the same sub category or in units of Category II AIFs as specified in this regulation. They shall not borrow funds & shall not engage in leverage except for meeting temporary requirements. They shall invest at least 75% of the investable funds in unlisted equity shares or equity linked instruments of VCU or in companies listed or proposed to be listed on SME exchange and this shall be achieved by the VCFs by the end of its life cycle. For the purpose of market making, the VCF is required to enter an agreement with a merchant banker.[9]

Angel fund is a sub-category of VCF that raises funds from angel investors and invests in accordance with the prescribed provisions[10].

VCFs are exempted from certain provisions of Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 in respect of companies listed or proposed to be listed on SME exchange.[11]

Registration of Foreign Venture Capital Investors

The applicant shall make an application to the Board in Form A along with the application fee.[12] The applicant should be granted the necessary permission by the RBI to make investments in India. Eligibility criteria are prescribed for the purpose of the grant of certificate to an applicant.[13]

Investment Conditions and Restrictions for a Foreign Venture Capital Investor

Investor shall disclose his investment strategy and it can invest all his funds in one VCF.

A Foreign Venture Capital Investor (FVCI) shall make investment in at least 66.67% of the investible funds in unlisted equity shares or equity linked instruments of VCUs or make an investment in not more than 33.33% of the investible funds by way of:

  • subscription to initial public offer of a VCU proposed to be listed;
  • debt instrument of a VCU in which the FVCI already has equity investment;
  • preferential allotment of equity shares of a listed company subject to 1 year lock-in period.[14]
Obligations of a Foreign Venture Capital Investor

FVCI shall maintain books of account and records for a period of 8 years. It shall appoint a custodian for custody of the securities who shall monitor the investment. It shall furnish periodic reports to the SEBI and information as required/ called for by the SEBI.  It shall appoint a branch of a bank approved as designated bank by the RBI for opening of the foreign currency denominated account.[15]


The SEBI master circular and circulars ensure an effective regulatory framework for VCFs and the SEBI. The SEBI specified guidelines stating that AIFs may invest in securities of companies incorporated outside India subject to the condition that they may invest in equity and equity linked instruments only of off-shore VCUs, subject to overall limit of USD 1500 million and mandating benchmarking of the performance of the VCFs which will help investors in assessing the performance of the VCF industry.[16]

In regard to the validity period of approval granted by the SEBI to VCFs for overseas investment, on recommendation of the Alternative Investments Policy Advisory Committee, it has been decided to reduce the time limit from 6 months to 4 months.[17]

VCFs are required to file an application to SEBI for allocation of overseas investment limit. In relation to an overseas investee company a VCF shall:[18]

  • Invest in such a company, which is incorporated in a country whose securities market regulator is a signatory to the International Organization of Securities Commission’s Multilateral Memorandum of Understanding (MoU) or a signatory to the bilateral MoU with the SEBI.
  • Not invest in a company, which is incorporated in a country identified in the public statement of the Financial Action Task Force.

VCFs shall furnish the sale/divestment details of the overseas investments to the SEBI in the format prescribed and an undertaking for the proposed investment shall be submitted to the SEBI by the trustee/board/designated partners of the VCFs.[19]


The regulations provide that FVCIs may contribute to meet the shortfall in promoters’ minimum contribution, subject to a maximum of 10% of the post-issue capital without being identified as promoter(s)[20] and contributions made by FVCIs in specified securities shall be locked-in for a period of 18 months from the date of allotment of the further public offer.[21]

Exemption in case of substantial acquisition of shares or voting rights

A VCF or a FVCI registered with the SEBI, by promoters of the target company pursuant to an agreement between such VCF or FVCI and such promoters, who has acquired and holds shares or voting rights(VRs) and exercises 25% or more of the VRs in the target company but less than the maximum permissible non-public shareholding[22], shall be exempt from the obligation to make an open offer[23] to acquire within any financial year additional shares or VRs in the company and exercise more than 5% of the VRs.

A VCF established in the form of a trust/ company/ body corporate and registered under the VCF Regulations is not considered as an investment vehicle for the purpose of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019.[24]

Applicability of Angel Tax

Recently, the Central Board of Direct Taxes has issued an amended Rule 11UA (2) of the Income Tax Rules and it provides that for Section 56(2)(viib) of the IT Act, where a taxpayer is a VCU who has received consideration from the issue of unquoted equity shares to a VCF, the price of such equity shares corresponding to such consideration be taken as the fair market value (FMV) of the equity shares for resident and non-resident investors provided that:

  • the consideration from such FMV does not exceed the aggregate consideration received from a VCF; and
  • the consideration received by the undertaking from a VCF, within 90 days before or after the date of share issuance.[25]

Intimation of the winding up of the VCF should be given to the SEBI. VCF can be wound up in the following circumstances:[26]

If the VCF is set up as a trust, it shall be wound up:

  • When the tenure of the VCF or the scheme launched by the VCF, as mentioned in the placement memorandum is over; or
  • If in the opinion of the trustees and in the interest of the investors the VCF should be wound up; or
  • If 75% of the investors in the VCF pass a resolution at a meeting that the VCF should be wound up.

If the VCF is set up as a LLP, it shall be wound up as per the Limited Liability Partnership Act, 2008. If the VCF is set up as a company, it shall be wound up in accordance with the provisions of the Companies Act, 1956. If the VCF is set up as a body corporate, it shall be wound up as per the statute under which it is constituted.


India has come a long way in the journey of venture capital. With the increase in the number of start-ups, more and more investment opportunities are coming up in the sectors such as biopharmaceuticals, software, financial institutions and investors and so on. This shows the significance of flexible and up-to-date regulations incorporating latest developments. The Securities and Exchange Board of India issues various circulars and directions supplementing the current regulations and this helps in regulating and facilitating the influx of venture capital investments made by residents and non- residents in India.

[1] Report of Advisory Committee on Venture Capital.PDF (

[2] Rebecca Baldridge, Understanding Venture Capital, dated 8 June, 2023; accessed on 17 October, 2023.

[3] SEBI | Data relating to activities of Alternative Investment Funds (AIFs), accessed on 14 October, 2023.

[4] SEBI | SEBI notifies SEBI (Alternative Investment Funds) Regulations 2012, accessed on 14 October, 2023.

[5] Sub- regulation (2) of regulation 3 of the SEBI (Alternative Investment Funds) Regulations, 2012.

[6] Clause (a) of sub- regulation (4) of regulation 3 of the SEBI (Alternative Investment Funds) Regulations, 2012.

[7] Explanation.─” For the purpose of this clause, Alternative Investment Funds which are generally perceived to have positive spillover effects on economy and for which the Board or Government of India or other regulators in India might consider providing incentives or concessions shall be included and such funds which are formed as trusts or companies shall be construed as “venture capital company” or “venture capital fund” as specified under sub-section (23FB) of Section 10 of the Income Tax Act, 1961.”

[8] Chapter II, Registration of Alternative Investment Funds of the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012.


[9] Ibid.

[10] Sub- regulation (1) of Regulation 19A of the SEBI (Alternative Investment Funds) Regulations, 2012.

[11] Sub- clause (c) of sub- regulation (3) of regulation 16 of the SEBI (Alternative Investment Funds) Regulations, 2012.

[12] Regulation 3 of the SEBI (Foreign Venture Capital Investors) Regulations, 2000.

[13] Regulation 4 of the SEBI (Foreign Venture Capital Investors) Regulations, 2000.

[14] Regulation 11 of the SEBI (Foreign Venture Capital Investors) Regulations, 2000.

[15] Chapter IV of the General Obligations and Responsibilities of the SEBI (Foreign Venture Capital Investors) Regulations, 2000.

[16] SEBI Master Circular No. SEBI/HO/AFD/PoD1/P/CIR/2023/130 dated July 31, 2023, available at:, accessed on 13 October, 2023.

[17] SEBI Circular No. SEBI/HO/AFD/PoD/CIR/P/2023/137 dated August 04, 2023, available at:, accessed on 17 October, 2023.

[18] SEBI Circular No. SEBI/HO/AFD-1/PoD/CIR/P/2022/108 dated August 17, 2023, available at: SEBI | Guidelines for overseas investment by Alternative Investment Funds (AIFs) / Venture Capital Funds (VCFs), accessed on 14 October, 2023.

[19] Ibid.

[20] Sub-regulation (1) of regulation 14 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations 2018.

[21] Clause (a) of regulation 115 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations 2018.

[22] Sub- regulation (2) of regulation 3 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

[23] Sub- clause (f) of sub- regulation (4) of regulation 10 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.


[24] Reserve Bank of India – Master Directions (

[25] Alerts: Direct Tax Alert – CBDT notifies amended Valuation Rules in respect of Angel tax, available on Direct Tax Alert – CBDT notifies amended Valuation Rules in respect of Angel tax – BDO, accessed on 18 October, 2023.

[26] Regulation 29 of the SEBI (Alternative Investment Funds) Regulations, 2012.


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Regulation of anti-trust practices of big tech companies in India – A critical analysis

This blog post has been authored by Ms. Saumya Mishra


Big digital corporations have grown and become more influential in the 21st century in an unprecedented way, and this tendency is not just present in the West. Companies like Google, Amazon, Facebook (now Meta), and others have greatly increased in importance in India as well, altering businesses and sectors all throughout the country. These businesses have revolutionised how Indians interact with trade, connectivity, entertainment, and other areas by leveraging technology and innovation.[1] Big IT businesses’ rise in a variety of industries has not been without controversy and cause for worry. Several important challenges, including anti-trust practices, violations of data privacy, and the formation of unchallengeable market domination, have emerged as a result of these corporations’ substantial impact and market dominance.[2]

India has structured a regulatory framework to promote fair competition, safeguard consumers, and solve new concerns in the digital sphere in response to the large IT companies’ rapid expansion and impact. The Competition Act of 2002 and other relevant rules serve as the primary regulatory foundation for this system.[3] Due to their significant market power and propensity for anti-competitive behaviour, huge tech businesses are particularly important under the Competition Act.[4] Due to their considerable influence and wealth, these corporations could use tactics to discourage innovation and restrict competition. When analysing how large IT businesses behave in India’s fast changing digital environment, the act’s prohibitions against anti-competitive agreements and abuse of power are especially important.

Overview of Competition Act (2002):

The Act was passed in 2002 to guarantee commercial freedom and to provide guidelines for how enterprises should operate on the market. The Act primarily deals with and governs three things: anti-competitive agreements, a company’ dominating position and misuse of that position, and combinations of different enterprises through mergers, acquisitions, amalgamations, etc.[5]

The Competition Commission of India (CCI), India’s top antitrust watchdog, is essential to fostering fair competition and defending consumer interests in the nation’s marketplaces.[6]

Anti-Competitive Agreements: 

Horizontal Agreements: These agreements between rival businesses or entities with equivalent stages of manufacturing are anti-competitive. In India, some horizontal agreements are thought to have a significant adverse effect on competition (AAEC). If the parties can demonstrate that their agreement doesn’t hurt competition, this supposition can be refuted.[7]

Vertical Agreements: These agreements between organisations with various output levels are anti-competitive. Vertical agreements are typically permitted unless they result in or are likely to result in an AAEC in India. The Act includes a comprehensive list of vertical agreements that may be prohibited based on their effects on India’s competitive circumstances as well as a comprehensive list of horizontal agreements that are considered to cause AAEC.[8]

Cartel Conduct:

A cartel is essentially an arrangement among two or more businesses or partners involved in the public provision of goods and services for the purpose of regulating deceptive price arrangements.[9]

Section 3 of the act certainly “prohibits and renders the agreement void when the business partners enter into an agreement with respect to the production of supply, distribution, storage, goods or provisions of the services which are likely to cause an ample amount of adverse effect to the competition in India.”[10]

Additionally, Section 3 has a clause that essentially forbids cartel firms from reaching anti-competitive agreements, including: –

  • Deciding on the acquisition and sale of products, both implicitly and explicitly.
  • limiting control over service sales, investment, and manufacturing.
  • the regional market’s distribution.
  • participating in collusive bidding.
  • Therefore, such agreements must be regarded as invalid.[11]
 Abuse of Dominance Position:
  • This is given under Section 4 of the Act.[12] A business or corporation is considered to be in a dominating position if it exploits its position to take autonomous control of the market or if it has an impact on the competitors. No firm is forbidden from holding a dominating position, but the Act forbids misuse of such position when it is used for improper purposes. The Act specifies a number of actions that constitute abuse of a dominating position. As follows:
  • If a position is taken advantage of to impose any unjust pricing or conditions, including predatory prices,
  • If it’s applied to restrict development or production,
  • restricts market entry,
  • To end the contract due to unneeded conditions,
  • to improve one’s position in other markets.[13]
Combination Regulation: Merger, Acquisition & Amalgamation

The Act forbids combinations that create or are likely to cause an AAEC and defines combination as the purchase of one or more businesses by one or more people, or the merger or amalgamation of businesses where the combining parties meet certain asset or revenue requirements in India and overseas.[14]

In this regard, Big Tech corporations have acquired over 400 companies worldwide in the past ten years, but in India, they have invested heavily in Reliance’s Jio Platform and have also acquired startups like Google-Halli and Where’s My Train. Killer purchases, which effectively replace innovation and eliminate competition as a result, have not yet been subject to regulatory review by the CCI.[15]


Antitrust authorities have been closely monitoring monopolistic IT firms and their business operations in recent years, checking them for any signs of potential anti-competitive behaviour. Concerns regarding the market dominance and possibly unfair activities of dominant tech corporations in key areas have been sparked by their emergence. The biggest internet firms, including Amazon, Apple, Facebook, Google, and Microsoft, have been the subject of several inquiries, legal actions, and penalties for antitrust infractions.[16]

  1. Data control and Privacy: Control over data is one of the main problems motivating the crackdown on major technological businesses. Numerous personal data are available to businesses like Facebook and Google, which they may use to focus advertising and gain a competitive edge. Antitrust regulations worry that these businesses may be utilising their data control to monopolise the market unfairly and restrict competition.[17]

In Competition Commission of India v. Google LLC and Ors, in order to force its partners to utilise its search services under unfair terms, such as compelling them to share their data only with Google and forbidding them from utilising relatively similar info with other web pages, Google had exploited its dominating position. The CCI held that “this practice had resulted in a significant barrier to entry for competing search engines, as they were unable to access the data necessary to improve the quality of their search results.”[18]

WhatsApp Inc. v. Competition Commission of India, the court “acknowledged the importance of individual autonomy and control over personal data, and emphasized the need for transparency and informed consent in data processing. The court held that WhatsApp’s new privacy policy, which required users to agree to share their data with Facebook, violated the right to privacy of Indian citizens.”[19]

  1. Predatory Pricing: While cutting prices and making losses to attract consumers can be parts of good competition, doing so in an effort to drive out rivals is referred to as predatory pricing, which is often prohibited. Similarly, although entrance restrictions are lawful, they might result in an unlicensed monopoly.[20] For example, in order to gradually shorten shipping times in 2015, Amazon suffered a net loss of $5 billion on shipping costs, yet this was nonetheless a success for the corporation because other merchants lacked the resources to compete. Customers turned to Amazon in search of lightning-fast shipping speeds.[21]
  2. Self-Preferencing: When a business advertises its very own services or that of its affiliates on its network while also competes with other service suppliers on the same site, this practise is known as self-preferencing.[22] In the Alphabet Inc. case, “it was alleged that Google unfairly privileges ‘Google Pay’ by prominent placement on the play store, Android OS and Android based smartphones by skewing the search results on the play store in favour of Google Pay and pre-installing it on android smartphones. It was held in contravention of Section 4 i.e., abuse of Dominance position.” [23]
  3. Search and Ranking Preferences: On every platform, users may search using keywords to get data based on algorithms. Search engine algorithms should show the best-selling or most highly rated items or services at the top, without any prejudice. If any other products, such as promoted products or orders that the marketplace itself fills, supersede, it suggests search bias in favour of those items. The CCI had remarked that the question of preferential ranking should also be regarded in connection with the aforementioned in the same 2019 case involving Amazon and Flipkart (exclusive tie-ups). Through greater discounts and preferred listing, competition on the platforms may be impacted in behalf of the exclusive brands and merchants. Because of this, it is necessary to do a thorough analysis to determine how vertical agreements function, what their main clauses are, and how they affect competition.[24]

There are various other challenges like restricting third party applications, deep discounting done by big tech companies which make it difficult for the present regulatory framework to deal with it.


New laws and regulations for the digital marketplace are required immediately, and suitable ex ante legislation should be used to create new requirements. Through the Digital Markets Act, the EU has already acknowledged this requirement. It is time for India to enact similar legislation.[25] A legislative panel in India has suggested that the government create a law governing digital competition to control Big Tech firms’ anti-competitive business activities on their platforms.[26]

Prior to a merger or acquisition, a country’s anti-trust watchdog will exercise tougher oversight in addition to the financial requirements. This will require a thorough study, including extensive due diligence on a proposed deal, by the regulator.[27]

Need for Ex-ante regulation in India: Despite the fact that the competition rules address that oddity, they are just too slow to act in highly technological industries. By the time an order is passed, the dominant player, in Google’s instance, has acquired an advantage. To avert market failures and reduce potential anti-competitive behaviour, ex-ante legislation is urgently needed in this situation.[28]

The Competition Amendment Bill, 2022 contains the government’s proposed changes to the competition legislation.[29] In April 2023, the Bill wins presidential assent. The CCI must create regulations that specify the criteria for determining whether an organisation has significant commercial activities in India. The Commission’s assessment process will be strengthened, especially in the digital and infrastructure sectors, where the bulk of transactions were not previously notified because the asset or turnover amounts fell below the jurisdictional requirements.[30]

In conclusion, the fast rise of Big Tech companies in India has presented the digital environment with never-before-seen difficulties. In tackling anti-competitive behaviour and defending consumer interests, the current regulatory structure, particularly the Competition Act of 2002, has achieved progress. However, it has shown to be ineffective in tackling the complex issues of the digital era, such as search bias, self-preferencing, predatory pricing, and data privacy. Ex-ante regulation and new legislation designed for the digital market must be adopted by India in order to overcome these obstacles, following worldwide best practises. Although the proposed Competition Amendment Bill of 2022 is a positive beginning, strong and progressive legislation is essential to guarantee fair competition, innovation, and consumer protection in the developing digital economy.

To learn more about the Competition Act, 2002, enrol for Diploma in Competition Law.

[1] West India Company: The Rise of New Imperialists in Digital World, OUTLOOK, (Sept. 8, 2023),

[2] Anti-Competitive Practices by Big Tech Companies, DRISHTI IAS, (Sept. 8, 2023),

[3] Why big tech companies are increasingly worried about Competition Law in India, IPLEADERS, (Sept. 8, 2023),

[4] Id.

[5] India’s Antitrust Problem with Big Tech, THE RMLNLU LAW REVIEW BLOG, (Sept. 8, 2023),

[6] Competition Commission of India’s Actions Against Big Tech Companies for Antitrust Violations, KSK ADVOCATES AND ATTORNEYS, (Sept. 8, 2023),

[7] Antitrust Law In India: Big Tech Regulation & Fair Digital Competition, PARKER & PARKER, (Sept. 8, 2023),

[8] Id.

[9] Understanding the legality of cartels in India, IPLEADERS, (Sept. 8, 2023),

[10] The Competition Act 2002, § 3, No. 12, Acts of Parliament, 2002 (India).

[11] Id.

[12] The Competition Act 2002, § 4, No. 12, Acts of Parliament, 2002 (India).

[13] Id.

[14] Supra note 7

[15] Supra note 5

[16] Competition Commission of India’s Actions Against Big Tech Companies for Antitrust Violations, KSK ADVOCATES AND ATTORNEYS, (Sept. 8, 2023),

[17] Id.

[18] Google LLC and Another v. Competition Commission of India Through its Secretary, 2023 SCC OnLine NCLAT 147.

[19] WhatsApp Inc. v. Competition Commission of India, 2020 SCC OnLine CCI 32.

[20] Big Tech Monopolies: The Four’s Efforts to Eliminate Competition, SHORTFORM, (Sept. 8, 2023),

[21] Id.

[22] Supra Note. 2

[23] XYZ v. Alphabet Inc., 2020 SCC OnLine CCI 41

[24] Anti-Competitive Practices by Big Tech Companies, MINISTRY OF CORPORATE AFFAIRS, (Sept. 8, 2023),

[25] Regulating The Big Techs and Competition in The Market, CIVILS DAILY, (Sept. 8, 2023),

[26] India panel recommends digital competition act to rein in Big Tech, REUTERS, (Sept. 8, 2023),

[27] Big, Bigger Tech: Trust and Anti-Trust, GATEWAY HOUSE INDIAN COUNCIL ON GLOBAL RELATIONS, (Sept. 8, 2023),

[28] Big Tech And The Need In India For Ex-Ante Regulation, THE HINDU, (Sept. 8, 2023),

[29] Supra note 2

[30] Id.

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Regulation of cross-border mergers in India – A critical analysis

This blog has been authored by Lohitaksh Shively 


Over the past few decades, with the expansion of the Indian economy in a threefold manner, namely, Liberalisation, Globalization and Privatisation; the need for collaborations and strategic alliances have risen immensely. A principal tool used is that of merging two entities. Mergers are when two entities come together to amalgamate their business operations and become one single entity to defeat the competition, achieve economies of scale, and attain positive synergies. Mergers are synonymous with amalgamation, falling under the ‘corporate restructuring’ umbrella. Other such methods of corporate restructuring include – Acquisitions, Takeovers, and Absorptions; wherein acquisitions are when the acquirer entity ends up acquiring controlling power in the target entity. The acquirer can be termed as the ‘big fish’ and the target entity would naturally be the ‘small fish’. The motive for such restructuring is essentially growth; and growth in such abovementioned scenarios is always termed ‘inorganic’, wherein the entities choose external mechanisms to grow their business, customer base, operations etc. This should be juxtaposed with organic growth which is the antithesis of inorganic; it is when the entity reforms its internal working, like, pricing options, among others.

To learn more about mergers and acquisitions, enrol for Diploma in Mergers and Acquisitions certified by Corp Comm Legal.


Mergers and Acquisitions (“M&As”) when spoken about can be classified into various sub-types based on industry, financing options, and territorial limits. In this article, the author will comment upon M&As w.r.t. Territorial limits and the regulations governing such transactions. Such M&As are termed as Cross Border Merger and Acquisitions (“CBMAs”) or ‘transnational’ M&As due to the fact that one entity to such a transaction is always a foreign entity. Any Indian entity in the backdrop of globalization may prefer expanding overseas by acquiring or merging with foreign entities. CBMAs are generally Inbound and Outbound, wherein the former is characterised with a foreign entity merging with or acquiring an entity in India, whereas the latter is when an Indian entity expands overseas. One such example of an inbound acquisition is Walmart’s majority acquisition of Flipkart’s 77% stake for a whopping USD 16 billion. It is evident from the above cross border transaction, that the inflow of USD 16 billion was in fact Foreign Direct Investment (“FDI”) into the Indian economy, and that it opened the doors for Walmart (foreign entities) to enter the Indian market and strengthen their presence. A simple continent wise distribution of inbound M&As shows that North America has accounted for the largest percentage of M&As and Europe running to a close second. This is because for the MNCs (Multi-National Corporations) India has the world’s best resources with cheap but talented labour, largest markets in terms of size, capital markets, technologies, low cost suppliers etc.[1] Similarly on the outbound front, India has mainly targeted the IT, Telecom and pharmaceutical sectors. A continent wise distribution would portray that, maximum of deals entered into are in North America and Europe followed by Asia, as Indian companies have targeted at the developed capital markets for better growth and expansion opportunities.[2] Some landmark examples of outbound CBMAs are Tata-Chorus, Tata-JLR, Tata Tea-Tetley, DIS-Ranbaxy etc.

Motivations for CBMAs

Corporate restructuring transactions mainly aim at enhancing economies of scale and achieving high levels of efficiency. This metamorphosed corporate structure ensures that the newly formed entities focus on their core strengths, efficient allocation of resources, reduction in costs, synergies, corporate performance, R&D (research and development) among others. Apart from the above mentioned rational motives to merger, there are various developed theories to merge, them being the Hubris Hypothesis theory (executives being overconfident and they overestimate their ability to manage the target firm) and the Free Cash-flow theory (utilization of idle cash surplus by the acquirer). A major motive to enter into CBMAs is to overcome restrictions from limited home market growth i.e. the location of acquisition. Thusly, a country must strategically choose from various jurisdictions across the world where it wishes to do ‘business by integration’. Howsoever, while choosing the relevant jurisdiction, business rules, market regulatory mechanism, taxation risks all must be taken into consideration.

To learn more about mergers and acquisitions, enrol for Diploma in Mergers and Acquisitions certified by Corp Comm Legal.

Legal Framework

Cross border M&A deals have been the key consideration of the overwhelming FDI inflow in India. In order to tighten the ties between the boundaries it was essential to create an environment for cross border merger transactions between the countries.[3] For this very reason, CBMA in the Indian realm is strictly regulated by a catena of rules under various laws such as Companies Act, 2013, Foreign Exchange Management Regulations, Competition Act, 2002 and various other related statutes. In short, the Indian corporate laws, foreign exchange laws, capital market laws and merger control regulations govern CBMAs. These laws govern entry routes, deal value thresholds, combinations, sectoral caps, mandatory approvals of authorities (like the RBI), investment limits, disclosures etc. A glimpse into a few of the statutory regulations is given below –

1. Companies Act, 2013 (“CA, 2013”)

The CA, 2013 has been brought in order to replace the 1956 act so as to cater to the ‘newer’ needs. Chapter XV of the CA, 2013 lays down guidelines for Compromise, Arrangement and Amalgamations. § 230-240 expressly deal with the such alliances. The Ministry of Corporate Affairs of the Government of India (“MCA”) by way of a notification[4] has notified § 234 of the CA, 2013 enabling cross-border mergers with effect from April 13, 2017. Our focus would thus be on § 234 which governs ‘merger or amalgamation of company with foreign company’[5]. Vide Explanation[6] of § 234 the ambit of the provision is explained by making it such a situation applicable only in cases wherein one entity is a ‘foreign company’. In addition to this internal aid of interpretation, such mergers or amalgamations may only be done pursuant to the prior approval of the RBI and that the terms and conditions of the scheme of merger may provide for payment of consideration to shareholders of merging company in case, DRs (depository receipts) or a combination of both. Vide another notification[7], Rule 25A[8] of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (“CAA Rules”), ‘merger or amalgamation of a foreign company with a Company and vice versa’, states that, the prior approval of RBI along with compliance of §230-232 of the CA, 2013 is a mandate[9]. Such rule read with Annexure B enlists various jurisdictions in which such mergers are possible.[10]

2. Foreign EXCHANGE Management Regulations

The Foreign Exchange Management (Cross Border Merger) Regulations, 2018 have been notified vide notification no. FEMA 389/ 2018-RB dated 20 March, 2018[11] and are effective from the date of notification. As per the Regulations, any merger transactions in compliance with these regulations shall be deemed to have been approved by RBI, and hence, no separate approval should be required[12]. In other cases, merger transactions should require prior RBI approval.[13] The Merger Regulations allow an Indian company to issue or trans­fer any security to a person resi­dent outside India subject to ad­herence to pricing norms, sectoral caps on foreign investment and other applicable conditions pro­vided under the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017.[14] The Merger Regulations allows a resident person in India to hold securities of the foreign company in accordance with the Foreign Ex­change Management (Transfer or Issue of Any Foreign Security) Re­gu­lations, 2004.[15] In the realm of foreign investments into India, there exists two routes, i.e. Automatic Route and the Approval Route; which means that, if an investment is being made into a particular sector, for instance pharmaceuticals,[16] which does not need any approvals, then the same is said to fall under the Automatic route of investment.

3. Competition Act, 2002 (“CA, 2002”)

A replacement to the Monopolistic Restrictive Trade Practices Act, 1969, the CA, 2002 tackled the issue of combinations and various other arrangements in a methodological manner with detailed and economically sane provisions. §5 and 6 of the CA, 2002,  the key provisions to regulate combinations, prevent such mergers if it leads to AAEC (Appreciable Adverse Effect on Competition).  As per the scheme of the CA, 2002, enterprises that propose to enter into combinations have to notify the CCI (competition commission of India) prior to entering into any such arrangements. If the proposed transaction crosses the thresholds given under §5, then it amounts to ‘combination’.[17] The Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (“Combination Regulations”)[18] must be referred to whilst entering into any such transaction as they govern the procedural aspects of combinations.

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Analysis and Conclusion

The detailed provisions must be complied with in strict accordance as well as various sectoral approvals must be acquired. The companies would also need to carefully evaluate the regulations of the jurisdiction of the foreign company with which a merger is intended and may have to comply with additional requirements that may be specified by the foreign jurisdictions.[19] Since there exists an obvious jurisdictional difference, the question(s) that comes to our mind is the likely contradictions betwixt the different nation’s regulators. For instance, the CCI has extra-territorial jurisdiction as per §32[20] which provides for the CCI to have power to inquire into such arrangements o/s India effecting India. This provision gives life to the ‘effects doctrine’[21]. The CA, 2002 also encapsulates within its ambit the Principle of Attributability, wherein if assets are transferred to an enterprise (Special Purpose Acquisition Companies, Special Purpose Entities, Special Purpose Vehicles) for entering into arrangements, the value of assets/ turnover of transferor entity shall be attributed to the value of assets/ turnover of the transferee entity for calculation of thresholds.[22] This ensures that there is no contravention of law by investor entities who want to escape cognizance by the regulators by way of incorporating shell companies. Coming to approvals by quasi-judicial bodies, the NCLT (National Company Law Tribunal) and NCLAT (National Company Law Appellate Tribunal) cannot be forgotten. However, due to the number of pending cases, the same has led to a continuous delay in merger approvals. Thusly, the benefit of fast-track mergers (green channel)[23] could be made available in the cases of a merger of a wholly-owned foreign subsidiary or small company with its Indian parent company or vice versa.[24] Nevertheless, the existing regulations on CBMAs is an open door for FDI (Foreign Direct Investment) in the form of FPIs (Foreign Portfolio Investment) and FIIs (Foreign Institutional Investment). It may also provide for an impetus to ‘bailout takeovers’ under the Insolvency code. In short, CBMAs would provide for growth and recognition to  Indian Companies. One mustn’t forget that India is still in the stage of developing its economy, thusly any harsh or stringent statement made at the current stage would not do justice to the legal and policy developments that might occur in the future in the realm of transnational transactions.

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[1] Dr. Rabi Narayan Kar and Dr. Minakshi, Mergers Acquisitions & Corporate Restructuring Strategies & Practices, pg. 328, Taxmann’s, 3rd Edition, 2017.

[2] Ibid.




[6]Explanation.— For the purposes of sub-section (2), the expression foreign company means any company or body corporate incorporated outside India whether having a place of business in India or not.”



[9] Rule 25A(1) of CAA Rules.

[10] Rule 25A(2) of CAA Rules.


[12] Rule 9 of Foreign Exchange Management (Cross Border Merger) Regulations, 2018.



[15] Ibid.


[17] Adv. Gautam Shahi and Dr. Sudhanshu Kumar, Indian Competition law A Comprehensive Section-wise Commentary on Competition Act 2002, pg. 206-207, Taxmann’s, July 2021.




[21] Empowers competition regulators to extend jurisdiction beyond the ‘principle of territoriality’; See case Ms. Vijayachitra Kamlesh v. RCI India (P.) Ltd. 2021, CCI Case No. 29 of 2019.

[22] Regulation 5(9) of Combination Regulations; Etihad Airways/ Jet Airways Deal.



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Role of Director under the Companies Act, 2013

This article has been written by Mr. Abhishek Sinha

INTRODUCTION- Role of Director

A company’s management and affairs are overseen by the Board of Directors, which has supreme executive authority. In a company, majority shareholders at their wish can appoint a director during the incorporation of the company. Notice to the Board members can be used to call an Annual General Meeting if the shareholders wish to change the director expressing their opinion. Under the Companies Act, 2013, the MoA and AoA of the company, Directors are allowed to enforce their powers.

There is no exhaustive definition given in the Companies Act, 2013. As per Section 2 (34) of the Companies Act, 2013 – a “Director” is one who has been appointed to the Board of Directors. He is the individual who is assigned to carry out the responsibilities and functions of a company’s director in accordance with the Companies Act of 2013.

Lord Reid in the case of Tesco Supermarkets Ltd. v. Nattraso[1] held that “A living person has a mind which can have knowledge or intention and he has hands to carry out his intention. A corporation has none of these it must act through living persons.” As per the Supreme Court, it is important to appoint an individual as a director in the company as the director’s office is the office of trust and if someone fails to carry out this trust then someone should be held responsible.[2] Section 149 of the Companies Act, 2013 states that the Board of Directors shall consist of individuals as directors. Lord Bowen held that the Board of Directors are the brain of the company and the company does act only through them. [3]

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As a member of the Board of Directors, he is in charge of the company’s management, supervision, and direction. Directors are said to be the agents of the company, officers of the company and also trustees of the company. Professional men are hired by the company to direct the affairs of the organisation still they are not called the servant of the company.[4] But through a separate service agreement, a director can offer his professional services to the company as a sole employee and sole director.[5] Regarding the position or role of directors in the company, there is mere silence in the Companies Act, 2013. As per Bowen LJ, “Directors are called as agents, MD or trustees. But these expressions are used as indicating useful points of view through which they may for that particular period and the particular purpose is considered instead of using it as exhaustive of their powers and responsibilities.”[6]

I. As Employee

If the Board of Directors appoints and the company’s shareholders approve any full-time director who manages the company’s day-to-day operations as an employee.

In the outline of the employment letter issued by the BoD, all the directors make go an organization.

II. As Officer

  • High Court of Calcutta held that “Certain officials of the company should be treated as organs of the company so that for actions of that particular official company can be held liable just as a natural person is for the action of his limbs.”[7] The absence of the director can paralyze the company.

As per section 2 (59) of the Companies Act, 2013, the director is treated as an officer of the company on whose directions other directors or Board of Directors are accustomed to act. As per section 2 (60) of the Companies Act, 2013, the director is considered an “officer in default” and he is even punished as an officer in default for non-compliance with provisions.

III. As Agents of the Company

  • As per the Observation of Lord Cairns who believed that Public Company Directors are the agents of the Company. The Company and Directors have a relation of Principal and Agent.[8]

In an Agency a person is bound to form, Perpetuate a relationship of Principal with third parties, the role and powers they get from Memorandum and Articles of the Company, if their activities are outside the criteria given under MOA and AOA, it is beyond legal Power.

IV. As Trustee of the Company

  • Based on an analogy Lindley LJ observed that Director is always considered and treated as trustees of the company as they have control of the company and they have been held liable to make good amounts of money since the invention of joint-stock companies.

They are considered the custodian of the assets of the company and are responsible to use the assets in the best interest of the company, as a trustee of the company. They would be held liable if they misuse or divert the assets in their vested interests.

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The Companies Act of 2013 categorises the duties and responsibilities of directors into two categories: —

[i] The responsibilities and liabilities that uplift and advance the investment of directors’ work bring good corporate governance, good management, and making fully-fledged and shrewd decisions to avoid unnecessary risks to the company.

[ii] Fiduciary duties guarantee and ensure that the directors of companies always protect and secure the interests of the company and its stakeholders, above their self-interests.

The duties of a director were not expressed in the 1956 Act, however, they are specifically stated in Section 166 of the Companies Act, 2013[9].

SECTION 166 of the companies Act, 2013 lay down the following Duties of the Directors of a Company

Directors of Company are bound to do the following Duties given Under Section 166 of the Companies Act, 2013

  • Activities of the Director shall always be in accordance with the AoA[10].
  • Director shall perform in good faith in order to uplift the objects of the organisation, for the profit of shareholders and for the well-being of the organization[11].
  • He shall follow his duties with proper care and exercises independent judgment[12].
  • He shall not perform any act which give rise to conflicts.
  • Director shall be held liable to pay an equal amount to the gain if he found to be gaining any undue advantage[13].



Pandemic has affected most of the big companies and due to this, they have also suspended their work for the time being. As cases are reducing these days but still due to mass gathering companies are not able to work at full capacity. So here the role of directors during the pandemic is that he needs to take certain steps for the survival of the organization in this pandemic. Primary considerations of the directors are:

I. Procuring the shareholder’s interest

  • As shareholders always look to have transparency and honesty from the companies’ end. The company shall inform the respective shareholders about the crisis plan which they are going to use to tackle the challenges caused due to covid-19. And directors should pay dividends to the shareholders if the company has a good amount of cash reserves. Director shall inform the current situation of the organisation.

II. Health and safety of employees

  • Directors shall emphasize the safety and health of their workers, employees and suppliers. It’s their basic responsibility to build a safe environment during the lockdown. Work from Home should be allowed during the pandemic and in extreme cases, they shall be called to offices and factories. Director shall comply with the government circulars and advisories. To prevent data breaches or losses there shall be proper data security measures.

III. Avoid conflicts of interest

  • The director shall avoid any personal interest while taking the decision for the company and he shall also not engage himself in an act which can give rise to a conflict of interest. All relevant information shall be disclosed by the director to the board as failing to do this can be a reason for dispute with shareholders and which can result in damage to long terms prospects.

IV. Independent decisions shall be made

  • Director shall act in good faith to promote the long interest of the company. He should avoid making decisions which can affect the company in long run.



The Directors of the Company play a crucial role in the Company, They play an essential part in managing and directing the course of the Company.

The company’s main motive is to run in a successful manner, to hand over the management of the Company in the hand of a responsible person. In this regard Company has a Board of Directors who runs the Company with the greatest responsibility, if the Director’s action causes mismanagement in the Company then the Director is liable to the company for reimbursement of the loss.

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[1] [1977] AC 153 at 170.

[2] Oriental Metal Pressing Works P. Ltd. v B. K. Thakoor, [1961] 31 Comp Cas 143.

[3] Bath v Standard Land Co.

[4] Moriarty v Regent’s Garage and Engg. Co., [1921] 1 KB 423.

[5] Lee v. Lee’s Air Farming Ltd., [1961] AC 12.

[6] Imperial Hydropathic Co. v. Hampson, [1882] 23 Ch. D. 1.

[7] Gopal Khaitan v State, AIR 1969 Cal 132.

[8] Ferguson v Wilson, [1886] LR 2 Ch 77.

[9] Section 166, Companies Act, 2013.

[10] Section 166(1), Companies Act, 2013.

[11] Section 166(2), Companies Act, 2013.

[12] Section 166(3), Companies Act, 2013.

[13] Section 166(4), Companies Act, 2013.

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Employment Contracts

By: Arundathi Mandyam 

In India, there is not much light thrown on the agreements which bind the Employer-Employee relationship. There have always been issues regarding the relationship between the Employer and the Employee, to which resolve is found only through legal discussions. The laws hold within themselves various areas in their scope which not only discusses the contractual relation of an Employer and his Employee but also other various clauses. In this article we will discuss all the contracts an employer and employee are bound by and the various other clauses that are covered under.

Contract as defined in the Indian Contract Act, 1872 is a contract of employment for the exchange of remuneration for a period of time. Employment contract is a form of contract recognized by court as the social relationship of the employer and employee as opposed to other contracts.

Like any other contract in India, Employment contract too contains Offer, Acceptance, Consideration, Competent Parties, Legal Object and Free Consent as the essentials of the contract.

As the complexities increase in the field of employment, the various matters such as breach of fiduciary responsibilities, corporate law non-compliance, corporate defamation took distinction between White Collar jobs (deals with the administration and board) and the Blue Collar Jobs (which deal with the manual labor.)

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The employment related issues can be grouped as under,

  1. Pre-Hire
  2. During Employment
  • Termination
  1. Post- Termination

As the title suggests, any dispute which arises before the hiring of the employee amounts to Pre-Hire disputes between the Employer and the Employee. This kind of disputes arises when an employee falsely represents himself and fraudulently tries to win a position in the employment. When the employer learns about the fraud of the employee he loses trust and there will not be a friendly relation between the employer and the employee hence giving rise to dispute. This dispute can only be resolved through litigation and not through any other medium.

From the employer’s end the dispute arises when the employer takes back the notice of offer from the employee before the employer starts his employment.

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The dispute arising out of the misconduct of the employee or dissatisfactory performance in the employment is the dispute during the employment. These disputes are classified under two heads, they are:  (a) Employment Related Disputes and (b) Disputes Relating to Restrictive Covenants during Employment.

Employment related Disputes cover under them the misconduct of the employees, disciplinary actions of the employees to guard the interest of the organization, under performance, breach of terms, insider trading, and criminal indulgence and so on.

Restrictive Covenants during Employment which are non-compete result dispute between the employer and employee whereas Restrictive Covenants during Employment which are non-disclosure do not.


Basically there are two types of Termination- Voluntary Termination and Involuntary Termination.

There are lesser chances of disputes when in case of termination (in the form of resignation or retirement) by the employee. Dispute arises when an employer involuntarily terminates the contract of employment with the employee on the basis of the misconduct or indiscipline of the employee. In such cases, the matters shall be resolved in the courts and the burden of proof to prove the misconduct of the employee and evidence for his termination of the employee lies on the employer.


Modern day employment contracts give place to restrictive covenants restraining employees from joining new employment even after the termination of the previous employment. This gives rise to the dispute between the employer and the employee post the termination.

These disputes too shall resort in the courts and nowhere else.

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In India, the employment contract of restrictive covenants which is operative post the termination of the employee is unenforceable and void. It is against the public policy since it is prohibited by the law of the Indian Courts.

In Pepsi food Ltd and Ors Vs. Bharat Coca-Cola Holdings Pvt. Ltd and Ors[1] (1991) it has been held that, “post termination restraint on an employee is in violation of Section 27 of the Indian Contract Act, 1872. A contract containing such a clause is unenforceable, void and against public policy and since it is prohibited by law it cannot be allowed by the Courts injunction. If such injunction was to be granted, it would directly curtail the freedom of employees for improving their future prospects by changing their employment and such a right cannot be restricted by an injunction. It would almost be a situation of “economic terrorism creating a situation alike to that of bonded labor”.


  1. Serving the employee with a legal notice.
  2. Seeking enforcement of undertaking or encashment of cheque based on clauses of the agreement.
  3. Initiating civil suit seeking injunction or specific performance of contract as well as damages.
  4. While damages are a remedy that an employer may seek for the breach of confidential agreements, the same requires trial and evidence. Therefore the employer would only require injunction under the Civil Procedure Code, 1908 at the interim stage or initial if they apprehend that premature departure of an employee could cause injury to the employer.
  5. Filing suit for declaration that the acts of the employee amount to tortious interference in the business of the employer and injunction therefrom.

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Employment Contracts in India are generally considered to be of unlimited term contracts, I.e. the Contracts that are valid until the termination or superannuation unless specifically specified as a fixed term contract. While Labour legislations do not need agreements in writing it is a predominant market practice to have all terms and conditions of the employment agreed and signed by both the employer and the employee.


Until recently government of India, Had not given a go to all the sectors of the government to make permanent employees. Only the apparel manufacturing sector had the advantage of making their employees permanent workers.


It is permitted by Indian law to place new employees on a trial or probation period. The Industrial Employment Standing Order envisages a 3 month to 6 month probation period which is also followed by other sectors which do not fall under the IESO Act. This Probation works best in the Industrial and Technology oriented sectors in India.


In terms of labor legislation in India, “workmen” who have undertaken the least of 1 year of employment of continuous service are entitled to a notice period of 1 month or equivalent wages in lieu thereof. In addition, the employer is required to pay retrenchment compensation to the workmen. However no retrenchment or notice period is required if the employee is being dismissed for misconduct from the employee end.


The concept of Employment contract is like any other Contract. The Comprehensive Employment contract provides for the key duties and responsibilities of the employee that help him understand his job better. The main objective of an Employee Contract is to prevent disclosure of information, non-solicitation, non-competition, as well as protection of confidential information so it is always advisable to have an executed written form of Employment Contract. In practice, the employer signs the letter of appointment with the proposed employee prior entering into the contract. An appointment letter is executed in order to cover the probation period of the said employee till that employee is made permanent in the employment.

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[1] Suneeth Katharki and Mini Kapoor, India: Employment contracts- Enforcement of Restrictive Covenants under Various Jurisdictions, INDUS LAW (April 26,2016)–enforcement-of-restrictive-covenants-under-various-jurisdictions#:~:text=In%20India%2C%20an%20employment%20contract%20containing%20restrictive%20covenants,it%20cannot%20be%20allowed%20by%20the%20Indian%20courts.

[2] Archita Mohapatra, Preetha Soman, Ajay Singh Solanki and Vikram Shroff, Employment Contracts in India- Enforceability of Restrictive Covenants, Pg.No 14 (2019)

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E-Commerce Contracts and the clauses covered under it

By: Alok Rao

Introduction: –
E-commerce is a form of business model, or segments of a larger business model, enabling a company or person to conduct business on an electronic network, typically the Internet. However, there is no specific meaning of the term e-commerce, which is usually used to denote a form of doing business by electronic means rather than by conventional physical means. E-commerce questioned companies’ traditional system trading with customers, putting together diverse business models that empowered consumers.

The most popular business models facilitated by e-commerce are:

  1. B2B: Business to Business (B2B) explains trade transactions between different companies, allowing foreign companies to develop new partnerships with other companies. As between the manufacturer and the wholesaler, or between the wholesaler and the retailer.
  2. B2C: Business to Consumer (B2C) defines companies’ operations providing end customers with goods and/or services. There has always been a direct interaction between companies and customers, but with e-commerce, the traction has been gained in such transactions.
  3. C2C: Business to Consumer (C2C) includes electronically facilitated transactions between consumers through third parties. Traditionally, customers have had interactions with other consumers, but only a handful of these practises have been of a commercial sort.
  4. C2B: Customer to Business (C2B) involves customers supplying goods/services to businesses and generating value for the company.
  5. B2B2C: This is an alternative to the B2C model, and there is an external intermediary sector in this form of the model to assist the first business transaction with the end customer. For example, Flipkart is one of the popular e-commerce portals and offers a stage for customers to buy a wide variety of items, such as books, music, CDs, etc.

As a result, the e-commerce world may appear uncomplicated and economical; there are several legal considerations that an e-commerce company must seriously consider and bear in mind before beginning and while carrying out its operations.

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E-commerce law in India: –

Information Technology Act, 2000
The first ever e-commerce legislation passed by India’s Government was the Information Technology (IT) Act 2000. It was an act to give effect to the UNCITRAL Model Law on Electronic Commerce, 1996. On 30 January 1997, the General Assembly of the United Nations adopted a resolution commending the Model Law on Electronic Commerce for favourable consideration by the Member States as a Model Law as they pass or amend their rules, given the need for uniformity of the law applicable to alternatives to paper-based methods of communication and storage of information.

The IT Act’s primary purpose was to include legal recognition of transactions carried out through electronic data exchange and other electronic means of communication, generally referred to as electronic commerce (e-commerce). The IT Act 2000 facilitates e-commerce and e-government in the region. It includes guidelines on the legal recognition of electronic records and digital signatures rules for the allocation of e-records, the process and manner of reception, the time and place of dispatch and the receipt of electronic documents. The Act also sets out a legal system which sets out penalties for various cyber offences and crimes. Significantly, under the Act, the Certification Authority is the focal point around which this Act revolves, as most of the provisions relate to the Regulation of Certification Authorities, i.e., the appointment of a CA Controller, the licensing of CAs and the recognition of international CAs. It has also punished crimes such as hacking, damage to the source code of the machine, publication of information that is obscene in electronic form, violation of confidentiality and privacy, and fraudulent granting and use of digital signatures. It also provides civil liability, i.e., cyber contraventions and criminal infringements, fines, the establishment of the Adjudicating Authority and the Cyber Regulatory Appeal Tribunals.

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The relevant provisions of the Indian Panel Code, 1860, the Indian Evidence Act, 1872, the Banker’s Book Evidence Act, 1891 and the Reserve Bank of India Act, 1934 were also amended to resolve the related issues.

Information Technology (Amendment) Act, 2008
India incorporated the Information Technology (Amendment) Act, 2008 to apply the UNCITRAL Model Law on Electronic Signatures, 2001 in India. The IT Act of 2000 was modified to make it technologically neutral and accepted electronic signatures over-restrictive digital signatures. The Act incorporated several amendments, such as implementing the principle of e-signature, the modification of the definition of intermediary, etc. Also, the State asserted unique powers to monitor websites in order, on the one hand, to protect the privacy and, on the other hand, to control potential misuse leading to tax evasion. It is important to note that this Act acknowledged the legal validity and enforceability of digital signatures and electronic records for the first time in India and concentrated on protected digital signatures and secure electronic documents. These reforms were implemented to reduce the occurrence of electronic forgeries and promote e-commerce transactions.

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Legal Validity of Electronic Transactions in India: –
There are numerous legal concerns related to the formation and legality of electronic transactions, such as online contracts and compliance issues, which are dealt with below.
Formation of an E-Contract
The most popular types of e-contracts are clickwrap, search wrap and shrink wrap contracts. The terms and conditions of such agreements shall be made available to the contracting party in a manner which is substantially different from the standard paper contracts. By clicking on the wrap contract, the party’s affirmative approval is made by checking the ‘I agree’ tab with a scroll box that allows the acceptance party to access the terms and conditions.
In the case of a browser wrap arrangement, the website’s mere use (or browsing) makes the terms binding on the contracting party.
In a Shrink-wrap agreement, the contracting party can read the terms and conditions only after opening the box inside which the product (usually a licence) is packed. Such contracts are important in the context of e-commerce, primarily because of the form of products associated with shrink-wrap agreements.

Online Contract Validity
The Indian Contract Act, 1872, regulates all e-contracts in India, inter alia, mandate specific pre-requisites for a valid contract, such as free consent and legal consideration. The concern to be considered is how the Indian Contract Act’s specifications can be met with e-contracts. Also, the Information Technology Act, 2000 (‘IT Act’) enhances the legitimacy of e-contracts.
According to the Indian Contract Act, 1872, some of the essential specifications of a legal contract are as follows:

  • The agreement should be entered into with the free consent of the parties.
  • The agreement should be considered lawfully.
  • The parties should have the authority to enter into contracts.
  • The purpose of the contract is to be lawful.
  • Terms and conditions associated with the e-commerce platform are of the utmost importance in ensuring that the e-commerce agreement meets a legal contract’s specifications.

Unless expressly forbidden, clickwrap agreements would be enforceable and legal if the provisions of a valid contract set out in the Indian Contract Act of 1872 were met.

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There is no provision under the Indian Contract Act that written contracts be physically signed. However, the unique statuses do include the criteria for signature. Furthermore, the very essence of e-commerce is that it is virtually impossible to verify the age of someone who is trading online and who presents problems and liabilities to e-commerce platforms because the situation under Indian law is that a minor is not qualified to enter into a contract and that such an agreement is not enforceable against a minor.
In India, any instrument under which rights are produced or transferred must be stamped. The stamping of the instrument also depends on relevant stamp duty legislation passed by different states in India.

Standard Type of Online Contracts is not appropriate.
There is no well-developed case law in India as to whether the traditional type of online agreements is unwise. However, Indian courts have previously dealt with cases where contract terms, including common form contracts, have been negotiated between parties in unequal negotiating positions. Specific provisions of the Contract Act deal with unenforceable agreements, such as when public policy is opposed to considering the contract or subject-matter of the contract. The agreement itself cannot be valid in such situations.
The courts may place the individual’s responsibility in the leading position to show that the contract was not caused by undue influence.
In the case of ‘LIC India Vs. Consumer Education & Research Centre’
L.I.C. Of India & Anr vs Consumer Education & Research Centre & Ors. Etc. 1995 SCC (5) 482, the Hon’ble Apex Court of India interpreted the insurance policy issued by India’s Life Insurance Corporation by adding certain public interest elements. The court observed that ” in dotted line contracts there would be no occasion for the weaker party to bargain as to assume to have equal bargaining power. He has either to accept or leave the service or goods in terms of the dotted line contract. His option would be either to accept the unreasonable or unfair terms or forgo the service forever.”

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It is essential to provide well-thought-out terms that shape online contracts to ensure that there is an ample opportunity for consumers to familiarise themselves with the terms of such agreements. In addition to the above, there is also a range of other legal, tax and regulatory concerns, in particular Security Issues, Consumer Protection Issues, Intellectual Property Issues, Content Control, Intermediate Liability, Jurisdictional Issues and Tax Issues, which need to be taken into account when dealing with e-commerce transactions.

Conclusion: –
Rapid growth in e-commerce has generated the need for vibrant and efficient regulatory frameworks to reinforce the legal framework crucial to the success of e-commerce in India. It has always been argued that poor cybersecurity laws in India and the lack of a proper regulatory system for e-commerce are why both Indians and the e-commerce industry face so many challenges in enjoying a consumer-friendly and business-friendly e-commerce climate in India. India does not have any dedicated e-commerce regulatory legislation other than the IT Act that governs India’s e-commerce and transactions. Therefore, the government should create a legal structure for e-commerce so that domestic and foreign trade in India will flourish so that fundamental rights such as privacy, intellectual property, the prevention of fraud, consumer protection, and so on are taken care of. The legal community in India needs the required expertise to direct entrepreneurs, customers, and even courts. The rapidly evolving market module can comply with existing legislation usually applicable to business transactions in standard modules. Simultaneously, it should ensure that the benefits of technology are unhindered by the judicious evolution of law by the learned interpretation of the court, and there is still a consensus that specialized law governing and controlling some aspects of e-commerce is an obligation and an exclusive requirement.

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