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Ever since the introduction of framework for prevention of insider trading (“PIT”), the Securities and Exchange Board of India (“SEBI”), as the primary regulator of securities markets has consistently been sharpening its tools to effectively discharge its duty of ensuring market integrity, curbing malpractices and safeguarding interests of investors.

Continue Reading Decoding SEBI’s Tech Arsenal for Insider Trading: Structured Digital Database (Part I)
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Enforcing progressive compliance: Push for digitalisation by dematerialising shares of all companies

Pursuant to the issuance of the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023, with effect from September 30, 2024, both public and private limited companies are required to convert the existing shares and issue new shares exclusively in dematerialised form, bringing an end to physical share certificates. While this seems like a small change, this post seeks to trace the transformation of ‘dematerialisation’ from a progressive and secure option for security holders to a compliance requirement, signifying an increased and progressive threshold of regulation. The post also highlights the key challenges that companies and investors may face with this change.

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Crackling News: India allows foreign higher educational institutions to set up in-country campus

In November, India opened its doors to foreign universities and institutes by permitting them to set up campuses in the country.

The light-touch ‘The UGC (Setting Up and Operation of Campuses of Foreign Higher Educational Institutions in India) Regulations, 2023’ (“2023 Regulations”), are in line with the commitments set out in the National Education Policy, 2020 (“NEP”), and the government’s vision of internationalisation of education in India.

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FIG Paper (No. 27 – Series. 1): Implications of Digital Personal Data Protection Act, 2023, on Payment Service Providers


The Reserve Bank of India (“RBI”) has allowed certain non-banks to operate in the financial ecosystem for payment processing under the Payment and Settlement Systems Act, 2007 (“PSS Act”), in addition to banks. These non-banks are typically operate Cross Border Money Transfer (“MTSS”); Prepaid Payment Instruments (“PPI”); Bharat Bill Payment Operating Units (“BBPOU”); White Label ATM Operators (“WLAO”), etc.

Continue Reading FIG Paper (No. 27 – Data Law Series 1): Implications of Digital Personal Data Protection Act, 2023, on Payment Service Providers
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The Gujarat Public Universities Act, 2023 (“the Act”), came into effect on October 9, 2023[1], with the intent to unify the State legislation, governing 11 (eleven) public universities in Gujarat and any new public university that the Government of Gujarat (“GoG”) may constitute and notify (collectively, the “Universities”). The Act provides a common consolidated legislation for all Universities, aiming to provide better governance, improved academic standards, adequate representation through a democratic process, state of the art facilities and to transform, strengthen and regulate higher education in a more efficient manner.

Continue Reading Gujarat Public Universities Act, 2023 – A step towards Unification?
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Will ‘sale of shares’ amount to ‘sale of an undertaking’ – Has the Conundrum been resolved?


‘What would constitute an ‘undertaking’ of a company’ has been among the most hotly debated topics in the history of India’s company law regime. This question arises while evaluating whether a transaction falls within the purview of Section 180(1)(a) of the Companies Act, 2013 (“2013 Act”), which corresponds to Section 293(1)(a) of the Companies Act, 1956 (“1956 Act”).

Section 180(1)(a) of the 2013 Act provides that shareholders’ approval by a special resolution is required to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking, of the whole or substantially the whole of any such undertakings. Section 180(1)(a) is applicable to public limited companies, with the MCA exempting private companies from complying with the requirements of Section 180[1].

While neither Section 180(1)(a) nor Section 293(1)(a) of the 1956 Act define the expression ‘undertaking’ – there is one important difference between Section 180(1)(a) and Section 293(1)(a).

Section 180(1)(a) now provides numerical criteria to determine what would constitute an ‘undertaking’, by stating the following:

  • undertaking” shall mean an undertaking in which the investment of the company exceeds 20% of its net worth as per the audited balance sheet of the preceding financial year (“FY”) or an undertaking which generates 20% of the total income of the company during the previous FY;
  • substantially the whole of the undertaking” in any FY shall mean 20% or more of the value of the undertaking as per the audited balance sheet of the preceding FY.

The introduction of the above numerical criteria was expected to resolve all the ambiguities surrounding the scope and meaning of ‘undertaking’. However, it has proven to be insufficient as the provision is silent on whether ‘undertaking’ should be construed in a watertight sense (to only include the entire business/ division/ unit, on a going concern basis), or liberally, to include even individual assets that meet the numerical criteria.

While there are a host of contentious issues under Section 180(1)(a), an important one that companies grapple with frequently is whether ‘sale of shares’ would constitute ‘sale of an undertaking’ under Section 180(1)(a). In this blog, the authors delve deeper into this issue, and argue why ‘shares’ would not constitute an ‘undertaking’ under Section 180(1)(a).

Legislative Background

In the Indian context, the requirement to obtain shareholder approval for sale/ disposal of an undertaking has its genesis in Section 86H of the Indian Companies Act, 1913, which provided that the directors of a public company (or a subsidiary of a public company), shall not, except with the consent of the company in a general meeting, sell or dispose off the undertaking of the company.

The Bhabha Committee Report (which led to the introduction of the 1956 Act) recommended that along with ‘sale’ and ‘disposal’ of an undertaking, even ‘leasing’ should be brought within the purview of shareholders’ approval[2]. The rationale was that as the company would be formed inter alia for working the undertaking, even leasing of the undertaking should require shareholders’ approval.

A reading of the Bhabha Committee Report highlights the original legislative intent, where ‘undertaking’ was envisaged to cover a transfer of a business/unit/division on a going concern basis only, and would not include transfer of individual assets that are held or owned by the company. It is also interesting to note that while the provisions of the 1956 Act were substantially borrowed from the English Companies Act, 1948 (“1948 English Act”), Section 293(1)(a) did not directly resemble any provision of the 1948 English Act.

Further, specifically in the legislative context of the 2013 Act, while the Irani Committee Report (2005) notes that “certain additional items that should require shareholders’ approval may include sale/transfer of investment in equity shares of other bodies corporate which constitute 20% or more of the total assets of the investing company[3] – this recommendation has not been expressly incorporated into the scheme of Section 180(1)(a).

The Parliamentary Standing Committee Reports of 2010 and 2012 (which threadbare discusses various new provisions later inserted by the 2013 Act) also do not in any way provide that ‘undertaking’ should be read expansively to cover transfer of individual assets held or owned by the company.

In fact, interestingly, the English Companies Act, 2006[4], and its predecessor Act of 1985[5] define ‘undertaking’ in an even narrower sense, to only include (a) body corporate or partnership, or (b) an unincorporated association carrying on a trade or business, with or without a view to profit.

A view may accordingly be taken that in the absence of a specific deeming provision stating that ‘shares’ would constitute an ‘undertaking’ for the purpose of Section 180(1)(a), it can be argued that sale/ disposal of shares, exceeding the numerical threshold prescribed under Section 180(1)(a), would not be deemed to be a sale/ disposal of an ‘undertaking’ of the company.

Whether ‘shares’ constitute an ‘undertaking’ – Case Law Jurisprudence

In view of the above legislative background, it is also instructive to refer to case law jurisprudence, which also suggests that ‘shares’ would not constitute an ‘undertaking’. In Brooke Bond India Limited v. U. B. Limited and Others[6], the Bombay High Court held that “…the sale of shares, whatever be their number, even if it amounts to a transfer of the controlling interest of a company, cannot be equated to the sale of any part of the “undertaking” so as to come within the mischief of section 293(1)(a)”.

In Rustom Cavasjee Cooper v. Union of India[7], the Supreme Court of India (“SC”) distinguished between an ‘undertaking’ and individual assets that constitute the undertaking, stating as follows – ““undertaking” clearly means a going concern with all its rights, liabilities and assets as distinct from the various rights and assets which compose it… the undertaking means the entire organization… it is an amalgam of all ingredients of property and are not capable of being dismembered… That would destroy the essence and innate character of the undertaking…..”.

In P. S. Offshore Inter Land Services Pvt. Ltd. and another vs. Bombay Offshore Suppliers and Services Ltd. and others[8], the Bombay HC had provided an asset-based test for determining what would constitute an ‘undertaking’, stating as follows:

“…… the expression “undertaking” used in this section is liable to be interpreted to mean “the unit”, the business as a going concern, the activity of the company duly integrated with all its components in the form of assets and not merely some asset of the undertaking…”.

In Commissioner of Income Tax v. UTV Software Communication Limited[9], Bombay HC had provided the distinction between “transfer of shares” and “transfer of an undertaking”, in the context of the Income Tax Act, 1961 (“Income Tax Act”), stating that the transfer of shares cannot be considered to be a slump sale of an undertaking under Section 2(42C) of the Income Tax Act. Reference was made to the SC decisions in Vodafone International Holdings BV v. Union of India[10] (“Vodafone”) and Bacha F. Guzdar v. CIT[11](“Bacha F Guzdar”), which reiterate the cardinal principle that since a company is a separate legal person in the eyes of law, a shareholder does not exercise ownership interest over the assets of the company.

In Tracstar Investments Limited and Another v. Gordon Woodroffe Limited and Others[12], the Company Law Board (“CLB”) held that: “The main object of the company is not even to engage in the business of investing in shares. Consequently, the disposal of these shares would not bring the business of the company to a standstill. Thus, the sale of the shares does not certainly pass through the test prescribed…”.

In an interesting decision in Gujrat NRE Mineral Resources Ltd. v SEBI[13], the Securities Appellate Tribunal, in the context of the definition of unpublished price sensitive information (UPSI) under the PIT Regulations, 1992, held that the words: “disposal of the whole or substantial part of the undertaking”…would mean when a company decides to dispose of the whole or substantial part of its business activity or project in which it is engaged. The word ‘undertaking’ cannot possibly mean investments held by an investment company which are its stock-in-trade” (“Gujarat NRE Case”).

The Gujarat NRE Case supports the view that ‘sale of shares’ would not constitute ‘sale of an undertaking’ even for an investment company, which acquires/ sells shares in its ordinary course of business, and whose assets predominantly comprise of its holdings in other investee companies. Even if the investment company has a controlling stake in the investee company, pursuant to the SC decisions in Vodafone and Bacha Guzdar, its shareholding will be considered as distinct from the undertaking/ assets of the investee – and the investment company would not exercise ownership interest over the undertaking/ assets.

Additional Considerations for Listed Companies

The recently introduced Regulation 37A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”), provides that shareholders’ approval by special resolution, along with consent of the ‘majority of minority shareholders’ of the listed entity is required in case of sale/lease/disposal of an undertaking/ substantially the whole of the undertaking by a listed company. Given that Regulation 37A provides that the expressions ‘undertaking’ and ‘substantially the whole of the undertaking’ shall have the same meaning as assigned to them under Section 180(1)(a) of the 2013 Act – the above analysis on why ‘shares’ would not constitute an ‘undertaking’ will also be applicable in this context.

However, it may be noted that as per Regulation 24(5) of the LODR Regulations, a listed entity shall not dispose of shares in its material subsidiary, resulting in reduction of its shareholding (either on its own or together with other subsidiaries) to less than or equal to 50% or cease the exercise of control over the subsidiary without passing a special resolution in its general meeting. The requirement to obtain shareholders’ approval (by special resolution) in the above scenario is an independent compliance requirement applicable to listed entities. 

Further, listed companies are also required to examine implications under Regulation 24(6), which provides that selling, disposing and leasing of assets amounting to more than 20% of the assets of the material subsidiary on an aggregate basis during a financial year shall require prior approval of shareholders by special resolution.

Concluding Thoughts

Basis the case law jurisprudence and the legislative context discussed above, there are strong legal grounds to take a view that ‘shares’ would not constitute an ‘undertaking’ under Section 180(1)(a), and the law therefore does not mandate shareholders’ approval by special resolution in case of sale/ disposal of shares exceeding the numerical criteria prescribed under the Explanation to Section 180(1)(a).

Unfortunately, given that Section 180(1)(a) does not provide a specific definition of the nature/type of assets that would constitute an ‘undertaking’ – the introduction of numerical criteria under the Explanation to Section 180(1)(a) has failed to settle the long-standing debate on the precise scope and ambit of the term ‘undertaking’ under the said Section. The ambiguities surrounding the precise scope and ambit of what would constitute an ‘undertaking’ is yet another example of how inadequate drafting of various provisions of the 2013 Act has resulted in unforeseen interpretative challenges, along with the lack of consistency in the practices followed by India Inc.

For ensuring consistency in the practices followed by companies the MCA should, in the next round of amendments to the 2013 Act, consider inserting an Explanation to Section 180(1)(a), to clarify that ‘shares’ would not ‘constitute’ an ‘undertaking’  and issue a clarification in the interim to facilitate the ease of doing business in India.

[1] MCA Notification No. GSR 464(E), dated June 5, 2015.

[2] Report of the Bhabha Committee on Company Law, 1952, at Paras 102 and 104 of the said report.

[3] Report of the Expert Committee on Company Law, chaired by Dr. Jamshed J. Irani, May 31, 2005, at Para 28 of the said report.

[4] Section 1161 of the English Companies Act, 2006.

[5] Section 259 of the English Companies Act, 1985.

[6] [1994] 79 Comp Cas 346. These observations were supported in a subsequent decision of the Bombay HC in CDS Financial Services (Mauritius) Limited v. BPL Communications Limited and Others [2004] 121 Comp Cas 374.

[7] [1970] 40 Comp Cas 325.

[8] (1992) 75 CompCas 583.

[9] 2019 SCC OnLine Bom 2225.

[10] (2012) 6 SCC 613.

[11] Bacha F. Guzdar v. CIT, (1955) 1 SCR 876.

[12] [1996] 87 Comp Cas 941.

[13] Appeal No. 207 of 2010, SAT Order dated November 18, 2011.

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Stock Broker is a Financial Service Provider – The NCLAT ruling may offer respite

While the Insolvency and Bankruptcy Code, 2016 (“IBC”) provides for insolvency resolution and liquidation of ‘corporate persons’, it excludes ‘financial service provider’ (“FSP(s)”) from the said provision. The Central Government, pursuant to its powers under Section 227 of IBC, had notified Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 (“FSP Rules”) for resolving specified non-banking financial companies (“Specified NBFCs”) registered with the Reserve Bank of India.[1]

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The Department for Promotion of Industry and Internal Trade (“DPIIT”) released a new standard operating procedure for processing foreign direct investment (“FDI”) proposals on August 17, 2023 (“New SOP”)[1]. It replaced the erstwhile standard operating procedure dated November 9, 2020 (“Erstwhile SOP”)[2], which covered the manner in which FDI proposals that required government approval under the Consolidated FDI Policy 2020 (“FDI Policy”) and the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, were being processed.

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Generative Artificial Intelligence (GenAI) can generate and manipulate our ideas and thinking by creating human-like content via non-human intelligence.[1] These software(s) such as OpenAI’s ChatGPT/ GPT-4, Google’s BARD, inter alia, are initially trained on a large data sets and computing power. After the training, they are capable of self-enhancement to generate unique and personalised content.[2] This has posed novel questions before the copyright experts, as content generation, previously reliant on human inputs, has moved beyond that realm. Now, instead of answers based on user queries – as obtained via Google’s search engine – customized personal content is delivered to the user. Creation of this new content through GenAI has led to concerns on copyright infringement, privacy violation, libel and defamation, etc. Copyright infringement is particularly worrisome as the companies are using the user-generated data to train these software(s), which includes the data generated by minors, amplifying their vulnerability. Questions arise regarding the extent to which the companies can claim ‘fair-use’ exception of the Copyright Act? This article attempts to bring some clarity over these issues. It incorporates two landmark US cases against OpenAI’s ChatGPT and Alphabet Inc., respectively[3], and their implications in India, including the India’s recently-passed Digital Personal Data Protection Act, 2023.

Continue Reading Guardians of Genius: Securing Tomorrow’s Generative AI via Copyright Protection
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Increasing the role and relevance of ‘Proxy Advisory Firms’ in corporate governance

Until very recently, the recommendations of proxy advisory firms did not impact companies much, as it did not have the power to influence or fail/ stop a resolution from being passed. However now, the recommendations of proxy advisory firms are becoming increasingly relevant given that many institutional investors are basing their positions while voting on resolutions on such advice. This is evidenced from the fact that a proxy advisory firms have recently managed to prevent a resolution for granting employee stock options to employees of a group entity of a very large Indian bank from being passed due to the absence of “any compelling reasons”.[1] In another interesting case, a proxy advisory firm came very close to preventing a resolution pertaining to an increase in the remuneration of a director from being passed on account of this increase being “skewed” and “guaranteed”.[2]

Continue Reading Impact of Proxy Advisory Firms: Turning tides and failing resolutions