October 2024 INDIA EDITION I ndia’s IPO Boom As a listing frenzy sweeps the country, law firms try to keep up How the PE exit has evolved Leaders talk scaling strategies CCI targets e-commerce sector
2 Asian Legal Business | October 2024 From the editor Turning a new page Welcome to the October issue of ALB India, which carries forward the fresh, new design that we have brought to all the ALB titles. This revamped look reflects our commitment to evolving alongside the dynamic legal landscape we cover. We hope you find the updated layout both visually appealing and easier to navigate as you explore the wealth of content within these pages. In this redesigned issue, we bring you a collection of insightful features that highlight India’s burgeoning position on the global stage. Our main feature explores India’s remarkable ascent in global IPO activity, examining how high valuations, increased market depth, enhanced liquidity, growing regulatory faith, and a surge in expanding companies have combined to thrust India into the spotlight of international capital markets. Our Forum section shifts focus to the evolving strategies of Indian law firms. We uncover how firms are prioritising qualitative growth over mere expansion, emphasising client-centric approaches and strategic investments in technology, knowledge management, and talent development. We’re also excited to present a compelling feature on the transformation of exit strategies in Indian private equity deals. This piece delves into how investors are now prioritising enforceable exit mechanisms, dispute resolution clauses, and realistic timelines to navigate the challenges of protracted legal battles, reflecting the maturing landscape of India’s private equity sector. Our Explainer section dissects the potential impact of the Competition Commission of India’s investigations into Amazon and Flipkart on the future of e-commerce in India. Finally, our In-House Insight column, contributed by Saumya Singh of Cube Highways, tackles the delicate balance between legal and ethical responsibilities, offering valuable perspectives for in-house counsel. We hope you enjoy our new look and find this issue both informative and thought-provoking. As always, we welcome your feedback and suggestions. Please don’t hesitate to reach out to myself or Nimitt Dixit – our email addresses can be found on this page. Ranajit Dam Managing Editor, Asian Legal Business, Thomson Reuters Head of Legal Media Business, Asia & Emerging Markets Amantha Chia amantha.chia@thomsonreuters.com Managing Editor Ranajit Dam ranajit.dam@thomsonreuters.com Asia Writer Nimitt Dixit nimitt.dixit@thomsonreuters.com Rankings & Special Projects Editor Wang Bingqing bingqing.wang@thomsonreuters.com Copy & Web Editor Rowena Muniz rowena.muniz@thomsonreuters.com Senior Designer John Agra john.agra@thomsonreuters.com Traffic/Circulation Manager Rozidah Jambari rozidah.jambari@thomsonreuters.com Sales Manager Jonathan Yap India, Indonesia, Singapore (65) 6973 8914 jonathan.yap@thomsonreuters.com This month, we launch two online rankings. The India Top Corporate/M&A Boutique Firms ranking showcases leading firms with streamlined partner structures and specialised corporate and M&A practices. Meanwhile, the South India rankings highlight the status and achievements of young legal professionals, top law firms, and exceptional in-house legal advisors in the region. For detailed information, visit the links below: www.legalbusinessonline.com/features/rankings-alb-india-top-corporate-ma-boutique-firms-2024 www.legalbusinessonline.com/features/alb-south-india-rankings-2024
3 Asian Legal Business | October 2024 Cover Story Further cementing India’s dominance, the country topped the global IPO market in the first eight months of 2024, with 227 transactions amounting to $12.2 billion. This remarkable performance can be attributed to robust market sentiment, a favourable macroeconomic environment, and a surge in investor interest driven by the fear of missing out. Both the Small and Medium Enterprise (SME) and mainboard IPO segments have contributed to this success, buoyed by strong demand from local retail investors and institutions. The country’s legal markets have responded swiftly to this new normal, with more law firms launching and building up capital markets practices to get on board the IPO gravy train. Market leaders Shardul Amarchand Mangaldas & Co and Cyril Amarchand Mangaldas have in particular attracted the country’s top talent as they look to consolidate their position at the top of the table. Growth factors A significant shift in investment patterns among Indian households has played a crucial role in fuelling the IPO boom. There has been a noticeable movement of funds from traditional fixed deposits and savings accounts to mutual funds. The share of bank deposits in gross financial savings of households has declined to 29.4 percent from its long-term average of 33 percent, while the share of mutual funds has seen a substantial increase to 6 percent from a mere 2 percent. This realThe first half of 2024 saw an unprecedented milestone: One out of every three initial public offerings (IPO) globally originated from India, transforming the country into the fastestgrowing and hottest IPO market on the planet. This market momentum reached new heights in September 2024, with 41 companies submitting IPO documents – the highest number ever recorded in a single month. This surge underscores the growing appetite for public listings among Indian businesses and the increasing confidence of investors in the country’s economic prospects. Listing leviathan High valuations, increased market depth, enhanced liquidity, growing regulatory faith, and a surge in the number of expanding companies have combined to catapult India to the forefront of global IPO activity. By Nimitt Dixit • India dominates global IPO market with unprecedented growth • Shifting investment patterns fuel demand for new offerings • Regulatory efforts enhance market attractiveness and investor confidence
4 Asian Legal Business | October 2024 Cover Story location of savings has injected considerable liquidity into the equity markets, creating a robust demand for new offerings at high valuations. The benchmark indices Nifty 50 and Sensex 30 are trading near their all-time highs, creating a positive market sentiment. This bullish environment has encouraged unlisted companies to file for IPOs to capitalise on favourable valuations and investor appetite. The strong performance of these indices serves as a beacon for potential issuers, signalling an opportune time to go public. “Valuations in India are better than almost anywhere else in the world,” says Amit Singh, the Singapore-based head of Linklaters India practice and head of the firm’s South and Southeast Asia capital markets practice. Singh attributes this growth to a government-backed push towards stock market investment, an increased urge among India’s burgeoning middle class for wealth accumulation, and a growing number of high-quality, well-governed, new-age companies coming to the fore within the country’s tech-fuelled growth environment. The influx of companies backed by global private equity and venture capital funds has significantly enhanced the quality of businesses going public. These firms often bring improved corporate governance practices and operational efficiencies, making them more attractive to public market investors. The involvement of reputable PE and VC firms also lends credibility to these offerings, further boosting investor confidence. The growing faith in India’s market regulator, the Securities and Exchange Board of India (SEBI) as a robust and proactive regulator has played a significant role in boosting investor confidence. SEBI’s efforts to enhance transparency, protect investor interests, and streamline the IPO process have contributed to the market’s overall health and attractiveness. The regulator’s recent clamp-down on alleged non-compliance with listing regulations on companies such as Paytm (One97 Communications) has renewed investor faith in the listing process, leading to rising demand. The regulator’s approach to governance is growing more nuanced and sophisticated, with differing approaches to regulation of large companies, such as Hyundai Motors India and Bajaj Housing Finance, as compared to new-age and future companies such as Ola Electric. While the SEBI’s cautious approach has been adopted keeping in mind India’s retail investors, there is also a call among experts to check against overregulation, and increasing fear of document submission, creating a chilling effect on companies looking to list. While a cautious approach helps guard against companies not ready for the public markets, “it is important to strike a balance” between overregulation and good governance, explains Prashant Gupta, the head of capital markets at SAM. Regulatory scrutiny when it comes to identification of promoters and use of funds may need to be loosened to ensure smooth and quicker listings in the future, Gupta explains. Lastly, global economic and geopolitical conditions, including the fluctuations in oil prices owing to the aggression in the Middle East and Ukraine, and the slowdown of the Chinese economy have not affected the bullish market momentum in India. This makes the country the most attractive and stable option for investors scampering to maintain growth in a declining global economy. India’s IPO markets have been an oasis internationally, says Manan Lahoty, head of CAM’s capital markets practice. “Despite geopolitical headwinds in West Asia, and other parts of the world, India’s IPO pipeline has not only remained unaffected, but markets have also bounced back faster than anywhere else in the globe,” Lahoty explains. In the last few years, Indian tech companies like Zomato and PolicyBazaar that were earlier looking at U.S. IPOs have returned to India’s bourses. The bursting of the SPAC bubble in the U.S. also strongly contributed to this turn to India, experts say. Companies which would have been orphaned stocks competing in U.S. markets have turned themselves into high-profile, highly anticipated listings in the Indian market, explains Gupta. The market is attracting not only domestic companies but also international companies that were previously looking to list in other more mature international capital markets. “In some instances, even companies who have a substantial business outside India are thinking of reorganising the business under the subsidiary and looking at an IPO,” Singh explains. More legal work The increasing depth of the IPO markets means a growing demand for legal advisors in India, allowing top firms to pick and choose their mandates, creating a larger opportunity for new firms to enter the capital markets game. Leading the race are India’s top firms SAM and CAM, advising on key marque IPOs in the market including Hyundai Motors, Ola Electric, Swiggy, FirstCry, Ather, and Premier Energies. While SAM maintains a strong organic growth trajectory, CAM has successfully rebuilt its capital markets practice this year with a 60-member team from IndusLaw led by Manan Lahoty, following the departures
5 Asian Legal Business | October 2024 Cover Story “In recent years, the headline story for India was the emergence of its IPO market on the global stage. In my view, we are now past that phase – going forward, market observers will take for granted India’s acceptance on the global stage and instead watch its development as an equal competitor to other global IPO markets, as well as track the strength of the Indian corporate pipeline.” — Amit Singh, Linklaters of practice leader for South India Vijay Parthasarathi and partner Vinay Sirohia to Trilegal. Large parts of their teams, while not moving directly with the lead partners, also found new homes. Partner Abhinav Kumar left to join Talwar Thakore & Associates, while Rohit Tiwari moved to SAM. With Lahoty leading the newly-build capital markets practice and industry leader Yash Ashar still at the firm, CAM maintains a business-as-usual demeanour, with a pipeline of IPO mandates leading into the coming year. “There is an increasing demand for capital markets lawyers in the Indian markets, particularly among tier two firms”, explains legal market recruitment expert Khushboo Luthra. Firms that have a large base of early-growth clients are looking to bulk up their capital market practices in order to offer listing services to these clients when they decide to go public, she explains. This includes making partners out of principal associates and counsels at Tier-1 firms to attract the country’s top talent to their firms. As the SME IPO market grows, smaller firms such as SNG & Partners and Fox & Mandal are getting into the act, building capital market capabilities to lead smaller IPOs. Firms including Economic Laws Practice, Talwar Thakore & Associates, Bharucha & Partners, Saraf and Partners, and Chandhiok & Mahajan have launched and bolstered their capital markets practices this year to get a larger chunk of the IPO pie. International law firms such as Linklaters, Latham & Watkins, Sidley Austin and Hogan Lovells have also been growing their capital markets groups they vie to be the top international advisors for bookrunning lead managers on Indian IPOs. While large Indian IPOs with strong foreign institutional investor interest engage two international counsel, smaller ones that are sold internationally usually make do with just one. International counsel are engaged to ensure compliance with U.S. securities laws which is necessary from a foreign institutional investor perspective, who will need to make appropriate disclosures to their regulators. “While Linklaters has been active in the India jurisdiction for several decades, the firm has a renewed focus on India in an effort to be at the leading edge of the country’s growth,” Singh says. “We have also recently hired a private equityfocussed partner to our Singapore office, whose clients have already sent us portfolio companies for IPO. In addition, at the associate level, we have made several hires, including lawyers with Indian educational or law firm backgrounds, to help us meet the very high demands for service that we are seeing,” Singh adds. Future outlook Despite the overwhelmingly positive trends, dealmakers and legal experts maintain a cautious outlook. Many anticipate a potential market correction and believe that the current IPO frenzy may not be sustainable in the long term. However, the prevailing sentiment among industry professionals is to capitalise on the current favourable conditions while they last. A big concern for experts remains the listing of lesspromising companies looking to take advantage of the bull market to access public finance through listings, a practice that has got SEBI working overtime to regulate. Despite concerns, strong regulatory scrutiny and a push towards retail investment is keeping India at the forefront of public listings in the coming year. Legal experts are seeing more companies in the technology, consumer, infrastructure, healthcare and real estate space looking at listings in 2025. “In recent years, the headline story for India was the emergence of its IPO market on the global stage. In my view, we are now past that phase – going forward, market observers will take for granted India’s acceptance on the global stage and instead watch its development as an equal competitor to other global IPO markets, as well as track the strength of the Indian corporate pipeline,” says Singh. Much of that depends in turn on macro and Indiaspecific economic policy and growth. For now, though, India and its IPO market has more momentum than we have seen in perhaps decades, and we expect that energy to continue into 2025,” Singh adds.
6 Asian Legal Business | October 2024 Even as lateral hires and mega deals dominate the headlines, Indian law firms are focusing on qualitative growth over mere quantitative expansion, emphasising client-centric approaches and strategic investments in technology, knowledge management, and talent development. The key to sustainable growth, they say, lies in superior service delivery, robust training programs, technological innovation, and client retention, rather than aggressive client acquisition. Our scaling strategy focuses on qualitative goals, and we do not believe in quantitative growth as an end in itself. In the last 18 months, our lateral growth has been largely through adding or expanding specific practice areas (capital markets, infrastructure and projects, and disputes) which we believe are critical to support our clients and also provide cross-selling opportunities across other practice areas. To that extent, we will continue to explore other specialist practice areas from time to time. Beyond this, our primary focus shall continue to be on organic growth through retaining, nurturing and developing our excellent pool of existing talent. The same is true of geographical expansion. While we have full-fledged physical offices in Mumbai and Delhi, we also have some of our lawyers present in Bengaluru with a view to ultimately developing a formal presence there. Our focus is to deliver excellent client service. To that end, we routinely conduct both practice-specific and inter-practice training sessions on a wide range of topics to ensure that our lawyers are up to date on developments and best practices. Simplification of the legal practice and scaling is at the heart of our Firm buildout plan in India. The foundation of this lies in having a client-focused approach and developing a strong collaborative work culture. With this foundation in place, one has to review and optimise client selection, adopt legal technology and invest in legal training programmes. The buy-in to scaling must be across all levels and primarily occurs when the talent pool is harnessed without exhausting them. The financial health of the Firm is key to enabling the leaders to take risks, adopt flexible billing techniques and roll out new practice areas. For one to embrace a growth mindset, one must also adopt a primarily data-driven decision-making process and lawyers must be open to measuring themselves on productivity scales. What has worked well for us in the Indian market is focusing on client retention over client acquisition. Setting highquality standards is key for growth to be sustained. Ultimately clients love good service and a high-quality output. The toughest part of scaling is to have the mindset to learn from your failures, and that is easier said than done. Our growth is driven by a client-first approach. We focus on understanding and addressing the evolving needs of our clients across areas like technology law, investment treaty arbitration, and private equity and venture capital. With offices in Bangalore, Delhi, and Kolkata, we have positioned ourselves to handle both national and international matters. We have embraced technology and innovation to streamline our work. One example is the in-house tool developed by our partner, Ajay Kumar, which uses AI to augment our legal workflow. This allows us to combine automation with expert insights for better client service. Our strategy also focuses on attracting and retaining top legal talent. We have noticed a shift where more lawyers are choosing boutique firms like ours over larger tier-one firms because of the opportunities for personal and professional development. We also provide customised guidance to young legal talent to help them develop their careers. We take pride in the fact that most of our new hires are those who have interned with us for a long time, which allows them to be productive from day one. Scaling strategies FORUM Gautam Saha joint managing partner, Talwar Thakore & Associates Shuva Mandal managing partner, Anagram Partners Anubhab Sarkar managing partner, Triumvir Law What are your strategies to scale your law firm in India’s legal market?
7 Asian Legal Business | October 2024 M. Arun Kumar Leaving: IndusLaw Going to: JSA Advocates & Solicitors Practice: Projects Location: Gurugram Position: Partner Debjani Aich Leaving: Kochhar & Co Going to: IndusLaw Practice: Employment Location: Bengaluru Position: Partner Rohit Dhingra Leaving: FTI Consulting Going to: Shardul Amarchand Mangaldas & Co Practice: White-collar Crime Location: Delhi Position: Partner Anindya Ghosh Leaving: IndusLaw Going to: Argus Partners Practice: Corporate Location: Bengaluru Position: Partner Faraz Khan Leaving: IndusLaw Going to: Anagram Partners Practice: M&A Location: Mumbai Position: Partner Mustafa Motiwala Leaving: Clasis Law Going to: Dentons Link Legal Practice: Disputes Location: Mumbai Position: Senior Partner Rajeev Rambhatla Leaving: King Stubb & Kasiva Going to: Luthra and Luthra Law Offices Practice: Disputes Location: Hyderabad Position: Partner Rohan Ghosh Roy Leaving: N/A Going to: Cyril Amarchand Mangaldas Practice: Corporate Location: Mumbai Position: Partner Mudit Shah Leaving: Cyril Amarchand Mangaldas Going to: Khaitan & Co Practice: Real Estate Location: Ahmedabad Position: Partner Manmeet Singh Leaving: Saraf and Partners Going to: Cyril Amarchand Mangaldas Practice: Disputes Location: Delhi Position: Partner Lakshmidevi Somanath Leaving: Surana & Surana International Attorneys Going to: Anand and Anand Practice: Intellectual Property Location: Delhi Position: Partner Roshan Thomas Leaving: Byju’s Going to: Shardul Amarchand Mangaldas & Co Practice: Corporate Location: Bengaluru Position: Partner Manu Varghese Leaving: Samvad Partners Going to: Vertices Partners Practice: M&A Location: Mumbai Position: Partner M. Arun Kumar has joined JSA as part of a 13-member projects and infrastructure team from IndusLaw’s Hyderabad and Gurugram offices that also included partner Deepak Chowdhury. Kumar has close to two decades of experience advising on acquisitions, divestments and joint ventures in the projects, construction and real estate sectors. He has been advising clients in sectors such as airports, ports, highways, renewable energy, leisure and hospitality, waste management, commercial and residential real estate development, media, information technology and education. The move underscores JSA’s huge bet on inorganic growth this year, hiring large teams across the board, while also highlighting the number of partners that have left IndusLaw this year. Hyderabad, which has traditionally been a real estate and litigationfocused market is seeing an influx of corporate lawyers as the demand for expertise grows across sectors. JSA’s co-managing partner Vivek Chandy said that the firm was looking to significantly grow its M&A, corporate and private equity offerings in the city. APPOINTMENTS
8 Asian Legal Business | October 2024 PE/VC This stems from a perfect storm of challenges unique to the Indian market: Promoters skilled at stalling exits through strategic use of court mechanisms, vague exit clauses in hastily drafted agreements, and a lack of jurisdictional clarity on dispute resolution that allows parties to take advantage when it comes to contested exits. The scale of this problem is significant. According to a 2023 report by the Indian Private Equity and Venture Capital Association (IVCA), approximately 15 percent of all private equity exits in India between 2018 and 2022 involved some form of dispute. This translates to roughly 75 disputed exits out of 500 total exits during this period. More alarmingly, the average duration of these disputes was 4.7 years, with some cases dragging on for over a decade. The case of Shaadi.com and Westbridge Capital serves as a stark reminder of the perils that await unsuspecting investors. What began as a promising partnership in 2006 devolved into a bitter legal battle that dragged on for years, significantly eroding the value of Westbridge’s investment. This cautionary tale is far from unique, with exit disputes in India taking an average of five to six years to resolve – a timeframe that aligns ominously with the typical lifespan of investment funds. But with India’s growing global reputation as a high-return market, both in private equity and public capital, investors have continued to grow their Indian bets, albeit with a more cautious approach to contract negotiation, creating pragmatic and enforceable exit strategies and dispute clauses to ensure smoother departures for their portfolio companies. The exit evolves A decade ago, it was common practice for investors to include a veritable smorgasbord of exit mechanisms in their agreements. From initial public offerings (IPOs) to buy-backs, third-party sales, drag-along rights, put options, and call options – contracts were often stuffed with every conceivable exit strategy. However, as Harshita Srivastava, co-head of Nishith Desai Associates’ In the fast-paced world of private equity and venture capital investments in India, exit strategies have long been a thorny issue. Over the past decade, foreign investors have grown increasingly cautious, their enthusiasm tempered by the harsh realities of protracted exit disputes that can leave them entangled in India’s labyrinthine legal system. Evolution of the exit Exit strategies in Indian private equity deals have transformed, with investors now prioritising enforceable exit mechanisms, dispute resolution clauses and realistic timelines to navigate the challenges of protracted legal battles. By Nimitt Dixit • Exit disputes significantly impact foreign investment in Indian markets. • Investors now prioritise enforceable, strategic exit clauses in agreements. • Prolonged legal battles prompt preference for settlement over litigation.
9 Asian Legal Business | October 2024 PE/VC private equity and M&A practice, points out, “in the last decade, many of these exit clauses went into dispute.” Investors realised that some of these clauses were theoretical, and not really enforceable against the company. “This realisation has led to a more nuanced and strategic approach to drafting exit clauses.” Today’s investors have become far more pragmatic. Instead of throwing in the proverbial kitchen sink, they’re making calculated decisions about which exit options to include based on their intention and ability to enforce them within a specified timeframe. “Parties are resorting to including only those exit clauses that they intend to enforce,” Srivastava explains. “They want to identify two or three exit options that work for them strategically.” This shift has given rise to the popularity of “exit waterfalls” – a structured approach where investors stipulate a fixed order in which exit options are to be exercised. This method provides clarity on exit strategy and timelines and reduces the potential for disputes down the line. Interestingly, this evolution isn’t confined to the investor side of the table. Indian promoters, once happy to agree to any clause as long as the money was flowing in, have become more sophisticated and engaged in the negotiation process. Gone are the days when a “Byju’s approach” of accepting all terms without scrutiny was the norm. Today’s new-age promoters are actively participating in shareholder contract negotiations, demonstrating a keen understanding of the implications of each clause. This increased engagement from both sides has led to more balanced and enforceable contracts. However, it has also highlighted the critical importance of careful drafting, particularly when it comes to dispute resolution and governing law clauses. Experts say that all too often, contracts inadvertently provide multiple options for dispute resolution due to drafting oversights, creating ambiguity that can be exploited in future conflicts. Contracts also envisage exits more clearly when it comes to material breach of contracts by either party, including allowing stake sales to direct competitors – the key issue in the Shaadi.com exit dispute. Investors are being pushed back on their insistence to unilaterally adjudicate material breaches, and usually settle on third-party adjudication or event-based triggers such as filing of a First Information Report, or adjudication by a court of first instance. Another significant change in the exit landscape is the timeframe in which exits are planned and executed. “Exits are no longer an overnight action,” observes Dheeraj Nair, partner and co-chair of the disputes practice at JSA Advocates & Solicitors. “When people start talking about exits, the conversation and internal strategy often begins three or four years before the actual event.” This extended runway allows for meticulous planning, including the preparation of internal communications and boardroom strategies. Dispute challenges Despite these improvements, the spectre of India’s judicial system continues to loom large over investment decisions. The National Company Law Tribunal (NCLT) and Indian courts are often viewed as delay tactics by international investors, with Indian promoters leveraging the system’s notorious slowness to their advantage. This wariness has led to a preference for settlement over litigation. Experts say that roughly 90 percent of exit disputes get settled. People get tired and prefer to settle for a lesser value to stop the drain on energy and time. Many investors prefer to exit at a loss rather than face a prolonged court battle in India. The situation has led to calls for reform. There’s a growing consensus that India needs a separate authority to handle these disputes – one staffed by judges who understand the complexities of financial and commercial disputes. As one expert put it, “India needs a Singapore-like system to boost investor confidence.” The impact of these prolonged disputes on investment flows is significant. A 2023 survey by Preqin, a global leader in alternative assets data, revealed that 62 percent of foreign investors cited concerns about exit mechanisms and potential disputes as a major factor in their decision-making process for Indian investments. This hesitation is reflected in the numbers: While India saw a record $70 billion in foreign direct investment in the fiscal year 2023-24, venture capital inflows declined by 72 percent in the same period. “While relief does come, it can even take up to seven or eight years, longer than the life of the fund and the envisaged investment itself, making investors wary of putting money into the country,” Nair adds. Despite these challenges, the Indian market remains attractive to foreign investors, thanks in part to the lessons learnt by investors and promoters from the exit disputes over the last two decades. Disputes in marquee deals like Hero Honda and Maruti Suzuki that took over six years to resolve have made investors realise that litigation is likely unavoidable. “Today’s contracts are no longer merely drafted to be closed, but are crafted with potential litigation in mind,” Nair explains. Investors and promoters no longer treat dispute resolution clauses as boilerplate, instead emphasising tightly worded clauses that without ambiguity specify the choice of mode of resolution, forum, governing law, law of the arbitration agreement, seat and venue, Srivastava adds. The new generation of Indian entrepreneurs, educated and globally minded, are bringing fresh perspectives to the table. Experts note that now clear, educated promoters are coming in – they don’t simply want to sit on investments. They want to make money, exit, and start new businesses. Promoter due diligence remains a cornerstone of the investment process. As Nair notes, “Investors evaluate the founder as much as the business itself. They are increasingly concerned about the values, ethics, and ideas of the promoter.”
10 Asian Legal Business | October 2024 How will the CCI’s investigations into Amazon and Flipkart change e-commerce in India? India’s e-commerce sector is poised for significant changes as the Competition Commission of India (CCI) investigates allegations against Amazon and Walmart-backed Flipkart. Launched in 2020, the CCI’s inquiry has produced over 2,700 pages of findings so far, detailing serious accusations ranging from preferential treatment of select sellers to deeply discounted pricing practices that could adversely impact market competition. The investigation, temporarily halted by the Karnataka High Court due to procedural issues in the findings, has prompted Amazon, Flipkart, and related sellers to prepare written and possible oral responses. A verdict is not expected by the end of the year, as disclosed by a connected attorney. This investigation reflects a global shift toward stricter regulation of digital markets, with the outcome potentially setting important precedents for digital platforms. The challenge lies in balancing the convenience of e-commerce with essential fair competition and consumer protections. 1 What are the allegations? The chief accusations against Amazon and Flipkart centre on preferential treatment of certain sellers, particularly those with established partnerships, which allegedly results in higher search rankings. Another significant concern involves deep discounting practices that may constitute predatory pricing, particularly in the mobile phone sector. The CCI warns that such tactics could severely weaken competition by driving smaller players out of business. Both companies are also accused of exclusive arrangements, like exclusive product launches, limiting consumer choice and fair market practices. Additionally, preliminary findings suggest potential circumvention of India’s foreign direct investment (FDI) policies by favouring preferred sellers to directly sell inventory. The significant FDI received by these companies is allegedly being utilised to sustain losses, thereby providing an unfair competitive edge against smaller competitors. In their defence, both companies assert that their practices are typical within the industry and necessary for operating in India’s expanding $123 billion e-commerce sector. The lawyer close to the investigations says that CCI must not deal with Amazon and Flipkart collectively, but look at them as market rivals competing for a larger slice of the pie in the fast-growing Indian market. “To ensure this competition, both offer price discounts and exclusive access, which is commonplace among online and offline retailers in the industry,” they add. The attorney explains that the electronics industry, both online and retail, has witnessed a faster growth in demand than supply, leading to more efficient participants eating into the market shares of others. With the focus on market penetration, deeper pockets help larger players survive market turbulence, which may be an entry barrier in general but cannot be attributed to particular practices on the e-commerce giants’ platforms. The CCI, which is statutorily bound to examine mitigating and aggravating impacts of such policies before adjudication, will be urged to see that these price benefits and exclusive access deals are beneficial to consumers. On predatory pricing, Amazon and Flipkart are likely to deny these allegations, says the lawyer. While they do offer deep discounts, there is no evidence to say the selling price was below the cost price, which is a necessary condition to show predatory pricing. 2What Is the impact on the e-commerce sector? At the rate at which the industry in India is growing, it is likely the CCI will have its eye on e-commerce for the coming few years, says the lawyer. E-commerce platforms will therefore have to be careful when offering exclusive deals and discounted prices, which might be a hit for consumers in the short term but might lead to a more diverse and competitive online and offline retail space in the long term. Furthermore, the relationship between platforms and sellers is likely to undergo scrutiny, potentially leading to more equitable treatment of all sellers and changes in product ranking algorithms, another lawyer connected to the matter says. If preferential treatment of certain sellers is curtailed, it might affect the efficiency of logistics networks, potentially leading to slower delivery times. Consumers might also have fewer opportunities to access exclusive products or early launches, the second lawyer explains. 3What can we expect to see in the future? Different forms of e-commerce are likely to see increased scrutiny from the CCI, which has significantly ramped up its focus on the tech sector recently. However, the Digital Competition Bill, which provides for increased regulation of the top market players, similar to the law in Europe, is not getting the traction hoped for and might be placed on hold for now, the second lawyer says. Based on industry responses, it is clear that while there is a need for digital antitrust regulation, “there may be a need to tone the bill down,” they add. EXPLAINER
11 Asian Legal Business | October 2024 DEALS $822 mln Development of 600 MW Kholongchhu Hydropower Project in Bhutan Deal: Projects Firm: SKV Law Offices Jurisdictions: Bhutan; India $782 mln Bajaj Housing Finance’s IPO Deal: IPO Firms: Cyril Amarchand Mangaldas; Khaitan & Co; Linklaters Jurisdiction: India $771 mln Samvardhana Motherson’s qualified institutional placement Deal: ECM Firms: Cyril Amarchand Mangaldas; Khaitan & Co; Linklaters Jurisdiction: India $595 mln Prestige Estates’ qualified institutional placement Deal: ECM Firms: Cyril Amarchand Mangaldas; Trilegal; White & Case Jurisdiction: India $536 mln Ather Energy’s IPO Deal: IPO Firms: Cyril Amarchand Mangaldas; Latham & Watkins; Shardul Amarchand Mangaldas & Co Jurisdiction: India $1.2 bln NTPC Green’s planned IPO Deal: IPO Firms: JSA Advocates & Solicitors; Trilegal Jurisdiction: India NTPC Green Energy’s proposed $1.2 billion IPO aligns with India’s strong push for renewable energy and coincides with a booming stock market that has seen a surge in listings recently. September witnessed a record-breaking 41 companies filing for IPOs, the highest ever recorded in a single month, according to Axis Capital. This strong demand for capital market access reflects robust investor interest, increased liquidity, and positive market sentiment from both domestic retail and foreign institutional investors towards Indian equities. The robust IPO pipeline is driven by high participation from domestic investors and ample liquidity in the market. While experts are uncertain whether this bullish trend will continue into the last quarter of 2024, the current market conditions suggest that the momentum in IPO activity may persist. $525 mln Oravel Stays’ proposed acquisition of G6 Hospitality from Blackstone Deal: M&A Firms: AZB & Partners; Simpson Thacher & Bartlett Jurisdictions: India, U.S. $358 mln SpiceJet ‘s qualified institutional placement Deal: ECM Firms: Crawford Bayley & Co; Dentons Link Legal; Dentons U.S. Jurisdiction: India $290 mln Advent International’s acquisition of stake in Apollo Healthco Deal: M&A Firms: AZB & Partners; Cyril Amarchand Mangaldas; Ropes & Gray; Shardul Amarchand Mangaldas & Co Jurisdictions: India, U.S.
12 Asian Legal Business | October 2024 The Q&A: Kriti Trehan, Data & Co. ALB: With the Digital Personal Data Protection Act now in place, what key regulations should businesses anticipate in the coming year as India’s privacy landscape evolves? Trehan: The journey towards a dedicated privacy law in India has been long but promising. Over the six years from 2017 to 2023, we witnessed pivotal moments such as the landmark Puttaswamy judgment, Justice Srikrishna’s whitepaper and draft bill, parliamentary debates, and discussions by the Joint Parliamentary Committee, all of which led to the much-anticipated Digital Personal Data Protection Act, 2023. The Act lays down key principles for privacy and data protection, focusing on the obligations of data fiduciaries (akin to controllers in other jurisdictions), accountability mechanisms, crossborder data transfers, data subject rights, and potential overlaps with sector-specific regulations. However, the ecosystem now awaits detailed guidelines on compliance, procedural requirements, and enforcement mechanisms. Now is an ideal time for businesses to reassess their privacy programs through the law’s principle-centric lens. With the Ministry of Electronics and Information Technology expected to roll out a consultation process on the rules, businesses should actively participate, voice their questions, and be ready to thereafter shift their focus to concrete compliance measures once the final regulations are in place. ALB: We’ve seen increased regulatory action in India, particularly in sectors like online gaming. How are market players adapting to this? Trehan: Recent industry estimates indicate that India’s gaming sector is valued at over $3 billion. India is the world’s second-largest gaming market, with nearly 450 million gamers. While this immense market potential has fueled rapid growth, it has also raised concerns about consumer protection, financial risks, and the online safety of minors, placing gaming high on the regulatory agenda. To support this growth, the Ministry of Information and Broadcasting recently introduced the AVGC-XR policy (2024-29), aimed at enhancing competitiveness, fostering innovation, and creating a supportive policy ecosystem. Additionally, online gaming was brought under the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, as amended in 2023. This self-regulatory approach has empowered the industry to establish responsible practices through industry associations. However, the sector still faces significant challenges due to regulatory ambiguities. The overlap of central and state laws, and the conflation of gaming with gambling, has led to inconsistent regulatory approaches across the country. With no judicial precedent on the distinction between games of skill and games of chance, there is no statutory definition that formalises this distinction in law. Ensuring a safe gaming environment for minors is still a work in progress and remains a priority for both businesses and regulators. It is crucial that all stakeholders—industry players and regulators—continue to collaborate, ensuring that innovation, entertainment, and responsible practices go hand in hand. ALB: As technology regulations continue to evolve in India, what do you see as the most pressing needs for the tech industry? Trehan: To realise India’s vision of becoming a global tech hub, it is crucial to balance three key interests: innovation, consumer welfare, and national growth. This involves creating policies that foster cutting-edge technological development, ensuring that consumers have access to safe and seamless tech solutions, and promoting consumer education and effective dispute-resolution mechanisms. Additionally, it emphasises the need to drive economic growth while building India’s soft power as a leading tech creator and exporter. Kriti Trehan is the founder of Data & Co, a boutique tech law and public policy consultancy. In this interview, she discusses the rapidly changing regulatory environment in India’s digital sector, the implementation of the Digital Personal Data Protection Act and the challenges facing the booming online gaming industry. INTERVIEW “The overlap of central and state laws, and the conflation of gaming with gambling, has led to inconsistent regulatory approaches across the country. With no judicial precedent on the distinction between games of skill and games of chance, there is no statutory definition that formalises this distinction in law.”
13 Asian Legal Business | October 2024 In-house counsel hold a unique and critical role within any organisation, balancing the dual responsibilities of ensuring legal compliance and upholding ethical standards. Unlike advocates governed by the Advocates Act of India, in-house counsel operate in an unregulated space when it comes to legal practice. The Advocates Act, while providing some direction for advocates, does not extend to the in-house legal profession, leaving these professionals to figure out the boundaries of their duties on their own. This lack of a statutory framework complicates the task of balancing legal and ethical obligations in a corporate setting. The primary responsibility of in-house counsel is ensuring that their organisation complies with all applicable laws—local, national, and international. Failing to comply with legal obligations can result in severe consequences, such as fines, penalties, litigation, or even the loss of business licenses. Ethical responsibilities extend beyond mere legal compliance and involve ensuring that the company operates in a way that upholds moral values, fairness, and responsibility toward stakeholders. Ethical behaviour is not just about avoiding legal penalties; it is about maintaining trust, preserving the company’s reputation, and contributing to a positive corporate culture. Where tensions arise One of the most challenging aspects of the role is managing the tension between legal and ethical responsibilities. While legal obligations are clear-cut and defined by statutes, ethical responsibilities are more subjective and may vary depending on the industry, the context, or stakeholder expectations. A common dilemma for in-house counsel is when a course of action is legally permissible but raises ethical concerns. For instance, a company may exploit legal loopholes to reduce costs. While such actions may be legal, they could be seen as unethical. Consider a scenario where a company discovers a legal loophole in environmental regulations that allows it to reduce compliance costs by lowering its environmental safeguards. Although this action complies with the law, it could lead to environmental harm, prompting public backlash, reputational damage, and potentially a decline in customer loyalty. In such cases, in-house counsel must advise the company not only on the legal permissibility of the action but also on the potential long-term ethical consequences. Conversely, there are instances where the ethical course of action may conflict with legal obligations. In such situations, in-house counsel faces the difficult task of advising whether to comply with the letter of the law or act according to higher ethical standards. Ethical breaches of the law, however well-intentioned, can still result in legal consequences such as fines or sanctions. Imagine a company operating in a country with lax labour regulations. The company could legally underpay its workers or refuse to offer benefits that employees in other countries receive. However, from an ethical standpoint, the company may wish to offer fair wages and benefits, even though it isn’t legally required to do so. In such scenarios, in-house counsel must guide the organisation through this ethical dilemma, weighing the short-term legal benefits against potential long-term ethical damage. The role of corporate culture The ability of in-house counsel to strike the right balance often depends on the company’s overall culture of integrity. While counsel can certainly take steps to foster such a culture, their efforts may be limited if ethical behaviour is not already prioritised at the leadership level. A company with a strong ethical foundation will make it easier for in-house counsel to align legal strategies with moral values. However, if the corporate culture prioritises profits over ethics, in-house counsel may face an uphill battle in maintaining this balance. In-house counsel have a responsibility to go beyond legal compliance and act as ethical stewards within their organisations. Their role in maintaining both legal and ethical standards is key to fostering a successful, responsible, and resilient organisation. Striking the right balance between legal and ethical responsibilities By Saumya Singh IN-HOUSE INSIGHTS About the author Saumya Singh serves as the associate vice president of Cube Highways and Transportation Assets Advisors Private Limited, where she leads a legal team handling diverse aspects of corporate, commercial, and infrastructure law. With expertise in managing large-scale M&A transactions, contract negotiations, and regulatory compliance, she oversees legal affairs related to national highway investments. Saumya also has expertise in arbitration, litigation management, and advising on complex financial and legal frameworks, ensuring the company’s operations remain legally sound.
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