India

Introduction On May 27, 2025, the Department of Land Resources under the Ministry of Rural Development invited suggestions and comments on the draft Registration Bill, 2025 (“Bill”). The Bill seeks to replace the existing 117-year-old Registration Act, 1908 (“Act”), with the intent to align the legislative landscape with the needs of today, especially considering the technologies that are available to achieve a near paperless system. The Bill has also proposed various modifications to the existing Act, which have been aimed at addressing certain legacy issues and harmonizing registration requirements across all States. This paper discusses some of the key changes that will come into effect once the Bill is enacted and the impact that these changes will have on transactions in the financing and real estate sectors. Equitable Mortgage Present Position: Pursuant to Section 58(f) of the Transfer of Property Act, 1882 (“ToPA”), a mortgage on a property, may be created by a mortgagor in a notified town, by depositing title deeds pertaining to such property with a creditor or its agent (“Equitable Mortgage”)[1]. The proviso to Section 48 of the Act clarifies that an Equitable Mortgage shall be effective against any registered mortgage deed subsequently executed with respect to the same property. This is an exemption to the rule that a registered document will take effect against any oral agreement relating to the same property.[2]  Proposed Position under the Bill: Under Section 12 of the Bill (which is a non-obstante provision), it has been proposed that a document which sets out the terms and conditions for an Equitable Mortgage shall be mandatorily registrable, except where such instrument is filed under Section 14(3) of the Bill. Under Section 14(3) of the Bill, all banks, financial institutions, and other creditors, in whose favour an Equitable Mortgage has been created, are required to file copies of the title deeds with the relevant registrar, notifying the registrar of the creation of such mortgage. Further, Section 17(2) of the Bill (which corresponds to the proviso to Section 48 of the Act) clarifies that, only an Equitable Mortgage which has been notified to the registrar under Section 14(3) of the Bill will take effect against a subsequently executed mortgage deed for the same property. Analysis and Impact: Typically, creation of an Equitable Mortgage is accompanied by a memorandum from the creditor recording such deposit of title deeds and a declaration made by the mortgagor acknowledging such deposit. While considering whether a document pertaining to an Equitable Mortgage is required to be registered under Section 17 of the Act, the courts in India have time and again drawn a distinction between a memorandum that merely evidences the deposit of title deeds and a memorandum that creates any rights or liabilities pertaining to the Equitable Mortgage[3]. It has been consistently ruled that the former is not required to be registered, but the latter would be a compulsorily registrable document under Section 17 of the Act.[4] This view of the courts has now been included in the provisions of the Bill. Interestingly, it may be noted that, States such as Maharashtra, Tamil Nadu and Gujarat have already incorporated amendments to Section 17 of the Act, mandating registration of all instruments relating to Equitable Mortgages, irrespective of whether such instrument merely records the creation of Equitable Mortgage.[5] Such strict requirements of registration may be diluted once the Bill is enacted, unless these States introduce fresh amendments. It may also be noted that, once the Bill is passed, lenders will have an additional obligation to notify the registrar under Section 14(3) of any Equitable Mortgage created in their favour. Power of Attorney Present Position: A power of attorney (“PoA”) has not been listed as a compulsorily registrable document under Section 17 of the Act. However States such as Gujarat, Kerala, Maharashtra, Madhya Pradesh, Orissa, Rajasthan and Tamil Nadu through their respective state amendments have mandated registration of a PoA relating to transfer of immovable property in certain instances.[6] Further, where the principal has executed the document and given a PoA to its agent for registration of the same, such a PoA must be registered under section 32(c)[7] read with section 33 of the Act[8]. Proposed Position under the Bill: Under Section 12 of the Bill, it has been proposed that a POA authorising transfer of immovable property (with or without consideration) shall be mandatorily registrable, thereby making this requirement uniform across all States. Analysis and Impact: The Supreme Court of India (“Supreme Court”) in the case of Rajni Tandon v. Dulal Ranjan Ghosh Dastidar[9], held that for the purposes of Section 32 and Section 33 of the Act, a PoA need not be registered in instances where a PoA holder himself executes a document on behalf of the principal and then presents that document for execution before the registering officer, as the agent in such cases becomes the executant for the purposes of the Act.[10] However, very recently, in the case of G. Kalavathi Bai v. G. Shashikala[11] the Supreme Court has taken a view which is contrary to its earlier decision in Rajni Tandon v. Dulal Ranjan Ghosh Dastidar[12] and held that, even if an agent signs a document on behalf of the principal, such an agent would still need to comply with the provisions of Section 32 and Section 33 of the Act. Presently, this matter has been referred to a larger bench. With the advent of the Bill, this distinction between the agent acting as an executant of the document (for transfer of immovable property) or simply presenting such document for registration, will become obsolete, since the Bill proposes that “any power of attorney authorising transfer of immovable property” is required to be registered. Lease Present Position: Under Section 17(1)(d) of the Act “leases of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent” are required to be compulsorily registered under the Act. Pertinently, the definition of ‘lease’ provided in Section 2 (7) of the Act includes “a counterpart, kabuliyat, and undertaking to cultivate or occupy, and an agreement to lease”. Proposed Position under the Bill: While Section 12(1)(d) of the Bill mirrors Section 17(1)(d) of the Act, the definition of lease has been considerably expanded to include amongst others: (i) any instrument by which tolls are let out; (ii) any writing on an application for a lease signifying the grant thereof by, inter-alia, specifying the premium/ rent payable; and (iii) a mining lease for minor minerals. Analysis and Impact: While the definition of a lease under the Act has always been inclusive, the significant expansion of the definition under the Bill brings within its ambit documents which are not strictly construed as leases, including, in certain cases, application letters for leases and acknowledgements thereof. Further, it may be noted that certain States such as Maharashtra, Andhra Pradesh and Bihar[13] have made registration of all lease agreements mandatory irrespective of the tenure of the lease; however, leases with a tenure of less than 1 (one) year are still excluded from registration requirements under the Bill. Agreement for Sale Present Position: Not all agreements for sale (each an “AFS”) are required to be registered under Section 17 of the Act. In fact, by virtue of Section 17(1A) of the Act, only an AFS accompanied by possession as provided in Section 53A of ToPA[14] is mandatorily registrable. Moreover, as per Section 17(2)(v), read with the Explanation to Section 17(2),[15] an AFS (if not covered under Section 17(1A)) has been specifically excluded from the purview of Section 17(1). Proposed Position under the Bill: Under section 12(f) of the Bill, it is proposed that “any document which purports or operates to effect any contract for sale of immovable property, including an agreement for sale” shall be compulsorily registrable. (emphasis supplied) Analysis and Impact: It may be pertinent to note that States such as Gujarat, Kerala, Madhya Pradesh, Uttar Pradesh and Tamil Nadu[16] have made necessary amendments to the Act to provide for mandatory registration of an AFS, irrespective of whether possession of the property is with the transferee. The menace caused by unregistered agreements for sale has also been recognised by the Supreme Court in T.G. Ashok Kumar v. Govindammal,[17] wherein the need for amending the Act to ensure compulsory registration of ‘agreements for sale’ was emphasised. On a separate note, under the Real Estate (Regulation and Development) Act, 2016 (“RERA”), for ‘real estate projects’ (as defined under RERA), promoters are required to execute and register an agreement for sale with the allottee of a unit prior to accepting any amounts exceeding 10% (ten per cent) of the total cost of such unit.[18] Since, the provisions of RERA override the provisions of the Act[19], an AFS for any unit/ plot/ apartment, etc. of a real estate project is already required to be registered. To ensure uniformity, the Bill now proposes to include all agreements for sale within the purview of mandatorily registrable documents under Section 12(1). Construction Contracts & Development Agreements Present Position: The Supreme Court in the case of Sushil Kumar Agarwal v. Meenakshi Sadhu,[20] has distinguished a construction contract from a development agreement as follows: “When a pure construction contact is entered into, the contractor has no interest in either the land or the construction which is carried out. But in various other categories of development agreements, the developer may have acquired a valuable right either in the property or in the constructed area.” (emphasis supplied) Accordingly, while a joint development agreement gets covered within the scope of Section 17(1)(b)[21] of the Act, a simple construction contract would, in ordinary circumstances, be excluded therefrom. It may, however, be noted that construction contracts are registerable in the State of Tamil Nadu pursuant to an amendment made to the Act to this effect.[22] Proposed Position under the Bill: It has now been proposed that “any document which purports or operates to effect any contract for sale of immovable property, including an agreement for sale, developer’s agreement, or promoter’s agreement, by whatever name called, for development of any property or construction of structure” is required to be registered under Section 12(1)(f) of the Bill. Analysis and Impact: As explained by the courts in India[23], typically a construction agreement, unlike a development agreement, does not involve the transfer of any right, title, or interest in the immovable property. However, the provisions of the Bill seek to mandate the registration of such construction contracts wherein the contractor receives not only fees, but also an interest in the property (for example contracts where the contractor receives units/ a share of area in the developed property). Other Notable Changes   Digitalisation The Bill has promoted digitalisation of the process of registration with the introduction of Aadhar based verification and electronic record-keeping. Further, actions required for presenting a document for registration (such as affixation of signatures, fingerprints, photographs etc.) may be done electronically/ digitally.[24] Refusal of registration Section 58 of the Bill proposes to introduce a list of additional grounds upon which a registering officer may refuse the registration of a document, provided that the registering officer is not empowered to adjudicate upon any questions of title or ownership of property. Importantly, there is a statutory bar preventing any other registering officer from registering a document once it has been endorsed with reasons for refusal, unless such officer is directed to do so in accordance with the provisions of the Bill.[25] Cancellation of registered documents Section 64 of the Bill proposes to empower the adjudicating authority to cancel the registration of documents on certain prescribed grounds, including where the instrument was registered based on false information or in contravention of the provisions of the Bill. Further, such an adjudicating authority may either act suo moto or upon receipt of a complaint.[26] Please find a copy of the Registration Act, 1908, here and a copy of the Registration Bill, 2025, here.   This paper has been written by Nidhi Arya (Partner), Rohan Mitra and Dharani Maddula (Associate).   [1] Section 58(f) of ToPA –“Mortgage by deposit of title-deeds.—Where a person in any of the following towns, namely, the towns of Calcutta, Madras, and Bombay, and in any other town which the State Government concerned may, by notification in the Official Gazette, specify in this behalf, delivers to a creditor or his agent documents of title to immoveable property, with intent to create a security thereon, the transaction is called a mortgage by deposit of title-deeds.” [2] Section 48 of the Act. [3] Sundarachariar v. Narayana Ayyar, A.I.R. 1931 P.C. 36. [4] State of Haryana v. Navir Singh, 2014 (1) SCC 105. Also see Sir Hari Shankar Paul vs Kedar Nath Saha, A.I.R. 1939 P.C. 167, Ramchandra Laxman v. The Bank of Kolhapur A.I.R. 1952 Bom. 315, Chaina Ram v. Jai Roop AIR 2006 Raj 239, and Royal Printing Works v. Oriental Bank of Commerce, AIR 1990 AP 120. [5] Registration (Maharashtra Amendment) Act, 2010, Registration (Tamil Nadu Amendment) Act, 2012 and Registration (Gujarat Amendment) Act, 2008, respectively. [6] Registration (Gujarat Amendment) Act, 2016, Registration (Kerala Amendment) Act, 2012, Registration (Maharashtra Amendment) Act, 2010, Registration (Madhya Pradesh Amendment) Act, 2009, Registration (Orissa Amendment) Act, 2001, Registration (Rajasthan Amendment) Act, 2021, and Registration (Tamil Nadu Amendment) Act, 2012, respectively. [7] Section 32 of the Act – “Persons to present documents for registration.— Except in the cases mentioned in sections 31, 88 and 89, every document to be registered under this Act, whether such registration be compulsory or optional, shall be presented at the proper registration-office,— ….(c) by the agent of such person, representative or assign, duly authorised by power-of-attorney executed and authenticated in manner hereinafter mentioned.” (emphasis supplied) [8] Section 33 of the Act – “Power-of-attorney recognisable for purposes of section 32.—(1) For the purposes of section 32, the following powers-of-attorney shall alone be recognized, namely:— (a) if the principal at the time of executing the power-of-attorney resides in any part of India in which this Act is for the time being in force, a power-of-attorney executed before and authenticated by the Registrar or Sub-Registrar within whose district or sub-district the principal resides;…”. (emphasis supplied) [9] Rajni Tandon v. Dulal Ranjan Ghosh Dastidar, (2009) 14 SCC 782. [10] Also see Amar Nath v. Gian Chand, 2022 2 SCALE 52, and Ashok Kumar v. Sub Registrar Thrithala, 2018/KER/49123. [11] G. Kalavathi Bai v. G. Shashikala (2025 INSC 851). [12] Supra 9. [13] Section 55, Maharashtra Rent Control Act, 1999, Registration (Andhra Pradesh Amendment) Act, 1999 and Registration (Bihar Amendment) Act, 2010, respectively. [14] Section 53A of TOPA, “Part Performance- Where any person contracts to transfer for consideration any immoveable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has. in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that or, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed there for by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract: Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof.” (emphasis supplied) [15] Section 17(2)(v) and Explanation to Section 17(2) of the Act, “Documents of which registration is compulsory- - Nothing in clauses (b) and (c) of sub-section (1) applies to […] (v) any document other than the documents specified in sub-section (1-A) not itself creating, declaring, assigning, limiting or extinguishing any right, title or interest of the value of one hundred rupees and upwards to or in immovable property, but merely creating a right to obtain another document which will, when executed, create, declare, assign, limit or extinguish any such right, title or interest; […] Explanation - a document purporting or operating to effect a contract for the sale of immovable property shall not be deemed to require or ever to have required registration by reason only of the fact that such document contains a recital of the payment of any earnest money or of the whole or any part of the purchase money.” (emphasis supplied) [16] The Registration (Tamil Nadu Amendment) Act, 2012, The Registration (Madhya Pradesh Amendment) Act, 2009, Registration (Kerala Amendment) Act, 2012, The Uttar Pradesh Civil Laws (Reforms and Amendment) Act, 1976 and Registration (Gujarat Amendment) Act, 1982. [17] T.G. Ashok Kumar v. Govindammal (2010) 14 SCC 370. [18] Section 13(1) of RERA. [19] Section 89 of RERA. [20] Sushil Kumar Agarwal v. Meenakshi Sadhu, (2019) 2 SCC 241. Also see Rameshwar v. State of Haryana, (2022) 17 SCC 1, Ashok Kumar Jaiswal v. Ashim Kumar Kar, 2014 SCC OnLine Cal 3497, and SITAC Pvt. Ltd. v. Banwari Lal Sons Pvt. Ltd., 2019 SCC OnLine Del 9044. [21] Section 17(1)(b) of the Act, “Documents of which registration is compulsory- The following documents shall be registered, if the property to which they relate is situate in a district in which, and if they have been executed on or after the date on which, Act XVI of 1864, or the Indian Registration Act, 1866, or the Indian Registration Act, 1871, or the Indian Registration Act, 1877, or this Act came or comes into force, namely,[…] (b) other non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees and upwards, to or in immovable property.” (emphasis supplied) [22] Registration (Tamil Nadu Amendment) Act, 2012. [23] Supra 20. [24] See inter-alia Chapters (VII), (VIII) and (XIV) of the Bill. [25] Section 59(3) of the Bill. Also see Sections 60 – 63 of the Bill. [26] Section 64(3) of the Bill.

Introduction to the MSMED Act The Indian legislature has enacted The Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter referred to as "MSMED Act") in order to facilitate the promotion, development and enhancement of micro, small, and medium enterprises (MSMEs), and to further enhance their competitiveness in the market. However, in order to facilitate promotion of MSMEs, it is imperative that payments due to such entities from other Companies/Individuals is remitted to them on time so that they do not suffer from lack of working capital for operating their business. In this regard, an essential feature of the MSMED Act is covered under Chapter V of the said Act which stipulates provisions regarding ‘Delayed Payments to Micro and Small Enterprises’. Chapter V of the MSMED Act was enacted with the intent to protect micro and small enterprises from delayed payments, which often cripple their liquidity and operations. The intention was to ensure prompt payment for simple transactions involving goods and services, without the procedural delays of civil litigation. As enunciated under section 15 of the MSMED Act, liability of a buyer to pay a micro or small enterprise arises when such an enterprise either ‘supplies any goods’ or ‘renders any services’ to such a buyer. The key aspect to be noted here is that ‘works contract’; i.e., composite contract - wherein goods and services are indivisible and cannot be segregated – are not covered under Section 15 of Chapter V of the MSMED Act. What is a Works contract? Why are they not covered under the MSMED Act? As defined under Section 2(119) of the CGST Act, 2017, “works contract means a contract for building, construction, fabrication, completion, erection, installation, fitting out, improvement, modification, repair, maintenance renovation, alteration or commissioning of any immovable property wherein transfer of property in goods (whether as goods or in some other form) is involved in the execution of such contract. As per Para 6(a) of Schedule II to the CGST Act, 2017, works contracts shall be treated as a supply of services.”[1] Works contracts are a distinct category of contract and involve a combination of supplying goods and providing labour and services in an integrated and indivisible manner.. To put it simply, works contracts are composite contracts that involve a blend of goods and services. For instance, a contract for the construction of a building, the setting up of infrastructure, or the installation of equipment, all require both the supply of goods and provision of services. Sections 15, 16, and 18 of the MSMED Act, 2006 collectively provide for a dispute resolution and protection mechanism for micro and small enterprises against delayed payments. However, these sections apply only when the supplier either "supplies goods" or "renders services", as specifically stated in Section 15. A works contract, however, is a composite contract and involves both supply of goods and provision of services bundled together, and not the rendering of services or sale of goods in isolation. Section 16 only mandates, to the exclusion of ‘works contract’, for interest on delayed payments for “goods supplied or services rendered”; whilst Section 18 further allows the supplier to refer disputes to the Micro and Small Enterprises Facilitation Council (MSEFC) only for amounts due under Section 17, which again relates solely to transactions which either deal with supply of goods or services in isolation.. The term “rendered services” includes but is not limited to  standalone services like legal advice, designing, or transport, where only the service is being provided. Such services are easy to identify and are covered under the MSMED Act. On the other hand, a “composite supply,” is a mix of both goods and services given together under one contract which is usually the case in a “works contract”. For example, building and installing a lift involves supplying parts (goods) and installing them (service), all under one agreement. Therefore, because both parts are tightly linked and cannot be separated, it is not treated as a simple service or supply of goods. That is why such composite contracts fall outside the protection offered by the MSMED Act, which only covers a categorical and clear supply of either goods or services. Judicial Precedents The Hon’ble Courts have also held that works contracts cannot be bifurcated into service and goods components for the purpose of MSME protection. Therefore, enterprises engaged in works contracts cannot invoke these sections for redressal; thereby making them effectively excluded from the MSMED Act’s protective mechanism. In the case of M/s Kone Elevators India Pvt Ltd v. State of Tamil Nadu[2], The Hon’ble Supreme Court observed that if a contractor was required to install a lift, the nature of work would be a works contract, as it would include not just purchasing and suppling the components of the lift, but provide expert services for its installation. Following this case, The Hon’ble High Court of Bombay in Sterling Wilson Pvt Limited v. Union of India & Ors[3], observed that in cases of disputes arising out of performance or non-performance of a works contract, the MSMED Act cannot be invoked due to its composite nature. As aforementioned, the rationale behind this is that works contracts have a fundamentally different nature compared to pure goods or services contracts and cannot be easily broken down and categorized as goods, services for the purposes of the MSMED Act. Additionally, the case provides reasoning as to why works contracts are not covered under the Act even when they include elements of goods and services. The courts recognise works contracts as a distinct contracting model that falls outside the scope of the Act and provide as a legal and conceptual basis for the exclusion of the same. In the case of Tata Power Company Ltd. v. Genesis Engineering Company[4], the Delhi High Court reaffirmed that works contracts do not fall within the ambit of the MSMED Act, 2006. The Hon’ble Court examined the nature of the work orders issued which involved both supply of goods and installation of services, and further applied the test laid down in the case of Kone Elevators to classify the arrangements as a composite works contract. In the Judgment, the Hon’ble court observed that “20. Applying the judgment to the instant case, the Works Orders as executed by the parties in the instant case falls within category (a) as it comprises of two contracts which include supply of goods such as Cables, wire, connectors, street lights and poles and subsequent involvement of work and labour for its installation.” This clear classification confirms that the contract is a composite works contract, not a standalone goods or services contract. Further, the Hon’ble Court also stated that “It is a settled principle of law that dispute/claims arising from Works Contract are not amenable to the jurisdiction of Facilitation Council constituted under the MSME Act. It is evident that the Work Orders under question qualify as Work Contracts, therefore, the Respondent is not entitled to take the benefit of provisions of MSME Act and to assail the maintainability of the instant proceedings.” This observation justifies that even if an enterprise is registered as an MSME, the nature of the contract determines applicability of the said Act. Since the MSMED Act under Sections 15–18 only covers claims arising from goods supplied or services rendered in isolation, works contracts, by their integrated nature, fall outside its scope. The Court also cited and relied on Sterling and Wilson Pvt. Ltd. and Shree Gee Enterprises, reinforcing that MSME protection only applies to "goods produced and services rendered", and not to indivisible, composite contracts like those in works contracts. Thus, the Tata Power ruling applies prior judicial reasoning and also provides a direct and contemporary reiteration that works contracts cannot be artificially split to avail remedies under the MSMED Act. Conclusion It is evident from the statutory language and judicial interpretation that works contracts do not fall within the ambit of protection provided under Chapter V of the MSMED Act, 2006. The Act is limited in its scope to transactions involving the supply of goods or the rendering of services in a clear and standalone manner. Works contracts, being inherently composite in nature and involving a blend of goods and services that are inseparable, do not satisfy this statutory requirement. Even if a MSME claims that it is only supplying goods or rendering services, courts have consistently applied the principle of “substance over form” and examined the actual nature of the agreement. If the dominant intention and execution of the contract reflect the characteristics of a works contract, then such classification prevails, irrespective of how the parties have labelled their obligations. As a result, even registered MSMEs engaged in the execution of works contracts are excluded from invoking the remedy under Sections 15 to 18 of the Act. This interpretation, reinforced through multiple judicial precedents, confirms the current legal position. While the rationale behind this exclusion lies in the structure and intent of the MSMED Act, it nevertheless leaves a considerable gap for MSMEs operating in infrastructure, engineering, and construction sectors. These enterprises remain without the statutory protection against delayed payments, despite often facing the most significant delays. Unless the legislature chooses to revisit the wording or scope of the Act, works contracts will remain outside the coverage of the MSMED framework. Authored by Mr. Aman Abbi (Associate Partner) and Ms. Pratistha Dahiya (Associate) [1] CGST Act, 2017 s2(119) [2] Kone Elevators India Pvt Ltd v. State of Tamil Nadu, AIR 2014 7 SCC [3] Sterling Wilson Pvt Limited v. Union of India & Ors. AIR (2017) Bom 242 [4] TATA Power Co. Ltd. v. Genesis Engineering Co., 2023 SCC OnLine Del 2366

Startups Returning to Indian Soil Introduction Over the past decade, India has become a major start-up hub and now has the third largest number of unicorns—companies valued over USD 1 billion. This growth has largely come from foreign capital, especially venture capital and private equity. To access this, many Indian start-ups “flipped” their structure—setting up holding companies overseas (e.g., in the US or Singapore). The key reasons: easier access to capital, investor comfort with familiar jurisdictions, and potential for IPOs on global exchanges like NASDAQ. Typically, such structures involve an offshore holding company owning a wholly owned Indian subsidiary that operates the business. However, this trend is now beginning to shift. Many Indian-origin start-ups are now “reverse flipping” back to India—restructuring so that investors and founders hold shares directly in the Indian company. The reasons: strong Indian capital markets offering good exits; and the availability of domestic capital which was previously restricted by India’s exchange control rules on overseas investments. Reverse flips – considerations The appropriate mechanics for implementing such a reverse flip transaction depends on a number of factors, such as tax efficiency, closing timelines and the need for regulatory approvals. Reverse flips can be done through a merger of a foreign company with an Indian company via a court-supervised process (amalgamation) or through ratification by regional directors, with the Indian company as the successor. While such mergers can be tax neutral under Indian tax laws, they may take up to a year. Alternatively, a share swap can be used, though it may attract capital gains tax and can be less tax efficient, depending on factors like the availability of double tax avoidance agreement benefits. Mergers In India, an in-bound merger of a foreign company with an Indian company is governed by the provisions of: The (Indian) Companies Act, 2013 (“Companies Act”) and the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016; and The (Indian) Foreign Exchange Management Act, 1999 (“FEMA”) and the rules framed under it, mainly the Foreign Exchange Management (Cross-Border Merger) Regulations, 2018 (“FEMA Merger Regulations”). In brief, the process in India to implement a merger can either require the approval of (a) National Company Law Tribunal (“NCLT”), a specialised tribunal set up under the Companies Act for issues relating to Indian companies or (b) Central Government of India through Regional Directors (“RD(s)”). Approval through NCLT The merger through NCLT (“Regular Route”) is open to all classes of companies and is usually seen as a more long drawn process, involving the following steps: : The parties to the merger approach NCLT with a “scheme of arrangement” which sets out the manner in which the re-organisation would be implemented. NCLT calls meetings of the shareholders and the creditors to approve the scheme. If 90% of consents are obtained from them before starting the process, NCLT may waive these meetings. NCLT approves the final merger order after resolving objections, and the order is filed with the Registrar of Companies. A foreign company may merge with an Indian company after both obtain RBI approval. Some mergers may qualify under the deemed approval framework (discussed below). Additionally, such merger will only be allowed for a foreign company incorporated in a permitted jurisdiction and having filed prescribed declaration at the time of submission, if such foreign company is incorporated in a country that shares land borders with India. Approval through Regional Directors The merger approval by RD(s) allows a company to meet a lower threshold of requirements, such as the elimination of the advertisement requirement, and ensure a timely conclusion of the merger by relying on 'deemed approvals' from the RD, Registrar of Companies, and Official Liquidator once each of the regulators’ statutory timeline for objecting to the scheme has expired. Hence, this approval route is often referred to as the ‘Fast Track Route’. Separately, the Fast Track Route is only open to specific class or classes of companies that includes inter alia (a) two or more small companies; or (b) holding company and its wholly owned subsidiary company or (c) two or more companies certified as ‘start ups’ by Department for Promotion of Industry and Internal Trade (“DPIIT”) or (d) one or more small company and one or more start- up company. Effective from 17 September 2024, MCA has expanded the scope of the FastTrack Route to include inbound merger of a foreign company with an Indian company. The set of compliances for the Fast Track Route will pari-passu apply to a transferee Indian company undertaking inbound merger. In addition to this, both such merging companies will need to obtain prior approval of the RBI and file declaration with the merger application to RD, if the foreign company is incorporated in a country that shares land border with India. Navigating Indian capital controls Indian exchange control regulations add an additional layer of complexity to be navigated for such reverse flip transactions. As background, FEMA and the regulations framed under it set out the framework for foreign investment into India as well as outbound investments from India. This includes matters such as pricing guidelines that apply to such transactions, sectoral restrictions, investment conditions and reporting conditions. Under the FEMA, such cross-border transactions are categorised as either falling under the automatic route, that is, transactions that can be undertaken without the approval of the RBI, or under the approval route, that is, transactions that require prior approval of the RBI. Under the FEMA Merger Regulations, in-bound mergers of foreign companies with Indian companies are deemed to be approved by the RBI subject to certain specified conditions including: Issue or transfer of securities by the resultant Indian company to non-residents must comply with FEMA provisions, including sectoral caps, pricing guidelines, entry routes, and reporting requirements. Off-shore borrowings and guarantees taken over by the Indian company must be aligned with FEMA rules within two years; no repayment remittance is allowed during this period. The Indian company may acquire, hold, and transfer overseas assets per FEMA. If not permitted, such assets must be sold within two years of NCLT sanction. A foreign currency bank account can be opened for incidental transactions related to the merger, valid for two years post-NCLT approval. All FEMA-related non-compliances or violations prior to the merger must be resolved. Valuation of the foreign company must be done by recognized valuers in the relevant jurisdiction, following internationally accepted principles. If a merger does not comply with the above conditions, an RBI approval would be required for such a merger. Other considerations There are other issues that need to be evaluated when considering a reverse flip transaction, including: Presence of investor from certain jurisdictions: If an investor or beneficial owner is based in a country that shares a land border with India, RBI approval may be required. This must be reviewed before finalising a reverse flip. Issues under listing regulations: If the reverse flip is aimed at an IPO in India, listing regulations like minimum shareholding periods, valuations, and disclosure requirements must be checked in advance. Sectoral approvals: Businesses in regulated sectors like financial services may need regulatory approvals or need to inform authorities due to change in ownership or control after the merger. Catching up with the upward trend of reverse flip transactions due to continual strong run of Indian markets, the Government of India has eased the regulatory hurdles by extending the Fast-Track Merger to inbound mergers in India. This is a relatively untested process, the regulatory framework governing such transactions is likely to evolve over time and therefore several factors need to be carefully evaluated when planning and implementing such a transaction. Authored by – Moksha Bhat, Managing Partner at AP & Partners, And co-authored by – Udit Kapoor, Associate, AP & Partner

Authored by Lagna Panda, partner AP & Partners AI-related technologies and products are evolving more rapidly than one can imagine. The hype around generative AI (GenAI)¾which was quite short-lived¾is now giving way to agentic AI. The developments in the AI industry have attracted interest and intrigue of antitrust regulators. A few antitrust regulators have initiated (and, in some cases, completed) market studies to identify potential competition concerns in AI markets. This article analyses some of these concerns including algorithmic collusion, access to compute, and AI partnerships. One of the initial concerns regarding AI that cropped up was ‘algorithmic collusion’: in markets where prices change frequently (perhaps, even multiple times in a day), competitors can use the same software to engage in price-fixing conduct. This hypothesis might be an oversimplification of the agentic nature of AI and how external-facing pricing mechanisms work. That said, without an ‘agreement’ or ‘understanding’ to not compete, competitors have strong commercial incentive to lower prices to complete a sale instead of maintaining price parity. For instance, an online retailer may employ an AI-based tool to track the prices of its competitors on a real-time basis and offer the same prices. However, it will have the commercial incentive to offer lower prices to achieve higher sales. There are also concerns around entry barriers in relation to inputs such as data and compute, for building large language models (LLMs) and foundational models (FMs). Before delving into the specifics of key inputs, it is important to acknowledge that we are still at the very cusp of the AI revolution. Capital allocation (internal and external) towards AI has been significant. Not only are the Big Tech players seriously investing in the AI space, but start-ups working in different areas of the AI stack have fairly easy access to capital. Data: Datasets used to train LLMs and FMs can be public data without copyright protection, public data with copyright protection, non-public copyrighted content, government data, synthetic data, proprietary datasets, and specialized datasets. As the use of publicly available data without copyright protection becomes saturated, demand for other categories of datasets such as synthetic data and public data with copyright protection will increase. We are already beginning to see this. Amazon has entered into a copyright licensing agreement with the New York Times. OpenAI has struck a similar deal with Condé Nast. Licensing deals are seeing an uptick as there is legal ambiguity around use of copyrighted materials to train AI models. Aside from copyright infringement claims in various jurisdictions, we are also seeing launch of tools like Cloudflare’s ‘pay-per-crawl’ tool, to prevent free scraping of copyrighted content. At this stage, where the use of different categories of data to train AI models is being contested or restricted, and use cases are still being explored, it will be premature to conclude that access to data obtained through specifics apps or services like a social media app or a messaging service can act as an entry barrier. Compute: The demand for chips, particularly GPUs, has increased dramatically given GPUs’ suitability for training and fine-tuning generative AI (GenAI) models. While Nvidia has been a major GPU supplier, Big Tech firms have begun investing heavily in developing their own chips because of the pace of AI advancement. Meta is developing its own AI training chips – Meta Training and Inference Accelerator (MTIA). Google has deployed tensor processing units (TPUs) which are being used to run Google’s AI services. Amazon Web Services is using custom Trainium, Graviton and Inferentia chips for AI workloads. Microsoft has deployed Maia chips and is developing Braga chips to meet its AI infrastructure needs. Then there are new-age semiconductor startups in the USA that are developing AI chip architecture like Groq and Cerebras Systems. Other countries are also witnessing immense innovation in this space: Huawei Technologies (China) has launched its series of Ascend AI chips, Rebellions (South Korea) is developing AI chips that use high bandwidth memory, and FuriosaAI (South Korea) is working on designing ‘RNGD’ AI chips. Given the extent of innovation in the AI infrastructure stack and the evolving nature of AI use cases, competition concerns in any market relating to AI compute inputs, seems unlikely. In new, evolving markets, firms may enter into agreements to supply or purchase components and services to generate efficiencies. While we are seeing quite a few partnerships in the AI space (e.g., Perplexity offering access to Perplexity Pro for free for one year to Airtel users), given the high dynamism prevalent, it appears unlikely that any partnership has the ability to impact competitiveness of any AI market in India. Having said that, it will be interesting to see how the Competition Commission of India views AI-related partnerships from a merger control standpoint given that the threshold for ‘control’ is set at ‘material influence’. AI continues to rapidly evolve and its impact across industries and sectors is expected to be nothing short of ground-breaking. While conducting market studies can be a very productive exercise to gauge and understand how market dynamics are shaping up, any regulatory intervention at an early stage can lead to unintended consequences and do more harm than good. For the time being, regulators may take a wait-and-watch approach and let the chips fall where they may.