India

We are pleased to share that Argus Partners advised an institutional investor on its investment in the USD 1 billion H-DREAM Fund (HDFC Capital Development of Real Estate Affordable and Mid-Income Fund), which will be managed by HDFC Capital. With a target size of USD 1 billion, H-DREAM Fund is among the first private credit funds globally focused on increasing sustainable affordable and mid-income housing in urban India. The team at Argus Partners advising the institutional investor consisted of Adity Chaudhury (Partner), supported by Mahek Shivnani and Suvanwesh Das (Associates). Read more at: Bar and Bench

Overview On August 13, 2025, the Reserve Bank of India (“RBI”) released the much-anticipated committee report on Framework for Responsible and Ethical Enablement of Artificial Intelligence (“FREE-AI”) in the financial sector. This comprehensive framework, developed by a committee chaired by Dr. Pushpak Bhattacharyya of IIT Bombay, marks a significant milestone in India’s approach to AI governance in financial services. This article seeks to unpack the FREE-AI framework in a manner accessible to legal professionals, policymakers, industry professionals and lay readers alike. It explains the core principles and regulatory vision behind the framework, situates it within India’s broader legal landscape, and evaluates its potential impact on financial institutions, regulators, and consumers. Further, it examines whether the framework adequately addresses the pressing challenges of accountability, consumer protection, and liability in AI-driven decision-making, while highlighting areas where additional legal clarity or regulatory alignment may be required. The Genesis and Necessity The FREE-AI framework emerges at a critical juncture. As AI rapidly transforms financial services, from customer interactions to credit assessments and fraud detection, it brings both unprecedented opportunities and novel risks. The committee, constituted following the RBI’s Statement on Developmental and Regulatory Policies dated December 6, 2024, was tasked with developing guardrails that would enable innovation while protecting stakeholders. Unlike many reactive regulatory approaches globally, the RBI’s initiative is notably proactive, seeking to establish principles before widespread problems emerge. Regulatory Context and Authority The FREE-AI Framework has been released pursuant to RBI’s powers under the Reserve Bank of India Act, 1934 and the Banking Regulation Act, 1949. It reflects the regulator’s intent to bring AI adoption under its supervisory ambit in much the same way as IT governance, outsourcing, and digital lending frameworks were previously regulated. While the framework itself is not yet a binding regulation, it is evident that several of its provisions are intended to be incorporated into Master Directions, which would make compliance mandatory for regulated entities (“REs”). Scope of Application The FREE-AI framework is designed to apply across the spectrum of REs under the RBI’s jurisdiction. This includes Scheduled Commercial Banks (SCBs), Non-Banking Financial Companies (“NBFCs”), Payment System Operators (PSOs), and FinTech entities engaged in providing financial services under RBI’s regulatory ambit. In essence, any institution operating under RBI’s oversight that deploys AI whether for customer interaction, credit assessment, risk monitoring, or operational support falls within the framework’s purview. Interestingly, the framework also contemplates an indirect extraterritorial reach. While offshore technology providers and AI developers are not directly regulated by RBI, they will inevitably be drawn into the compliance net. This is because Indian financial institutions are expected to “flow down” RBI obligations through their contractual arrangements with third-party vendors and service providers. In practical terms, foreign AI suppliers will need to demonstrate compliance with the framework’s requirements such as explainability, fairness, and incident reporting if they wish to continue providing AI solutions to Indian financial institutions. Key Compliance Requirements The FREE-AI framework translates its guiding principles into six major compliance touchpoints for REs. These are not mere technical recommendations but governance mandates that elevate AI oversight to the same level as credit risk or cyber risk management. Now every RE will need a formal, board-signed AI policy that sets out governance structures, defines risk appetite, and allocates responsibility across the AI lifecycle. This firmly places AI oversight on the agenda of directors, exposing them to accountability for lapses. Institutions must adopt stricter protocols around how data is collected, used, retained, and deleted, with explicit safeguards on consent and quality. With the Digital Personal Data Protection Act, 2023 (“DPDPA”) now in play, poor datasets or unchecked bias are no longer just operational weaknesses only but are in fact major compliance risks. AI tools cannot be deployed casually by REs. Design standards, validation, monitoring, and even retirement procedures must follow a documented process. In effect, financial institutions will be expected to exercise the same diligence over AI models as they do over financial products. Existing approval pipelines will need to expand to capture AI-specific concerns, fairness, explainability, consumer impact, and resilience. This adds time and complexity to product rollouts, but it also reduces the risk of post-launch disputes and regulatory censure. Banks and NBFCs must tell customers when they are dealing with AI, give them a channel to challenge AI-driven decisions, and provide stronger protection for vulnerable users. These measures effectively create new grounds for consumer redress. Failures of AI whether in the form of errors, bias, breaches, or breakdowns must be reported promptly. While the RBI signals a cooperative stance, silence or delay in reporting could invite stricter supervisory action. Yet, as with any first-of-its-kind initiative, questions remain about its enforceability and practical impact. Gaps and Challenges While the FREE-AI framework is undoubtedly progressive, several legal and regulatory uncertainties remain that could shape its effectiveness in practice. Enforceability remains the foremost issue. As things stand, the framework is advisory. Until it is formally codified into RBI’s Master Directions or binding circulars, adoption will likely be uneven. Larger banks with established compliance teams may move quickly, but smaller NBFCs and fintech(s) may delay or dilute implementation, resulting in fragmented sector-wide adherence. Liability allocation also requires sharper clarity. The framework places primary responsibility on regulated entities, but does not specify how accountability should be distributed between financial institutions, AI developers, and third-party vendors. In the event of consumer harm — say, a discriminatory credit decision, the precise point of liability in the chain of actors remains ambiguous. Without clearer guidance, disputes will inevitably be pushed into the realm of contract negotiation and litigation. Overlap with existing laws presents another challenge. Many obligations under the FREE-AI framework, such as fairness in decision-making, consent management, and grievance redress, intersect with DPDPA and the Consumer Protection Act, 2019. Without explicit harmonisation, regulated entities may find themselves navigating duplicative or even conflicting compliance requirements, creating both inefficiency and uncertainty. The operational burden cannot be ignored. The framework expects all REs, regardless of size to establish board-level AI oversight, incident reporting mechanisms, and structured lifecycle management of AI models. For smaller NBFCs and fintech(s), these obligations may be disproportionately onerous, increasing compliance costs and potentially stifling innovation at the very stage where agility is most critical. Lastly, global alignment is limited. Although FREE-AI endorses universal principles such as fairness, explainability, and accountability, it does not fully engage with emerging international regimes such as the EU AI Act or supervisory guidance from the US and UK. Indian institutions with cross-border operations may therefore face parallel compliance obligations, heightening the complexity of regulatory conformity across jurisdictions. Final Reflections The FREE-AI framework is more than just a policy document. It is a signal of intent. By setting ethical and governance guardrails at this early stage, the RBI is positioning India’s financial sector to embrace technological innovation without losing sight of accountability and consumer trust. Its message is clear: AI in finance is no longer a side experiment but a matter of regulatory concern at the highest level. That said, several questions remain. Until incorporated into binding directions, the framework risks uneven adoption. Further, the liability among institutions, vendors, and developers is yet to be clarified and overlaps with existing data and consumer protection laws could complicate compliance. The path forward will require careful coordination among regulators and alignment with global practices. In this sense, FREE-AI should be viewed as the beginning or a foundation upon which India’s broader AI regulatory architecture will be built. Co-authored by Vara Gaur, Partner ([email protected]) and Sakina Kapadia, Senior Associate ([email protected]).  

Authored by – Moksha Bhat, Managing Partner at AP & Partners, And co-authored by – Udit Kapoor, Associate, AP & Partner 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 been spurred in large measure by foreign capital, particularly venture capital and private equity investors. To access this capital, many Indian start-ups adopted a “flip” structure—incorporating offshore holding companies (commonly in jurisdictions like the US or Singapore) to facilitate fundraising, align with investor preferences, and enable listings on global exchanges such as NASDAQ.  These structures typically involve a non-operating foreign holding company owning a wholly owned Indian subsidiary that houses the operational business. However, this trend is now reversing. 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 primary drivers include stronger domestic capital markets, deepening pools of domestic risk capital, and an increasing number of successful Indian IPOs. Reverse flips – considerations The optimal structure for a reverse flip depends on multiple factors, including tax efficiency, deal timeline, regulatory complexity, and the jurisdictions involved. Common approaches include: Inbound Mergers: a foreign holding company merges with an Indian company, with the Indian entity surviving. Share Swaps/Exchanges: Shareholders of the offshore company directly acquire shares in the Indian company in exchange for their existing holdings. While inbound mergers can be structured to be tax-neutral under Indian law, they can be time-consuming (taking up to a year), unless the fast track route is available. Share swaps may be faster but could trigger capital gains tax depending on treaty relief availability and valuation differentials. Mergers In India, an inbound 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 Route”), a specialised tribunal set up under the Companies Act for issues relating to Indian companies, or (b) the Central Government of India through Regional Directors (“Fast Track Route”). NCLT Route The merger through NCLT Route is usually a more drawn-out 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 reorganisation would be implemented. NCLT calls meetings of shareholders and creditors to approve the scheme with the prescribed voting thresholds. These meetings can be waived if written consents are obtained from the prescribed number of shareholders and creditors. The scheme is then notified to various government authorities and to the public through a public notice process. NCLT approves the final merger order after resolving objections (if any), and the order is filed with the Registrar of Companies. A foreign company may merge with an Indian company after both obtain approval from the Reserve Bank of India (“RBI”). Some mergers may qualify under the deemed approval framework (discussed below). Fast Track Route For certain eligible companies, the Fast Track Route is also available where the merger scheme is considered and approved by the Central Government without the need to approach the NCLT. This Fast Track Route has relatively lower compliance requirements and can be undertaken in a shorter time frame. The Fast Track Route can be used for the inbound merger of a foreign company with an Indian company provided that the Indian company is a wholly owned subsidiary of the foreign company. Navigating Indian capital controls Indian exchange control regulations add an additional layer of complexity to be navigated for such reverse flip transactions. As background, the FEMA sets out the framework for foreign investment into India. This includes matters such as pricing guidelines that apply to such transactions, sectoral caps, investment conditions, and reporting requirements. Cross-border mergers transactions are viewed as capital account transactions under the FEMA. Such transactions require prior approval of the RBI unless specifically permitted under the FEMA or the regulations framed under it. Under the FEMA Merger Regulations, 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. Inbound 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 brought in with FEMA regulations 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 recognised 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 such as China, RBI approval is 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 additional regulatory approvals or need to inform authorities due to a change in ownership or control after the merger. Conclusion The recent surge in reverse flips underscores greater availability of risk capital and the growing maturity of Indian capital markets. In response, Indian regulators have taken steps to streamline inbound merger processes. However, this remains a relatively new and evolving area. The government should look to encourage this trend and evolve a single window clearance framework to make it easier to re-domicile companies to India. At the same time, founders and investors should carefully evaluate legal, tax, regulatory, and commercial considerations before proceeding with any reverse flip transaction.

New Delhi: Chandhiok & Mahajan is pleased to announce the promotion of seven exceptional attorneys across various levels within the firm. We are proud to share the following promotions: Shreya Gupta has been promoted to Counsel, Lead – Data Privacy Arveena Sharma has been promoted to Counsel, Restructuring & Insolvency Aakash Kumbhat has been elevated to Managing Associate Suchitra Dey (Corporate), Harshita Malik, Shivangi Bajpai (Disputes), and Karan Vir Khosla (Restructuring & Insolvency) have been promoted to Senior Associate These promotions reflect the dedication, excellence, and consistent contributions of our team members. Each of them embodies the firm’s values and continues to play a key role in driving our growth and delivering outstanding client service. Shreya Gupta advises organizations on global data privacy compliance. She navigates complex regulatory frameworks and helps clients implement commercially viable solutions aligned with international legal obligations. Her business-oriented approach has shaped the firm’s data privacy practice. Arveena Sharma regularly advises resolution applicants, creditors, and corporate debtors in high-value insolvency and liquidation proceedings before the NCLT, NCLAT, High Courts, and the Supreme Court of India. She also handles corporate restructuring, schemes of arrangement, and disputes related to oppression and mismanagement. She delivers strategic, client-focused advice tailored to commercial realities. Aakash Kumbhat advises clients on behavioural and merger control matters in competition law. He regularly appears before the Competition Commission of India, NCLAT, High Courts, and the Supreme Court, and supports clients through complex regulatory processes. Suchitra Dey advises on fundraising and M&A transactions across sectors including insurance, retail, fintech, manufacturing, and cryptocurrency. She supports clients on commercial contracts, cross-border investments, SEBI regulations, and day-to-day legal matters. Shivangi Bajpai manages civil, commercial, and regulatory disputes, including arbitrations in sectors such as infrastructure, energy, telecom, real estate, and financial services. She advises on dispute strategy and third-party funding and regularly appears before courts and tribunals. Harshita Malik focuses on commercial litigation and arbitration, particularly in construction arbitration, insolvency, shareholder disputes, and regulatory matters. She represents clients across sectors including telecom, infrastructure, renewable energy, FMCG, and banking, and brings a strategic, detail-oriented approach to every matter. Karan Vir Khosla represents clients before the NCLT, NCLAT, and the Supreme Court of India. He works extensively on matters under the Insolvency and Bankruptcy Code, including CIRP and liquidation proceedings. Pooja Mahajan, Managing Partner at Chandhiok & Mahajan, stated: “We are excited to celebrate the achievements of our colleagues through these well-earned promotions. I extend my warmest congratulations to each of them. Their dedication, expertise, and passion for excellence continue to inspire us. We are proud to have them as part of our team and look forward to supporting their continued growth and success.” These promotions underscore the strength of our team and reinforce our commitment to nurturing talent and delivering excellence to our clients.