Pioneer Legal

The recent order issued by the Competition Commission of India (“CCI”) against Goldman Sachs (India) Alternative Investment Management Private Limited under Section 43A of the Competition Act, 2002(“Order”) has sparked considerable discourse and unease amongst PE funds. The Order underscores the need for PE funds to tread carefully, even in cases of minority investments of less than ten percent, to safeguard their interests and ensure compliance with competition laws. The Order is a reminder and reinforcement of the principles echoed by the CCI in the Competition (Criteria for Exemption of Combinations) Rules, 2024 (“Exemption Rules”). The Exemption Rules state that entities acquiring shares or voting rights shall be entitled to avail the exemption of being an investment only if the acquirer does not have access to commercially sensitive information of the enterprise. Rights that constituted access to commercially sensitive information were unclear prior to this Order. In this Order CCI has observed that certain standard minority protection rights such as information rights and access rights to minutes of board/committee/shareholder meeting or access to changes in shareholding pattern of the target constitutes commercially sensitive information. For PE funds, minority investments often come with the expectation of securing certain rights—inspection, information access, reserved matters, and exit rights. These rights are not merely privileges but essential tools to protect their investment and the interests of their investors to whom they owe a fiduciary duty. The illogical fallacy of equating PE investors with retail shareholders and expecting PE funds to have the same rights as an ordinary shareholder undermines the benefits that a company reaps from access to vast pools of capital and expertise that PE funds bring with them. There is a pressing need for a clear demarcation between strategic and financial investments and the need to provide greater flexibility to PE funds who are undertaking minority investments with bare bone protective rights such as consent for identified reserved matters, information rights viz critical information which may impact their investment and access rights to premises and personnel of the target. In order to navigate such choppy waters, while ensuring that neither are deal timelines significantly enhanced nor PE funds subject to extraordinary costs, PE funds can explore availing the green channel route. Green Channel is an automatic system of approval for certain combinations where there are no business overlaps of any kind, be it horizontal, vertical or complementary in nature, between the parties to combination. This can significantly reduce time and costs, aligning with the government’s vision of promoting ease of doing business. However, its applicability remains limited and must be carefully evaluated on a case-by-case basis. This Order serves as a stark reminder for PE funds to proactively assess the impact of the competition law framework at the time of evaluating deals with strategic overtones while at the same time aligning their long-term investment objectives with their fiduciary duties. On the other hand, for the government, the need of the hour is to recognize the unique role of PE funds in fostering economic growth and strike a harmonious balance between oversight and facilitation. - Vedika Shah (Principal Associate) and Shreya Masalia (Associate)

Introduction In today's intricate corporate ecosystem, internal investigations have become critical mechanisms for maintaining organizational integrity.From sophisticated financial misconduct to systemic ethical breaches, corporate wrongdoing can precipitate substantial reputational, financial, and legal repercussions. Corporations are increasingly recognizing the imperative to proactively investigate and address potential issues through comprehensive internal investigation strategies. The capacity to conduct these internal inquiries with utmost confidentiality is fundamentally crucial. The information involved is inherently sensitive and demands rigorous protection from external exposure. Attorney-client privilege emerges as a pivotal legal mechanism that cultivates open and transparent communication between corporations and their legal counsel. By safeguarding communication confidentiality, this privilege empowers organizations to gather comprehensive information, diagnose underlying problems, and formulate strategic remedial measures. Critically, this occurs without the persistent apprehension of sensitive information being leveraged against the organization in subsequent legal proceedings. The legal foundation for this privilege is codified in the Indian Evidence Act, 1872, and reinforced by the Advocates Act, 1961, and the Bar Council of India Rules.   Understanding Internal Investigations Internal investigations can be initiated through multiple channels: internal employee complaints, external whistleblower reports, findings from internal audits, or the organization's proactive recognition of potential misconduct. The spectrum of potential investigations encompasses various domains including misconduct, confidentiality breaches, regulatory violations, financial embezzlement, money laundering, harassment, insider trading, and broader criminal offenses. The primary investigative objectives involve comprehensively determining the issue's extent, identifying responsible parties, and designing appropriate corrective or disciplinary interventions. Objectivity in conducting these investigations is paramount, given the potential far-reaching implications for the organization, its employees, and external stakeholders. Careful structuring of the investigative process—from team formation to information collection and verification—is essential. Engaging external legal counsel frequently adds credibility and ensures sensitive information protection through attorney-client privilege. The investigative approach must prioritize trust-building, maintain a non-intimidating demeanor, and guarantee absolute confidentiality. This strategy ensures obtaining honest, unfiltered responses while preserving employee goodwill and organizational harmony.    Attorney-Client Privilege: A Legal Safeguard Attorney-client privilege represents a fundamental legal concept that encourages comprehensive and transparent communication between clients and legal representatives. The underlying principle is fostering trust that enables attorneys to provide sound, well-informed guidance. In the Indian legal framework, this privilege is governed by Sections 126 to 129 of the Indian Evidence Act, 1872. Section 126 specifically protects communications with registered advocates seeking legal advice, extending to the attorney's recommendations and shared documents. However, the privilege is not absolute. Critical exceptions exist to prevent potential misuse, particularly for communications furthering illegal activities or attempting to conceal criminal conduct. Indian courts have carefully balanced confidentiality with broader principles of justice and public policy. The principle of Upjohn warnings, prevalent in the United States but not currently recognized in India, offers an interesting comparative perspective. These warnings clarify that the attorney represents the company, not individual employees, and that communication privileges are conditional and potentially waivable.   Application in White-Collar Investigations Attorney-client privilege becomes especially critical in white-collar investigations, enabling thorough, candid fact-finding without fear of subsequent legal repercussions. This allows organizations to identify root causes, implement remedial measures, and demonstrate commitment to corporate governance. Navigating the privilege's nuances is complex. The protection may not consistently extend to in-house counsel communications, depending on specific circumstances and roles. Organizations must remain vigilant in invoking and maintaining this privilege throughout investigations. Strategies may include issuing appropriate warnings, implementing non-disclosure agreements, and meticulously documenting investigative purposes and findings.    Conclusion Internal investigations supported by attorney-client privilege represent indispensable tools for modern corporations. They enable organizations to identify misconduct, mitigate risks, and fulfill statutory and ethical obligations while preserving sensitive information's confidentiality. As white-collar crime landscapes continue evolving, corporations must remain adaptable, leveraging attorney-client privilege strategically. The critical focus shifts from whether such privilege should exist to understanding its nuanced scope, particularly regarding internal counsel involvement. Ultimately, organizations must strike a delicate balance between maintaining investigative confidentiality and ensuring mandatory disclosures and regulatory compliance. By doing so, they can cultivate a culture of accountability and safeguard the long-term interests of all stakeholders. Authors: Sanket Jain and Vishal Bang 

BACKGROUND A quote often misattributed to Mark Twain goes something like “a lie can travel halfway around the world while the truth is still putting on its shoes.”Misinformation, or “Fake News” a term made popular by one particularly colourful former US president has become endemic to our social media infused zeitgeist. The spread of misinformation has surged and intensified with the rise of artificial intelligence. Earlier examples of misinformation were small scale smear campaigns. But recently, widespread misinformation has been attributed as the cause for some of the most significant socio-political developments of the decade like the 2016 US presidential elections or the UK Brexit referendum. India is also battling the monster of widespread dissemination of misinformation aimed at swaying the public opinion for political gains and at times business gains. Not to forget the social media brouhaha over such mis-information which often results in lynch mob justice. THE AMENDMENT In order to try and deal with this issue, the Indian Government proposed amendments to Rule 3(1)(b)(v) of the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (“IT Rules”) in April, 2023 (“2023 Amendment”). The 2023 Amendment proposed institution of fact checking units (“FCU”) by the Central Government to identify fake, false and misleading information in relation to the business of the central government. All intermediaries were mandated to not host, display, upload or publish any information flagged by the FCUs as fake. CHALLENGED The Central Government did their darndest to position this amendment as a measure to curb misinformation. But what was clear to many that this amendment could very well be used by the government to muzzle criticism and stifle dissent. Kunal Kamra and others challenged the amendment, arguing it was unconstitutional and violated fundamental rights under Articles 14 (equality before the law), 19(1)(a) (freedom of speech and expression), and 19(1)(g) (freedom to practice any trade or profession). After protracted proceedings, the division bench of the Bombay High Court delivered a split verdict on January 31, 2024. Justice Gautam Patel ruled in favour of Mr. Kamra striking down the 2023 Amendment on the grounds that it was violative of Article 14 of the Constitution and sought to impose unconstitutional restrictions on the fundamental right to free speech. Additionally, the judge expressed concerns that the FCU could become an unchecked arm of the executive wielding unilateral control over the identification and categorisation of misinformation. Justice Neela Gokhale however held that 2023 Amendment met the test of proportionality and therefore was not violative of the constitution.Mr. Kamra filed an appeal against the split verdict before a single judge bench of the Bombay High Court. After hearing both sides, Justice Chandurkar, delivered a ruling on September 20, 2024, siding with Justice Patel and holding the 2023 Amendment unconstitutional, citing its chilling effect on free speech. While this ruling has been celebrated as a major victory by the free speech advocates, it remains uncertain whether the central government will accept the Bombay High Court’s decision or appeal against this judgment before the Supreme Court. GLOBAL SCENARIO Many nations across the globe are also taking steps to address this issue. Germany has introduced a social media law holding individuals accountable for intentionally spreading misinformation. In the backdrop of the 2024 US presidential elections, USA has introduced laws that make it illegal to create and publish deep fake content related to elections 120 days before and 60 days after the election day, with hefty penalties for violations. There are also regulations requiring social media platforms to start making public disclosures if they display AI generated visuals. CONCLUSION While it is critical to stem the flow of misinformation in any society, legislative overreach may not be a viable solution. Some alternative approaches that could be considered to address the problem of misinformation without compromising freedom of speech could involve media literacy programmes to help people develop critical thinking skills and evaluate the credibility of information sources; Support independent fact-checking organizations such as International Fact Checking Network that are not affiliated with the government as these organizations can provide unbiased assessments of information and help to debunk false claims; encourage social media platforms and other online platforms to take steps to combat misinformation, such as labelling false or misleading content and reducing its visibility; and reinforce strong ethical standards in journalism to ensure that news outlets are committed to accuracy, fairness, and objectivity. It would be interesting to observe the manner in which governments world over and specifically the Indian Government chooses to navigate this complex landscape going forward. Authors:  Anupam Shukla and Vedika Shah