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Avendus Future Leaders Fund II including certain other investors acquire stake in Sagility India ahead of its IPO

JSA advised Avendus Future Leaders Fund II (Avendus) and certain other investors in relation to their acquisition of a part of the promoter’s stake (i.e., Sagility B.V., an affiliate of EQT Private Capital Asia) in Sagility India Limited (Sagility India).

The initial public offering (IPO) of Sagility India was recently opened, and the above stake sale of the promoter to the investors (which included Avendus, Adani Properties Private Limited, Elpro International Limited etc.) was undertaken ahead of the opening of Sagility India’s IPO.

Sagility India is engaged in providing technology enabled healthcare solutions and services to payers (U.S. health insurance companies) as well as providers (hospitals, physicians, and diagnostic and medical devices companies), encompassing their operational and administrative functions, clinical services and revenue cycle management services.

Our transaction team comprises Lead Partner – Sidharrth Shankar, Partner – Prakriti Jaiswal, Senior Associate – Rishika Agarwal, and Associate – Mahi Jaiswal.

Tags Acquisition, Healthcare, JSA, Leading Law Firm, Leading Lawyers

JSA advised Pavestone Technology Fund on its investment in Vyuti Systems Private Limited (CynLr)

JSA advised Pavestone Technology Fund on its investment in deeptech robotics startup CynLr or Cybernetics Laboratory, in recent funding round. Existing investors of CynLr including Atehra, Speciale and Infoedge also participated in the round.

The startup will use the funds raised to expand their 60-member core team to 120 people. CynLr will be hiring for business and operations, marketing and sales teams across India, U.S. and Switzerland as well as its research and software development team.

Our transaction team comprises Lead Partner – Siddharth Mody, Partner – Anurag Shrivastav, and Senior Associate – Alister Sequeira.

Tags Funding, Investment, JSA, Leading Law Firm, Leading Lawyers, Robotics

Dronetech firm Marut Drones raises $6.2M in Series A funding from Lok Capital

JSA advised Lok Capital in its investment in Marut Drones.

Marun Drones, an Hyderabad-based company plans to deploy these funds to accelerate several strategic initiatives, such as developing cutting-edge agricultural drones tailored to specific customer needs.

Marut Drones will also expand its network of channel partners and service centers in Tier II and III cities, aiming to strengthen its regional presence. Additionally, it plans to establish agriculture-focused drone service hubs, enabling a Drone-as-a-Service (DaaS) model that leverages partnerships to provide efficient, tech-driven solutions for the agricultural sector.

Our transaction team comprises Lead Partner – Siddharth Mody, Principal Associate – Prerana Chaudhari, Senior Associate – Alister Sequeira, and Associate – Ayush Chaturvedi.

Tags Drones, JSA, Leading Law Firm, Leading Lawyers, Manufacturing, Series A fundraise, Technology

JSA Newsletter | Anti-Corruption, White Collar Crimes and Investigations Practice | October 2024

Please click here to download the Newsletter as a PDF.

The third quarter of 2024 has witnessed significant enforcement actions and judicial developments. In addition to multiple arrests, raids, and investigations undertaken by the Central Bureau of Investigation (“CBI”) and the Enforcement Directorate (“ED”), this quarter also witnessed some notable judicial developments surrounding the white collar crimes. The following newsletter sets out the key trends, enforcements, and developments within the white-collar crime and corporate internal investigations landscape for the third quarter of 2024 i.e., (July – September 2024).

Enforcements Landscape

ED attaches IPS officer’s husband’s assets in INR 263,00,00,000 (Indian Rupees two hundred and sixty-three crore) fraud case

A senior IPS officer’s Mumbai flat and other assets were attached by the ED on July 13, 2024, in relation to INR 263,00,00,000 (Indian Rupees two hundred and sixty-three crore) income tax refund fraud case in Mumbai. The action was taken by ED as it was investigating a case under the provisions the Indian Penal Code, 1860 and the Prevention of Corruption Act, 1988.

ED attaches assets worth INR 29,00,00,000 (Indian Rupees twenty-nine crore) in ponzi scheme running Pearlvine International

In August 2024, ED reportedly attached assets worth more than INR 29,00,00,000 (Indian Rupee twenty-nine crore) as part of its investigation under the Prevention of Money Laundering Act, 2002 (“PMLA”) based on a First Information Report (“FIR”) registered by Meghalaya police, against Pearlvine International on allegations of operating a ponzi scheme across India. As per media sources, Pearlvine International was an unrecognised entity that claimed itself to be US-based and provided several lucrative investment options. It collected a minimum of INR 2,250 (Indian Rupees two thousand two hundred and fifty) as membership fees and ran a ponzi scheme in India during the period 2018 till March 2023.

National Financial Reporting Authority fines audit firm for deficiency/audit lapses

An auditing firm (along with its auditors) were found guilty of professional misconduct by the National Financial Reporting Authority (“NFRA”), which resulted in significant fines for the firm and the individuals implicated. As per media sources, NFRA has fined the firm INR 10,00,00,000 crore and barred 2 (two) auditors for serious audit failures, citing major lapses and fraudulent fund transfers. A record penalty of INR 10,00,00,000 (Indian Rupees ten crore) (about USD 1,190,000 (US Dollars one million one hundred and ninety thousand) was levied, the highest ever so far.

Cybercrimes in India

Cyber frauds cost India Rs 177,00,00,000 (Indian Rupees one hundred and seventy-seven crore) in FY24

India has seen a sharp increase in the financial losses resulting from cyber fraud, from INR 69,68,00,000 (Indian Rupees sixty-nine crore sixty-eight lakh) in FY23 to INR 177,05,00,000 (Indian Rupees one hundred and seventy-seven crore five lakh) in FY 24. Minister of State for Finance, Pankaj Chaudhary said in a written reply to the Lok Sabha (dated August 5, 2024) that during the fiscal year 2023–24, fraud using credit and debit cards as well as online banking resulted in losses of INR 177,00,00,000 (Indian Rupees one hundred and seventy-seven crore). Further, the extent of loss due to frauds reported by banks in FY 22 was INR 80,33,00,000 (Indian Rupees eighty crore thirty-three lakh), in FY21 was INR 50,10,00,000 (Indian Rupees fifty crore ten lakh) and in FY20 was INR 44,22,00,000 (Indian Rupees forty four crore twenty-two lakh).[1]

CBI busts Gurugram call centre and arrests 43 (forty-three) suspected cyber criminals

On July 26, 2024, the CBI raided a call center in Gurugram and arrested 43 (forty-three) individuals for defrauding foreign nationals by posing as tech support. As part of Operation CHAKRA-III, CBI filed charges against Innocent Technology (OPC) Private Limited and searched its DLF Cyber City office. Launched in 2022, the operation targets global financial crime networks operating through cyberspace. During the raid, CBI seized 130 (one hundred and thirty) hard drives, 65 (sixty-five) cell phones, 5 (five) laptops, bank transaction records, call recordings, victim details, and transcripts used for identifying victims, uncovering the cybercrimes orchestrated from the call center.

WazirX cryptocurrency platform hacked

In July 2024, Wazir X cryptocurrency exchange suffered a security breach resulting in the theft of over USD 230,000,000 (US Dollars two hundred and thirty million) in cryptocurrency. The attackers exploited a vulnerability in the exchange’s multi-signature wallet system. As per media sources, a North Korean cybercrime group was behind the attack, using the proceeds to finance illegal operations.

Legislative/Regulatory Developments

Jan Vishwas (Amendment of Provisions Act) comes into effect

The Jan Vishwas (Amendment of Provisions) Act, 2023 has brought certain minor amendments to the schedule of offences (predicate offences) listed out under the Schedule to the PMLA. The primary aim of the amendment is to decriminalise and remove certain offenses in order to reduce the compliance burden on individuals and businesses with the objective of ease of doing business.

In nutshell, the amendment has brought into force a total of 4 (four) amendments (including deletions/omissions) to the existing schedule under PMLA. The changes have been brought in relation to the following offences:

offences under the Trade Marks Act, 1999 (paragraph 21 of the Schedule under the PMLA) – omitted reference to penalty for falsely representing a trade mark as registered;
offences under the Information Technology Act, 2000 (paragraph 22 of the Schedule under the PMLA) – omitted reference to penalty for breach of confidentiality and privacy;
deletion of offences under the Environment Protection Act, 1986 in entirety (paragraph 25 of the Schedule under the PMLA); and
deletion of Offences under the Air (Prevention and Control of Pollution) Act, 1981 in entirety (paragraph 27 of the Schedule under the PMLA).

The Central Government by way of the gazette order have now notified and brought into force these amendments with effect from August 13, 2024.

Judicial Discourse

The Supreme Court of India (“Supreme Court”) in Kalvakuntla Kavitha vs. ED[2] granted bail to an accused in the case of the ED relating to the Delhi Excise Policy Scam, setting aside an order of the Delhi High Court (“Delhi HC”).[3] The Supreme Court held that since proviso to Section 45(1) of the PMLA specifically provides for special treatment for a certain category of accused, namely women, hence, while denying such a benefit, the court will be required to give specific reasons for denial of such benefit. It further set aside the interpretation of the Delhi HC that such proviso was only applicable to ‘vulnerable women’. The Supreme Court reiterated the principle that prolonged incarceration before being pronounced guilty of an offence should not be permitted to become punishment without trial.
The Supreme Court in Frank Vitus vs. Narcotics Control Bureau[4] granted bail to an accused in a case registered under the Narcotic Drugs and Psychotropic Substances Act, 1985 (“NDPS”), holding that imposition of any bail condition which enables the police/investigating agency to track every movement of the accused by using any technology or otherwise would violate the fundamental right to privacy of the accused guaranteed under Article 21 of the Constitution of India. The bail condition of the accused having to drop a pin on Google Maps was set aside as illegal, and upon hearing Google LLC on technical aspects, such condition was also found to be redundant. The Supreme Court further set aside a bail condition that required the accused (a foreigner) to produce a certificate from the concerned embassy/high commission assuring that the accused will not leave the country and will appear before the trial court. The Supreme Court held that grant of such a certificate is beyond the control of the accused, who should not be denied bail if otherwise entitled, nor can a bail condition be imposed which is impossible for the accused to comply with.
The Supreme Court in Nikhil vs. State of Maharashtra[5] held that for suspending a sentence of an accused pending appeal, courts cannot impose a condition of depositing 50% of the compensation imposed under Section 357 of the Code of Criminal Procedure, 1973 (“CrPC”). The compensation had been directed to be paid after such accused was found guilty of criminal breach of trust.
Various High Courts have held that any fresh proceedings after July 1, 2024 would have to be filed/instituted under the Bharatiya Nagarik Suraksha Sanhita, 2023 (“BNSS”) and not the repealed CrPC, in view of Section 531 of BNSS. Only proceedings under the CrPC which were ‘pending’ or ongoing as on July 1, 2024, would continue under the CrPC. In particular, it has been clarified that:
- even if an FIR was registered under the CrPC prior to July 1, 2024, the petition for quashing of such FIR, if filed after July 1, 2024, must be filed under the BNSS (Punjab & Haryana High Court[6], Delhi HC,[7]);
- if an FIR was registered under the CrPC prior to July 1, 2024, then the investigation and trial will be conducted as per the CrPC (Rajasthan High Court[8]);
- even if an application seeking anticipatory bail under the CrPC has been disposed of, if the subsequent application for anticipatory bail is filed after July 1, 2024, such subsequent application will be filed under the BNSS, and not the CrPC. Further, even though Section 482 of the BNSS no longer provides for an ‘interim order’ of anticipatory bail as Section 438 of the CrPC used to, the power to grant such interim relief is inherent in the High Court and Sessions courts (Bombay High Court[9]).
The Supreme Court in Dhanraj Aswani vs. Amar S. Mulchandani and Anr[10] held that when an accused is in custody in relation to one offence, his arrest or custody may still be sought subsequently for another offence, and therefore, the accused had the right to seek anticipatory bail for such apprehension of subsequent arrest. The clarification is important since multiple investigating agencies seek arrest, custody and interrogation in cases involving the PMLA and other scheduled offences.
The Supreme Court in Abhishek Banerjee and Anr. vs. Directorate of Enforcement[11] held that summons under Section 50 of the PMLA would not be bound by the procedure and limitations provided for summons under Section 160 of the CrPC, since the PMLA was overriding legislation and Section 160 of the CrPC was inconsistent with Section 50 of the PMLA in several ways.
The Supreme Court in Prem Prakash vs. Union of India through ED[12] held that even though a statement made by an accused under Section 50 of the PMLA while in the custody of ED officers is admissible in evidence, an incriminating statement made by such accused in relation to a different ED case would be inadmissible. The court reasoned that it cannot be ruled out that such an accused was in an environment of coercion. The bench also applied Section 25 of the Indian Evidence Act, 1872, which bars confessions made to police officers from being read in evidence against the accused, in the limited manner permitted by the court’s judgment in Vijay Madanlal Choudhary and Ors. vs. Union of India and Ors[13].
The Supreme Court in Senthil Balaji vs. the Deputy Director, ED[14] has held that stringent twin conditions for bail in statutes such as the PMLA, the NDPS Act and the Unlawful Activities (Prevention) Act, 1967 are inconsistent with inordinate delay in conclusion of the trial. While granting bail to Balaji in the PMLA case, the court observed that the trials for both the scheduled offence and the offence under PMLA could not possibly conclude in a reasonable time.
The Karnataka High Court in Tavaragi Rajashekhar Shiva Prasad vs. State of Karnataka[15] has held that when the police issue a notice summoning a person to appear (under Section 41-A of the CrPC or Section 35 of the BNSS), it is necessary for such notice to state the crime number, offence alleged, purpose of summoning and such notice should be accompanied by a copy of the FIR. Failing this requirement, the summoned person is not obliged to appear, and no coercive action can be taken for such non-appearance.
The Allahabad High Court in Parthas Textiles vs. State of U.P.[16] held that when a firm is accused of a criminal offence and its partner is not implicated as an accused, then under Section 63 of the CrPC, summons to such accused firm cannot be executed by way of service to such partner. However, under the expanded provision for summons in Section 65 of the BNSS, such service was valid.
The Delhi HC in Adnan Nisar vs. ED[17] has held that if an offence committed in a foreign state corresponds to any scheduled offence of the PMLA, and the proceeds of such crime committed in the foreign state have travelled to India, then such offence can be considered a predicate offence, and action initiated under the PMLA. Such action may include arrest, investigation and filing of complaint before the Special Court by the ED, even if the request received from the foreign state under the mutual legal assistance treaty (“MLAT”) is only to obtain evidence.

International Developments

Financial Conduct Authority fines auditing firm for failing to report fraud

In August 2024, an auditing firm was fined USD 19,500,000 (US Dollars nineteen million five hundred thousand) by the Financial Conduct Authority (“FCA”) for failing to report suspicions of fraud taking place at investment firm at London Capital and Finance Plc. The fine marks the first time the FCA has penalised an auditing firm.

U.S. Securities and Exchange Commission charges John Deere for violation under Foreign Corrupt Practices Act violations in bribery scheme

John Deere, agreed to pay nearly USD 10,000,000 (US Dollars ten million) to resolve U.S. Securities and Exchange Commission (“SEC”) charges that it violated the Foreign Corrupt Practices Act (“FCPA”) arising out of a bribes paid by its wholly owned subsidiary in Thailand. The Thai subsidiary had bribed Thai government officials (including the Royal Thai Air Force, the Department of Highways, and the Department of Rural Roads) to win multiple government contracts and bribed employees of a private company to win sales to that company. The improper payments were inaccurately recorded as legitimate expenses in Deere’s books and record and violated recordkeeping and internal accounting controls provisions of the FCPA.

U.S. Department of Justice overhauls its corporate compliance guidance

In September 2024 the U.S. Department of Justice (“DOJ”) updated its Evaluation of Corporate Compliance Programs (“ECCP”). The update aims to provide a clearer framework for companies to ensure their compliance programs are robust and aligned with DOJ expectations. Some of the key highlights/areas of focus include:

Risks associated emerging technology: ECCP now includes criteria for evaluating how companies manage risks related to new technologies, such as artificial intelligence (AI). This includes assessing the impact of these technologies on compliance and implementing policies to mitigate associated risks.
Protecting Whistleblowers: The update emphasises the importance of promoting internal whistleblowing and protecting individuals who report misconduct. Companies are expected to have adequate policies and training to encourage whistleblowing and prevent retaliation. Prosecutors will now assess whether companies engage in practices that discourage whistleblowers or fail to train employees on reporting and whistleblower laws.
Access to data for compliance functions: The DOJ stresses that effective compliance programs must be well-resourced and have access to necessary data and technology. This includes leveraging data analytics to enhance the efficiency/effectiveness of compliance programs and to proactively monitor risks, ensuring the quality and accuracy of the data involved.
Including lessons learned: Compliance programs should evolve based on lessons learned from both the company’s own experiences and issues faced by other companies in similar industries.
Post-transaction compliance integration: The update highlights the importance of involving compliance functions in mergers and acquisitions, particularly in post-transaction integration.

Danske Bank pays USD 7,000,000 (US Dollars seven million) to settle Estonia money-laundering with French authorities

Danske Bank cooperated with the French authorities and reached a resolution with the French National Financial Prosecutor to settle the ongoing money laundering investigation by agreeing to pay EUR 6,330,000 (Euro six million three hundred and thirty thousand) (approx. USD 7,000,000 (US Dollars seven million)).

The bank became the subject of several investigations after an internal probe in September 2018 uncovered about EUR 200 billion (Euro two hundred billion) of payments made through its now-shuttered Estonian branch between 2007 to 2014, with many payments appearing suspicious. Subsequently, the French authorities had commenced a formal investigation in 2019. Previously, in December 2022, Danske Bank pled guilty and agreed to a USD 2 billion (US Dollars two billion) fine in a case from the DOJ.

SEC charges former executives of tech company ‘Kubient’ with fraud and lying to auditors

Earlier this month, the SEC brought accounting fraud charges against the former chief executive officer, chief financial officer (“CFO”), and audit committee chair of Kubient for their roles in a scheme where they made false statements and overstated/misrepresented its revenue (amounting to USD 1,300,000 (US Dollars one million three hundred thousand) in connection with 2 (two) public stock offerings. According to the SEC’s complaints, Kubient raised approximately USD 33,000,000 (US Dollars thirty-three million) in the 2 (two) stock offerings using offering materials that touted the misrepresentations. This case serves an important signal to gatekeepers like CFOs and audit committee members that the SEC and the investing public expect responsible behavior when critical issues are brought to their attention.

Australia’s adequate procedures guidelines comes into force

In August 2024, Australia’s attorney general’s department released preliminary guidance on compliance procedures for the newly enacted ‘failure to prevent’ foreign bribery law, introduced through the Crimes Legislation Amendment (Combatting Foreign Bribery) Bill 2023. The amendment has now come into effect on September 8, 2024, marking a pivotal shift in Australia’s corporate liability landscape.

This Newsletter has been prepared by:

Rupinder Malik
Partner

Kumar Kislay
Partner

Vibhor Jain
Senior Associate

Archit Sehgal
Associate

For more details, please contact km@jsalaw.com.

[1] Available at: https://sansad.in/getFile/loksabhaquestions/annex/182/AU2082_3chrQm.pdf?source=pqals (last accessed on October 10, 2024)

[2] 2024 SCC OnLine SC 2269

[3] Kalvakuntla Kavitha vs. CBI, 2024 SCC OnLine Del 4459

[4] (2024) 8 SCC 415

[5] SLP(Crl.) No. 10302/2023 decided on July 11, 2024

[6] Abhishek Jain vs. State (U.T. of Chandigarh), 2024 SCC OnLine P&H 9874

[7] Prince vs. State (NCT of Delhi), 2024 SCC OnLine Del 4909

[8] Krishan Joshi vs. State of Rajasthan, 2024 SCC OnLine Raj 2042

[9] Chowgule & Co. (P) Ltd. vs. State of Goa, 2024 SCC OnLine Bom 2501

[10] Criminal Appeal No. 2501/2024 decided on September 9, 2024

[11] Criminal Appeal No. 2221-2222 of 2023 decided on September 9, 2024

[12] SLP (Crl.) No. 5416/2024 decided on August 28, 2024

[13] 2022 SCC OnLine SC 929

[14] Criminal Appeal No. 4011 of 2024 decided on September 26, 2024

[15] 2024 SCC OnLine Kar 67

[16] 2024 SCC OnLine All 4585

[17] Bail Applicaion No. 3056/2023 decided on September 17, 2024

Tags Anti-Corruption, Investigations, JSA, Leading Law Firm, Leading Lawyers, Legal Updates, Newsletter, White Collar Crimes

JSA Newsletter | Private Equity | September 2024

Please click here to download the Newsletter as a PDF.

This newsletter captures the regulatory developments from January 2024 to June 2024 relating to Alternative Investment Funds (“AIFs”), Real Estate Investment Trusts (“REITs”), Infrastructure Investment Trusts (“InvITs”), Venture Capital Funds, Foreign Venture Capital Investors and Foreign Portfolio Investors (“FPIs”) that are likely to shape the investment activities in India.

Introduction

As per recent investment trends, India’s private equity (“PE”)/venture capital (“VC”) market witnessed a decline in investments from USD 6.7 billion (US Dollars six point seven billion) in January 2024 to USD 2.2 billion (US Dollars two point two billion) in February 2024.[1] In April 2024, investments were recorded at USD 4.4 billion (US Dollars four point four billion), 4% lower than March 2024 in value.[2] However, while the value of investment declined, there was a 14% increase in the number of deals, from 86 (eighty-six) deals in March 2024 to 98 (ninety-eight) deals in April 2024.[3] The real estate and infrastructure sector contributed to the majority of the inflow, followed by financial services, healthcare, and e-commerce.[4]

In May 2024, investments reached USD 6.9 billion (US Dollars six point nine billion), a 48% increase from April 2024.[5] Following the trend, PE and VC funding for Indian startups surged to its highest monthly investment in 2 (two) years in June 2024.[6] Indian startups secured USD 1.6 billion (US Dollars one point six billion) across 62 (sixty-two) PE and VC deals, marking a significant increase despite a generally slow funding environment for other sectors.[7]

Overview of the Regulatory Measures

Infrastructure Investment Trusts and Real Estate Investment Trusts

Revised pricing methodology for institutional placements of privately placed InvITs

The Securities and Exchange Board of India (“SEBI”), vide circular dated February 8, 2024, modified the pricing for institutional placement by privately placed InvITs. Pursuant to this, privately placed InvITs can undertake institutional placement based on the Net Asset Value (“NAV”) of the assets of InvIT, subject to, inter alia, the following conditions:

the institutional placement by public InvIT is required to be made at a price not less than the average of the weekly high and low of the closing prices of the units of the same class quoted on the stock exchange during the 2 (two) weeks preceding the relevant date; and
the institutional placement by privately placed InvIT is required to be made at a price not less than the NAV per unit, based on the full valuation of all existing InvIT assets conducted in terms of the SEBI (InvITs) Regulations, 2014 (“SEBI (InvITs) Regulations, 2014”).

Key amendments to the SEBI (REITs) Regulations, 2014

SEBI, vide notification dated March 8, 2024, amended the principal regulations to introduce the regulatory framework for facilitation of Small and Medium REITs (“SM REITs”). The amendment has introduced a framework for SM REITS and primarily prescribes the registration requirement, eligibility criteria, investment conditions and other requirements for SM REITs. Further, the definition of ‘REIT’ is substituted to mean ‘a person that pools INR 50 crore (Indian Rupees fifty crore) or more for the purpose of issuing units to at least 200 (two hundred) investors so as to acquire and manage real estate asset(s) or property(ies), that would entitle such investors to receive the income generated therefrom without giving them the day-to-day control over the management and operation of such real estate asset(s) or property(ies)’.

It is clarified that the new definition of ‘REIT’ includes SM REITs and that any company which acquires and manages real estate asset(s) or property(ies) and offers or issues securities to the investors, is not construed as a REIT.

Key amendments to the SEBI (InvIT) Regulations, 2014

SEBI, vide notification dated May 27, 2024, amended the principal regulations to introduce a framework for issuance of subordinate units. Some of the key provisions are as follows:

subordinate units can only be issued by a privately placed InvIT upon acquisition of an infrastructure project, to the sponsor, its associates and the sponsor group and it is deemed to be part of the consideration for acquisition of the infrastructure project;
the units cannot carry any voting rights or distribution rights and are required to be issued in a dematerialised form with an international securities identification number; and
the investment manager is responsible for monitoring the progress related to achievement of performance benchmark and is required to report it annually (or such other prescribed frequency), after certification by the statutory auditor of the InvIT and approval of the trustee and the audit committee of the investment manager.

Further, for calculating the minimum unitholding requirements, subordinate units are not considered in computing total outstanding units of the InvIT. Per the eligibility criteria for granting certificate to a trust, there can be only 1 (one) class of units and all units are required to carry equal voting rights and distribution rights associated with such units.

Foreign Portfolio Investors

Key amendments to the SEBI (FPIs) Regulations, 2019

SEBI, vide notification dated May 31, 2024, amended the principal regulations to provide flexibility to FPIs in dealing with securities after expiry of registration, payment of registration fee and relax the timelines for disclosure of material changes/events. These amendments are incorporated in the Master Circular for FPI, Designated Depository Participants (“DDPs”) and eligible foreign investors dated May 30, 2024 (“FPI Master Circular”), vide circular dated June 5, 2024.

The key amendments are as follows:

Payment of registration fee:

An FPI is required to pay the prescribed registration fees, for every block of 3 (three) years, before the beginning of such block. However, if the FPI pays the registration fees along with the late fee within a period of 30 (thirty) days from the date of expiry of the preceding block, it will be deemed to have paid the registration fee in a complaint manner.

Dealing in securities post expiry of registration:
- an FPI, whose certificate of registration is not valid as on June 3, 2024, and is holding securities or derivatives in India, is allowed to sell such securities or wind up their open position in derivatives in India within 360 (three hundred and sixty) days from June 3, 2024;
- if an FPI has not paid the registration fees and the late fees, as applicable, and continues to hold securities or derivatives in India, then it is permitted to sell the securities or wind up their open position in derivatives in India within 360 (three hundred and sixty) days from the date of expiry of 30 (thirty) days (as referred in Para (a) above) under prescribed conditions; and
- an FPI whose certificate of registration is not valid and who has not sold off the securities or wound up their open position in derivatives in India within the prescribed timelines will be deemed to have written off the securities.
Timelines for disclosure of material changes/events:

The procedure for disclosing certain material changes/events is modified. Earlier, an FPI had to, within 7 (seven) working days, inform SEBI and/or the DDP in case:

- any previously submitted information was found to be false or misleading in any material respect;
- of a material change in the information previously furnished by them, including any direct or indirect change in its structure or ownership or control or investor group; or
- of any penalty, pending litigation or proceedings, findings of inspections or investigations for which action may have been taken or is in the process of being taken by an overseas regulator against it.

Further, pursuant to the SEBI (FPIs) Regulations, 2019, SEBI vide circular dated June 5, 2024, amended the FPI Master Circular. Consequently, in the event of the occurrence of the material changes/events mentioned above, the FPI is required to inform SEBI/DDP in writing, in the following manner:

‘Type I’ material changes, which include critical material changes that render the FPI ineligible for registration, require FPI to seek fresh registration, render FPI ineligible to make fresh purchase of securities or impact any privileges or exemptions granted to the FPI, are required to be notified within 7 (seven) working days of the occurrence of the change and the supporting documents must be provided within 30 (thirty) days of such change; and
‘Type II’ material changes, which include any material changes other than those considered as ‘Type I’ material changes, are required to be notified and supporting documents must be provided within 30 (thirty) days of such change.

SEBI, vide notification dated June 26, 2024, amended the principal regulations to, inter alia, provide flexibility to Non-Resident Indians (“NRIs”), Overseas Citizens of India (“OCIs”) and Resident Indian (“RIIs”) of having contribution in the corpus of FPI. These amendments have been incorporated in the FPI Master Circular, vide circular dated June 27, 2024. NRIs or OCIs or RIIs may be constituents of the applicant subject to the following conditions:

the contribution of a single NRI or OCI or RII must be below 25% of the total contribution in the corpus of the applicant;
the aggregate contribution of NRIs, OCIs and RIIs in the corpus of the applicant must be below 50% of the total contribution in the corpus of the applicant. However, this does not apply to an applicant regulated by the International Financial Services Centers Authority (“IFSCA”) and based in International Financial Services Centers (“IFSCs”) in India. Accordingly, NRI, OCIs and RIIs can have up to 100% aggregate contribution in the corpus of an FPI based in IFSCs in India regulated by IFSCA subject to the conditions stipulated in the FPI Master Circular;
the contribution of RIIs must be made through the liberalised remittance scheme notified by the Reserve Bank of India (“RBI”) and must be in global funds whose Indian exposure is less than 50%; and
the NRIs, OCIs and RIIs must not be in control of the applicant.

Limits for investment in debt and sale of credit default swaps by FPIs

The RBI vide notification dated April 26, 2024, introduced the following investment limits for the financial year 2024-25:

the limits for FPI investment in government securities (“G-Secs”), State G-Secs and corporate bonds remain unchanged at 6%, 2%, and 15%, respectively, of the outstanding stocks of securities;
all investments by eligible investors in the ‘specified securities’ are reckoned under the fully accessible route;
the allocation of incremental changes in the G-Secs limit (in absolute terms) over the 2 (two) sub-categories – ‘general’ and ‘long-term’ – is retained at 50:50; and
the aggregate limit of the notional amount of credit default swaps sold by FPIs is 5% of the outstanding stock of corporate bonds.

Amendment to circular for mandating additional disclosures by FPIs

SEBI, vide notification dated March 20, 2024, amended the criteria listed under Para 8 of the circular dated August 24, 2023 (“FPI Circular”) and prescribed that an FPI having more than 50% of its Indian equity Asset Under Management (“AUM”) in a corporate group is not required to make the additional disclosures as specified in the FPI Circular, subject to compliance with all of the following conditions:

the apex company of such corporate group has no identified promoter;
FPI holds not more than 50% of its Indian equity AUM in the corporate group, after disregarding its holding in the apex company (with no identified promoter); and
the composite holdings of all such FPIs (that meet the 50% concentration criteria excluding FPIs which are either exempted or have disclosed) in the apex company is less than 3% of the total equity share capital of the apex company.

Custodians and depositories must track the utilisation of the 3% limit for apex companies, without an identified promoter, at the end of each day. When the 3% limit is met or breached, depositories must make this information public before the start of trading on the next day. Thereafter, for any prospective investment in the apex company by FPIs, that meet the 50% concentration criteria in the corporate group, the FPIs must either realign their investments below the 50% threshold within 10 (ten) trading days or make additional disclosures prescribed in the FPI Circular.

Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) (Amendment) Regulations, 2024

RBI, vide Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) (Amendment) Regulations, 2024 dated April 23, 2024,

amended the principal regulations to insert Schedule XI dealing with the provisions on mode of payment in case of purchase or subscription of equity shares of companies incorporated in India on international exchanges scheme by a permissible holder. Further, with respect to the reporting requirements for any investment in India by a person resident outside India, while filing Form LEC(FII), the following requirements have been included:

the Authorised Dealer Category-I banks must report to RBI, in Form LEC (FII), the purchase / transfer of equity instruments by FPIs on the stock exchanges in India; and
the investee Indian company, through an Authorised Dealer Category-I bank, must report to RBI, in Form LEC (FII), the purchase/subscription of equity shares (where such purchase/ subscription is classified as FPI under the rules) by permissible holder, other than transfers between permissible holders, on an international exchange.

Alternative Investment Funds and Venture Capital Funds

Key amendments made to the SEBI (AIF) Regulations, 2012

SEBI, vide SEBI (AIF) (Amendment) Regulations, 2024 dated January 5, 2024, amended the principal regulations, to mandate AIFs to hold their investments in dematerialised form. This does not apply to:

investments in instruments which are not eligible for dematerialisation;
investments held by a liquidation scheme of AIFs that are not available in the dematerialised form; and
any investments by AIFs and such other schemes of AIFs specified by the SEBI.

Further, a custodian which is an associate of the sponsor or manager of an AIF may act as a custodian for that AIF only when all the following conditions are met:

the sponsor or manager has a net worth of at least INR 20,000 crore (Indian Rupees twenty thousand crore) at all points of time;
50% or more of the directors of the custodian do not represent the interest of the sponsor or manager or their associates;
the custodian and the sponsor or manager of the AIF are not subsidiaries of each other;
the custodian and the sponsor or manager of the AIF do not have common directors; and
the custodian and the manager of the AIF must sign an undertaking that they will act independently of each other in their dealings of the schemes of the AIF.

SEBI, vide SEBI (AIF) (Second Amendment) Regulations, 2024 dated April 25, 2024, amended the principal regulations, to permit Category I and II AIFs to create encumbrance on equity of investee company, which is in the business of development, operation or management of projects in any of the infrastructure sub-sectors listed in the Harmonised Master List of Infrastructure issued by the Central Government, only for the purpose of borrowing by such investee company and subject to the prescribed conditions by SEBI. Further, SEBI has introduced a dissolution period for a scheme of AIFs following the expiry of the liquidation period, allowing the AIFs to liquidate its unliquidated investments. The dissolution period of a scheme of an AIF must not be more than the original tenure of the scheme and must not be extended in any manner upon expiry of the dissolution period. The scheme of the AIF must not accept any fresh commitment from any investor and must not make any new investment during the dissolution period.

Foreign investment in AIFs

SEBI, vide circular dated January 11, 2024, has revised the Master Circular for AIFs to incorporate the revised thresholds for determining beneficial ownership. The Prevention of Money Laundering (Maintenance of Records) Rules, 2005 were amended last year revising the thresholds for determining beneficial ownership from 25% to 10% for companies and from 15% to 10% for trusts. Pursuant to the amendment, the manager of an AIF must ensure, at the time of on-boarding investors, that the investor, or its beneficial owner is not included in the sanctions list notified by the United Nations Security Council (as notified from time to time) and is not a resident in the country identified in the public statement of Financial Action Task Force as:

a jurisdiction having a strategic anti-money laundering or combating the financing of terrorism deficiencies to which counter measures apply; or
a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies.

Further, in case an investor who has been already on-boarded to the scheme of an AIF, does not meet the revised condition as specified above, the manager of the AIF must not drawdown any further capital contribution from such investor for making investment, until the investor meets the said conditions.

Guidelines for AIFs with respect to holding their investments in dematerialised form

SEBI, vide circular dated January 12, 2024, introduced guidelines for AIFs holding investments in dematerialised form. The key provisions are as follows:

any investment made by an AIF on or after October 1, 2024, must be held in dematerialised form only;
the investments made by an AIF prior to October 1, 2024, are exempt from the requirement of being held in dematerialised form, except in the following cases: (a) investee company of the AIF is mandated under applicable law to facilitate dematerialisation of its securities; and (b) AIF, on its own, or along with other SEBI registered intermediaries/entities which are mandated to hold their investments in dematerialised form, exercises control over the investee company (these investments must, however, be held in dematerialised form by the AIF on or before January 31, 2025); and
the requirement of holding investments in dematerialised form is not applicable to: (a) scheme of an AIF whose tenure (not including permissible extension of tenure) ends on or before January 31, 2025; and (b) scheme of an AIF which is in extended tenure as on January 12, 2024.

Investments in AIFs

RBI, vide notification dated March 27, 2024, advised the following to ensure uniformity in relation to investment by Regulated Entities (“REs”) in AIFs:

downstream investments referred to in paragraph 2 (i) of the circular dated December 19, 2023 (“Circular”), exclude investments in equity shares of the debtor company of the RE, but will include all other investments, including investment in hybrid instruments;
provisioning in terms of paragraph 2(iii) of the Circular is required only to the extent of investment by the RE in the AIF scheme which is further invested by the AIF in the debtor company, and not on the entire investment of the RE in the AIF scheme;
proposed deduction in paragraph 3 of the Circular, from capital will take place equally from both Tier-1 and Tier-2 capital. Further, reference to investment in subordinated units of AIF scheme includes all forms of subordinated exposures, including investment in the nature of sponsor units; and
investments by REs in AIFs through intermediaries such as fund of funds or mutual funds are not included in the scope of the Circular.

Changes in terms of private placement memorandum of AIFs

SEBI, vide circular dated April 29, 2024, eased the requirement of intimation of changes in the terms of Private Placement Memorandum (“PPM”) of AIFs through merchant bankers. Pursuant to the SEBI Master Circular for AIFs dated July 31, 2023, intimation with respect to any change in the terms of PPM of AIF was required to be submitted to SEBI through a merchant banker along with a due diligence certificate from the merchant banker in the prescribed format. Now, certain changes in the sections of PPM (such as, changes made in the write-up on market opportunity/Indian economy/industry outlook, track record of investment manager, risk factors, legal regulatory and tax consideration), do not need to be submitted through a merchant banker and can be filed directly with SEBI. Similarly, certain specified changes in the PPM need not be filed through a merchant banker, such as changes with respect to:

contact details (such as address, phone number) of AIF, sponsor, manager, trustee or custodian; and
auditor, Registrar and Share Transfer Agents (“RTAs”), legal advisor or tax advisor, size of the fund/scheme, information related to affiliates, commitment period, key investment team, key management personnel (except if the changes are due to change in control of manager or sponsor), advisory boards, expenses, disclosures, and other factual and routine updates.

Further, large value funds for accredited investors are exempted from the requirement of intimating any changes in the terms of PPM through a merchant banker. Such funds can directly file any changes in the terms of PPM with SEBI, along with a duly signed and stamped undertaking by the CEO of the manager of the AIF (or such other person holding equivalent role/position) and compliance officer of the manager of the AIF, in a pre-specified format.

Issuance of partly paid units by AIFs to persons resident outside India

RBI, vide circular dated May 21, 2024, and pursuant to the Foreign Exchange Management (Non-debt Instruments) (Second Amendment) Rules, 2024 dated March 14, 2024[8], has decided to regularise the issuances of partly paid units by AIFs to persons resident outside India prior to the said amendment, through compounding under the Foreign Exchange Management Act, 1999. However, before approaching the RBI for compounding, Authorised Dealer Category-I banks may ensure that the necessary administrative action, including the reporting of such issuances by AIFs to the RBI, through Foreign Investment Reporting and Management System (FIRMS) Portal and issuing of conditional acknowledgements for such reporting, is completed.

Certification requirement for key investment team of manager of AIF

Pursuant to the amendment dated May 10, 2024 to the SEBI (Certification of Associated Persons in the Securities Markets) Regulations, 2007, SEBI, vide circular dated May 13, 2024, has decided that the requirement to obtain the prescribed certification by at least 1 (one) key personnel of the key investment team of the manager of an AIF, is applicable as an eligibility criterion to all the applications for registration of AIFs and launch of schemes by AIFs filed after May 10, 2024. Further, the aforesaid requirement of obtaining the certification must be complied with on or before May 9, 2025, for the following:

existing schemes of AIFs; and
the schemes of AIFs whose application for launch of scheme pending with SEBI as on May 10, 2024.

Other Developments

SCORES 2.0 New Technology to strengthen SEBI Complaint Redressal System for Investors

SEBI, vide press release dated April 1, 2024, launched the new version of the SEBI Complaint Redress System (“SCORES 2.0”). The salient features of SCORES 2.0 are as follows:

reduced and uniform timelines for redressal of investor complaints across the securities market i.e., 21 (twenty-one) calendar days from date of receipt of complaint;
introduction of auto-routing of complaints to the concerned regulated entity so as to eliminate time lapses, if any, in the flow of complaints;
providing 2 (two) levels of review: (a) first review by the ‘Designated Body’ if the investor is dissatisfied with the resolution provided by the concerned regulated entity; and (b) second review by SEBI if the investor is still dissatisfied after the first review; and
introduction of auto-escalation of complaint to the next level in case of nonadherence to the prescribed timelines by the regulated entity or the Designated Body.

SEBI (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2024

SEBI, vide notification dated May 17, 2024, amended the principal regulations with an aim to expand the scope of entities eligible to contribute towards capital issues, especially by non-individual public shareholders and entities within the promoter group holding at least 5% of the post-issue capital. Some of the key amendments are as follows:

under minimum promoters’ contribution, if the post-issue shareholding of the promoters is less than 20%, any non-individual public shareholder holding at least 5% of the post-issue capital or any entity forming part of promoter group other than the promoter(s), may contribute to meet the shortfall in minimum contribution as specified for the promoters;
specified securities acquired by any non-individual public shareholder holding at least 5% of the post-issue capital or any entity (individual or non-individual) forming part of promoter group other than the promoter(s) during the preceding 1 (one) year at a price lower than the price at which specified securities are being offered to the public in the initial public offer will not be eligible for the computation of minimum promoters’ contribution;
for the computation of minimum promoters’ contribution, equity shares arising from the conversion or exchange of fully paid-up compulsorily convertible securities, including depository receipts, that have been held by the promoters at least 1 (one) year prior to the filing of the draft offer document forming part of promoter group other than the promoter(s) will be eligible, provided full disclosures of the terms of conversion is made, and they are converted into equity shares prior to filing of the red herring prospectus; and
with respect to the period of subscription, in case of a force majeure event, the issuer may, for reasons to be recorded in writing, extend the bidding (issue) period disclosed in the red herring prospectus (in case of a book built issue) or the issue period disclosed in the prospectus (in case of a fixed price issue), for a minimum period of 1 (one) working day (earlier this was 3 (three) working days).

Ease of doing business for existing investors and unitholders

For ease of compliance and investor convenience, SEBI, vide circular dated June 10, 2024, has introduced the following changes for existing investors/unitholders:

non-submission of ‘choice of nomination’ must not result in freezing of demat accounts as well as mutual fund folios;
securityholders holding securities in physical form will be eligible for receipt of any payment including dividend, interest or redemption payment as well as to lodge grievance or avail any service request from the RTA even if ‘choice of nomination’ is not submitted by these securityholders; and
payments including dividend, interest or redemption payment withheld presently by the listed companies/RTAs, only for want of ‘choice of nomination’ must be processed accordingly.

This Newsletter has been prepared by:

Sidharrth Shankar
Partner

Vikram Raghani
Partner

Lalit Kumar
Partner

Nandini Seth
Partner

For more details, please contact km@jsalaw.com

[1] IVCA-EY monthly PE/VC roundup – February 2024

[2] IVCA-EY monthly PE/VC roundup – April 2024

[3] IVCA-EY monthly PE/VC roundup – April 2024

[4] IVCA-EY monthly PE/VC roundup – April 2024

[5] IVCA-EY monthly PE/VC roundup – May 2024

[6] https://www.livemint.com/industry/silver-lining-for-indian-startups-as-monthly-funding-shoots-highest-since-june-2022-11719734555444.html

[7] https://www.livemint.com/industry/silver-lining-for-indian-startups-as-monthly-funding-shoots-highest-since-june-2022-11719734555444.html

[8] Under Rule 2(aq) of the Foreign Exchange Management (Non-debt Instruments) Rules 2019, ‘unit’ means a beneficial interest of an investor in an investment vehicle. An explanation is inserted to the definition of ’unit’ stating that ‘the unit will include a unit that has been partly paid up, which is permitted under the regulations framed by the SEBI, in consultation with Government of India’.

Tags Infrastructure, Investment, JSA, Leading Law Firm, Leading Lawyers, Legal Updates, Newsletter, Private Equity, Venture Capitals

Private Equity 2024

The Current State of the Indian Economy

Growth in the Indian economy in 2024 belied the global slowdown, emerging as a beacon of resilience amidst global political uncertainties. Withstanding the challenges of geopolitical tensions, India stands as one of the fastest-growing major economies in the world. This has not only boosted the confidence of foreign investors but also inspired Indian businesses to strive for global success and expansion.

The initial months of 2024, being an election year, made foreign investors apprehensive as political pundits speculated on the outcome for the incumbent government. However, a clear mandate and continuity of the government at the centre projected the Indian economy and market as a strong, confident avenue for doing business. Various investment avenues are yielding favourable results for both retail and institutional investors in India.

Please click here to read the full chapter by Sidharrth Shankar and Vikram Raghani published in Chambers and Partners.

Tags Corporate, Foreign Investment, Global Economy, Indian Economy, JSA, JSA Law Firm, Leading Law Firm, Leading Lawyers, Legal Updates, Private Equity, Publications

ClickPost’s Series A fundraise

JSA advised ClickPost (operating under the entity Felurian Technology Private Limited) and its founders Naman Vijay and Prashant Gupta in its Series A fundraise led by Inflexor Technology Fund and Athera Venture Capital along with Riverwalk Holdings. Existing investor, Rebright Partners, also participated in this funding round. As part of this transaction, certain existing investors will also be selling their shareholding through a secondary sale.

ClickPost is one of the world’s fastest-growing all-in-one logistics management platform, dedicated to enhancing brands’ post-purchase experiences for their customers. With a daily tracking of over one million shipments, ClickPost aims for a growth of over five times in the next two years. Currently, it serves more than 300 clients globally, including prominent names like Nykaa, Puma, Pepe Jeans, Acer, and Supertails, across India, North America, Asia Pacific, and the Middle East.

JSA played a crucial role in the transaction by providing end-to-end support to both ClickPost and its founders. We assisted the client with drafting and negotiating the transaction documents and providing support with the post-closing actions, ensuring assistance at every stage of the transaction.

Our Transaction Team Comprised Partner – Kartik Jain, Senior Associate – Saumya Sahai, Associate – Anmol Mahajan, Company Secretary – Alisha Chawla.

Tags Fundraise, JSA, Leading Law Firm, Leading Lawyers

Emerging Trends in Indian Private Equity

Siddharth Mody of JSA, along with Tarun Khanna of CX Partners and Mahesh Parasuraman of Amicus Capital, discuss emerging trends in Indian private equity, focusing on control deals, ESG integration and the impact of artificial intelligence.

Tags JSA, Leading Law Firm, Leading Lawyers, Private Equity

Key Factors Considered by Private Equity Funds Amid the Recent Corporate Governance and Valuation Issues | India

Sidharrth Shankar and Vikram Raghani, both partners at JSA, with Vikram also being the co-chair of the corporate practice at the firm, interview Mrinal Chandran, general counsel at India Resurgence Fund. In this discussion, the interviewers aimed to learn about the key factors considered by private equity funds concerning corporate governance.

Tags Corporate Governance, India Resurgence Fund, J Sagar Associates, JSA, JSA Law Firm, Leading Law Firm, Leading Lawyers, Private Equity Fund

Wishlink’s Series A fundraise

JSA represented Wishlink (operating under the entity Creatormon Private Limited) and its founders Chandan Yadav, Shaurya Gupta, and Divyansh Ameta in Series A fundraise of INR 580 Million led by Fundamentum Partnership, along with participation from Elevation Capital and an additional debt round from Trifecta Capital.

Wishlink is a discovery-led commerce startup that empowers creators on various social media platforms to promote brands through personalized storefronts. The platform has partnerships with over 250 brands, including H&M, Westside, and Faballey, among others.

JSA played a crucial role in the transaction by providing end-to-end support to Wishlink and its founders.

Our Transaction Team Partner – Kartik Jain, Associate – Raghav Dalela and Anmol Mahajan Company Secretary – Alisha Chawla.

Tags Fund Raise, JSA, Leading Law Firm, Leading Lawyers, Series A fundraise