Friday, June 27, 2014

Guest Post: MCA’s ‘Deemed’ Clarification on Foreign Subsidiary Status

[The following post builds upon two previous posts, here and here.

In this, Esha Chakraborty and Shampita Das of Vinod Kothari & Co. raise some further concerns regarding the recent clarification issued by the Ministry of Corporate Affairs. The authors may be contacted at and respectively.]

Continuing with the intent of infusing clarity to somewhat ambiguous drafting of regulations, the Ministry of Corporate Affairs (MCA) on June 26, 2014 came out with a major clarification on the deemed public company status of subsidiaries of foreign companies.

Considering the consequences arising from the absence of the deeming provision of sub-section (7) of Section 4 of the Companies Act, 1956 (‘Act, 1956’) by which the status of all such Indian subsidiaries having foreign holding entities changed; this stance, somehow, does bring some relief to all such entities. But, some drafting ineffectiveness prevails to bring in some new ambiguities into the picture!

Let us understand through a step by step analysis as to what was the plausible impact arising from the provisions of Companies Act, 2013 (‘Act, 2013’) and how far this clarification grants relief.

Position under the Companies Act, 1956

The erstwhile Act, 1956 laid down the defining clause for deemed public companies under Section 3(1)(iv)(c), which provided that a private company which is a subsidiary of a public company, would also be considered as a ‘public company’.

However, by virtue of sub-section (7) to Section 4, which defined holding subsidiary relationships, private companies being subsidiaries of foreign body corporate(s) were exempted from the above compulsion of being treated as ‘deemed public company’. It was this saving section, which provided that a private company being a subsidiary of a foreign body corporate would not be deemed to be a public company if:

(a)        the foreign body corporate, if incorporated in India, would have been a private company; and

(b)       the entire share capital in the Indian subsidiary was held by that foreign body corporate, either alone or together with more foreign bodies corporate.

In all other cases, such private companies would grow out of their skin of being a private company and be deemed to the status of a public company. In such scenario, the privileges available with private companies would not be available to them.

Enter Companies Act, 2013

With major streamlining of regulatory structures, some most welcoming, a few glaring loopholes have also been brought forth. This exemption granted under Section 4(7) of Act, 1956 has been omitted from the Act, 2013, which left us with the obvious interpretation that all private companies, even being subsidiaries of foreign bodies corporate, would now be deemed to be public companies for the purposes of the Act, 2013.

Let us assimilate the basis of our above interpretation:

The proviso clause of Section 2 (71) of the Act, 2013 lays down the concept of deemed public company, stating -

a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles;”

The definition of subsidiary, here, would derive its meaning from Section 2 (87) which defines ‘subsidiary’ and wherein, the expression ‘company’, i.e, the holding company, includes any body corporate.

One can see the word ‘company’ used in this context in an expansive sense and would include all bodies corporate and ‘body corporate’ by virtue of its very definition, drawn from Section 2(11) of the Act, 2013, also includes a company incorporated outside India.

Hence, for the purpose of defining a subsidiary company in relation to a holding company, ‘company’ would definitely mean a foreign company as well.

In light of the above, Section 2 (87) gives rise to two scenarios -

- The subsidiary company is an Indian company with the holding entity as a foreign company; and

- The subsidiary company is a foreign company with the holding entity as an Indian company.

Here, we need to understand that the relevance of this definition section is that it will apply to the entire Act and the Rules made thereunder. Accordingly, wherever the word ‘subsidiary’ in relation to a company is used under the Act, the above interpretation would undoubtedly apply.

Therefore, in the above two scenarios, this subsidiary could be a subsidiary of a body corporate, being a foreign company. Thus, it can be summed up that a private company, being a subsidiary of a foreign holding company, will be deemed to a public company under the Act, 2013.


Implications of the deeming status

Given this, can we say that a private company which has been deemed to be a public company loses the core values of its constitution viz. (a) minimum paid up capital of Rs. 1 lakh, (b) minimum and maximum number of members (min. 2 and max. 200) and (c) minimum number of two directors?

In our view, that will not be the case and such companies will continue to remain private as per its articles of association. A supporting view was held in the landmark judgment of the Supreme Court in Needle Industries (India) Ltd., &Ors. vs. Needle Industries Newey (India) Holding Ltd. & Ors. dated May 7, 1981,  wherein it was held that a private company which becomes a deemed public company would continue to retain the three basic characteristics of a private company. Such a deemed public company, therefore, would retain the fabric of its constitution and would not have to give up its statutory status with which it was incorporated.

However, by becoming a deemed public company, it still have to comply with the corporate governance norms as applicable to a public company. For instance, appointment of independent directors, constitution of audit committee and nomination and remuneration committee, appointment of internal auditors, rotation of directors and Limits on Managerial Remuneration.

Finally, clarification from Ministry…

The significant effects of the deeming provisions on subsidiaries of foreign companies had created quite a ripple in the corporate sector. Companies which were not deemed public companies by virtue of Section 4(7) of the erstwhile Act, were suddenly faced with the prospect of huge compliance burden.

The MCA has yet again come up with another Circular, meaning to clarify the status of subsidiaries incorporated or to be incorporated by foreign holding companies. But of course, again, due to some ambiguities in the drafting strucutre and language, the MCA has left it to one’s imagination to decipher its intent.

Though the first para of the Circular draws attention to the fact that the deeming provision of Section 4 (7) of Act, 1956 was missing in the Act, 2013; it failed to capture the fact that the exemption from ‘deeming’ provision under Act, 1956 would still be applicable under the Act, 2013.

Instead, it goes  on to say such subsidiary company with foreign holding company(s) would continue to act as ‘a private company or public company, as the case may be, without any change in the incorporation status of such company.’ As explained earlier, there was anyway no ambiguity in the understanding with respect to the incorporation status of a ‘deemed public company’ and they would have still retained their statutory constitution. See also our discussion under heading, Implications of the deeming status.

Thus, instead of stating the obvious intent of the Circular, as evident from the first para, the Circular completely disconnects in the second para, and moves on to state the obvious!
Further, deliberating over the language used, here are few more thoughts to mull over –

- Circular states that ‘an existing company, being a subsidiary of a company incorporated outside India’ would continue to be a private or public company without any change in the incorporation status.

So, apparently, it deems to suggest that subsidiaries of only companies incorporated outside India would be covered by this clarification. However, the language used in the Act, 1956 as well as Act, 2013 covered all bodies corporate and not merely foreign companies. If this is the case, then the stake held by limited liability corporations (LLCs), association of persons and other bodies corporate incorporated outside India, in the Indian subsidiary cannot be considered for determining the exemption status from the deeming provisions. Perhaps, this could create more problems than solving the same.

- The erstwhile Section 4(7) clearly stated one of the preconditions to avail the exemption clause is that, the entire share capital of the Indian private company should be held by the overseas bodies corporate. In the absence of the said deeming provision or any such exemption clause in the new legislation, are we left to assume that every subsidiary of the foreign company may still avail the exemption on this front?

As of now, the Circular somehow fails to render any light on these matters.

- Esha Chakraborty and Shampita Das

Thursday, June 26, 2014

MCA Clarifies on Status of Private Subsidiary of a Foreign Company

Earlier this year, we had raised and discussed a vexed issue under the Companies Act, 2013 (the 2013 Act) regarding “the status of a private company in India that is the subsidiary of a foreign company (being a public company). The specific question relates to whether the Indian private company can continue with its status or whether that would become a public company by virtue of becoming a subsidiary of another public company”. In that earlier post, we had discussed the legislative history of the relevant provisions of the 2013 Act and set out two possible options (and supporting arguments for each) without venturing to proffer a solution. The two options were as follows:

Option 1: A literal and technical interpretation of the 2013 Act would suggest that a subsidiary of a foreign company will not fall within the purview of the definition of a public company in section 2(87) and hence it will continue its status as a private company.

Option 2: A broader interpretation of the 2013 Act would suggest that a private subsidiary of a public company (whether Indian or foreign) would be deemed to be a public company.

This issue has captured the attention of the Ministry of Corporate Affairs (MCA), which has now published its clarification as follows:

The matter has been examined in the Ministry in the light of sections 2(68), 2(71) and 2(87) of the New Act and it is clarified that there is no bar in the new Act for a company incorporated outside India to incorporate a subsidiary either as a public company or a private company. An existing company, being a subsidiary of a company incorporated outside India, registered under the Companies Act, 1956, either as a private company or a public company by virtue of section 4(7) of that Act, will continue as a private company or public company, as the case may be, without any change in the incorporation status of such company.

By this, the MCA has clarified in favour of Option 1 above, which introduces a lot of flexibility for foreign companies to establish subsidiaries in India without burdening themselves with additional obligations relating to the status of the Indian subsidiaries.

While the clarification from the MCA is helpful in expressing MCA’s own view as a corporate regulator (which would then preclude it or other corporate regulatory authorities from adducing an alternate view), the legal position could still be open to scrutiny and interpretation by a court of law in case of private disputes between parties not involving the regulator. In that case, the court will have to interpret the statutory provisions of the 2013 Act, wherein the position of the MCA will certainly have at least persuasive value.

Wednesday, June 25, 2014

SEBI Order on Delisting

A few weeks ago, we discussed SEBI’s proposals to overhaul the delisting regime. Evident from that discussion were difficulties faced in the current delisting regime. Some of those difficulties have surfaced in an order issued by SEBI yesterday involving the delisting of AstraZeneca Pharma India Limited. SEBI’s order alleges a concerted action between the controlling shareholder of the target and a large minority shareholder (who is a financial investor). SEBI has therefore called upon the stock exchanges to closely monitor the delisting process, and to ensure that it has been fair and transparent.

This case offers some further insight into the types of issues previously discussed, including possible influence by large minority shareholders who can play a dominant role in the delisting. At the same time, it must be noted that this order is only an interim one, and SEBI has sought to examine the issues further. 

Shareholder E-Voting Requirements Deferred

India is one of the forerunners in mandating e-voting by shareholders. It was first introduced by SEBI for top listed companies, and then codified in the Companies Act, 2013 (section 108). However, due to operational difficulties and delays, the MCA last week issued a clarification postponing the mandatory nature of the e-voting requirements. It has also clarified certain operational matters regarding the provisions of the Act as well as the Companies (Management and Administration) Rules, 2014. For further discussion, see here and here.

The matter of postal ballot (which covers e-voting) has already captured the attention of the judiciary as discussed here, where it was conferred a great deal of sanctity.

However, it is not clear as to whether SEBI has deferred (or will defer) the requirements under the listing agreement (clause 35B), which would be applicable to public listed companies.

Proposed Relaxations to Private Companies

One of the difficult tasks for any companies’ legislation is that it must be flexible and dynamic to be in position to deal with varying types of companies. Such companies can range from the one-person company, a private limited company, a public unlisted company to finally a public listed company. Despite widely differing characteristics that operate in each of these companies, the legislative focus has been somewhat homogenous. While it understandable that it is difficult for a single legislation to effectively deal with all types of company (and it would equally be unwieldy to have separate legislation for each type), various approaches are generally adopted. One approach is for companies’ legislation to lay down the minimum norms that are applicable to all companies, and then to set up additional norms applicable to large or publicly listed companies. The converse approach would be to set up the most stringent norms to be the generality, and then carve out specific exemptions for smaller or private companies. In India, the Companies Act has historically followed the latter approach.

The Companies Act, 1956 was generally applicable to all companies, but carried specific carve outs for private limited companies. The Companies Act, 2013 (the 2013 Act) has gone much farther in making most of its provisions applicable even to private limited companies, to such an extent that most norms generally relatable to public companies must also be adhered to by private companies. What else would explain the possibility that the key managerial personnel of even private limited companies would be subjected to rules against forward dealing in securities (section 194) and against insider trading (section 195)? One needs rules against forward dealing to prevent speculation that occurs only in widely traded companies, and similarly those against insider trading where there is a possibility of markets being efficient (i.e. that the availability of information can impact the market price). The relevance of these prohibitions to private companies continues to be confounding.

Even the philosophy and focus of regulation varies between private and public companies. In private companies, the relationships between the shareholders and directors are usually strong and they are incorporated partnerships of sorts (that often partakes the legal character of quasi-partnerships). In such cases, parties are able to set out the terms and conditions of their relationship in the constitutional documents such as memorandum and articles of association, with considerable flexibility as to how they are to be governed. Since no public interest is involved, matters of minority protection are limited to private disputes between shareholders that are usually resolved through mechanisms such as oppression and mismanagement. Public companies (especially listed ones), on the other hand, require a greater focus on public shareholders, corporate governance and investor protection. The company law in India has been far from recognizing this crucial difference in regulatory philosophy and has continued to adopt a “one-size-fits-all” approach, more so than ever in the 2013 Act.

Part of this is sought to be moderated now by the Ministry of Company Affairs (MCA) through a proposal made yesterday that is now open for consultation. Through this proposal, the MCA seeks to make exemptions from certain provisions of the 2013 Act, many of them with conditions and only to certain types of companies. The Firm has a helpful summary of the provisions that will be exempted/modified for private companies and also an analysis by Vinod Kothari on some of the specifics.

While this move is welcome and helps to break out of the unnecessary rigours imposed by the 2013 Act, this is arguably inadequate. Some of the dispensations are limited in nature. Others, such as the forward dealing and insider trading provisions discussed earlier, are not even covered in the proposal. This is therefore only of some partial utility, and may require a rather wholesome approach to restructure the 2013 Act.

Moreover, the method of introducing such significant changes through rulemaking would also suggest that the same benefits now conferred upon private companies might also be taken away by a sleight of hand sometime in the future. It was always well-known and the deliberate structure of the 2013 Act to confer significant rulemaking powers to the Government, but its exercise to bring about a paradigm shift in the regulatory scope of the companies’ legislation could raise some consternation.

Comments are due on the MCA proposal by July 1, 2014.

Tuesday, June 24, 2014

US Supreme Court Decision on Securities Fraud Actions

The US Supreme Court yesterday issued its opinion in a significant case that determines the state of the law on class actions for securities fraud. The background and the issue in question have been set out in the ruling as follows:

Investors can recover damages in a private securities fraud action only if they prove that they relied on the defendant’s misrepresentation in deciding to buy or sell a company’s stock. In Basic Inc. v. Levinson, 485 U. S. 224 (1988), we held that investors could satisfy this reliance requirement by invoking a presumption that the price of stock traded in an efficient market reflects all public, material information—including material misstatements. In such a case, we concluded, anyone who buys or sells the stock at the market price may be considered to have relied on those misstatements.

We also held, however, that a defendant could rebut this presumption in a number of ways, including by showing that the alleged misrepresentation did not actually affect
the stock’s price—that is, that the misrepresentation had no “price impact.” The questions presented are whether we should overrule or modify Basic’s presumption of reliance and, if not, whether defendants should nonetheless be afforded an opportunity in securities class action cases to rebut the presumption at the class action certification stage, by showing a lack of price impact.

Through a majority opinion, the Supreme Court declined the invitation to overrule Basic. Instead, by following a mid-path, it held that it is open to the defendant in a securities action to rebut the presumption by demonstrating that an alleged misrepresentation did not cause an impact on the market price of the issuer company.

For a detailed analysis of the decision, please see The D&O Diary and the New York Times.

It appears that private suits in the form of class actions will continue to play a strong role in securities enforcement in the US. However, with the opening provided by the Supreme Court to defendants to rebut the presumption, a substantial part of such litigation may be centered on resolving this question of impact of market price at the stage of certification itself.

This decision is unlikely to have a direct impact on Indian corporate or securities law, although Indian companies listed on US stock exchanges will be subject to this position. Indian law follows a more detailed rule-based approach under the SEBI Act and various regulations on matters pertaining to securities fraud (such as insider trading, market manipulation, etc.), while the US follows a broader “fraud-on-the-market” theory which emanates from section 10-b and rule 10b-5 under the Securities Exchange Act of 1934. At the same time, on various matters such as insider trading cases, SEBI as well as courts and tribunals in India have extensively relied on the US legal position in while determining matters under Indian law, and to that extent these implications are noteworthy from an Indian perspective.

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Monday, June 23, 2014

MCA Clarification on CSR

The provisions of the Companies Act, 2013 and the relevant Rules thereunder relating to corporate social responsibility (CSR) have come into effect from April 1, 2014. Since this concept is novel in India from a regulatory standpoint, several difficulties are bound to rise in its implementation. Matters are compounded further because the nature of the Act and Rules are extremely prescriptive in nature, including as to what matters fall within the purview of CSR and what do not. Not only have the Rules made the scope of the CSR provisions quite restrictive in nature (as discussed here), but the type of matters covered within CSR under Schedule VII of the Companies Act have undergone amendments even before coming into effect.

Given all these complexities, the Ministry of Corporate Affairs (MCA) last week issued a clarification regarding the CSR provisions under the Act and the Rules. It is evident that industry was concerned regarding the scope of CSR activities in Schedule VII, which are quite restrictive in nature. Now, the MCA has clarified that “the entries in the said Schedule VII must be interpreted liberally so as to capture the essence of the subjects enumerated in the said Schedule” and that the “items listed in the amended Schedule VII of the Act, are broad-based and are intended to cover a wide range of activities”. Illustrations of various types of activities are provided in the clarification. This suggests that the MCA is willing to provide some level of flexibility to the corporate sector in implementing the CSR policy.

While this clarification enlarges the scope of CSR activities, the prescriptive nature of the regulation continues to be demonstrated further. For example, several limitations have been placed. One-off events are excluded from being part of CSR. Expenses incurred in compliance with statutes and legislation are excluded. These indicate that the approach of heavily regulating CSR will be accompanied by its own set of problems. While lack of clarity in the regulation will give rise to uncertainties as witnessed in the need for MCA to issue clarifications, but it is also likely that industry players may come out various structures that may have to tested against the touchstone of the regulation. In the ensuing contest between regulators and the industry, the focus is likely to be on the micro-level aspects of regulation rather than the overall philosophy of social responsibility of corporations, which one would lose sight of in the process.

Friday, June 20, 2014

Maestro Engineers Per Incuriam: The Supreme Court on the Arbitrability of Fraud

In its recent decision in Swiss Timing Ltd, the Supreme Court has dealt with some important questions relating to arbitrability in Indian law. Swiss Timing, a (as the name suggests) Swiss company, was engaged by the Organising Committee of the Commonwealth Games (‘Delhi 2010’) in 2010 to provide timing, score and result systems for the CWG (‘TSR Contract’). After the conclusion of the games, Delhi 2010 refused to make the final payment of about CHF 1.3 million which Swiss Timing said was due to it under the contract. The TSR Contract provided that all disputes would, in the first instance, be resolved amicably, in default of that by the Chairman of Delhi 2010 and that the parties could invoke arbitration only if the Chairman failed to resolve the dispute within five days. After exchanging letters which bore no fruit, Swiss Timing appointed an arbitrator but Delhi 2010 refused to do so. There was an issue about whether these mandatory pre-arbitration steps had been exhausted but I say no more about it in this post. Swiss Timing filed a petition under section 11(6) of the Arbitration and Conciliation Act, 1996 seeking the appointment of the remaining members of the Tribunal.

Delhi 2010 made essentially two arguments in support of the proposition that the section 11 petition was not maintainable: (a) because Swiss Timing was in breach of a ‘warranty’ that it would not engage in ‘corrupt practices’, the TSR Contract was ‘void ab initio’ and therefore the arbitration clause was ineffective as well; and (b) disputes involving allegations of fraud or corruption are not arbitrable in Indian law. At first sight—although of course any view about this must be provisional, as the language of the warranty clause is not reproduced in the judgment—(a) is a surprising contention for two reasons. First, it is true that fraud sometimes has the effect of defeating contract formation, but this is usually because the fraudster cannot accept an offer which he knows is not intended for him (as the mistaken identity cases show). Where a contract has been validly formed, a fraudulent misrepresentation only confers a right of rescission, which can be lost if one of the bars to rescission is attracted. So it does not follow that there was never a contract. Secondly, even if the allegation is that the contract is ‘void’, it does not follow (subject to SBP v Patel Engineering) that it cannot be referred to arbitration. As Lord Hoffmann explained in his classic speech in Fiona Trust v Privalov, the question is not whether the allegation is of fraud or of some other vitiating factor, but whether the allegation attacks the arbitration agreement specifically.

Nijjar J held that the court must distinguish between an allegation that a contract is voidable and one that it is void; and even in the latter case, that a refusal to appoint an arbitrator is justified only if the contract is ‘patently void’, that is, where the Court is able to conclude that the contract is void ‘without receiving evidence’ ([27). The requirement that it must be void in default of evidence is important because few contracts would satisfy that test. Four examples of contracts that do satisfy the test are given: a contract with a minor, ‘where both parties are under a mistake of fact essential to the agreement’ (assuming that no evidence is required to prove this), and classes of unlawful contracts. It is not clear, however, that the mistake example is correct: an appropriately worded arbitration clause can give the Tribunal with the power to determine the restitutionary consequences of the parties having entered into an agreement that is invalid or ineffective and whether the clause has in fact done so or not must be a matter of construction. It is possible that Nijjar J is here attempting to distinguish between the invalidity of an arbitration clause arising out of contested questions of fact (which do not prevent reference) and contested questions of law (which do, if the court decides those questions in favour of the person challenging validity). Applying these principles, Nijjar J held that it was for the Tribunal to decide whether Delhi 2010 had established any factual basis for the allegation that Swiss Timing was in breach of the corruption warranty: the mere allegation that the contract was void does not disable the court from appointing an arbitrator ([17]).

The second issue in Swiss Timing was the allegation that fraud is not arbitrable. It was suggested by Delhi 2010 that the existence of parallel criminal proceedings and the supposed ‘manipulation’ of the contract by Swiss Timing were also reasons to refuse appointment but these arguments are vulnerable to the same objections. As Shantanu has explained in a previous post, the backdrop to this issue in Indian law is the much-criticised decision of the Supreme Court in Radhakrishnan v Maestro Engineers. In that case, the Court held that a dispute involving serious allegations of fraud should normally not be referred to arbitration even if there is a valid arbitration clause. The reasoning in Maestro is, with respect, not beyond question and, in Swiss Timing, Nijjar J has held that it was decided per incuriam, essentially because it did not consider the effect of Pinkcity Medway and Anand Gajapathi Raju:

21 … In my opinion, judgment in N. Radhakrishnan (supra) is per incuriam on two grounds:  Firstly, the judgment in Hindustan Petroleum Corpn. Ltd. (supra) though referred has not been distinguished but at the same time is not followed also. The judgment in P. Anand Gajapathi Raju (supra) was not even brought to the notice of this Court. Therefore, the same has neither been followed nor considered. Secondly, the provision contained in Section 16 of the Arbitration Act, 1996 were also not brought to the notice by this Court.  Therefore, in my opinion, the judgment in N. Radhakrishnan (supra) does not lay down the correct law and cannot be relied upon.

It should be noted that these observations were made in a section 11 petition, and that Maestro Engineers was decided by a Bench of two judges. Nevertheless, it is perhaps not far-fetched to suggest that the case is likely to prove influential in hastening the demise of the rule in Maestro Engineers.

Thursday, June 19, 2014

SEBI Consultation Paper on Crowdfunding

We have previously discussed the concept of crowdfunding and the broad nature of the legal issues that it might give rise to. Essentially, crowdfunding that involves the issue of securities (equity or debt) would attract the provisions of company law as well as securities laws. While specific crowdfunding legislation has been introduced in several countries (e.g. JOBS Act in the US), there has been no specific legal reform in India. This despite some indication of crowdfunding activity already having commenced in India.

Recognising the market realities and the need for crowdfunding as a source of capital raising by small and medium enterprises (SMEs), SEBI has issued a “Consultation Paper on Crowdfunding in India”. The paper is detailed and contains not only a background discussion regarding the methods of crowdfunding but also a comparative section on how it is regulated in several countries around the world. It discusses the legal regime in India, which primarily consists of the provisions of the Companies Act, 2013 and various SEBI regulations, including the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (ICDR). Thereafter, SEBI has raised a number of open-ended questions inviting suggestions as part of the consultation process.

While the crowdfunding mechanism requires companies to be granted the ability to raise capital through private arrangements for which they need to advertise through various means, primarily the Internet, this approach generally tends to militate against the legal regime that usually carefully circumscribes the manner in which companies can offer securities. This is more so in the light of the new provisions in the Companies Act, 2013 relating to private placements, which arguably overregulate such offers largely due to challenging episodes such as Sahara. However, the provisions of the Companies Act do carve out certain exclusions for offer of securities to qualified institutional buyers (QIBs), etc. It is through the exploitation of these exceptions that crowdfunding can be carried out in the Indian context without any legislative amendment and with the mere intervention of SEBI through the issue of appropriate regulation.

It is not clear if the crowdfunding market in India is yet at a stage when targeted regulation is mandated, but SEBI’s move to begin consultation on this issue is welcome. However, SEBI has made it clear that this is only an initial consultation process, and that there is no certainty that a specific regulatory regime for crowdfunding will in fact be introduced.

Comments are due on the Consultation Paper by July 16, 2014.