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INDIA (DOMESTIC FIRMS): An Introduction

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Obhan and Associates - Chambers and Partners

After a muted year that invited introspection and deliberation from policymakers and firms alike, India is firmly and assuredly back in action. The changes in the legal, regulatory, and business environments in this period acknowledge, among other things, technological developments and the changing face of the labour market. Besides cementing a place in the global marketplace, these changes portend an interesting and exciting future ahead for the country.

Keeping the wheels of justice turning during crises is a key marker of a democracy at work. Indian courts and adjudicating bodies stepped up to the challenges at hand with aplomb. Barring some initial adjustment after the pandemic began, the Supreme Court of India and High Courts successfully adopted various technological tools to switch from physical to virtual hearings, to ensure that justice continued to be administered uninterrupted. The success of this serendipitous experiment means that the Indian judiciary is seriously considering migration towards a hybrid physical and virtual model for future operations. This will significantly impact the cost, speed and effectiveness of court processes, with the additional, and more important, benefit of wider access to justice.

On the business side, the data on economic activity in India shows that the brief lull caused by the pandemic was quickly overcome. For example, although mergers and acquisitions had slowed down in 2020, dealmaking recovered tremendously in 2021, especially in the second quarter, with short-term projections looking equally promising. While dealmaking was predominantly domestic, cross-border activity kept up too, with over 140 such deals being made, valued collectively at over USD21 billion. Half of this value came from a single investment from Facebook and Google in Reliance’s Jio, worth approximately USD10 billion. Indian companies also ventured abroad in 2020, undertaking over 75 transactions worth USD3 billion, which was 1.5 times more than in 2019. Similarly, 2020 also saw record private equity deals valued at over USD40 billion, 28% higher than the year before. This was also an especially productive period for start-ups, with 25 start-ups achieving unicorn status.

On the legislative and regulatory side, there have been both minor and major developments of interest. The Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (the IT Rules) were introduced in early 2021, affecting social media and OTT platforms, digital news publishing outlets, as well as individual internet users. These stringent IT Rules directly impact the immunity previously available to social media intermediaries under the safe harbour provisions contained in the Information Technology Act, 2000, for content hosted or shared by users; criminal prosecution may follow if entities do not toe the line. Additionally, some entities that were previously expected to adhere to self-regulatory guidelines, e.g., publishers of news and current affairs content (digital news media) and online curated content (OTT platforms), must now mandatorily adhere to a code of ethics. Sanction for not exercising “due caution and discretion” in featuring activities, beliefs, practices, or views of racial or religious groups, may include content being blocked, deleted or modified. Vague and excessive in design, the IT Rules and accompanying code have been roundly condemned by multiple stakeholders for unshackled government control over information, communication and expression of thought, as well as transforming the nature of internet access. Legal confrontations around constitutional questions of data privacy, and the protection of the fundamental right to freedom of speech and expression, are already under way in various High Courts and the Supreme Court.

On the financial side, a circular issued by India’s central bank, the Reserve Bank of India, that banned prohibited entities from dealing in virtual currencies, was set aside by the Supreme Court. A forthcoming legislation on cryptocurrency and the regulation of official digital currency is expected to tackle some of the issues in this space. Separately, in continuation of the longer-term project on financial resolution for firms, the Insolvency and Bankruptcy Code, 2016, introduced pre-packaged insolvency resolution processes for micro, small and medium enterprises.

India is also recognising the need to create a more friendly operating environment for firms using new technology as part of their core strategy. The new Drone Rules, 2021, issued by the Ministry of Civil Aviation, have made it simpler, cheaper and quicker to obtain authorisations to own and operate drones. Similarly, guidelines released by the Department of Science and Technology have made it simpler to collect, create and publish geo-spatial data and maps within the country. Many cumbersome approvals have been eliminated, and self-certification has been introduced to make data collection and map publishing easier. Besides impacting individual/retail users, these rules and guidelines are expected to have a cumulative impact on commercial activity in the country, as e-commerce and other service providers increasingly explore the use of drones and GPS-based delivery systems in their business models.

In a massive restructuring of the labour law architecture, the Indian Parliament has approved the amalgamation of nearly thirty previously-existing laws on labour issues into four codes. These codes, dealing separately with wages; industrial relations; social security; and occupational, safety, health and working conditions, reflect the rapid evolution of the labour market, and will affect enterprises of all sizes and kinds. The introduction of new definitions and concepts such as aggregators, gig workers, and unorganised workers, and stricter regulations around worker safety norms and wage payments, may require almost all firms to revisit and reconsider contracts and compliances.

This period also saw a dramatic shake-up in the judicial hierarchy in certain sectors. India’s brief but chequered history of using statutory tribunals as alternative dispute resolution mechanisms has long been a subject of debate. Predictably, this provoked a larger review of the functioning of tribunals, in culmination of which the Parliament cleared the Tribunals Reforms Act, 2021, which abolished five tribunals, including the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) and the Intellectual Property Appellate Board (IPAB). Cases previously heard by these tribunals will be transferred to courts; similarly, new cases are being filed before courts directly.

From now on, in intellectual property (IP) cases, all appeals against decisions of the Registrars of Trademarks, Copyrights and Geographical Indications and the Controller of Patents, will be heard by the relevant High Courts exercising jurisdiction in these matters. Some courts, notably the Delhi High Court, have set up specialised IP divisions to handle these cases, and new rules have also been correspondingly drafted for this purpose. This development overhauls the adjudicatory mechanism for IP cases in India. The IPAB, originally intended to be a quasi-judicial mechanism for IP dispute resolution, had been severely criticised in the past for its overall inefficiency and technical incapability in resolving complex disputes. The Indian judiciary has its own challenges of a burgeoning caseload and a lack of adequately trained judges, and it is to be seen how courts take on this new responsibility.

The range of changes in the past several months show that India is keeping pace with global developments, whether it is by updating administrative and judicial systems, or deregulating new technologies, or paving the way for doing business better. There is overall confidence in the rule of law, and in the fabric of Indian democracy remaining intact, with an implicit assurance that the occasional missteps will also be overcome successfully.