India

Chandhiok & Mahajan and Shardul Amarchand Mangaldas, successfully defended BookMyShow before the Competition Commission of India which closed proceedings brought against BookMyShow in relation to allegations of abuse of dominant position in the market for online intermediation services for booking of movie tickets in India.  The Commission concluded that, despite BookMyShow holding a dominant position in the 'market for online intermediation services for booking of movie tickets in India,' there was no evidence of contravention of the Competition Act, 2002. Consequently, the matter was closed. C&M's competition team, comprising Mr. Karan Singh Chandhiok (Partner & Head of Competition & Regulatory Practice), Mr. Avinash Amarnath (Partner), Mr. Aakash Kumbhat (Managing Associate), Ms. Aileen Aditi Sundardas (Associate) and Mr. Jai Hindocha (Associate) and SAM's competition comprising Mr. Harman Singh Sandhu (Partner), Mr. Yaman Verma (Partner), Ms. Raveena Kumari Sethia (Principle Associate), and Ms. Pranika Goel (Associate) represented BookMyShow before the CCI.

INTRODUCTION The regulation of foreign investment in India is governed by the Foreign Exchange Management Act, 1999 ( the “FEMA”), the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (“NDI Rules”), the Consolidated FDI Policy issued by the Department for Promotion of Industry and Internal Trade (“DPIIT”), and the Reserve Bank of India's (“RBI”) Master Direction on Foreign Investment in India (“Master Direction”), as amended from time to time. When a foreign investor directly acquires or subscribes to equity instruments or capital of an Indian entity, such acquisition or subscription constitutes foreign direct investment (FDI), subject to the conditions prescribed under these instruments as discussed below. A conceptually distinct but closely related mode of foreign investment is the indirect acquisition or subscription of equity or capital of an Indian entity through another Indian entity that is itself a recipient of FDI. This indirect mode is known as downstream investment and gives rise to what is termed indirect foreign investment (“IFI”) in the investee entity. This article examines the regulatory framework governing downstream investments made by FOCCs(as defined below), the conditions for classifying an investment as IFI, the compliance obligations that arise therefrom, and the pricing, consideration, and reporting framework applicable to such transactions. DOWNSTREAM INVESTMENT AND INDIRECT FOREIGN INVESTMENT A. Definition of Downstream Investment Under the NDI Rules, downstream investment is defined as an investment made by an Indian entity or an investment vehicle, having total foreign investment in it, in the equity instruments or the capital of another Indian entity. The term “total foreign investment” means the aggregate of direct foreign investment and indirect foreign investment in an entity, computed on a fully diluted basis. For this purpose, an “investment vehicle” means an entity registered and regulated under regulations framed by the Securities and Exchange Board of India (“SEBI”) or any other designated authority, and includes Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), Alternative Investment Funds (AIFs), and mutual funds. The term “Indian entity” refers to an Indian company or a limited liability partnership (“LLP”). B. Distinction between Downstream Investment and Indirect Foreign Investment Although the terms “downstream investment” and “indirect foreign investment” are frequently used interchangeably, they are conceptually distinct. Downstream investment refers to the investment made by an Indian entity or an investment vehicle (that has received foreign investment) into another Indian entity. Whereas, the IFI is a downstream investment received by an Indian entity from another Indian entity which has received foreign investment and the Indian entity qualifies as an FOCC (as defined hereinbelow). By way of illustration: where a foreign investor (Company A) invests in an Indian company (Company B) under the FDI route, and Company B thereafter invests in another Indian company (Company C), the investment by Company B into Company C is downstream investment from Company B's perspective. From Company C’s perspective, that same investment constitutes IFI, but only if Company B is an FOCC. FOREIGN-OWNED AND CONTROLLED COMPANIES A company owned or controlled by a non-resident is termed a Foreign Owned and/or Controlled Company (“FOCC”). The criteria for ownership and control differ as between Indian companies and LLPs. A. In the Case of an Indian Company Ownership: An Indian company is treated as “owned” by non-residents where more than 50% (fifty percent) of its paid-up capital is beneficially held by persons resident outside India. Control: An Indian company is treated as “controlled” by non-residents where non-residents hold the right to appoint a majority of its directors or to control the management or policy decisions of the company, whether by virtue of shareholding, management rights, shareholders' agreements, voting agreements, or otherwise. B. In the Case of an LLP Ownership: An LLP is treated as owned by non-residents where non-residents contribute more than 50% (fifty percent) of its capital and hold a majority profit share. Control: An LLP is treated as controlled by non-residents where non-residents hold the right to appoint the majority of its designated partners, and such designated partners (to the exclusion of others) exercise control over all the policies of the LLP. CONDITIONS APPLICABLE TO DOWNSTREAM INVESTMENT AND INDIRECT FOREIGN INVESTMENT A. General Conditions: Sectoral Compliance Any downstream investment must strictly adhere to the entry route (automatic or government approval), sectoral caps, pricing guidelines, and all attendant conditions including reporting requirements applicable to FDI in the relevant sector. The rationale, enshrined in the NDI Rules, reflects the principle that what cannot be done directly by a foreign investor shall not be permitted to be done indirectly through an FOCC. Two illustrative applications of this principle are as follows: Government Approval Route: Where a downstream investment is proposed in a sector subject to government approval (such as the print media sector), the FOCC must obtain prior government approval before making such investment, as would be required had a foreign investor invested directly. Sectoral Cap Restriction: In sectors subject to a sectoral cap, the aggregate foreign investment being the sum of direct and indirect foreign investment in the investee entity must not exceed the prescribed cap. For instance, in the For instance, in the power exchanges sector, where FDI is permitted up to 49% (forty-nine percent) under the automatic route, the total foreign investment (direct and indirect) in the investee company must not exceed 49% (forty-nine percent). B. Restriction on FOCC-LLPs Where the investing FOCC is constituted as an LLP, it may make downstream investment only in companies or LLPs operating in sectors where foreign investment up to 100% (hundred percent) is permitted under the automatic route and no FDI-linked performance conditions are prescribed. C. Conditions for Classification as Indirect Foreign Investment An investment received by an Indian investee entity from an FOCC will be treated as IFI upon satisfaction of the following conditions: (a) the downstream investment must be approved by the board of directors of the investing Indian entity (i.e., the FOCC). Where a shareholders' agreement exists, such agreement must also sanction the proposed downstream investment; and (b) for the purposes of making downstream investment, the FOCC must bring in requisite funds from abroad and shall not utilise funds borrowed in the domestic market. Downstream investment may, however, be made through internal accruals, which for this purpose means profits transferred to a reserve account after payment of taxes. Where debt is raised and utilised for any related purpose, such raising and utilisation must be in compliance with FEMA and the rules and regulations made thereunder. TREATMENT OF FOCCS: DEEMED FOREIGN INVESTMENT AND REGULATORY SYMMETRY Once an entity is classified as an FOCC, any investment made by it in the equity instruments or capital of another Indian entity is treated as 100% (hundred percent) foreign investment, regardless of the actual proportion of foreign ownership in the FOCC. Further, the NDI Rules read with the Master Direction, establishes a dual treatment for FOCCs: (a) for the purposes of pricing guidelines, an FOCC is treated at par with a person resident outside India; and (b) for the purposes of reporting requirements, an FOCC is treated at par with a person resident in India. While this dual treatment is intended to balance regulatory oversight with investor facilitation, it gives rise to certain interpretive inconsistencies that are discussed below. PRICING FRAMEWORK A. General Principles for Pricing under the NDI Rules The NDI Rules prescribes the following pricing norms for transfers of equity instruments: (a) a floor price not less than fair market value (“FMV”) applies to transfers from residents to non-residents; and (b) a ceiling price not more than FMV applies to transfers from non-residents to residents. FMV must be determined in accordance with arm length basis and internationally accepted pricing methodologies and certified by a SEBI-registered Merchant Banker, Chartered Accountant, or Cost Accountant. B. Pricing Norms for FOCC Transactions - Secondary Sales by FOCC The NDI Rules prescribes pricing norms applicable where an FOCC is the seller in a secondary transfer of equity instruments of another Indian entity. Where the transferee is a non-resident, or another FOCC, pricing norms do not apply and the parties are at liberty to agree on any consideration. Where, however, the transferee is a resident, pricing norms are attracted and the sale price must not exceed FMV. C. Pricing Norms for FOCC Transactions - Acquisitions by FOCC The NDI Rules do not expressly address the applicability of pricing norms where an FOCC is the acquirer in a secondary transaction. In the absence of explicit statutory guidance, market participants have relied on interpretations developed through authorised dealer banks (“AD Banks”), informed by informal consultations with the RBI. Historically, AD Banks generally treated FOCCs as equivalent to non-residents for pricing purposes, with the consequence that pricing norms applied when an FOCC acquired from a resident but not when acquiring from a non-resident. In recent years, the RBI has clarified that pricing norms must apply even where a FOCC acquires equity from a non-resident, with a view to preventing unregulated outflow of domestic funds. D. Pricing Matrix for FOCC Transactions The pricing guidelines applicable to transactions involving a FOCC can be understood more clearly when broken down based on the nature of the transaction and the counterparty involved. In the case of a primary investment, where the FOCC is subscribing to equity instruments or contributing to capital, the subscription price must be at or above the FMV. Similarly, where the FOCC acquires shares from a resident shareholder, the purchase price is required to be at or above FMV. On the other hand, where the FOCC acquires shares from a non-resident shareholder, the purchase price must be at or below FMV. This creates a contrasting requirement depending on the residency status of the seller. In a disinvestment scenario, where the FOCC sells shares to a resident, the sale price must be at or below FMV. However, if the sale is made to a non-resident, there are no prescribed pricing restrictions, and the parties are free to agree upon any mutually acceptable consideration. Further, in transactions involving transfers between two FOCCs, the pricing guidelines do not apply, and the parties may negotiate and agree upon any price without being bound by FMV constraints. E. Complexity in Multi-Seller Transactions The pricing guidelines become particularly complex in transactions involving multiple categories of sellers, such as a 100% (hundred percent) acquisition where the target company’s shareholders include both residents and non-residents. In such situations, different pricing rules apply depending on the status of the seller. For transfers by resident shareholders to a FOCC, the consideration must be not less than the FMVfloor. For transfers by non-resident shareholders to the FOCC, the consideration must be not exceeding the FMV. As a result of these pricing constraints, the parties are effectively constrained to transact at the FMV. This significantly limits the ability to negotiate different prices with different sellers and reduces overall commercial flexibility. Accordingly, this becomes an important practical consideration when structuring a 100% (hundred percent) acquisition transaction involving both resident and non-resident shareholders. CONSIDERATION STRUCTURE: SHARE SWAPS AND SETTLEMENT OF DOWNSTREAM INVESTMENT A. Share Swaps The NDI Rules permits an Indian company to issue equity instruments to non-residents against, inter alia, a swap of equity instruments, under the automatic route. On a principled reading, an FOCC being treated at par with a non-resident for pricing purposes should be able to undertake downstream investments through share swaps. Further, an Indian company may either issue its shares or transfer shares held by it (in India or overseas) against a swap of shares of an Indian or foreign company, subject to compliance with the applicable sectoral caps, FDI-linked conditionalities, the Overseas Investment Rules, 2022, and pricing guidelines. B. Divergent Interpretations and Practical Considerations Notwithstanding the above, divergent interpretations have emerged in practice. Certain AD Banks have taken the view that share swap transactions by FOCCs may fall under the government approval route, which requires downstream investments to be funded through either funds remitted from abroad or internal accruals. This has been interpreted by some as implying a preference for cash consideration, notwithstanding the absence of an express statutory prohibition on share swaps. In practice, a distinction is sometimes drawn between: (a) pure swap transactions which are viewed conservatively by certain AD Banks as requiring government approval; and (b) hybrid transactions involving part cash and part securities, which may be permissible under the automatic route. A further constraint is that an FOCC that lacks adequate foreign currency reserves or retained earnings may not, in such circumstances, be permitted to settle consideration by way of a share swap. The absence of uniform regulatory interpretation continues to introduce deal uncertainty and the requires the early and engagement with the relevant AD Bank at the transaction planning stage, for seeking clarity. DEFERRED CONSIDERATION, ESCROW ARRANGEMENTS AND INDEMNIFICATION The NDI Rules provides that, upon the transfer of equity instruments between a resident and a non-resident, up to 25% (twenty-five percent) of the total consideration may be: (a) deferred; (b) placed in an escrow arrangement; or (c) structured as an indemnity by the seller for a maximum period of 18(eighteen) months from the date of transfer or payment. This provision was previously applicable only to direct foreign investment and was silent on its applicability to downstream investments by FOCCs. The RBI has now clarified that the deferred consideration framework applicable to foreign investment extends equally to downstream investments made by FOCCs in other Indian entities. Scope of the Indemnity Limitation A significant interpretive question arises as to whether the 25% (twenty-five percent) cap and 18(eighteen) month limitation apply exclusively to deferred consideration, or whether they also govern any indemnity provided by the parties in the transaction such as business indemnities, tax indemnities, warranty claims, and the like. A careful reading of the NDI Rules suggest that indemnities arising from third-party claims, breaches of representation or warranty, or contractual obligations (including business and tax claims) may fall outside the scope of “consideration” as contemplated by the provision. Such indemnification obligations, being contractual in nature and arising from the conduct or representations of the parties, may not constitute consideration for the transfer of equity instruments. However, the applicability of such limitations would ultimately depend on the specific drafting of the indemnity provisions, including the scope of covered claims, trigger events, payment mechanics, and the overall transaction structure. Accordingly, indemnity provisions should be carefully structured to avoid any ambiguity regarding their nature and enforceability. COMPLIANCE AND REPORTING OBLIGATIONS Downstream investments by FOCCs give rise to a series of compliance and reporting obligations. Since IFI is treated as foreign investment for all regulatory purposes, the investee entity must comply with the full FDI regulatory framework, including the two-stage compliance mechanism prescribed by the RBI: Intimation to DPIIT: The downstream investment must be reported to the Secretariat for Industrial Assistance, DPIIT, within 30 (thirty) days of making such investment, even where equity instruments have not yet been allotted. Form DI Reporting: Form DI must be filed with the AD Bank within 30 (thirty) days from the date of allotment of equity instruments. iii. Form FC-TRS: Where a non-resident acquires equity from an FOCC, Form FC-TRS is required to be filed by the FOCC. Statutory Auditor's Certificate: The investing entity must obtain an annual certificate from its statutory auditor confirming compliance with the downstream investment regulations, and such compliance must be disclosed in the Board's Report forming part of the company's Annual Report. It is pertinent to note that while the RBI has amended its regulations to permit deferred consideration and share swaps in the context of downstream investments by FOCCs, the corresponding instructions and operational guidelines for the filing of Form DI through the RBI's firms portal are, at the time of writing, yet to be published. RIGHTS ISSUES OF SHARES The NDI Rules provides for the issuance of shares to non-resident shareholders of Indian companies that have received FDI, by way of a rights issue. The NDI Rules do not prescribe specific pricing guidelines for such issuances, requiring only that the value of such shares not be less than the price offered to residents. However, where an FOCC proposes to subscribe to a rights issue of shares in another Indian investee entity, the position is that the pricing guidelines applicable to downstream investments apply, and no exception has been carved out in this regard. Accordingly, the price at which an FOCC subscribes to such rights shares must comply with the FMV-based pricing norms applicable to downstream investments. PRACTICAL IMPLICATIONS FOR TRANSACTION STRUCTURING The regulatory framework governing downstream investments by FOCCs, while comprehensive, is attended by a number of interpretive ambiguities that have material consequences for transaction structuring: Absence of Proportionality: The requirement to treat all downstream investments as 100%(hundred percent) foreign investment regardless of the actual quantum of foreign ownership in the FOCC restricts structuring flexibility, particularly in sectors subject to sectoral caps or performance conditions. Mandatory FMV Pricing: In complex multi-seller transactions, the operation of floor and ceiling pricing norms effectively forces parties to transact at FMV, limiting the ability to negotiate commercial pricing arrangements. iii. Documentation Requirements: Transaction documents in particular, share purchase agreements must carefully account for differential pricing obligations, regulatory conditions, indemnity structures, and reporting timelines. Generic contractual provisions may give rise to inadvertent FEMA violations. Divergent AD Bank Interpretations: The absence of uniform regulatory guidance on issues such as share swaps and the pricing of non-resident-to-FOCC transfers may result in last-minute restructuring or delays at advanced stages of a transaction. Early and specific engagement with the relevant AD Bank is essential. Authors: Shramona Sarkar – Principal Associate Jaydeep Saha - Associate    

Background The Indian government is currently evaluating a landmark policy shift that could allow Foreign Direct Investment (“FDI”) in inventory led e-commerce models, specifically for export purposes. Historically, India has maintained a strict prohibition on FDI in inventory-based e-commerce, permitting 100% investment only under the marketplace model where platforms act as neutral facilitators between buyers and sellers. The proposed reform seeks to bridge the gap between India’s continuously expanding e-commerce sector and its global export potential, which currently stands at just US$ 4-5 billion, a mere 1% of total exports. Key Highlights of the Proposed Export Policy   The proposed framework for the export-oriented e-commerce policy seeks to boost national exports while maintaining tight guardrails to protect domestic retailers from unfair competition. Under this planned shift, foreign funded e-commerce companies may be permitted to operate an export only inventory model, allowing them to hold stock for sale exclusively to international customers. To prevent any spillover into the domestic market, the policy considers mandating the physical segregation of goods through dedicated, ringfenced warehouses for export inventory. Additionally, the government is evaluating requirements for foreign platforms to establish separate Indian entities tasked with purchasing goods from domestic sellers solely for international markets. Another point being considered is to permit such entities to buy from Indian sellers only after an international order has been confirmed, ensuring a clear distinction from prohibited domestic inventory-led retail.   Economic Impact   The primary objective of this regulatory shift is the integration of India’s 63,000,000 Micro, Small, and Medium Enterprises (“MSMEs”) into the global supply chain. Approximately 70% of Indian MSMEs currently selling online are expected to be the biggest beneficiaries of this plan, particularly those operating in high-demand sectors such as fashion and apparel, gems and jewellery, and handicrafts. Furthermore, by partnering with large FDI-funded entities, these smaller enterprises may see a significant reduction in their individual compliance burdens in attempting to reach international markets. With global e-commerce trade projected to reach US$ 8 trillion by 2026, this policy strategically aligns with the government’s goal of establishing India as a premier global manufacturing and export hub.   Analysis   The move toward an export-only inventory model reflects a broader regulatory recognition that the current “100% automatic route” for marketplaces is often illusory and highly conditional in practice. According to a research paper published by the Institute of Company Secretaries of India (ICSI), the binary distinction between marketplace and inventory models has collapsed into a “spectrum of grey,” where logistics and captive payment gateways allow platforms to exercise constructive control over sellers even without legal title to goods. By proposing a limited inventory relaxation for exports aligned with the Foreign Trade Policy 2023, the government is adopting a strategic middle path that encourages innovation and volume in international trade while maintaining protectionist safeguards for the domestic retail landscape.   In conclusion, the government’s proposed plan represents a major step towards making India a global export hub. By allowing foreign funded companies to own and manage inventory specifically for international orders, the policy aims to significantly grow India’s e-commerce exports beyond the current US$ 4-5 billion mark. To protect the local market, the plan includes strict safeguards, such as separate warehouses and export-only entities that do not comingle with entities catering to the domestic market. While the government is still consulting with various ministries and stakeholders, this thinking highlights a clear, positive shift, which will aid this sector in leapfrogging exponentially.

We have so far, in the Corporate Governance series, delved into the governance protections for shareholders and fiduciary duties of directors. In this article, we specifically focus on the protection available to minority shareholders in companies, including a highlight on the number ‘10’ as far as corporate governance is concerned. Majority rule is the cornerstone on which corporate governance is based, since a company is a separate legal entity and it is impractical to require unanimous consent for every decision. This enables efficient decision making by relying on the collective wisdom of majority shareholders to act in the best interests of the company. While the principle of majority rule facilitates effective corporate functioning, it also creates opportunities for abuse. Hence, majority rule is tempered by a system of checks and balances, wherein statutory safeguards and minority rights operate to restrain potential abuse of power and ensure that decisions are taken in the broader interests of the company rather than serving the narrow interests of the controlling shareholders.   This principle is effective practically, only if the majority shareholder group is diverse and represents different interests. On the contrary, if majority shareholding is held by one person or group of people with similar interests, the decisions taken by them, may not necessarily be reflective of the interests of all stakeholders of the company and there may be an inclination to support individual or group interests. This is where minority protection provisions of corporate law come into play, which enable smaller shareholders to raise their voice, have their interests protected and, claim oppression or mismanagement against the majority. Where does majority rule become fair game and where does it cross the line and become oppressive to minority?   When one speaks of majority rule, the numbers that immediately come to mind are (a) 50% (simple majority), that is, where shareholders holding more than 50% voting rights can effectively control the passage of ordinary resolutions, (b) 75% (special majority), that is, where the consent of shareholders holding more than 75% voting rights is required to approve certain critical matters; and (c) 25% (negative control), that is, where shareholders holding more than 25% of voting rights have the ability to block special resolutions, though they don’t have the right to enable the passage of any resolution.   The one number that often gets overlooked in the scheme of things is 10%. This number holds a special place in Indian corporate law, giving 10% shareholders certain critical rights representation rights and rights to take action against the majority.   Representation rights   Minority representation and right to audience are essential for good governance. Shareholders holding not less than 10% of the paid-up share capital of a company are entitled to call for a general meeting of the shareholders. If the board fails to call for a meeting despite such request, such shareholders can, not only call a general meeting themselves but also get reimbursed for the expenses.   Members of a company having not less than 10% of the total voting power (or holding shares on which an aggregate sum of not less than INR 5 lakhs or such higher amount as may be prescribed has been paid-up), have the right to demand that the chairman of a general meeting order for a poll to be taken rather than a resolution being passed by show of hands.   Rights such as the right to call for a general meeting, demand for a poll, enable minority shareholders to ensure that the majority does not block their representation, and in turn, their right to be heard,  when it comes to decision making, irrespective of their ability to enable passage of resolutions.   Management rights   In addition to rights available to shareholders to ensure protection of their legally granted rights, company law, under certain circumstances, allows them the right to correct or highlight wrong doing in the company. Critical for this is the right available to 1000 small shareholders or 10% of the total number of shareholders (whichever is lower), of a listed company to have a director appointed by them. Further, minority shareholders may also seek investigation into the affairs of the company, particularly, where fraud, mismanagement or misconduct is suspected.   Dissenting shareholder rights   While  company law requires the consent of holders of 3/4th of a class of shares to effect any change to the terms of such shares, if a minimum of 10% of the holders of the class of shares whose rights are being varied do not consent to such variation, they have the right to apply to the National Company Law Tribunal to have the variation of rights attached to their shares cancelled.   In a public offering, if the proposal for change in objects or variation in terms of a contract, referred to in the prospectus is dissented by at least 10% of the shareholders who voted in the general meeting, then such dissenting shareholders are entitled to be provided an exit. This provides protection to shareholders in situations where there is a change in the terms on the basis of which a public offer was made and the shareholders who had approved the previous terms would like to exit the company.   Rights in relation to oppression and mismanagement   One of the most powerful rights available to smaller shareholders is the right to raise their voice against oppression and mismanagement. If, not less than 100 members or not less of the 10% of the total number of its members, whichever is less, or any member/ members holding not less than 10% of the issued share capital (which requirement may also be waived by the NCLT), are of the opinion that (i) the affairs of the company are being conducted prejudicially or oppressively towards public interest or the company’s interest or (ii) any material change such cause such prejudicial conduct, then they can approach the NCLT for relief.   It is interesting to note that company law provides for relief not only in case of proven oppression but also for anticipated ones, though this has not really been tested.   The NCLT has the power to provide a wide range of reliefs including, transfer of shares between members, reduction of share capital, termination, setting aside or modification of any agreement, setting aside of any transfer of goods, reconstitution of the board, etc.   Squeeze out right and obligation   Once an acquirer or group of people hold 90% or more of the issued equity share capital of a company, the acquirer has the right to make an offer to buy out the remaining minority shares. The minority shareholders also have a reciprocal right to offer their shares to the majority. The acquisition must take place at a fair price, which is determined by a registered valuer, ensuring that the minority shareholders cannot be squeezed out at a discount. The squeeze-out mechanism reflects the broader philosophy of Indian corporate law: while it enables efficient consolidation of ownership by the majority, it simultaneously protects minority shareholders through fair pricing and procedural safeguards.   Judicial approach   Indian courts have consistently recognized the importance of balancing majority rule with minority protection. Indian courts have even held that the question is not about legality vs illegality, and that even legal actions may amount to oppression to minority shareholders. However, the courts also do not interfere with the governance of a company, unless a legitimate case is made out.   In Needle Industries (India) Ltd. vs. Needle Industries Newey (India) Holding Ltd. (1981 (3) SCC 333), the Hon’ble Supreme Court of India held that that oppression involves conduct that is burdensome, harsh or wrongful. The Court went further to say that even an isolated illegal act may not amount to oppression; however, a series of illegal acts may lead to a conclusion that there is an intent to commit oppression.   In Miheer H. Mafatlal v. Mafatlal Industries Ltd. (1997 (1) SCC 579), the Supreme Court noted that while approving a scheme, the company court has to satisfy itself that members were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to the interest of the minority.   The Supreme Court has also reaffirmed the importance of majority rule, by stating that not every act that prejudices the minority can be classified as oppression. Famously, in the matter of Tata Consultancy Services Ltd. vs. Cyrus Investments Pvt. Ltd. (AIRONLINE 2021 SC 179), the Supreme Court of India while ruling in favour of Tata, held that removal of a director does not automatically constitute oppression unless it is shown that the conduct was prejudicial, oppressive or lacking in probity.   Implication during investment negotiations   When negotiating shareholder agreements and other transaction documents, founders should remain mindful of the statutory rights that arise once an investor or group of shareholders crosses the 10% shareholding threshold under law. Consequently, founders should carefully consider how equity is structured and whether certain governance or information rights are being granted alongside the shareholding. Some of the questions that founders should ask themselves – who is likely to cross 10% individually or whether there are a group of similarly acting shareholders who will cross 10%? What rights are being given to such shareholders? Is there any mechanism by which there is a mediation before statutory remedies are exercised?   Similarly, investors should be mindful of when this threshold is breached for them or the other shareholders, specially if there are any opposing interest groups that may breach the 10% mark.   Clear acceleration channels (before statutory action is taken), well-defined governance frameworks, and dispute resolution mechanisms within the shareholder agreement can help ensure that statutory rights are exercised responsibly and that disagreements are addressed constructively.   Conclusion   The “power of 10” reflects the legislature’s attempt to balance the efficiency of majority rule with safeguards against its potential abuse. As corporate structures grow increasingly complex and concentrated ownership continues to shape Indian companies, the strategic importance of this threshold becomes even more apparent. Recognising and utilising the rights attached to this benchmark is therefore essential to ensuring that corporate democracy in India remains both effective and equitable. In the next chapter in this series, we will explore another powerful right available to minority shareholders in the form of ‘class action suits’.   Authors   Saumya Ramakrishnan and Karan Kalra   Contact: [email protected]; [email protected]   Disclaimer: The article is intended solely for general informational purposes only and does not constitute legal advice. It should not be acted upon without seeking specific professional counsel. No attorney-client relationship is created by reading this article.