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Umakanth Varottil

Chapter 14 looks at modern Indian corporation law, finding in the development of Indian corporation law since 1850 an oscillation between stakeholder and shareholder primacy views of the corporation. Colonial India’s corporate law, imposed by England, drew on English corporate law and treated the company as a private matter with little obligation to non-shareholders—a view that carried over into the early days of Indian independence. By the 1960s, however, India’s embrace of socialism led to a change in its company law, as a view that the company had a public character, not just a private one, led to the addition of new protections for constituencies including employees, creditors and consumers. This stakeholder trend was in turn reversed in the 1990s, with deregulation and adoption of new corporate governance requirements and a disclosure-based securities law regime, both targeted at protecting shareholders. In the latest twist, the Companies Act, 2013 has again moved Indian corporation law in the stakeholder direction, providing greater protection to non-shareholders and, even more striking, mandating that large companies spend at least 2 per cent of average net profits on social causes. As the chapter shows, while originating in English company law, Indian law has diverged sharply from it, driven by India’s own distinctive economic and political imperatives.

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Umakanth Varottil

Conventional corporate law scholarship attributes a high degree of homogeneity to minority shareholders. For example, the agency problems approach identifies conflicts between shareholders and managers in the case of companies with dispersed shareholding, and conflicts between minority shareholders and controlling shareholders for companies with concentrated shareholding. However, recent trends establish that minority shareholders come in different hues. Large institutional investors have mostly crowded out retail shareholders from the stock markets. Even within the institutional variety, differences abound. The current corporate governance paradigm fails to account for the diversity among minority shareholders and their interests. In this chapter, I seek to establish that the assumptions regarding the homogeneity of minority shareholders are no longer valid due to market developments that have radically altered minority shareholder demographics in companies the world over. I argue that the expanding schism between the identity, outlook, actions and interests of varieties of minority shareholders creates agency problems among types of minority shareholders. This calls for a paradigm shift in corporate law’s treatment of minority shareholders. The ability of one type of minority shareholder to affect the interests of others would call for the imposition of restraints on minority shareholder behavior.

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Arjya B. Majumdar and Umakanth Varottil

Start-up companies face difficulties in raising finances, and the situation has intensified since the Global Financial Crisis in 2008. As a result, crowdfunding has made its appearance as an attractive alternative capital-raising mechanism, harnessing technology (primarily the Internet) to access funding from the ‘crowd’. This chapter explores the core question of how equity crowdfunding should be regulated in a manner that both enhances its appeal to engender the development of small and new-age businesses through accessible funding opportunities, and at the same time protects investors against undue risks, such as fraud, which arise from the activity. The chapter analyses the regulatory conundrum on equity crowdfunding by examining the legal regime for crowdfunding in India. The rules relating to fund-raising by companies in India have been considerably tightened under the Companies Act, 2013, which limits crowdfunding activity. However, the Securities and Exchange Board of India (SEBI) has issued a consultation paper in 2014, Consultation Paper on Crowdfunding in India, that proposes a framework for ushering in crowdfunding in India. The chapter finds that the unduly onerous conditions imposed by SEBI have the effect of deterring rather than promoting the growth of crowdfunding. The existing (and proposed) legal framework in India has erred on the side of caution and sought to emphasize investor protection more than engendering the market for crowdfunding. Keywords: • India crowdfunding • SEBI Consultation Paper 2014 • Investor protection • Sahara India Supreme Court ruling • Accredited investors • Qualified Institutional Buyers