INDIA Law and Practice Contributed by: Raj Ramachandran, Varun Sriram, Krutamana Pisipati, Aadhitya Logeshen and Abheejit V, JSA
trade transactions, including the receipt of export proceeds and their use to pay for imports. • Further, on 11 June 2025, the Government of India issued an amendment to Rule 7 (2) of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019. This amendment permits Indian companies engaged in sectors where Foreign Direct Investment (FDI) is prohibited to issue bonus shares to pre-existing non-resident shareholders. Indian companies operating in FDI-prohibited sec- tors can now issue bonus shares to their exist- ing non-resident shareholders, so long as their shareholding pattern remains unchanged, and this bonus issuance must comply with the applicable laws, ie, Section 63 of the Indian Companies Act, 2013 and in case of listed entities, also the applica- ble SEBI Regulations. • RBI on 8 May 2025, introduced the RBI (Digital Lending) Directions, 2025 (“Digital Lending Direc- tions”). The Digital Lending Directions have intro- duced 2 (two) key new initiatives (increased trans- parency in digital loan aggregation and a directory of Digital Lending Apps), which should guide the digital lending industry on the path to sustain- able and effective growth. It further represents a comprehensive regulatory intervention to balance innovation with consumer protection and systemic stability and prioritises and strengthens borrower trust. The Digital Lending Directions aim to reduce systemic risks by implementing stricter regula- tions for lending service providers and default loss guarantee arrangements. They also establish rigor- ous due diligence requirements for these providers and hold regulated entities explicitly accountable for any actions or omissions by the lending service providers. • On 13 August 2025, the RBI released the Frame- work for Responsible and Ethical Enablement of Artificial Intelligence. RBI’s FREE-AI report helps facilitate mergers and acquisitions (M&A) in India’s technology sector by providing a regulatory blueprint for responsible and ethical adoption of artificial intelligence. It introduces seven guiding principles – trust, people first, innovation, fairness, accountability, explainability, and resilience – and structures its recommendations around key pil- lars such as infrastructure, governance, and risk management. The framework recommends robust
data infrastructure, indigenous AI models, adaptive policies, sector-wide capacity building, govern- ance structures, and strong consumer protection. For M&A deals, FREE-AI builds confidence among acquirers and investors by requiring technology firms to comply with transparent governance, equi- ty, and accountability standards for AI systems. This reduces risks around data privacy, algorithmic bias, and operational resilience. By encouraging sector-specific, reliable AI adoption, the report streamlines due diligence, simplifies regulatory approvals, and enables strong post-merger syner- gies for technology-driven M&A transactions. • The India–United Kingdom Comprehensive Eco- nomic and Trade Agreement (CETA), signed on 24 July 2025, marks a significant development in the evolution of cross-border technology and digital investment between the two countries. Chapter 12 of CETA on Digital Trade facilitates the secure flow of data across borders while maintaining strong standards of data protection and privacy, thereby reducing localisation-related constraints for acquir- ers. It also prohibits any requirement to disclose source code, encourages paperless trade and e-commerce, and provides a structured frame- work for cybersecurity cooperation. The Chapter further recognises the importance of digital iden- tity, authentication, and trust services in enabling interoperable fintech and platform transactions. By ensuring non-discriminatory treatment of digital products and services and promoting collabora- tion on emerging technologies, including artificial intelligence, CETA establishes a transparent and predictable environment for cross-border invest- ment and technology transfer. Once ratified, it is expected to strengthen investor confidence and facilitate greater activity in India–UK technology M&A.
9. Due Diligence/Data Privacy 9.1 Due Diligence Process
Due diligence information is provided to help the acquirer to evaluate the company’s business, opera- tions, assets, liabilities and statutory compliances to verify that the representations made to them are accu- rate and complete. The scope and depth of diligence
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