KBD MONTHLY MONITOR – JULY 2026 (KEY LEGAL, REGULATORY AND JUDICIAL DEVELOPMENTS)

JULY 2026 – AT A GLANCE

• RBI has released the draft Foreign Exchange Management (Foreign Investment) Rules, 2026, proposing a simplified framework for foreign investment and a broader test for determining foreign control of Indian entities.
• The Ministry of Corporate Affairs has extended the validity of the Companies Compliance Facilitation Scheme, providing additional time for companies to regularise specified compliance defaults.
• SEBI has introduced further governance measures, amendments to mutual fund regulations and operational circulars aimed at strengthening market integrity and investor protection.
• The Delhi High Court delivered a significant interim ruling on the application of copyright law to AI model training, marking an important development in India’s evolving AI and intellectual property landscape.

EDITOR’S NOTE

India’s legal and regulatory landscape witnessed significant developments during July 2026, with policymakers, regulators and courts continuing to shape the evolving legal framework governing business in India. Key developments relating to foreign investment, corporate compliance, securities regulation and intellectual property reflect India’s continued focus on strengthening governance, encouraging innovation and providing greater legal certainty.

This edition highlights the principal legal, regulatory and judicial developments that are expected to have practical implications for businesses, investors, financial institutions, technology companies and multinational corporations operating in India.

FOREIGN INVESTMENT & FEMA

RBI Proposes New Foreign Investment Rules

The Reserve Bank of India has released the draft Foreign Exchange Management (Foreign Investment) Rules, 2026, proposing to replace the existing Non-Debt Instruments Rules with a simplified and principle-based framework governing foreign investment in India. The draft also proposes a broader and more objective test for determining “foreign control” of Indian entities. Stakeholders may submit comments on the draft until 31 August 2026.

The proposed framework seeks to:

• simplify foreign investment regulations;
• provide greater clarity regarding foreign ownership and control;
• rationalise compliance requirements; and
• enhance regulatory certainty while improving the ease of doing business for foreign investors.

Business Impact

Foreign investors, private equity funds, multinational corporations and Indian companies receiving foreign investment should assess existing shareholder agreements, governance structures, board composition and transaction documentation to evaluate the potential impact of the proposed framework. Early review may help organisations identify governance or structural changes that may become necessary once the Rules are finalised.

CORPORATE COMPLIANCE

MCA Extends Compliance Facilitation Scheme

The Ministry of Corporate Affairs has extended the validity of the Companies Compliance Facilitation Scheme, 2026, providing companies with additional time to regularise specified compliance defaults and complete pending statutory filings. The extension reflects the Government’s continued emphasis on facilitating voluntary compliance while reducing the regulatory burden on businesses.

• Companies should utilise the extended timelines to:
• complete overdue filings;
• review statutory registers and corporate records;
• address historical compliance gaps; and
• strengthen internal compliance monitoring mechanisms.

Business Impact

Businesses should take advantage of the extended timelines to review historical compliance issues, strengthen internal governance processes and minimise potential regulatory exposure arising from delayed filings or incomplete statutory records.

SECURITIES & CAPITAL MARKETS

SEBI Continues Regulatory Reforms

SEBI introduced further regulatory measures during July 2026 aimed at strengthening market infrastructure, investor protection and operational efficiency. These measures include amendments to the Mutual Funds Regulations and circulars governing securities market intermediaries, client asset handling and compliance processes. The initiatives reinforce SEBI’s continued focus on improving market integrity, transparency and operational resilience.

Areas of continued regulatory focus include:

• governance standards;
• investor protection;
• operational transparency;
• intermediary compliance; and
• market resilience.

Business Impact

Listed companies, intermediaries, asset managers and other market participants should review governance policies, compliance frameworks and operational procedures to ensure alignment with evolving SEBI requirements. Organisations should also strengthen internal controls and monitoring mechanisms to respond effectively to changing regulatory expectations.

BANKING & FINANCIAL REGULATION

Governance and Risk Oversight Remain Regulatory Priorities

The RBI has issued revised governance directions specifying matters that must be placed before the boards of banks, reflecting an increased emphasis on board accountability, effective oversight and prudent risk management. The revised framework seeks to enhance board engagement in strategic decision-making, strengthen governance standards and reinforce regulatory oversight within the banking sector.

Financial institutions should continue strengthening:

• board governance;
• risk management frameworks;
• regulatory reporting;
• internal controls; and
• operational resilience.

Business Impact

Banks, non-banking financial companies and regulated financial institutions should review board reporting processes, governance frameworks and risk management practices to ensure continued compliance with evolving RBI expectations. Strong governance structures remain central to maintaining regulatory confidence and operational stability.

ESG & CORPORATE GOVERNANCE

Governance Continues to Drive Investment Decisions

Environmental, Social and Governance (ESG) considerations continue to shape investment strategies, financing decisions and corporate governance practices across industries. Investors, lenders and other stakeholders are placing increasing emphasis on transparent governance, responsible business practices and sustainability performance when making investment and financing decisions.

Businesses should continue focusing on:

• sustainability governance;
• climate-related disclosures;
• responsible supply chain management;
• board oversight of ESG initiatives; and
• stakeholder engagement.

Business Impact

Organisations that integrate ESG considerations into their governance and business strategies are better positioned to attract long-term investment, strengthen stakeholder confidence and effectively manage emerging regulatory and commercial risks.

INTELLECTUAL PROPERTY & ARTIFICIAL INTELLIGENCE

Delhi High Court Clarifies Copyright Position on AI Training

In a landmark interim ruling, the Delhi High Court, in ANI Media Pvt. Ltd. v. OpenAI Inc., declined to grant an interim injunction restraining OpenAI from using ANI’s copyrighted news content for training its large language models. Justice Amit Bansal held, prima facie, that the storage and use of copyrighted works for training AI models falls within the scope of the fair dealing exception under Section 52(1)(a) of the Copyright Act, 1957. The Court further observed that ANI had not established that ChatGPT reproduced or “regurgitated” its copyrighted works in a manner amounting to copyright infringement. The Court therefore found that no prima facie case for interim relief had been made out. The underlying copyright suit, however, remains pending and the observations are confined to the interim stage.

Business Impact

The decision represents India’s first significant judicial pronouncement on the intersection of artificial intelligence and copyright law. While the judgment provides interim guidance that the use of copyrighted material for AI training may, in appropriate circumstances, fall within the statutory fair dealing exceptions, it does not finally determine the legal position. Businesses developing or deploying AI systems should continue to adopt robust data governance practices, assess licensing strategies where appropriate, and closely monitor the final outcome of the proceedings, which is expected to shape the future of AI and copyright jurisprudence in India.

PRACTICAL TAKEAWAYS FOR BUSINESSES

• Assess the potential impact of the proposed FEMA (Foreign Investment) Rules on existing investment structures, governance arrangements and shareholder rights.
• Utilise the extended MCA compliance timelines to complete pending statutory filings and strengthen internal compliance systems.
• Review governance frameworks and board reporting processes in light of evolving RBI and SEBI expectations.
• Continue strengthening ESG reporting, sustainability governance and stakeholder engagement practices.
• Review AI governance policies, intellectual property risk management practices and data usage strategies in light of evolving judicial guidance on AI training and copyright.
• Conduct periodic legal and regulatory compliance reviews to identify emerging risks and implement corrective measures proactively.

LOOKING AHEAD

Businesses should closely monitor the finalisation of the proposed FEMA Rules, further SEBI regulatory initiatives and significant judicial developments in emerging areas such as artificial intelligence and intellectual property. These developments are expected to influence investment structures, regulatory compliance, governance practices and innovation strategies across sectors.

CLOSING NOTE

India’s legal, regulatory and judicial landscape continues to evolve in response to changing market dynamics, technological innovation and global investment trends. The developments highlighted in this edition reinforce the importance of proactive compliance, strong governance and staying abreast of emerging judicial precedents that may influence business strategy.

At KBD Partners, we remain committed to helping clients navigate these developments through commercially focused legal advice and strategic regulatory guidance. We hope this edition of the KBD Monthly Monitor provides valuable insights into the evolving legal landscape and assists businesses in making informed decisions in an increasingly dynamic regulatory environment.

KBD Partners

Email: mailbox@kbdlawpartners.com

Website: https://kbdlawpartners.com/

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Our lawyers combine technical legal expertise with commercial understanding to provide practical, solution-oriented advice tailored to our clients’ business objectives. We regularly advise corporations, financial institutions, investors, start-ups, promoters and high-net-worth individuals on complex transactions, regulatory matters and strategic disputes.

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DISCLAIMER

This publication has been prepared by KBD Partners for informational purposes only and does not constitute legal advice, solicitation or advertisement. The contents of this publication should not be relied upon as a substitute for specific legal advice. Readers are advised to seek professional advice before acting upon any information contained herein.