June 8th, 2026

A. Cover Story

Enhancement of Shareholder Rights

In this week’s cover story, I am presenting two cases focusing on the strengthening of statutory powers and legal remedies under the Companies Act, 2013, that have resulted in the enhancement of shareholder rights.

In the first case, an enforcement action was taken by the Registrar of Companies (ROC), Gwalior (order no. ID: PO/ADJ/03-2026/GL/01815), imposing an ex parte penalty of Rs. 50,000 each on the directors of M/s Dhanlaxmi Solvex Private Limited. The penalty was imposed as an MCA inspection revealed that the company had repeatedly entered into non-cash asset transactions with its directors over a five-year period without obtaining the mandatory prior approval via a shareholders’ resolution (section 192, Companies Act, 2013). While the company claimed compliance in its internal records, it failed to file the required Form MGT-14 on the MCA portal and ignored subsequent personal hearing notices.

This ruling underscores that regulatory compliance under Section 192 of the Companies Act, 2013, is not a mere paperwork exercise. Transactions involving corporate assets and insiders require absolute transparency. This serves as a stark reminder that entering into unapproved non-cash arrangements is legally voidable and will trigger direct, out-of-pocket financial penalties for the individuals involved.

In another case, the NCLT Mumbai (Dipak Shantilal Parekh v. Metachem (P) Ltd) penalised directors (respondents) who secretly surrendered the company’s revenue-generating tenancy rights to related parties at zero consideration without statutory approval. To establish absolute control and cover their tracks during the resulting legal dispute, the directors orchestrated an improper extraordinary general meeting and a premeditated rights issue that diluted the petitioners’ stake from a majority 50.05% down to 6.43%.

Treating the closely held company as a corporate quasi-partnership, the NCLT invalidated the fraudulent share allotment, restored the original shareholding structure, and ordered the directors to buy out the oppressed petitioners at a fair valuation.

This ruling underscores that using corporate maneuvers to secretly strip value and squeeze out majority owners fundamentally breaches a director’s fiduciary obligations under Section 166 of the Companies Act, 2013, moving tribunals to enforce exit remedies over functional deadlocks.

B. Informal Guidance by SEBI

Clients Under a Non-Discretionary Portfolio Management Services (ND-PMS) Can Pledge Securities for Personal Borrowing

Under the SEBI (Portfolio Managers) Regulations, discretionary portfolio management services and non-discretionary portfolio management operate through two entirely different workflows.

In a discretionary setup, the client signs an investment management agreement and grants a power of attorney (PoA) to the fund manager. Clients define their risk parameters, return objectives, and asset allocation strategy upfront. Once that boundary is set, the portfolio manager has full autonomy. If they see a structural opportunity or a sudden risk during market hours, they buy or sell immediately.

Whereas the non-discretionary acts as a hybrid model. The portfolio manager operates essentially as a highly specialised institutional advisor. They conduct the research, track macro trends, and design tailored allocation strategies. However, they cannot execute a single trade without the client’s explicit, traceable consent. When the manager wants to rebalance or alter a position, they send a formal trade recommendation.

Following a request from Geojit Financial Services Limited, SEBI issued an interpretive letter (May 18th, 2026) clarifying that clients are allowed to pledge securities held under an ND-PMS framework for personal borrowing.

SEBI provided that the borrowing arrangement must be strictly between the client and the lender and the pledge must be initiated solely at the client’s discretion and for their own benefit, with the portfolio manager having no involvement in the borrowing transaction. Because the Portfolio Manager is not a party to the transaction, this act of pledging does not constitute borrowing by the Portfolio Manager on behalf of the client. Therefore, it does not violate Regulation 23(8) of the SEBI (Portfolio Managers) Regulations, 2020.

SEBI further clarified that the beneficial ownership of the securities remains with the client upon pledging. As such, the market value of these pledged securities can continue to be included in the Portfolio Manager’s Assets Under Management (AUM) and regulatory reporting until the pledge is actually invoked by the lender.