Vipan Kumar, PhD

August 03rd, 2026

A. Legislative Update

[A.1] From static to dynamic: SEBI amends LODR to ease transfer and transmission of securities

SEBI has made key changes to the LODR regulations to simplify the rules for transfer and transmission of securities. These amendments point towards a shift from static regulation to a dynamic approach.

Firstly, the static regulatory requirements prescribed in Schedule VII dealing with the transfer and transmission of securities have been omitted. Secondly, Regulations 40(7) and 61(4), which relied on the procedure mentioned in Schedule VII, have been amended and changed to rely on the procedural requirements as may be specified by SEBI from time to time.

Thus, now the companies must stay updated with SEBI’s circulars instead of relying solely on the 2015 regulations, and the investors shall observe a flexible, faster and less bureaucratic manner of transfer and transmission of securities.

B. Case Laws

[B.1] A failed attempt to invoke section 166 for alleging oppression and mismanagement

In a recent case of Krishnam Raju Kalidindi v. Krisani Bio Sciences (P.) Ltd (NCLT-Hyderabad, July 3rd, 2026), a petition for prevention of oppression and mismanagement was filed alleging that a former director misused company resources to develop 120 patents and diverted them to a separate entity and thus violated the provisions of section 166 of the Companies Act, 2013, which has resulted in oppression and mismanagement. The Tribunal did not consider this argument much and rejected the petition on different grounds.

As per the facts of this case, a formal tripartite agreement was signed wherein a scientist was appointed as a whole-time director, CEO and scientific officer of the company at an annual salary of 30 lakhs per year. Further, he got allotment of 30,00,000 equity shares of the company. The agreement explicitly provided that the scientist shall assign past, present and future patents to the company and identified five specific provisional patent applications that the scientist already held. The scientist transferred the five identified past patents to the company and got the promised allotment of shares. However, while serving as the CEO and controller of research facilities, it was found that the scientist developed 120 new patents.

The petitioner alleged that the scientist transferred only five patents but registered the remaining 115 patents in his own name and later transferred them to his own company. An internal committee of the company also found that all these patents were created using the company’s resources and thus sought the transfer of patents back to the company.

The problem that the Tribunal found with the current petition was twofold. Firstly, NCLT held that the current dispute related to a contract, that is, the tripartite agreement between the parties. The dispute was not a governance failure to be considered under the Prevention of oppression of mismanagement. The petitioner’s attempt to link it with statutory duties of directors under section 166 was unsuccessful. Secondly, the Tribunal found that the petition was time-barred. The contention of the petitioner that the knowledge of alleged fraud came to notice only in 2023 was untenable as the patent applications were already advertised between 2011-14.

This ruling gives a critical message that the Tribunal will not entertain petitions under sections 241 and 242 if the grievance pertains to a contractual dispute over asset ownership or IP rights.

[B.2] Proper Purpose Doctrine: NCLT sets aside fraudulent allotment of shares during winding up

In C. Mahendra Exports Ltd v. C. Mahendra International Ltd., the NCLT Mumbai bench (June 19th, 2026) held that the preferential allotment of shares during the winding up process was an act of oppression and mismanagement due to the controversial allotment process.

As per the facts of the case, the Board of Directors of the company passed a resolution to issue 1,20,000 equity shares on a preferential basis to one of the respondents. They also scheduled an Extraordinary General Meeting (EGM) for which no notice was given to the official liquidator. The EGM took place as per the schedule without the presence of the official liquidator, and allotment was made. Later on, when the liquidator discovered the preferential allotment while examining the records, he also found that the shares were allotted at the face value of ₹10 each, whereas the book value of the share was ₹238.80.

Noticing the defects, the liquidator filed a petition for prevention of oppression and mismanagement alleging that the allotment was fraudulent and should be cancelled.

While relying on the doctrine of proper purpose as approved by the Supreme Court in Dale & Carrington Investment (P.) Ltd v. P. K. Prathapan, (2005) 1 SCC 212, the Tribunal held that the intent of the wrongdoer was to usurp the control of the company rather than raising funds. The Tribunal cancelled the allotment of shares and ordered the rectification of the register as there were serious lapses in allotment.

According to the proper purpose doctrine, when powers to issue additional shares are used by directors of a company merely for an extraneous purpose like maintenance or acquisition of control over the affairs of the company, the same cannot be upheld.

Companies often issue different types of shares (e.g., equity shares and preference shares). Each type comes with specific rights, like voting power or priority in receiving dividends. A company cannot change them arbitrarily. There is a strict process to protect shareholders. Section 48 explains the rules for changing (varying) these rights.

As per the provision, a company can only change the rights of a specific class of shares if either at least 75% (three-fourths) of the shareholders of that specific class agree in writing or a special resolution (a formal vote requiring 75% majority) is passed at a separate meeting held only for the shareholders of that specific class.

Further, this is only allowed if the company’s memorandum or articles of association allow for such a variation. If those documents don’t mention it, the variation is only allowed if the original terms of the share issue didn’t explicitly forbid it. In short, Section 48 ensures that a company cannot unfairly strip rights from a specific group of shareholders without a special majority vote and provides a safety net for the minority to challenge the change in the Tribunal.

In reality, the following three situations may arise giving rights to a person: (1) the rights conferred on a person may be attached to his shareholding, or (2) may be conferred on him as member without being attached to his shares, or (3) may be conferred on him without any sort of shareholding. These different situations make it necessary to understand the scope and applicability of section 48 of the Companies Act to all these three situations. It may be noted that section 48 explicitly uses the terms shareholders’ rights or rights attached to the shares of any class. Thus, a variation of rights in first two situations may be covered by the provisions of section 48, however, the third situations is outside its scope.

Now, let us discuss a landmark judgement from UK that deals with variation of shareholders’ rights and mentions about these three situations. The landmark case is Cumbrian Newspapers Group Ltd v. Cumberland & Westmorland Herald Newspaper & Printing Co Ltd published at [1986] BCLC 286.

As per the facts of this case, the plaintiff, Cumbrian Newspapers Group Ltd, and the defendant, Cumberland & Westmorland Herald Newspaper & Printing Co. Ltd, negotiated a 1968 transaction to protect the independence of local newspapers. As part of the arrangement, the plaintiff closed its own weekly paper, the Penrith Observer, and acquired a 10.67 per cent shareholding in the defendant.

Concurrently, the defendant adopted new articles of association granting the plaintiff specific rights: (1) pre-emption rights over other ordinary shares, (2) rights regarding unissued shares, and (3) the right to appoint a director so long as it held at least 10 per cent of the issued ordinary shares. These rights were designed to enable the plaintiff, in its capacity as a shareholder, to prevent a hostile takeover of the defendant.

In the 1980s, the defendant’s board proposed a special resolution to cancel the articles conferring these special rights. The plaintiff sought a declaration that these rights were class rights requiring its consent for variation and an injunction to restrain the defendant from holding the meeting.

After analysing the facts and records of the company, the court identified three categories of rights found in company articles: (1) rights annexed to particular shares (e.g., dividend rights); (2) rights conferred on a person in their capacity as a member but not tied to specific share numbers; and (3) outsider rights conferred on persons in a capacity other than as a member (e.g., solicitor).

Scott J. held that the plaintiff’s rights fell into the second category. The court reasoned that because the rights were inextricably connected with the issue of shares to the plaintiff and were intended to be enjoyed by the plaintiff qua shareholder, they were incidents of membership. Thus, it was held that the shares held by the plaintiff constitute a class of shares, and the special rights are class rights that cannot be varied without the plaintiff’s consent.

C. Q & A

[C.1] What is Companies Compliance Facilitation Scheme?

The Companies Compliance Facilitation Scheme (CCFS) is an amnesty scheme introduced by the Ministry of Corporate Affairs (MCA). It provides an opportunity to the non-compliant and defaulting companies to file their pending documents with the RoC at a discounted fees. This filing immunes them from hefty fines or prosecution.

Under the Companies Act, 2013, a late filing of financial statements and annual returns attracts an automatic per day penalty with no upper ceiling. Thus, a company which has missed filing for multiple years can end up paying lakhs of rupees as penalty.

The CCFS was introduced by the MCA to bring active companies back into regular compliance, and relieve financial stress for MSMEs, start-ups and closely held companies. It also provides an exit strategy for inactive and defunct companies to get their names formally struck off at a minimal cost.

As per the CCFS, companies pay only 10% of the standard additional fees accrued for delayed filing. Inactive companies seeking dormant status receive a 50% discount on applicable filing fees. Defunct companies applying for voluntary strike off pay only 25% of the standard fee. Further, immunity from penalty and prosecution due to delayed filing is given provided the filing is made before formal adjudication orders.

Any private company, one person company, small company and inactive business that is looking to regularise its filings or strike off the name of the company can avail this opportunity. However, companies already under winding up process or facing insolvency proceedings or in whose case final adjudication or disqualification order has been passed are ineligible to avail this opportunity.

The CCFS window was originally scheduled from April 15th, 2026 to July 15th, 2026. However, the MCA vide its notification dated July 8th, 2026 has extended the window to August 31st, 2026.

[C.2] Whether uploading financial statement of previous year with auditor’s report of current year results in defective filing

Section 137(1) of the Companies Act, 2013 mandates that a copy of financial statements duly adopted at the AGM along with all required attachments must be filed with the RoC within 30 days of the AGM. Section 134(2) expressly stipulates that the Auditor’s report must be attached to every financial statement. Any violation of these provisions is liable to penalties under sections 137(3) and 134(8) of the Act.

In a recent case involving M/s Lokvikas Benefit Nidhi Limited and its three directors, the Registrar of Companies at Kanpur passed an ex-parte adjudication order imposing a cumulative penalty of rupees 2,92,700/- as there was a mismatch between the balance sheet and the auditor’s report uploaded by the company for FY 20-21. The company had attached the auditor’s report for the year 20-21, whereas the balance sheet pertained to the year 19-20.

The enquiry officer concluded that attaching the balance sheet of the previous year with the auditor’s report of 20-21 effectively meant that the company had failed to file its correct financial statements for the FY 20-21. Thus, it resulted in non-compliance with section 137(1) read with section 134(2) of the Act. Hence, the RoC imposed the penalty. The case highlights the importance of filing accurate financial statements with regulatory authorities to avoid penal actions.