A. Cover Story

[A.1] Moratorium under Section 96 is on the debt, not the debtor

In Ajeet Madhukar Mulay v. Abhyudaya Co-Operative Bank Ltd, the High Court of Bombay (June 09th, 2026) set aside the arbitral award enforcing a debt against guarantors because the underlying debt was under a statutory moratorium triggered by the insolvency application of a co-guarantor. This judgement established that if a moratorium is granted under section 96 of the IBC upon an insolvency application under section 94, then it protects all the parties for that debt, and not just the specific party who has applied for it.

As per the facts of the case, two sister concerns, Nirmangold Alloys Pvt. Ltd and Nirmangold Plasttech Pvt. Ltd have availed credit facilities from Abhyudaya Co-operative Bank. The personal guarantee for the credit facility was provided by Ajeet and Monica Mulay (the Mulays), and Bhushan and Anita Patil (the Patils).

When the arbitration proceedings were initiated by the bank for recovery, the Patils filed an application for personal insolvency under Section 94 of the IBC, which triggered a moratorium under Section 96. This moratorium stayed all the legal proceedings regarding the debt. The Sole Arbitrator acknowledged the moratorium but took a peculiar stance. He stayed the proceedings against the Patils, but continued them against the Mulays. The Arbitrator passed the award in February 2024, holding the Mulays liable and directing the sale of their mortgaged properties. The Mulays challenged the award under Section 34 of the Arbitration Act, alleging that the proceedings were legally barred against them.

The High Court of Bombay accepted the challenge, holding that the moratorium under Section 96 of the IBC is on the debt, not the debtor. The court relied on the binding precedent of State Bank of India v. V. Ramkrishnan and Dilip B. Jiwrajka v. UoI to support the view that when a co-guarantor triggers a moratorium, the entire debt is placed in abeyance.

This judgement sends a clear message to banks and creditors that they cannot bypass the IBC moratorium by targeting the guarantors who have not filed for insolvency.

B. Case Laws

[B.1] Moratorium Provisions v. Criminal Impact of Cheque Bounce

The Supreme Court of India in Dineshchand Surana v. UCO Bank (May 27th, 2026) has referred the matter on the applicability of moratorium under the IBC to cheque bounce cases under the NI Act to a larger bench due to the contradictory findings in an earlier judgement of P. Mohanraj v. Shah Brother Ispat (P) Ltd (March 1st, 2021).

As per the P. Mohanraj case, the Supreme Court decided that cheque bounce cases are mostly about recovering money and are civil in nature. Therefore, cheque bounce cases under Section 138 of the NI Act must stop when a moratorium is declared under the IBC. The reason being, when a company faces insolvency, the law gives a breathing space called a moratorium, which stops all legal actions to let the company reorganise its debts. However, the court clarified that the moratorium applies only to companies. The directors and cheque signatories could still be prosecuted.

As per the recent ruling in the Dineshchand Surana case, the court opined that cheque bounce cases are criminal offences rather than mere debt recovery. The main goal of proceedings under the NI Act is to punish dishonesty and maintain trust in banking. Since it is a criminal matter, the moratorium might not stop the prosecution even if the company is insolvent. The court suggested splitting the case into a money recovery claim, which is compensatory in nature, and a criminal punishment claim. The trial for punishment or fine must continue. If the court orders payment of the cheque amount as compensation, then the recovery of money may be paused during the insolvency process. The Supreme Court decided that, as it is a complex legal issue, the matter may be referred to a larger bench to settle the law definitively.

[B.2] Civil Court’s jurisdiction is not barred in cases involving composite reliefs

The High Court of Bombay in Catalyst Trusteeship Ltd v. Ruparel Homes (India) (P) Ltd held that the civil court’s jurisdiction is not barred under Section 430 if the plaintiff has sought composite reliefs like redemption of mortgage, enforcement of guarantees, along with redemption of debentures.

As per the facts of this case, Catalyst Trusteeship Ltd (Plaintiff), a debenture trustee, filed a commercial suit against Ruparel Homes (India) (P) Ltd and others (Defendants) to recover approximately ₹366.93 crores arising from a default on Non-Convertible Debentures (NCDs) issued in 2019. The Plaintiff sought composite reliefs including a declaration of liability, enforcement of guarantees, redemption of mortgages, and enforcement of pledge agreements. The Defendants challenged the maintainability of the suit, arguing that the civil court’s jurisdiction was ousted by Section 430 of the Companies Act, 2013 (vesting exclusive jurisdiction in the NCLT) and that the suit was barred by Section 12A of the Commercial Courts Act, 2015 (mandatory pre-institution mediation). The issue wise analysis of the case is as follows:

Issue No. 1: Whether the civil court’s jurisdiction is barred under Section 430 of the Companies Act, 2013 read with Section 71 when the Plaintiff seeks composite reliefs including redemption of mortgages and enforcement of guarantees alongside debenture redemption?

Section 430 of the Companies Act, 2013 bars civil courts from entertaining matters that the NCLT is empowered to determine. Section 71(10) of the Companies Act, 2013 empowers NCLT to entertain matters regarding debenture redemption. Section 9 of the Code of Civil Procedure, 1908 grants civil courts plenary jurisdiction unless expressly barred. Bombay HC in Rajiv Sanghvi v. Pradip R. Kamdar and the Supreme Court in Dwarka Prasad Agarwal v. Ramesh Chander Agarwal have established that the bar under Section 430 applies only to reliefs that can be adjudicated exclusively by the NCLT, and jurisdiction bars must be strictly interpreted.

The Court, after applying a relief-specific test, held that the civil court’s jurisdiction is not ousted merely because a component of the suit (debenture redemption) could be heard by the NCLT. While the Defendants correctly argued that the redemption of debentures falls under the NCLT’s exclusive jurisdiction under Section 71(10), the Plaintiff’s suit included independent prayers for the redemption of mortgages executed under separate mortgage deeds and the enforcement of pledge agreements. The Court noted that the Defendants failed to demonstrate that the redemption of independent mortgage documents or the enforcement of pledge agreements fell within the specific statutory remit of the NCLT under the Companies Act.

Issue No. 2: Whether the suit is barred under Section 12A of the Commercial Courts Act, 2015 due to the non-joinder of Defendant No. 11 in the pre-institution mediation process and the alleged delay in filing?

Section 12A of the Commercial Courts Act, 2015 mandates pre-institution mediation. Failure to comply with this provision can lead to rejection of the plaint under Order VII Rule 11 CPC. However, the Court rejected this argument on two grounds. Firstly, Defendant No. 11 was essentially a partnership firm between Defendants 1 and 6 that participated in the mediation, making the non-joinder a technicality without substantive prejudice. Secondly, and more critically, the Plaintiff had filed an application for urgent interim relief to prevent the alienation of assets. The Court relied on Asma Lateef v. Shabbir Ahmad (Supreme Court), noting that when urgent interim relief is required to preserve the subject matter of the suit, the strict bar of Section 12A does not apply to the grant of such interim protection. The existence of a mediation failure report and the urgency of the situation outweighed the procedural objection.

Issue No. 3: Whether the Plaintiff has made out a sufficient case to grant an interim injunction restraining the Defendants from dealing with, encumbering, or creating third-party rights over mortgaged properties and pledged securities?

After analysing the facts of this case, the Court granted an injunction restraining the Defendants from dealing with, selling, transferring, or encumbering the mortgaged properties and pledged securities during the pendency of the suit, subject to the Plaintiff’s written consent.

[B.3] Order pronounced by 8-member facilitation council held to be void ab initio

In a landmark ruling titled Bihar State Power Holding Company Ltd v. State of Jharkhand delivered on June 24, 2026, the High Court of Jharkhand has drawn a bright line between procedural jurisdiction and the inherent jurisdiction of the Micro and Small Enterprises Facilitation Council (MSME Council). The Court held that an award passed by a Council whose composition violates Section 21 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, is void ab initio.

The case arose from unpaid dues against the erstwhile Bihar State Electricity Board (BSEB). The respondent-supplier filed an application before the MSME Council, which eventually passed an award directing payment with interest. However, the petitioners (Bihar and Jharkhand utilities) challenged this award, not on the merits of the debt, but on the competency of the Council itself.

The central dispute revolved around Section 21 of the MSMED Act, 2006, which explicitly mandates the composition of the Facilitation Council: “The Micro and Small Enterprise Facilitation Council shall consist of not less than three but not more than five members.” In the instant case, the Jharkhand MSME Council that passed the award on January 25, 2016, was constituted with eight members.

The High Court scrutinised this discrepancy and found that Section 21 is clear and unambiguous. There is no scope for including more than five members. Thus, the Court held that the State of Jharkhand had acted ultra vires by constituting a Council with eight members, a practice previously validated by local rules (2007 Rules) but subsequently declared invalid by the Court itself in Electrosteel Steels Ltd v. State of Jharkhand.

Another important point decided by the High Court was the maintainability of a writ petition on account of the alternative remedy doctrine. Typically, if a party is aggrieved by an arbitral award, they must approach the Commercial Court under Section 34 of the Arbitration and Conciliation Act, 1996. The respondent in this case argued on similar lines that any challenge, including the composition of the tribunal, must be raised under Section 34.

The High Court rejected this argument, establishing a crucial precedent for cases involving inherent jurisdiction. The Court distinguished between a “mixed question of law and fact” regarding jurisdiction, which would require Section 34 and a “constitutional defect in the forum” itself. The Court noted that when an authority lacks inherent jurisdiction because its very formation is illegal, the resulting order is not merely “voidable” but “void ab initio”. Thus, a writ is maintainable.

C. Informal Guidance

[C.1] Listing of outstanding unlisted NCDs transferred to listed entity through corporate restructuring

Through an informal guidance dated July 20th, 2026, issued by SEBI, the regulator has clarified the position on the listing of outstanding unlisted NCDs by a listed entity after corporate restructuring. In the case presented by Ananya Finance, the applicant for informal guidance, a listed company took over the unlisted debt from its subsidiary as part of business reorganisation. The applicant asked SEBI if they were required to officially list these debt securities on the stock exchange after taking them over.

SEBI placed reliance on R. 62A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, under which a listed company is required to list all its NCDs on the stock exchange if it has NCDs already listed on the stock exchange. SEBI clarified that R. 62A includes the listing of a fresh issue of NCDs as well as NCDs transferred to a listed company under the corporate restructuring process.

Thus, companies cannot transfer unlisted debt to a listed company to avoid listing rules. Once a listed company is responsible for the debt, it must be made available for trading on the stock exchange.

D. Article Review

[D.1] Expulsion of a shareholder from the company

Recently, I came across an article authored by Abhishek Kumar Namdev on a legal analysis of the unilateral expulsion of a shareholder by the company. According to the author, the prevailing legal view in India is generally prohibitive.

The Companies Act, 2013 is silent on expulsion, but the judicial precedents and clarification by the Ministry suggest that a company cannot expel a member while they are holding the shares. The Ministry, in its Circular No. 32/75 dated November 1, 1975, has clarified that a company cannot confer upon its Board of Directors the power to expel a shareholder by amending its Articles of Association. Any such provision or exercise of power is illegal and void. Further, the Supreme Court in Bajaj Auto Ltd v. N.K. Firodia (AIR 1971 SC 321) emphasised that directors cannot exercise their powers to exclude shareholders for collateral purposes or to maintain control over the company. Apart from this, the observations of the Madras High Court in Madhava Ramachandra Kamath v. Canara Banking Corporation Ltd (AIR 1941 Mad 354) and the Company Law Board in Mallina Bharathi Rao v. Gowthami Solvent Oils Limited ([2001] 31 SCL 60) are also relevant to the point. All these documents point out that membership is intrinsically linked to share ownership, and any provision in the Articles of Association (AoA) allowing expulsion is likely void if it bypasses statutory transfer procedures or acts against the company as a whole.

However, there is an exception for companies limited by guarantee, such as clubs and social associations. In such companies, expulsion is permissible provided it follows the AoA and principles of natural justice.

The author has also contrasted India’s uncertainty with more structured frameworks in the UK and the USA. In the UK, expulsion is permissible if the alteration to the Articles is made bona fide for the benefit of the company as a whole, is not discriminatory, and offers fair value for the shares. In the USA, expulsion is treated as a matter of contract within an LLC’s operating agreement, provided that it defines the grounds, consequences and procedures explicitly.

We can conclude that across jurisdictions, the validity of expulsion hinges on fairness and purpose. The courts scrutinise whether the move was intended to benefit the company generally or merely to oppress a minority shareholder or consolidate control for the majority. Ultimately, the article concludes that while expulsion clauses exist in some Indian company articles, the practice remains legally uncertain and heavily scrutinised in India compared to the more defined statutory and contractual frameworks found globally.