A. Cover Story

[A.1] Waiting for a non-starter report under Section 12A can render the plaintiff remediless in urgent cases

The High Court of Bombay has delivered a pivotal judgement in Phoenix ARC (P) Ltd v. Future Brands Ltd, clarifying that the mandatory pre-institution mediation bar under Section 12A of the Commercial Courts Act, 2015 does not apply when a plaintiff seeks urgent interim relief even if no “non-starter report” has been issued by the authority after the expiry of the initial mediation period.

Section 12A mandates that before filing a commercial suit, parties must attempt pre-institution mediation. If this is not exhausted, the plaint can be rejected under Order VII Rule 11 of the Code of Civil Procedure (CPC). However, the Act carves out an exception that if the plaintiff contemplates urgent interim relief, they are exempt from exhausting this remedy.

As per the facts of the case, Phoenix ARC, an asset reconstruction company, filed a suit for over ₹515 crores after the initial three-month mediation period expired but before the mediation authority issued a “non-starter report.” The defendants argued that the suit was barred because the mediation process was technically incomplete. Further, no non-starter report existed to prove the process had failed. Furthermore, the plaintiff had allegedly abandoned mediation by not paying fees.

As per the plaintiff’s case, Defendant No. 2 had defaulted on loans secured by royalty receivables from brands owned by Defendant No. 1. The royalty income was the primary security for the loans, tied to trademark agreements set to expire on July 1, 2025. Phoenix ARC filed for mediation on March 21, 2025. The initial 3-month period expired on June 20, 2025. Fearing the loss of security on July 1, Phoenix ARC filed the suit on July 4, 2025, seeking urgent interim relief to restrain the defendants from dealing with the brands.

After hearing the rival contentions, the Court rejected the defendants’ plea and accepted the plaintiff’s case. The Court held that the urgency under Section 12A must be judged from the plaintiff’s standpoint at the time of filing. If the plaintiff pleads that a delay would cause irreparable harm (like the loss of security interests), the bar does not apply.

The Court clarified that filing a suit after the expiry of the mediation period but before the issuance of a non-starter report is permissible if urgent interim relief is sought. Waiting for the formal report could render the plaintiff remediless if their security is expiring.

On the defendants’ claim that the plaintiff suppressed the fact that they had not paid mediation fees, the Court ruled that since the initial 3-month period had already expired by consent of the court (statutory limit) and no extension was granted, the plaintiff was not obligated to pursue the process further. Filing a suit due to the expiry of trademark agreements was a genuine cause of action, not a suppression of facts.

This judgment aligns with the Supreme Court’s recent stance in Novenco Building and Industry A/S. v. Xero Energy Engineering Solutions Pvt. Ltd. (2025), which emphasised that procedural formalities should not allow defaulting parties to profit from technicalities.

B. Case Laws

[B.1] Applicability of stamp duty on deed of assignment under securitisation process

The recent judgement of the High Court of Madhya Pradesh in Reliance Asset Reconstruction Company Ltd v. State of Madhya Pradesh (July 8, 2026) has clarified the applicability of stamp duty on a Deed of Assignment signed between the Asset Reconstruction Company and the Bank, through which the rights in an existing secured loan are transferred by the Bank to the Asset Reconstruction Company. The Court held that the Deed of Assignment merely transferred the Bank’s rights and did not create any fresh mortgage. Thus, no additional stamp duty, as applicable on a mortgage, was applicable on the Deed of Assignment.

As per the facts of this case, Reliance Asset Reconstruction Company (ARC) acquired a financial asset, that is, a loan of ₹53.77 crores from the Union Bank of India via a Deed of Assignment. The Asset Reconstruction Company paid approximately ₹4.75 crores as consideration and entered into a Deed of Assignment with the Bank, on which a stamp duty of ₹13.30 lakhs was paid. The loan was already secured by a mortgage on immovable property, and stamp duty had been fully paid at the time of the original mortgage. The Collector of Stamps demanded an additional ₹1.43 crores on the Deed of Assignment as deficit.

The ARC challenged this demand before the High Court, which ruled in favour of the ARC, setting aside the demand. The Court’s decision rests on three fundamental pillars of property and stamp duty law:

No Fresh Mortgage Created

The Court held that the Deed of Assignment merely transferred the bank’s rights, title, and interest in the existing loan and security. It did not create a new charge or encumbrance on the immovable property.

Applicability of the State notification

The Court emphasised that the State Notification dated March 7th, 2005 prescribes a flat rate of 0.1% on the amount of loan securitised or debt assigned for transactions involving ARCs. The ARC had already paid ₹13.30 lakhs under this specific provision.

Prevention of Unjust Enrichment

The Court invoked the principle of Unjust Enrichment. Once the stamp duty was paid to the State Government at the time of the original mortgage, charging the same duty again at a subsequent stage, that is, during assignment, amounts to double taxation. The State cannot recover the public exchequer by levying duties twice for the same underlying security.

For the securitisation industry, this ruling provides certainty and reduces the cost of restructuring bad loans. It confirms that the assignment of a secured debt is a change in the lender, not a new property transaction.

[B.2] Share Allotment to Promoters Cannot Override the MoA

In the corporate governance landscape, a Memorandum of Association (MoA) is often viewed as the supreme constitutional document of a company. Accordingly, the National Company Law Tribunal (NCLT), Mumbai, in Fibra Shipping Agency v. Dreams the Mall Company Ltd (June 25th, 2026) dismantled a myth that promoters’ private agreement can supersede the MoA even if they have drafted the MoA initially. The tribunal’s decision establishes a clear precedent that private agreements and promoter interests cannot override the fundamental objects of the MoA, especially when they lead to oppression and mismanagement.

As per the facts of the case, Dreams The Mall Company Ltd was incorporated with a singular, crystal-clear object defined in its MoA - to manage, maintain, and administer Dreams The Mall on behalf of the shop owners and unit holders. It clearly stated that the respondent company was incorporated by HDIL solely for taking care of the affairs of ‘Dream Mall’ after specified units were sold, and the shares of the respondent company were to be held by the purchasers/owners only.

However, the reality on the ground was quite different. The promoters (the Wadhawan group and associated entities like HDIL) allotted themselves over 50% of the shares at incorporation. They ignored Clause 42 of the Sale Agreements and MoA of the company, which explicitly mandated that shareholding be proportional to the carpet area purchased by each shop owner. Thus, they retained control despite not owning the corresponding physical units in the mall.

The petitioners, representing over 100 shop owners, filed a petition against oppression and mismanagement and argued that this skewed shareholding structure was not just a breach of the sale agreement but a violation of the MoA itself. The company was meant to be a vehicle for the shop owners, yet it was being run by the promoters for their own benefit, leading to a state of Oppression and Mismanagement under Sections 241 and 242 of the Companies Act, 2013.

The NCLT, after analysing the main object clause of the MoA, found that the company was formed solely to look after the affairs of the mall after units were sold. The Tribunal rejected the promoters’ defence that their initial private allotments were valid. It held that the MoA’s object was to serve the shop owners. Any shareholding pattern that diluted their rights violated this object. The Sale Agreements reinforced the MoA. By holding shares they were not entitled to (some respondents held shares without owning any mall premises), the promoters were effectively oppressing the minority shareholders and mismanaging the company’s affairs.

[B.3] The inherent powers of the NCLT cannot be invoked to dismiss the petition under Sections 241-242 in the absence of extraordinary circumstances

The NCLT Kochi, in Vettathu Nadu Rehabilitation Centre (P) Ltd v. Dr Hyderali Kalliyath (July 13th, 2026), upheld strict limitation on using the Tribunal’s inherent powers (Rule 11 of NCLT Rules) to dismiss oppression and mismanagement petitions at the threshold stage.

The Tribunal established that once a petitioner satisfies the statutory shareholding threshold under Section 244 of the Companies Act, 2013 (in this case, holding 25.42% of the capital), their petition under Sections 241-242 cannot be summarily dismissed as not maintainable unless there is clear evidence of fraud, concealment of material facts, forgery, or a threat to public policy.

The respondents in this case filed an application under Rule 11 of the NCLT Rules, 2016 on the following specific grounds to challenge the maintainability of the main Company Petition:

• The application asserted that the petition was filed for collateral and personal reasons rather than genuine corporate grievances. The respondents argued that the grievances arose solely from the petitioners’ positions as directors, not in their capacity as shareholders. They contended that the dispute was a personal or directorial conflict regarding the appointment and removal of directors, which falls outside the scope of Sections 241-242.

• It was alleged that the petitioners failed to plead or establish any continuous acts of oppression or mismanagement affecting their rights as members. They claimed the issues did not warrant winding up the company on just and equitable grounds.

The Tribunal ultimately rejected these grounds, ruling that they did not constitute the extraordinary circumstances such as fraud or forgery required to invoke Rule 11 to dismiss a petition where the statutory shareholding threshold was clearly met.

This judgment established that merely satisfying the shareholding requirement under Section 244(1) entitles a member to have their petition heard on the merits. They cannot be thrown out in limine (at the threshold). The inherent powers cannot be used to bypass specific provisions of the Act regarding maintainability. It is reserved only for extraordinary circumstances involving serious misconduct like fabrication of records or suppression of facts.

[B.4] Waiver power under Section 244 is a discretionary power to prevent injustice

Citation: Sanjeev Kumar Singh vs. Indian Motion Picture Producers Association [2026] 188 taxmann.com 529 (NCLT - Mum.)[08-07-2026]

The NCLT Mumbai, in Sanjeev Kumar Singh v. Indian Motion Picture Producers Association (July 8th, 2026), upheld the judicial discretion to waive eligibility thresholds for filing oppression and mismanagement petitions when exceptional circumstances exist, and the existence of such circumstances would otherwise deny members their right to seek redress.

In this specific case, the Tribunal granted a waiver under the proviso to Section 244(1) of the Companies Act, 2013, allowing petitioners to proceed despite not meeting the required 1/5th member threshold. The decision was based on the following points:

• Firstly, the Tribunal found that the Respondent’s own grounds for challenging the petition’s maintainability were flawed. The Respondent’s allegations that there was a cessation of members’ voting rights due to non-payment of fees were invalid because the company had not given proper notice as required by the Articles of Association (AoA).
• Secondly, there was strong evidence of governance violations, including unapproved suspension of executive members, financial irregularities (unexplained expenses and borrowings), procedural breaches in meeting notices and board appointments.
• Thirdly, the Tribunal emphasised that the existence of a genuine grievance regarding oppression, especially when the company itself has violated its own governance rules, warrants allowing the case to be heard on the merits rather than dismissing it on technical eligibility grounds.

The ruling reinforces that the waiver power under Section 244 is not merely a procedural loophole but a tool to prevent injustice. It ensures that members are not locked out of the justice system due to technicalities when the company’s own mismanagement and the petitioner’s inability to meet the threshold are causally linked.

C. Legislative Updates

[C.1] SEBI rolls out GARUDA mechanism for Alternative Investment Funds

SEBI has launched the GARUDA mechanism [Green-Channel AIF Rollout Upon Document Acknowledgement] to expedite and simplify the process for Alternative Investment Funds (AIFs) to launch new schemes. The mechanism fundamentally shifts the approval process from a waiting period to an acknowledgement-based green channel for most funds.

The rules will now categorise the AIF schemes into three distinct streams with varying levels of regulatory oversight. Firstly, the regular schemes can launch 10 days after the filing of the Placement Memorandum with SEBI and receiving a due diligence certificate from the Merchant Banker. Secondly, funds exclusively meant for accredited investors investing a minimum of ₹25 crores can launch immediately upon filing the Placement Memorandum without the requirement of a Merchant Banker certificate. Thirdly, the Angel Funds are exempted from the Merchant Banker requirement and are allowed to circulate their Placement Memorandum immediately after registering with SEBI.

The reform moves the burden of due diligence from the regulator to the intermediaries. For regular schemes, the Merchant Banker must independently verify disclosures and certify their accuracy. For Accredited Investor-only funds (large value funds) and Angel Funds, the AIF manager has to sign an undertaking taking full responsibility for the truth and adequacy of the disclosures.

By removing the mandatory waiting period for specific categories and eliminating the need for Merchant Banker involvement for sophisticated investor pools, SEBI has reduced time to market for new funds.