A. Cover Story

[A.1] Pre-cognisance hearing by Special Courts under the SEBI Act is mandatory

In a landmark judgment, Neville Tuli v. Securities and Exchange Board of India, delivered on July 15, 2026, the High Court of Bombay has upheld a procedural safeguard for the accused in SEBI prosecution cases. The Court ruled that Special Courts constituted under the SEBI Act, 1992, cannot take cognisance of an offence without first providing the accused an opportunity of being heard, as mandated by the first proviso to Section 223(1) of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS).

As per the facts of this case, SEBI’s Whole-Time Member held that “Osian’s Art Fund” was a collective investment scheme operated without registration, violating Section 12(1-B) of the SEBI Act and CIS Regulations. SEBI ordered the company to refund investor monies with 10% interest. Upon default, prosecution notices were issued to two directors. Simultaneously, a Corporate Insolvency Resolution Process (CIRP) was initiated against the company. Due to the moratorium under the IBC, SEBI lodged a complaint against the directors under Section 24(2) of the SEBI Act before the Special Court (SEBI). The Special Court took cognisance of the offence and directed the issuance of process against the accused, recording sufficient grounds to proceed. Crucially, no opportunity of hearing was granted to the accused before this order. The accused filed a Writ Petition under Article 227 of the Constitution, arguing that the Special Court violated the mandatory requirement of Section 223(1) of the BNSS by not providing a pre-cognisance hearing. The High Court allowed the Writ Petition and quashed the order of taking cognisance passed by the Special Court.

The judgment hinges on the interplay between the SEBI Act and the general criminal procedure code, now replaced by the BNSS. Section 4(2) of the BNSS establishes that all offences under any other law shall be dealt with according to BNSS provisions, unless the special law prescribes a special procedure. The Court held that in the absence of a specific, contrary procedure in the SEBI Act regarding the manner of taking cognisance, the general provisions of the BNSS apply automatically. The first proviso to Section 223(1) of BNSS mandates that “No cognisance of an offence on the basis of a complaint shall be taken by the Magistrate without giving the accused an opportunity of being heard.” The Court emphasised that this proviso is peremptory and mandatory.

Section 26-D of the SEBI Act, 1992 states that the provisions of the Code of Criminal Procedure (now BNSS) shall apply to proceedings before a Special Court, “save as otherwise provided in this Act.” The Bombay High Court analysed the text of Section 26-D and found no provision in the SEBI Act that delineates a special procedure for taking cognisance that would override Section 223 of the BNSS. While Section 26 of the SEBI Act specifies who can file a complaint (only the Board), it does not specify the manner in which the Court must decide to take cognisance of that complaint.

This judgment serves as a significant procedural check, ensuring that the expeditious nature of SEBI prosecutions does not come at the cost of the fundamental right to a fair hearing.

B. Case Laws

[B.1] Demand for performance must precede the filing of a writ of mandamus

The Kerala High Court in TGN Kumar v. Registrar of Companies (July 17th, 2026) held that a writ of mandamus cannot be issued unless the petitioner first makes a distinct demand to the statutory authority to perform their legal duty, and that authority explicitly refuses or neglects to do so.

As per the facts of this case, the petitioner sought directions against the Registrar of Companies (RoC) and the Inspector General of Registration to enforce the Companies Act, 2013, against the Nair Service Society without first filing a complaint or representation with them. The appellate court held that the Single Judge was correct in dismissing the petition. Since the authorities had not been given an opportunity to respond or refuse, the court could not step in immediately. As the court noted, had the petitioner approached the authorities first, they would have clarified that they lacked jurisdiction as the society is governed by the Kerala Non-Trading Companies Act, 1961.

Additionally, the court delivered a significant clarification on Article 129 (Supreme Court as a Court of Record) and Article 141 (Law declared by SC is binding) of the Constitution. The petitioner argued that because the Nair Service Society pleaded in a 2000 Supreme Court case that it was registered under the Companies Act, this assertion was now binding on all courts due to the Supreme Court’s status as a “Court of Record.” The court firmly rejected this. It held that a mere assertion in pleadings, where the Supreme Court made no finding, order, or adjudication on the issue, acquires no legal sanctity. Such an assertion does not become obiter dictum or a declaration of law under Article 141 because the Court “declared nothing” on the point. Article 129 only guarantees that the record of the assertion is authentic and unimpeachable; it does not guarantee the correctness of the assertion or imply judicial adoption of it. At best, such a pleading might operate as an estoppel under Section 115 of the Indian Evidence Act against the party making it, but it cannot bind other courts or determine the statutory status of a company.

[B.2] Investigation into the affairs of the company can be triggered through Section 213, not through a writ

The High Court of Jammu & Kashmir and Ladakh recently delivered a crucial judgment reinforcing a fundamental principle of corporate law, that is, internal company disputes must be resolved through the Companies Act, not via writ petitions under Article 226 of the Constitution.

In Guninder Jeet Singh Wazir v. Union of India (July 7th, 2026), the Court dismissed a writ petition seeking directions for inquiry/action into the company’s affairs. As per the facts of the case, the petitioner, a former director and shareholder, approached the High Court alleging that his digital signature was misused to file Form MGT-14, resulting in the clandestine removal of his directorship and the illegal transfer of his 33% shareholding. He sought a writ of mandamus to direct the Registrar of Companies (RoC) to investigate the company’s affairs and enforce industrial policy conditions.

The Court, however, held that the dispute was essentially a private corporate grievance involving questions of fact (fraud, consent, and share transfer validity). Since the Companies Act provides a specialised mechanism to handle such issues, the High Court would not exercise its extraordinary jurisdiction.

The judgment places significant weight on Section 213 of the Companies Act, 2013. This section empowers the National Company Law Tribunal (NCLT) to direct an investigation into the affairs of a company if circumstances suggest:

• The business is being conducted with intent to defraud creditors, members, or others.
• Acts of fraud, misfeasance, or other misconduct by those in management.
• Failure to furnish material information to members.

The court observed that “Once the Companies Act provides a comprehensive statutory mechanism, specialised adjudicatory forums and equally efficacious remedies for redressal of grievances relating to the affairs and management of a company, no writ of mandamus can ordinarily be issued requiring this Court to adjudicate what is essentially a dispute concerning shareholding, directorship and corporate management.”

The judgment heavily relied on the Supreme Court’s decision in Sri Ramdas Motor Transport Ltd v. Tadi Adhinarayana Reddy (1997). In that landmark case, the Supreme Court held that when a shareholder has an effective remedy under the Companies Act for oppression or mismanagement, the High Court should not readily entertain a writ petition. The Court warned that allowing writs in such scenarios would jeopardise the public interest by bypassing the detailed safeguards built into the Companies Act.

[B.3] Minority shareholders enforced the shareholders’ agreement against the company

It is a common misconception that a majority shareholding (51%) grants a promoter unfettered power to alter a company’s capital structure. However, the Delhi High Court’s recent judgment in Resilient Innovations (P) Ltd v. Unity Small Finance Bank (July 24th, 2026) delivers a stark reminder. Minority shareholders can prevent alteration of share capital by enforcing the terms of a Shareholders’ Agreement (SHA) against the company.

In this case, the battle lines were drawn between Resilient Innovations Private Limited (RIPL), a fintech giant holding a 49% stake (minority shareholder), and Centrum Financial Services Limited (CFSL), the promoter holding 51% (majority shareholder). They were parties to a robust SHA dated October 26, 2021, governing their investment in Unity Small Finance Bank (the bank). Unity Small Finance Bank was also a signatory to this agreement.

The conflict arose when the Bank’s Board proposed Agenda Item No. 18, which sought to increase the Authorised Share Capital from ₹4,000 Crores to ₹4,900 Crores by amending Clause V of the Memorandum of Association (MoA) to facilitate the conversion of Warrants into Compulsorily Convertible Preference Shares (CCPS). The minority shareholders filed a petition under Section 9 of the Arbitration and Conciliation Act to prevent the board from considering this item. They contended that the SHA explicitly defined “Reserved Matters” in Schedule 2. It included any amendment to the MoA/AoA affecting shareholder rights and any change in capital structure, including new issues of shares or securities, which must be carried out with the consent of both the parties: RIPL and CFSL.

The majority shareholder (CFSL) and the Bank argued that this was a necessary step to comply with Reserve Bank of India (RBI) licensing conditions and that the conversion of warrants did not require the minority’s consent. They contended that since the warrants were part of the initial investment, the action fell outside the SHA’s Reserved Matters.

The court granted an interim injunction in favour of the minority shareholders, restraining the Board from even discussing or approving Agenda Item No. 18 without the minority shareholder’s (RIPL) written consent. The judgment rests on three important findings that reinforce the binding nature of the SHA:

• The Bank was not a bystander. It was a signatory to the SHA alongside the shareholders. The Court emphasised that the SHA contained a non obstante clause (Clause 8), stating: “Notwithstanding anything contained in this Agreement or the Memorandum and Articles, the Company shall not take any decisions or action in respect of the Reserved Matters… unless such action or decision has been approved… by at least 1 representative from each of Centrum and RIPL.”
• The proposed increase in authorised capital and the subsequent MoA amendment fell squarely within reserved matters. The Court rejected the argument that the specific nature of the capital raise (warrant conversion) exempted it from these clauses. As the Court noted, the very act of amending the MoA to facilitate the capital change is itself a Reserved Matter requiring dual consent.
• Lastly, the Bank had sent three separate communications (dated Oct 23rd, 2025, May 1st, 2026, and July 8th, 2026) explicitly stating that the agenda item was a “Reserved Matter” and seeking RIPL’s written consent. Thus, the bank and the majority shareholders were estopped by their own conduct from contending that the matter was outside the scope of the reserved matters.

The judgment underscores the vital principle of contractual supremacy. A Shareholders’ Agreement signed by the company acts as a constitutional shield for minority shareholders. It can effectively veto Board resolutions on critical issues like capital restructuring.

[B.4] NCLAT draws a clear line between a failed business deal and illegal corporate conduct

The NCLAT’s decision in Vivid Solutions (P.) Ltd v. Mukesh Jain serves as a stark reminder that in corporate law, both substance and procedure matter. A failed business deal is not a valid reason for illegal corporate conduct.

As per the facts of the case, the original shareholders and directors of Vivid Solutions Pvt. Ltd (the Respondents) offered to sell their 100% shareholding and the company’s property to the Appellants. An MoU was signed in 2012, but crucially, the final consideration was left to be negotiated later. The Appellants claimed that they had paid Rs. 3 crores and the company’s sole immovable asset (a 7,800 sq. ft. industrial plot) was transferred to their associate company via a mere change of book entries without any registered conveyance or stamp duty. However, no Share Transfer Deed (Form SH-4) was ever executed, and no share certificates were endorsed or handed over. The Respondents remained listed as 100% shareholders in all statutory filings (MGT-7) from 2014 to 2017. It was only in April 2019, after criminal FIRs were lodged against the Appellants, that they unilaterally filed retrospective revisions to the financial statements to claim they had been owners since 2014.

When the petition for prevention of oppression and mismanagement was filed by the respondents, the NCLT declared the transfer of shares and property illegal. It was noted that the appellants had not followed the mandatory procedure prescribed under Section 56 for the transfer of shares. Further, the transfer of immovable property was not done as per the provisions of the Transfer of Property Act and the Registration Act.

On appeal, the NCLAT emphasised that the Appellants’ actions were not just a breach of contract but continuing acts of oppression and mismanagement of the gravest kind. A transfer of shares under Section 56 of the Companies Act requires a duly executed transfer deed (Form SH-4) and endorsement on share certificates. A mere entry in a balance sheet or an MoU is legally insufficient. Under the Transfer of Property Act and the Registration Act, immovable property cannot be transferred via book entries. It requires a registered conveyance deed and payment of stamp duty.

This case is a powerful precedent for shareholders. It reinforces the principle that corporate governance is not a game of hearsay but is grounded in strict adherence to the law.

C. Legislative Updates

[C.1] SEBI proposes to globalise REITs and InvITs

SEBI has proposed a regulatory framework to allow REITs and publicly listed InvITs to issue Depository Receipts (DRs) in overseas markets, aiming to attract foreign capital by providing international investors with a foreign currency-denominated trading option. The Board published a consultation paper on August 4, 2026, that proposes to bridge a regulatory gap by inserting enabling provisions into existing REIT and InvIT regulations, aligning the operational framework with the current Equity Depository Receipt model.

As per the consultation paper, only REITs and publicly listed InvITs are permitted to issue DRs. Privately listed InvITs are excluded due to their specific investor eligibility and large trading lot requirements, which are difficult to enforce in overseas jurisdictions. Further, DRs can be held only by foreign investors. Indian residents and NRIs are barred from owning these instruments or being beneficial owners. DRs will be listed on specified international exchanges in permissible jurisdictions. SEBI will provide observations within 7 working days, and stock exchanges will grant in-principle approval within 15 working days of receiving an offer document via a merchant banker.

The underlying units are proposed to be treated as non-public holdings for minimum public unit holding calculations, and foreign depositories are barred from pre-releasing DRs until domestic custodians confirm receipt. Disclosures made on overseas exchanges must be filed with Indian stock exchanges within 24 hours.