A. Cover Story

[A.1] Section 96(4) amendment under IBC is applicable to pending cases

Section 96 of the Insolvency and Bankruptcy Code, 2016 (IBC) provides for an interim moratorium from the date of filing an insolvency application up to the date of admission of such application. This interim moratorium applies to insolvency applications filed under Sections 94 and 95. This moratorium automatically stays all debt-related legal actions.

However, due to the misuse of this provision by the personal guarantors to corporate debtors, Sub-section (4) was added to Section 96 to exclude personal guarantors to corporate debtors from the scope of the interim moratorium. The legislative intent behind the amendment, effective 26 May 2026, was to ensure that creditors could continue pursuing arbitration proceedings and other legal actions against these guarantors to prevent them from using insolvency applications as a tactical shield to evade debt recovery.

The High Court of Bombay, in Tata Capital Financial Services Ltd v. Neel Motors LLP (July 24th, 2026), answered an important question relating to this provision: Does the new Section 96(4) rescue only applications filed after 26 May 2026, or does it also release applications that were already filed and still pending on that date?

The Court held that it applies to pending applications. The moratorium that had protected the guarantors up to 25 May 2026 simply ceased to exist from 26 May 2026 onwards. The Court observed that: “the phrase ‘where an application is filed’ would bring within its sweep anything that is filed and is pending with the Adjudicating Authority as of that date. If the intention had been to bring within the sweep of Section 96(4) only filings made after the introduction of the provision, the legislature would have consciously used language to that effect.”

It is pertinent to note that the Section 101 moratorium, which begins once the Section 95 application is adjudicated, remains intact. So the amendment and this ruling shift the protective trigger from filing to admission. They do not abolish protection after admission of the application.

B. Legislative Updates / Informal Guidance

[B.1] SEBI’s two informal guidelines on pledging securities under the portfolio management scheme

Regulation 23(8) of the Portfolio Management Services (PMS) Regulations, 2020 states that “the portfolio manager shall not borrow funds or securities on behalf of the client”. This regulation leaves the following question open: “Whether allowing a client to encumber PMS-held securities would be re-characterised as the PM effectively arranging/borrowing for the client, and therefore prohibited.”

In this regard, SEBI has issued two informal guidelines in the past. The first one was issued on May 18th, 2026 relating to Non-Discretionary PMS and the latest one was issued on August 17th, 2026 relating to Discretionary PMS.

For Non-Discretionary PMS, SEBI’s reasoning rested on who holds the right to take decisions. It invoked Regulation 23(1), under which a non-discretionary PM must manage funds strictly in accordance with the client’s directions, and the PM had no discretion to take decisions. SEBI added that the client, as the beneficial owner of the securities, has the right to use its own assets, including those under PMS, as pledge for loans. Thus, clients are allowed to pledge securities held under an ND-PMS framework for personal borrowing provided the following three conditions are met:

• The borrowing arrangement must be strictly between the client and lender, with the PM not a party to the transaction.
• The pledge must be initiated solely by or at the client’s discretion and for the client’s own benefit.
• Consequently, no borrowing by the PM arises, so Reg. 23(8) is not attracted.

For Discretionary PMS, the PM decides what is bought and sold, not the client. So it was arguable that the ‘client’s discretion’ logic of Reg. 23(1) was weaker, and that securities purchased under D-PMS were somehow more the PM’s product than the client’s asset. However, SEBI held that discretionary PMS clients remain the beneficial owners of securities purchased through the service and therefore have the same right to use those assets as collateral for loans they personally avail, provided the pledge is initiated solely at the client’s discretion and for their own benefit; the pledge does not constitute borrowing by the PM under Reg. 23(8).

C. Case Laws

[C.1] Auction purchaser under SARFAESI can be liable to pay electricity dues

The High Court of Chhattisgarh, in Polybond Rock Fibre Pvt Ltd v. Chhattisgarh State Power Distribution Company Ltd (August 6, 2026), held that auction purchasers under SARFAESI Act can be compelled to clear outstanding electricity dues of the previous consumer as a precondition for obtaining a fresh electricity connection. The Court observed that the requirement to clear the dues of the previous consumer has statutory force and is not contractual in nature.

As per the facts of the case, the original debtor, M/s Arihant Rock Wool Fibre Pvt. Ltd. (“Arihant”) had taken a loan from the Bank. Due to default, the Bank exercised powers under the SARFAESI Act, 2002, to take possession of Arihant’s assets and conducted a public auction. The auction purchaser, the Appellants (Polybond), successfully bid for the movable and immovable assets of Arihant, paying a sale consideration of ₹2.62 crores. The auction notice explicitly stated that “all liabilities attached to the property would be borne by the purchaser”. It also included a clause that “no encumbrance was presently known to the Bank.” The sale was conducted on an “as is where is” basis.

Before the auction, Arihant’s electricity connection had already been permanently disconnected due to non-payment of charges. The substantial arrears dating back to 2008 were outstanding. After purchasing the assets, the Appellants applied for a fresh electricity connection. The Electricity Department informed them of outstanding dues of ₹17,67,873 (approx. ₹17.68 lakhs) pertaining to the previous consumer (Arihant).

To obtain the immediate electricity connection required to restart their operations, the Appellants submitted an undertaking to pay 25% upfront and the balance in 10 equal instalments. They deposited a security amount of ₹11.08 lakhs. Cheques were encashed by the Electricity Company. After making these payments, the Appellants sought a refund, arguing that they were not liable for the previous consumer’s dues. They claimed the Bank’s statement that “no encumbrance was known” should protect them.

The Court, while dismissing the Writ Appeal of the auction purchaser, discussed the judicial precedents and how the law has evolved with regard to electricity dues.

Initially, in Isha Marbles v. Bihar SEB, (1995) 2 SCC 648, the Supreme Court had opined that the liability of the previous consumer cannot be enforced against the auction purchaser as the law was inadequate. There was no specific legal framework in this regard, and the liability of the previous consumer could not be connected with the auction purchaser.

However, with the enactment of the Electricity Act, 2003, the legal position has changed. In K.C. Ninan v. Kerala SEB, (2023) 14 SCC 431, the Supreme Court observed that the Conditions of Supply and Electricity Supply Code which require the payment of electricity dues of a previous owner as a condition for the grant of an electricity connection have a clear nexus to the scheme of the parent legislation and the objectives sought to be achieved. It is just and reasonable for the distribution licensees to specify conditions of supply requiring the subsequent owner or occupier of premises to pay the arrears of electricity dues of the previous owner or occupier as a precondition for the grant of an electricity connection to protect their commercial interests, as well as the welfare of consumers of electricity.

[C.2] NCLT can order a meeting under Section 98 only if it is impracticable

In Pearl City Marine Products (P.) Ltd v. Hiras K., the National Company Law Appellate Tribunal (August 17th, 2026) explained the difference between Sections 98 and 100 of the Companies Act, 2013, and the circumstances under which the Tribunal can order a meeting under Section 98 of the Companies Act, 2013.

Section 100 governs the procedure for convening Extraordinary General Meetings and provides a mechanism for shareholders to call the meeting. Under sub-section (2), shareholders holding at least 10% of the voting powers can requisition the Board to call an Extraordinary General Meeting for a specific purpose. Under sub-section (4), the Board must call the meeting within 21 days of receiving the requisition, and the meeting must be held within 45 days of the notice date. If the Board fails to call the meeting, the requisitioning members themselves have the absolute right to convene the meeting.

Section 98 grants the National Company Law Tribunal the power to order a meeting if it is impracticable to do so in the ordinary way.

The NCLAT in Pearl City’s case (supra) held that convening a meeting by a requisitioning member under s.100(4) and convening one through Tribunal intervention under s.98 are mutually exclusive, and invoking the latter is not dependent on exhausting the former. While the s. 100(4) right is absolute, the right to invoke s. 98 is qualified. The right under Section 98 can be invoked only upon proof that it has become impracticable to hold a meeting without the Tribunal’s intervention. Thus, s. 98 is therefore an exceptional power, exercisable only when it is reasonably established that but for the Tribunal stepping in, the meeting might not take place at all. The reason is that the Tribunal should not ordinarily interfere with the internal management of the company.

The concept of ‘impracticable’ is the gateway test for invoking the Tribunal’s authority under Section 98. The term should not be narrowly construed, but should be understood with reasonable elasticity from the plane of ordinary prudence and common sense. The facts must create an element of inevitability, that is, the Tribunal must reflect that unless it intervenes, a meeting possibly could not be convened.

In this case, the NCLAT observed that when the requisition was given to the Board, the Board rejected the requisition with a 3:2 majority. The Tribunal observed that the requisitioning members should have attempted to convene the meeting themselves under s.100(4). Thus, rejection by the Board did not constitute impracticability for the Tribunal to invoke its authority under Section 98 of the Act.

In an earlier judgement of In re Ruttonjee & Co. Ltd (AIR 1969 Cal 550), the Calcutta High Court has laid down the following illustrative parameters for Section 186 under the Companies Act, 1956, which similar to Section 98 of the Companies Act, 2013:

1. The court would not ordinarily interfere with the domestic management of a company which should be conducted in accordance with its articles.
2. The discretion granted under section 186 (now s. 98) should be used sparingly and with caution so that the court does not become either a shareholder or a director of the company trying to participate in the internecine squabbles of the company.
3. The word “impracticable” means impracticable from a reasonable point of view.
4. The court should take a common sense view of the matter and must act as a prudent man of business.
5. A prudent man of business has not a sensitive, officious view of intervention in case of every rivalry between two groups of directors; prudence demands that the court ordinarily keep itself aloof from participating in quarrels of rival groups of directors or shareholders.
6. But where the meeting can be called only by the directors, and there are serious doubts and controversy as to who are the directors or where there is a possibility that one or other or both the meetings called by the rival groups of directors may be invalid, the court ought not to expose the shareholders to uncertainties and should hold that a position has arisen which makes it “impracticable” to convene a meeting in any manner in which meetings of the company may be called.
7. The court should exercise its powers under section 186 when, upon considering all the facts and circumstances of a case, it can say with a reasonable approach to certainty or even prima facie that a meeting called in the manner in which meetings are ordinarily called under the Act or under the articles, would be invalid.
8. Before the court exercises its discretion under section 186, the court must be satisfied, when a director or a member moves an application, that it has been made bona fide in the larger interests of the company for removing a deadlock otherwise irremovable.

[C.3] NCLT has the authority to condone delay under section 58

Section 58 of the Companies Act, 2013 deals with the refusal of registration of transfer or transmission of securities, and the right to appeal against such refusal. It ensures that companies cannot arbitrarily deny the registration of share transfers.

In the case of private companies, if any transferee is aggrieved by the refusal to register the transfer, then they may appeal to the National Company Law Tribunal (NCLT). The appeal must be filed within 30 days from the date of receipt of the notice of refusal (for private companies). If no notice is sent by the company, within 60 days from the date the instrument of transfer was delivered to the company. Similarly, if a public company refuses without sufficient cause, the transferee has 60 days (from refusal) or 90 days (if no intimation) to appeal.

In Harti Venkataravanppa Dharmesh v. Smt. Kamalapuri Narasimaih Jayalakshmi, the National Company Law Appellate Tribunal (April 22nd, 2026) decided an important question: Does the National Company Law Tribunal (NCLT) have the authority to condone a delay in filing a petition under Section 58 of the Companies Act, 2013, specifically when the delay was 36 days, and the appellant argued that Section 58(3) does not contemplate condonation of delay?

The NCLAT, after analysing the provisions of Sections 58 and 433 of the Companies Act and Section 29 of the Limitation Act, held that condonation is permissible. The NCLAT observed that Section 58 does not prescribe a fixed upper limit of limitation that is strictly non-condonable. Section 58 should be read with the provisions of Section 433, which states that the provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to proceedings or appeals before the Tribunal or the Appellate Tribunal, as the case may be. Consequently, Section 29(2) of the Limitation Act is attracted. Under Section 29(2) of the Limitation Act, if a special or local law (like the Companies Act) prescribes a period different from the Schedule, the savings provisions (including condonation) apply unless expressly excluded. Since Section 58 does not expressly exclude condonation, the Tribunal has the power to condone delay.

The NCLAT also clarified that the primary authority to condone delay stems from Section 433 of the Companies Act read with Section 29 of the Limitation Act. Rule 11 of the NCLT Rules (Inherent Powers) cannot be invoked to condone delay, as it cannot override the statutory mechanism under the Companies Act.

[C.4] The credibility of the person can be a deciding factor in corporate litigation

In corporate litigation, particularly in cases involving allegations of oppression and mismanagement, the credibility of the petitioner is often the deciding factor. A recent judgment by the National Company Law Tribunal (NCLT), Chennai, in A. Arumugam v. New Hope Food Industries serves as a stark reminder that corporate disputes are deeply rooted in the conduct of the parties involved.

As per the facts of the case, the petitioner, an experienced company chairman, alleged that his shares (47% of the company, including his wife’s holding) were fraudulently transferred. He claimed he signed documents in February 2019 believing they were for a pledge of shares to secure a proposed loan of Rs. 30 crores from an anonymous lender. He argued he never intended to transfer ownership.

The Tribunal, however, found that the petitioner failed to prove fraud. The standard of proof for fraud is exceptionally high, requiring clear, cogent, and convincing evidence. The petitioner’s lack of credibility was the primary reason this threshold was not met. The NCLT identified several specific conduct-related factors that destroyed the petitioner’s credibility.

The petitioner argued he was misled into signing blank documents. However, the Tribunal noted he was not an inexperienced investor. He had been the Chairman of the company since inception. He was a Director in several other companies. He was actively involved in the hospitality business and share transactions.

Further, the Tribunal pointed out that the sequence of events was wholly inconsistent with a mere pledge of shares. The petitioner executed Form SH-4 transferring entire shareholding. The original share certificates were delivered. Both the petitioner and his wife resigned from the Board of Directors. The company also settled all outstanding dues (loan repayment and salary). The Tribunal reasoned that a person pledging shares would retain their membership rights and directorship. The simultaneous execution of transfer deeds, delivery of certificates, and resignation letters formed a continuous and coherent transaction pointing to a voluntary sale, not a pledge.

Lastly, the Tribunal held that the proceedings under Sections 241 and 242 of the Companies Act, 2013, invoke the equitable jurisdiction of the Tribunal. Equity demands that a litigant must come with clean hands. In this case, the petitioner’s wife had also transferred her shares and resigned but was not impleaded in the petition to challenge her own transfer. The Tribunal held that selective disclosure and the suppression of these material facts disentitled the petitioner from obtaining discretionary relief.