A. Cover Story

[A.1] Struck-off company retains a limited statutory personality

In corporate law, a common misconception is that once a company is struck off from the Register of Companies, it ceases to exist entirely. However, a struck-off company retains a limited statutory personality, allowing it to seek restoration under specific circumstances. This legal principle ensures that companies aren’t permanently erased from the legal landscape if they can demonstrate they were operational at the time of strike-off, or if restoration is deemed just and equitable.

This position was recently reinforced in the case of Rafeek Peedi Yakkal Hassan v. Registrar of Companies, Kerala & Lakshadweep (NCLT-Kochi, August 11th, 2026). As per the facts of this case, M/s. Salim’s White Feather Resort Private Limited was incorporated in 2019 with the goal of developing a resort in Idukki, Kerala. Due to the pandemic, a director being abroad, and failure to open a bank account or file the Section 10A(1) declaration within 180 days, the company failed to commence business. Consequently, the Registrar initiated strike-off proceedings under Section 248 of the Companies Act, 2013, and the company’s name was removed on September 28, 2022.

The appellant (a director holding 99% of the share capital) filed an appeal under Section 252(3), arguing that despite the procedural delays, the company had acquired land, obtained building permits, and had signed a Memorandum of Understanding (MoU) with a construction group, proving an intention and capacity to operate.

The NCLT, in its judgment, explicitly recognised that the limited statutory personality of the struck off company by observing that “The right given to the Company, along with any member, creditor, or workman, to file an appeal under Section 252(3) demonstrates the legislative intent that even a struck-off Company retains a limited statutory personality for the purpose of seeking its revival” (Para 12).

This means that while the company loses its active operational status, it does not vanish completely. It retains the legal capacity to approach the Tribunal to challenge its own dissolution. However, to exercise this right, the appellant must provide prima facie evidence that the company was carrying on business or in operation at the time of the strike-off order, or that restoring the company is otherwise just and equitable. This right to appeal exists for 20 years from the date the notice of strike-off was published in the Official Gazette.

On restoration, the company’s status changes from Strike-Off to Active. But restoration can be conditional. In this case, the NCLT ordered that the company must file all pending statutory documents (Annual Accounts, Annual Returns) within 45 days of restoration and pay a cost of ₹10,000 per financial year for which returns were not filed, within 30 days of receiving the order. Also, pay any additional late fees or penalties levied by the Registrar for the delayed filings. The Tribunal explicitly stated that the power to restore the name does not exempt the company from paying regular fees and penalties for past non-compliances.

B. Article Review

[B.1] Legal consequences of issuing bonus preference shares

Recently, I came across an article, Issue of Preference Bonus Shares to Equity Shareholders? Possibilities and Tax Implications, authored by Rahul Singh, Rachit Sharma, and Parth Chourikar, which provides a detailed analysis of the National Company Law Tribunal’s (NCLT) sanction of Siyaram Silk Mills Limited’s scheme of arrangement under Section 230 of the Companies Act, 2013. The scheme represents a novel corporate restructuring strategy, capitalising general reserves to issue redeemable preference shares (Series-I and Series-II) as a bonus to existing equity shareholders, rather than issuing additional equity shares or declaring a cash dividend.

For every one equity share of ₹2 held, shareholders received seven preference shares (four Series-I + three Series-II) of ₹10 each, totalling a face value of ₹70 per equity share. Crucially, the scheme did not involve the release of company assets at the time of issuance. It was a book-entry capitalisation of reserves into a new class of security. Unlike a conventional bonus issue, this structure did not increase the number of equity shares, thereby avoiding dilution of Earnings Per Share (EPS). It allowed the company to unlock accumulated reserves while preserving liquidity and capital structure.

The arrangement was executed under Section 230 of the Companies Act, 2013 (Schemes of Arrangement), rather than standard bonus (Section 63) or dividend (Section 123) provisions. This was necessary because the Companies Act does not explicitly provide for a bonus issue of preference shares to equity shareholders in the traditional sense.

The authors have discussed the tax treatment of this transaction from three perspectives:

Allotment or Issuance: The article argues this is not taxable as a deemed dividend under Section 2(40) of the Income-tax Act, 2025, because there was no release of assets to shareholders at the time of issuance. The authors have cited court precedents (Karnataka High Court, Gujarat High Court) establishing that bonus shares represent a capitalisation of profits and a re-arrangement of capital, not a receipt of property or accretion to wealth. Thus, no income is taxable at this stage.

Conversion: If converted into equity shares, the transaction is treated as a non-transfer under Section 70(1)(zb) of the ITA 2025, attracting no capital gains tax at the time of conversion.

Redemption: This is the most critical phase. The redemption of these preference shares involves a release of assets. Citing a Gujarat High Court ruling, the article suggests the redemption proceeds could be treated as a deemed dividend, taxable in the hands of shareholders. Simultaneously, the redemption is a transfer. Since the cost of acquisition is nil, the entire redemption amount could potentially be taxed as capital gains (Short-term or Long-term depending on holding period).

The Siyaram scheme is a clever workaround to distribute value without diluting equity. However, the tax ambiguity at the redemption stage remains a significant risk. Shareholders may face a double-edged sword where the entire redemption amount is taxable, either as a dividend or capital gains, without any actual cash flow from the company at the time of allotment.

C. Case Laws

[C.1] Purpose is irrelevant for Insider Trading

In a landmark judgment, Securities and Exchange Board of India v. Rajeev Vasant Sheth, delivered on August 11, 2026, the Supreme Court of India has firmly established a critical principle in securities law: the purpose or motive behind trading while in possession of unpublished price-sensitive information (UPSI) is legally irrelevant.

The Supreme Court upheld the Securities and Exchange Board of India’s (SEBI) stance that if an insider trades in securities while in possession of UPSI, the transaction constitutes insider trading, regardless of the intent. The court observed that: “The purposes for which the proceeds are employed are an irrelevant consideration… The fact that the respondents had indulged in the trades at the relevant point in time is sufficient to conclude that they had conducted insider trading. Less or no profit is of no consequence.”

This judgement closes the door on defences previously argued by insiders who claimed their trades were necessary to save the company from financial distress, fund corporate restructuring, or avert a downgrade.

In this case, the dispute originated from the trading activities of the promoters of Tara Jewels Ltd (TJL) during a period of severe financial distress. TJL was preparing to announce a massive loss of Rs. 166.80 crores for the quarter ending September 2017, with net sales falling by 69%. This was unpublished price-sensitive information. While in possession of this information, the Chairman & Managing Director (Rajeev Sheth) and his two daughters sold substantial portions of their holdings to avoid losses before the news broke. The trio cumulatively avoided a loss of approximately Rs. 1.38 crores.

The insiders argued that they sold their shares to generate liquidity to prevent TJL from being downgraded to a non-performing asset. They relied on a previous precedent (SEBI v. Abhijit Rajan, 2022) where the Supreme Court had allowed a defence for selling shares to fund a Corporate Debt Restructuring package.

However, the Supreme Court distinguished the two cases based on a crucial regulatory difference:

Old Regulations (1992): The Abhijit Rajan case was governed by the 1992 PIT Regulations, which lacked a specific note mentioned under the new regulations.

New Regulations (2015): The TJL case fell under the 2015 PIT Regulations, wherein Regulation 4(1) includes a specific note that explicitly states: “The reasons for which he trades or the purposes to which he applies the proceeds of the transactions are not intended to be relevant for determining whether a person has violated the regulation.”

The Court held that this note makes the motive irrelevant. Whether the money was used to pay salaries, fund a rescue, or simply to avoid personal loss, the act of trading on UPSI remains a violation.

[C.2] Transfer of shares in violation of Articles is void

Section 44 of the Companies Act states that “The shares or debenture or other interest of any member in a company shall be movable property transferable in the manner provided by the articles of the company”. Further, Section 2(68) defines a private company as a company that, inter alia, restricts the right to transfer its shares by its articles.

The National Company Law Appellate Tribunal (NCLAT), in Anup Kumar Khemani v. Balendra Choudhury (August 5th, 2026), addressed a critical dispute regarding the transfer of shares in a private limited company (Assam Medical Corporation Pvt. Ltd. or “AMC”) where the Articles of Association (AoA) contained strict pre-emptive rights and the transfer of shares was not done as per the provisions of the Articles.

The Tribunal, while setting aside the transfer, held that a transfer in complete violation of the Articles is void ab initio. It is not merely voidable; it is legally non-existent because the Board had no authority to approve a transfer that bypassed the statutory and contractual procedures.

As per the facts of the case, Article 15 of the AoA of AMC provided that the proper procedure for sale of shares of AMC is that the member (or the legal representative of the deceased member) who intends to transfer the shares has to give a notice of his intention to sell in writing to the Board. The board will then act as an agent for the sale of said shares, which can be sold in one or more lots, to members of the company at the agreed price (between the seller and the board) or a price determined by the auditor of the company if no such agreement is reached.

The Tribunal, after perusing the provisions of Article 15, held that Article 15 was not merely a guideline but a mandatory restriction on share transfers.

[C.3] Voting for, but with modifications, is not unconditional approval

In Vineet Goel v. A.N. Buildwell (P.) Ltd., the Delhi High Court (August 13th, 2026) defined the nature of votes cast as “for, with modifications” during a meeting convened to approve a revival scheme under Sections 391/393 of the Companies Act, 1956 (Sections 230/232 under the Companies Act, 2013).

The controversy centred on the voting pattern recorded in the Chairman’s Report after the meeting to approve the revival scheme was conducted. The Chairman’s Report recorded 384 valid votes: 22 ‘for’ without modification, 293 ‘for, with modification’, 19 ‘against’ without modification and 50 ‘against, with modification’. Out of the total valid votes, 82% were recorded in favour of the resolution: 22 unconditional + 293 conditional = 315 votes.

However, the Court pointed out a glaring logical flaw: 293 out of the 315 “for” votes were explicitly conditional. This means that over 93% of the “support” was contingent on specific changes being made to the scheme. In this backdrop, the Court observed that “A vote cast ‘for’ the Scheme simpliciter expresses assent to the Scheme as placed before the meeting. A vote cast ‘for, with modification’ is, by its very description, conditional upon the modification accompanying the vote. The two cannot be treated as identical without first examining the nature and effect of the condition attached to the latter vote.”

The respondents (the company and propounders of the scheme) heavily relied on the principle of commercial wisdom, arguing that the Court should not substitute its view for the majority’s decision on commercial matters. They supported their argument with the judicial precedent in Meghal Homes (P) Ltd. v. Shree Niwas Girni K.K. Samiti (7 SCC 753).

The High Court clarified, however, that commercial wisdom is not a shield against procedural defects. The Court does not sit in appeal over the commercial wisdom of the majority only after the statutory requirements are satisfied. Before the Court can defer to commercial wisdom, it must first be satisfied that the requisite majority actually agreed to the arrangement being sanctioned. If there is uncertainty about whether the statutory majority assented to the scheme (due to conditional votes), commercial wisdom cannot be used to “cure” that uncertainty.

Ultimately, the Delhi High Court, in appeal, set aside the order dated February 17, 2020, and remanded the matter to the Single Judge for fresh consideration and examination of the legal effect of votes cast “for, with modification.”

[C.4] NCLT ordered an investigation into the LLP’s affairs after treating the expelled partner as a deemed partner

The National Company Law Tribunal (NCLT), Chandigarh Bench, in the recent judgment Balwan Singh v. Yassh Deep Builders LLP (dated July 31st, 2026), has delivered a significant ruling on the status of a ‘deemed partner’ and clarified the Tribunal’s power to apply principles from the Companies Act, 2013, to Limited Liability Partnership (LLP) disputes.

Concept of Deemed Partner

In the context of this judgment, the term ‘deemed partner’ does not refer to a partner who has merely been admitted informally. Instead, it refers to a partner whose cessation or expulsion is legally void due to procedural illegality, and therefore, the law continues to recognise them as a partner in all respects ab initio (from the beginning).

The Tribunal observed that where a partner is expelled without notice, without an opportunity of being heard, and without following the unanimous consent required by the LLP Agreement, the expulsion order is non est in the eye of law. Since the expulsion was illegal and void, the partner never legally ceased to be a member. Consequently, they remain a ‘deemed partner’ with all associated rights, including management rights and capital contribution, as if the expulsion never occurred. The Tribunal emphasised that under Section 24(3) of the LLP Act, 2008, a cessation of partnership is only legally recognised if Form-4 is filed with the Registrar of Companies (ROC). In the absence of a valid Form-4 and a valid internal process, the alleged cessation has no legal consequence.

Applicability of the Companies Act, 2013, to LLPs

One of the most critical aspects of this judgment is the NCLT’s explicit reliance on the Companies Act, 2013, to adjudicate disputes arising under the LLP Act, 2008. The Tribunal invoked Section 71 and Section 72 of the LLP Act, 2008, which state that the provisions of the LLP Act are in addition to and not in derogation of any other law for the time being in force. Furthermore, Section 2(2) of the LLP Act states that words not defined in the LLP Act shall have the meanings assigned to them in the Companies Act, 1956 (and by extension, the Companies Act, 2013).

The Tribunal held that Section 43 of the LLP Act (which allows for investigation into LLP affairs) is analogous to Section 213 of the Companies Act, 2013. Thus, relying on precedents like Union of India (SFIO) v. Duane Park Pvt. Ltd. and Anirudh Kumar v. Hydraulics & Pneumatics India LLP, the Tribunal affirmed that it has the power to suo motu (on its own) or on application order an investigation into the affairs of an LLP if a prima facie case of fraud, mismanagement, or oppression is established.

The Respondents argued that the Tribunal could only order an investigation and could not grant relief like restoration of a partner or setting aside fraudulent filings. The Tribunal rejected this, holding that under Section 72 of the LLP Act, it exercises powers conferred by the Act and other laws. Since the Companies Act empowers the Tribunal to set aside fraudulent transactions and grant consequential relief in cases of oppression and mismanagement, these powers are equally available for LLPs.

The Tribunal noted that the Civil Procedure Code (CPC) does not apply to proceedings before the Tribunal, which is instead guided by the principles of natural justice and the provisions of the Companies Act. This allows the Tribunal to act swiftly and flexibly in LLP disputes, similar to company law proceedings.