A. Cover Story

[A.1] Directors have the right to be heard before disqualification and deactivation of DIN

Section 164(2)(a) provides that if the financial statements or annual returns for any continuous period of three financial years are not submitted, the directors will be disqualified. Section 164(2)(b) provides that if the directors fail to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared, and such failure to pay or redeem continues for one year or more, they shall be disqualified. The disqualified director shall be ineligible to be re-appointed as a director of that company or appointment in another company for a period of five years from the date on which the said company fails to do so.

Section 164 provides for the disqualifications for appointment of a director. Under this provision, the DIN status of the company cannot be deactivated. Cancellation or surrender or deactivation of DIN is provided under Rule 11 of the Companies (Appointment of Directors) Rules, 2014. Rule 11 provides that the Central Government / Regional Director, upon being satisfied on verification of particulars or documentary proof attached with the application received [along with fee as specified in Companies (Registration Offices and Fees) Rules, 2014] from any person, shall cancel or deactivate the DIN in the prescribed cases.

In Sunil Tolaram Kukreja v. Union of India (High Court of Calcutta, August 20th, 2026), the petitioner filed a petition for quashing the deactivation of the DIN under Section 164(2)(a)/(b), published and communicated through the website of the Ministry of Corporate Affairs. The petitioner, after relying on Imraj Ali Molla v. Union of India, [2011] 224 Comp Cas 231(Cal) and Jai Shankar Agrahari v. Union of India, [2020] 222 Comp Cas 429 (All), prayed that the relief may be granted as the Government provided no opportunity of hearing.

The Court set aside and quashed the deactivation based on disqualification under Section 164, as the order was issued without giving any opportunity of hearing to the petitioner.

B. Case Laws

[B.1] NCLT decision non-binding if there is no majority opinion

Subsection (5) of Section 419 deals with what happens when the members of a Tribunal Bench cannot agree on a decision. The process can be understood in the following simple steps:

• Majority Rules: If the two members disagree and there is a clear majority opinion, the decision follows that majority.
• Tie-Breaker: If the members are equally divided (e.g., a 50-50 split), they must formally record the specific points on which they disagree. The President of the Tribunal then refers the case to one or more other Members of the Tribunal for a hearing.
• Final Decision: The dispute shall be decided according to the opinion of the majority of the members who have heard the case, including those who first heard it.

It ensures that a case never gets stuck due to a deadlock. If the initial bench is split, a larger group of tribunal members steps in to break the tie by majority vote.

Interestingly, in Indiabulls Housing Finance Ltd v. Dr Subhash Chandra (NCLT-Five Member Bench, September 1st, 2026), when the dissenting judgments were delivered by the division bench, the matter was referred to a third member, and no majority opinion emerged. Consequently, the President constituted a special bench of five members to consider the issue.

As an interim order, the special bench of five members held that, as per Section 419 (5) of the Companies Act, 2013, there is no clear majority view capable of being given effect to; therefore, the order of the third member is stayed. Now, this larger bench of five members will hear the matter.

[B.2] Timeline for competing offers should be strictly followed under Takeover Code

Under Regulation 20 of the SAST Regulations, when an acquirer makes a public announcement of an open offer, any other person desirous of making a competing offer is entitled to do so, but only within 15 working days of the Detailed Public Statement (DPS) issued by the first acquirer. This timeline is linked to Regulation 20(8), which mandates that all competing offers must follow an identical schedule of activities. This includes the same escrow deposit deadlines, draft letter of offer filings, and tendering periods as the original acquirer.

In Digvijay Laxhamsinh Gaekwad (Danny Gaekwad) v. Securities and Exchange Board of India (SAT, August 19th, 2026), the Burman Group (acquirer) made a public announcement on September 25, 2023 to acquire control over REL (target company). It issued its Detailed Public Statement (DPS) on October 4, 2023.

The appellant, another contender to acquire control of the target company, Mr Gaekwad, did not announce a competing offer during the statutory window of 15 working days, but later on, approached SEBI to exempt him from strict adherence to the timeline for a competing offer. The Gaekwad also filed a writ petition in the Delhi High Court and later approached the Supreme Court seeking a stay on the Burman Group’s open offer to allow Gaekwad’s competing bid to be considered. The Supreme Court was asked to intervene to potentially halt the Burman Group’s process until Gaekwad’s exemption application (seeking relaxation from SEBI timelines) was decided on its merits.

To balance the interests of the competing bidder (Gaekwad) and the shareholders (who needed certainty regarding the open offer), the Supreme Court directed Gaekwad to deposit ₹600 crores (in cash and/or bank guarantee) before a set date as a condition for the stay, failing which the directions granting a stay/relief would be automatically vacated without further reference to the Court. The appellant failed to fulfil the requirement, and the stay was vacated automatically.

The exemption application pending before SEBI to seek exemption from strict enforcement of the timeline for competing offer was rejected. In appeal, the SAT dismissed the appeal and held that the exemption application is not covered by the provisions of Regulation 11(1). Regulation 11 is not a general exemption provision, but is limited to allowing an acquirer to dispense with the open offer requirement and does not provide for relaxation from other requirements, including timelines in case of an ongoing open offer. Even the provisions of Regulation 11(2) are not relevant in the instant matter. Thus, the exemption sought by the appellant is not covered under Regulation 11.

[B.3] Certiorari jurisdiction is confined to examining the decision-making process

In Dayal Das Jogesh Das J.V. v. State of Assam (decided 19-08-2026), the Gauhati High Court, restated the limits on the writ court’s power under Article 226 of the Constitution: “This Court, in exercise of certiorari jurisdiction, is only confined to the aspect of examining the decision-making process. In the present decision-making process, this Court does not find that the same is vitiated by any arbitrariness or unreasonableness.” (Para 20)

This case relates to a tender process and the terms of the tender. The grievance of the petitioner was that the respondent no. 4 has been declared to be technically responsive in spite of the fact that the said respondent no. 4 did not have the requisite qualification in terms of the tender documents.

The court, while rejecting the petition, held that under Article 226, the court examines materials, not merits. The question asked is whether the tendering authority’s conclusion rests on relevant materials and whether the reasoning is free from arbitrariness, not whether the court itself would have reached the same conclusion.

Drawing on Bharat Coking Coal Ltd. v. AMR Dev Prabha (2020) 16 SCC 759, the Court noted that “judicial interpretation of contracts in the sphere of commerce stands on a distinct footing than while interpreting statutes” (Para 11).

For unsuccessful bidders, this judgement is a reminder that the challenge to the tendering process should be based on arbitrariness, irrelevant considerations, or Wednesbury unreasonableness, and not around a competing reading of eligibility criteria. For tendering authorities, this judgement teaches that they should maintain a contemporaneous record showing which materials supported the responsiveness finding.

[B.4] Petition for prevention of oppression and mismanagement held maintainable by CCPS allottees

The NCLT-Mumbai, in Anita Agarwal v. CEM Electromech (P.) Ltd. (August 6th, 2026), upheld the maintainability of the petition for prevention of oppression and mismanagement under Sections 241/242 read with Section 59 (Rectification of Register) filed by the allottees of Compulsorily Convertible Preference Shares (CCPS).

As per the facts of the case, the petitioners had invested ₹80 lakhs in a closely-held company through Non-Cumulative, Non-Voting Compulsorily Convertible Preference Shares (CCPS). Their locus and the very character of the dispute were attacked on four fronts: (1) No shareholder status without any entry in the register of members, (2) CCPS confer no equity rights till converted, (3) Enforcement of the conversion of CCPS into equity shares was purely a contractual dispute, and (4) Allotment of bonus shares to other shareholders without conversion of CCPS was an isolated event and could not be sustained as oppression or mismanagement.

While rejecting all the respondents’ objections, the Tribunal held that denying the status of Equity Shareholders by not entering the names of the CCPS allottees is an act of Oppression by the Respondents, as it is harsh, wrongful, burdensome, or wrong to the Petitioners. Finally, the Tribunal ordered the conversion of CCPS into Equity Shares as per the agreed formula and allotment of a proportionate number of bonus shares to them.

C. Article Review

[C.1] The legality of third-party funding in arbitration

Recently, I came across an article written by L. Sahaya Sweetlin, titled “Third Party Funding in Arbitration - The Indian Perspective”. In this article, the author has discussed the current legal status, judicial recognition, and regulatory gaps surrounding Third-Party Funding (TPF) in Indian arbitration.

Specifically, the article argues that TPF is permissible but unregulated. While India lacks specific statutes governing TPF in arbitration, Indian courts (including the Supreme Court and High Courts) have consistently upheld its validity, distinguishing it from the historical doctrines of Champerty and Maintenance. Some of the Indian judgments have recognised TPF as a vital mechanism for ensuring access to justice. According to them, the TPF allows parties with valid claims but limited resources to pursue arbitration.

The article also highlights significant challenges, including the liability of the funder, conflict of interest, confidentiality, and public policy. As far as the liability of the funder is concerned, the pertinent question is whether a third-party funder can be held liable for adverse costs. The position seems to be upheld in favour of the funders [Tomorrow Sales Agency v. SBS Holdings, FAO(OS)(COMM) 59/2023, dated 29-5-2023, Delhi High Court]. Further, the conflict of interest creates risks regarding arbitrator independence and funder influence. Also, TPF arrangements require sharing confidential case details with funders, potentially compromising arbitration privacy. Lastly, the public policy issue arises when the funder’s share of recovery is not unconscionable or excessive. For example, an agreement where the funder will get at least 3/4th of the value recovered in the litigation.

Be it as it may, the article concludes with an observation that if India wishes to position itself as a credible international arbitration seat, then relying solely on case law is insufficient. India needs a clear statutory and institutional framework to regulate TPF, address these challenges, and encourage its growth.