A. Cover Story

[A.1] Shareholding extinguished under the IBC cannot be revived through remedy under the Companies Act

Section 31 of the IBC provides that after the approval of the resolution plan by the adjudicating authority, it shall be binding on the corporate debtor, creditors, employees, members, the Central Government, the State Government and any other local authority. Further, Section 238 provides that the provisions of the IBC shall have overriding effect over other laws. Also, Section 32A of the IBC that was inserted through the amendment act of 2020, recognises the clean slate principle. Section 32A ensures that once a resolution plan is approved by the Adjudicating Authority and results in a change of management, the new management shall not be held liable for the previous administration’s misconduct.

In Titus Babu v. Sintex Industries Ltd (NCLAT, August 21st, 2026), an investor purchased 1,35,000 equity shares in Sintex Industries Limited that went into CIRP under the IBC. The NCLT approved the resolution plan wherein the entire pre-existing issued equity share capital of the company stood cancelled and extinguished without consideration, and SIL’s shares were delisted from BSE and NSE in March 2023. Feeling aggrieved, the investor filed an appeal under Section 59 (Rectification of Register) of the Companies Act, 2013 with the NCLT, which was dismissed.

On appeal to the appellate Tribunal, the NCLAT held that the relief claimed by the investor is barred by the binding and overriding effect of the approved resolution plan. The NCLAT placed reliance on Sections 31, 238 and 32A of the IBC. Further, the NCLAT observed that Section 59 of the Companies Act, 2013 is a narrow, summary and rectificatory provision, intended solely to correct clerical or procedural errors, wrongful entries or omissions in the Register of Members. It is not a substitute for a suit and cannot be invoked to adjudicate seriously disputed questions, to revive or restore extinguished equity share capital, to compel issuance of fresh shares pursuant to a concluded insolvency resolution, or to award monetary compensation, interest or damages. Once the equity shares stood extinguished under the Resolution Plan, the investor ceased to be both a shareholder and a member; no independent or abstract “membership” right survives the extinguishment of shareholding.

B. Case Laws

[B.1] Failure of mediation triggers further statutory obligation under MSMED Act

The High Court of Kerala, in Palappillil Specified Block Rubbers (P.) Ltd. v. Regional Micro and Small Enterprises Facilitation Council (August 11th, 2026) has clarified a critical procedural requirement under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.

The court held that the failure of mediation is not a ground for dismissing a reference filed by an MSME. Instead, it triggers a mandatory statutory obligation for the Facilitation Council to proceed with arbitration by itself or refer the dispute to an institution or centre providing alternative dispute resolution services for arbitration.

As per the facts, the petitioner, an MSME, had filed a reference before the Facilitation Council under Section 18 of the MSMED Act to recover unpaid sale consideration of Rs. 47.25 lakhs. The Council noted that: (1) There was no dispute regarding the supply of goods; (2) The payment had not reached the petitioner’s bank account; and (3) Mediation had been initiated but had failed.

However, the Council dismissed the reference, treating the issue of alleged fraudulent diversion of bank details as a criminal matter beyond its jurisdiction. While expressing an intention to proceed with arbitration, it made no effective order of reference.

The Court, after hearing the matter, made three key observations. Firstly, the statutory scheme of the MSMED Act does not contemplate dismissal of the reference merely because mediation failed. On the contrary, failure of mediation is the event that triggers the obligation under Section 18(4). Secondly, the Council must either proceed with arbitration itself or refer the dispute to an appropriate arbitral institution/centre (such as the High Court of Kerala’s arbitration facility). Thirdly, merely dismissing the application and asking the parties to furnish arbitrator names does not comply with the mandatory requirements of Section 18(4).

[B.2] Jurisdiction of the High Court to entertain the writ against the SFIO investigation order

In Anil Laxminarayan Biyani v. Union of India (August 25th, 2026), the High Court of Delhi clarified that the appropriate forum to challenge the investigation order issued by the MCA from New Delhi against a company registered in Mumbai is the High Court of Bombay.

The Court rejected the petitioner’s argument that the High Court of Delhi may entertain the petition as a part of the cause of action arose in Delhi. The MCA is situated in New Delhi, issued the order from its office, and even the reply to the petition was filed by an officer from New Delhi. The Court held that Article 226(2) of the Constitution undoubtedly enables a High Court to exercise jurisdiction where the cause of action, wholly or in part, arises within its territorial jurisdiction. However, the use of the expression ‘may’ in Article 226(2), as opposed to ‘shall’, makes it clear that the existence of a part of the cause of action within the territorial jurisdiction of a High Court does not, in every case, require the High Court to exercise its jurisdiction. The Court is required to examine the facts and circumstances of each case and determine whether it is an appropriate and convenient forum for adjudication of the dispute, having regard to the nature of the cause of action and the forum having the closest connection with the subject matter.

The Court observed that in the present case the principal and substantial nexus of the proceedings was with Mumbai. The relevant factors in this regard are that: (a) the registered offices of the companies under investigation are situated in Mumbai; (b) their statutory, financial and other relevant records are maintained there; (c) the concerned Registrar of Companies is ROC Mumbai; (d) any prosecution arising out of the investigation, if initiated, would be before the Special Court having jurisdiction over Mumbai under Section 436; and (e) the insolvency and avoidance proceedings concerning the companies are pending before the NCLT, Mumbai Bench.

[B.3] The NCLT has statutory authority to stay the AGM

The National Company Law Appellate Tribunal (NCLAT), in Exclusive Capital Ltd. v. Mrs Kanta Agarwala (August 25th, 2026), clarified that the National Company Law Tribunal (NCLT) is well within its statutory authority to stay the AGM of a company in prevention of oppression and mismanagement proceedings. The NCLAT observed that the source of such power is Section 242(4) of the Companies Act, 2013 that empowers the Tribunal to make any interim order it thinks fit for regulating the conduct of a company’s affairs upon such terms as appear to it just and equitable, and the Tribunal’s general procedural powers under Rule 11 of the NCLT Rules, 2016 (Inherent Powers of the Tribunal).

In addition, while relying on the Supreme Court’s decision in SBI v. S.N. Goyal, [2008] 8 SCC 92, the NCLAT also clarified that when any order/judgement are passed which is interim in nature, the Court/Tribunal does not become functus officio. The doctrine of functus officio is applicable once an authority exercising quasi-judicial power takes a final decision.

[B.4] No liability of Professional Clearing Members for the sale of the client’s securities on the default of the Trading Member

In a major decision, the Supreme Court (Edelweiss Custodial Services Ltd. v. NSE Clearing Ltd., September 2nd, 2026) decided that the Professional Clearing Members (PCMs) could not be held liable for the losses of the clients when PCMs sold the collateral of the trading member (TM) on the default of the TM. Interestingly, PCMs sold the collateral of TMs without reference to the debit/credit positions of their individual clients. Thus, it is important to note the context in which this decision was pronounced.

1. The decision has been rendered in light of the law prevailing before July 2021. Under the old regime PCMs had zero visibility into individual client positions. They only saw a consolidated lump sum of collateral provided by the Trading Member (TM). Thus, there was no mechanism in place for the PCM to know the debit/credit positions of the individual clients, nor was there any statutory obligation on the PCM to find that out. When a TM defaulted, the PCM liquidated the entire pool of collateral held by that TM without knowing which securities belonged to which client. If Client A had no debts but Client B had massive debts, Client A’s shares could still be sold to cover Client B’s losses because they were mixed.
2. The decision on PCM’s liability may not be relevant post July 2021, as the SEBI circular dated 20.07.2021 shifted the system from a blind, consolidated clearing model to a transparent, granular, daily reporting model. PCMs, Stock Exchanges, and Clearing Corporations now have real-time, daily visibility into the collateral and debit/credit position of every individual client. The Court rejected the retroactive liability. The defaults occurred in 2019–2020, before this circular existed. At that time, it was legally impossible for PCMs to know who was a defaulter and who was not. Therefore, the Court held that they could not be penalised for failing to do something the law didn’t require them to do.

Apart from the liability of PCMs, the Supreme Court also gave an important finding on the legal sanctity of the powers of disgorgement/restitution. The Court held that powers of disgorgement/restitution were specifically conferred on SEBI (under Section 11B of the SEBI Act) and intentionally not conferred on Stock Exchanges/Clearing Corporations via their bye-laws under Section 9(3)(b) of the SCRA. Therefore, even if the PCM had been at fault, the remedy of restitution ordered by a committee constituted by NSE Clearing Limited to look into the matter was itself ultra vires (beyond legal power).

[B.5] Sanction for delayed transfer of unpaid dividend

The High Court of Madras judgment in Dinesh Dalmia v. M.O. Roy (August 21st, 2026) compels us to revisit the legal provisions pertaining to the delayed transfer of unpaid dividend under the 2013 Act and compare them with the 1956 Act. As per the earlier regime under Section 205A of the Companies Act, 1956, failure to transfer unpaid dividend remaining unpaid or unclaimed for a period of seven years to the Investor Education and Protection Fund attracted a fine. However, as per the new regime under Section 124 of the Companies Act, 2013, such failure attracts a penalty. Thus, the criminal sanction under the 1956 Act has been largely converted into a civil/administrative penalty regime under the 2013 Act. Consequently, matters of delayed transfer of unpaid dividends are now primarily dealt with through quasi-judicial proceedings, rather than through criminal trials in Magistrate Courts.

In Dinesh Dalmia (supra), the Madras High Court quashed the trial proceedings under the 1956 Act as barred by limitation and an inordinate delay in the progress of the trial that remained pending for more than two decades before the trial court.