Rajasthan High Court
Case BriefsHigh Courts


Rajasthan High Court: In a case where the secured creditors like Unit Trust of India (‘UTI') and a workman have preferred their petitions way back in the year 2000 and 2014 respectively, and are awaiting result of the winding up, Pushpendra Bhati, J. held that they cannot be allowed to suffer merely because some subsequent proceedings in the DRT would consume all the assets of the company and give away the auction proceeds to Kotak Mahindra Bank which is a late entrant to the dispute.

Factual Background

A company named Derby Textiles Limited (‘respondent company') was incorporated on 22-05-1980 as a Public Limited Company, limited by shares. It requested the UTI (petitioner in Company Petition 07 of 2000) to subscribe for Secured Redeemable Non-Convertible Debentures (‘SRNCD') of the face value of Rs.4.00 crores, which was thereby agreed and disbursed. On deviation from payments agreed recall notices were issued for payment of outstanding debt along with interest.

Company Petition 07/ 2000

A winding up petition was preferred under Sections 433, 434 and 439, Companies Act, 1956, seeking winding up of the company and appointment of an official liquidator regarding all the assets and properties of the respondent-Company, since the respondent-Company was unable to pay the outstanding debt amount. As the proceedings were pending, the respondent-Company meanwhile made an application that it has been registered as sick company with Board of Industrial and Financial Reconstruction. The company kept dilly-dallying on some or the other issues thereafter in the Court and the matter kept on getting adjourned, even when the Court cautioned the parties that no further adjournments would be given.

Application No.2 of 15 in Company Petition No.9 of 2014

The Company petition was filed for liquidation proceedings to begin and while such adjudication was going on, an application was filed by a workman, i.e. Application No. 2 of 2015 in company petition No. 9 of 2014, contending, as the auction proceedings had already taken place, and unless an official liquidator is appointed to secure the debts of the petitioner, the petitioner's rights shall be permanently prejudiced being a prioritized creditor.

As no one appeared for the respondent company an interim order was passed by the Court on 28-03-2022, “Despite service, none appears for the respondent-Company. In the interest of justice, further proceedings in case No.144/2004 before the Debt Recovery Tribunal, Jaipur shall remain stayed.”

Challenging the aforesaid order, an SLP was filed before Supreme Court which upheld the stay order. Consequently, vide another application Kotak Mahindra Bank Limited was impleaded as party respondent. Thus, application No.01 of 2022 (in company petition No.7 of 2000) was filed on behalf of Kotak Mahindra Bank Limited seeking vacation of the interim order dated 28-03-2022 and one another application No. 4 of 2022 (in company petition No.9 of 2014) was filed by Mr. Anil Vyas, Advocate (on behalf of the auction purchaser- M/s. Noble Art & Craft House, Jodhpur) seeking modification of the aforementioned interim order dated 28-03-2022.

It was contended by Kotak Mahindra Bank Limited as well as the auction purchaser, that their proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (‘RDDB Act') is on a stronger footing, and that, leave of the Company Court is not necessary under Sections 537 or 446 of the Companies Act, 1956 is a settled proposition and there cannot be any second thought in the mind of the Court.

The Court noted that the jurisdiction of the Tribunal and the Recovery Officer, in terms of the RDDB Act, is exclusive, in respect of the debts payable to Banks and Financial Institutions, and the Company Court cannot use its powers under Section 442 read with Section 537 or under Section 446 of the Companies Act, 1956, against the Tribunal/recovery officer, and thus, Sections 442, 446 and 537 cannot be applied against the Tribunal, is a settled proposition.

The Court further observed that merely because the company was not cooperating and the adjudication of the matter took a long time, the company petitioner cannot be rendered remediless by this Court on account of the complete assets being disbursed by the DRT in a separate proceeding under the RDDB Act. Thus, in the present case, one of the secured creditors UTI and workman have preferred their petitions way back in the year 2000 and 2014 respectively, and are awaiting result of the winding up and the protection of their respective interests, and thus, they cannot be allowed to suffer merely because some subsequent proceedings in the DRT would consume all the assets of the company and give away the auction proceeds to the Kotak Mahindra Bank Limited and the auction purchaser, who are subsequent entrants in the dispute.

Placing heavy reliance on Bank of Nova Scotia v. RPG Transmission Limited, 2004 SCC OnLine Del 1048, the Court did not allow application No.1 of 2022 in company petition No.7 of 2000 filed on behalf of the Kotak Mahindra Bank Limited seeking vacation of the interim order dated 28-03-2022 and application No. 4 of 2022 in company petition No.9 of 2014 filed on behalf of the auction purchaser seeking modification of the said interim order.

[The Specified Undertaking Of the UTI v. Derby Textiles Limited, SB Company Petition 7 of 2000, decided on 27-07-2022]

Advocates who appeared in this case :

Mr. Manoj Bhandari Sr. Advocate assisted by Mr. Aniket Tater. Mr. Siddarth Tatiya and Mr. Shailendra Gwala, Advocates, for the Petitioner(s);

Mr. Sanjay Jhanwar Sr. Advocate assisted by Mr. Rajat Sharma & Mr. Pranav Bafna. Mr. Sanjay Nahar Mr. Anil Vyas Mr. Sanjeet Purohit with Mr. Surendra Thanvi Mr. Naman Mohnot Mr. Pushkar Taimini, Advocates, for the Respondent(s).

*Arunima Bose, Editorial Assistant has reported this brief.

Financial Creditor
Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal, Chennai: The Bench of S. Ramathilagam, J., Judicial Member, and Anil Kumar B, Technical Member held that the tribunal has the power to replace the liquidator of a Corporate Debtor in a liquidating process if the tribunal finds necessary grounds for such replacement.

Factual Background and Submissions made

A Corporate Insolvency Resolution Process was initiated against the Corporate Debtor, the applicant on 25-02-2019. On 29-05-2020 the liquidation process was initiated and Mr. Venkata Sivakumar was appointed as the Liquidator (respondent) for the liquidation process of the applicant.

The applicant submitted that the respondent did not process a valid Authorisation for Assignment as required under Regulation 7 A of the Insolvency and Bankruptcy Board of India (Resolution Professionals) Regulations, 2016 on the date of appointment as the liquidator, and therefore sought removal of the respondent as the liquidator.

The respondent submitted that there is no provision under the Insolvency and Bankruptcy Code, 2016 (hereinafter as IBC) to change the liquidator, and also the liquidator cannot be changed at the behest of the stakeholders unless or otherwise a serious allegation of corruption has been made.

Analysis and decision

Firstly, the Bench observed the provision under Section 16 of the General Clauses Act, 1897 which states that the power to appoint includes the power to suspend or dismiss. Therefore, the Bench opined that when Section 16 is being read with Section 33 of the IBC, the tribunal which has the power to appoint a person, equally has the power to suspend or dismiss the Liquidator, in the absence of any specific powers conferred thereto. Hence, the tribunal has the power to dismiss the liquidator under Sections 33 and 34 of the IBC.

Further, the Bench observed that the provisions of IBC do not explicitly state the grounds on which the liquidator can be removed. Therefore, in the absence of such provisions, provisions under Section 276 of the Companies Act, 2013 have to be considered to determine the removal of the Liquidator. As per the provision under the section, a liquidator may be removed or replaced on the grounds of misconduct, fraud, professional incompetence, inability to act, due care and diligence, etc.

Therefore, the bench held that in the present case, the respondent failed to exercise due care and diligence in the performance of the powers and functions while discharging his duties as a liquidator as he had shared the valuation report with the prospective scheme proponents. Therefore, he was required to be replaced.

Hence, NCLT allowed the application for the removal of the liquidator under Section 60(5) of the IBC read with Rule 11 of the National Company Law Tribunal Rules, 2016 and Section 276 of the Companies Act, 2013.

[IDBI Bank Ltd. Represented by Dy General Manager v. V. Venkata Sivakumar, 2022 SCC OnLine NCLT 212, decided on 01-07-2022]

Advocates who appeared in this case :

Varun Srinivasan, NVS & Associates, Advocates, for the Applicant;

V. Venkata Sivakumar, Party in Person, Advocate, for the Respondents.

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal, New Delhi (NCLAT): The Coram of Justice Ashok Bhushan (Chairperson) and Shreesha Merla (Technical Member) held that it is not within the domain of Insolvency and Bankruptcy Code for fixation of salary of the MD.

Aggrieved by the impugned order passed by the National Company Law Tribunal, New Delhi.

Facts of the Case

The Operational Creditor/Managing Director had filed an application under Section 9 of the Insolvency and Bankruptcy Code on the ground that he was entitled to Rs 3 lakhs/per month as remuneration, which was revised to Rs 4 lakhs, but the payment was short of the agreed sum.

Further, it was stated that the salary of the MD would be paid when the financial position of the company would improve. In May, 2019 the MD was removed by the Corporate Debtor without clearing his salary dues.

Analysis, Law and Decision

Firstly, the tribunal addressed the issue whether the ‘Claims’ in the application filed under Section 9 of the Code, is ‘barred by limitation’?

Bench while referring to Section 18 of the Limitation Act, addressed whether there was any ‘acknowledgment of debt’/ ‘salary dues’ to fall within the ambit of the stated Section.

Further, it was noted that there was no specific approval either of the payment of arrears or any fixation of the MD’s remuneration or increase of his salary/perks.

“There is no crystallised quantum of amount which can be claimed as salary/remuneration fixed by the Board of Directors as contemplated under Section 196 of the Companies Act, 2013.”

 Article 40 of the Articles of Association of the appellant Company stipulates that the remuneration of the MD would be fixed by the Board of Directors from time to time.

Tribunal was of the view that the Section 9 Application filed was ‘barred by limitation’ as the claims of Rs 96,92,000 and Rs 18,00,000 pertained to the period prior to 31/3/2016 and more than three years had lapsed since.

Pre-Existing Dispute

From the record, the Coram noted that the remuneration of the MD was a ‘disputed question of fact’ and not within the Tribunal’s domain under IBC to ‘decide the issue of the fixation of the salary of the MD., but to ascertain is if here is any dispute regarding the issue.

Hence, the matter was concluded stating that the Adjudicating Authority had not addressed either the question of claims having been time-barred or to the issue of the existence of a ‘Pre-Existing Dispute’ between the parties. [Omega Laser Products B.V. v. Anil Agrawal, Company Appeal (AT) (Insolvency) No. 194 of 2022, decided on 10-5-2022]

Advocates before the Tribunal:

For Appellant:

Mr. Arun Kathpalia, Sr. Advocate with Sarojanand Jha, Mr. Karan Sharma, Mr. Suraj Malik, Mr. Vineet Dwivedi, Advocates.

For Respondent 1:

Mr. Rohit Sharma, Mr. Arju Chaudhary, Mr. Rounak Nayak, Advocates for R-1.

Company Appeal (AT) (Insolvency) No. 195 of 2022

For Appellant:

Mr. Ritin Rai, Sr. Advocate with Kavita Sarin, Sarika Raichur, Mr. Nishant Menon, Mr. Rajat Gava, Advocates.

For Respondent No. 1:

Mr. Rohit Sharma, Mr. Arju Chaudhary, Mr. Rounak Nayak, Advocates for R-1.

Business NewsNews

Central Government designates the Court of Additional Judicial Commissioner, Ranchi in the State of Jharkhand as a Special Court for the purposes of providing speedy trial of offences punishable with imprisonment of two years or more as per clause (a) of sub-section (2) of Section 435 of the Companies Act, 2013.

Ministry of Corporate Affairs

[Notification dt. 5-5-2022]

Case BriefsSupreme Court

Supreme Court: The bench of UU Lalit and S. Ravindra Bhat*, JJ has held that whether corporate death of an entity upon amalgamation per se invalidates a tax assessment order ordinarily cannot be determined on a bare application of Section 481 of the Companies Act, 1956 (and its equivalent in the 2013 Act), but would depend on the terms of the amalgamation and the facts of each case.

Facts Background

The Court was deciding an appeal against the order of the Delhi High Court rejecting the appeal, by the revenue and affirming the order of the Income Tax Appellate Tribunal (ITAT) which quashed the assessment order against the assessee Mahagun Realtors Private Limited (MRPL).

MRPL, a real estate company, amalgamated with Mahagun India Private Limited (MIPL) on 01.04.2006. The Assessing Officer (AO), issued an assessment order on 11.08.2011, assessing the income of ₹ 8,62,85,332/- after making several additions of ₹ 6,47,00,972/- under various heads. The assessment order showed the assessee as “Mahagun Relators Private Ltd, represented by Mahagun India Private Ltd”.

It was argued before the Court that the assessment framed in the name of amalgamating company which was ceased to exist in law, was invalid and untenable in terms of Section 170(2) of the Income Tax Act, 1961.


Section 170 of Income Tax Act, inter alia, provides that where a person carries on any business or profession and is succeeded (to such business) by some other person (i.e., the successor), the predecessor shall be assessed to the extent of income accruing in the previous year in which the succession took place, and the successor shall be assessed in respect of income of the previous year in respect of the income of the previous year after the date of succession.

Further, there are not less than 100 instances under the Income Tax Act, wherein the event of amalgamation, the method of treatment of a particular subject matter is expressly indicated in the provisions of the Act. In some instances, amalgamation results in withdrawal of a special benefit (such as an area exemption under Section 80IA) – because it is entity or unit specific. In the case of carry forward of losses and profits, a nuanced approach has been indicated. All these provisions support the idea that the enterprise or the undertaking, and the business of the amalgamated company continues. The beneficial treatment, in the form of set-off, deductions (in proportion to the period the transferee was in existence, vis-à-vis the transfer to the transferee company); carry forward of loss, depreciation, all bear out that under the Act, (a) the business-including the rights, assets and liabilities of the transferor company do not cease, but continue as that of the transferor company; (b) by deeming fiction through several provisions of the Act, the treatment of various issues, is such that the transferee is deemed to carry on the enterprise as that of the transferor.

The amalgamation of two or more entities with an existing company or with a company created anew was provided for, statutorily, under the old Companies Act, 1956, under Section 394 (1) (a). Section 394 empowered the court to approve schemes proposing amalgamation, and oversee the various steps and procedures that had to be undertaken for that purpose, including the apportionment of and devolution of assets and liabilities, etc.

Reading Section 394 (2) of the Companies Act, 1956, Section 2 (1A) and various other provisions of the Income Tax Act together, the Court reached to the conclusion that despite amalgamation, the business, enterprise and undertaking of the transferee or amalgamated company- which ceases to exist, after amalgamation, is treated as a continuing one, and any benefits, by way of carry forward of losses (of the transferor company), depreciation, etc., are allowed to the transferee. Therefore, unlike a winding up, there is no end to the enterprise, with the entity. The enterprise in the case of amalgamation, continues.

The Court observed,

“Amalgamation, thus, is unlike the winding up of a corporate entity. In the case of amalgamation, the outer shell of the corporate entity is undoubtedly destroyed; it ceases to exist. Yet, in every other sense of the term, the corporate venture continues – enfolded within the new or the existing transferee entity. In other words, the business and the adventure lives on but within a new corporate residence, i.e., the transferee company. It is, therefore, essential to look beyond the mere concept of destruction of corporate entity which brings to an end or terminates any assessment proceedings. There are analogies in civil law and procedure where upon amalgamation, the cause of action or the complaint does not per se cease – depending of course, upon the structure and objective of enactment. Broadly, the quest of legal systems and courts has been to locate if a successor or representative exists in relation to the particular cause or action, upon whom the assets might have devolved or upon whom the liability in the event it is adjudicated, would fall.”

Ruling on facts

The Court specifically noticed that, in the present case,

  • The amalgamation was known to the assessee, even at the stage when the search and seizure operations took place, as well as statements were recorded by the revenue of the directors and managing director of the group.
  • A return was filed, pursuant to notice, which suppressed the fact of amalgamation; on the contrary, the return was of MRPL. Though that entity ceased to be in existence, in law, yet, appeals were filed on its behalf before the CIT, and a cross appeal was filed before ITAT.
  • Even the affidavit before the Supreme Court was on behalf of the director of MRPL.
  • The assessment order painstakingly attributed specific amounts surrendered by MRPL, and after considering the special auditor’s report, brought specific amounts to tax, in the search assessment order.

The Court was, hence, of the opinion that all the aforementioned points clearly indicated that the order adopted a particular method of expressing the tax liability. The AO, on the other hand, had the option of making a common order, with MIPL as the assessee, but containing separate parts, relating to the different transferor companies (Mahagun Developers Ltd., Mahagun Realtors Pvt. Ltd., Universal Advertising Pvt. Ltd., ADR Home Décor Pvt. Ltd.).

“The mere choice of the AO in issuing a separate order in respect of MRPL, in these circumstances, cannot nullify it.”

Right from the time it was issued, and at all stages of various proceedings, the parties concerned (i.e., MIPL) treated it to be in respect of the transferee company (MIPL) by virtue of the amalgamation order – and Section 394 (2). Furthermore, it would be anybody’s guess, if any refund were due, as to whether MIPL would then say that it is not entitled to it, because the refund order would be issued in favour of a non-existing company (MRPL).

Having regard to all these reasons, the Court held that the conduct of the assessee, commencing from the date the search took place, and before all forums, reflects that it consistently held itself out as the assessee.

[Principal Commissioner of Income Tax v. Mahagun Realtors (P) Ltd, 2022 SCC OnLine SC 407, decided on 05.04.2022]

*Judgment by: Justice S. Ravindra Bhat


For Petitioner: Advocate Raj Bahadur Yadav

For respondents: Advocate Kavita Jha

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal, New Delhi (NCLAT): The Coram of Justice Venugopal. M, Judicial Member and Kanthi Narahari, Technical Member, held that ‘Reduction of Capital’ is a ‘Domestic Affair’ of a particular company in which, ordinary, a Tribunal will not interfere because of the reason that it is a ‘majority decision’ which prevails.

The present Company Appeal was focused on being dissatisfied with the order of the National Company Law Tribunal in rejecting the petition filed under Section 66(1)(b) of the Companies Act, 2013 and granting liberty to file a fresh application.

The reason for the filing the company petition by the appellant was seeking an order confirming the reduction of share capital.

The appellant/company had sought relief to confirm the reduction of issued, subscribed and paid-up equity share capital of the petitioner company (appellant) as resolved by the Members in the Annual General Meeting by passing the special resolution.

Further, the pre-mordial plea of the appellant was that the NCLT had failed to appreciate the creeping in of an ‘inadvertent typographical error’ figuring in the extract of the Minutes of the Meeting characterizing the special resolution as a unanimous ordinary resolution. Moreover, the appellant had fulfilled all the statutory requirements of its own ‘Articles of Association’ which had resulted in the dismissal of the petition seeking approval of ‘Reduction of Share Capital’.

On behalf of the Respondents, it was represented that the members of the Appellant/Company at the ‘Annual General Meeting’ that took place among other things resolved that pursuant to Section 66 of the Companies Act, 2013 and subject to other requisite approvals, the paid-up share capital of the Company would reduce from its present level of Rs 67,47,90,000/- to Rs 4,90,00,000/-.

Analysis and Decision

The Resolution passed in the ‘Annual general Meeting’ of the appellant’s company under Section 66 of the Companies Act was found to be in order by the respondents. Registrar of Companies, Delhi found that the appellant had filed the said resolution keeping in tune with the ingredients of Section 66 of the Companies Act, 2013.

‘Reduction of Capital’ is a ‘Domestic Affair’ of a particular company in which, ordinary, a Tribunal will not interfere because of the reason that it is a ‘majority decision’ which prevails.

A ‘special resolution’ is required to determine those matters for which the Act requires a ‘special resolution’ and except these matters in all other situations an ‘Ordinary Resolution’ is to be passed.


Tribunal after subjectively satisfying itself that the appellant has tacitly admitted its creeping in of typographical error in the extract of the minutes and also taking into consideration of 1st respondent’s stand that the appellant had filed the special resolutions with it, which satisfied the requirement of Section 66 of the Companies Act, 2013 and allows the appeal by setting aside the impugned order passed by the NCLT, thereby confirming the reduction of share capital of the appellant.[Economy Hotels India Service (P) Ltd. v. Registrar of Companies, 2020 SCC OnLine NCLAT 653, decided on 24-8-2020]

Advocates before the Tribunal:

For Appellant: Mr. Sujoy Dutta, Mr. Satvinder Singh, Mr. NPS Chawla and Mr. Surek Kant Baxy, Advocates

For Respondent: Mr. P S Singh, Advocate for ROC, Ms. Chetna Kandtal, Company Prosecutor for R1 and R2

Bombay High Court
Case BriefsHigh Courts

Bombay High Court: Sandeep K. Shinde, J., held that Special Court which is to try offences under the Insolvency and Bankruptcy Code, 2016 is the Special Court established under Section 436(2) (b) of the Companies Act, 2013 which consisted of Metropolitan Magistrate or Judicial Magistrate First Class.

The present petition was filed assailing the order “Issue Process” under Section 73(a) and Section 235A of the Insolvency and Bankruptcy Code, 2016 passed by the Additional Sessions Judge on a complaint filed by the Insolvency and Bankruptcy Board of India.


The Additional Sessions Judge does not have jurisdiction to entertain the complaint filed by the respondents.

Analysis, Law and Decision

Section 236 of the Insolvency and Bankruptcy Code empowers the Central Government or Board to file a complaint against a person/s having contravened, one of the penal provisions of the I.B. Code constituted or established under the provisions of the Companies Act, 2013.

The Companies Act (17th amendment) sought to establish two different classes of a Special Court; (a) a Single Judge holding office as Session Judge or Additional Sessions Judge and (b) Metropolitan Magistrate or Judicial Magistrate First Class; who shall be appointed by the Central Government with concurrence of the Chief Justice of the High Court within whose jurisdiction, the Judge to be appointed is working.

Which of the above two classes is empowered to try the offences under the I.B. Code?

The plain reading of clause (a) of subsection (2) of Section 435 of the Companies Act in no uncertain terms implies or suggests that the Special Court consists of Judge holding office as a Sessions Judge is empowered to try the offences under Section under this Act”. (emphasized)

‘Under this Act’ the phrase would mean the offences committed under the Companies Act.

Hence, the Companies Act cannot be tried by the Special Court established under clause (a) of sub section 2 of Section 435.

High Court opined that the clear mandate of the legislature was that the “Special Court” comprising of a Sessions Judge or Additional Sessions Judge was only to try offences under the Companies Act, 2013 itself which carry a punishment of imprisonment of 2 years or more.

However, it is clear that “Special Court”, comprising of a Metropolitan Magistrate or Judicial Magistrate First Class is to try “other offences” and the other offences would be offences under the I.B. Code and offences under the CA 2013 but carrying punishment of imprisonment of less than 2 years.

Elaborating further, the Court expressed that Section 236(3) of the I.B. Code creates a deeming fiction that the Special Court trying offences under the I.B. Code shall be deemed to be Court of Sessions.

In view of the above discussion, the impugned proceedings instituted by the respondents in the Court of Additional Sessions Judge were not sustainable for want of jurisdiction. [Satyanarayan Bankatlal Malu v. IBBI, 2022 SCC OnLine Bom 310, decided on 14-2-2022]

Advocates before the Court:

Mr. Amir Arsiwala a/w. Mr. Piyush Deshpande a/w. Mr. Farzeen Pardiwala, Advocate for the Petitioners.

Mr. Pankaj Vijayan a/w. Mr. Mohammed Varawala, Advocate for Respondent no.1.

Mr. Y.M. Nakhawa, APP for State-Respondent no.2.

Case BriefsDistrict Court

Dwarka Courts, New Delhi: Noting the complaint to be a complete abuse of process of law or in a manner sort of forum shopping, Sumit Dass, Additional Sessions Judge—03, dismissed the complaint expressing that,

“..it would be apt to nip this litigation in the bud rather than keeping it pending and burdening the docket of the Court.”

The present order shall dispose of the present complaint filed by the company under Section 439(2) read with Section 436(1)(A) and (D) read with Section 212 of the Companies Act, 2013 read with Section 62(1) of the Companies Act, 1956 read with Section 193 of the Code of Criminal Procedure, 1973.

  • Complainant company had filed a petition under Section 213 of the Companies Act 2013 which was pending before the NCLT and to that aspect the complainant’s counsel submitted that the said petition was pending and infact they had also sought for an SFIO probe/exhaustive probe insofar as the violation and the criminal acts committed by the Company and its management.

Court’s opinion:

Bench held that since the petition had been pending before the NCLT, there was no reason to file the present complaint.

This Court cannot and should not overreach and rather should lay its hands off and let those proceedings continue/attain finality.

Further, the Court also expressed that,

NCLT is a designated tribunal for the said purposes and in eventuality if any probe or any investigation is ordered the same would cover or encompass the allegations made in the complaint.

High Court stated that the complainant ought to have come before this Court with clean hands and informed that such a petition was pending/prosecuted before the NCLT.

Non-Disclosure of the said facts amounts to concealment of facts. 

Instant complaint only mentioned a petition filed under Sections 241 and 242 of the Companies Act, 2013 and does not mention the petition which had been filed under Section 213 of the Companies Act.

In Court’s opinion, any pending litigation is a material fact that should be placed before the Court.

While adjudicating the application under Section 156(3) of the CrPC, in view of the Supreme Court decision in Priyanka Srivastava v. State of U.P., (2015) 6 SCC 287, the complainant is enjoined to file a detailed affidavit mentioning all the relevant facts.

Insofar as the complaints under the Companies Act, 2013 are concerned the complainant should disclose all the material facts by way of a detailed affidavit.

Another significant point was with respect to Section 439(2) of the Companies Act, which is read as under:

“No Court shall take cognizance of any offence under this Act which is alleged to have been committed by any company or any officer thereof except on the complaint in writing of the Registrar, a shareholder of the company, or of a person authorized by the Central Govt. in that behalf.” [emphasise mine].” 

The said section vests a shareholder with a right to prefer a complaint seeking action under the Companies Act, 2013 however the shareholder should be in a sense an “undisputed shareholder” qua which there should not be any sort of dispute pending.

The Court can take cognizance of the grievances of the “shareholder” but cannot decide as to whether the complainant is a “shareholder” or not.

Deciding whether the complainant is a shareholder or not, would be venturing into the uncharted territory/travelling beyond the jurisdiction of this Special Court constituted under the Companies Act.

In view of the above discussion, the present complaint does not lie before this Court as it would be a futile exercise to continue with the same – rather would not be in consonance with judicial propriety on account of the pendency of the matter before the NCLT, also this Court cannot adjudicate the right of the complainant being a shareholder or otherwise aggrieved of which the complainant could vindicate by filing a criminal complaint.[Green Edge Infrastructure (P) Ltd. v. Magic Eye Developers (P) Ltd., CC No. 693 of 2020, decided on 4-3-2022]

Case BriefsSupreme Court

Supreme Court: The Division Bench of Hrishikesh Roy* and R. Subhash Reddy, JJ., while deciding on an appeal challenging dismissal of suit by the Calcutta High Court restored the Trial Court’s judgement which was reversed by the High Court.

Factual Backdrop

The suit was filed by SIBCO Investment seeking interest on the alleged belated payment of principal sum and accrued interest to the plaintiff for the Bonds issued by Small Industries Development Bank of India (SIDBI). SIBCO had purchased 15 Bonds at 13.50% and 26 Bonds at 12.50% worth Rs3.69 crores aggregate as on 01-07-1998 from one Shankar Lal Saraf who had bought it from CRB Capital Markets Ltd. The name of the plaintiff was not included by SIDBI as CRB Capital was facing involuntary liquidation proceedings at the instance of the RBI in the Delhi High Court (Company Court).

On 17-12-2004, the Company Court held that the subject Bonds were beyond the purview of the liquidation proceedings. The defendant thus made payment of principal amount and interest calculated up to 31-10-2005 with 20% TDS deduction.

The plaintiff’s case was that the amount, both principal and interest were paid beyond the maturity period and, therefore, the defendant was liable to pay the interest for delayed payment. Whereas the defendant pleaded that the maturity amount was not paid on the date of maturity because of the embargo and restriction by the RBI and the pending proceedings.

Findings of the Trial Court

The Trial Court did not agree with the submission of the plaintiff that there was any deliberate attempt to delay the payment of the maturity amount by the defendant and subsequently dismissed the matter on two grounds: Firstly, the bonds could not be transferred as there was liquidation proceedings against CRB capital whereafter the RBI issued a directive to the petitioner directing not to part with any payment pertaining to the said Bonds without consent of the Official Liquidator and  secondly, the plaintiff slept over the interest claim for almost 8 months after receiving the payment.

Impugned Order of the High Court

The High Court reversed the order of the Trial Court and allowed the plaintiff to raise further demands including demand for interest on delayed payment. Accordingly, the defendant was directed to pay simple interest at 6% per annum on interest from date of accrual and 8% simple interest per annum on principal amount from date of maturity.

Analysis and Findings

Noticing that the transfer in Shankar Lal Saraf’s favor was executed during suspect spell, the Bench opined that the defendant’s prima facie suspicion that the transfer during the suspect spell may be deemed fraudulent was not misplaced. Further, both the RBI and the Official Liquidator treated the transfer in Shankar Lal Saraf’s favour as fraudulent and it was only after the judgment of the Company Court that the cloud over the issue was cleared wherein the defendant’s claim that the transfer in Shankar Lal Saraf’s favour was ‘fraudulent preference’ was rejected. Hence, the Bench held the following:

  • The RBI direction carried statutory force and that it was necessary for plaintiffs to implead RBI in the litigation for getting more clarity on the issue but the same was not done.
  • There was bonafide shadow over the plaintiff’s title to the Bonds till the same was cleared by the Company Court. Therefore, withholding payment was justified till the conclusion of dispute by the Court.
  • The plaintiff failed to establish that the defendant had derived any undue benefit by withholding the payment accrued on the Bonds since the amount was immediately transferred and was not used by the defendant for their business.
  • The plaintiff was not serious on its claim for pendente lite interest as no argument was recorded in previous litigation regarding it.
  • The plaintiff accepted the payment from the defendant as due settlement and failed to raise protest and demand for interest at the earliest possible stage which amounted to sub-silencio Hence, the claim was barred by the principle of waiver/acquiescence.
  • Claim of interest on delayed payment was barred by the principle of constructive Res Judicata.


Finally, considering that as soon as the Company Court’s decision was communicated to the defendant, payment was promptly made to the plaintiff without hesitation, the Bench held that the defendant bank justified in withholding payment till conclusion of dispute in Company Court, even though the relief claimed was in respect of an ‘unconditional undertaking’, as there were reasonable legal concerns for the transaction during the suspect spell, for making such payments.

Consequently, the Bench concluded that the defendant was not entitled to payment till the Company Court’s order. Therefore, rejecting the plaintiff’s claim for interest the Bench compared it to the Shakespearean character Shylock and remarked,

“…the holder of the Bond has received their ‘pound of flesh’, but they seem to want more. Additional sum in our estimation is not merited as SIBCO has already received their just entitlement and burdening the defendant with any further amount towards interest would be akin to Shylockian extraction of blood from the defendant.”

In the light of the above, the defendant’s appeal against the impugned judgment was allowed and the Trial Court’s judgment was restored.

[SDBI v. SIBCO Investment, 2022 SCC OnLine SC 5, decided on 03-01-2022]

*Judgment by: Justice Hrishikesh Roy

Appearance by:

For the Appellant/Defendant: K V Viswanathan, Senior Counsel

For the Plaintiff/Respondent: Sabyasachi Chaudhury, Senior Counsel

Kamini Sharma, Editorial Assistant has put this report together

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal, New Delhi (NCLAT): The Coram of Justice Ashok Bhushan (Chairperson) and Dr Alok Srivastava (Technical Member) held that if the Intervention Application was filed under the IBC, then, any penalty to be imposed should have been under the provisions of IBC and not Companies Act.

Appellant filed the present appeal under Section 61 of the Insolvency and Bankruptcy Code 2016, assailing the order passed by the Adjudicating Authority.

Factual Matrix

An application under Section 9 of the IBC was admitted vide the order of the Adjudicating Authority and CIRP was initiated against the Corporate Debtor along with the appointment of Interim Resolution Professional.

During the pendency of the Corporate Insolvency Resolution Process, the IRP moved two applications under Section 19(2) and Section 60(5) of the IBC alleging that the appellant had withdrawn a sum of Rs 32 lakhs during the moratorium period during the CIRP though the appellants claimed that they had given a post-dated cheque to Kewal Kishan as repayment of the loan and the said cheque was not given by them during the ongoing CIRP.

Adjudicating Authority had imposed a penalty of Rs 5 lakhs on each of the two ex-directors to be deposited in the account of the Government of India, Ministry of Corporate Affairs.

Since the ex-directors of the corporate debtor did not provide the records and other financial information to the Resolution Professional under Section 19(2), the Adjudicating Authority invoked Section 128(6) of the Companies Act and levied a penalty of Rs 5 lakhs each on the appellants 1 and 2, therefore the present appeal was filed seeking to set aside the impugned order.

Analysis and Decision

Tribunal on noting that the appellants not only did not provide the records and financial documents relating to the corporate debtor to the erstwhile resolution professional and the liquidator despite multiple requests, they also did not comply with the Adjudicating Authority’s orders.

Hence such acts of carelessness in complying with the requirements of law, amounting to defiance and disrespect of the legal process, could not eb condoned and needed to be dealt with strictly in accordance with the provisions of Chapter VII: “OFFENCES AND PENALTIES” of the IBC.

“…we are of the view that since the IA No. 1253/2020 was filed under the provisions of IBC, it would have served the requirement of law if any order regarding the penalty was imposed under the provisions of IBC. Moreover, it would have served the cause of natural justice if the Appellants were given an opportunity to be heard before imposition of any penalty. Chapter VII of the IBC which lays down “Offences and Penalties” under which officers of the Corporate Debtor can be penalized and/or punished with imprisonment is relevant in this regard.”

Therefore, Tribunal directed that the case be remanded to the Adjudicating Authority for taking a decision under the provisions of IBC after giving an opportunity to the appellants to present their case.

In view of the above discussion, the impugned order was set aside. [Ashish Chaturvedi v. Sanjay Kapoor, Company Appeal (AT) (Insolvency) No. 1103 of 2020, decided on 14-2-2022]

Advocates before the Tribunal:

For Appellants:

Mr. Manoj Kumar Garg, Advocate.

For Respondents:

Mr. K.D. Sharma and Mr. Anuj Kumar Pandey, Advocates for R-3.

Case BriefsSupreme Court

Supreme Court: In a loan default case, the Division Bench of L. Nageswara Rao* and B.R. Gavai, JJ., rejected pleas of Rahul Modi of Adarsh Group and Rahul Kothari of Rotomac Global for default bail on the ground that the Trial Court failed to take cognizance within stipulated 60/90 days time under CrPC. The Bench held that the provision is not for the trial courts and filing of the charge-sheet within the stipulated period is sufficient compliance under S. 167 of CrPC.


The Serious Fraud Investigation Office-appellant had assailed the order of the Punjab and Haryana High Court granting bail to Respondents 1 and 2. An investigation was directed to be conducted into the affairs of Adarsh Group of Companies and LLPs by the Central Government in exercise of the powers conferred under Section 212(1)(c) of the Companies Act, 2013 and subsections (2) and (3)(c)(i) of Section 43 of the Limited Liability Partnership Act, 2008 which led to the arrest of respondents 1 and 2.

Respondents 1 and 2 were remanded to 14 days’ judicial custody on 05-04-2019 which was extended to 16-05-2019 and further till 30-05-2019. Noticeably, the Sessions Judge had dismissed the respondents’ applications for statutory bail under Section 167(2) of the CrPC on the ground that the complaint under Section 439(2) of the Companies Act, 2013 was filed on 18.05.2019, i.e., before the expiry of the 60-day period prescribed in proviso (a) to Section 167(2) of the CrPC. However, the High Court considered the regular bail applications of the respondents and directed their release on the ground that they were entitled to statutory bail. The sole reason given for grant of bail by the High Court was that the Trial Court had not taken cognizance of the complaint before the expiry of the 60-day period, which entitled the respondents to statutory bail, as a matter of indefeasible right.

Conflict Involved

One Rahul Kothari had filed application for intervention for as his application for statutory bail was rejected by the Trial Court and upheld by the High Court. It was submitted by the intervener that his case (SLP (Cr) Diary No. 12089 of 2021) raised the same issue, i.e., the right of an accused to claim statutory bail in case cognizance is not taken before the expiry of the prescribed period of 60 or 90 days.

Claiming that there were conflict of opinion regarding the interpretation of Section 167(2), CrPC as the Supreme Court in Mohamed Iqbal Madar Sheikh v. State of Maharashtra, (1996) 1 SCC 722, and Sanjay Dutt v. State, (1994) 5 SCC 410, had taken a view that an accused can invoke his right for statutory bail if the court has not taken cognizance of the complaint before the expiry of the statutory period from the date of remand while a completely different view had been taken in Suresh Kumar Bhikamchand Jain v. Stateof Maharashtra, (2013) 3 SCC 77. Further, in different cases the similar issue had been referred to a larger Bench.

Factual Analysis

The Court made the following observations:

  1. The complaint under Section 439(2) of the Companies Act, 2013 was filed before the expiry of the 60-day period from the date of the remand.
  2. The applications filed for statutory bail were dismissed by the Special Court on the ground that the charge-sheet was filed before the expiry of 60 days.
  3. Respondents did not argue before the Special Court that they were entitled for statutory bail, even after filing of the charge-sheet before the expiry of the 60-day period, as cognizance had not been taken.

Hence, the Bench opined that the High Court had failed to consider the order passed by the Trial Court dismissing the applications seeking statutory bail.

Regular Bail vis-à-vis Statutory Bail

Observing that the scheme of the provisions relating to remand of an accused first during the stage of investigation and thereafter, after cognizance is taken, indicates that the legislature intended investigation of certain crimes to be completed within the period prescribed therein, the Bench stated that once the chargesheet is filed within the stipulated period, the right of the accused to statutory bail come to an end and the accused would be entitled to pray for regular bail on merits.

Clarifying that the two stages are different, with one following the other so as to maintain continuity of the custody of the accused with a court, the Supreme Court in Bhikamchand Jain’s case had held that in the event of investigation not being completed by the investigating authorities within the prescribed period, the accused acquires an indefeasible right to be granted bail, if he offers to furnish bail and the court has no option but to release the accused on bail. However, on filing of the charge-sheet within the stipulated period, the accused continues to remain in the custody of the Magistrate till such time as cognizance is taken by the court, when the said court assumes custody of the accused for purposes of remand during the trial in terms of Section 309, CrPC.

On the issue as to whether the Court had taken a different view in the cases relied on by the intervenor, the Bench observed that in Sanjay Dutt (supra), the Court held that the custody of the accused after the challan has been filed is not governed by Section 167(2) but different provisions of the CrPC while in Madar Sheikh, it was held that the right conferred on an accused under Section 167(2) cannot be exercised after the charge-sheet has been submitted and cognizance has been taken.

Pertinently, filing of charge-sheet is sufficient compliance with the provisions of proviso (a) to Section 167(2), CrPC and that taking of cognizance is not material to Section 167.


The Bench noted that reference to a larger bench pertains to the issue of exclusion or inclusion of the date of remand for computation of the period prescribed under Section 167, therefore differentiating the same the Bench applied the law as laid down in Bhikamchand Jain’s case to hold that the conclusion of the High Court that the accused cannot be remanded beyond the period of 60 days under Section 167 and that further remand could only be at the post-cognizance stage, was not correct. Accordingly, the impugned order was set aside.

[Serious Fraud Investigation Office v. Rahul Modi, 2022 SCC OnLine SC 153, decided on 07-02-2022]

*Judgment by: Justice L. Nageswara Rao

Appearance by:

For the Appellant: Aman Lekhi, Additional Solicitor General

For Respondents 1 and 2: Vikram Choudhri, Senior Advocate

For the Intervenor: Mukul Rohatgi

Kamini Sharma, Editorial Assistant has put this report together


Case BriefsSupreme Court

Supreme Court: The Division Bench comprising of Dr. Dhananjaya Y Chandrachud* and B V Nagarathna, JJ., partly allowed the petition challenging Union Government’s disinvestment of its shareholding in Hindustan Zinc Ltd. (HZL). The Bench, though held that the government was within its powers to disinvest its shares, it was of the opinion that a full-fledged CBI enquiry was required regarding previous disinvestment by the government. The Bench stated,

“There is no bar on the constitutional power of this Court to direct the CBI to register a regular case, in spite of its decision to close a preliminary enquiry.”

HZL was incorporated as a public sector company to develop the mining and smelting capacities, so as to substantially fulfil the domestic demand for zinc and lead. In 1991-92, the Union Government disinvested 24.08 per cent of its shareholding in HZL and again in 2002 it disinvested 26 per cent of its shareholding in HZL to a ‘strategic partner, Sterlite Opportunities & Ventures Ltd. (SOVL). Consequently, the Union Government was left with an equity holding of 49.92 per cent.

Res Judicata and PILs

While determining the issue that the first relief sought by the petitioners, i.e. residual disinvestment can occur only after the amendment of the Nationalisation Act 1976 was  substantially similar to the reliefs sought by Maton Mines Mazdoor Sangh when the disinvestment of 2002 and 2014, the Bench opined that the Court must be alive to the contemporary reality of “ambush Public Interest Litigations” and interpret the principles of res judicata or constructive res judicata in a manner which does not debar access to justice. The Bench expressed,

“While determining the applicability of the principle of res judicata under Section 11 of the Code of Civil Procedure 1908, the Court must be conscious that grave issues of public interest are not lost in the woods merely because a petition was initially filed and dismissed, without a substantial adjudication on merits.”

Considering that the three judges Bench had rejected the petition filed by Maton Mines Mazdoor Singh in limine, without a substantive adjudication on the merits of their claim, the Bench held that the instant petition was not barred by res judicata.

Whether disinvestment was barred by the Nationalisation Act 1976?

Relying on the object of the Nationalisation Act, 1976 which was to acquire control over the strategic mineral deposits of lead and zinc, since zinc plays important role in the country’s economy, the petitioners contended that disinvestment could not be made without amending the Nationalisation Act 1976. Assailing the contention of the petitioners, the Union Government made following submissions:

  1. After 16 March 1999, the mining of zinc has ceased to retain a strategic character, given the changes in industrial policy.
  2. There was no challenge to the disinvestment which took place in 1991-92 or in 2002.
  3. The HZL had ceased to retain its status as a government company within the meaning of Section 617 of the Companies Act 1956.

In view of the above, the Bench opined that it would be inconsistent to read an implied limitation on the transfer by the Union Government of its residual shareholding in HZL representing 29.54 per cent of the equity capital. Considering that HZL was not a government company, the Bench stated, when a decision has been taken by the government as a shareholder of a company to sell its shares, it acts as any other shareholder in a company who makes the decision on the basis of financial and economic exigencies.

Whether the decision in Centre for Public Interest Litigation would result in a bar on the disinvestment of the residual shareholding?

In Centre for Public Interest Litigation v. Union of India, (2003) 7 SCC 532, the Court had held that that the divestment of the shareholding of the Union Government in HPCL and BPCL, as a result of which the companies would cease to be government companies, could not be undertaken without amending the statutes under which they were nationalized. Distinguishing the decision in Centre for Public Interest Litigation, the Bench stated that HPCL and BPCL were government companies when the disinvestment action was challenged while HZL ceased to be a government company as a consequence of the disinvestment in 2002, since its shareholding fell below 51 per cent. The Bench opined,

“The fact that the Union Government is amenable to the norms set out in Part III of the Constitution would not impose a restraint on its capacity to decide, as a shareholder, to disinvest its shareholding, so long as the process of disinvestment is transparent and the Union Government is following a process which comports with law and results in the best price being realized for its shareholding.”

Hence, the Bench held that the decision of the Union Government, as an incident of its policy of disinvestment, to sell its shares in the open market, could not be questioned by reading a bar on its powers to do so, from the provisions of the Nationalisation Act 1976.

CBI’s preliminary enquiry

Evidently, in spite of conflicting opinion of the Director of CBI and the Director of Prosecution, CBI regarding the closure of the preliminary enquiry and conversion of it into a regular case; and the fact that the matter was referred to the Attorney General but the Court was not apprised of the status of referral, the preliminary enquiry was closed.

Upon perusal of reports and recommendations in favour of registration of a regular case, which indicated irregularities in the decision to disinvest 26 per cent, instead of 25 per cent, in the bidding process and the valuation of 26 per cent equity for disinvestment, the Bench opined that the disinvestment in 2002 evinced a prime facie case for registration of a regular case. The Bench stated,

“We are desisting from commenting on some crucial facts and names of individuals involved, so as to not cause prejudice to the investigation of the matter.”

Accordingly, opining that there was a prima facie case for cognizable offence, as mandated in para 9.1 of the CBI Manual, the Bench held that a full-fledged investigation must be conducted.

Hence, the petition was partially allowed. The CBI was directed to register a regular case and periodically submit status reports of its investigation to the Court.

[National Confederation of Officers Association of Central Public Sector Enterprises v. Union of India, 2021 SCC OnLine SC 1086, decided on 18-11-2021]

Kamini Sharma, Editorial Assistant has put this report together 

Appearance by:

For the Petitioners: Prashant Bhushan, Senior Counsel

For Union of India: Tushar Mehta, Solicitor General

For Sterlite Opportunities & Ventures Ltd. (SOVL): Harish Salve, Senior Counsel

*Judgment by: Justice Dhananjaya Y Chandrachud

Know Thy Judge| Justice Dr. DY Chandrachud

Op EdsOP. ED.


With the introduction of the Insolvency and Bankruptcy Code, 20161 (the Code) and the consequential amendments made to Sections 2702, 2713 and 2724 of the Companies Act, 2013 (the Act),5 a winding-up petition under the Act cannot be filed against a company for inability or failure to pay debts. However, in terms of Section 271, a winding-up proceeding may still be initiated under the Act against a company on the following grounds:

  • the company has, by special resolution, resolved that the company be wound up by the Tribunal;
  • if the company has acted against the interests of the sovereignty or integrity of India, national security, friendly relations with foreign States, public order, decency or morality;
  • if on an application made by the Registrar of Companies or such person authorised by the Central Government to do so, the Tribunal is of the opinion that affairs of the company are being conducted in fraudulent manner, that the company was formed for a fraudulent purpose or the management of the company has been guilty of fraud, misfeasance or misconduct, and the Tribunal believes it proper that the company be wound up;
  • if the company has defaulted in filing its annual returns with the Registrar of Companies for the preceding five consecutive years; or
  • if the Tribunal is of the opinion that it is just and equitable that the company be wound up.

The provisions of Section 271(1)(a) of the Act i.e. “winding up by special resolution” ought not to be confused with a voluntary application for initiation of corporate insolvency resolution process under Section 10 of the Code6 or an application for voluntary liquidation under Section 597. Unlike other proceedings, the reason for the existence of the remedy under Section 271(1)(a) of the Act is to facilitate the execution of the will of the shareholders of companies. It is based on the understanding that a company has a right to apply for its own winding up if its shareholders wish to and, by means of a special resolution, elect to discontinue the company.8 As Lord Cairns in Suburban Hotel Co., In re:9 observed:

…a certain number of persons are willing to undertake to supply a limited amount of capital upon the terms of the business being managed by persons who shall be elected in a particular manner…. They have certain means by which the business can be put an end to. If the requisite majority wish it to be discontinued a special resolution can at any time be passed to wind up the company. On the other hand, if any of the tests of insolvency or the impossibility of carrying on business, which are mentioned in 79th section of the Act [Section 122 of the Insolvency Act], occur, then the shareholders have a further right to have the company wound up accordingly. But subject to the wishes of the majority, and subject to the occurrence of any of those tests mentioned in the Act, I apprehend that the contract means that the shareholders will supply the specified amount of capital for the purpose of carrying on business as long as it can be carried on.

Winding up by special resolution

A company by a special resolution can decide that it would be wound up by the tribunal. The resolution can be passed for any reason.10 This clause is based on the premise that, the shareholders being corporate entities have the requisite skill to judge and decide as to whether or not the company should go out of existence. Further, as noted above, a company has the right to apply for its own winding up and this right is generally exercised by its directors. However, the directors do not have the right to seek for such winding up without the express permission of the general body of shareholders in the form of a special resolution.11However, the directors may file this application, subject to the ratification of proposal.12

The company has to call general body meeting and pass a special resolution specifically setting out grounds in the explanatory statement attached thereon explaining why winding up of the company is necessary. A resolution of the company’s Board of Directors is not a substitute for shareholders’ resolution. The appointment of a provisional liquidator does not by itself necessitate an order of winding-up.13Where the notice for an extraordinary meeting neither provide the actual wordings of the resolution nor state that the resolution was to be passed as an extraordinary resolution, the court held that the resolution for the winding up of the company was not passed in accordance with law.14

A company which applies for a winding-up order is not confined to relying upon the fact that a special resolution for winding up has been passed,15 but may invoke other grounds contained in Section 271.16 This must, of course, be established in the ordinary way and it is therefore not enough to show that a simple majority of members is in favour of winding up.17Further, the procedure to be followed for passing such a special resolution may also depend on the articles of association of a company. Although the articles cannot alter the statutory majority prescribed for special resolutions, there seems to be nothing to prevent the company from making it difficult to pass a resolution for the purpose of winding up voluntarily. A company is, therefore, entirely within its powers to mandate a larger quorum for such occasions.18 Similarly, it may require a high majority for such special resolutions. In Ramakrishna Industries (P) Ltd. v. P.R. Ramakrishnan,19 the articles of the company required “every member shall vote in favour of the resolution for winding up when such contingencies arise”. This requirement was challenged on the ground that provision in articles was void in view of Section 9 of the Companies Act, 195620 vis-à-vis Section 433(f) of that Act. The Court, however, held that, the provision was not void inasmuch as the articles of association have a contractual force between the company and its members as also between the members inter se and that the said provision in the articles was what is provided in Section 433(a) of the Companies Act, 1956. It was not contrary to the provision in Section 433(f) of the Companies Act, 1956.

Winding-up orders on this ground are uncommon as companies usually resort for the cheaper and less complicated voluntary liquidation. The proceedings under Section 271(1)(a) and its earlier versions seem to have been invoked only where other liquidation proceedings provided a particular group of creditors an unfair advantage over others. For instance, in United Investments Co., In re,21an application for voluntary winding up by special resolution was filed so as to reduce the assets available for distribution on winding up to preference shareholders. In that case, the company’s articles distinguished the amounts shareholders would receive based on whether such shares were preference shares or ordinary shares. The ordinary shareholders took advantage of the equivalent of Section 122(1)(a)22 in order to bring about a form of liquidation which was more favourable to their own interests.

It is also important to note that the power of the Tribunal to order winding up is generally considered as being discretionary and the Tribunal may not exercise it where winding up is considered as being opposed to the public or the company’s own interests. Generally, unless there are such special circumstances, the Tribunal will allow the petition and make an order for winding up of the company.23In United Fuel Investments Ltd., In re24, the Court refused to interfere with a special resolution for compulsory winding up in the absence of proof that the action of the majority was fraudulent or something akin to it. However, the Tribunal must see that the winding up is not opposed to public interest or the interest of the company as a whole.25The Tribunal is also to take into account the possibility of the company to have a financial revival, when the company is incurring loss that led the company to pass special resolution for winding up.26

Reasons and motives in relation to a special resolution

In a petition under Section 271(1)(a), the Tribunal is essentially asked to terminate a contract that the shareholders of the company entered into when they became members of the company. Thus, to that extent, the tribunal must decide on an issue that is at its core contractual. Consequently, the Tribunal has to decide the question in terms of that contract and the memorandum of association and articles of association which prescribe the limits of rights of members. However, the tribunal may go into the reason behind the company’s decision to wind up by means of a petition under Section 271(1)(a). It is not bound to order winding up merely because the company has so resolved.27

Where a company is unable to pay its debts, or where its substratum is gone, the company may choose to file a winding-up petition even if it is presented by the company itself after a special resolution to that effect. In such cases, the motive may be irrelevant. Equally, the reason for the strained circumstances that a company may face is irrelevant even if such circumstances are due to mismanagement.28

Where a company by a special resolution filed a petition for winding up, the Official Liquidator objected that the directors had defrauded the depositors. The Court, observed that the company owed huge debts with no prospects of survival, ordered for the company to be wound up. It, however, observed that the directors would not be absolved of their legal responsibilities merely on account of such an order.29 In another case, a government company had several decrees that has been passed against it in suits for repayment of various loans. But the company was unable to discharge its liabilities and was found to have lost its financial substratum. The Court ordered windingup.30 However, a company may not be entitled to bring a petition merely because it is finding it difficult to dispose assets in the open market.31

Checklist for filing a petition under Section 271 of the Companies Act, 2013

  • A petition under Section 271 shall be presented only by persons mentioned in Sections 272(1)(a)-(f).
  • A petition under Section 271(1)(a) can be presented by the company, subject to the company duly passing a special resolution at a validly convened meeting of the company.
  • A petition under Section 271(b) can only be presented the Central Government or a State Government in terms of Section 272(f) of the Act.
  • A petition under Section 271(1)(c) may only be presented by the persons prescribed under Section 272(1)(d) or Section 271(1)(e) provided the prerequisites mentioned under Section 271(1)(c) are duly satisfied.
  • A petition under Section 271(1)(d) can be made by the company itself, any contributory, the Registrar of Companies.
  • A petition under Section 271(1)(e) can be made either by the company, any contributory or any person authorised by the Central Government on their behalf.

[Note: In Antrix Corpn. Ltd. v. Devas Multimedia (P) Ltd.32, the Court noticed that the consolidated petition under Sections 271-273 of the Companies Act, 2013 was maintainable and the ingredients under Sections 271(1)(e) were clearly satisfied];

Note: Sub-section (4) of Section 272 of the 2013 Act addresses the ability of the Registrar to file a petition. A Registrar evidently cannot file a petition for winding up on the special resolution passed by the company, or where winding up of the company is on the orders of the tribunal under Section 265 of the 2013 Act33.

The ground under Section 271(1) provides for winding up of the company on the special resolution of the shareholders, to be done by the Tribunal, and is to be distinguished from the voluntary winding up of the company in terms of Section 270(1)(b), the procedure for which is enumerated below in Sections 304 to 323 in Part II of Chapter XX34.]

7) Every petition, application or reference shall be submitted in Form WIN-1 or Form WIN-2 (as the case may be) as prescribed under Rule 3 of the Companies (Winding Up) Rules, 202035. In addition to the same, the same shall be coupled with:

  • (i) A notice of admission in Form NCLT-2 (as per usual NCLT practice in every fresh application) and Form NCLT-5 as per the provisions of Rule 34 of the National Company Law Tribunal Rules, 201636.
  • (ii) A verifying affidavit in Form WIN-3.

8) Where the petition is being filed by the company, the company also has to file its “statement of affairs” in Form WIN-4, and the same is a mandatory enclosure which has to be enclosed either with Form WIN-1 or Form WIN-2.

9) Copies of the memorandum and articles of association of the company must be annexed.

10) Copies of latest annual report and balance sheet.

11) Copy of special resolution [if being filed under Section 271(1)(a).]

12) Copies of the notice calling the meeting in which the special resolution of the company las required under Section 271(1)(a)] was convened and duly passed.

13) It should be indexed and stitched together in a paper book form.

14) One copy should be given to the opposite party. Notice to opposite party should be issued in Form NCLT-5.

15) The fees payable is prescribed in Rule 165 of the NCLT Rules, 2016 and may be paid by way of a demand draft or through BharatKosh or through the NCLT e-filing website.

16) Fee: Rs 1000 (This is the prescribed fee for an application under Sections 271-273 of the Companies Act, 2013 as can be seen from the drop down menu in the NCLT e-filing website.).

*  Authors are advocates based out of Chennai and practice on the company/commercial side.





5With effect from 15-11-2016.



8Patiala Banaspati and Allied Products Co. Ltd., In re, AIR 1953 Pepsu 195; Oriental Navigation Co. v. BhanaramAgarwalla, 1921 SCC OnLine Cal 264.

9(1867) 2 Ch App 737, 742-743 (CA) (“The reasoning in that case has stood the test of time’’: Bondi Better Bananas Ltd, Re [1951] 3 D.L.R. 522 at 529, per Ferguson, J.)

10For the provision relating special resolution see, S. 433(a) of the Companies Act, 1956; S. 271(1)(b) of the 2013 Act.

11State of Madras v. Madras Electric Tramways (1904) Ltd., 1956 SCC OnLine Mad 150.

12Galway & Salt Hill Tramways Co., In re, (1918) 1 IR 62/521 LG 93.

13Asra Estates Ltd., In re, 2007 SCC OnLine AP 1046.

14 Swadeshi Cotton Mills Ltd, In re, [1932] Comp Cas 411 (All).

15State of Madras v. Madras Electric Tramways (1904) Ltd., 1955 SCC OnLine Mad 182; Ex p. Edenvale Wholesalers Ltd, 1959 (2) S.A. 477.

16Langham Skating Rink Co, In re, (1877) 5 Ch D 669 (CA); Smith v.Duke of Manchester, (1883) 24 ChD 611; Emmadart Ltd, In re, 1979 Ch 540 :(1979) 2 WLR 868 : (1979) 1 All ER 599.

17Anglo-Continental Produce Co. Ltd., In re, (1939) 1 All ER 99.

18Ayre v. Skelskey’s Adamant Cement Co. Ltd.,(1904) 20 TLR 587; Cambrian Peat Fuel Co, De La Mott’s Case, Re (1875) 31 L.T. 773; Grand Lodge of N.S.W. Masonic Hall Co v. Sly, (1913) 13 S.R. (N.S.W.) 512.

191985 SCC OnLine Mad 260.


21(1961) 31 D.L.R. (2d) 331. See also, Fallis & Deacon v. United Fuel Investments Ltd., (1963) 40 DLR (2d) 1 (Can. Sup. Ct); Byrom Motors Ltd.v. Dolphin House Ltd.,(1958) 3 SA 52 (S.R.).


23Hillig v. Darkinjung Pty Ltd., [2006] NSWSC 137; (2006) 205 F.L.R. 450 [S Ct (NSW)].

24Hillig v. Darkinjung Pty Ltd., [2006] NSWSC 137; (2006) 205 F.L.R. 450 [S Ct (NSW)].

25B. Viswanathan v. Seshasayee Paper and Boards Ltd. 1991 SCC OnLine Mad 525.

26Advance Television Network Ltd. v. Registrar of Companies, 2011 SCC OnLine Del 2673.

27New Kerala Chits & Traders (P) Ltd. v. Official Liquidator, 1979 SCC OnLine Ker 202.

28Bombay Metropolitan Transport Corpn. Ltd. v. Employees of Bombay Metropolitan Transport Corpn. Ltd., 1990 SCC OnLine Bom 237.

29Antariksh Credit and Commercial Ltd. v. Union  of India, 1999 SCC OnLine All 1286.

30Gujarat Small Industries Corpn. Ltd. v.Borsad Urban Coop. Credit Society Ltd., 2008 SCC OnLine Guj 245.

31Compare Anglo-Continental Produce Co., In re, (1939) 1 All ER 99.

32 CP No. 06/BB/2021, order dated 19-1-2021 [NCLT, Bengaluru].





Op EdsOP. ED.

Oppression and mismanagement

Time and again there have been discussions on whether petitions filed for reliefs sought under Sections 241[1] and 242[2] of the Companies Act, 2013 (CA, 2013), corresponding to Sections 397[3] and 398[4] of the Companies Act, 1956 (CA, 1956), could be referred to arbitration in case if there was an arbitration agreement between the parties to such petition. The Supreme Court of India, coming to the rescue as always, has presented us with an infallible test for resolving this issue, enabling the courts and tribunals make swift decisions in such matters.


The paroxysm of decisions commenced post the Delhi High Court’s decision in Kare (P) Ltd., In re[5] where the Delhi High Court observed that the jurisdiction of the Company Law Board (CLB) under Sections 397 and 398 of the CA, 1956 is a statutory jurisdiction that cannot be ousted by arbitration clause.

In 1999, the Supreme Court was presented with a petition [Haryana Telecom Ltd. v. Sterlite Industires (I) Ltd.6] where the appellant had challenged a decision by the Punjab and Haryana High Court rejecting an application filed by the appellant, under Section 8 of the Arbitration and Conciliation Act, 19967 (ACA) for referring a winding-up petition to arbitration. The Punjab and Haryana High Court had reasoned this decision by stating that matters under the CA, 19568 for such reliefs were not arbitrable. The Supreme Court while rejecting the appeal, opined that Section 8 of the ACA postulates that what can be referred to the arbitrator is only that dispute or matter which the arbitrator is competent or empowered to decide. The Supreme Court further opined that the power to order winding up of a company is contained under the CA, 1956 and is conferred on the court, as such an arbitrator, notwithstanding any agreement between the parties, would have no jurisdiction to order winding up of a company.

The Supreme Court in Sumitomo Corpn. v. CDC Financial Services (Mauritius) Ltd.9 upheld the order of the CLB rejecting a reference to international arbitration under Section 4510 of the ACA stating that the subject-matter of the petition under Sections 397 and 398 before the CLB was pertaining to the affairs of the company and not covered under the arbitration agreement.

Probably picking up this trail of thought, in 2011, the Supreme Court, in Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd.11, set out further clarification and test to examine arbitrability of a dispute. The Supreme Court simplified the test stating that generally and traditionally all disputes relating to right in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. A right in rem is a right exercisable against the world at large, as contrasted from a right in personam which is an interest protected solely against specific individuals. In this manner, Booz Allen12 judgment crystallised an apparatus to test whether a dispute should or ought to not be referred to arbitration. The Supreme Court, however, has clarified that this is not a rigid or inflexible rule.

The Supreme Court has also confirmed in its decision in Aruna Oswal v. Pankaj Oswal13 that jurisdiction of National Company Law Tribunal (NCLT) in respect of oppression and mismanagement, does not extend to determination of disputes as to succession or ownership of shares, proper forum for which is civil court and that jurisdiction under Sections 241 to 244 must be exercised strictly in terms of provisions of CA, 201314. This makes it clear that disputes regarding succession and ownership of shares, which could be considered as rights in personam, do not fall within the ambit of the jurisdiction of the NCLT.

Now this could have led to an interpretation that the reliefs in personam could be carved out of reliefs in rem and referred to arbitration. However, the Supreme Court in Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya15 the Supreme Court observed that there is no provision in the ACA that when the subject-matter of the suit includes subject-matter of the arbitration agreement as well as other disputes, the matter is required to be referred to arbitration. The Supreme Court further held that: (a) if bifurcation of the subject-matter of a suit was contemplated, the legislature would have used appropriate language to permit such a course; and (b) since there is no such indication in the language, it follows that bifurcation of the subject-matter of an action brought before a judicial authority is not allowed.


Going by the reasoning provided by the Supreme Court in Haryana Telecom16 judgment and Booz Allen17 judgment it could be argued that in the event a court or a tribunal has been specifically bestowed with the power to decide any disputes or matters falling under the CA, 1956 and CA, 201318, such disputes or matters ought to be decided by the court so authorised even if there is an arbitration agreement between parties to such dispute. This would evidently render such disputes non-arbitrable.

To continue this line of argument and its application to petitions filed against oppression and mismanagement, it could be noted that Section 242 of the CA, 2013 (corresponding Section 397 of the CA, 1956) bestows a unique observational power upon the NCLT being the Tribunal appointed under the CA, 2013. This section empowers the NCLT to pass any order that it deems fit if, in its opinion, the company’s affairs have been or are being conducted in a manner prejudicial or oppressive to any member or members or prejudicial to public interest or in a manner prejudicial to the interests of the company and it would unfairly prejudice a petitioning member or members to wind up the company, but otherwise the facts justify that it was just and equitable that the company should be wound up. Section 244 of the CA, 2013, also specifies reliefs that the NCLT has the power to be provided in such circumstances.

In view of the Haryana Telecom19 judgment, the Booz Allen20 judgment and the sections mentioned above governing oppression and mismanagement petitions, the following is discernible:

(a) the right provided under these sections are a right in rem;

(b) the NCLT has the exclusive jurisdiction for entertaining petitions seeking reliefs under these sections;

(c) such disputes are non-arbitrable and as such cannot be referred to arbitration; and

(d) bifurcation of the subject-matter of an action brought before a judicial authority is not allowed.


This interpretation has been affirmed and asserted in the landmark judgment of the Bombay High Court in Rakesh Malhotra v. Rajinder Kumar Malhotra21 where the Bombay High Court held that: (a) a petition that is merely “dressed up” and seeks, in the guise of an oppression and mismanagement petition, to oust an arbitration clause, or a petition that is itself vexatious, oppressive, mala fide (or, at any rate, not bona fide) cannot be permitted to succeed; (b) in assessing an allegation of “dressing up”, the Sections 397/398 petition must be read as a whole, including its grounds and the reliefs sought; (c) it cannot be carved up and deconstructed so as to bring some matters within the arbitration clause and leave other matters out; and (d) where there are reliefs that are not arbitrable because they fall within Section 402 of the CA, 195622, there is no question of a dismissal of the petition on the ground that there exists an arbitration clause.

The Bombay High Court at Goa, while following this principle in Emgee Housing (P) Ltd. v. ELS Developers (P) Ltd.23 held that even if, there is an arbitration agreement between the parties and even if, the dispute is covered by the arbitration agreement, the court/judicial authority will refuse the application under Section 8 of the ACA, if the subject-matter of the dispute is capable of adjudication only by a public forum.

The National Company Law Appellate Tribunal has also supported this stand in Dhananjay Mishra v. Dynatron Services (P) Ltd.24 and held that on a plain reading of Section 242 of the CA, 2013, it is manifestly clear that the facts should justify the making of a winding-up order on just and equitable grounds and admittedly, arbitrator would have no jurisdiction to pass a winding-up order on the ground that it is just and equitable which falls within the exclusive domain of the NCLT under Section 271(e) of the CA, 201325.


It can be seen from the plethora of decisions mentioned above, that the evident takeaway and the solidified legal position as regards this issue is that reliefs against oppression and mismanagement sought under Sections 241 and 242 of the CA, 2013 cannot be referred to arbitration even if there is an existing arbitration agreement between the parties to such dispute. However, as always, legal positions are not set in stone and are subject to changes pursuant to judicial or legislative overrule.

Partner, Litigation and Dispute Resolution, ANB Legal

[1] <http://www.scconline.com/DocumentLink/6HABUR84>.

[2] <http://www.scconline.com/DocumentLink/ngwj7o9Y>.

[3] <http://www.scconline.com/DocumentLink/0j1F4Or0>.

[4] <http://www.scconline.com/DocumentLink/yv3H0ZZU>.

[5] 1974 SCC OnLine Del 101.

6 (1999) 5 SCC 688.

7 <http://www.scconline.com/DocumentLink/0P4pSy8x>.

8 <http://www.scconline.com/DocumentLink/pm3Rt2A0>.

9 (2008) 4 SCC 91.

10 <http://www.scconline.com/DocumentLink/7vabSnZy>.

11 (2011) 5 SCC 532.

12 (2011) 5 SCC 532.

13 (2020) 8 SCC 79.

14 <http://www.scconline.com/DocumentLink/Mv13z5zB> <http://www.scconline.com/DocumentLink/qZ3RzV2v>.

15 (2003) 5 SCC 531.

16 (1999) 5 SCC 688.

17 (2011) 5 SCC 532.

18 <http://www.scconline.com/DocumentLink/A5aqjfDv>.

19 (1999) 5 SCC 688.

20 (2011) 5 SCC 532.

21 2014 SCC OnLine Bom 1146 : (2015) 192 Comp Cas 516.

22 <http://www.scconline.com/DocumentLink/YK8772ux>.

23 2016 SCC OnLine Bom 2391.

24 2019 SCC OnLine NCLAT 163.

25 <http://www.scconline.com/DocumentLink/GxMubOA7>.

OP. ED.Practical Lawyer Archives

Remuneration to executive and non-executive directors has always one of the most deliberated and debated topics in corporate governance. The topic gains importance as there it involves outflow of money from the company, calculation of net profits, disclosures to its shareholders, approval of directors, shareholders and remuneration Committee. Remuneration to directors of loss-making company or company which is very sensitive to the economy or sector performance is always in the limelight. This article is an analysis of the important and relevant provisions of the Companies Act and the Securities and Exchange Board of India (SEBI) (Listing Obligations and Disclosure Requirements) Regulations, 2015 w.r.t. remuneration to non-executive directors. There is also a reference to the recent amendment introduced to Schedule V of the Companies Act.

Limits on the remuneration to directors

According to the provisions of Section 197 of the Act, the total managerial remuneration payable by a public company, to its directors (including managing director, whole-time director, non-executive directors whether independent or not), and its manager in respect of any financial year shall not exceed 11% of the net profits of that company for that financial year. The net profits shall be computed in the manner laid down in Section 198 of the Act.

The company in general meeting may, authorise the payment of remuneration 11% of the net profit of the company. Earlier this required the approval of the Central Government. But now, the approval of Central Government is not required by the amendment introduced by Companies (Amendment) Act, 2017. By this provision, the company can take an approval of the shareholders in general meeting and authorise payment of remuneration up to 30% (an example) of the net profit of the company.

Limits on the remuneration to non-executive directors under the Companies Act

According to Section 197 of the Act, except with the approval of the company in general meeting by passing a special resolution, the company can pay remuneration to its non-executive directors as follows:

(a) 1% of the net profit of the company, if there is an existing managing or whole-time director or manager. Here “1% of the net profit” means for all non-executive directors of the company (whether independent or not).

(b) 3% of the net profit in any other case i.e. where there is no managing or whole-time director or manager. In situation is very rare, where all the directors are non-executive directors. Here “3% of the net profit” means for all non-executive directors of the company (whether independent or not).

With the amendments introduced by the Companies (Amendment) Act, 2017, with the approval of shareholders in general meeting by special resolution, the above percentages can be changed. However, in such case, the company would be required to obtain few more approvals. Where the company has defaulted in payment of dues to any bank or public financial institution or non-convertible debenture holders or any other secured creditor, the prior approval of the bank or public financial institution concerned or the non-convertible debenture holders or other secured creditor, as the case may be, shall be obtained by the company before obtaining the approval in the general meeting.

The above percentages do not include sitting fees. Such payment is excluded from the calculation of the remuneration to directors.

Section 197(6) of the Act provides that a director (i.e. any director–executive director or non-executive director) or manager may be paid remuneration either by way of a monthly payment (i.e. salary) or at a specified percentage of the net profit of the company (i.e. commission) or partly by one way and partly by the other (i.e. combination of both).

Remuneration to non-executive directors in a loss-making company

Till the Companies (Amendment) Bill, 2020 [now, Companies (Amendment) Act, 2020], there was no specific provision in the Act to pay non-executive directors by way of commission, in the event of loss or inadequate profits of the public company.  Section 197(3) of the Act was amended by the Companies (Amendment) Act, 2020, wherein a company having no profits or inadequate profits, can pay to all its directors (executive and non-executive directors) by way of remuneration any sum in accordance with the provisions of Schedule V to the Act.

It is important to note here that even in the case of inadequate profits or losses, the sitting fees paid by the company is not a part of the remuneration to directors.

The Ministry of Corporate Affairs (MCA) has amended[1] Schedule V of the Companies Act, 2013, in Part II, under the heading—“Remuneration” and allowed companies to pay remuneration to non-executive directors or independent directors. The limit of yearly remuneration payable to such directors shall not exceed prescribed amount. The maximum amount of remuneration depends upon the effective capital of the company. Where in any financial year during the currency of tenure of non-executive directors or independent directors, a company has no profits or its profits are inadequate, it may, pay remuneration to such director not exceeding, the limits given below:

Sl. No. Where the effective capital

(in rupees) is

Limit of yearly remuneration payable shall not exceed (in rupees) in case of non-executive directors or independent directors
1 Negative or less than 5 crores. 12 lakhs
2 5 crores and above but less

than 100 crores.

17 lakhs
3 100 crores and above but less

than 250 crores.

24 lakhs
4 250 crores and above. 24 lakhs plus 0.01% of the effective capital in excess of Rs 250 crores.

Relevant provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI Listing Regulations)

Regulation 17 of the SEBI Listing Regulations relates to “Board of Directors”. It provides for composition, Board meetings, appointment of non-executive directors, succession planning, code of conduct, remuneration, Board evaluation, etc.

Following are the key points relating to the remuneration to directors under SEBI Listing Regulations:

(a) The Board of Directors shall recommend all fees or compensation, if any, paid to non-executive directors, including independent directors and shall require approval of shareholders in general meeting. Therefore, approval of shareholders in mandatory for remuneration to non-executive directors, irrespective of the provisions of the Companies Act.

(b) The requirement of obtaining approval of shareholders in general meeting shall not apply to payment of sitting fees to non-executive directors, if made within the limits prescribed under the Companies Act, 2013 for payment of sitting fees without approval of the Central Government. Therefore, shareholders approval is not required for payment of sitting fees to non-executive directors. Similar provisions are provided in the Companies Act. According to Rule 4 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a company may pay a sitting fee to a director for attending meetings of the Board or Committees thereof, such sum as may be decided by the Board of Directors thereof which shall not exceed Rs 1 lakh per meeting of the Board of Directors or Committee thereof. However, for independent directors and women directors, the sitting fee shall not be less than the sitting fee payable to other directors.

(c) The approval of shareholders shall specify the limits for the maximum number of stock options that may be granted to non-executive directors, in any financial year and in aggregate. However, independent directors shall not be entitled to any stock option;

(d) The SEBI Listing Regulations introduce a very interesting provision for payment of remuneration to non-executive directors. According to the relevant provisions approval of shareholders by special resolution shall be obtained every year, in which the annual remuneration payable to a single non-executive director exceeds 50% of the total annual remuneration payable to all non-executive directors, giving details of the remuneration thereof. It is necessary to understand this provision in light of 2 situations:

(i) Company having adequate profits: In this case, a company can pay up to 1% or 3% of the net profit for that financial year. Here, it would be necessary to calculate the profits of the company and then confirm the share of any specific non-executive director(s) in the profit in the form of remuneration.

(ii) Company having inadequate profits: In this case, to calculate the effective capital and the remuneration paid to any non-executive director of the company. It is important to note here that specific approval would be rarely applicable as the remuneration of a non-executive director is compared to the remuneration of all non-executive directors and not all executive directors (under SEBI Listing Regulations).

In both the above cases, the remuneration shall not include sitting fees paid to the directors in accordance with the provisions of the Companies Act.

In these challenging times of Covid-19, its impact on the economy and companies, the amendment to Schedule V of the Companies Act will be very helpful for companies to pay all its directors.

Practising Company Secretary, Pune

[1]      MCA Notification dated 18-3-2021, S.O. 1256(E) [F. No. 1/5/2013-CL-V].

Op EdsOP. ED.


More than twenty years since liberalisation, as the Indian economy matured and marched towards global competitiveness, a dire need was felt to overhaul the existing legal regime governing the corporate and commercial sector and make it more modern and robust. This led to the enactment of several new legislations and significant amendments in existing legislations impacting these sectors. These include the Companies Act, 2013[1], the Commercial Courts Act, 2015[2], statutes incorporating the Goods and Service Tax, the Insolvency and Bankruptcy Code, 2016 (IBC)[3], the Arbitration and Conciliation (Amendment) Act, 2015[4], the Specific Relief (Amendment Act), 2018[5], etc. all of which were aimed at streamlining the functioning of business, simplifying the tax structure and payment of taxes, enabling easier enforcement of contracts and quicker resolution of disputes. These legislations enabled India to leap frog its way to 77th place in the Work Bank’s “Ease of Doing Business” rankings in 2019[6] from a dismal 142nd place in 2015.[7]

While the intent and substance of these legislations may be noble, there are a few transitional glitches which have impaired their effective implementation. As a matter of fact, transitions in law always bring about some uncertainties requiring judicial or parliamentary clarifications. However, the transitional phase in respect of these legislations has been more disruptive than one would have imagined.


Where an Act contains substantive, amending or repealing enactments, it commonly also includes provisions which regulates the coming into operation of those enactments and modify their effect during the period of transition.[8] These provisions generally are intended to take care of the events during the period of transition. This article undertakes a critical analysis of the transitional provisions of three recent legislations, more particularly the Goods and Service Tax Acts, the Insolvency and Bankruptcy Code, 2016 and the Arbitration and Conciliation (Amendment) Act, 2015. The article opines how the transitional provisions in these legislations have been drafted with a lack of foresight and vision, which in turn has led to multiple litigations and manifold issues in interpretation of these provisions. The article highlights the immediate need for legislative review and revision of these transitional provisions so as to infuse some much-needed clarity, avoid multiple litigations and ensure a smoother transition to a new legal and regulatory regime.

Part I Goods and Service Tax

A. Brief legislative history

India’s move towards a unified and comprehensive goods and service tax (GST) regime took concrete shape with the enactment of the Constitution (101st Amendment) Act, 2016 [9] (the “Amending Act”) notified in the Official Gazette on 8-8-2016. The Amending Act made suitable changes to the Constitution to pave way for implementation of GST.

Pursuant to the redefining of legislative powers between the State and the Centre under the aforesaid Amending Act, Parliament enacted the Central Goods and Services Tax Act, 2017[10] (CGST), the Integrated Goods and Services Tax Act, 2017[11] (IGST) and the Union Territory Goods and Services Tax Act, 2017[12] (UGST) and the States also enacted their respective State Goods and Services Tax Acts (SGST). Consequently, GST was launched at midnight on 1-7-2017 bringing into effect all these statutes with the hope of creating a simple and integrated system of indirect taxation in India. Almost all indirect taxes (apart from customs) including excise, sales tax, service tax, etc. were sought to be done away with and subsumed under one umbrella head of “Goods and Service Tax”.

B. The transitional provision

Section 19 of the Amending Act[13] sets out the overarching transitional clause and provides as under:

  1. Transitional provisions.Notwithstanding anything in this Act, any provision of any law relating to tax on goods or services or on both in force in any State immediately before the commencement of this Act, which is inconsistent with the provisions of the Constitution as amended by this Act shall continue to be in force until amended or repealed by a competent legislature or other competent authority or until expiration of one year from such commencement, whichever is earlier.

The aforesaid provision is a sunset clause which mandates the State/Parliament to either repeal or amend all existing indirect tax laws (including sales tax/value added tax, excise, service tax etc.) and make them consistent with the Amending Act within a period of one year from 8-9-2016 (the date of notification of the Amending Act) after which all such laws would cease to remain operational.

 C. Cause for concern

It is pertinent to note that while the Amending Act saves the applicability of the erstwhile indirect tax laws up to 8-9-2016, there are no provisions saving actions initiated/proposed to be initiated under such laws against erring assessees. Most State Sales Tax/VAT Acts permit assessment up to 3-5 years from the date of assessable tax[14]. Similarly, the Central Excise Act, 1944[15] permits initiation of proceedings up to 2 years from the incidence of non-payment of duty[16] and up to 5 years in cases where extended period of limitation can be invoked[17]. There is no clarity on whether such right to initiate action/undertake assessment for past years (provided for under the earlier indirect tax laws) survives after GST is brought into effect.

In order to safeguard the rights of initiating actions/continuing proceedings already initiated under the erstwhile indirect tax laws, Parliament and the State Legislatures sought to incorporate wider transitional clauses in the principal Acts introducing GST. For instance, the CGST Act incorporates a wide savings clause under Section 174[18] which is similar to Clause 6 of the General Clauses Act, 1897 and provides for saving of all actions initiated, rights accrued and remedies proposed to be instituted under the repealed Central Acts including Excise Act, Chapter 5 of the Finance Act, 1994[19] (Service Tax) etc. Furthermore Section 174(3) also saves the applicability of Section 6 of the General Clauses Act, 1897[20]. Similarly, even the various SGST Acts provide for wide transitional clauses under Section 174 of their respective State GST legislation, saving all actions undertaken/proposed to be undertaken thereunder the erstwhile State tax laws including the Sales Tax/VAT Act, tax on entry of goods, etc.

Thus, on account of the absence of a wide, all encompassing transitional clause under the Amending Act, Parliament and the State Legislatures have provided for additional transitional clauses (under the head of repeal and savings clauses) in the CGST Act and respective SGST Acts. This gives rise to a debatable issue as to whether a principal Act, which owes its genesis to a constitutional Amendment Act, can incorporate provisions which not only go beyond such an Amending Act but are also seemingly in variance with the provisions of the Amending Act.

Moreover, different States have incorporated different repeal and savings clauses in their respective SGST legislations. For instance, the Value Added Tax Acts in Kerala, Karnataka and Delhi are repealed under Section 173 of the Maharashtra Goods and Services Tax Act, 2017 of their respective SGST legislations. On the other hand, the Value Added Tax Acts in Gujarat and Maharashtra do not find a mention in the list of repealed Acts under their respective SGST legislations. While the savings provisions under Section 174 of most of these SGST statutes are identical, these savings provisions only save actions undertaken/proposed to be undertaken under the repealed statutes (referred to in Section 173). Conversely, if a statute is not repealed under Section 173, actions undertaken/proposed thereunder are not saved under Section 174. Therefore, while pending and proposed actions under the State VAT Act may get saved in Kerala, Karnataka and Delhi similar actions under the Gujarat VAT Act, 2003 may not be saved based on a literal interpretation of the repeal and savings provisions of the respective SGST Acts of these States. While even the Maharashtra VAT Act, 2002 (MVAT Act) is not repealed under Section 173 of the Maharashtra Goods and Services Tax Act, 2017 (MGST Act). The MGST Act carves out an extremely wide-ranging savings provision which saves the levy, returns, assessment, reassessment, etc. of taxes under all erstwhile laws in force immediately before the enactment of the MGST Act[21]. Thus, the difference in the repeal and savings provisions in different SGST legislations is likely to lead to an unwelcome situation where the impact of GST on the applicability of erstwhile indirect tax laws will have to be looked into separately for each individual State based on its respective SGST legislation and the repeal and savings clauses incorporated therein. This, in turn leads to multiplicity in litigations and brings about ambiguity, uncertainty and inefficiency in the implementation of the GST regime.

D. Judicial opinion

A plethora of litigations in relation to the transitional issues arising pursuant to implementation of GST have been filed across various high courts. The Kerala High Court recently disposed of 3250 petitions (the lead matter being Sheen Golden Jewels (India) (P) Ltd. v. State Tax Officer[22]) upholding the right of the State Authorities to proceed against pre-existing VAT liability even after the introduction of the GST regime on the strength of the savings provision incorporated in Section 174 of the State GST Act.  A similar view was taken by the High Court of Karnataka in Prosper Jewel Arcade LLP v.  CCT[23], although on the basis of different reasoning. It was observed that it is the law applicable on the date of the taxable event which is relevant for the purpose of imposition of tax and therefore the introduction of GST cannot weigh down the legality of orders passed under the Karnataka VAT Act for taxable events of the past, even if such orders were passed after the introduction of the GST regime. The Gauhati High Court, in Laxminarayan Sahu v. Union of India[24] was called upon to determine the validity of show-cause notices issued for non-payment of service tax under the Finance Act after the introduction of GST. In conjunction with the rulings of the Karnataka High Court and the Kerala High Court, the Gauhati High Court upheld the validity of such notices. The reasoning adopted however, was that the actions under the erstwhile laws get saved under Section 6 of the General Clauses Act, 1897.  Thus, the view taken by a majority of courts, although based on different reasoning, is that the revenue authorities retain the power to levy appropriate taxes under the erstwhile indirect tax laws for events prior to the introduction of GST.

A similar challenge to the authority of the State to levy, assess and collect tax under the State GVAT Act, 2003 after the introduction of the GST regime was brought before the High Court of Gujarat[25] but vide order dated 26-2-2020 the petitions were withdrawn without any arguments on merits.

E. Analysis and way forward

Section 19 of the Amending Act sets out the date when the new GST regime comes into effect and at the same time provides for continuance of operation of provisions of erstwhile indirect laws up to a period of 1 year from 8-9-2016. The provision contains elements of both, a transitional clause and a savings clause. One of the generally accepted norms of legislative drafting is that lumping transitional and savings provisions in a single section is never a good idea[26].

As stated earlier, most taxing statutes envisage a substantial time gap between occurrence of cause of action against assessees and actual institution of proceedings. In such a scenario, if the power to initiate proceedings/levy taxes under the erstwhile laws for past events of default/past assessment years, is taken away upon the introduction of GST, it will practically create a legal vacuum in respect of levy, assessment and collection of taxes for a certain time period prior to the introduction of the GST. This would deprive the revenue of legitimate and tax arrears, interest and penalty and enable assessees to unjustifiably escape from the tax network, which certainly could not have been the legislative intent. In this background, clubbing a savings provision with a transitional clause, and failing to provide a comprehensive savings provision in the Amending Act, is absurd and irrational, more so when the country is on the cusp of a revolutionary overhaul of the entire indirect tax regime

While it may be argued that States/Centre have the right to incorporate appropriate repeal and savings provisions in their respective GST legislations, the same may lead to a lot of ambiguity and discrepancies as observed earlier. It is suggested that in order to remove any scope for ambiguities and uncertainties, it would be advisable to amend the Amending Act so as to incorporate a broad, comprehensive savings clause akin to Section 6 of the General Clauses Act in order to save actions/proposed actions under all the erstwhile indirect tax laws. Section 19 of the Amending Act ought to be immediately amended to provide for an additional savings sub-clause, which may read as under:

Section 21(2)-Notwithstanding anything contained in clause (1) above, the coming into operation of this Act shall not affect the previous operation of any enactment relating to tax on goods or services or on both in force in any State for the purpose of or the purposes of determination of the levy, returns, assessment, reassessment, appeal, revision, rectification, reference or any other proceedings initiated or proposed to be initiated under the said enactments within the period of limitation as envisaged under the said enactments.

 Part II Insolvency and Bankruptcy Code, 2016

A. Legislative history

In order to address the concerns of an inadequate framework governing bankruptcy in India, a Bankruptcy Law Reforms Committee (BLRC) was constituted in October 2014 and tasked with drafting a single unified framework which provides for a quick and effective insolvency process for individuals, partnerships, companies, etc. In November 2015, the BLRC came out with a report which proposed a complete institutional overhaul of the existing framework and suggested a quick, time-bound, creditor controlled and regulator driven insolvency process[27].  This led to the enactment of the Insolvency and Bankruptcy Code, 2016.

B. Transitional provisions

The enactment of the Insolvency Code led to repeal and amendments of several enactments in order to unify a fragmented network of laws dealing with insolvency. The repealed enactments include the Presidency-Towns Insolvency Act, 1909[28], the Provincial Insolvency Act, 1920[29] and the Sick Industrial Companies Act, 1985[30]. Unlike the repeal and savings provision of the Amending Act heralding GST, Section 243 of the IBC[31] provides for an exhaustive savings clause clearly specifying what is proposed to be saved under the repealed statutes.

In addition to repeal of the aforesaid statutes, the Insolvency Code also provided for amendments to approximately 11 other statutes, most significant amongst those being amendments to the Companies Act, 2013.[32]

Since the CA 2013 and the IBC function in overlapping areas, more particularly in the area of winding up of companies, there is a likelihood of transitional conflict over the pending cases with regard to the appropriate forum as well as the applicable statute. In order to deal with such conflict, the Central Government notified the Companies (Transfer of Pending Proceedings) Rules, 2016[33] (the “Rules”) in exercise of powers under Section 434 of the CA, 2013[34] and Section 239 of the IBC[35]. The Rules provide for the bifurcation of proceedings between the CA, 1956[36]/CA, 2013 and the IBC and between Court and National Company Law Tribunal (NCLT). So far as treatment of pending winding-up petitions is concerned, based on the nature stage of the proceedings, some winding-up petitions were to be retained by the High Court while others were to be transferred to NCLT[37]

 C. Cause for concern

The aforesaid Rules brought into place a splintered structure for dealing with the transition of various proceedings from the CA 1956/CA 2013 to the IBC. The overlapping of jurisdiction as well as subject-matter is riddled with severe concerns and needs to be addressed urgently.

The constitutional validity of these Rules was challenged by Nissan Motor India and Renault Nissan Automotive before the High Court of Madras. It was alleged that on account of operation of the Rules, winding-up petitions filed against these companies in the High Court were transferred to the NCLT in spite of the fact that the entire pleadings were already over, and the matter was about to conclude, thereby causing severe prejudice to these companies. The High Court granted an interim order in favour of the companies by staying the NCLT proceedings against them.[38]

Furthermore, there is no clarity on a scenario where multiple proceedings in respect of the same company have arisen before different forums. For instance, in a situation where a notice for winding-up petition has been served upon the respondent prior to 15-12-2016, the same is retained by the Court for adjudication as per the stipulations under the Rules and is not transferred to the Tribunal. Now, if a fresh petition for winding up against the same company is filed by a financial or operational creditor or the corporate debtor itself under the provisions of IBC, it gives rise to several questions including:

  • Whether such a fresh petition is maintainable notwithstanding the pendency of another winding-up petition against the same company in the Court?
  • If maintainable, whether the parallel proceedings before the Tribunal under the IBC and those before the court under the Companies Act, 1956 can proceed simultaneously?
  • If simultaneous proceedings are permitted, would the proceedings under the Companies Act, 1956 stall in the event of a moratorium under Section 14 of the IBC[39]? On the other hand, would proceedings under IBC stall in the event a winding-up order is passed under Companies Act, 1956 on account of the operation of a moratorium under Section 446 of the Companies Act?
  • If simultaneous proceedings are not permitted, which statute is to be given a primacy over the conduct of winding-up proceedings?

D. Judicial opinion

The aforementioned issue as to whether the IBC can be triggered in the face of a pending winding-up petition has led to wide-spread litigations seeking judicial clarification on the quandary being faced by all stakeholders in an insolvency proceeding.

The NCLT Benches at Chennai (Alcon Laboratories (India) (P) Ltd. v. Vasan Health Care (P) Ltd.[40]) and Ahmedabad (SBI v. Alok Industries Ltd. [41]) took the view that the pendency of a winding-up petition cannot be a bar under the Code for initiating a corporate insolvency resolution process unless a winding-up order is passed by the  High Court or Official liquidator is appointed.   On the other hand, the Hon’ble NCLT Bench at Delhi (Nauvata Engg. (P) Ltd. v. Punj Llyods Ltd.[42]) took the view that in cases where winding-up petitions are pending against a company, it would not be conducive for the NCLT to trigger insolvency resolution process against that very company and therefore, the proceedings instituted earlier in point of time may constitute a better basis for adjudication. On account of the aforesaid divergent views taken by coordinate benches of the NCLT, a Special Bench at NCLT, Delhi referred the issue to a larger Bench in Union Bank of India v. Era Infra Engg. Ltd.[43]. The Hon’ble three-member larger Bench came to the conclusion that there is no bar on NCLT against triggering an insolvency resolution process even when a winding-up petition is pending, unless an official liquidator is appointed and winding-up order is passed.

Apart from various NCLT Benches, the issue has also been raised before the  High Court of Bombay on several occasions. In Ashok Commercial Enterprises v. Parekh Aluminex Ltd.[44] the  Court was pleased to pass a winding-up order notwithstanding the pendency of the IBC proceedings, observing that as per the Rules, not all winding-up proceedings are to be transferred to NCLT. The legislative intent was that two sets of winding-up proceedings would be heard by two different forum i.e. one by NCLT and another by the High Court depending upon the date of service of petition.

On the other hand, in Jotun India (P) Ltd. v. PSL Ltd.[45], the Bombay High Court observed that there was no bar on NCLT from proceeding with an application filed by a corporate debtor under Section 10 of IBC[46] even though a winding-up petition was admitted against the same corporate debtor in the High Court. It was observed that “Till the company is ordered to be wound up i.e. the final order is passed, NCLT can entertain a petition or an application.

In order to address the ambiguities arising as a consequence of divergent judicial opinions, the Insolvency Law Committee in its report of March 2018 proposed amendments to the CA, 2013 to clarify that there was no bar on the application of the Code to winding-up petitions pending under prior legislations before any court of law. However, to avoid duplication of proceedings, it was suggested that the leave of the High Court or NCLT, if applicable, under Section 446 of the CA, 1956[47] or Section 279 of the CA, 2013[48], must be obtained, for initiating corporate insolvency resolution process (CIRP) under the Code, if any petition for winding up is pending in any High Court or NCLT against the corporate debtor.[49]

In pursuance of the aforesaid recommendation, Section 434 of the Companies Act, 2013[50] was amended with effect from 6-6-2018[51] and a proviso was added permitting parties to approach the High Court and request for transfer of a pending winding-up proceeding to the NCLT under the IBC regime. However, it is pertinent to note the amendment is not in consonance with the recommendation of the Committee. The recommendation of the Committee was to seek permission of the High Court/NCLT, if applicable, for initiation of CIRP under the Code. Therefore, the recommendation presupposes the grant of permission for even initiation of CIRP. However, the amendment proposes that the High Court is to be approached only for the purpose of seeking a transfer of proceedings and not for initiation of CIRP per se.

Pursuant to the amendment to Section 434 of the CA, 2013 the Supreme Court in Forech India Ltd. v. Edelweiss Asset Reconstruction Co. Ltd.[52], somewhat settled the issue with regard to the apparent transitional conflict between the IBC and the Companies Act holding that an insolvency resolution may be filed against a corporate debtor notwithstanding the pendency of a winding-up petition before the High Court, since proceedings under IBC are independent proceedings. It further gave liberty to the party that had filed the pending petition before the  High Court to seek transfer of the petition to NCLT in accordance with the amendment to Section 434 of the Companies Act, 2013.

While the aforesaid judgment lends clarity on the right to initiate CIRP under the IBC during the pendency of a winding-up proceedings in the High Court under the CA 1956, there is no clarity on the probable issues that are bound to arise as a consequence of the duality in proceedings under the IBC and the Companies Act. Questions with regard to the impact of moratorium period on the winding-up proceedings in the High Court, potential revival of winding-up proceedings at the end of the moratorium period in case of failure of resolution, etc. remain unanswered. Furthermore, there is no clarity with regard to the stage of winding-up proceedings at which fresh applications may be made under the IBC and proceedings before the High Courts may be allowed to be transferred to the NCLT. In Sicom Ltd. v. Hanung Toys & Textiles  Ltd.[53], the High Court of Delhi observed that if the process is at a nascent stage and only a provisional liquidator is appointed, proceedings before the High Court may be transferred to the NCLT, but if the proceedings are at an advanced stage and the chances of insolvency resolution process are bleak, proceedings are not to be transferred to the NCLT.  Recently, the Supreme Court, in the case of Action Ispat and Power Pvt. Ltd. v. Shyam Metalics and Energy Ltd.[54] held that even post-admission and appointment of Official Liquidator transfer of winding up petition to NCLT may be permitted, if no irreversible steps have been taken in relation to the properties of the company in liquidation i.e. so long as no actual sale of movable or immovable properties has taken place.

E. Analysis and way forward

The Rules failed to clarify if fresh proceedings could be initiated under the IBC even where there were pending winding-up proceedings against the same debtor company being heard by Court and left the same to judicial discretion. After divergent views taken by different forums, the Supreme Court in Forech International case[55] (supra) finally took the position that the pendency of winding-up proceedings under the CA, 1956/CA, 2013 has no bearing on fresh proceedings under the IBC. However, this stand taken by the Supreme Court does not appear to be in tune with legislative intent and raises other important issues as a consequence.

First and foremost, it is questionable as to what purpose the savings provision in the Rules retaining certain proceedings in the High Court would serve if the legislative intent was to anyway permit fresh proceedings under the IBC notwithstanding the pending proceedings in the High Court. The interpretation sought to be given by the Supreme Court destroys the very purpose and essence of saving proceedings under the Rules.

Secondly, the Rules were amended vide Notification dated 29-6-2017[56]. Pursuant to the same a proviso was added under Section 5 of the Rules clearly laying down that where a winding-up petition is retained by the High Court in accordance with the Rules, all other winding-up petitions against the same company pending on the cut-off date would also be retained by the High Court, regardless of service/non-service of such petitions.[57] The proviso appears to indicate that the legislative intent is to ensure that once the High Court is seized of a winding-up matter of a particular debtor company in accordance with the Rules, it should operate as the sole forum to adjudicate upon all winding-up petitions pertaining to such debtor company. However, the  Supreme Court has taken a different view which appears to be contrary to legislative intent.

Furthermore, even from a practical perspective, this duality in regime for dealing with winding-up matters has harsh consequences for all stakeholders involved. Petitioner creditors who have spent a considerable amount of time and resources in a winding-up petition may have to restart all over again and prove their claims before the insolvency resolution professsional and the Committee of creditors.  Corporate debtors may be burdened with the task of defending themselves in two parallel proceedings of a similar nature. Even resolution applicants will be circumspect and cautious in submitting resolution plans during the moratorium period under the IBC, if faced with the prospect of revival of a winding-up petition against the corporate debtor under the CA, 1956/CA, 2013, after the end of the moratorium period/approval of the resolution plan.

In order to avoid multiple proceedings, ensure a smooth transition and avoid the risk of contrary orders by different forums in parallel winding-up petitions, it would be advisable to suitably amend the Rules in such a manner that the transitional/savings provision in the Rules operate upon the debtor company as a whole and not only upon a particular winding-up proceeding against that debtor company. In other words, once winding proceedings against a particular debtor company are retained by the High Court in terms of the Rules, all other pending winding-up petitions, if any, as well as fresh proceedings under the IBC in respect of the same debtor company ought to be consolidated and continued before the said High Court. Furthermore, in order to ensure that the benefit of a time-bound process is not lost out in the course of a winding-up proceeding, it would be apt to amend the law in a manner so as to ensure that all pending winding–up proceedings are completed within a period of one year from a particular cut-off date, failing which the proceedings pertaining to the corporate debtor concerned would automatically be transferred to the Tribunal. In light of the aforesaid, it would be appropriate to suitably amend Rule 5 of the Transfer Rules and add an additional proviso, in the following manner:

Provided also that where a petition relating to winding up of a company is not transferred to the Tribunal under this rule and remains in the High Court and where there is another petition under clause (e) of Section 433 of the Act for winding up against the same company pending as on 15-12-2016 or a fresh petition under Sections 7, 9 or Section 10 of the 1BC is initiated in respect of the same company after 15-12-2016, such other petitions shall not be transferred to or heard by the Tribunal, even if the petition has not been served on the respondent.

 Provided that all pending winding-up petitions pending and retained before the High Court pursuant to the commencement of these Rules shall be disposed of by the Hon’ble Court by (cut-off date) failing which such proceedings shall be converted to IBC proceedings and transferred to the Tribunal.[58]

A legislative clarification in accordance with the aforesaid terms will ensure that winding-up proceedings in the High Court do not get delayed indefinitely. Moreover, certainty in forum of adjudication will also resolve jurisdictional conflict, reduce the burden on NCLTs and ensure finality and conclusiveness in adjudication of winding-up matters.

Part III –Arbitration and Conciliation (Amendment) Act, 2015

 A. Legislative history

The Arbitration and Conciliation (Amendment) Act, 2015 (the “Amendment Act”) was enacted on the basis of the proposals made by the Law Commission of India in its 246th Report on “Amendments to the Arbitration and Conciliation Act, 1996”[59].  The Commission was tasked with reviewing the provisions of the Arbitration and Conciliation Act, 1996 (the “Act”) in view of the several inadequacies observed in the functioning of the Act, which included exorbitant costs, protracted proceedings, excessive court intervention, etc. In order to address these issues and promote India as an arbitration friendly regime, the Commission recommended ample amendments to the Act.

The amendments are promising and in sync with the larger objectives of bringing about expediency, transparency and efficiency in arbitral proceedings. However, as was the case with GST and the IBC, the lack of clarity in transitional provisions led to a flurry of litigations on technical and transitional issues, which somewhat constricted the impact and essence of the Amendment Act.

 B. Transitional provisions

The transitional provision, provided for under Section 26 of the Amendment Act[60], reads as under:

  1. Act not to apply to pending arbitral proceedings.—Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of Section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act.

 On a prima facie reading, it appears as though the Amendment Act is to apply prospectively to arbitrations commencing after the date of enforcement of the Amendment Act i.e. 23-10-2015. However, there is no clarity on whether the Amendment Act applies to court proceedings emanating from arbitral proceedings commenced under the Act prior to 23-10-2015. The Act envisages court intervention at various stages before, during and after the commencement of arbitral proceedings.[61] Considering the same, it is baffling as to how and why the Amendment Act is silent on the said issue.

It is pertinent to note that the Law Commission of India, which proposed the amendments in the Act had recommended the insertion of Section 85-A, a comprehensive transitory provision that provided clarity to the effect that the Amendment Act was prospective in nature and was to apply only to fresh arbitrations and to fresh applications filed before the court or a tribunal after the date of enforcement of the Amendment Act. However, for some inexplicable reason, the proposed Section 85-A never found its way into the Act and instead the legislature enacted Section 26 in the Amending Act.

 C. Cause for concern

The lack of clarity in Section 26 of the Amendment Act highlights the apparent lack of legislative foresight to consider three peculiar but extremely foreseeable issues:

  • Applicability of the Amendment Act to court proceedings initiated prior to 23-10-2015 under the Act;
  • Applicability of the Amendment Act to court proceedings initiated/proposed to be initiated on/after 23-10.- the Act,
  • Applicability of the Amendment Act to fresh applications before the Arbitral Tribunal for pending arbitrations initiated prior to 23-10-2015; (for instance whether an application filed under Section 17 of the Act[62] after 23-10-2015 in a pending arbitration which has commenced prior to 23-10-2015 would be governed by the old provision or the amended provision)

Since the Amendment Act has made some significant and substantial changes in the arbitration regime, the aforesaid issues have caused confusion and chaos in pending arbitrations. The lack of procedural clarity has led to multiple litigations for determining the appropriate applicable provisions under the Act in pending arbitrations at the cost of the merits of disputes being sidetracked. This in turn has caused unnecessary delays in arbitrations, which ironically, was one of the primary issues sought to be addressed by the Amendment Act.

D. Judicial opinion

One of the foremost issues that has arisen on account of the ambiguity in Section 26 of the Amendment Act is with regard to the applicability of Section 36 as substituted under the Amendment Act to (1) court proceedings initiated prior to the enforcement of Amendment Act; and (2) court proceedings initiated after the enforcement of the Amendment Act.

Prior to the Amendment Act, Section 36 provided that an arbitral award shall be enforced only after the time-limit for filing an application for setting aside the award under Section 34 of the Act has expired, or such application having been made has been refused. Thus, this implied that there would be an automatic stay on enforcement of the award as soon as an application is filed under Section 34 for setting aside the award. The Amendment Act sought to do away with such automatic stay on enforcement by appropriately substituting Section 36. The substituted Section 36 provided that in order to stay enforcement of an arbitral award, it was necessary for the party seeking to set aside the award to file a separate application for stay of enforcement. Further, upon filing of the application, the stay is not to be granted as a matter of right, but the Court “may” in its discretion grant such a stay, subject to such conditions, and on recording of specific reasons.

In light of such substitution of Section 36, various courts have given divergent opinions with regard to the application of substituted Section 36 to court proceedings initiated/proposed to be initiated in respect of arbitrations which took place prior to the enforcement of the Amendment Act i.e. prior to 23-10-2015.

The view taken in Electrosteel Castings Ltd. v. Reacon Engineers (India) (P) Ltd.[63], and Ardee Infrastructure Pvt. Ltd. v. Anirudh Bhatia[64] was that that if an arbitration has commenced before 23-10-2015, the entire gamut court proceedings in respect of such arbitrations will be governed under the old regime and will not be covered by the Amendment Act. As a consequence, the unsubstituted Section 36 would continue to apply to such court proceedings, and this would amount to an automatic stay on enforcement of award pursuant to filing of a Section 34 petition. On the other hand, a starkly contrasting view was taken in New Tirupur Area Development Corporation Ltd. v. Hindustan Construction Co. Ltd. and Rendezvous Sports World v. Board of Control for Cricket in India[65] (Bombay High Court) that that the Amending Act will be applicable to all court proceedings pending on 23-10-2015 or filed after 23-10-2015 in relation to arbitration proceedings initiated prior to the enforcement date of the Amendment Act. As a consequence, Section 36 in its substituted form would be applicable to such court proceedings and there would be no automatic stay on enforcement of an arbitral award.

The divergent views taken by different high courts culminated into a series of special leave petitions before the  Supreme Court of India, which heard these petitions together with the lead matter being Board of Control for Cricket in India v. Kochi Cricket (P) Ltd.[66]

Analysing the language of Section 26 of the Amending Act, the Supreme Court came to the conclusion that a careful reading of the section indicates that :-(1) the Amendment Act will not apply to arbitrations that commenced prior to 23-10-2015, unless the parties agree; but (2) the Amendment Act will apply to court proceedings initiated after 23-10-2015 emanating from arbitrations that commenced prior to 23-10-2015.

With regard to the question as to whether the Amendment Act will retrospectively apply to court proceedings initiated before 23-10-2015, the Court observed that Section 36 embodies the procedure of enforcement. The same being procedural in nature any change/amendment in Section 36 does not affect any accrued/vested substantive rights of the judgment-debtor and therefore, the substituted Section 36 ought to be applied retrospectively. The Court further opined that if the substituted Section 36 is not applied retrospectively, it would defeat the very object of the Amendment Act, which is to ensure speedy dispute resolution and reduce court interference at various stages.

Thus, pursuant to the aforesaid judgment, the position with regard to the applicability of the Amended Act was clarified in the following manner:

  • The Amended Act will not apply to arbitration proceedings instituted prior to 23-10-2015 unless parties agree otherwise.
  • The Amended Act will apply to all court proceedings instituted on or after 23-10-2015 in relation to arbitration proceedings which commenced prior to 23-10-2015
  • Section 36 as substituted under the Amended Act will apply retrospectively to all court proceedings instituted before 23-10-2015 in relation to arbitration proceedings which commenced prior to 23-10-2015

E. Analysis and way forward

While the aforesaid judgment rendered by the Supreme Court rendered some much-needed clarity on the interpretation of Section 26 of the Amendment Act, the issue was rekindled when in 2017, a High-Level Committee headed by Justice (Retd.) B.N. Srikrishna suggested that the Amendment Act should apply only to arbitral proceedings commenced on or after the enforcement of the Amendment Act and to court proceedings arising out of or in relation to such arbitral proceedings.[67] The proposal found its way in the Arbitration Amendment Bill, 2018 which provided for insertion of Section 87 in the principal Act[68] as per which, in the absence of an agreement between the parties, the Amendment Act shall not apply to: (1) arbitral proceedings that have commenced prior to 23-10-2015; and (2) court proceedings arising out of or in relation to such arbitral proceedings irrespective of whether such court proceedings are commenced prior to or after 23-10-2015. The said Bill received assent from the President on 9-8-2019 and led to the enactment of Arbitration and Conciliation (Amendment) Act, 2019. (2019 Amendment Act).  As a consequence, the Act stood amended with effect from 30-8-2019 (date of notification in Official Gazette) with a newly inserted Section 87 which specified that:

Unless the parties otherwise agree, the amendments made to this Act by the Arbitration and Conciliation (Amendment) Act, 2015 shall—

(a) not apply to––

(i) arbitral proceedings commenced before the commencement of the Arbitration and Conciliation (Amendment) Act, 2015;

(ii) court proceedings arising out of or in relation to such arbitral proceedings irrespective of whether such court proceedings are commenced prior to or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015;

(b) apply only to arbitral proceedings commenced on or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015 and to court proceedings arising out of or in relation to such arbitral proceedings.

The aforesaid legislative clarification with regard to the applicability of 2015 Amendment  completely diluted the ratio of the Kochi Cricket case[69] and reversed the position in respect of applicability of the 2015 Amendment Act. In other words, pursuant to the 2015 Amendment Act would no longer apply to any proceedings under the Act initiated prior to 23-10-2015, regardless of whether such proceedings were arbitral proceedings or court proceedings in relation to such arbitral proceedings.  This led to a scathing criticism of the 2019 Amendment Act, which was derided by jurists and practitioners for completely watering down the beneficial impact of the 2015 Amendment Act, which aimed at reducing court interference and improving the speed and efficacy of proceedings under the Act. The constitutional validity of Section 87 of the 2019 Amendment Act was subsequently challenged in the case of Hindustan Construction Company v. Union of India[70] and vide a unanimous verdict of a 3-judge bench of the Hon’ble Supreme Court, the said Section was set aside on the ground of being manifestly arbitrary, and the position as propounded by the Kochi Cricket case was restored.

Thus, as seen in the case of other legislations, failure to draft a conspicuous transitional provision in the Arbitration Amendment Act, 2015 led to confusion regarding the applicability of the amendments proposed therein, which in turn led to multiple litigations as discussed hereinabove. While the dust seems to have been finally settled on the issue with the Supreme Court’s seminal verdict in the Hindustan Construction Company case, one cannot help but ponder how a needless squandering of judicial time and resources could have been avoided with clear, concise and unambiguous legislative drafting.


Transitional provisions in a legislation play a key role in regulating its coming into operation and effect. A carefully worded transitional provision is therefore an indispensable necessity to ensure a smooth change in a legal regime with minimum disruption of existing rights and liabilities. Transitional provisions, may affect relatively few cases, but they are extremely complicated; and they can be important to the cases affected.[71] The absence of clarity in transitional provisions causes chaos and confusion leading to multiple litigations requiring the judiciary to draw inferences based on apparent legislative intent.

The newly enacted commercial legislations in India aim at making business easier, transparent, and efficient by providing for simplicity in taxation structure, facilitating easy exits and offering a speedier mode for dispute resolution. However, loosely worded transitional provisions in these legislations coupled with baffling judicial opinions have substantially diluted the impact of positive changes sought to be brought about by these legislations. The colossal litigations that have arisen in respect of these transitional provisions stand as a testimony to the poor draftsmanship. As discussed in the chapters hereinabove, the judiciary often outweighs practical considerations in the eagerness to give effect to the so-called object and purpose of a newly enacted legislation. Based on the developments so far, it appears as though the judiciary as well as the Government are bent upon simply ensuring quick operationalisation of these legislations at the cost of their effective implementation. Such an approach will defeat the very purpose and essence of these legislations. It is imperative for India to immediately address these transitional issues through appropriate legislative amendments and clarifications, failing which, the true potential of these newly enacted legislations are likely to get sidetracked in the face of a convoluted web of unnecessary and avoidable litigations.

* Advocate, High Court of Gujarat.

[1]  http://www.scconline.com/DocumentLink/A5aqjfDv.

[2]  http://www.scconline.com/DocumentLink/7566Y3w5.

[3] http://www.scconline.com/DocumentLink/86F742km.

[4]  http://www.scconline.com/DocumentLink/9ajA4z9b.

[5]  http://www.scconline.com/DocumentLink/0mV0KcW4.

[6]  http://www.doingbusiness.org/en/rankings

[7] World Bank Group Project Report, Doing Business 2015: Going Beyond Efficiency, 12th Edition, sourced from: http://www.doingbusiness.org/content/dam/doingBusiness/media/Annual-Reports/English/DB15-Full-Report.pdf

[8]  Francis Bennion, Bennion on Statutory Interpretation, 14th Edn., LexisNexis, p. 442 (as cited in Union of India v. Filip Tiago De Gama of Vedem Vasco, (1990) 1 SCC 277

[9] http://www.scconline.com/DocumentLink/4386Cb1k.

[10] http://www.scconline.com/DocumentLink/ZN57RKH6.

[11] http://www.scconline.com/DocumentLink/ADSpTtpt.

[12] http://www.scconline.com/DocumentLink/ni9RfDmQ.

[13] http://www.scconline.com/DocumentLink/4386Cb1k.

[14] See Gujarat Value Added Tax Act, 2003-, S.38(9); Karnataka Value Added Tax, 2003-,S. 40 http://www.scconline.com/DocumentLink/0s79tGDg.

[15] http://www.scconline.com/DocumentLink/E4zd0gLl.

[16] See Central Excise Act, 1944, S. 11-A(1) 

[17] See Central Excise Act, 1944, S. 11-A(4) 

[18] http://www.scconline.com/DocumentLink/1OzBQOxZ.

[19] http://www.scconline.com/DocumentLink/EO3l1CkL.

[20] http://www.scconline.com/DocumentLink/r556YlOs.

[21] See Maharashtra Goods and Services Tax Act, 2017, S. 174(g)

[22] 2019 SCC OnLine Ker 973

[23] 2018 SCC OnLine Kar 3887

[24] 2018 SCC OnLine Gau 1457

[25] Preston India (P) Ltd. v. State of Gujarat, 2020 SCC OnLine Guj 3048

[26]  Prof. Henlen Xanthaki, Thornton’s Legislative Drafting, Bloomsbury Professional, 5th Edn., 2013 (as cited in Sheen Golden Jewels (India) (P) Ltd. V. State Tax Officer, supra note 22, para 98).

[27] <https://ibbi.gov.in/BLRCReportVol1_04112015.pdf>.

[28] http://www.scconline.com/DocumentLink/k84vmP4Y.

[29]  http://www.scconline.com/DocumentLink/f2dr6UL1 S. 243, IBC, 2016.

[30] Sick Industrial Companies (Special Provisions) Repeal Act of 2003 notified on 1-12-2016

[31] http://www.scconline.com/DocumentLink/30VFrXzu.

[32] S. 255 of the Code read with Sch. 11, provides for about 36 amendments to the Companies Act, 2013.

[33] http://www.scconline.com/DocumentLink/bK498A3y.

[34] http://www.scconline.com/DocumentLink/z7lc38J9.

[35] http://www.scconline.com/DocumentLink/rYQ78CX4

[36] http://www.scconline.com/DocumentLink/pm3Rt2A0

[37] See Rr. 4 and 5 of the Companies (Transfer of Pending ProFceedings) Rules, 2016

[38] https://barandbench.com/madras-hc-stays-winding-up-proceedings-in-nissan-renault-case/.

[39] http://www.scconline.com/DocumentLink/e2E5pU46.

[40]  2017 SCC OnLine NCLT 547

[41] 2017 SCC OnLine NCLT 7586

[42] 2017 SCC OnLine NCLT 16255

[43] 2018 SCC OnLine NCLT 813

[44] 2017 SCC OnLine Bom 421

[45] 2018 SCC OnLine Bom 1952  .

[46] http://www.scconline.com/DocumentLink/Kp5IKPzm.

[47] http://www.scconline.com/DocumentLink/Q8FHMgT3.

[48] http://www.scconline.com/DocumentLink/8et977Qj.

[49] Report of the Insolvency Committee, March 2018, Para 25.7 accessed at: http://www.mca.gov.in/Ministry/pdf/ReportInsolvencyLawCommittee_12042019.pdf.

[50] http://www.scconline.com/DocumentLink/z7lc38J9.

[51] Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 http://www.scconline.com/DocumentLink/4mkp5CaB, S. 39 – Amendment of Section 434 of CA 2013: “Provided further that any party or parties to any proc eedings relating to the winding up of companies pending before any Court immediately before the commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018, may file an application for transfer of such proceedings and the Court may by order transfer such proceedings to the Tribunal and the proceedings so transferred shall be dealt with by the Tribunal as an application for initiation of corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016.”

[52] (2019) 18 SCC 549

[53]  2019 SCC OnLine Del 10399

[54] 2020 SCCOnline SC 1025

[55] (2019) 18 SCC 549

[56] Companies (Transfer of Pending Proceedings) Second Amendment Rules, 2017, Ministry of Corporate Affairs, Notification dated 29-6-2017

[57] R. 5 http://www.scconline.com/DocumentLink/bK498A3y; The proviso states that “Provided also that where a petition relating to winding up of a company is not transferred to the Tribunal under this rule and remains in the High Court and where there is another petition under cl. (e) of Section 433 of the Act for winding up against the same company pending as on 15-12-2016, such other petition shall not be transferred to the Tribunal, even if the petition has not been served on the respondent..”

[58] The portion highlighted in bold is the suggested amendment

[59] http://www.scconline.com/DocumentLink/N7O69Zxv.

[60] http://www.scconline.com/DocumentLink/9ajA4z9b.

[61] See, S. 8 (reference to arbitration) , S. 9 (grant of interim measures) , S. 11 (appointment of arbitrator) , S. 34 (Setting aside of arbitral award), S. 36 (enforcement of awards)

[62] http://www.scconline.com/DocumentLink/27KJ0N1c.

[63] 2016 SCC OnLine Cal 1257

[64] 2017 SCC OnLine Del 6402

[65] 2016 SCC OnLine Bom 16027

[66] (2018) 6 SCC 287

[67] Report of the High Level Committee to Review the Institutionalisation of Arbitration Mechanism in India

accessed at <http://legalaffairs.gov.in/sites/default/files/Report-HLC.pdf>.

[68] Unless parties agree otherwise the Amendment Act, 2015 shall not apply to the following:

(1) arbitral proceedings that have commenced prior to the Amendment Act, 2015 coming into force i.e. prior to 23-10-2015; (2) -court proceedings arising out of or in relation to such arbitral proceedings irrespective of whether such court proceedings are commenced prior to or after the commencement of the Amendment Act, 2015.

[69] (2018) 6 SCC 287 

[70] 2019 SCC OnLine SC 1520, Decided on 27th November, 2019

[71] Craies on Legislation, Sweet & Maxwell, South Asian Edn. 2010, p. 399 (cited in Sheen Golden Jewels (India) (P) Ltd. v. State Tax Officer, supra note 22,para 97).

Op EdsOP. ED.

Special Purpose Acquisition Company (SPACs) have been gaining popularity since the past few years in the international capital markets regime. SPACs have been in existence for a very long time, however, the growth in SPACs that the markets have seen recently especially in the United States of America is tremendous. In India, SPACs have been a hot topic ever since the renewable energy giant ReNew Power has used the SPAC strategy to get itself listed in the Nasdaq exchange.

A SPAC is a special purpose acquisition company formed in order to raise capital funds through initial public offering (IPO). These are also commonly known as blank cheque companies. A SPAC is initially a shell corporation and the amount generated from the IPO is then stored in a trust fund account until the target operating business is identified. After the target company is identified, the consent of the SPAC’s shareholders is sought and those shareholders who do not want to sell their holdings are given an option to redeem them. Finally, the de-SPAC phase begins, wherein the acquisition transaction is completed.

The SPAC regime in India is once again in talks, especially after ReNew Power’s combination with RMG Acquisition Corporation II — which is a US-based SPAC Companies like Grofers, Flipkart, Videocon D2H and the travel agency Yatra have also indulged in or are in talks of indulging into US based SPACs, wherein the acquisitions would be multi-million-dollar deals. SPACs are generally used by start-ups to get listed easily. In light of these circumstances, it is imminent for India to redesign the SPAC regulations and GoPro SPAC, which currently is not the scenario in India.

Regulatory framework in India

  1. Companies Act, 2013[1]: After demonetisation, the Government has been keeping shell corporations under their thumbs. A Parliamentary Committee in 2018 had asked the Government to provide a proper definition for the term “shell corporation” to avoid any form of legal ambiguity to avoid unnecessary litigation. It generally takes 18-24 months to complete SPAC transactions. However, as per Section 248[2] of the Companies Act, 2013, the Registrar of Companies can eliminate a company’s name from registration if they fail to commence business operations within 12 months of its incorporation. This would lead to a lot of legal issues for the directors and promoters of the corporation. But, this problem can be easily avoided by revisiting the regulations and introducing amendments in Companies Act, providing exemptions to SPACs if the purpose of their registration is already made clear to the Registrar of the Companies, thereby clearing up any ambiguity which might arise due to the business operations not being able to commence within 1 year of the SPAC’s incorporation.
  2. Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009[3]: The SEBI regulations do not provide any relief to SPACs as well. According to Section 6(1)[4] of ICDR Regulations, as amended in 2018, state the eligibility criteria for public listing. For an IPO, a company must have[5]:

(i) Net tangible assets of at least Rs 3 crore for the preceding 3 years.

(ii) Average operation profits of the corporation must be at least Rs 15 crores during the preceding three years.

(iii) The net worth of the corporation must be at least Rs 1 crore in each of the preceding years.

SPACs definitely cannot meet these requirements and thereby get no acceptance under the SEBI regulations. SEBI has, however, since 2017 taken a leaf out of USA’s book and is starting to give recognition to SPACs. The Securities and Exchange Commission (SEC) of the United States of America supervises all SPAC transactions, SEBI must also take this into consideration and come up with a framework to regulate all SPAC transactions in India. This will lead to better augmentation of start-ups as SPACs are much more lucrative to investors than traditional IPOs. To achieve this, SEBI has mobilised a Committee to scrutinise the feasibility of pro-SPAC regulations in India.

Risk factors involved and the possible future of SPACs

Although, SPACs leads to easier and faster listing of start-ups, however, it means that the cumbersome and expensive listing process is not followed, thereby making it a huge risk for retail investors. As India lacks a specific framework for SPACs, the redemption of shares by the listed companies might not be permissible under the current regulations. Once again, India could take inspiration from the United States of America and bring about amendments in regulations to enable the investors to either redeem their holdings or claim a refund of the amount they have invested prior to the acquisition of the target corporation.

Another massive regulatory challenge that SPACs face in India are the stamp duty requirements. The SPAC route of listing is taken by start-ups as they are cost-effective in nature. However, the transactions through SPACs occur by way of reverse merger, which attracts heavy stamp duties. Due to this, the scheme of mergers also has to be floated and affirmed by the tribunals, which then leads to a lot of compliance issues of Companies Act, 2013. A possible exemption to SPAC transactions vis-à-vis stamp duties, could be an effective way of promoting the SPAC route of listing.

The abovementioned issues are further complemented by the RBI regulations for inbound mergers. It is most likely for the merger between SPAC and target company to be a form of cross-border merger. Therefore, this attracts various regulations as prescribed by RBI while dealing with inbound mergers. It is necessary for the transferee company to issue or transfer security to persons which are not residing in India as per the sectoral caps provided by the RBI guidelines. However, since SPACs do not have a specific business model to operate upon, the sector to which such SPAC belongs is subject to conjecture and speculation.

The taxation regime of India is also anti-SPAC in many ways. For example, the Indian tax authorities do not allow foreign listed SPACs to acquire Indian start-ups without capital gain tax. So, the capital gain is ensued at the hands of the shareholders. It is necessary to allow SPAC transactions in India. This would mean that both the SPAC and the target corporation would be based in India, therefore, such transaction would take the form of merger under a scheme of amalgamation. Such transactions are tax neutral in nature. This will also make sure that no tax liability is levied upon the shareholders involved.

On 10-3-2021 the consultation paper[6] on proposed International Financial Services Centres Authority (Issuance and Listing of Securities) Regulations, 2021 was released. The provisions in this regulation do talk about SPAC listings under Indian Financial System Code (IFSC). As per the consultation paper, for a SPAC listing to be valid, the minimum amount of the offer should be USD 50 million. However, there is only one IFSC in India to date, in GIFT City, Gujarat, which is also not fully established and is still in the development phase.


It is about time for the Indian market regulators to adapt with the dynamics of modern market instruments and come up with pro-SPAC regulations, if India is to achieve its full capital market potential. Other Asian markets like Hong Kong and Singapore are already working on the regulations regarding SPAC listings and countries like USA, Australia, etc., have already seen a huge rise in SPAC listings eversince they came up with stringent regulations governing SPACs. As per Mckinsey’s research paper[7], India’s capital market has been sized up at a USD 140 billion. Further, through SPAC listings, it would be possible for India to bring its capital market potential to the fullest and being able to release USD 100 billion worth of funding each year.

Implementing de-SPAC transactions might seem to be very challenging, but it is not impossible and through proper amendments in the existing regulations and by rectifying the compliance and cost issues, India will soon see a rise in the numbers of SPAC listings.

Pursuing BBA LLB with Business Law (Hons.), 4th-year student of law at ICFAI Law School, Dehradun, e-mail: karn1706@gmail.com.

[1] <http://www.scconline.com/DocumentLink/6ojfhdA2>.

[2] Ministry of Corporate Affairs, GoI, (last visited 13-5-2021) <https://www.mca.gov.in/SearchableActs/Section248.htm>.

[3] <http://www.scconline.com/DocumentLink/Xj38ATHA>.

[4] <http://www.scconline.com/DocumentLink/4u311Td3>.

[5] Securities and Exchange Board of India, (last amended on 8-1-2021) <https://www.sebi.gov.in/legal/regulations/jan-2020/securities-and-exchange-board-of-india-issue-of-capital-and-disclosure-requirements-regulations-2018-last-amended-on-january-08-2021-_41542.html>.

[6] International Financial Services Centres Authority (10-3-2021) <https://ifsca.gov.in/Viewer/ReportandPublication/9>.

[7] Nitin Jain, Fumiaki Katsuki, Akash Lal and Emmanuel Pitsilis, Deepening Capital Markets in Emerging Economies, (12-4-2017) <https://www.mckinsey.com/industries/financial-services/our-insights/deepening-capital-markets-in-emerging-economies>.

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“Unwomanly” and “arrogant”: These were some of the comments which Valli Arunachalam, the fourth-generation scion of the Murugappa group (Group), would have to face when she presented her candidature for possibly becoming the first woman director at Ambadi Investments Limited (AIL), the holding company of the Group. As Valli rested her candidature on the combined 8.15% stake inherited from her father in light of Vineeta Sharma v. Rakesh Sharma[1], her campaign came to an abrupt end when 91% of the Board voted against[2] her  candidature in its 79th AGM held on 21-9-2020. While such gender disparity scandals on the Boards of Indian family conglomerates are not unheard of, the issue seems grave when viewed in light of the oft-flouted corporate governance policies established for the same with regards to the listed entities.

The policy measures adopted by the Indian Government and the Securities and Exchange Board of India (SEBI) have led to an increment[3] in the number of women Board members in India from a lowly 5% in 2013 to a moderate 15% in 2019. However, Indian companies have rarely inducted more women on their Boards than the minimum stipulated requirement; only 2.2%[4] of the Nifty-500 firms had more than three women in their boardrooms (2019). Despite various studies[5] showing a positive correlation between the number of women in senior positions and the firm’s performance, there were less than 5% women CEOs in India in 2019[6]. As per the NSE (National Stock Exchange) Infobase (data as on 21-4-2021), there are presently only 2044 women directors in NSE-listed companies as compared to 11416 directors in total. 1235 out of 5524 independent directors are female while 75 NSE-listed companies have no women directors on their Boards.[7]

Apropos of the above, the authors have herein tried to highlight the current mandate of gender diversity in Indian boardrooms and the shortfalls in the present framework along with providing probable suggestions to promote gender diversity at the top echelon of Indian corporate structures.

Extant framework

As examined below, the current framework is a mix of statute, rules and guidelines:

(a)  The Companies Act, 2013 (Act) first introduced a provision mandating a woman director and laid the groundwork for the beginning of adequate representation in Indian boardrooms. The second proviso to Section 149(1) of the Act specifies that such class or classes of companies as may be prescribed shall have at least one-woman director.[8]

(b)  The Companies (Appointment and Qualification of Directors) Rules, 2014 (Rules) elucidates on the statutory provisions enshrined in the Act and specifies the classes of companies that shall have at least one-woman director. As per Rule 3[9], these are:

  1. Every listed company.
  2. Every other public company with either a paid-up capital of INR 100 crores or more, or a turnover of INR 300 crores or more.

A specified company under the provisions of the rule has six months from the date of incorporation to comply with the provisions. Furthermore, in case such a woman director resigns then the company has to fill the vacancy at the earliest but not later than 3 months or the next meeting of the Board, whichever is later.

(c) Section 450 of the Act deals with “punishment where no specific penalty or punishment is provided”.[10] While the second proviso to Section 149(1) and Rule 3 both do not specify any penalty or punishment for non-compliance, Section 450 prescribes punishment for contravention of such provisions. It lays down a structure of fines for companies, officers of such companies or any other person which can extend to INR 2 lakhs for companies and INR 50000 for individuals/officers.

(d) An Equity Listing Agreement is a 54-clause agreement executed between the stock exchange and the entity which is being listed on it. The main purpose of this agreement is to ensure that companies follow good corporate governance practices. The stock exchange on behalf of the market regulator (SEBI) ensures that listed entities comply with the agreement. Clause 49(II)(A)(1) of the agreement specifies that the Board of Directors (BoD) of the company shall have at least one-woman director.[11] The timeline to comply with the same was till 31-3-2015. SEBI vide its circular dated 8-4-2015 prescribed a fine structure for non-compliance with Clause 49(II)(A)(1).[12] Pursuant to this circular, several listed entities were fined by stock exchanges.[13]

(e) The market regulator, SEBI, has a series of regulations to govern and regulate listed entities. Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Regulations) is one such set of regulations used by SEBI to regulate listed entities. Regulation 17(1)(a) provides that a listed entity should have at least one-woman director on its Board.[14]

To facilitate the implementation of these Regulations, SEBI released a circular dated 22-1-2020 on streamlining of fines for non–compliance of listing obligations and disclosure requirements (LODR) by listed entities and standard operating procedure (SoP) for suspension and revocation of trading of specified securities (circular).[15] Annexure I of this circular prescribes a fine of INR 5000 per day for non-compliance by a listed entity with the provisions of Regulation 17(1). As per Annexure II, non-compliance, and non-payment of fine can result in freezing of shares of the promoter(s). Non-compliance with the provisions of Regulation 17(1) for two consecutive quarters can result in the scrip (share/stock of a listed entity) of the entity being placed in category Z. This means that the scrip is suspended from trading and cannot be traded intraday. The scrip is thus traded on a “trade for trade” basis only on selected days which are specified by the regulator. Pursuant to this, a number of entities were fined[16] under a previous version[17] of these SOPs issued in 2018 for not complying with the Regulations.

The way forward

Based on the above regulatory framework, the authors have observed certain areas which, if given further focus, could help in moving the mandate beyond mere representation, towards equality.

(a) The Ministry of Corporate Affairs, by way of a notification dated 4-1-2017 excluded “Specified International Financial Services Centres (IFSC) Companies” from the purview of the second proviso to Section 149(1) of the Act.[18] While the overall purpose of the said notification was to reduce statutory compliances/hurdles that specified IFSC Companies have to deal with, the issue of ensuring adequate representation of women in BoD should not be reduced to something that is looked upon as a mere statutory compliance/hurdle for a company.

(b) As per the second proviso of Rule 3 of the Rules, any intermittent vacancy of a woman director shall be filled-up by the Board at the earliest but not later than immediate next Board meeting or three months from the date of such vacancy, whichever is later. A maximum period of 120 days is permissible between two board meetings. Thus, any intermittent vacancy of a woman director must be filled up between 90-120 days by the Board. However, Annexure II, Paragraph 2 point (a) of the SEBI circular dated 22-1-2020[19] allows listed companies a period of 180 days (two consecutive quarters) to not comply with LODR Regulation 17(1) before action is initiated for suspension of trading of shares of the said entity. This period in the circular should be reduced to be in consonance with the period stated in Rule 3.

(c) Although the provisions for both independent and women directors are corporate governance measures, however, the dissonance therein is apparent. Rule 3 of the Rules mandates that every public company with either a paid-up capital of INR 100 crores or more or a turnover of INR 300 crores or more must have at least one female director. Rule 4 mandates that every public company with either the paid-up share capital of INR 10 crores or more or turnover of INR 100 crores or more must have independent directors.[20] Thus, in order to widen the base of companies having the gender diversity mandate, it is advisable to lower the pecuniary threshold limits in Rule 3 in a phased manner to a level similar to that in Rule 4.

(d) At present, the Companies Act, associated rules, and SEBI Regulations prescribe one woman director. To increase the number of women directors, this number can be revised to a proportion or a fraction of the Board for certain specified entities.

Concluding remarks

As is indicated from the aforesaid discussion, a holistic framework has been developed in the nation to encourage the representation of women in key positions at corporates. However, the latest figures given by the NSE suggest a stark contrast between the ideated measures and ground realities. The need of the hour is strict implementation of the above framework and modification of the same to increase compliance and coverage rates.

4th year BA, LLB (Hons) student at Rajiv Gandhi National University of Law, Punjab.

†† 4th year BA, LLB (Hons) student at Rajiv Gandhi National University of Law, Punjab.

[1] (2020) 9 SCC 1

[2] See, “Murugappa Group Family Feud Rages On; Valli Arunchalam Denied Board Position

[3] See, “More Women are Joining Boards but Few Get Corner Office

[4] Ibid.

[5] See, IMF Working Paper titled “Gender Diversity in Senior Positions and Firm Performance: Evidence from Europe

[6] Supra note 3.

[7] See, NSE Infobase

[8] S. 149(1), Companies Act, 2013

[9] R. 3, The Companies (Appointment and Qualification of Directors) Rules, 2014

[10] S. 450, Companies Act, 2013 

[11] Cl. 49(II)(A)(1), Equity Listing Agreement

[12] SEBI Circular dated 8-4-2015

[13] See, “Woman Directors: 1,375 BSE, 191 NSE Companies Fined for Non-Compliance”

[14] Regn. 17(1)(a), Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015

[15] SEBI Circular dated 22-1-2020

[16] See, “NSE Penalises 250 Companies for Non-Compliance with Listing, Disclosure Norm”

[17] SEBI Circular dated 3-5-2018

[18] Ministry of Corporate Affairs Notification dated 4-1-2017

[19]Supra note 15.

[20] R. 4, Companies (Appointment and Qualification of Directors) Rules, 2014

Case BriefsSupreme Court

Supreme Court: In a corporate dispute case, the 3-Judge Bench comprising of R.F. Nariman, B.R. Gavai* and Hrishikesh Roy, JJ., held that,

“The company Court while exercising its powers under sections 433 and 434 of the Companies Act would not be in a position to decide, as to who was at fault in not complying with the terms and conditions of the deed of settlement and the compromise deed.”

The respondent–M/s Indian Acrylics Ltd. was a manufacturer of acrylic yarn which had entered into a transaction with the appellant–M/s Shital Fibers Ltd., under which the respondent was to supply acrylic yarn to the to the appellant on credit basis. As per the arrangement, the respondent supplied material worth Rs.81,98,014.45 regarding which there was an outstanding balance of Rs.8,92,723 to be paid to the respondent. As the payment was not made despite notice being duly served on the appellant, the respondent filed a Company Petition seeking winding up of the present appellant for its inability to pay admitted debts.

Findings of the Courts Below

The Company Judge granted an opportunity to the appellant to settle the accounts with the respondent and in case of failure to make the settlement; the citation was directed to be published. The order of Company Court was challenged before the High Court by the appellant. Meanwhile, the disputed amount was paid by the appellant. The High Court held that there was no bona fide dispute as the appellant had satisfied the respondent’s claim. Although, the High Court denied to enter into the claim with regard to interest at the rate of 24% per annum, as to whether the appellant was liable to pay interest to the respondent, it granted liberty to the respondent to seek interest amount by way of application or appeal.

Issues Before the Court

The appellant claimed that his defense was bona-fide as the respondent had supplied defective material. On account of which, the appellant had suffered huge losses and as such, he was  entitled to receive the damages from the respondent.

Observations and Analysis by the Court

The Bench observed that it is well settled that where the debt is undisputed, the court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt. The principles on which the court acts are firstly, that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which the defence depends. Relying on the decision in Madhusudan Gordhandas & Co. vs. Madhu Woollen Industries Pvt. Ltd., (1971) 3 SCC 632, the Bench stated that, If the debt is bona fide disputed and the defense is a substantial one, the court cannot wind up the company.

Regarding the claim of the appellant that defective material was supplied by the respondent; the Court concurred with the findings of the Company Judge and the High Court that the defence sought by the appellant was an after­thought, as no document was placed on record in support of such contention.  

The Bench stated that the defence of the appellant was neither bona-fide nor substantial as no prima facie evidence was produced by the appellant to buttress his claim. Lastly, the Court held that, “The company Court while exercising its powers under sections 433 and 434 of the Companies Act would not be in a position to decide, as to who was at fault in not complying with the terms and conditions of the deed of settlement and the compromise deed.”

Hence, holding the defence of the appellant not to be bona fide, in good faith and of substance, the Bench dismissed the appeal for being devoid of merit.

[Shital Fibers Ltd. v. Indian Acrylics Ltd., 2021 SCC OnLine SC 281, decided on 06-04-2021]

Kamini Sharma, Editorial Assistant has put this story together 

*Judgment by: Justice B.R. Gavai

Know Thy Judge| Justice B.R. Gavai

Appearance before the Court by:

For the Appellant: Adv. Karan Nehra

For the Respondent: Adv. Tarun Gupta

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of RF Nariman, BR Gavai and Hrishikesh Roy, JJ has held that an entry made in the books of accounts, including the balance sheet, can amount to an acknowledgement of liability within the meaning of Section 18 of the Limitation Act, 1963.

The Court referred to a number of authorities and in particular the decision in Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, 1961 SCC OnLine Cal 128, wherein it was held that though the filing of a balance sheet is by compulsion of law, the acknowledgement of a debt is not necessarily so. In fact, it is not uncommon to have an entry in a balance sheet with notes annexed to or forming part of such balance sheet, or in the auditor’s report, which must be read along with the balance sheet, indicating that such entry would not amount to an acknowledgement of debt for reasons given in the said note.

The bench explained that the filing of a balance sheet in accordance with the provisions of the Companies Act, 2013 is mandatory, any transgression of the same being punishable by law. However, what is of importance is that notes that are annexed to or forming part of such financial statements are expressly recognised by Section 134(7) of the Companies Act, 2013. Under Section 134, financial statements are to be approved by the Board of Directors before they are signed, and the auditor’s report, as well as a report by the Board of Directors, is to be attached to each financial statement. Equally, the auditor’s report may also enter caveats with regard to acknowledgements made in the books of accounts including the balance sheet.

The Court, hence, held that,

“… it would depend on the facts of each case as to whether an entry made in a balance sheet qua any particular creditor is unequivocal or has been entered into with caveats, which then has to be examined on a case by case basis to establish whether an acknowledgement of liability has, in fact, been made, thereby extending limitation under Section 18 of the Limitation Act.”

[Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal, 2021 SCC OnLine SC 321, decided on 15.04.2021]

*Judgment by: Justice RF Nariman

Know Thy Judge| Justice Rohinton F. Nariman

Appearances before the Court by

For appellant: Senior Advocate Ramji Srinivasan, learned Senior Advocate appearing on behalf of the appellant,

For respondent: Advocate Abhijeet Sinha