Legal Updates (October 12 – October 17, 2026)
CASE UPDATES
Income tax dues, being ‘crown debts’, carry no priority over secured creditors and stand extinguished upon approval of the Resolution Plan if not included therein. Section 238 of the IBC gives the Code overriding effect over any inconsistent provision of any other law for the time being in force, including the Income Tax Act
The Calcutta High Court in the case of Ultra Tech Cement Limited vs Union of India [WPA 2036 of 2020] dated September 18, 2026, has quashed all fresh proceedings and adjustments relating to the pre-transfer period, holding that statutory dues stand extinguished if not part of the approved Resolution Plan and that Section 238 of the IBC overrides the Income Tax Act. The Court explained that once a Resolution Plan is approved by the NCLAT under Section 31 of the IBC, all claims stand frozen and any claim not forming part of the approved plan is extinguished, and no fresh proceedings can be initiated or continued in respect of such claims.
The Court said that income tax dues, being ‘crown debts’, carry no priority over secured creditors and stand extinguished upon approval of the Resolution Plan if not included therein. Section 238 of the IBC gives the Code overriding effect over any inconsistent provision of any other law for the time being in force, including the Income Tax Act. The Income Tax Department, having submitted its claim before the Resolution Professional and having had it rejected after collation, cannot subsequently revive or adjust pre-CIRP demands against refunds arising in the post-transfer period.
The Court observed that the Income Tax Department, being an operational creditor, had submitted proof of debt in Form ‘B’ before the Resolution Professional claiming Rs. 24.06 crores, which was rejected after collation. The Court noted that despite an interim order dated July 08, 2021, restraining the respondents from giving effect to the impugned orders, the Centralized Processing Centre (CPC) adjusted the refunds against demands for the pre-transfer period.
The Court took judicial notice of all documents including the intimation issued under Section 245 and the judgments cited at the bar. The Court further observed that the Income Tax Authorities ought to be more circumspect, prudent and vigilant henceforth, and upon approval of a Resolution Plan under the IBC, they are expected to forthwith withdraw all demands pertaining to the pre-transferred period instead of persisting with frivolous and untenable proceedings.
Sections 45G and 45H of the ESI Act cannot be mechanically invoked against a bank to recover a customer’s dues, and once the underlying Section 45A order was kept in abeyance for fresh hearing, the consequential garnishee orders became infructuous
The Calcutta High Court in the case of State Bank of India vs Employees State Insurance Corporation [WPA 6511 of 2025] dated October 05, 2026, has ruled that Sections 45G and 45H of the ESI Act cannot be mechanically invoked against a bank to recover a customer’s dues, and once the underlying Section 45A order was kept in abeyance for fresh hearing, the consequential garnishee orders became infructuous. Accordingly, the High Court quashed the two garnishee orders issued by the ESIC Recovery Officer against SBI and the RBI respectively.
The Court emphasised that since Section 45H applies the Income Tax (Certificate) Rules to ESI recovery and is penal in character, an opportunity of hearing or at least a notice is mandatory before a third party can be asked to pay on behalf of a defaulter employer. The Court also observed that SBI could not have remitted any amount from the customer’s ‘inoperative’ account, and therefore branding SBI as a ‘deemed defaulter’ was without application of mind and violated the principles of natural justice.
The Division Bench also disposed another application, keeping the impugned order in abeyance, restraining coercive measures against the establishment, and directing a fresh hearing before the appellate authority under Section 45 of the ESI Act. Despite these directions, by a letter issued under Section 45G of the ESI Act, the ESI Corporation declared SBI to be a ‘deemed defaulter’, and by a further garnishee order, sought to recover the dues from SBI’s deposit lying with the RBI.
The Court noted that SBI had argued that Sections 45G and 45H of the ESI Act had been wrongly invoked against it. The Bench explained that Section 45G(3) contemplates a notice to a person who holds money of the principal employer, and the primary duty of the ESI Corporation before recovering money from a banker is to ascertain whether the banker is actually in a position to pay the demanded amount or is prevented by any authority of law from remitting it. Further, Section 45H applies the provisions of the Income Tax Act and the Income Tax (Certificate) Rules to recovery under the ESI Act, and being a penal provision, an opportunity of hearing or at least a notice is necessary before demanding money from a third party on behalf of a defaulter employer.
The Court further observed that SBI could not have remitted any amount to the ESI Corporation from an ‘inoperative’ account of the customer, and therefore branding SBI as a ‘deemed defaulter’ in relation to the dues of Respondent No. 3 was without any application of mind and in violation of the principles of natural justice. The Court also noted that the conduct of Respondent No. 1 in issuing notices relating to proceedings that were pending before the Division Bench amounted to an abuse of the process of law.
The RBI placed documents before the Court confirming that the amount debited from SBI’s account pursuant to the impugned garnishee orders had since been credited back to SBI’s account. Accordingly, the Court observed that the impugned garnishee orders had been passed to implement the order under Section 45A of the ESI Act, which had itself been kept in abeyance by the Division Bench on March 17, 2025, with a direction for a fresh hearing.
The statutory requirement of ‘giving of notice’ under proviso (b) to Section 138 of the Negotiable Instruments Act, 1881 stands complied with once the notice is dispatched by registered post to the correct address of the drawer, and actual personal receipt by the drawer is not mandatory
The Supreme Court in the case of Sainaba vs State of Kerala [2026 INSC 1069] dated September 30, 2026, has ruled that dispatch of notice by registered post to the drawer’s correct address raises a rebuttable presumption of service, irrespective of whether the notice is received by the drawer personally or by a family member residing at the same address. The Court clarified that the statutory requirement of ‘giving of notice’ under proviso (b) to Section 138 of the Negotiable Instruments Act, 1881 stands complied with once the notice is dispatched by registered post to the correct address of the drawer, and actual personal receipt by the drawer is not mandatory.
The Apex Court elaborated that a rebuttable presumption of valid service arises under Section 27 of the General Clauses Act, 1897 and Section 114 of the Indian Evidence Act, 1872 upon dispatch of notice to the correct address by registered post. The burden then shifts to the drawer to establish that the address was incorrect, that he had no knowledge of the notice, or that the postal endorsement was erroneous. Where the notice is received by a family member residing at the drawer’s correct address, the presumption of valid service is not defeated, the identity of the recipient is immaterial so long as the notice reached the correct address.
The Court noted that the statutory demand notice was dispatched by registered post to the correct address of respondent No. 2, which was evident from the fact that respondent No. 2 had entered appearance pursuant to summons delivered at the very same address, his Vakalatnama bore the identical address, and his appeal and revision petitions also contained the same address. Significantly, respondent No. 2 never disputed the correctness of his address in his statement under Section 313 CrPC, and it was not even his case that his relationship with his mother was inimical or that they resided separately.
The Court observed that the High Court had completely misread the decision in C.C. Alavi Haji vs. Palapetty Muhammed [(2007) 6 SCC 555], erroneously holding that unless there was evidence showing the accused was aware of the notice, service could not be presumed, and thereby wrongly shifting the burden from the accused-drawer to the complainant. The Court further observed that the Division Bench decision in M.D. Thomas vs. P.S. Jaleel [(2009) 14 SCC 398], which had set aside a Section 138 conviction merely because notice was served upon the wife of the drawer, was rendered without noticing the binding three-Judge Bench decision in C.C. Alavi Haji and was therefore per incuriam.
The Court noted that if M.D. Thomas were treated as binding, it would lead to anomalous consequences where a complainant whose notice was never delivered at all would enjoy the presumption of valid service, but a complainant whose notice was actually delivered and received by a family member residing at the same address would be denied that benefit.
Foreign companies, though recognised for limited regulatory purposes under Chapter XXII of the Companies Act, 2013, do not become ‘companies’ within the meaning of Section 2(20) and cannot be brought within the fold of Section 3(7) of the IBC without express statutory inclusion, and the residuary limb ‘any other person incorporated with limited liability under any law for the time being in force’ must be read as referring only to Indian law
The Chennai Bench of the National Company Law Tribunal (NCLT) in the case of Punjab National Bank vs Reji Abraham [CP(IB)/177(CHE)/2026] dated September 23, 2026, has ruled that foreign companies incorporated outside India do not qualify as ‘corporate persons’ under Section 3(7) of the IBC, and that Section 60(1) anchors NCLT jurisdiction strictly to the registered office of the Corporate Debtor within India. The Tribunal explained that foreign companies, though recognised for limited regulatory purposes under Chapter XXII of the Companies Act, 2013, do not become ‘companies’ within the meaning of Section 2(20) and cannot be brought within the fold of Section 3(7) of the IBC without express statutory inclusion, and the residuary limb ‘any other person incorporated with limited liability under any law for the time being in force’ must be read as referring only to Indian law.
The Bench reaffirmed that Section 60(1) of the IBC is the governing provision for territorial jurisdiction in personal guarantor insolvency proceedings, and that the place of residence of the Personal Guarantor, the cause of action, or the governing law of the guarantee cannot confer jurisdiction on an NCLT Bench where the Corporate Debtor has no registered office within its territorial limits, since Section 179 is expressly subject to Section 60.
While acknowledging the settled legal position that a creditor may proceed against the Personal Guarantor independently of any CIRP against the Corporate Debtor and that the guarantor’s liability is co-extensive under Section 128 of the Indian Contract Act, the Bench clarified that this right is available only where the registered office of the Corporate Debtor falls within the territorial jurisdiction of the adjudicating NCLT Bench.
The Tribunal observed that the statutory scheme under Section 60(1) of the IBC anchors the territorial jurisdiction of the Adjudicating Authority, for insolvency resolution and liquidation of corporate persons including corporate debtors and personal guarantors, to the NCLT having territorial jurisdiction over the place where the registered office of the corporate person is located.
The Bench noted that the definition of ‘corporate person’ under Section 3(7) of the IBC, read with Section 2(20) of the Companies Act, 2013, confines the expression ‘company’ to one incorporated under the Companies Act or any previous Indian company law, and that the residuary limb ‘any other person incorporated with limited liability under any law for the time being in force’ must, following the decision in Susanta Mukherjee v. Union of India [1975 SCC OnLine Cal 158], be read as referring only to Indian law and not to the laws of any foreign country.
The Tribunal placed reliance on the Supreme Court’s decision in GVK Industries Ltd. v. Income Tax Officer [(2011) 4 SCC 36], observing that Parliament is ordinarily presumed to legislate only for India unless a contrary intention clearly appears, and that no such contrary intention was discernible from Section 3(7) of the IBC. The Bench further noted that a foreign company, though recognised for limited regulatory purposes under Chapter XXII of the Companies Act, does not become a ‘company’ within the meaning of Section 2(20) and cannot be brought within the fold of Section 3(7) without express inclusion.
The Tribunal acknowledged the settled legal position that a creditor may proceed against the Personal Guarantor even in the absence of CIRP or liquidation proceedings against the Corporate Debtor, and that the liability of the Personal Guarantor is co-extensive with that of the principal borrower under Section 128 of the Indian Contract Act. However, it clarified that this right is subject to the statutory requirement that the registered office of the Corporate Debtor must lie within the territorial jurisdiction of the NCLT where the Section 95 application is filed.
Once a Resolution Plan is approved by the CoC and acted upon, the Adjudicating Authority has no jurisdiction to undo the distribution and recall amounts into the liquidation estate
The Amaravati Bench of the National Company Law Tribunal (NCLT) in the case of PP Bafna Ventures vs KVR Industries [IA (IBC)/388/2025] dated September 30, 2026, has held that once a Resolution Plan is approved by the CoC and acted upon, the Adjudicating Authority has no jurisdiction to undo the distribution and recall amounts into the liquidation estate. The NCLT examined the scope of Section 36 of the IBC and observed that neither the first tranche amount nor the Performance Bank Guarantee (PBG) was reflected as an asset of the Corporate Debtor in the audited Balance Sheet, since the funds had already been utilised and distributed by the Resolution Professional during the CIRP period.
The Bench noted that Section 36 of the IBC is silent on the treatment of amounts paid by the SRA and forfeited due to non-implementation of the Resolution Plan, and both counsels conceded that no judicial precedent exists on identical facts. The Tribunal held that once a Resolution Plan has been approved with the collective wisdom of the CoC and acted upon, the Adjudicating Authority has no jurisdiction to interfere with the distribution carried out in terms of the approved Resolution Plan, which is binding on all stakeholders under Section 31 of the IBC.
The Tribunal examined the scope of Section 36 of the IBC, which defines the ‘liquidation estate’. The Bench noted that Section 36(3)(a) contemplates inclusion of assets over which the Corporate Debtor has ownership rights, as evidenced in the balance sheet, while Section 36(3)(h) includes any property belonging to or vested in the Corporate Debtor at the insolvency commencement date.
On perusal of the audited Balance Sheet of the Corporate Debtor as on 7 November 2025, the Bench observed that neither the amount of Rs.2.60 crore nor the Performance Bank Guarantee (PBG) amount of Rs.2.57 crore was reflected as an asset of the Corporate Debtor. The Auditor had specifically recorded that during the CIRP period, the SRA had deposited an aggregate sum of Rs.5.17 crore in the bank account of the Corporate Debtor, and that the said funds had been utilised and distributed by the Resolution Professional on various dates during the CIRP.
Where a franchise agreement prohibits competing activity ‘directly or indirectly through any associate/sister concern’, the prohibition cannot be defeated merely by routing the competing business through a connected group entity
The Bombay High Court in the case of Parle Agro Private Limited vs Udayak Agro Products Pvt. Ltd. [Comm Arbitration Petition (L) No. 25994 of 2026] dated September 23, 2026, has held that where a franchise agreement prohibits competing activity ‘directly or indirectly through any associate/sister concern’, the prohibition cannot be defeated merely by routing the competing business through a connected group entity. Essentially, the Court held that the Udayak Franchise Agreement’s prohibition on competing activity ‘directly or indirectly through any associate/sister concern’ cannot be defeated by routing the rival water business through KL Beverages, and granted interim protection against both entities pending arbitration.
The Court reaffirmed that Section 9 jurisdiction is not confined to signatories to the arbitration agreement and can extend to non-signatories where the relief is necessary to protect the subject matter of the arbitration, particularly where the contract itself contemplates indirect conduct through connected concerns. The Court explained that common family ownership, common registered office, common email domain, shared functional mailboxes, common personnel, inter-entity adjustment of dues, and the description of one entity as an ‘Associate’ in the other’s audited financials collectively establish a prima facie case that the franchisee and its sister concern function as a single economic unit.
Further, where the franchisee has had long access to the franchisor’s technical know-how, quality systems, manufacturing processes, customer relationships and distribution networks, the Court held that damages cannot adequately compensate for the loss of exclusivity and the continuing competitive advantage gained through use of protected facilities and information. The Court noted that the words ‘indirectly’ and ‘associate/sister concern’ cannot be treated as redundant and must be given their ordinary meaning.
The Court found prima facie material showing that Udayak and KL Beverages function as a single economic unit, common Agarwal family ownership and control, common registered office at 176, F.A. Road, Kumarpara Panchali, Guwahati, common KL Industries Estate compound, common email domain (kigrroup.com), shared functional mailboxes for purchase, accounts, logistics and digital filing, common personnel, and instances of inter-entity adjustment of dues. The audit report recorded a separate RO water system being established for the competing water activity at the KL Beverages premises, with changes in the finished goods warehouse and construction of a new shade for BAILLEY water.
The discovery of a compromise decree, to which the original plaintiff was not a party, satisfied the due diligence requirement under the proviso to Order VI Rule 17 of the CPC, and the proposed amendment did not fundamentally alter the nature and character of the suit
The Supreme Court in the case of Haramani Sahoo vs Lalita Nayak [2026 INSC 1112] dated October 12, 2026, has held that the discovery of a compromise decree, to which the original plaintiff was not a party, satisfied the due diligence requirement under the proviso to Order VI Rule 17 of the CPC, and the proposed amendment did not fundamentally alter the nature and character of the suit. The Supreme Court accepted the plea of due diligence under the proviso to Order VI Rule 17 of the CPC, holding that the original plaintiff’s discovery of the compromise decree only upon obtaining certified copies of the plaint and final decree, constituted a sufficient explanation for not raising the matter before commencement of the trial.
The Apex Court held that the proposed amendment did not fundamentally alter the nature and character of the suit, since the original suit was founded upon the plaintiff’s claim to title, possession and related reliefs in respect of the suit property, and the proposed amendment merely sought to place before the Court facts concerning a compromise decree which affected a portion of that very property.
Reiterating the well-settled principles governing Order VI Rule 17 of the CPC, the Apex Court applied the ‘real controversy test’ and held that amendments necessary for determining the real questions in controversy between the parties ought ordinarily to be permitted, provided they do not alter the basic nature of the suit, and a change in the relief sought does not, by itself, amount to a change in the nature of the suit.
The Court declined to finally determine the questions of limitation and the applicability of Order XXIII Rule 3A of the CPC at the amendment stage, holding that where the plea of limitation is arguable and depends upon disputed facts, including the date or manner in which the plaintiff acquired knowledge of the relevant document or transaction, the amendment need not necessarily be rejected at the threshold, and such objections were left open for consideration by the trial Court.
The Court noted that the original suit itself concerned the right, title and interest in and possession of the very property which formed the subject matter of the proposed amendment, and that the proposed pleading relating to the compromise decree in transfer suit of 1998 arose from the allegation that the said decree affected a portion of the very suit property. The Court further observed that the original plaintiff claimed to have obtained certified copies of the plaint and final decree in suit of 1998 only on June 22, 2020, and that the written statement filed by Defendant Nos. 9 and 10 had not disclosed the source of title of their vendors, which were relevant circumstances in assessing the plea of due diligence.
The Court held that the explanation furnished by the appellants could not, at that stage, be characterised as a mere omission, inadvertence or negligence, and that the subsequent discovery of the compromise proceedings, coupled with the assertion that the original plaintiff was not a party to those proceedings and that the source of title of the vendors was not disclosed in the written statement, provided a sufficient basis for accepting the plea of due diligence for the purposes of the proviso to Order VI Rule 17 of the CPC.
The Court further observed that the proposed amendment did not fundamentally alter the nature and character of the suit, since the original suit was founded upon the plaintiff’s claim to title, possession and related reliefs in respect of the suit property, and the proposed amendment merely sought to place before the Court facts concerning a compromise decree which affected a portion of that very property. The Court noted that the date of knowledge of the compromise decree itself was a matter in dispute and had not been conclusively determined, and that it would therefore be inappropriate to finally determine the question of limitation while considering the application for amendment.
Therefore, while allowing the amendment, the Court imposed costs of Rs. 25,000 on the appellants payable to the contesting respondents within two weeks, and granted liberty to the respondents to file additional written statements, thereby balancing the considerable delay in seeking the amendment and the inconvenience caused to the respondents against the necessity of a complete and effective adjudication of the controversy and avoidance of multiplicity of proceedings.
Where an arbitration clause specifies two places and the governing law clause vests exclusive jurisdiction in courts at one of them, that place is the juridical seat and the other is merely the venue
The Supreme Court in the case of Arcis Clean Energy vs Parshva Innovation [2026 INSC 1109] dated October 12, 2026, has held that where an arbitration clause specifies two places and the governing law clause vests exclusive jurisdiction in courts at one of them, that place is the juridical seat and the other is merely the venue. Accordingly, the Apex Court set aside the Delhi High Court’s order appointing a sole arbitrator under Section 11(6) of the Arbitration and Conciliation Act, holding that the Delhi High Court lacked jurisdiction because the juridical seat of arbitration was Goa and not Delhi.
The Apex Court reaffirmed the settled distinction between the ‘seat’ of arbitration and the ‘venue’ for arbitral proceedings, holding that the seat is akin to an exclusive jurisdiction clause and that courts at the seat have exclusive jurisdiction to regulate arbitral proceedings. Applying the three-condition test in BGS SGS SOMA JV v. NHPC Ltd. [(2020) 4 SCC 234], the Court held that where an arbitration clause specifies more than one place, the BGS SGS SOMA test is not satisfied and the venue so specified cannot automatically be treated as the juridical seat.
The Court held that in such a situation, the juridical seat must be determined by reading the agreement as a whole, including the Governing Law and Jurisdiction clause, and that the arbitration clause cannot be read in isolation from the rest of the contract for the purpose of ascertaining the seat.
The Court examined the settled distinction between the ‘seat’ of arbitration and the ‘venue’ for arbitral proceedings, drawing on Indus Mobile Distribution Pvt Ltd. v. Datawind Innovations Pvt Ltd. [(2017) 7 SCC 678], Swastik Gases (P) Ltd. v. Indian Oil Corporation Ltd. [(2013) 9 SCC 32], and Brahmani River Pellets Ltd. v. Kamachi Industries Ltd. [(2020) 5 SCC 462]. It reiterated that parties may, by agreement, confer exclusive jurisdiction upon courts at a particular place for regulating arbitral proceedings, regardless of whether any part of the cause of action arose within that court’s territorial jurisdiction.
The Court then distinguished the three-condition test laid down by the three-Judge Bench in BGS SGS SOMA JV v. NHPC Ltd. [(2020) 4 SCC 234] as affirmed in Arif Azim Company Ltd. v. Micromax Informatics FZE [(2025) 9 SCC 750], which requires that (i) the arbitration agreement should designate only one place, (ii) that place must have anchored the arbitral proceedings without scope of change, and (iii) there must be no other significant contrary indicia, before a designated ‘venue’ can be construed as the ‘seat’ of arbitration.
The Court noted that in the present case, the arbitration clause itself specifies two places, namely Delhi and Goa, and therefore the BGS SGS SOMA test is not satisfied to treat Delhi as the seat. It further reiterated that the mere expression ‘place of arbitration’ cannot be the basis for determining the parties’ intention as to the seat, and that the intention must be gathered from other clauses in the agreement, including the conduct of the parties.
When the defendants have deliberately and consciously created a website/domain name in a manner so as to come as close as possible to the plaintiff, its goods and its business by imitating and reproducing the plaintiff’s Intellectual Property and the distinctive manner in which the plaintiff advertises/promotes its products, such case calls for injunction
The Delhi High Court in the case of Archian Foods Private Limited vs Goldenstuff and Beverages Private Limited [CS(COMM) 1105/2026] dated October 08, 2026, has held that when the defendants have deliberately and consciously created a website/domain name in a manner so as to come as close as possible to the plaintiff, its goods and its business by imitating and reproducing the plaintiff’s Intellectual Property and the distinctive manner in which the plaintiff advertises/promotes its products, such case calls for injunction.
The Court observed that the plaintiff is the registered proprietor of various ‘LAHORI’ formative trademarks spread across Classes 30, 32, 16 and 35, and that the plaintiff owns copyright in the artistic works in the Trade Dresses/ Packaging/ Labels. The sales figures have been verified by the Chartered Accountant of the plaintiff, whose certificate has been filed along with the plaint. The Court noted that on account of their extensive use, advertisement and large turnover, the trademarks/copyrights/designs of the plaintiff have acquired invaluable goodwill and reputation throughout the country.
The Court further observed that the impugned logo/trade dress/colour scheme/shape of the bottle adopted by the defendants is bound to create confusion and deception amongst the consumers, public and members of the trade, especially when the range of goods of the plaintiff and the defendants is the same. The Court noted that the adoption of identical or deceptively similar logo/trade dress/colour scheme/shape of the bottle by the defendants is ex facie mala fide, since the defendants are new entrants in the trade whereas the plaintiff is already an established player.
The Court found that the defendants, who commenced business only in January 2026, had reproduced the plaintiff’s distinctive green, yellow and white colour combination, stylized white lettering with black bordered outline, lemons and cumin motifs, slanting taglines, multi-coloured borders, and identical bottle shape with green cap. The Court held that the adoption was ex facie mala fide and bound to cause confusion among consumers.
Accordingly, the High Court granted an ex parte ad interim injunction restraining Goldenstuff and Beverages Private Limited and others from using the marks ‘INDIAN ZEERA’, ‘INDIAN NIMBOO’/ ‘INDIAN MOJITO’, ‘INDIAN SHIKANJI’, along with associated trade dress, packaging, labels, bottle design, taglines, and the domain name LAHORIZEERA.COM, in respect of non-alcoholic beverages and allied goods. The injunction extends to the defendants’ directors, associates, sister concerns, distributors, dealers, and agents, covering manufacturing, selling, advertising, and dealing on the internet, social media, and e-commerce platforms.
