Legal Updates (Jan 12 – Jan 17, 2026)
The lifting of the corporate veil is an exceptional measure, and directors/promoters cannot be exposed to personal liability through execution, in the absence of a prior and reasoned determination justifying disregard of the corporate personality
The Supreme Court in the case of Ansal Crown Heights Flat Buyers Association vs Ansal crown Infrabuild [Civil Appeal No. 8465-8466 of 2024] dated January 12, 2026] has held that lifting of the corporate veil is an exceptional measure, and can be resorted to only upon a clear finding that the corporate personality was abused for fraudulent or dishonest purposes. Such a finding must be preceded by specific pleadings and a determination on merits.
Essentially, the Court held that the persons who were initially named as respondents in consumer complaints, but against whom the complaints did not ultimately proceed, could not be made subject to execution proceedings on the basis that they were the directors or promoters of the judgment-debtor company.
Finding that no such allegation of fraud or misuse of the corporate form was either pleaded or established before the adjudicatory forum, the Apex Court ruled that the directors/promoters cannot be exposed to personal liability through execution, in the absence of a prior and reasoned determination justifying disregard of the corporate personality.
The Court clarified that execution proceedings must strictly conform to the decree passed by the adjudicatory body, and no liability can be imposed during execution on individuals who were not parties to the original proceedings. The Court said that an order against a company cannot be enforced against its directors personally in the absence of a specific adjudication against them.
The Court observed that the National Consumer Disputes Redressal Commission (NCDRC) committed no error in declining to execute the order against the directors/promoters, as they were not parties to the final complaints and the order was binding only on ACIPL (Respondent). The Court clarified that this dismissal does not prevent the appellant from pursuing other available legal remedies against the promoters/directors under different statutes like the Companies Act, the IBC, or civil law, should the necessary conditions be met.
The court emphasised that the NCDRC had consciously decided to proceed only against ACIPL, and the appellant’s failure to challenge this order meant it became final. Since no pleadings were directed against the directors, no issues were framed concerning their liability, and no findings were recorded against them, the Bench said that these are not mere procedural formalities but substantive safeguards, and their absence meant the essential foundation for fastening liability was lacking.
It is settled law that an executing court cannot go beyond the decree. The decree must be executed as it is, and the court cannot shift or enlarge liability to bind individuals who were not parties to the decree, added the Court, while observing that its previous order of January 17, 2024 was limited to the issue of the moratorium under the IBC, and it did not fasten any liability on the directors but merely removed the procedural bar of the moratorium and allowed the NCDRC to decide the question of the directors’ liability in accordance with the law.
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Where a contract contains an express and widely worded clause prohibiting the payment of interest on “any moneys due to the contractor”, it acts as a complete bar on the arbitrator’s power to award pre-reference and pendente lite interest
The Delhi High Court in the case of Bharat Heavy Electricals Limited vs Delkon India Pvt Ltd [FAO (COMM) 109/2023] dated January 08, 2026] has held that when the fact of a loss is established but precise evidence for its quantification is lacking, then an arbitrator is justified in employing a “rough and ready method” or “honest guesswork” to award reasonable compensation. Thus, essentially, the Court’s role is not to re-assess the measure of damages but to ensure that the arbitrator’s approach is not perverse or based on no evidence.
The High Court, however, ruled that where a contract contains an express and widely worded clause prohibiting the payment of interest on “any moneys due to the contractor”, it acts as a complete bar on the arbitrator’s power to award pre-reference and pendente lite interest. This bar applies not only to payments for work done under the contract but also to claims for damages arising out of a breach or illegal termination of the contract.
The High Court observed that the amounts awarded for transportation, pre-assembly, and erection work were ‘meagre’, and the Arbitrator’s approach of using a pro-rata contract rate and taking a “mean approach” for disputed quantities to be a reasonable way to quantify costs, especially since the fact that the work was performed was not in dispute.
The Court rejected the Arbitrator’s distinction between claims arising “as per the terms of the contract” and those arising from the “illegal termination of the contract”. It analysed Clause 17 of the contract, which stated, “No interest shall be payable by BHEL on any moneys due to the contractor”. Accordingly, the Court concluded that the phrase “any moneys due to the contractor” is wide enough to include claims for damages, compensation, or any other claim arising from a breach or illegal termination of the contract.
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Pursuit of parallel recovery proceedings under the SARFAESI Act or before the DRT does not bar a financial creditor from initiating CIRP. Such actions do not automatically constitute a malicious invocation under Section 65 of the IBC unless specific abuse of process is proven
The Supreme Court in the case of Elegna Co-operative Housing and Commercial Society Ltd vs Edelweiss Asset Reconstruction Company Ltd [Civil Appeal No. 10261 of 2025] dated January 15, 2026] has ruled that a society or association of homebuyers, which is not a creditor itself, lacks the locus standi to intervene in proceedings under Section 7 of the IBC at the pre-admission or appellate stage. The right to be heard at this stage is limited to the applicant creditor and the corporate debtor, as the proceedings are in personam, and therefore, unrelated third parties, including other creditors or societies, have no inherent right of audience.
The Court explained that the right to participate in insolvency proceedings is statutory, not equitable. Further, the status of “financial creditor” is granted to individual allottees under Section 5(8)(f) of the IBC, but this status does not extend to a society they are members of, as the society is a distinct juristic entity.
The Court also clarified that the inherent powers of the NCLAT under Rule 11 cannot be used to override the statutory structure of the IBC or to create substantive participatory rights where the statute deliberately excludes them. Hence, no prejudice was caused to homebuyers, as their interests are adequately protected under the IBC framework through mechanisms like participation in the Committee of Creditors (CoC) via an Authorised Representative post-admission.
Therefore, the Court upheld the NCLAT’s order to admit the Corporate Debtor into CIRP and affirmed the rejection of the Society’s intervention application. Further, to enhance transparency and protect homebuyer interests within the CIRP, the Court directed that the Information Memorandum must disclose complete details of all allottees, and if the CoC decides not to approve the handover of possession under Regulation 4E of the CIRP Regulations, it must record specific and cogent reasons in writing.
The Court observed that the Adjudicating Authority’s (NCLT) role under Section 7(5) of the IBC is limited to ascertaining the existence of a financial debt and default. Once established, admission of the CIRP application is mandatory, and considerations of project viability, stakeholder prejudice, or the creditor’s motives are irrelevant at this stage.
The Court clarified that the discretion indicated by the word “may” in Section 7(5)(a) of the IBC, as interpreted in Vidarbha Industries Power Ltd. v. Axis Bank Ltd [(2022) 8 SCC 352], is a narrow exception applicable only in peculiar factual circumstances, such as the corporate debtor having an adjudicated and realisable claim exceeding the debt owed. This position was authoritatively clarified in M. Suresh Kumar Reddy v. Canara Bank [2023 SCC OnLine SC 608].
Lastly, the Court concluded that the pursuit of parallel recovery proceedings under the SARFAESI Act or before the DRT does not bar a financial creditor from initiating CIRP. Such actions do not automatically constitute a malicious invocation under Section 65 of the IBC unless specific abuse of process is proven.
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Dishonour of different cheques issued on different dates, even if arising from the same transaction, can give rise to separate prosecutions under Section 138 of the Negotiable Instruments Act, 1881, and quashing such complaints at the threshold is impermissible
The Supreme Court in the case of Sumit Bansal vs MGI Developers and Promoters [Criminal Appeal No. 141 of 2026] dated January 08, 2026, has held that dishonour of different cheques issued on different dates, even if arising from the same transaction, can give rise to separate cause of actions under Section 138 of the Negotiable Instruments Act, 1881 (NI Act), and that quashing such complaints at the threshold is impermissible where disputed questions of fact are involved.
The case arose from an agreement to sell commercial units in Ghaziabad, Uttar Pradesh, under which the complainant paid Rs. 1.72 crore to the developer. Upon failure to execute the sale deeds within the stipulated time, cheques towards refund of the principal amount and an agreed appreciation amount were issued from the firm’s account, along with personal cheques issued by the proprietor as a guarantee. All the cheques were dishonoured on different dates, resulting in the filing of multiple complaints under Section 138 of the NI Act. The Delhi High Court partly quashed one of the complaints on the ground that multiple proceedings arising from the same liability would amount to an abuse of process, while permitting the remaining complaints to continue.
The Supreme Court held that each dishonoured cheque gives rise to a distinct cause of action once the statutory requirements under Section 138 are satisfied. The Court observed that whether the cheques were issued as alternatives, substitutions, or additional securities was a disputed question of fact which could not be adjudicated in proceedings under Section 482 CrPC. It accordingly restored the quashed complaint, holding that the High Court had exceeded its jurisdiction by conducting a premature evaluation of facts.
The Supreme Court further held that the remaining complaints prima facie disclosed the ingredients of an offence under Section 138 of the NI Act, clarifying that defences relating to absence of liability or prior repayment can only be examined during trial. Accordingly, the Supreme Court restored the quashed complaint and directed that all proceedings be tried independently on their own merits, in accordance with law.
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REGULATORY UPDATES
Foreign Exchange Management (Guarantees) Regulations, 2026 outline prohibitions, exemptions, conditions for acting as surety or principal debtor, and reporting requirements
The Foreign Exchange Management (Guarantees) Regulations, 2026 govern guarantees issued by persons resident in India to or for non-residents. They prohibit participation in such guarantees unless explicitly permitted under the regulations or with prior approval from the Reserve Bank of India. On January 06, 2026, the Reserve Bank of India (RBI) vide its Notification No. FEMA 8(R)/2026-RB, issued the Foreign Exchange Management (Guarantees) Regulations, 2026 to regulate cross-border guarantees by Indian residents, which shall supersede the Foreign Exchange Management (Guarantees) Regulations, 2000.
Key Provisions:
No person who is a resident of India can be a party, either a Principal Debtor or a Creditor, to a guarantee where any of the other parties to the guarantee is a person who is not a resident of India.
The Regulation exempts the guarantee undertaken by a branch of an authorized dealer bank outside India or in an International Financial Services Centre, unless any of the other party to the guarantee is a person resident in India.
The Regulation also exempts an Irrevocable Payment Commitment issued by an authorized dealer in its capacity of a custodian bank, where the principal debtor is a registered Foreign Portfolio Investor and the creditor is an authorized central counterparty in India.
Additionally, the Regulation exempts a guarantee given in accordance with the Foreign Exchange Management (Overseas Investment) Regulations, 2022.
The Regulation permitted a person who is a resident of India to act as a Surety or a Principal Debtor for a guarantee, if: (i) the underlying transaction for which the guarantee is being given or arranged is not prohibited under the Act or rules or regulations or directions issued under the Act; and (ii) the surety and the principal debtor are eligible to lend to and borrow from each other, respectively, under the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018.
The Regulation, however, clarifies that the permission to act as a Surety or a Principal debtor, will not be applicable if the guarantee is: (i) by an authorised dealer bank, backed by a counter-guarantee or 100% collateral from a non-resident; (ii) by an Indian agent of a foreign shipping or airline company, for obligations to any statutory or government authority in India; and (iii) where both the surety and the principal debtor are residents of India.
The Regulation permits an Indian resident who is creditor, to arrange or obtain a guarantee in his favour, subject to the condition that if both the principal debtor and the surety are outside India, the creditor have to make sure the underlying transaction is not prohibited under Foreign Exchange Management Act, 1999 or any related rules, regulations, or directions.
As far as reporting requirements are concerned, the Regulation mandates that the guarantees will have to be reported: (i) by the surety where he is a person resident in India; (ii) by the principal debtor who has arranged the guarantee and where the surety is a person resident outside India; and (iii) by the creditor where the surety and the principal debtor both are persons resident outside India or where the creditor has arranged the guarantee.
The Regulation also mandates that reporting will be done to an authorized dealer bank on a quarterly basis within 15 calendar days from the end of the respective quarter for onward submission to the RBI. Additionally, the authorized dealer bank will have to submit the returns received to the RBI within 15 calendar days from the end of the respective quarter.
Click here to read/ download the Original Notification
All liquidation-related filings must now be made only on the IBBI’s electronic platform, within prescribed timelines and using a digital signature or e-signing, as required under the amended IBBI (Liquidation Process) Regulations, 2016
The Insolvency and Bankruptcy Board of India (IBBI) has introduced a simplified framework for reporting liquidation updates to the board. To facilitate the same, the Board has introduced four new online forms that track a company’s liquidation from start to finish. By way of the Circular No. IBBI/LIQ/91/2026, dated January 05, 2026, the IBBI said the revised system applies from January 1, 2026, and replaces the existing liquidation reporting framework.
Key updates:
All liquidation-related filings must now be made only on the IBBI’s electronic platform, within prescribed timelines and using a digital signature or e-signing, as required under the amended IBBI (Liquidation Process) Regulations, 2016.
Instead of repeating the same information at every stage, insolvency professionals will now report only what is relevant to where the liquidation stands.
The first form, LIQ-1, is filed at the start of liquidation. It records basic details of the corporate debtor and confirms that the public announcement has been made. It is to be filed by the 10th of the month following the public announcement.
LIQ-2 is a periodic filing appraise the adjudicating authority about the quarterly progress of the liquidation. It reflects how the liquidation is progressing, including valuation, realisation of assets, receipts and payments, and the overall status of the process. It is to be filed by the 10th of the subsequent month after the submission of the Progress report.
LIQ-3 is filed once the liquidator applies for dissolution of the corporate debtor or closure of the liquidation process. It is to be filed by the 10th of the subsequent month following the final closure or dissolution.
The last form, LIQ-4, is filed after the adjudicating authority passes the order for dissolution or closure of the liquidation process. This last form is to be filed within 7 days of the dissolution order.
The IBBI said the revised forms have been designed to eliminate duplication and rationalise data requirements, with information already available on the portal being carried forward automatically. To help insolvency professionals transition to the new system, the Board said no penalty will be levied for the delayed filing of forms during the initial quarter from January to March 2026.
The IBBI has also introduced a form-modification utility on its electronic platform. Where an insolvency professional identifies an error or omission in a submitted form, it can be corrected online through an OTP-based authentication process. No fee will be charged if the form is filed and modified before the due date.
At the same time, the IBBI clarified that insolvency professionals remain responsible for compliance. Failure to file forms or submission of inaccurate or incomplete information will continue to attract liability under the IBC. Forms LIQ-1, LIQ-3 and LIQ-4 are already available on the IBBI website. Form LIQ-2 will be made available from February 1, 2026.
Click here to read/ download the original circular
