Legal Updates (July 20 – July 25, 2026)
CASE UPDATES
RBI prudential norms stopping banks from recognising interest income on NPA accounts do not wipe out the borrower’s obligation to accrue and recognise interest expense in its own financial statements. Under Ind AS 109, a borrower cannot stop recognising interest merely because the account has turned NPA or because a one-time settlement is under discussion
The New Delhi Bench of the National Company Law Appellate Tribunal (NCLAT) in the case of CA Som Prakash Aggarwal vs NFRA [Comp. App. (AT) No. 200 of 2022] dated July 13, 2026, has clarified that RBI prudential norms stopping banks from recognising interest income on NPA accounts do not wipe out the borrower’s obligation to accrue and recognise interest expense in its own financial statements. Under Ind AS 109, a borrower cannot stop recognising interest merely because the account has turned NPA or because a one-time settlement is under discussion. Interest liability continues until the liability is legally extinguished, modified, discharged, cancelled, or expires.
The Tribunal also laid down that Standards on Auditing are mandatory and not mere guiding principles. An auditor of a listed entity must maintain proper documentation, obtain sufficient appropriate audit evidence, apply professional scepticism, and issue a modified opinion where the financial statements are materially misstated. Failure to do so can amount to professional misconduct under the Chartered Accountants Act and attract action under Section 132(4) of the Companies Act.
The Tribunal further held that an audit firm has independent and primary liability for quality control failures under SQC 1, separate from the engagement partner’s personal liability. The firm cannot escape liability by arguing that only the engagement partner was responsible for audit execution. Proceedings against both the firm and the individual auditor on the same audit are legally maintainable and do not amount to double jeopardy.
The Tribunal found that RBI’s IRACP norms apply to banks as regulated entities and only govern when banks can recognise interest income on NPA accounts. Those norms do not extinguish the borrower’s contractual obligation to account for interest expense in its own books. The Tribunal emphasised that the RBI circular itself required banks to keep a memorandum record of accrued interest on NPA accounts, which showed that the underlying borrower liability continued to exist.
On Ind AS 109, the Tribunal held that borrowings remain financial liabilities measured at amortised cost using the Effective Interest Method unless the liability is legally extinguished, discharged, cancelled, or expires. A mere expectation of one-time settlement or future waiver cannot justify non-recognition of accrued interest. The Tribunal said expected OTS cash flows cannot be substituted for contractual cash flows unless there is a legally concluded modification or extinguishment of the liability.
On audit standards, the Tribunal found serious failures in audit documentation, risk assessment, audit evidence, and professional scepticism. It noted that the audit file lacked documentation of the NPA interest issue, challenge to management’s accounting treatment, bank confirmations, revised loan documents, or records of discussions on the alleged OTS.
The Tribunal held that audit documentation is not a mere formality and that without documentation there is no verifiable basis for the audit opinion.
The Tribunal also found that the management representation letter relied on by the auditor was unreliable because it was not on letterhead, did not identify the signing authority, and contained an impossible reference to inventory records as on a later date. It said reliance on such a defective document as the basis for accepting a material accounting treatment and still issuing an unmodified opinion reflected a fundamental failure of professional duty. As to the audit report, the Tribunal held that an unmodified opinion was plainly unsustainable because the alleged misstatement affected finance costs, current liabilities, profit before tax, profit after tax, retained earnings, and net worth. In such circumstances, the auditor ought to have at least considered a modified opinion, whether qualified or adverse, instead of certifying that the financial statements gave a true and fair view.
On the audit firm’s liability, the Tribunal rejected the argument that only the engagement partner could be proceeded against. It held that the firm, as the appointed statutory auditor, had independent and primary responsibility under SQC 1 to establish and ensure implementation of quality control systems. Merely having a policy document was not enough; the firm had to ensure that its personnel complied with professional standards and that audit reports issued by the firm or its engagement partner were appropriate.
In assessing passing off, the Court will have to examine the actual marketplace use of the impugned mark, including stylization, commercial impression, colour scheme and overall presentation, and not merely the mark as registered
The Delhi High Court in the case of Havells India vs Havai Home Products [CS(COMM) 778/2024] dated July 13, 2026, has held that registration of a defendant’s trademark does not bar a passing off action where the plaintiff establishes prior goodwill, misrepresentation and likely damage. In assessing passing off, the Court will examine the actual marketplace use of the impugned mark, including stylization, commercial impression, colour scheme and overall presentation, and not merely the mark as registered. If the defendant’s manner of use is designed to create an association with a well-known mark and is likely to cause initial interest confusion in relation to identical goods, interim injunctive relief can be granted notwithstanding the defendant’s registration.
The Court first noted that Havells is the registered proprietor of the HAVELLS trademark and its formative marks, that it has used the mark prominently and continuously for decades, and that its reputation, sales, advertising, exports, and market presence strongly establish its goodwill. The Court also recorded that HAVELLS has been recognized as a well-known mark and that Havells had earlier secured favourable injunctions against infringing marks, including marks designed to be misread in a manner similar to the present dispute.
The Court rejected the broad defence that registration of the defendants’ mark was sufficient to defeat the action. Relying on Supreme Court precedent, it observed that even if both parties are registered proprietors, a passing off action remains maintainable because passing off is a common law remedy protected under Section 27(2) of the Trade Marks Act, and rights of prior user and goodwill are superior to mere registration. The Court reiterated that the three ingredients of passing off are goodwill, misrepresentation and damage.
The Court further observed that the defendants had gone beyond the word mark and had also copied the get-up and colour combinations of the plaintiffs’ device marks. Since both sides were dealing in identical or overlapping electrical goods such as air coolers, fans and immersion rods, and since the purchasing public included ordinary consumers with average intelligence and imperfect recollection, the likelihood of confusion was high. The Court held that the “initial interest confusion” test clearly applied, because a customer could be misled at the first point of contact into believing that the defendants’ goods came from, or were associated with, Havells.
The High Court concluded that this was a classic case of passing off. It found, prima facie, that Havells had established goodwill in HAVELLS, that the defendants’ adoption and market presentation of the impugned marks amounted to misrepresentation, and that such conduct was likely to damage and dilute the plaintiffs’ goodwill and reputation. The Court therefore held that Havells had made out a strong prima facie case, that the balance of convenience was in its favour, and that irreparable harm would follow if injunction were denied.
A lease of immovable property for a term exceeding one year must be compulsorily registered under Section 107 of the Transfer of Property Act and Section 17(1)(d) of the Registration Act, and if such a lease deed is unregistered, it cannot be relied upon to establish substantive leasehold rights
The Indore Bench of the National Company Law Tribunal (NCLT) in the case of Kuldeep Tank vs Vatsal Acharya [IA/111(MP)2026] dated July 07, 2026, has held that a lease of immovable property for a term exceeding one year must be compulsorily registered under Section 107 of the Transfer of Property Act and Section 17(1)(d) of the Registration Act, and if such a lease deed is unregistered, it cannot be relied upon to establish substantive leasehold rights, duration of tenancy, or a continuing right to remain in possession when those very issues are in dispute. At best, only a limited collateral use may be permissible, but not where the main lis concerns the nature and validity of possession itself.
The Tribunal further held that where occupation of the corporate debtor’s premises directly affects the RP’s ability to take custody, preserve assets, conduct valuation, and facilitate CIRP, the NCLT has jurisdiction under Section 60(5)(c) read with Section 238 of the Code to examine the validity of such possession and direct delivery of possession. Such a dispute is sufficiently connected with insolvency resolution and is not excluded merely because the occupant raises contractual or civil law objections or has filed a parallel civil suit.
The Tribunal emphasised that the lease deed was for a term of 60 months and therefore fell squarely within Section 107 of the Transfer of Property Act, 1882 and Section 17(1)(d) of the Registration Act, 1908, both of which required compulsory registration of such a lease. The deed produced before the Tribunal bore only notarial attestation and had no endorsement of registration by the Sub-Registrar. The Tribunal therefore found it to be an unregistered instrument which the law required to be registered.
The Tribunal then examined the legal consequence of non-registration by referring to Section 49 of the Registration Act and held that an unregistered lease deed which is compulsorily registrable cannot be used to prove the substantive leasehold rights asserted by a party when the very nature, duration and purpose of possession are themselves in issue. In this case, the respondent was relying on the deed to establish a fixed 60-month lease and his continuing right to remain in possession. The Tribunal held that such substantive terms could not be relied upon from an unregistered instrument.
The Tribunal further held that at best, the conduct of parties might have created only a periodic tenancy under Section 106 of the Transfer of Property Act. But even that argument failed on facts. The burden to show that the premises had been let for manufacturing purposes and that a different kind of tenancy existed was on the respondent, and that burden had not been discharged. The Tribunal noted that the RP had verified all three bank accounts of the corporate debtor and found no lease rent payments in them. The respondent had only produced cash-book extracts, but there was no independent proof showing that the corporate debtor or any authorised representative had actually received such rent. The Tribunal also relied on the Panchnama which showed there was no electricity, no water and no use of the factory, which was inconsistent with any actual manufacturing use.
On the question of jurisdiction, the Tribunal held that Section 60(5)(c) of the Insolvency and Bankruptcy Code gives the Adjudicating Authority wide residuary jurisdiction to decide questions of law or fact arising out of or in relation to the insolvency resolution of the corporate debtor, and that Section 238 gives the Code overriding effect. This jurisdiction is not confined only to matters expressly covered by the moratorium under Section 14. Since the factory premises were assets of the corporate debtor and the RP was under statutory duty to take custody and control of them under Sections 18, 20 and 25, the dispute had a direct and clear nexus with the insolvency resolution process.
The Tribunal observed that Section 14(1)(d) protects the corporate debtor’s possession against recovery by an owner or lessor and cannot be used by an occupant like the respondent against the corporate debtor itself. In the present case, the corporate debtor was the owner and lessor, and the respondent was merely the occupant. Therefore, the moratorium did not support the respondent’s case; rather, it reinforced the RP’s duty to secure the asset. The Tribunal also held that the pendency of a civil suit filed by the respondent did not oust NCLT’s jurisdiction under Section 60(5), and that earlier access granted to the RP and deployment of security personnel could not amount to acceptance of the lease’s validity or revocation of the CoC’s termination decision.
Where the dispute between the parties arises out of a continuing loan and repayment relationship, and the substance of the grievance is only that the finance company wrongly adjusted payments or demanded excess money, the matter remains essentially civil in nature and does not by itself attract offences such as cheating, criminal breach of trust, forgery or criminal intimidation
The Calcutta High Court in the case of Managing Director of Bajaj Finserv vs State of West Bengal [CRR 2494 of 2025] dated July 21, 2026, has held that where the dispute between the parties arises out of a continuing loan and repayment relationship, and the substance of the grievance is only that the finance company wrongly adjusted payments or demanded excess money, the matter remains essentially civil in nature and does not by itself attract offences such as cheating, criminal breach of trust, forgery or criminal intimidation. The Court made it clear that penal provisions cannot be stretched by implication merely because one party alleges unfair financial conduct in a commercial transaction.
The Court also reaffirmed that forgery cannot be alleged in the absence of a specific accusation regarding creation of a false document, particularly where the complainant admits signing the concerned agreement. It further held that summoning an accused is a serious judicial act and the Magistrate must show due application of mind; criminal proceedings should not be allowed to become a pressure tactic for settlement of civil claims.
The Court noted that the complainant herself had admitted in the complaint that she had signed the later loan agreement relating to the converted loan account of Rs. 63,830, though she said she had signed it on good faith without being allowed to read its contents. The Court also recorded that it was undisputed that the loan transactions between the parties had continued over a considerable period. This background, according to the Court, showed an ongoing financial relationship rather than a one-time fraudulent inducement.
The High Court further held that the ingredients of forgery were completely absent. It observed that the complaint did not specify what exact document had been forged, how it had been forged, or what precise role the petitioners had played in creating any false document. Referring to Section 464 IPC, the Court emphasized that forgery requires making a false document, and here the complainant had admitted her own signature on the later loan agreement. The Court also found no material showing common intention or conspiracy in the manner alleged. In its view, the controversy was fundamentally over loan accounting and adjustment, and therefore remained in the realm of civil law.
The Court also observed that taking cognizance and issuing summons under Section 204 CrPC is not a mechanical exercise and that criminal law cannot be invoked routinely in business disputes. The Court found that the inquiry under Section 202 CrPC had not been properly carried out by a competent person in the right direction. It reiterated that a Magistrate must apply his mind to the complaint, supporting documents and preliminary material before summoning an accused, especially when the dispute on the face of the record appears to arise out of commercial dealings.
Where a bank’s own circular provides for automatic renewal of a term deposit on maturity in the absence of contrary instructions, the bank cannot deny interest for the interregnum period merely because it unilaterally shifted the money to a current account or wrongly placed it in an ineligible deposit scheme with retrospective effect
The Kerala High Court in the case of Narayan Bharathan vs State Bank of India [WP(C) No. 23659 of 2018] dated July 03, 2026, has held that where a bank’s own circular provides for automatic renewal of a term deposit on maturity in the absence of contrary instructions, the bank cannot deny interest for the interregnum period merely because it unilaterally shifted the money to a current account or wrongly placed it in an ineligible deposit scheme with retrospective effect. In such a case, when the material facts are admitted and no complex factual inquiry is required, a writ petition under Article 226 is maintainable even though the claim relates to payment of money arising from a banking transaction.
The Court examined the law on maintainability of writ petitions in contractual and banking matters and noted that there is no absolute bar on entertaining a writ petition merely because money is claimed or because a contract is involved. The Court observed that writ jurisdiction can still be exercised where the facts are admitted, complicated evidence is unnecessary, and the dispute can be resolved on the basis of documents already on record. The Court accepted the petitioner’s reliance on the bank’s own circular providing that, in the absence of specific instructions from the customer, a term deposit on maturity would be automatically renewed for the same period at the rate prevailing on the date of maturity.
The Court also found that the bank had no case that the transfer of the deposit amount to the current account had been made at the request of the petitioner or any other interested person. Similarly, the bank had no case that the petitioner or the firm had sought the deposit in the Army Group Insurance Fund with retrospective effect from July 18, 2012. The Court held that even if such a request had been made, the bank should not have created a retrospective deposit in an ineligible scheme. The Court therefore concluded that the deposit in the Army Group Insurance Fund with retrospective effect was a fault attributable to the bank alone, and the petitioner could not be blamed for that irregularity.
A sale certificate issued by a liquidator under the IBC in respect of property sold by public auction is not compulsorily registrable under Section 17 of the Registration Act, and when it is sent only for filing in Book No. 1 under Section 89(4), it does not attract stamp duty or registration fees
The Bombay High Court in the case of Rajaram Food Products India vs Joint District Registrar and Collector of Stamps [Writ Petition No. 3018 of 2026] dated July 14, 2026, has held that a sale certificate issued by a liquidator under the IBC in respect of property sold by public auction is not compulsorily registrable under Section 17 of the Registration Act, and when it is sent only for filing in Book No. 1 under Section 89(4), it does not attract stamp duty or registration fees. The Maharashtra amendment in Section 17(1)(g) does not apply because the IBC is not a recovery Act, and in any event the case is directly covered by the exemption in Section 17(2)(xii) relating to public auction sale certificates.
The Court noted that the impugned order itself relied only on Article 16 of Schedule I of the Stamp Act and did not refer to Section 17(1)(g) of the Registration Act at all. Therefore, the respondents were attempting to support the order by reasons not found in the order itself, which was impermissible. The Court nevertheless examined the State’s additional argument on merits as well.
The Court then examined the statutory scheme of Sections 17, 17(2)(xii), and 89(4) of the Registration Act. It emphasised that Section 17(2)(xii) specifically exempts from compulsory registration a certificate of sale granted to the purchaser of property sold by public auction by a Civil or Revenue Officer, and Section 89(4) requires only a copy of such certificate to be sent to the registering officer and filed in Book No. 1. The Court contrasted this with Section 17(1)(g), inserted by the Maharashtra amendment, which speaks of a sale certificate issued under a recovery Act, but does not specifically refer to a public auction sale certificate.
The High Court relied heavily on the Supreme Court ruling in State of Punjab v. Ferrous Alloy Forgings Pvt Ltd. [2024 SCC OnLine SC 3372], which held that a sale certificate issued after confirmation of an auction sale is merely evidence of title, and that title passes on confirmation of sale, not on issuance of the certificate. Therefore, so long as the certificate is only forwarded for filing under Section 89(4), it is not compulsorily registrable and does not attract stamp duty. Stamp duty arises only if the auction purchaser later seeks to use the original sale certificate for some other purpose.
The Court further held that the State could not successfully invoke Section 17(1)(g) because the IBC is not a recovery legislation. Referring to Supreme Court rulings including Glas Trust Company LLC vs. Byju Raveendran [(2025) 3 SCC 625], Tottempudi Salalith vs. State Bank of India [(2024) 1 SCC 24] and Hindustan Construction Company Limited and another vs. Union of India [(2020) 17 SCC 324], the Court reiterated that the IBC is a framework for revival and resolution/liquidation of a company in debt, and not a debt recovery mechanism. Accordingly, a sale certificate issued by a liquidator under the IBC could not be treated as one issued under a “recovery Act” for the purpose of Section 17(1)(g).
Holding that the IBC is not a recovery law, the Bombay High Court ruled that a sale certificate issued by a liquidator in a public auction need only be filed in Book No. 1 under Section 89(4) of the Registration Act and does not attract stamp duty or registration fees unless later used for another purpose.
Oppression under Sections 241 and 242 of the Companies Act, 2013, depends on the nature of control and conduct, not merely on numerical shareholding, and that even majority shareholders can be oppressed where a minority entrenched in management abuses its position to deny participation, records, and governance rights
The Chennai Bench of the National Company Law Tribunal (NCLT) in the case of S Ravindhra Reddy vs Silver Line Retreat Hotels [CP(CA)/3(CHE)/2023] dated July 08, 2026, has held that shareholder intent and corporate democracy cannot be frustrated by management through procedural classification of shareholder nominees as Additional Directors under Section 161 of the Companies Act, 2013, when the surrounding facts show that they were meant to represent the majority on the board. The Tribunal held that management cannot first dilute shareholder representation and then rely on automatic cessation to exclude majority nominees.
The NCLT also affirmed that oppression under Sections 241 and 242 of the Companies Act, 2013, depends on the nature of control and conduct, not merely on numerical shareholding, and that even majority shareholders can be oppressed where a minority entrenched in management abuses its position to deny participation, records, and governance rights. The Tribunal also clarified that extraordinary remedies such as forensic audit under Sections 241-242 or investigation under Section 213 cannot be granted on mere allegations or shareholder distrust. Such reliefs require concrete prima facie material of financial impropriety, fraud or falsification, and are not to be used as tools in ordinary management control disputes.
On the core issue of the directors’ status, the Tribunal found in favour of the majority shareholder group. It observed that the shareholders had clearly sought board representation through identified nominees, and that this intention could not be diluted by subsequently describing those nominees as Additional Directors under Section 161. The Tribunal said the substance of the transaction had to prevail over form, and the management could not use a procedural route to defeat shareholder intent and then take advantage of the automatic cessation principle under Section 161.
The Tribunal therefore rejected the case that the majority nominees had automatically vacated office on Sep 30, 2022. Building on that finding, it held that the Form DIR-12 dated Dec 21, 2022 recording cessation of those directors was not a bona fide statutory compliance but a calculated step to alter the board composition and exclude the majority shareholders’ representatives from management. It said corporate democracy could not be defeated by unilateral ROC filings and declared the DIR-12 illegal, invalid and liable to be set aside.
On the allegations of financial irregularities, however, the Tribunal refused to order a forensic audit. It held that such a direction is extraordinary and requires sufficient prima facie material showing serious financial misconduct, siphoning of funds, falsification of accounts or similar circumstances. Mere suspicion, loss of confidence, or dissatisfaction with accounts was held to be insufficient. Since the disputes were primarily about control and board composition, the Tribunal concluded that restoring proper corporate governance would adequately address the grievances.
A second loan advanced to a relative during the subsistence of an earlier unpaid liability does not, by itself, make the case improbable. Likewise, a cheque being typewritten is not illegal and cannot, by itself, discredit the prosecution. The cheque dishonour for the reason “Drawer’s signature differs” can still fall within Section 138 NI Act if there were insufficient funds in the drawer’s account and other legal requirements are met
The Kerala High Court in the case of Shiny S Nair vs State of Kerala [CRL.A No. 705 of 2015] dated July 16, 2026, has held that where the complainant proves the underlying transaction and the execution of the cheque, the statutory presumptions under Sections 118 and 139 of the NI Act must operate in her favour. A second loan advanced to a relative during the subsistence of an earlier unpaid liability does not, by itself, make the case improbable. Likewise, a cheque being typewritten is not illegal and cannot, by itself, discredit the prosecution. The Court also reaffirmed that cheque dishonour for the reason “Drawer’s signature differs” can still fall within Section 138 NI Act if there were insufficient funds in the drawer’s account and other legal requirements are met.
The Court found that the trial court had taken an unduly narrow view of the evidence. It held that merely because an earlier liability remained unpaid, that by itself was not enough to treat the later loan as unbelievable, especially when the parties were admittedly relatives and the gap between the two transactions was only around five months. The Court also observed that issuance of a typewritten cheque is not prohibited by law, and therefore the mere fact that the cheque was typewritten could not be a reason to reject the complainant’s case once the transaction and execution were otherwise proved.
The High Court further noted that dishonour on the ground “Drawer’s signature differs” can still attract Section 138 NI Act where there were insufficient funds in the account and the statutory requirements are otherwise satisfied. On facts, the bank statement produced through PW3 showed that the accused’s account had only Rs.554.55 at the relevant time, which supported the complainant’s case.
The Court also attached significance to the defence version itself: during cross-examination and the Section 313 statement, the accused admitted an earlier borrowing from the complainant and set up a case that a blank cheque from that earlier transaction had been misused. The Court found that these circumstances did not demolish the complainant’s case; rather, they supported the existence of financial dealings between the parties.
Mere issuance of a demand notice under Rule 7(1) of the Insolvency and Bankruptcy Rules, 2019 to a personal guarantor does not amount to initiation of insolvency resolution proceedings under Section 95 of the IBC
The Telangana High Court in the case of Union Bank of India vs Bandla Ganesh Babu [Writ Petition Nos.25486 and 35956 of 2025] dated July 03, 2026, has held that mere issuance of a demand notice under Rule 7(1) of the Insolvency and Bankruptcy Rules, 2019 to a personal guarantor does not amount to initiation of insolvency resolution proceedings under Section 95 of the IBC. Unless a Section 95 application is actually filed, the interim moratorium under Section 96 does not commence. Therefore, in the absence of any insolvency proceeding against the personal guarantors, a secured creditor is legally entitled to continue recovery and enforcement action against them under the SARFAESI Act, notwithstanding CIRP and Section 14 moratorium operating against the corporate debtor.
The Court also held that Section 60 of the IBC does not automatically oust SARFAESI proceedings against personal guarantors unless there are actual insolvency or bankruptcy proceedings pending against those guarantors. A pending CIRP only against the corporate debtor is not enough to invalidate SARFAESI measures against guarantors. The DRT therefore erred in treating the Bank’s SARFAESI action as void ab initio merely because the Bank had issued a Rule 7 notice and was a member of the committee of creditors in the corporate debtor’s CIRP.
The Court identified the core issue as whether SARFAESI recovery proceedings against personal guarantors could continue even after the Bank had issued a Rule 7(1) demand notice under the 2019 IBC Rules, and when CIRP against the corporate debtor was pending before the NCLT. The guarantors argued that once the Bank invoked the IBC route, the matter had to proceed only under the IBC before the NCLT, and that the IBC would override SARFAESI. The Bank and the auction purchaser argued that mere issuance of a Rule 7 notice did not amount to filing an application under Section 95 of the IBC and therefore no interim moratorium under Section 96 had commenced against the guarantors.
The Court accepted the Bank’s and auction purchaser’s position and held that the Bank had only issued a demand notice in Form B under Rule 7(1), but had not filed any application under Section 95 of the IBC against the personal guarantors. The Court said that filing of a Section 95 application is the necessary trigger for the interim moratorium under Section 96(1). Since no such application was filed, no interim moratorium ever came into effect for the guarantors.
The Court further observed that the moratorium under Section 14 of the IBC operating against the corporate debtor is different from the interim moratorium under Section 96 applicable to individuals and personal guarantors. According to the Court, a moratorium in the corporate debtor’s CIRP does not by itself bar a secured creditor from enforcing security against personal guarantors under the SARFAESI Act. The Court said the IBC consciously treats the corporate debtor and personal guarantors as separate categories, and proceedings against them do not merge automatically unless insolvency proceedings are actually initiated against both in the manner contemplated by the Code.
On Section 60 of the IBC, the High Court clarified that the provision centralises insolvency and bankruptcy proceedings concerning the corporate debtor and personal guarantors before the same NCLT only where proceedings against both actually exist. In this case, only the corporate debtor was in CIRP before the NCLT, and no Section 95 proceeding had ever been initiated against the guarantors. Therefore, there was no occasion to invoke Section 60 to say that SARFAESI action against the guarantors was barred or that all proceedings had to be transferred to the NCLT.
The Court also stressed the sanctity of a public auction conducted under Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002. It noted that these rules contain a strict statutory sequence and safeguards, including public notice, reserve price discipline, deposit requirements and issuance of a sale certificate only after compliance. Since the auction purchaser had paid the full consideration within time and held a sale certificate, the Court found that the DRT had interfered with a completed auction on an incorrect legal basis.
Once a secured creditor has a valid and prior registered security interest, the creditor’s dues enjoy statutory priority under Section 26E of the SARFAESI Act over State tax and revenue claims
The Bombay High Court in the case of Union Bank of India vs Deputy Commissioner of State Tax [Writ Petition (L) No. 15997 of 2024] dated July 13, 2026, has held that once a secured creditor has a valid and prior registered security interest, the creditor’s dues enjoy statutory priority under Section 26E of the SARFAESI Act over State tax and revenue claims, including those asserted under the MGST Act and amended Section 37 of the MVAT Act. The State cannot defeat this priority merely by using “first charge” language or a non- obstante clause in State legislation.
The Court also clarified that where the State relies on an attachment predating the SARFAESI amendment, it must prove not only attachment but also all further statutory steps such as proclamation in accordance with law. In the absence of such proof, the secured creditor’s statutory priority prevails. Further, an auction purchaser who buys a secured asset in a SARFAESI sale and receives a sale certificate cannot be deprived of the benefit of that purchase by continued State encumbrances in revenue records. The State cannot pursue the very same asset again after the secured creditor has enforced its security and sold the property.
The Court observed that the objections were already answered in the case of Jalgaon Janta Sahakari bank Ltd vs. Joint Commissioner of Sales Tax [2022 SCC OnLine Bom 1767], where the Full Bench had specifically considered Section 82 of the MGST Act and framed the issue whether a secured creditor has a prior right over the Government department to appropriate sale proceeds of a secured asset. The Full Bench had explained that there is “no magic” in the expression “first charge” and that the statutory “priority” created by Section 26E of the SARFAESI Act and Section 31B of the RDDB Act is enough to override competing State claims, including claims for taxes, cesses and other rates.
The Court specifically rejected the State’s submission that phrases like “notwithstanding anything to the contrary contained in any law” in State tax enactments could defeat the secured creditor’s priority. The Court further said the law is categorically settled that dues of the secured creditor shall have priority over all other dues, including revenues, taxes, cesses and rates payable to the Central Government, State Government or local authority.
As to auction purchasers, the Court rejected the argument that because the sale was on an “as is where is whatever is” basis, the purchaser could not challenge the State’s action. The Court held that once the auction purchaser pays the full consideration and receives a sale certificate, the purchaser is entitled to enjoy the property free from such State-created boja/encumbrance, and the State cannot continue to burden the asset in revenue records.
A hire purchase agreement does not create ownership in favour of the corporate debtor, but it can create valuable contractual possession and development rights. Such rights, if subsisting on the insolvency commencement date, are capable of constituting assets under Sections 18 and 25 of the IBC and may be considered in CIRP and a resolution plan
The New Delhi Bench of the National Company Law Appellate Tribunal (NCLAT) in the case of Uttar Pradesh Housing and Development Board vs K.S.N. Buildwell Pvt Ltd [Company Appeal (AT) (Ins) No. 1581 of 2023] dated July 14, 2026, has held that a hire purchase agreement does not create ownership in favour of the corporate debtor, but it can create valuable contractual possession and development rights. Such rights, if subsisting on the insolvency commencement date, are capable of constituting assets under Sections 18 and 25 of the IBC and may be considered in CIRP and a resolution plan. However, the RP and CoC cannot treat land owned by a statutory authority as if it belongs to the corporate debtor, and no resolution plan can compel transfer of ownership, compulsory regularisation of unauthorised construction, or grant of statutory approvals contrary to law.
The Tribunal further held that the NCLT was wrong to reject the resolution plan only on the narrow ground that ownership of land did not vest in the corporate debtor. The correct inquiry was whether any contractual or developmental rights survived in favour of the corporate debtor and how those rights, along with the interests of homebuyers and the statutory powers of UPAVP, had to be accommodated within the IBC framework. But since the plan as framed wrongly dealt with third-party land itself and assumed mandatory regularisation, the remand to the CoC was justified.
On the de-sealing issue, the Tribunal found that the NCLT had proceeded on an incorrect factual basis while directing de-sealing. The appellate tribunal noted that the sealing and confiscation of the property had happened much before commencement of CIRP and moratorium, and that these actions were taken because of unauthorised construction in violation of the approved plan, not because of non-payment of instalments. At the same time, NCLAT clarified that the real legal question was not confined to who owned the land. It held that even if ownership remained with UPAVP, the adjudicating authority still had to examine whether the corporate debtor had any contractual, possessory or development rights in the land that could form part of the insolvency estate and be reflected in the information memorandum and resolution plan.
After examining the hire purchase agreement, NCLAT held that the arrangement was not a simple lease, not a bare licence, and not an outright sale. It described the agreement as a composite hire-purchase development arrangement under which ownership remained with UPAVP, but the corporate debtor was granted valuable rights such as possession, construction, commercial exploitation, transfer of units subject to the contract, and eventual conveyance upon payment of dues. These rights were held to have clear economic value.
The tribunal held that such contractual and developmental rights are capable of constituting “assets” under Sections 18 and 25 of the IBC, even though the underlying land is owned by a third party. It relied on the broader understanding of “property” and “asset” under insolvency law and commercial jurisprudence, while also making clear that the RP cannot claim rights higher than those actually held by the corporate debtor.
The Tribunal placed heavy emphasis on the fact that third-party rights had already been created in favour of 144 flat buyers and 44 shop buyers. It said these allottees could not be ignored in the insolvency process, especially because allottees are recognised as financial creditors in a class. At the same time, it balanced this by holding that homebuyers cannot get a better title than the corporate debtor itself had.
REGULATORY UPDATES
SEBI has revised the certification requirements for entities engaged in the sale and distribution of Specialized Investment Funds
The Securities and Exchange Board of India (SEBI) vide its Circular No.: HO/24/13/17(1)2026-IMD-POD-1/I/16895/2026, dated July 21, 2026, has revised the certification requirements for entities engaged in the sale and distribution of Specialized Investment Funds (SIFs). Under the revised framework, persons engaged in the sale and distribution of SIF products must hold a valid “NISM Series-V-D – Mutual Fund – Specialized Investment Fund Distributors Certification." The certification also authorises them to distribute both Mutual Fund and SIF products without requiring a separate "NISM Series V-A– Mutual Fund Distributors Certification.”
SEBI clarified that entities distributing only Mutual Fund products must continue to hold the existing NISM Series V-A certification. The regulator has also discontinued the requirement of holding the "NISM Series XIII – Common Derivatives Certification" for the sale and distribution of SIF products with effect from September 21, 2026.
As a transitional measure, SEBI has allowed SIF distributors holding a valid NISM Series XIII certification obtained on or before September 21, 2026, to continue distributing SIFs until their certification expires, without obtaining the new NISM Series V-D certification. They must, however, continue to hold a valid NISM Series V-A certification during this period. Further, SEBI has directed the Association of Mutual Funds in India and Asset Management Companies to ensure that distributors and agents comply with the revised certification requirements.
SEBI has introduced a standardised framework for the transmission of securities, bringing in a faster process for low-value claims and prescribing uniform procedures for processing transmission requests
The Securities and Exchange Board of India (SEBI) vide its Circular No.: HO/38/13/11(14)2026-MIRSD-POD/I/17111/2026, dated July 23, 2026, has introduced a simplified and standardised framework for the transmission of securities, bringing in a faster process for low-value claims, easing documentation requirements and prescribing uniform procedures for processing transmission requests. The revised framework will apply to listed companies, Registrars and Transfer Agents (RTAs), depositories, depository participants and Asset Management Companies (AMCs). It is aimed at making the transmission process more efficient and investor-friendly.
Among the key changes is the introduction of a harmonized, standardised and risk-based framework for transmission of securities. SEBI has also created a new Quick Transmission Processing (QTP) category for low-value claims and revised the claim thresholds under the simplified documentation framework. Under the QTP category, the claim threshold has been fixed at ₹10,000 for securities held in physical mode and ₹30,000 for securities held in dematerialised mode.
For claims processed under the simplified documentation framework, the thresholds have been fixed at ₹10 lakh for physical securities and ₹30 lakh for dematerialised securities. Listed entities may enhance the ₹10 lakh threshold for physical securities at their discretion. SEBI has also standardised the documentation and procedure for transmission. The framework removes the mandatory requirement of probate of a Will, replaces separate affidavit and No Objection Certificate (NOC) with a combined affidavit-cum-NOC, recognises death certificates carrying QR codes as valid documents for verification, and allows additional modes for verifying death certificates issued in foreign jurisdictions.
The framework also prescribes uniform procedures for submitting claims, acknowledging documents, processing transmission requests and determining the documentation required in different transmission scenarios. It provides that transmission requests should ordinarily be processed within 21 calendar days of receipt of all required documents. The revised framework will come into force 30 days from the date of the circular. SEBI has, however, asked processing entities to endeavour to extend the benefit of the simplified framework even to transmission requests received before its commencement and not seek re- submission of documents that investors have already furnished.
SEBI directs Trading Members to adopt a policy governing unpaid securities, including invocation or release of pledges and liquidation of such securities
The Securities and Exchange Board of India (SEBI) vide its Circular No.: HO/38/11/(9)2026-MIRSD-POD/I/15382/2026, dated July 03, 2026, has amended the framework governing the handling of clients’ unpaid securities by Trading Members, citing regulatory developments and operational challenges under the existing regime. SEBI said regulatory changes, including the mandatory pay-out of securities to clients’ demat accounts, and evolving market practices necessitated a revision of the framework. It also took into account stakeholder representations highlighting implementation challenges.
Under the revised framework, for trades outside the margin trading facility, unpaid securities must be credited directly to the client’s demat account, following which an auto-pledge will be created in favour of a separate account titled “Client Unpaid Securities Pledgee Account (CUSPA)”. Trading Members must also inform clients of their payment obligations and of their right to sell the securities in the event of default.
SEBI has also directed Trading Members to adopt a policy governing unpaid securities, including the invocation or release of pledges and liquidation of such securities. The policy must specify a payment timeline that cannot exceed five trading days from the pay-out date. If a client fails to make payment within the prescribed period, the Trading Member may invoke the pledge and sell the unpaid securities after giving reasonable notice. Any surplus remaining after recovery must be credited to the client’s ledger.
SEBI clarified that if the pledge is neither invoked nor released within five trading days, it will be automatically released on the sixth trading day, allowing the client unrestricted access to the securities. Significantly, SEBI has prohibited securities pledged to CUSPA from being re-pledged or transferred to banks or NBFCs for fund-raising. However, it has permitted the pledge period to be extended in exceptional circumstances, such as lower circuit conditions, suspension or trading halts, or other valid reasons recognised by Market Infrastructure Institutions.
SEBI allows mutual funds to avail intraday borrowings for investor payouts, investment-related pay-ins, mark-to-market and foreign exchange settlement obligations
The Securities and Exchange Board of India (SEBI) vide its Circular No.: HO/(92)2026-IMD-POD-2/I/16006/2026, dated July 10, 2026, has issued a revised framework governing the intraday borrowing facility availed by mutual funds. The circular will come into effect from September 1, 2026, and it follows SEBI’s amendment to the SEBI (Mutual Funds) Regulations, 2026 permitting intraday borrowings by mutual funds. It supersedes the guidelines on borrowings of mutual funds contained in the SEBI Master Circular for Mutual Funds dated March 20, 2026 and the SEBI Circular dated March 25, 2026.
The revised framework allows mutual funds to avail intraday borrowings for investor payouts, investment-related pay-ins, mark-to-market and foreign exchange settlement obligations, and the repayment of existing borrowings. The regulator has capped intraday borrowings based on receivables expected by the mutual fund, including guaranteed inflows such as those from the RBI, Clearing Corporations and subscription proceeds, as well as other receivables expected by the end of the day. It has also allowed AMCs to avail additional intraday borrowings solely to meet redemption and other payouts to unitholders.
SEBI has directed AMCs to repay all intraday borrowings by the end of the day. Any borrowing that is converted into an overnight borrowing must remain within the limits prescribed under the SEBI (Mutual Funds) Regulations, 2026. It has also directed the boards of AMCs and trustees of mutual funds to approve an intraday borrowing policy, publish it on the AMC’s website, and put in place an approval and monitoring mechanism. AMCs have also been asked to maintain scheme-wise records of liquidity mismatches and the expected source of repayment. SEBI has clarified that AMCs will bear the cost of intraday borrowings, as well as any loss or additional cost arising from unforeseen events or delays in receiving funds from receivables.
SEBI has announced investor-friendly measures to simplify the process of transferring mutual fund investments to legal heirs or nominees after the death of a unit holder
The Securities and Exchange Board of India (SEBI) vide its Press Release PR No.: 41/2026, dated July 17, 2026, has announced investor-friendly measures to simplify the process of transferring mutual fund investments to legal heirs or nominees after the death of a unit holder. In this press release, SEBI said it had advised the Association of Mutual Funds in India (AMFI) to further simplify the standards governing the procedure for claiming units or proceeds upon the death of a unit holder. Following SEBI’s advice, AMFI amended the standards.
According to SEBI, the revised standards are intended to make the transmission process easier while ensuring that industry practices remain aligned with the objective of protecting investors’ interests. One of the key changes relates to resolving address mismatches. SEBI said that where the address recorded in the mutual fund records differs from the latest address of the deceased unit holder, Asset Management Companies (AMCs) may rely on the latest available address. This will be subject to the submission of the required supporting documents.
The revised standards also introduce a harmonised framework for resolving name and signature mismatches. Under this framework, AMCs may adopt the guidelines prescribed for Registrars and Transfer Agents (RTAs) under SEBI’s Master Circular dated February 6, 2026. Under the guidelines, name mismatches may be resolved by submitting self-certified documents such as an Aadhaar card or passport. In cases involving signature mismatches, RTAs may follow the applicable procedure depending on the nature of the discrepancy.
SEBI has also advised AMFI to train all stakeholders involved in the transmission process. The regulator said this would help ensure that the revised standards are implemented uniformly across all AMCs.
