Legal Updates (June 29 – July 04, 2026)

Later consent terms with a sister concern did not automatically extinguish the original cheque dishonour complaint, because the settlement documents themselves preserved the already-filed Section 138 NI Act proceedings and contemplated withdrawal only upon honouring of the settlement cheques 

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The Delhi High Court in the case of Anil Sayal vs Apace Transco Pvt Ltd [CRL.M.C. 1016/2020] dated July 01, 2026, has held that where settlement terms in a Section 138 NI Act matter expressly provide that legal remedies are only temporarily suspended, subject to the complaint already filed under Section 138, and further provide that withdrawal of complaints will happen only upon honouring of settlement cheques, the original complaint does not automatically stand compounded, extinguished, or subsumed merely because a later settlement was executed. In such a case, continuation of the original complaint is legally permissible, particularly where no payment has been made and the later settlement cheques were never encashed. 

The Court clarified that the observation laid down by the Apex Court in the case of Gimpex Pvt. Ltd. v. Manoj Goel [2021 SCC OnLine SC 925] applies only where the settlement wholly replaces the original cause and gives rise to a fresh and separate Section 138 cause of action, leading to an impermissible parallel prosecution. It does not apply where the settlement itself preserves the pending complaint and only keeps it in abeyance pending performance. The Court also clarified that disputes over interpretation of such settlement terms are factual matters not fit for quashing under Section 482 CrPC unless the defence is based on unimpeachable material. 

The Court first reiterated the settled position that quashing of a complaint under Section 138 NI Act at a pre-trial stage is an exception, and can be done only where the accused produces unimpeachable material showing that no offence is made out. Referring to Rathish Babu Unnikrishnan v. State (NCT of Delhi) [2022 SCC OnLine SC 513], the Court said that where factual controversy exists and the statutory presumption under the NI Act operates, the High Court should be slow to scuttle criminal proceedings before trial. 

On examining the consent terms, the Court found that both documents expressly stated that the parties’ legal rights and remedies were only “temporarily suspended” and that such suspension was “subject to the action already taken U/s 138”. The consent terms also stated that criminal complaints would be withdrawn only if the post-dated cheques issued under the settlement were honoured. Prima facie, therefore, the settlement documents did not automatically wipe out or extinguish the pending NI Act complaint; rather, they contemplated that the complaint would be kept on hold pending payment. Further, the settlement terms themselves preserved the earlier Section 138 proceedings and only kept them in abeyance. Also, the security cheques issued under the later consent terms were never presented for encashment, so there were no second prosecution and no duplication of criminal proceedings. 

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Where the supplier continues performance while consistently protesting the revised price condition, there is no novation and no acceptance by conduct. In such a case, an arbitral award holding unilateral price reduction to be unauthorized is a plausible view based on the contract, and cannot be interfered 

The Delhi High Court in the case of BSNL vs BWL [O.M.P. (COMM) 43/2020] dated July 01, 2026, has held that, for novation under Section 62 of the Indian Contract Act, 1872, there must be clear mutual agreement; and for acceptance by conduct under Section 8, the conduct must show unequivocal acceptance without reservation. The Court also clarified that where the supplier continues performance while consistently protesting the revised price condition, there is no novation and no acceptance by conduct. In such a case, an arbitral award holding unilateral price reduction to be unauthorized is a plausible view based on the contract and evidence, and cannot be interfered with under Section 34 of the Arbitration and Conciliation Act, 1996. 

The Court reiterated the settled scope of interference under Section 34: the Court cannot sit in appeal over an arbitral award, reappreciate evidence, or reinterpret contractual terms if the arbitrator’s view is a possible and plausible one. Interference is confined only to the limited grounds under Section 34(2) and Section 34(2A) of the Arbitration and Conciliation Act, 1996. The Court accepted the arbitrator’s finding that BWL had consistently resisted the proposed price reduction through its letters and had never unequivocally agreed to a unilateral amendment of the price term. Because the evidence showed continuous protest and reservation, continued supply of goods did not amount to unconditional acceptance by conduct under Section 8 of the Contract Act. 

The Court also held that estoppel could not be used to create novation where consent was absent. It was further held that BSNL’s reliance on Section 9 of the Sale of Goods Act, 1930 was misplaced because the contracts had already fixed the price and did not leave the matter open for fresh negotiation. 

Accordingly, the High Court upheld the arbitrator’s directions to BSNL refunding the amounts deducted towards price reduction to BWL along with pendente lite and post-award interest at 9% per annum on the principal amount, and left intact the costs awarded by the arbitrator. The Court also held that where a supply contract fixes a firm price and permits reduction only on account of reduction in statutory levies/taxes, the purchaser cannot unilaterally impose price reduction merely because deliveries are made during an extended period at lower prevailing market rates. 

Click here to read/ download the original judgment 

Compliance with the phased Net Owned Funds (NOF) Requirements prescribed under the RBI Notification dated March 27, 2015 is mandatory, and failure to meet the NOF threshold by the cut-off date entitled the RBI to cancel the certificate of registration under Section 45-IA(6) of the Reserve Bank of India Act, 1934 

The Bombay High Court in the case of Mane Finance Private Limited vs Reserve Bank of India [Writ Petition No.1091 of 2021] dated June 09, 2026, has held that compliance with the phased NOF requirements prescribed under the RBI Notification dated March 27, 2015 is mandatory, and failure to meet the NOF threshold by the cut-off date entitled the RBI to cancel the certificate of registration under Section 45-IA(6) of the Reserve Bank of India Act, 1934. The Court further held that a company cannot avoid cancellation by showing that its NOF improved only after the prescribed deadline, especially where its financial position had been in negative for the relevant years and the claim of subsequent compliance was supported only by unaudited accounts. 

The Court noted that Section 45-IA(1)(b) of the Reserve Bank of India Act, 1934 makes it mandatory for an NBFC to maintain the prescribed net owned funds (NOF) in order to commence or carry on business, and that the RBI’s Notification dated March 27, 2015 had statutory force. The Court also noted that before the RBI, the company did not submit audited financial statements and relied only on an unaudited statement for March 31, 2018. It held that later improvement in NOF after the cut-off date could not be treated as compliance with the RBI’s directions. The Court emphasized that the RBI is an expert statutory body regulating NBFCs and that judicial review in such financial matters is limited, particularly where the regulator has found that allowing such a company to continue would not serve public interest. 

Once a secured creditor has taken possession of a secured asset and transferred it by auction sale under the SARFAESI Act, 2002, the security interest in that asset stands exhausted, and another bank cannot later invoke Section 14 of the SARFAESI Act to again enforce against the same asset in the hands of the auction purchaser

The Bombay High Court in the case of Mariyam Rangwala vs State of Maharashtra [Writ Petition No. 11618 of 2025] dated June 30, 2026, has that once a secured creditor has taken possession of a secured asset and transferred it by auction sale under the SARFAESI Act, 2002, the security interest in that asset stands exhausted, and another bank cannot later invoke Section 14 of the SARFAESI Act to again enforce against the same asset in the hands of the auction purchaser. By operation of Section 13(6) of the SARFAESI Act, 2002, the auction purchaser acquires all rights in the secured asset as if the transfer had been made by the owner, and such purchaser cannot be made to suffer because of competing claims between secured creditors.  

The Court also held that where two banks have competing claims over the same secured asset or over the recovery flowing from the borrower’s default, the dispute is to be resolved inter se under Section 11 of the SARFAESI Act through arbitration or conciliation, and not by physically dispossessing a bona fide auction purchaser. 

The Court found that although both banks claimed rights over the same flat, SBI had moved forward with speed under the SARFAESI Act, obtained physical possession through Section 14, completed the auction, and transferred the flat to the petitioners through a registered sale certificate. In contrast, Saraswat Bank took symbolic possession in April 2013 and then “went into deep slumber” for about eleven years before seeking physical possession in 2024–2025. The Court held that Saraswat Bank failed to explain this delay and proceeded at its own peril because, in the meantime, SBI had already exhausted the security interest by enforcing and selling the secured asset. 

The Court accepted the principle that once a secured asset is enforced and sold under the SARFAESI Act, that asset is no longer available for further enforcement by another creditor. Relying on Section 13(6), the Court noted that transfer of the secured asset vested in the petitioners all rights in relation to the flat as if the transfer had been made by the owner. Referring to Section 13(7), the Court observed that if Saraswat Bank claimed a superior charge or entitlement, its dispute was really against SBI and in relation to the sale proceeds held in trust, not against the petitioners who were bona fide auction purchasers holding a registered sale certificate. 

The Court further observed that the real dispute was an inter se dispute between two banks over competing claims to the same secured asset and recovery of dues from the common borrower. Such a dispute, the Bench held, must be resolved under Section 11 of the SARFAESI Act by conciliation or arbitration. It also held that questions relating to title, or legality of the mortgage in favour of SBI, were not matters for the DRT and, if at all required, would lie before a competent civil court.  

Section 11(2) of the EPF Act gives a first charge only on the “assets of the establishment”, and not automatically on the separate assets of the employer or a partner. While Section 8B permits recovery from the employer’s separate property, that provision only lays down a recovery mechanism and does not create a statutory first charge over such separate asset 

The Karnataka High Court in the case of Regional Provident Fund Commissioner vs Devki Designs [Writ Petition No. 47483 of 2018 (L-PF)] dated June 16, 2026, has held that Section 11(2) of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 creates a first charge only over the assets of the establishment. That first charge can extend to the asset of the employer only where the asset of the establishment and the asset of the employer are the same. In the case of a partnership firm, a partner’s separate property can be subjected to such first charge only if it is shown that the property was brought into the stock of the firm. If the partner’s property remains separate, EPFO may proceed against it only in accordance with Section 8B, and such recovery will remain subject to any prior charge already created over that property. 

The Court observed that Section 11(2) of the EPF Act gives a first charge only on the “assets of the establishment”, and not automatically on the separate assets of the employer or a partner. While Section 8B permits recovery from the employer’s separate property, that provision only lays down a recovery mechanism and does not create a statutory first charge over such separate assets. 

The Court further noted that in a partnership, the firm’s assets and the partners’ personal assets may be distinct, unless the partners have brought their personal property into the stock of the firm. Merely because a partner mortgages his personal property as security for a loan taken by the firm does not make that property an asset of the firm. The Court also clarified that the first charge under Section 11(2) of the EPF Act prevails over a security interest under the SARFAESI Act, 2002, so far as the asset in question is an asset of the establishment. 

Exclusion of provident fund, pension fund and gratuity fund dues from the liquidation estate under Section 36(4)(a)(iii) of the IBC is not contingent upon the existence of a separate or identifiable fund on the liquidation commencement date. Such dues do not form part of the liquidation estate and are not to be distributed through the waterfall mechanism under Section 53(1)(b)

The New Delhi National Company Law Appellate Tribunal (NCLAT) in the case of State Bank of India vs Manoj Kumar Das [Company Appeal (AT) (Insolvency) No. 419 & 420 of 2026] dated June 30, 2026, has held that exclusion of provident fund, pension fund and gratuity fund dues from the liquidation estate under Section 36(4)(a)(iii) of the Insolvency & Bankruptcy Code, 2016 (IBC) is not contingent upon the existence of a separate or identifiable fund on the liquidation commencement date. Such dues do not form part of the liquidation estate and are not to be distributed through the waterfall mechanism under Section 53(1)(b). 

The Tribunal observed that Section 36(4)(a)(iii) of the Insolvency & Bankruptcy Code, 2016 (IBC) is clear in excluding “all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund” from the liquidation estate, and that this exclusion is due-centric, not asset-centric. It rejected the contention that such exclusion depends on the existence of a segregated fund on the liquidation commencement date, observing that accepting that argument would defeat the statutory right of workmen and employees to receive provident fund, pension fund and gratuity, and would negate the legislative scheme under the Code. The Tribunal also reaffirmed that absence of a separate fund does not extinguish the entitlement of workmen and employees. 

On the issue of the 24-month period under Section 53(1)(b) of the Insolvency & Bankruptcy Code, 2016 (IBC), the Tribunal observed that the workmen were not seeking alteration of the liquidation commencement date under Section 5(17), but only exclusion of 1,656 days lost in litigation for the limited purpose of computing the look-back period. It held that if such exclusion were not granted, the workmen’s dues for the 24 months preceding liquidation would become nil merely because the CIRP remained pending for years in litigation, which would defeat the object of Section 53(1)(b). 

The Tribunal further held that, for determining workmen’s dues for the 24 months preceding the liquidation commencement date, 1,656 days spent in litigation beyond the permissible 330-day CIRP period must be excluded, and therefore workmen’s dues for that 24-month period cannot be treated as nil. However, salary dues covered by the recovery certificate for January to March 2019 were held to remain within the liquidation framework and were not entitled to be kept outside the liquidation estate. 

The NCLAT therefore dismissed SBI’s appeals and upheld the NCLT’s direction that the liquidator must pay provident fund and gratuity dues to workmen and employees in terms of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 and the Payment of Gratuity Act, 1972, and that such dues shall not form part of the liquidation estate. The Tribunal partly allowed the workmen’s appeal by granting exclusion of 1,656 days spent in litigation for computing the 24-month period under Section 53(1)(b), and directed the liquidator to recompute the workmen’s dues accordingly and take consequential action. 

Moratorium under Section 14, IBC, and the restriction under Section 33(5), IBC, do not override attachment proceedings relating to proceeds of crime under the PMLA, because such proceedings operate in a different field and concern public law consequences rather than civil debt enforcement 

The New Delhi National Company Law Appellate Tribunal (NCLAT) in the case of Value Wise Consultancy Private Limited vs Directorate of Enforcement [Company Appeal (AT) (Ins) No. 1226 and 1227 of 2022] dated June 30, 2026, has held that the PMLA in its working neither differentiates nor discriminates the companies that are drawn into a CIRP and those which are considered financially safe by its creditors. It emphasised that Parliament did not legislate IBC with an intent to create a holy Ganges out of the IBC to wash the corporate debtor of its sin of criminality under the PMLA, or as a mechanism for legitimizing any ill-gotten wealth of the Corporate Debtor (CD). The NCLAT emphasised that IBC could not unwittingly become a camouflage or a shield to save the ill-gotten wealth of the corporate debtor and create a classification within the non-discriminatory character of the PMLA

The NCLAT explained that there is nothing in the IBC, that enables accommodating the wealth which is sourced by and out of a crime, in the resolution or liquidation process of a corporate debtor. The legislative intent behind the scheme of IBC only aims to deal with the issue of corporate insolvency, either in a CIRP or in a liquidation process, and to pay off the creditors of the corporate debtor through the sale proceeds of the legitimate assets of the corporate debtor either as a going concern or as liquidated assets, as the case may be, and not out of the ill-gotten wealth of the CD.  

The Tribunal clarified that whether to attach or not to attach the properties of a corporate debtor is for the Enforcement Directorate to decide under the PMLA, and any challenge to such attachment, including notices issued under Section 50, PMLA, must be pursued only before the adjudicatory mechanism created under the PMLA and not before the NCLT or NCLAT under Section 60(5), IBC. The Tribunal held that moratorium under Section 14, IBC, and the restriction under Section 33(5), IBC, do not override attachment proceedings relating to proceeds of crime under the PMLA, because such proceedings operate in a different field and concern public law consequences rather than civil debt enforcement. 

The Tribunal observed that IBC cannot be treated as a mechanism to cleanse tainted assets or legitimise ill-gotten wealth of the corporate debtor. According to the Tribunal, the protection under Section 14, IBC during CIRP, and Section 33(5), IBC during liquidation, revolves around the legitimately acquired assets of the corporate debtor, and not assets that fall within the shadow of crime under the PMLA. It further observed that proceedings arising from penal statutes of public law nature, which do not add to the debt-liability of the corporate debtor, cannot be held to be hit by moratorium merely because they reduce the asset pool available in CIRP or liquidation. 

The Tribunal also held that the jurisdiction of the NCLT and NCLAT under the IBC is not all-pervasive. Referring to Embassy Property Developments Private Limited v. State of Karnataka and Others [(2020) 13 SCC 308], it observed that the jurisdiction of the Adjudicating Authority is confined to what is necessary for the working of the IBC, and does not extend to examining the validity of attachment proceedings or coercive measures taken by authorities under the PMLA. The NCLAT noted that even the IBBI Circular No. IBBI/CIRP/87/2025 dated Nov 04, 2025 advises insolvency professionals to seek restitution of attached assets before the Special Court under Sections 8(7) or 8(8), PMLA, thereby reinforcing that the remedy lies within the PMLA framework and not before the tribunals constituted under the IBC.  

Where the Deed of Guarantee is a continuing guarantee, the claim can remain enforceable against the guarantor beyond three years from the date of default of the principal borrower 

The Chennai Bench of the National Company Law Tribunal (NCLT) in the case of Aditya Birla Finance Limited vs G. Thiyagarajan [CP(IB)/43(CHE)/2024] dated June 09, 2026, has held that where the Deed of Guarantee is a continuing guarantee, the claim can remain enforceable against the guarantor beyond three years from the date of default of the principal borrower, and limitation against the guarantor would commence when the guarantor defaults in fulfilling his obligations under the guarantee deed after invocation. 

The Tribunal further held that the liquidation of the corporate debtor and disbursal of part proceeds to the financial creditor pursuant to settlement among creditors did not discharge the personal guarantor, because the liability of the surety arises out of an independent contract and is not absolved by release or discharge of the principal borrower through an involuntary process such as liquidation or insolvency. It also held that resignation from the company does not absolve a guarantor from liability under the guarantee agreement unless he is discharged. 

The Tribunal observed that the corporate debtor had availed the credit facilities on January 24, 2014; that the respondent had given a Declaration-cum-Undertaking and executed the Deed of Guarantee on the same date; and that the corporate debtor’s account became NPA on November 01, 2017. It further noted that while a Section 13(2) SARFAESI notice dated November 03, 2017 was issued to the corporate debtor and the other personal guarantor, no such notice was issued to the respondent at that stage, and the notice invoking the respondent’s guarantee was issued only on October 15, 2022. 

The Tribunal also noted that insolvency proceedings against the corporate debtor had been initiated in 2018 within limitation, that the corporate debtor went into liquidation, and that the petitioner received Rs. 1.03 crores from sale proceeds pursuant to a settlement among creditors. The Tribunal observed that release or discharge of the principal borrower by operation of law, including liquidation or insolvency, does not absolve the personal guarantor of liability, which arises from an independent contract of guarantee. It further observed that resignation of the respondent from the corporate debtor would not absolve him from liability under the guarantee agreement unless he was discharged. 

The Tribunal observed that the guarantee was a continuing guarantee and coextensive with the liability of the principal debtor. It held that, being a continuing guarantee, it could be invoked at any stage, and that the rights of the financial creditor against one guarantor remained in full force notwithstanding any arrangement with another guarantor. 

While approval and implementation of a resolution plan under Section 31 of the IBC extinguish past claims and entitle the successful resolution applicant to a “clean slate”, such approval does not automatically authorize the Adjudicating Authority to direct deletion or removal of statutory charge entries maintained by the Registrar of Companies under the Companies Act, 2013 

The Jaipur Bench of the National Company Law Tribunal (NCLT) in the case of Administrator of Specified Undertaking of Unit Trust of India vs Modern Syntex [IA No. 29/JPR/2026] dated June 22, 2026, has held that while approval and implementation of a resolution plan under Section 31 of the IBC extinguish past claims and entitle the successful resolution applicant to a “clean slate”, such approval does not automatically authorize the Adjudicating Authority to direct deletion or removal of statutory charge entries maintained by the Registrar of Companies under the Companies Act, 2013 without compliance with the statutory mechanism for satisfaction or modification of charges. 

The correct legal position is that the IBC’s binding effect must be given full play, but implementation of the approved resolution plan must still proceed through the statutory process contemplated under Section 82 of the Companies Act and the applicable rules. Therefore, the Tribunal can require secured creditors and stakeholders to cooperate in effecting the plan, but cannot supplant the statutory framework by directly ordering deletion of MCA charge records. 

The Tribunal recorded that there was no dispute on three core aspects: the resolution plan had been approved on March 12, 2024, payments under the approved plan had substantially been made, and pre-CIRP charge entries still continued in the MCA records. It accepted that the “clean slate” principle under Section 31 of the IBC means that claims not forming part of the approved resolution plan stand extinguished and the successful resolution applicant should take over the corporate debtor free from past liabilities. 

At the same time, the Tribunal emphasized that statutory authorities operating under independent statutory frameworks continue to be governed by those enactments, and that the register of charges maintained under Sections 77 to 87 of the Companies Act, 2013 is a statutory register, with satisfaction or modification of charges governed by Section 82 and the applicable rules. For that reason, the Tribunal held that approval of a resolution plan does not by itself justify direct judicial deletion of charge entries without following the statutory process under the Companies Act. 

The Tribunal, however, also made it clear that the matter could not be viewed only from the standpoint of Companies Act procedure while ignoring the binding effect of the approved resolution plan and the earlier approval order. Accordingly, the NCLT directed the concerned secured creditors to issue appropriate discharge, no-dues and satisfaction documents in terms of the approved resolution plan. The Tribunal expressly clarified that its order should not be read as directing the Registrar of Companies to act contrary to the Companies Act, 2013 or as dispensing with statutory compliances under that law. 

Since bank had merely financed the suppliers of the corporate debtor, any recovery from the corporate debtor was in lieu of its operational dues payable to those suppliers 

The Jaipur Bench of the National Company Law Tribunal (NCLT) in the case of Bank of Maharashtra vs Ashiana Ispat Limited [CP No. (IB) – 73/07/JPR/2025] dated June 22, 2026, has held that financial debt under Section 5(8) of the IBC requires disbursement against the consideration for time value of money. In the present case, there was no disbursement made to the corporate debtor, and there was no element of consideration for time value of money between the bank and the corporate debtor. Since the bank had merely financed the suppliers of the corporate debtor, any recovery from the corporate debtor was in lieu of its operational dues payable to those suppliers. Therefore, the debt remained an operational debt under Section 5(21), and the bank, as assignee of such receivables, could not maintain a petition as a financial creditor under Section 7 of the Code. 

The Tribunal identified the core issue as whether the amount paid or disbursed towards reverse factoring could be treated as a financial debt. It examined the Master Buyer Agreement and noted that reverse factoring meant acquisition of receivables due and payable by the buyer to the seller by assignment or endorsement to the financier in consideration of funds advanced by the financier to the seller, with the process initiated by the buyer. The Tribunal also explained that, in such an arrangement, once the buyer approved the invoice on the TReDS platform, the financier paid the supplier immediately and thereafter became entitled to collect the invoice amount from the buyer on the due date. 

The Tribunal further referred to the Master Agreement and observed that it placed the primary responsibility for payment on the buyer once an invoice had been financed, required the buyer to maintain sufficient funds for automatic debit, and made the financier’s recovery rights enforceable directly against the buyer on a non-recourse basis against the seller. It observed that the agreement created a direct and enforceable payment obligation of the buyer towards the financier, while insulating the seller from any later default by the buyer. 

At the same time, the Tribunal held that the entire basis of the bank’s claim stemmed from trade payables owed by the corporate debtor to its suppliers. It observed that the bank had made payment to the suppliers after placing bids on the invoices, and the corporate debtor was only obliged to repay amounts which were originally due to those suppliers. On this reasoning, the Tribunal found that the debts discharged by the bank on behalf of the corporate debtor were squarely operational in nature, and that mere assignment of such operational debts to a third party did not convert their character into financial debt.