Company Law Update: Share Transfer Compliance body { font-family: Arial, sans-serif; line-height: 1.6; margin: 0; padding: 20px; max-width: 800px; margin-left: auto; margin-right: auto; color: #333; } h1, h2 { color: #2c3e50; } h1 { font-size: 24px; text-align: center; margin-bottom: 20px; } h2 { font-size: 20px; margin-top: 30px; } p { margin-bottom: 15px; } .footer { margin-top: 40px; border-top: 1px solid #ccc; padding-top: 20px; text-align: center; font-size: 14px; color: #666; } .footer a { color: #007bff; text-decoration: none; } .footer a:hover { text-decoration: underline; } .date { font-style: italic; color: #555; text-align: center; } COMPANY LAW UPDATE: ADDITIONAL COMPLIANCE REQUIREMENT FOR SHARE TRANSFER IN PRIVATE LIMITED COMPANIES The National Securities Depository Limited (NSDL), vide Circular No. NSDL/POLICY/2025/0071 dated 3 June 2025 , has brought about a significant procedural shift in the transfer of shares of private limited companies through the depository mode. The circular outlines the procedure and introduces a compliance step essential to fulfil the prohibitive conditions of private company shareholding under the Companies Act, 2013 (“Companies Act”). Tighter Rules on Transfer of Shares in Private Companies According to Section 2(68) of the Companies Act, a private company must have its share transfer restrictions as laid down in its Articles of Association (AoA). Considering the above requirement, NSDL recently inserted a mandate on Depository Participants (DPs) to obtain an additional confirmation from the concerned company before processing any off-market share transfer instructions. Apart from the regular Delivery Instruction Slip (DIS) furnished by the demat account owner, the DPs must also obtain a letter from the private limited company stating that the transfer is valid, authorized, and under the Companies Act and its AoA. NSDL also has a prescribed format for the confirmation letter. Such a procedural safeguard guarantees that any dematerialized transfer of private company shares beyond the market is only accomplished with the explicit agreement of the issuing company, thereby aligning the dematerialization process with the company's internal rules of transfer. It ensures against unauthorized or contentious transfers and preserves the integrity of private ownership arrangements. Dematerialization of shares has made the transfer of securities easy; however, restrictions on the transfer of shares are still a characteristic of privately held companies. The new development ensures that such statutory and contractual restrictions continue to apply, even in a virtual setup, and is likely to reduce conflict, promote better governance, and provide compliance integrity, ultimately making the whole process easier. MHCO Comments NSDL's new circular is a firm reminder that compliance, governance, and systemic integrity are the same. By strengthening the process of off-market transfer in private companies and introducing tighter timelines for significant audits and disclosures, NSDL is raising regulatory compliance and reiterating market confidence. For participants, the message is no less clear: stay aligned, stay on time, and give each process the same gravitas as the financial system itself.

Litigation Update - Strike-Off of Defence on Non-Payment of Rent body { font-family: Arial, sans-serif; line-height: 1.6; margin: 0; padding: 20px; max-width: 800px; margin-left: auto; margin-right: auto; color: #333; } h1 { font-size: 24px; color: #2c3e50; text-align: center; } h2 { font-size: 20px; color: #34495e; margin-top: 20px; } p { margin: 10px 0; text-align: justify; } .section { margin-bottom: 20px; } .footer { margin-top: 30px; text-align: center; font-size: 14px; color: #555; } .footer a { color: #007bff; text-decoration: none; } .footer a:hover { text-decoration: underline; } .highlight { font-weight: bold; color: #2c3e50; } LITIGATION UPDATE | STRIKE-OFF OF DEFENCE ON NON-PAYMENT OF RENT The High Court of Karnataka at Bengaluru (Court), vide an Order dated 8 July 2025 (Order) in Venugopal Krishnamurthy & Anr. Versus M Tejaswini, has quashed an order of the subordinate court, and allowed the petitioners’ application to strike off the respondent’s defense in the original eviction suit due to persistent non-compliance with the subordinate court’s orders mandating the deposit of rental arrears. Brief Background and Facts The Petitioners, Mr. Venugopal Krishnamurthy and Mrs. Poorna Venugopal, are the owners of a property leased to the Respondent, Smt. M. Tejaswini, for operating a pre-school. The Petitioners had thereafter instituted an eviction suit on 30 August 2022, following the respondent’s default in rental payments. The petitioners also filed certain applications seeking a temporary injunction to restrain the respondent from continuing possession and directions for the deposit of rental arrears from March 1, 2020, to August 30, 2022, at Rs 82,431 per month. On 15 July 2023, the trial court partly allowed the application, directing the respondent to deposit the arrears within two months. The respondent challenged this order, which was dismissed by the Court on 9 February 2024, noting the respondent’s continued failure to deposit any rent since 2020. Despite these orders, the respondent failed to comply, prompting the petitioners to file an application under Order VI Rule 16 read with Section 151 of the Code of Civil Procedure (CPC) to strike off the respondent’s defense. The trial court rejected this application on July 5, 2024, leading to the present writ petition before the Court. Contentions of the Parties The petitioners contended that the respondent had defaulted on rent payments for five years, accumulating arrears of approximately Rs 50 lakhs, and failed to comply with court orders dated 15 July 2023, and 9 February 2024, mandating the deposit of rental arrears. They further contended that this wilful non-compliance justified striking off the respondent’s defense under Order VI Rule 16 CPC. Conversely, the respondent claimed a rent waiver for 2020–2022 due to the COVID-19 pandemic, asserting that her preschool was non-operational during this period. She further requested two years to clear the arrears, contingent on continued possession, and proposed vacating the premises by 30 April 2025, provided the petitioners waived the arrears. However, the petitioners provided evidence, obtained through a Right to Information (RTI) application, that the school’s license was canceled on 2 March 2023, and no educational activities were being conducted. Court’s Findings The Court, after reviewing the submissions and material on record, made the following key observations: Non-Compliance with Court Orders: The Court observed that the respondent had not paid any rent for five years, accumulating arrears of approximately Rs 50 lakhs. Despite explicit orders from the trial court and the High Court to deposit the arrears, the respondent’s failure to comply was deemed a willful and contumacious defiance of judicial directives. Application of Order VI Rule 16 CPC: The Court held that Order VI Rule 16 CPC empowers courts to strike off pleadings that are unnecessary, scandalous, frivolous, vexatious, or an abuse of the judicial process. The respondent’s persistent non-compliance was found to fall within these categories, justifying the striking off of her defense. Rejection of Respondent’s Plea: The respondent’s claim for a rent waiver due to the COVID-19 pandemic (2020–2022) was dismissed, as the pre-school’s license had been canceled in 2023, and no evidence supported continued operations. The respondent’s proposal to vacate the premises by 30 April 2025, contingent on waiving the arrears, was deemed audacious and lacking remorse. Order VI Rule 16 of the CPC, read with Section 151, empowers the court to strike off pleadings that are frivolous, vexatious, or an abuse of process, particularly when interim orders are defied. MHCO Comment This ruling emphasizes the Court’s firm stance against tenants who willfully defy court orders, particularly in cases of non-payment of rent. By relying on established precedents, the Court has reinforced the principle that contumacious conduct, such as non-compliance with interim orders, disentitles a party from being heard on the merits. This judgment serves as a strong deterrent to those who attempt to prolong litigation while flouting court directives. It also highlights the importance of timely compliance with judicial orders to maintain the integrity of legal proceedings and protect the rights of property owners. The ruling is likely to bolster landlord confidence in seeking judicial remedies and may prompt stricter enforcement of tenancy agreements.

SEBI Interim Order Against Jane Street Group SEBI UPDATE | INTERIM ORDER AGAINST JANE STREET GROUP FOR ALLEGED INDEX MANIPULATION The Securities and Exchange Board of India (SEBI), vide an ex-parte interim order dated 3 July 2025 (Order), issued under Sections 11(1), 11(4), 11B(1), and 11D of the SEBI Act, 1992, has restrained entities of the Jane Street Group, LLC (JS Group) from participating in the Indian securities market and directed the impounding of alleged unlawful gains amounting to INR 4,843.57 crore. This action follows SEBI’s investigation into prima facie manipulative trading practices by JS Group entities in the BANKNIFTY and NIFTY indices, particularly on derivative expiry days, spanning from 1 January 2023 to 31 May 2025. Brief Background and Facts 1. Entities Involved The JS Group entities named in the order are JSI Investments Private Limited, JSI2 Investments Private Limited, Jane Street Singapore Pte Ltd, and Jane Street Asia Trading Limited, all wholly owned subsidiaries of JS Group, a US-based global trading firm. These entities were identified as acting in concert, with their activities viewed as a single economic group for the purpose of the order. 2. Alleged Manipulative Strategy Intra-day Index Manipulation (BANKNIFTY): SEBI identified 15 instances of alleged manipulation in BANKNIFTY index options on expiry days. On 17 January 2024, for example, during Patch I (09:15 AM to 11:46:59 AM), JS Group aggressively accumulated long positions worth INR 4,370.03 crore in BANKNIFTY constituent stocks and futures, inflating the index level. Simultaneously, they built short positions in BANKNIFTY index options, with a delta exposure rising from negative INR 7,311.19 crore to negative INR 39,426.15 crore. In Patch II, JS Group sold off INR 5,372 crore worth of these securities, exerting downward pressure on the index, aligning with their short options positions, yielding a profit of INR 734.93 crore on that day. Extended Marking the Close (BANKNIFTY): On three days, including 10 July 2024, JS Group engaged in aggressive selling in the final 60 minutes of trading, notably from 14:30:00 onwards, in BANKNIFTY constituent stocks and index futures, to depress the index closing level, generating INR 560 crore in profits from options. Bullish Strategy (NIFTY): On 15 May 2025, JS Group executed a bullish strategy, aggressively buying NIFTY constituent stocks and futures in the final hours (13:00 to 14:00), pushing the index upward to benefit their bullish options positions. 3. Trading Patterns and Impact On January 17, 2024, JS Group’s net traded value in the cash segment was INR 1,851.57 Crores and INR 2,518.46 Crores in the futures segment for BANKNIFTY constituents. Their trading significantly influenced the index, with buy orders placed at or above the Last Traded Price (LTP) in Patch I and sell orders at or below LTP in Patch II, distorting price discovery. Across 15 BANKNIFTY expiry days, JS Group earned INR 3,914 crore in index options profits. The total illegal gains across 18 identified days (15 BANKNIFTY and 3 NIFTY) were computed at INR 4,843.57 crore. The total profit from index options during the examination period was INR 43,289 crore, offset by losses of INR 7,208 crore in stock futures, INR 191 crore in index futures, and INR 288 crore in cash equities, resulting in a net profit of INR 36,502 crore. 4. Prior Warnings In February 2025, the National Stock Exchange (NSE), on SEBI’s instructions, cautioned JS Group against large cash-equivalent positions and questionable trading patterns. Despite responses on 6 February 2025 and 21 February 2025, JS Group continued similar practices, notably on 15 May 2025. 5. Regulatory Violations SEBI found that JS Group’s actions contravened Sections 12A(a) and (b) of the SEBI Act, 1992, and Regulations 3(a), (c), (d), and 4(1) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP Regulations). Additionally, the netting of trades in the cash market violated Regulation 20(4) of the SEBI (Foreign Portfolio Investors) Regulations, 2019. SEBI’s Ex-Parte Order The Whole Time Member (WTM) of SEBI determined that JS Group’s trading activities constituted a prima facie case of market manipulation. The Order highlights the following key findings: JS Group’s aggressive buying in the cash and futures markets of BANKNIFTY and NIFTY constituents, followed by rapid reversals, was designed to artificially influence index levels to benefit their larger positions in index options. The trading patterns, particularly on expiry days, demonstrated intent to manipulate closing prices, impacting the settlement value of index-based contracts and misleading other market participants. The scale of intervention, with significant traded volumes and a high concentration of orders at or above/below the Last Traded Price (LTP), indicated a deliberate strategy to distort price discovery. JS Group violated Regulation 20(4) of the SEBI (Foreign Portfolio Investors) Regulations, 2019, by netting trades in the cash market through simultaneous intra-day buying and selling of BANKNIFTY constituent stocks without actual delivery. Directions SEBI’s interim order issued the following directions to address the alleged manipulations and protect market integrity: JS Group entities are directed to jointly and severally deposit INR 4,843.57 crore, identified as unlawful gains, into an escrow account with a scheduled commercial bank in India. JS Group entities are restrained from accessing the Indian securities market and prohibited from buying, selling, or otherwise dealing in securities, directly or indirectly, until further orders. Banks, depositories, and custodians are instructed to ensure no debits are made from JS Group’s accounts without SEBI’s permission, though credits are allowed. Stock exchanges are instructed to monitor JS Group’s future dealings closely to prevent further manipulative activities. JS Group entities are ordered to cease and desist from engaging in any fraudulent, manipulative, or unfair trade practices. The directions stipulated in the clauses above will cease to apply upon compliance with directions for the disgorgement of INR 4,843.57 crore. Further, the entities have been directed to respond and explain why further directions should not be taken against the entities. MHCO Comment This is SEBI’s strongest-ever action against a trading firm, signalling that investor protection outweighs high-frequency or quantitative trading advantages. The impounding of INR 4,843.57 crores and the restraint on securities trading reflect SEBI’s proactive approach to prevent further market abuse and ensure investor confidence. This crackdown signals SEBI’s heightened scrutiny of foreign portfolio investors and their trading practices, emphasizing compliance with regulatory frameworks. The directive to monitor JS Group’s activities closely indicates a broader effort to curb systemic risks in the securities market. We believe this action will deter similar manipulative strategies and reinforce the importance of transparent and fair trading practices, ultimately benefiting retail investors and the broader economy. Disclaimer: This legal update is based on the interim order issued by SEBI and is intended for informational purposes only. It does not constitute legal advice or a definitive interpretation of the regulatory actions taken. The views expressed in this update are personal and should not be construed as any legal advice; please contact us for any assistance.

Background: On 28 March 2025, the Delhi High Court delivered a significant judgment in the matter of National Restaurant Association of India & Ors. v. Union of India & Anr addressing the legality of mandatory service charges levied by restaurants and hotels. The case arose from widespread complaints about automatic service charge additions to bills, prompting the Central Consumer Protection Authority (CCPA) to issue guidelines in July 2022 prohibiting such practices. Issues for Consideration: The Court considered the following key questions: Whether restaurants and hotels can lawfully add a mandatory service charge to customer bills. Whether the CCPA guidelines, which prohibit automatic or compulsory service charges, are valid and enforceable under the Consumer Protection Act, 2019. Held: The Delhi High Court upheld the validity of the CCPA guidelines, affirming the following principles: No Automatic or Compulsory Service Charge: Restaurants and hotels cannot add a service charge to bills by default. Service charges must be voluntary and at the consumer’s discretion. Transparency and Consumer Choice: Establishments must clearly inform customers that any service charge is optional. Customers cannot be denied entry or service for refusing to pay a service charge. No GST on Service Charge: GST cannot be levied on service charges. Consumer Remedies: If a service charge is added against these rules, consumers have the right to request its removal and can seek redress through consumer helplines, commissions, or relevant authorities. The Court emphasized that automatic or compulsory service charges constitute an unfair trade practice under the Consumer Protection Act, 2019. The judgment reinforces consumer rights and mandates that any service charge must be transparently communicated and entirely voluntary. Implications: This decision prioritizes consumer protection, requiring the hospitality industry to revise billing practices and ensure that service charges, if levied, are strictly optional. The ruling may impact revenue models for restaurants and hotels but provides clarity and legal backing to consumers’ right to choose. MHCO Comments: The judgment marks a crucial policy stance in the ongoing debate between industry practices and consumer rights. By upholding the CCPA’s guidelines, the Delhi High Court has effectively subordinated the interests of service providers to the statutory rights of consumers, ensuring that voluntary consent is central to any additional charges levied in the hospitality sector. This article was released on 30 June 2025. The views expressed in this update are personal and should not be construed as any legal advice. Please contact us for any assistance