Newsletter August Disputes

ARBITRATION

Date: 05 August 2026

Case Name:KKH Finvest Pvt. Ltd. & Anr. v. Ashiesh Shukla & Ors. Civil Appeal of 2026 (arising out of SLP (C) No. 4222 of 2025)

Forum: Supreme Court

The appellants i.e., KKH Finvest Pvt. Ltd. and Sensorise Digital Services Pvt. Ltd., entered into a Memorandum of Settlement dated 09 May 2022 (“MoS”) with the promoters and other stakeholders of the latter for its takeover and acquisition of the entire shareholding. The respondents i.e., Ashiesh Shukla, a consultant-shareholder holding 1,480 shares in the Appellant No. 2, who, although not a signatory to the MoS, executed a separate Share Purchase Agreement (“SPA”) on the same date for transfer of his shares pursuant to the transaction contemplated under the MoS.

The MoS contemplated execution of separate SPAs with persons identified in its Schedules and contained an arbitration clause. Disputes subsequently arose, pursuant to which arbitration proceedings were initiated against certain stakeholders. The appellants thereafter sought reference of disputes involving the respondents, including the present Respondent No. 1, to the same arbitrator.

The Delhi High Court held the other Management Team members to be “veritable parties” to the MoS but declined to extend the same treatment to Respondent No. 1, principally relying upon Clause 16 of his SPA, which provided that the transfer of shares was independent of the remaining clauses of the SPA and the MoS.

The appellants challenged this distinction before the Supreme Court, contending that Respondent No. 1 was equally a “veritable party” to the MoS and consequently bound by its arbitration agreement.

Issue:

Whether a non-signatory to the MoS, who executed a connected SPA and whose performance was integral to completion of the composite transaction, could be treated as a “veritable party” to the MoS and consequently be bound by its arbitration agreement?

Submission of the Parties:

The appellants contended that the High Court erred in treating Clause 16 of Respondent No. 1’s SPA as a distinguishing factor, since materially identical clauses existed in the SPAs of the other Management Team members who had been held to be veritable parties. The appellants further relied upon Clauses F, G and H of Respondent No. 1’s SPA, which expressly referred to the MoS, the overall settlement and the transfer of his shares pursuant thereto. Reliance was placed on Cox and Kings Ltd. v. SAP India Pvt. Ltd.(2024) 4 SCC 1 and ONGC v. Discovery Enterprises Pvt. Ltd.(2022) 8 SCC 42.

Respondent No. 1 contended that he was not a signatory to the MoS and that his SPA constituted an independent and self-contained agreement. Clause 16, according to the Respondent, expressly excluded the share transfer from the remaining obligations under the MoS and demonstrated that he had not consented to arbitration under the MoS.

Observations of the Court:

The Hon’ble Court held that the distinction drawn by the High Court was factually unsustainable, observing that the very clause relied upon to exclude Respondent No. 1 was materially identical to clauses contained in the SPAs of the other Management Team members who had been referred to arbitration.

The Court further relied upon Clauses F, G and H of Respondent No. 1’s SPA, which expressly recognised the MoS, the INR 8 crore settlement and his obligation to transfer his shares pursuant to the composite transaction. These provisions demonstrated his commitment to the MoS framework.

Applying Cox and Kings (supra) and ONGC v. Discovery Enterprises (supra), the Hon’ble Court reiterated that the status of a non-signatory must be determined holistically, having regard to the legal relationship between the parties, participation in the negotiation and performance of the underlying contract, composite nature of the transaction, commonality of subject matter and intention to be bound.

The Court held that Respondent No. 1’s transfer of his shares was fundamental to completion of the MoS, as the contemplated acquisition of 100% of the Appellant No. 2’s share capital could not be completed without such transfer. His participation was therefore integral to, and not independent of, the underlying transaction.

Held:

The Supreme Court held that Respondent No. 1 was a “veritable party” to the MoS notwithstanding that he was not its signatory, and was consequently amenable to arbitration under the arbitration agreement contained therein.

The Hon’ble Court accordingly set aside the High Court’s judgment insofar as it excluded Respondent No. 1, appointed a sole arbitrator, and directed that the disputes concerning Respondent No. 1 be referred to the same arbitrator already seized of the connected disputes.

The judgment reinforces that signature is not invariably determinative of consent to arbitration. A non-signatory may be bound where its contractual participation and performance demonstrate an intention to be bound and are integral to the underlying composite transaction. The judgment further underscores that the “veritable party” doctrine must be applied holistically and consistently, particularly where similarly situated parties have executed materially identical agreements.

CIVIL LAW

Date: 20 August 2026

Case Name:State of Uttar Pradesh v. Jai Bir Singh & Ors. Civil Appeal No. 897 of 2002 and connected matters.

Forum: Supreme Court

The present batch of appeals and special leave petitions raised an important question concerning the scope of the expression “industry” under Section 2(j) of the Industrial Disputes Act, 1947 (“ID Act”), particularly in the context of activities undertaken by Government departments.

The controversy arose principally in relation to the Social Forestry Department of the State of Uttar Pradesh and whether its activities could be regarded as an “industry” for the purposes of the ID Act. The issue had acquired significance because of divergent views expressed by different Benches of the Supreme Court.

In Chief Conservator of Forests v. Jagannath Maruti Kondhare(1996) 2 SCC 293, a Three-Judge Bench had held that activities undertaken by the Forest Department, including Social Forestry activities, could fall within the definition of “industry” when tested against the principles laid down in Bangalore Water Supply and Sewerage Board v. A. Rajappa, (1978) 2 SCC 213 (“Bangalore Water Supply”).

Subsequently, in State of Gujarat v. Pratamsingh Narsinh Parmar(2001) 9 SCC 713, a Two-Judge Bench adopted a more restrictive approach and observed that, ordinarily, a department of the Government could not be regarded as an “industry”, particularly where the functions performed were in the nature of sovereign functions.

In view of the apparent divergence, the matter was initially referred to a larger Bench in 2002. A Five-Judge Bench thereafter considered the matter and expressed doubts not merely with respect to the treatment of Social Forestry activities, but also regarding certain aspects of the judgment in Bangalore Water Supply. In particular, concerns were expressed regarding the breadth of the Triple Test formulated therein and the possibility of its application bringing within the definition of “industry” several activities which were traditionally regarded as non-industrial.

The matter was subsequently considered by a Seven-Judge Bench, which, having regard to the serious and wide-ranging implications of the issues involved and the doubts surrounding Bangalore Water Supply, referred the matter to a Nine-Judge Bench. The Nine-Judge Bench was therefore called upon to examine the correctness and scope of the principles laid down in Bangalore Water Supply, including the Triple Test, the relevance of commercial character, the principle of noscitur a sociis, the scope of sovereign functions, and the applicability of the principles to governmental and welfare activities.

The Court also noted that, during the pendency of the proceedings, the ID Act had been repealed and replaced by the Industrial Relations Code, 2020, which came into force on 21.11.2025. However, since the proceedings had been instituted under the ID Act, the Court confined its consideration to Section 2(j) of the ID Act and expressly refrained from interpreting the corresponding provisions of the Industrial Relations Code.

Issues:

1. Whether the reference of the matter to a Nine-Judge Bench was valid and maintainable?
2. Whether the reference was barred by the principles of res judicata or stare decisis, having regard to the long-standing authority of Bangalore Water Supply?
3. Whether the Triple Test formulated in Bangalore Water Supply correctly determines whether an undertaking falls within the definition of “industry” under Section 2(j) of the ID Act?
4. Whether the principle of noscitur a sociis was correctly rejected in Bangalore Water Supply while interpreting the expression “industry”?
5. Whether the absence of a profit motive or commercial gain is relevant for determining whether an activity constitutes an “industry”?
6. Whether governmental welfare activities and schemes, including activities undertaken by Government departments, can constitute an “industry” under Section 2(j)?
7. What constitutes “sovereign functions” for the purposes of excluding governmental activities from the operation of the ID Act?
8. Whether the Industrial Disputes (Amendment) Act, 1982 had any bearing upon the interpretation of Section 2(j)?
9. Whether the Industrial Relations Code, 2020 affected the interpretation of Section 2(j) or the pending proceedings?
10. Whether the reformulated Triple Test proposed by the Court would apply to pending and concluded proceedings?

Submissions of the Parties

The Appellants, including the State of Uttar Pradesh and the Union of India, contended that the interpretation of “industry” adopted in Bangalore Water Supply was excessively broad and required reconsideration in light of the present constitutional and statutory framework.

It was submitted that the expression “industry” could not be interpreted so broadly as to bring virtually every organised activity involving employer-employee relations within the scope of the ID Act. According to the Appellants, the words “business, trade, undertaking, manufacture or calling” occurring in Section 2(j) indicated that the provision was concerned with activities having a commercial or analogous character.

The Appellants therefore relied upon the principle of noscitur a sociis, submitting that the meaning of “undertaking” and the other expressions in Section 2(j) ought to be informed by their association with words such as “business” and “trade”. The absence of such a limitation, it was argued, had resulted in the Triple Test becoming so expansive that activities such as charitable work, public research, education and governmental welfare schemes could potentially be treated as industries.

It was further argued that the nature of the activity, rather than merely the existence of an employer-employee relationship, must remain central to the determination. Governmental functions performed pursuant to constitutional obligations or statutory duties, including activities relating to forestry, irrigation and education, should not automatically be characterised as industrial activities.

The Appellants also urged the Court to reconsider the scope of the sovereign-functions exception. According to them, the constitutional role and obligations of the State could not be equated with activities undertaken by private commercial entities merely because the Government organised such activities through employees.

The Appellants accordingly supported reconsideration of Bangalore Water Supply and sought a more principled and limited interpretation of Section 2(j).

Per Contra the Respondent-workmen opposed the reference and contended that Bangalore Water Supply continued to be good law and that there was no sufficient basis for reopening a decision which had governed the field for several decades.

It was submitted that Bangalore Water Supply was a decision of a Seven-Judge Bench, and that the majority opinion constituted binding precedent irrespective of the fact that the judgment contained separate opinions.

The Respondents emphasised that the ID Act is a beneficial legislation enacted to protect workmen and promote industrial peace. According to them, the determinative consideration under Section 2(j) is the nature of the activity and the relationship between employer and employee, and not whether the employer is governmental, private, charitable or otherwise.

It was argued that narrowing the definition of “industry” or enlarging the exceptions would deprive workmen engaged in several organised activities of statutory protection. The Respondents particularly submitted that the Government should not be permitted to claim exemption merely because an activity was being undertaken by a Government department, especially when similar activities could also be undertaken by private entities.

With respect to mixed activities, the Respondents supported application of the Dominant Nature Test, under which activities forming part of an integrated undertaking should be examined by considering the predominant nature of the undertaking.

A preliminary objection was also raised regarding the maintainability of the reference. The Respondents contended that mere doubts expressed by subsequent Benches or the existence of divergent decisions could not, by themselves, justify reopening a well-settled precedent. Reliance was also placed upon the principle of stare decisis, particularly considering that Bangalore Water Supply had governed the field for more than four decades and had been repeatedly followed by the Supreme Court.

Observations of the Court:

A. Maintainability of the Reference

The Nine-Judge Bench held that the reference was procedurally valid and that res judicata or stare decisis did not bar reconsideration of Bangalore Water Supply, once a valid reference to a larger Bench had been made..

B. The Triple Test in Bangalore Water Supply

The Court undertook an extensive examination of the jurisprudence preceding Bangalore Water Supply and noted the historical conflict between a broad and a restrictive interpretation of Section 2(j).

The majority in Bangalore Water Supply had formulated the Triple Test, broadly requiring:

1. a systematic activity;
2. organised through cooperation between employer and employee; and
3. involving the production or distribution of goods or services calculated to satisfy human wants and wishes.

The judgment had further held that the absence of a profit motive was immaterial and had adopted a relatively narrow understanding of the sovereign-functions exception.

The Nine-Judge Bench did not completely discard this framework. Instead, it considered that certain aspects of the Triple Test required calibration or refinement. The Bench retained the essential framework of the Triple Test but refined its application, giving greater weight to the nature and character of the activity and its economic/commercial character. Thus, absence of a profit motive remains not decisive, but activities wholly divorced from economic or commercial character would ordinarily fall outside “industry”.

Importantly, this refined formulation does not disturb pending cases under the repealed Industrial Disputes Act, which continue to be governed by Bangalore Water Supply. The Industrial Relations Code, 2020 is to be interpreted independently

C. Commercial Character and Noscitur a Sociis

The Court expressed reservations regarding the manner in which Bangalore Water Supply had dealt with the principle of noscitur a sociis.

The Court observed that the expression “industry” occurs in a statutory setting in which it is associated with expressions such as “business”, “trade”, “undertaking” and “manufacture”. The complete displacement of the commercial or economic character traditionally associated with these expressions had contributed to an excessively expansive understanding of Section 2(j).

Accordingly, the Court considered that the nature of the activity must have greater significance than it had been accorded under an unqualified application of the Triple Test.

The Court therefore introduced the requirement that the goods or services produced, distributed or provided must possess a “discernible commercial character” analogous to trade or business, while clarifying that this did not mean that the undertaking must actually be motivated by profit.

D. Governmental and Welfare Activities

The Court held that governmental or statutory character does not, by itself, exclude an undertaking from “industry”. Welfare and economic activities of the Government must be assessed on their nature and character and cannot automatically be treated as sovereign functions. Genuine sovereign functions alone remain excluded.

E. Sovereign Functions

The Court retained the principle that genuine sovereign functions may stand outside the operation of the ID Act.

However, the exception was not extended to all governmental or welfare functions. The Court specifically distinguished between genuinely sovereign functions and welfare or economic activities undertaken by Government or statutory bodies.

The Court also retained the Dominant Nature Test for undertakings comprising several activities. Where different activities form part of an integrated undertaking, the predominant nature of the services and the integrated character of the undertaking would determine whether the undertaking falls within Section 2(j).

F. 1982 Amendment and Industrial Relations Code

The Court declined to examine the Industrial Disputes (Amendment) Act, 1982 since the amendment had never been brought into force and, consequently, had no operative legal effect.

Similarly, the Court expressly refrained from interpreting the definition of “industry” under the Industrial Relations Code, 2020. The Court held that the Code is an independent legislative enactment and must be interpreted on the basis of its own language, scheme and object. Bangalore Water Supply was not to be treated as the “sheet anchor” for interpreting the Code.

G. Effect of the Reformulated Test

The reformulated Triple Test was not intended to reopen concluded matters. Pending proceedings under the ID Act may continue to be decided under Bangalore Water Supply, while final judgments, awards and settlements remain undisturbed.

Held:

The Court directed that the reformulated principles would operate prospectively in the limited sense stated above, without disturbing concluded matters or altering the governing position applicable to pending proceedings. The Court also expressly clarified that its observations were confined to the ID Act and would not govern disputes arising under any other statutory framework.

The judgment is significant as it preserves the core framework laid down in Bangalore Water Supply while recalibrating its application to ensure that the nature and character of the underlying activity remains central to determining whether an undertaking constitutes an “industry” under Section 2(j) of the ID Act. By introducing the requirement of a discernible commercial character, the Court has sought to prevent an unduly expansive application of the Triple Test while simultaneously clarifying that the absence of a profit motive or the governmental character of an undertaking, by themselves, do not warrant exclusion from the statutory framework. The judgment also provides greater clarity on the distinction between genuine sovereign functions and governmental welfare or economic activities, while preserving the Dominant Nature Test for complex undertakings. Importantly, by restricting the prospective operation of the reformulation and protecting concluded proceedings, the Court has sought to balance legal certainty and industrial jurisprudence with the need to refine the interpretation of Section 2(j).

CRIMINAL LAW

Date: 04 August 2026

Case Name:Kuntegowda v. ThurubaiahCriminal Appeal arising out of SLP (Criminal) No. 2247 of 2024

Forum: Supreme Court

The appellant–complainant challenged the judgment of the High Court of Karnataka dated 06 October 2023, whereby the High Court, in exercise of revisional jurisdiction, set aside the concurrent judgments of conviction passed by the Trial Court and the Appellate Court and acquitted the respondent–accused under Section 138 of the Negotiable Instruments Act, 1881 (“NI Act”).

The appellant had advanced a hand loan of INR 4,50,000 to the respondent for purchase of a house site, against which the respondent subsequently issued a post-dated cheque dated 20 March 2013. The cheque was dishonoured for insufficiency of funds. Despite a statutory demand notice, the respondent failed to make payment, resulting in the complaint under Section 138 of the NI Act.

The Trial Court convicted the respondent and imposed a fine of INR 9,00,000. The Appellate Court affirmed the conviction, while reducing the fine to INR 6,50,000. However, the High Court, in revision, held that the appellant had failed to establish his financial capacity to advance the loan and that the respondent had successfully rebutted the statutory presumption under Section 139 of the NI Act. The appellant accordingly approached the Supreme Court.

Issues:

1. Whether the respondent had successfully rebutted the statutory presumptions under Sections 118 and 139 of the NI Act?
2. Whether the High Court was justified in interfering with the concurrent findings of conviction while exercising its limited revisional jurisdiction?

Submission of the Parties:

The appellant contended that once execution of the cheque and its signature were admitted, the statutory presumptions under Sections 118 and 139 of the NI Act operated in his favour. The respondent had failed to place any cogent evidence sufficient to rebut the presumptions. It was further submitted that the High Court had impermissibly reassessed the evidence and substituted its own factual conclusions for those concurrently recorded by the courts below.

Per contra, the respondent contended that the cheque had been issued as security in connection with an alleged INR 40,000 loan obtained from another individual and was subsequently misused. It was further argued that the appellant had failed to establish the source and financial capacity for advancing INR 4,50,000, had not disclosed the particulars of the alleged loan transaction, and had produced no contemporaneous documentary evidence establishing the debt.

Observations of the Court:

The Hon’ble Court reiterated that Sections 118 and 139 of the NI Act raise statutory presumptions in favour of the holder of a cheque once execution or signature is admitted. A mere denial of the debt is insufficient; the accused must raise a probable defence capable of rebutting the presumption on the touchstone of preponderance of probabilities.

On the facts, the Hon’ble Court found that the respondent had failed to establish his defence that the cheque had been issued as security for a different transaction. The subsequent legal notice relied upon by the respondent was issued after institution of the complaint and was therefore found to be an afterthought intended to create a defence.

The Hon’ble Court further found that the evidence of the appellant and his supporting witnesses was consistent and remained substantially unshaken in cross-examination. The contention regarding the appellant’s financial incapacity was also rejected, particularly in the absence of any specific plea or independent material produced by the respondent to establish such incapacity.

The Hon’ble Court thereafter emphasised the limited scope of revisional jurisdiction. A revisional court cannot ordinarily reappreciate evidence as an appellate court or substitute its own conclusions for concurrent findings, unless the findings suffer from perversity, gross illegality, jurisdictional error or manifest miscarriage of justice.

The High Court, having undertaken an extensive reassessment of the evidence without identifying any such perversity or glaring illegality, had therefore exceeded the permissible scope of its revisional jurisdiction.

Held:

The Hon’ble Court held that the Respondent had failed to rebut the statutory presumptions under Sections 118 and 139 of the NI Act. The defence regarding the alleged misuse of the cheque and the appellant’s financial incapacity was found insufficient to dislodge the presumption of a legally enforceable debt. The Hon’ble Court further held that the High Court had exceeded its revisional jurisdiction by reappreciating the evidence and disturbing concurrent findings of conviction without demonstrating any perversity or manifest illegality.

Accordingly, the Hon’ble Court set aside the High Court’s judgment and restored the judgments and orders of the Trial Court and the Appellate Court, thereby restoring the Respondent’s conviction under Section 138 of the NI Act.

The judgment reinforces that admission of the cheque and signature triggers the statutory presumptions under Sections 118 and 139 of the NI Act, and the accused must raise a probable and substantiated defence to rebut them. It further reiterates that financial-capacity objections cannot, by themselves, displace the statutory presumption, particularly where no specific plea or supporting material is produced. Equally, the judgment underscores the restricted scope of revisional jurisdiction, which cannot be converted into a second appellate jurisdiction in the absence of perversity or manifest illegality.

Date: 19 August 2026

Case Name:Parmod Kumar Shukla v. State of Uttar Pradesh & Ors.Criminal Appeal arising out of SLP (Criminal) No. 2247 of 2024

Forum: Supreme Court

The present appeal arose from a challenge to the order dated 05.06.2025 passed by the Allahabad High Court in Criminal Misc. Writ Petition No. 11886 of 2025, whereby the High Court declined to quash FIR No. 405/2024 registered against the Appellant for offences under Sections 406, 419, 420, 467, 468, 471, 504 and 506 of the Indian Penal Code, 1860. The principal issue before the Supreme Court was whether the subsequent registration of the FIR was legally permissible when an earlier application filed by the complainant under Section 156(3) Cr.P.C., based substantially on the same allegations, had already been rejected by the Magistrate and the rejection had been affirmed in revision.

The dispute originated from a complaint lodged by Respondent No. 4 on 24.12.2024 alleging that the Appellant had represented that he exercised influence in the Directorate of Education, Prayagraj and could secure appointments to the post of Clerk for the complainant's son, Akhilesh Pratap Singh, and grandson, Kaushik Pratap Singh, in consideration of a payment of INR 20,00,000. It was alleged that the Appellant’s father had also assured the complainant that the Appellant had previously secured employment for several persons and that the money would be returned if the appointments were not secured.

Pursuant to these representations, the complainant alleged that several amounts were transferred to the Appellant's State Bank of India account maintained at Gohari Branch, Prayagraj, namely INR 50,000 on 12.01.2023, INR 25,000 on 13.01.2023, INR 50,000 on 16.01.2023 and INR 50,000 on 17.01.2023. It was further alleged that despite the payments, no interview for the purported appointments was ever conducted.

The complainant thereafter alleged that on 19.05.2024, while he was proceeding with his son and grandson towards the Appellant's residence at Kazia, Prayagraj, they encountered the Appellant near Prachi Hospital, Shantipuram. Upon demanding an explanation regarding the amounts paid and the failure to secure the promised appointments, the Appellant allegedly abused the complainant and his family members and threatened to implicate them in a false case and to kill them if they continued demanding return of the money. The complainant claimed to have informed the Station House Officer, Police Station Phaphamau, Prayagraj, on the same day and furnished bank statements evidencing the transfers as well as a purported result of the Directorate of Education allegedly supplied by the Appellant.

Prior to registration of the impugned FIR, however, the complainant had approached the Additional Chief Judicial Magistrate, Prayagraj, under Section 156(3) Cr.P.C., seeking a direction for registration of an FIR on substantially similar allegations. The Magistrate obtained a report from the Police Crime Branch. The police report stated that the dispute appeared to concern a transaction relating to the purchase and sale of land, whereas the Section 156(3) application alleged that money had been paid for securing Government employment. Finding the complainant's version inconsistent with the police report, the Magistrate rejected the application by order dated 11.09.2024. The revision against the said order was also dismissed by the Sessions Court.

Thereafter, FIR No. 405/2024 came to be registered against the Appellant. Aggrieved thereby, the Appellant approached the Allahabad High Court under Article 226 of the Constitution seeking quashing of the FIR and consequential proceedings. The High Court rejected the petition, holding that the earlier rejection of the Section 156(3) application did not constitute a bar to registration of the subsequent FIR and that, on a prima facie consideration of the allegations, cognizable offences were disclosed. The Appellant consequently approached the Supreme Court.

Issues:

1. Whether rejection of an application under Section 156(3) Cr.P.C. operates as a bar to the subsequent registration of an FIR on the same or substantially similar allegations?
2. Whether an order rejecting a Section 156(3) application attracts the doctrine of res judicata so as to preclude subsequent criminal proceedings?
3. Whether rejection of a Section 156(3) application extinguishes or curtails the independent statutory obligation of the Police under Section 154 Cr.P.C. to register an FIR where information discloses a cognizable offence?
4. Whether the FIR was liable to be quashed on the ground that the underlying dispute was essentially civil in nature and arose out of a monetary/land transaction?

Submissions of the Parties:

The Appellant contended that the dispute arose from a longstanding commercial relationship concerning property and monetary transactions and was essentially civil in nature. He argued that the FIR was a second attempt to initiate criminal proceedings on substantially the same allegations already considered and rejected under Section 156(3) Cr.P.C., relying on Mohan Karthik. It was further submitted that the alleged offences were not made out, the FIR was mala fide, and the proceedings were liable to be quashed under the principles laid down in Bhajan Lal.

The State contended that the FIR was based on fresh incriminating material, including an audio recording, monetary transaction records and allegedly forged documents. It submitted that the FIR disclosed cognizable offences and that the existence of other FIRs involving similar allegations warranted investigation. The State further argued that rejection of the earlier Section 156(3) application did not legally bar independent FIR registration and that disputed questions regarding the transactions and evidence could not be adjudicated at the quashing stage

Observations of the Court:

The Court observed that Section 154, Section 156(3) and Section 190 Cr.P.C. form a graded statutory framework for setting the criminal law in motion. Section 156(3) enables the Magistrate to direct investigation where the Police fail to act, but such an order does not amount to taking cognizance under Section 190 Cr.P.C.

The Court further observed that rejection of a Section 156(3) application is not an adjudication on merits and therefore does not attract res judicata. It merely determines whether police investigation should be directed and does not decide the guilt, innocence or liability of the proposed accused. Consequently, such rejection does not bar subsequent registration of an FIR on the same or substantially similar allegations.

The Police’s duty under Section 154 Cr.P.C. is independent of any order under Section 156(3). Where the information discloses a cognizable offence, registration of an FIR is mandatory, irrespective of the outcome of an earlier Section 156(3) application. Mohan Karthik was distinguished as relating only to a second Section 156(3) application before the Magistrate, and not to independent FIR registration by the Police.

Held:

The Supreme Court on the facts, found that the FIR, taken at face value, disclosed cognizable offences. The disputed questions concerning the nature of the transactions, authenticity of documents and audio recordings, bank transactions and credibility of the parties were matters for investigation and trial, and could not justify quashing the FIR at the threshold. The appeal was accordingly dismissed and the FIR was upheld.

The judgment is significant in clarifying that rejection of a Section 156(3) Cr.P.C. application is not an adjudication on merits and does not attract res judicata or bar subsequent FIR registration on similar allegations. The Police’s duty under Section 154 Cr.P.C. operates independently where a cognizable offence is disclosed. The Court further distinguished Mohan Karthik, holding that the bar on a second Section 156(3) application does not preclude independent FIR registration. The judgment also reinforces that evidentiary credibility and competing versions are matters for investigation and trial, not ordinarily for quashing at inception.

INSOLVENCY & BANKRUPTCY LAW

Date: 12 August 2026

Case Name:Srinivasa Reddy Velagala v. Sravanthi Infratech Pvt. Ltd. Civil Appeal No. 876 of 2021

Forum: Supreme Court

The Respondent was awarded an EPC contract worth approximately INR 827 crore for setting up a 225 MW gas-based power plant at Bikkavolu, Andhra Pradesh. Under the EPC Contract dated 09.02.2011, payments were linked to specified milestones. Although the Respondent achieved the initial milestones and undertook procurement and other preparatory work, the Appellant failed to make the stipulated payments. The Respondent consequently suspended the works on 30.07.2011 and demobilised the site by November 2011.

The Respondent issued legal notices in 2014 and 2015 demanding its dues, but received no response. It thereafter issued a Section 8 IBC demand notice dated 02.07.2018 claiming approximately INR 1,292 crore and filed a Section 9 application on 12.10.2018. The NCLT admitted the application, holding that the claim constituted operational debt, the EPC Contract continued to subsist, there was no pre-existing dispute and the claim was within limitation. The NCLAT affirmed the order, leading to the present appeal.

Issues:

1. Whether the EPC Contract continued to subsist or stood frustrated/terminated by efflux of time?
2. Whether the amounts claimed by the Respondent constituted “operational debt” under Section 5(21) of the IBC?
3. Whether claims towards suspension charges, idling costs and demobilisation expenses could constitute operational debt in the absence of adjudication?
4. Whether a pre-existing dispute existed between the parties so as to bar admission of the Section 9 application under the IBC?
5. Whether the continued subsistence of the EPC Contract gave rise to a continuing cause of action, thereby keeping the Section 9 application within the period of limitation?
6. Whether the unilateral legal notices issued by the Respondent could extend or reset the limitation period under Section 18 of the Limitation Act, 1963?
7. Whether the Section 9 application filed on 12.10.2018 was barred by limitation?

Submission of the Parties:

The Appellant contended that the Section 9 application was barred by limitation, as the defaults had occurred years before its filing and there was no acknowledgment of liability under Section 18 of the Limitation Act. The Appellant further contended that a pre-existing contractual dispute existed and that the IBC could not be used as a mechanism for recovery of a stale debt.

On the issue of pre-existing dispute, the Appellant relied upon the Respondent's own legal notices to contend that disputes had arisen between the parties in relation to the EPC Contract. Relying upon Mobilox Innovations Pvt. Ltd. v. Kirusa Software (P) Ltd., it was argued that the insolvency process under Section 9 cannot be employed as a substitute for ordinary debt-recovery proceedings where a genuine dispute existed between the parties. The Appellant therefore sought setting aside of the NCLAT’s order and rejection of the Section 9 application.

Per Contra the Respondent contended that the EPC Contract had neither been terminated nor frustrated; suspension of work did not amount to termination. The Respondent contended that the continuing subsistence of the contract gave rise to a continuing cause of action and that the milestone payments constituted operational debt. It further submitted that no pre-existing dispute existed, as the Appellant had never responded to the repeated demands.On limitation, the Respondent argued that the claim represented a continuing cause of action, since the EPC Contract had remained suspended but had neither been terminated nor otherwise brought to an end. It was submitted that the statutory demand notice dated 02.07.2018 had been issued within three years of the last legal notice dated 15.07.2015 and that the claim was consequently within limitation.

Observations of the Court:

The Court held that the EPC Contract continued to subsist as neither party had exercised its contractual right of termination. Effluxion of time is distinct from frustration, and expiry of the contractual period, by itself, does not attract Section 56 of the Contract Act.

The Court held that contractual milestone payments constituted operational debt once due and payable. However, suspension, idling and demobilisation charges were claims for damages arising from alleged breach and could not constitute operational debt unless first adjudicated and crystallised by a competent court or arbitral tribunal.

On pre-existing dispute, the Court found that the Appellant’s continued silence in response to repeated legal notices, followed by raising its defence only in the Section 9 proceedings, indicated that the alleged dispute was an afterthought and not a genuine pre-existing dispute.

The Court, however, held limitation to be decisive. The relevant defaults had crystallised in 2012, and the Section 9 application filed in October 2018 was beyond the prescribed three-year period. The continued subsistence of the EPC Contract could not create a continuing cause of action. An unpaid debt may cause continuing damage, but does not constitute a continuing legal injury for limitation purposes. Further, unilateral legal notices cannot extend limitation under Section 18 in the absence of a written acknowledgment by the debtor.

Held:

The Supreme Court held that the EPC Contract subsisted and milestone payments constituted operational debt, while unadjudicated damages did not. However, the Section 9 application was barred by limitation. The subsisting contract and unilateral legal notices did not extend limitation absent acknowledgment by the Appellant, and the IBC cannot revive a time-barred debt. Accordingly, the appeal was allowed and the orders of the NCLT and NCLAT were set aside, with liberty granted to the Respondent to pursue its contractual claims before the appropriate dispute-resolution forum under the EPC Contract.

The judgment clarifies that mere subsistence of an EPC contract does not create a continuing cause of action for limitation under the IBC. A time-barred debt cannot be revived through the continued contract or unilateral legal notices. While contractual milestone payments may constitute operational debt, unadjudicated damages cannot. The judgment therefore reinforces that the IBC cannot be used to recover stale or time-barred contractual claims.

WHITE COLLAR CRIME

Date: 19 August 2026

Case Name:Rafikmiya Ahmediya Malek v. State of Gujarat, Crl. Appeal No. 1177 of 2015

Forum: Supreme Court

The Appellant in Criminal Appeal No. 1177 of 2015 (“A1”) and the Appellant in Criminal Appeal No. 1183 of 2015 (“A2”) challenged their conviction under Sections 7, 12, and 13(1)(d) of the Prevention of Corruption Act, 1988 (“PCA”), which had been upheld by the Hon’ble High Court vide judgment dated 22.01.2015. Both, A1 and A2, had been sentenced to rigorous imprisonment of one year, for offence punishable u/s 13(1)(d) of PCA and rigorous imprisonment of 6 months and a fine of ₹2,000/-, for offence punishable u/s 7 of PCA. 

The prosecution case stemmed from an Anti-Corruption Bureau (“ACB”) trap conducted on 19.02.1996. The complainant, a student who required an Income Certificate to avail certain concessions, alleged that A1, a Talati-cum-Mantri, had demanded a bribe of Rs 120/-, comprising Rs 100/- for himself and Rs 20/- for A2, the peon, on 07.02.1996. Upon refusing to comply with the unlawful demand, the complainant approached the ACB and lodged a complaint. During the trap, a currency note of Rs 20/- was given to A2, who placed it in his pocket. The raiding party then intervened and drew the necessary panchnama.

A1 and A2 were charged with offences under Sections 7, 12 and 13(1)(d) of PCA as well under Section 120B of IPC. The Ld. Trial Court observed that the demand was proven against A1 but not against A2, and that the prosecution had failed to prove the existence of any criminal conspiracy between A1 and A2. Nonetheless, both were convicted under Sections 7, 12 and 13(1)(d) of PCA. Both A1 and A2 challenged their conviction before the Hon’ble High Court, while the State sought enhancement of sentence. The High Court upheld the conviction but declined to enhance the sentence, noting that both accused had already been dismissed from service.

Issue:

1. Whether the demand of bribe was proved against A1 beyond reasonable doubt?
2. Whether conviction of A2 could be sustained when both the Court below had held that no demand was made by A2?

Submissions of Parties

On behalf of A1, it was contended that sanction to prosecute was granted by the Deputy District Development Officer, whereas under Section 19(1)(c) of PCA, the competent authority is the one empowered to remove the public servant i.e., the District Development Officer. Secondly, it was averred that the amount of Rs 100/- allegedly earmarked for A1 was neither offered to, nor recovered from him. Thirdly, it was stated that only on the basis of placing a note of Rs 20/- in the pocket of A2, A1 cannot be prosecuted. Fourthly, it was contended that there was no demand whatsoever made by A1. Lastly, it was contended that since the amount of Rs 20/- was stated to be given to A2 after receiving the certificate that was sought by the complainant, presumption under Section 20 of PCA would not arise.

On behalf of A2, it was contended that when any demand by A2 was not proved, as held by both the Courts below, it was clear that the complainant had thrust the note of Rs 20/- in the pocket of A2, without any demand. Secondly, it was contended that the defence plea that Rs 20/- was given to A2 on the eve of Eid after issuance of the certificate assumed significance.

The Respondent State contended that both the courts below had concurrently found that the demand of Rs 120/- by A1 was proved. The trap being successful, with Rs 20/- being found on A2, corroborated the demand and acceptance of bribe. The State contended that non-recovery of Rs 100/- from A1 did not negate the offence. Secondly, it was contended that the sanction granted for the prosecution of A1 and A2 was in accordance with law.

Observations of the Court:

The Hon’ble Court examined the testimony of the complainant and pointed out that there were material inconsistences. The complainant deposed that A1 had demanded a sum of Rs 120/-. However, in his testimony recorded in another trial arising out of the same incident, he stated that A1 had initially demanded Rs 200/- and that the amount was subsequently settled at Rs 120/- by way of a final agreement. Additionally, the Hon’ble Court noted a discrepancy between the versions of the complainant and the panch witness regarding the manner in which the currency note was allegedly handed over to A2.

The Hon’ble Court observed that the complainant in his deposition has stated that he was categorically instructed by the ACB to hand over the entire amount of Rs 120/- (in denominations of two Rs 50/- notes and one Rs 20/- note) upon demand. However, when the trap was laid, he gave only Rs 20/- to A2. The Bench noted that no explanation has been provided for this deviation from instructions. The Hon’ble Court observed that the complainant had stated that A1 had demanded Rs 120/-, yet when only Rs 20/- was handed over to A2, who was standing merely one to two feet away, A2 neither questioned the shortfall nor enquired about the balance amount. Thus, the Hon’ble Court observed that the prosecution evidence was insufficient to hold that a demand of Rs 120/- by A1 was provided beyond reasonable doubt.

Both the Courts below had acquitted A1 and A2 of criminal conspiracy under Section 120B IPC, finding no evidence of concert between them. The Hon’ble Court also noted that this aspect assumes significance as both the Courts below had held that it was proved that A1 had made the demand of bribe while it was only A2 who received the amount of Rs 20/-.

The Hon’ble Court observed that the Income Certificate, the issuance of which was the alleged subject matter of the demand, had already been prepared and handed over to the complainant before Rs 20/- was given to A2. The Hon’ble Court stated that the said fact assumes significance when the considered in totality of the prosecution material on record. Further, the Hon’ble Court noted that the defence raised by A2 that the festival of Eid was on the next day and, hence, the complainant gave Rs 20/- to him after receiving the Income Certificate is also probable.

The Hon’ble Court reiterated the settled legal position that the statutory presumption under Section 20 of PCA is conditional upon the prosecution first establishing a demand beyond reasonable doubt. The Hon’ble Court observed that where the initial demand itself is unproved, mere recovery of a currency note from the accused cannot activate the presumption so as to sustain a conviction.

The Hon’ble Court observed that the sanction for prosecuting A1, granted by the Deputy District Development Officer, was invalid. The Hon’ble Court stated that as per Section 19(1)(c) of PCA, the sanctioning authority must be the authority competent to remove the public servant from office, which in this case was the District Development Officer. Pertinently, the Hon’ble Court expressly declined to set aside the conviction on this ground alone, proceeding instead on the broader insufficiency, of the prosecution, in proving the charge beyond reasonable doubt.

Held:

The Hon’ble Court allowed the appeals, set aside the judgment of the Ld. Trial Court, as affirmed by the Hon’ble High Court, and acquitted A1 and A2 of all charges under Sections 7, 12 and 13(1)(d) of PCA.

The Hon’ble Court reaffirmed that mere recovery of tainted amount, in the absence of proof of demand, is insufficient to sustain a conviction and statutory presumption under Section 20 of PCA arises only upon proof of the initial demand beyond reasonable doubt.

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