Delhi HC Dismisses Unpaid Startup Worker’s 5% Equity Suit, Finding No Proof Of Imminent Share Dilution To Bypass Mediation

The plaintiff claimed that, after working without remuneration for the defendant company, he had been promised 10% equity subject to a four-year vesting schedule and that 5% had vested when he left in October 2025.

He sought, among other reliefs, specific performance for allotment or transfer of shares, or damages in lieu, and an injunction against dilution of his claimed entitlement.

The plaintiff filed the suit on 30 September 2026 without first pursuing pre-institution mediation, asserting that the defendants might raise equity and thereby create third-party rights.

The Court considered the plaintiff’s application for exemption under Section 12A of the Commercial Courts Act, 2015.

Section 12A(1) of the Commercial Courts Act, 2015 bars institution of a suit that does not contemplate urgent interim relief unless the plaintiff first exhausts pre-institution mediation.

Patil Automation Private Limited v. Rakheja Engineers Private Limited, (2022) 10 SCC 1, establishes that this requirement is mandatory, subject to the urgent-interim-relief exception.

Under Yamini Manohar v. T.K.D. Keerthi, (2024) 5 SCC 815, the Court must assess the nature and subject matter of the suit, the cause of action and the interim-relief prayer holistically from the plaintiff’s standpoint; the plaint and supporting material must indicate a genuine need for urgency, rather than use the prayer as a device to avoid mediation.

Dhanbad Fuels Private Limited v. Union of India, 2025 INSC 696, and Novenco Building and Industry A/S v. Xero Energy Engineering Solutions Private Ltd., 2025 INSC 1256, reiterate that urgency cannot be an unfounded excuse and must be disclosed by a wholesome reading of the plaint and its supporting material.

The Court found that the dispute was principally a claim to equity or its monetary value, which was suitable for an attempt at mediation; the parties had previously discussed a cash exit and settlement.

Although the plaintiff filed suit more than four months after the defendants denied his entitlement, delay was considered alongside the absence of evidence of any imminent transaction.

The plaint alleged only a general apprehension of dilution, while the assertion that fundraising was advanced was made orally and without supporting documents; the older investor documentation and company records did not establish a present or imminent share allotment.

The plaintiff’s loss of access to company communications did not itself demonstrate urgency, and issuing notice merely to determine whether fundraising was underway would undermine Section 12A.

The Court held that the cited contempt decision in Dr. Hans U. Nagar v. John Nagar & Anr. did not address Section 12A or the urgent-relief exception and was distinguishable.

It dismissed the exemption application and, consequently, dismissed the plaint and pending applications, while permitting the plaintiff to institute a fresh suit if pre-institution mediation failed.

The Court clarified that its observations were limited to the Section 12A exemption issue and did not express an opinion on the merits.