The Supreme Court of India, in a significant ruling, has affirmed the National Company Law Tribunal’s (NCLT) authority to examine allegations of fraud and the validity of documents like gift deeds when adjudicating petitions concerning oppression and mismanagement under the Companies Act, 1956. A bench of Justices Dipankar Datta and K. Vinod Chandran set aside a judgment of the National Company Law Appellate Tribunal (NCLAT) and restored the NCLT’s order, which had found in favour of a majority shareholder whose shares were allegedly transferred fraudulently.
The case, Mrs. Shailja Krishna vs. Satori Global Limited & Ors., revolved around a petition filed by Mrs. Shailja Krishna under Sections 397 and 398 of the Companies Act, 1956, alleging that her 98% shareholding in the company was illegally transferred and that she was wrongfully removed from its directorship through a series of oppressive acts. The NCLT had allowed her petition, but the NCLAT overturned this, stating the NCLT lacked jurisdiction to decide on issues of fraud and coercion, which it held were matters for a civil court. The Supreme Court reversed the NCLAT’s finding, declaring its interference “quite unnecessary.”
Background of the Case
The company, Satori Global Limited (formerly Sargam Exim Private Limited), was incorporated in 2006 by Mrs. Shailja Krishna (the Appellant) and her husband, Mr. Ved Krishna (the second Respondent). By the end of the financial year 2006-2007, the Appellant held 39,500 out of 40,000 equity shares, constituting over 98% of the company’s shareholding.
Following a strain in the marital relationship between the Appellant and the second Respondent, a series of events unfolded. On December 17, 2010, the Appellant is stated to have resigned from the company. On the same day, a gift deed was executed through which the Appellant purportedly transferred her entire shareholding to her mother-in-law, Mrs. Manjula Jhunjhunwala (the fourth Respondent).
The Appellant subsequently filed police complaints alleging she was coerced into signing blank documents. Amidst the dispute, the second Respondent was re-appointed as a director, and the company was converted into a public limited company. The Appellant later discovered her name had been removed from the list of shareholders, leading her to file a company petition before the Company Law Board (later transferred to the NCLT).
The NCLT, in its order dated September 4, 2018, ruled in favour of the Appellant. It set aside the board resolutions that accepted her resignation, declared the share transfer null and void due to overwriting and expiry of the share transfer form’s validity, and restored her as an Executive Director and lawful owner of the 39,500 shares.
Arguments of the Parties
Appellant’s Submissions: Mr. Dhruv Mehta, learned senior counsel for the Appellant, argued that the NCLAT erred by re-appreciating factual findings. He contended that:
- The NCLT is empowered to look into fraudulent share transfers under the Companies Act.
- The gift deed was invalid as the Articles of Association (AoA) did not permit a share transfer by gift to a mother-in-law.
- The board meetings of December 15 and 17, 2010, were invalid due to lack of notice to the Appellant and absence of the requisite quorum of two directors.
- The share transfer forms were fraudulently prepared, used after their validity had expired, and tampered with to bring the transfer within an extended period.
Respondents’ Submissions: Mr. Niranjan Reddy, learned senior counsel for the company, and Mr. Gopal Sankarnarayanan, for the fourth Respondent, defended the NCLAT’s order, arguing that:
- The NCLT, in its summary jurisdiction, could not adjudicate complex questions of fraud, coercion, and forgery, which are the domain of a civil court under the Specific Relief Act, 1963.
- The Appellant lacked the locus standi to file the company petition as she did not meet the 10% shareholding requirement under Section 399 of the 1956 Act at the time of filing.
- The Appellant’s resignation was valid and took effect immediately upon submission.
- There was an inordinate delay in filing the company petition, suggesting it was an afterthought.
Supreme Court’s Analysis and Decision
The Supreme Court framed four key issues for determination, including the maintainability of the petition, the NCLT’s jurisdiction, and whether the appellant was a victim of oppression and mismanagement.
On Maintainability and Jurisdiction: The Court concurred with the NCLT’s finding that the company petition was maintainable, particularly given the allegations of fraud and coercion that were proved to the NCLT’s satisfaction.
Addressing the central question of jurisdiction, the Court held that the NCLT possesses wide powers to decide all matters incidental to a complaint of oppression and mismanagement. Citing its previous judgments in Radharamanan v. Chandrasekara Raja and Tata Consultancy Services Ltd. v. Cyrus Investments (P) Ltd., the bench affirmed that the tribunal’s role is to “bring to an end the matters complained of.” The Court concluded that determining the validity of the gift deed was central to the case, and therefore, “the NCLT did have full jurisdiction to decide whether the gift deed is valid or not.”
On Oppression and Mismanagement: The Court undertook a detailed analysis of what constitutes “oppression,” referring to landmark cases like Shanti Prasad Jain v. Kalinga Tubes Ltd. and Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. It noted that while an isolated illegal act may not be oppressive, “a series of illegal acts upon one another can, in the context, lead justifiably to the conclusion that they are a part of the same transaction, of which the object is to cause or commit the oppression.”
Applying these principles, the Court found clear evidence of oppression and mismanagement for two primary reasons:
- Invalidity of the Gift Deed and Share Transfer: The Court found the gift deed invalid because it violated Clause 16 of the company’s AoA, which did not permit a share transfer by way of gift to a mother-in-law. It also noted the “questionable” circumstances surrounding the deed and found “clear overwriting and mismatch of dates on the share transfer form.”
- Invalidity of Board Meetings: The Court held that the board meetings of December 15 and 17, 2010, were invalid on two counts. First, no notice was served on the Appellant, a director at the time, in violation of the AoA and Section 286 of the 1956 Act. Second, the meetings lacked the requisite quorum of two directors, as the Appellant was absent. Consequently, the induction of a new director in the first meeting was illegal, and his presence could not cure the quorum defect in the second meeting.
Conclusion
The Supreme Court concluded that the cumulative effect of these actions demonstrated a clear case of oppression. The judgment states, “Collectively taken, all these actions of the COMPANY in serial fashion demonstrate clear oppression and mismanagement in its affairs. Probity is lacking which is prejudicial to the appellant.”
Holding the NCLAT’s interference to be “quite unnecessary,” the Supreme Court allowed the appeals, set aside the appellate tribunal’s common judgment, and restored the NCLT’s order from September 4, 2018.
