Oppression Must Be Continuous, Ex Shareholder Cannot File Oppression Plea: NCLT Chennai

The National Company Law Tribunal (NCLT) at Chennai recently reiterated that oppression must be continuous and ongoing and that a person who has ceased to be a shareholder cannot file a plea alleging oppression and mismanagement.

A coram of Judicial Member Jyoti Kumar Tripathi and Technical Member Ravichandran Ramasamy said such remedies are available only to existing members whose rights are presently affected.

The tribunal said, “Oppression under Section 241 must be continuous, ongoing, and prejudicial to the rights of a member. When the petitioner is not a member after 2011–12, the question of oppression upon him as a member does not arise. A person who is not a member cannot complain of prejudice to membership rights.”

The dispute involved Stalin Nova Gnanaraj and Shalom Garments Private Limited, a closely held family company. Stalin was a shareholder and director and held 5,000 equity shares, about 19.41 percent. He said that in early 2021, while reviewing company records, he discovered that his name was missing from the register of members and that he was no longer shown as a director.

He alleged that his shares were fraudulently transferred to his father and that records were fabricated. He also claimed he never resigned as director, even though the annual return for 2004-05 records his resignation from November 2, 2004.

The company, however, denied the allegations. They said Stalin resigned voluntarily in November 2004 and transferred his shares to his father in 2010–11. They argued that once he ceased to be a shareholder, he had no right to invoke remedies meant for members alleging oppression or mismanagement. They also relied on statutory filings showing he was not a shareholder after 2011–12.

Accepting this, the tribunal reiterated that long-settled corporate records cannot be reopened after extraordinary delay. It said corporate filings remain valid unless challenged within a reasonable time.

“It is trite law that corporate filings subsist unless challenged promptly. A challenge after 19 years is not maintainable. Even assuming the Petitioner was abroad on the date of resignation, the Tribunal cannot reopen filings of 2004–2005 after two decades without cogent evidence” the tribunal observed.

It added that even a claim of being abroad on the date of resignation was not enough to undo filings made two decades earlier.

The tribunal also found no material to support allegations of mismanagement. It noted the absence of board minutes, auditor remarks, financial qualifications, or whistle-blower complaints.

Emphasising the burden of proof fell on the one making allegations, it said, “Where a shareholder alleges fraudulent deprivation of shares, the burden is on him to produce minimum evidence like bank statements, emails objecting to transfer, Board minutes, correspondence showing surprise upon discovering removal. None of these exist."

With no such evidence, and holding that oppression must be ongoing and affect a current member, the tribunal dismissed the petition.