Company Law | NCLT Can Examine Allegations Of Fraud & Validity Of Documents In Oppression & Mismanagement Cases : Supreme Court

The Supreme Court on Tuesday (Sep.2) observed that the National Company Law Tribunal (“NCLT”) has jurisdiction to examine allegations of fraud and validity of documents in oppression and mismanagement cases. The Court said that when “a member who holds the majority of shares in a company is reduced to the position of minority shareholder in the company by an act of the company or by its Board of Directors in a mala fide manner, the said act must ordinarily be considered to be an act of oppression against the said member.” The bench comprising Justice Dipankar Datta and Justice K. Vinod Chandran heard the case where the Appellant being an Executive Director and holding 98% of the shares in the company was ousted from the company based on fraudulent activities carried out by her husband and in-laws upon producing a gift deed allegedly transferring her shares to her mother-in-law, board resolutions approving her removal passed in meetings without proper notice to her or quorum, and records showing her resignation. The NCLT found these acts fraudulent and restored her directorship and shareholding. The NCLAT reversed, holding that issues of fraud and validity of the gift deed fell outside NCLT's summary jurisdiction. Setting aside the NCLAT's decision, the judgment authored by Justice Datta relied on the Tata Consultancy Services Ltd. v. Cyrus Investments (P) Ltd. (2021) to observe that “Tribunal ought to bring an end to the complaints of oppression and mismanagement and must not only avoid providing solutions that tend to elongate the complaints, but must also provide a solution to the problems.” “The aforesaid decisions confirm the view that the NCLT/CLB possess a wide jurisdiction to decide all such matters that are incidental and/or integral to the complaint alleging oppression and mismanagement. Such power is, however, subject to any other legislative enactment specifically debarring the NCLT/CLB from exercising its powers in this respect.”, the court said. “In the instant case, it is an admitted fact that the determination of whether the gift deed is valid or not is central to the decision herein and, therefore, the NCLT did have full jurisdiction to decide whether the gift deed is valid or not, or whether it is against the provisions of the 1956 Act and/or internal regulations of the COMPANY, including but not limited to the AoA and the Memorandum of Association.”, the court added. The Court held that the Appellant was subjected to oppression and mismanagement, and that the actions against him were framed in a way to disguise them as issues of fraud, specifically by questioning the authenticity of the gift deed, in order to oust the jurisdiction of the NCLT. “Applying the tests laid down in the aforesaid authorities, we have come to the conclusion that the Appellant was the victim of oppression and mismanagement in the instant case for two reasons: first, that the circumstances surrounding the gift deed and the subsequent transfer of shares are seriously questionable and must be declared invalid and secondly, the board meetings have been conducted in a mala fide manner and against both the statutory requirements of the 1956 Act and the internal regulations of the COMPANY. Both of these instances show that the affairs of the COMPANY were being conducted in a manner prejudicially affecting the Appellant.”, the court said. Accordingly, the appeal was allowed, and the NCLT's decision was restored. “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”, the court held. Cause Title: MRS. SHAILJA KRISHNA VS. SATORI GLOBAL LIMITED & ORS.Citation : 2025 LiveLaw (SC) 866Click here to read/download the judgmentAppearance: For Appellant(s) : Mr. Dhruv Mehta, Sr. Adv. Mr. Ankur Mittal, AOR Mr. Bimal Bhabhda, Adv. Ms. Muskan Jain, Adv. Mr. Keith Varghese, Adv. Ms. Jutirani Talukdar, Adv. For Respondent(s) :Mr. S Niranjan Reddy, Sr. Adv. Mr. Ashutosh Jha, AOR Mr. Ashutosh Gupta, Adv. Mr. Gaurav Rana, Adv. Mr. Oleander D Singh, Adv. Mr. Shivam Tomar, Adv. Mr. Gopal Sankaranarayanan, Sr. Adv. Ms. Sansriti Pathak, AOR Ms. Meha Aggarwal, Adv. Mr. Aman Prasad, Adv. Mr. Shourya Dasgupta, Adv. Ms. Trisha Chandran, Adv.

Company Law | NCLT Can Examine Allegations Of Fraud & Validity Of Documents In Oppression & Mismanagement Cases : Supreme Court

Yash Mittal

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