NCLT can examine fraud in oppression and mismanagement cases: Supreme Court

The Supreme Court on Tuesday ruled that the National Company Law Tribunal (NCLT) has the jurisdiction to adjudicate allegations of fraud, coercion and manipulation when they are integral to complaints of oppression and mismanagement under company law [Shailaja Krishna Vs Satori Global Limited].

A Bench of Justices Dipankar Datta and Vinod Chandran set aside a National Company Law Appellate Tribunal (NCLAT) ruling and restored a 2018 order of the NCLT's Allahabad Bench in favour of one Shailja Krishna.

The NCLT had set aside a gift deed and share transfers by which Krishna’s 98% majority shareholding in Satori Global Limited was shown to have been transferred to her mother-in-law.

The Supreme Court held that the NCLT has the power to decide the same.

"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 top court said.

Satori Global Limited (earlier Sargam Exim Pvt. Ltd.) was incorporated in 2006 by Shailja Krishna and her husband Ved Krishna.

By 2007, Shailja held 39,500 out of 40,000 issued shares, giving her over 98% ownership.

In December 2010, two board meetings were allegedly held without notice to her. Records reflected that on December 17, 2010, she resigned as director and executed a gift deed transferring her entire shareholding to her mother-in-law, Manjula Jhunjhunwala.

Shailja denied this, claiming she was coerced into signing blank documents and was not present at Faizabad on the date in question.

She lodged police complaints and also moved the Company Law Board (later the NCLT), alleging that her ouster was engineered through fraud and manipulation

In September 2018, the NCLT allowed her petition, set aside the December 2010 resolutions, declared the share transfer void, and directed restoration of her as shareholder and director. It also found evidence of manipulation in the share transfer forms, including overwriting and use of expired documents.

On appeal, the NCLAT in June 2023 reversed the order. It held that the NCLT had no jurisdiction to decide issues of fraud or coercion which could only be adjudicated by a civil court under the Specific Relief Act.

The Supreme Court definitively ruled on NCLT's jurisdiction, holding:

"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 Supreme Court's ultimate finding was comprehensive.

"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."

Thus, the Court concluded that interference by the NCLAT with the judgment and order of the NCLT was quite unnecessary.

Therefore, the Court set aside the NCLAT's June 2023 order and restored the NCLT's September 2018 decision.

The petitioners were represented by Senior Advocate Dhruv Mehta with advocates Ankur Mittal, Bimal Bhabhda, Muskan Jain, Keith Varghese and Jutirani Talukdar.

The company was represented by Senior Advocate S Niranjan Reddy with advocates Ashutosh Jha, Ashutosh Gupta, Gaurav Rana, Oleander D Singh and Shivam Tomar.

Ved Krishna was represented by Senior Advocate Gopal Sankaranarayanan with advocates Sansriti Pathak, Meha Aggarwal, Aman Prasad, Shourya Dasgupta and Trisha Chandran.

[Read Judgment]