NCLT's Authority to Investigate Gift Deed Fraud in Oppression and Mismanagement Cases

In a landmark ruling, the Supreme Court of India has affirmed that the National Company Law Tribunal (NCLT) has the jurisdiction to examine allegations of fraud relating to a gift deed when such allegations form the core of a dispute involving oppression and mismanagement under the Companies Act. This decision has far-reaching implications for corporate governance and legal proceedings in India.

Mrs. Shailja Krishna, the appellant, approached the NCLT claiming that her resignation and transfer of shares in Satori Global Limited had been obtained through fraud, coercion, and manipulation. The NCLT allowed her petition in 2018, restoring her as a director and shareholder. However, in 2023, the National Company Law Appellate Tribunal (NCLAT) set aside that decision, reasoning that issues of fraud and coercion could only be tried by a civil court.

The appellant’s counsel argued that Sections 397 and 398 of the Companies Act, 1956 empowered the NCLT to inquire into acts of oppression and mismanagement, even if they involved fraudulent transfer of shares. They also contended that the gift deed was invalid under the Articles of Association, which did not permit the transfer of shares by way of gift to a mother-in-law. Additionally, they pointed out that the board meetings where her resignation was allegedly accepted were held without proper notice or quorum.

On the other hand, the respondents’ counsel argued that the NCLT had exceeded its jurisdiction in ruling on fraud and forgery, which required a full civil trial with oral evidence. They also maintained that the appellant had validly resigned and transferred her shares, and that her later complaints were delayed and without merit.

The bench, comprising Justice Dipankar Datta and Justice K. Vinod Chandran, observed that the NCLT has wide powers to decide matters incidental to complaints of oppression and mismanagement. They explained that refusing to exercise this jurisdiction would defeat the purpose of the law. The court pointed out that the gift deed violated the company’s Articles of Association and that the surrounding circumstances, including altered share transfer forms and irregular board meetings, demonstrated oppression and mismanagement.

The court held that the gift deed and share transfers were invalid, that the board meetings of 15 December 2010 and 17 December 2010 were conducted illegally, and that the appellant was unlawfully removed from management. Consequently, the judgment of the NCLAT was set aside, and the NCLT’s order was restored.

The court allowed the appeals and directed that the appellant be reinstated as a director and shareholder, with all consequential reliefs. Parties were directed to bear their own costs. This decision underscores the NCLT’s authority to address complex corporate disputes, ensuring that acts of oppression and mismanagement are thoroughly examined and rectified.