NCLT Empowered to Examine Fraud and Gift Deed Validity in Oppression and Mismanagement Cases: Supreme Court
- REEDLAW
- Sep 4
- 4 min read
REEDLAW Legal News Network reports: In a significant ruling, the Supreme Court clarified that the National Company Law Tribunal (NCLT) possesses the jurisdiction under Sections 397 and 398 of the Companies Act, 1956, to adjudicate issues of fraud and the validity of a gift deed when these questions are integral to allegations of oppression and mismanagement. The Court further held that the NCLAT erred in concluding otherwise, reaffirming the NCLT’s comprehensive authority in corporate governance disputes.
The Supreme Court Bench of Justice Dipankar Datta and Justice K. Vinod Chandran, while adjudicating a batch of two Appeals, held that the NCLT is empowered to examine issues relating to fraud and the validity of a gift deed where such issues form a core part of allegations concerning oppression and mismanagement. The judgment reinforces the Tribunal’s jurisdictional competence under the Companies Act, 1956 and sets aside the contrary view expressed by the NCLAT.
The Supreme Court considered civil appeals arising out of a dispute relating to alleged acts of oppression and mismanagement under Sections 397 and 398 of the Companies Act, 1956. The controversy originated when the National Company Law Tribunal (NCLT), Allahabad Bench, by its order dated 04 September 2018, allowed a petition filed by Mrs. Shailaja Krishna and granted extensive relief, including restoration of her as Executive Director and reinstatement of her shareholding. The NCLT found manipulation in share transfer forms, invalidated a gift deed transferring 39,500 shares to her mother-in-law, and set aside certain board resolutions. Aggrieved, the company and other respondents preferred appeals before the National Company Law Appellate Tribunal (NCLAT), which, by its judgment dated 02 June 2023, set aside the NCLT’s order on the ground that questions of fraud, coercion, and forgery required adjudication by a civil court, not a tribunal exercising summary jurisdiction.
Before the Supreme Court, the appellant contended that the NCLT had jurisdiction to adjudicate upon issues incidental to allegations of oppression and mismanagement, including the validity of the gift deed, and relied on judicial precedents affirming the wide powers of the Tribunal under Sections 397 and 398. It was argued that the gift deed was obtained under fraud and coercion, the share transfer forms had expired, and the board meetings affecting her resignation and transfer of shares were conducted without notice or quorum, in violation of the Articles of Association and statutory provisions. The respondents, on the other hand, argued that the NCLT exceeded its jurisdiction by adjudicating fraud without recording oral evidence, that the extension of share transfer validity by the Registrar of Companies was proper, and that the appellant had voluntarily resigned and gifted her shares.
The Court examined the scope of the NCLT’s jurisdiction under Sections 397 and 398, referring to precedents such as Radharamanan v. Chandrasekara Raja, Kamal Kumar Dutta v. Ruby General Hospital Ltd., and Tata Consultancy Services Ltd. v. Cyrus Investments (P) Ltd. It reaffirmed that the Tribunal exercises wide quasi-judicial powers to bring an end to acts of oppression and mismanagement and may grant appropriate relief even when allegations of fraud are involved, provided such issues are integral to the complaint. The Court held that the validity of the gift deed was central to the case and could not be excluded from the NCLT’s consideration. The Tribunal was competent to examine whether the deed was contrary to law or the company’s Articles of Association.
On fact, the Court noted that the appellant had been the majority shareholder with over 98% shares until December 2010, and the subsequent transfer of shares, acceptance of resignation, and reconstitution of the board occurred in circumstances raising serious doubt about procedural compliance and good faith. The Court endorsed the principle that while an isolated act may not amount to oppression, a series of acts resulting in wrongful deprivation of proprietary and participatory rights constitutes oppression within the meaning of Section 397. Accordingly, the Supreme Court allowed the appeals, set aside the judgment of the NCLAT, and restored the order of the NCLT with necessary observations.
Mr. Dhruv Mehta, Senior Advocate, represented the Appellant.
Mr. Niranjan Reddy, Senior Advocate, appeared for the Respondent No. 1.
Mr. Gopal Sankarnarayanan, Senior Advocate, appeared for the Respondent No. 4.
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