Supreme Court Upholds NCLAT Ruling: Invalid Share Transfers and Fabricated Resignations Amount to Oppression and Mismanagement
- REEDLAW
- Aug 3
- 3 min read
Updated: Aug 12
REEDLAW Legal News Network reports that the Supreme Court has upheld the NCLAT’s decision holding that invalid share transfers and fabricated resignations constitute acts of oppression and mismanagement. The Court emphasized that incomplete or suspicious documents cannot validate share transfers or director resignations, and a continuous cause of action arises when original shareholders are unlawfully excluded from the affairs of the company.
The Supreme Court Bench comprising Justice Pamidighantam Sri Narasimha and Justice Atul S. Chandurkar, while adjudicating a Civil Appeal along with connected Interlocutory Applications, observed that a continuous cause of action exists when original shareholders are unlawfully excluded from company affairs. The Court held that invalid, incomplete, or suspicious documents cannot establish a valid share transfer or resignation. It affirmed that the NCLAT rightly set aside the NCLT’s findings on delay and upheld the shareholders’ rights against acts of oppression and mismanagement.
The Supreme Court dismissed the statutory appeal filed under Section 10GF of the Companies Act, 1956, and affirmed the judgment dated 03.11.2017 passed by the National Company Law Appellate Tribunal (NCLAT) in Company Appeal (AT) No. 208 of 2017. The appeal arose from a dispute wherein the respondents had initially filed a Company Petition before the Company Law Board alleging oppression and mismanagement by the appellants, asserting that their resignations were manipulated and that their shareholding had not been validly transferred. The NCLT had dismissed the petition on the grounds of delay and upheld the alleged share transfer, leading to the appeal before NCLAT.
The NCLAT reversed the findings of the NCLT, holding that the cause of action was continuing as the appellants were still in possession of the original share certificates and continued to be excluded from the company’s affairs. It found that the documents relied upon by the appellants to prove share transfer and resignations were incomplete, contradictory, and highly suspicious. Notably, the share transfer forms lacked execution dates, company names, and essential shareholding particulars, while resignation letters predated the alleged consideration. Annual returns showed the appellants continuing as directors even years after the purported resignations and share transfers.
The Supreme Court, after considering the findings of the Appellate Tribunal, held that the conclusions arrived at by the NCLAT on facts were sound and did not suffer from any legal or factual infirmity. It found no merit in the appeal and accordingly dismissed it, affirming the judgment of the NCLAT in full.
Mr. Ashok Anand, AOR, Mr. Tejaswi Kumar Pradhan, AOR, Mr. Motahar Hossain, Mrs. Sarifa Chowdhury, and Mr. Manoranjan Paikaray, Advocates, represented the Appellant.
Ms. Purti Gupta, AOR, Ms. Purti Gupta (arguing Counsel), Ms. Henna George, Ms. Sunidhi Sah, and Ms. Pooja, Advocates, appeared for the Respondents.
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