The Supreme Court has reaffirmed that the National Company Law Tribunal (NCLT) holds the authority to investigate allegations of fraud and assess the authenticity of documents in cases concerning oppression and mismanagement within companies.
In its judgment delivered on September 2, a bench of Justice Dipankar Datta and Justice K. Vinod Chandran observed that when a majority shareholder is mala fide reduced to a minority by the company or its board, such conduct would generally amount to oppression.
Case Background
The matter involved an appellant who was serving as an Executive Director and held 98% of the company’s shares. She alleged that her removal was orchestrated through fraudulent acts by her husband and in-laws, including the use of a disputed gift deed transferring her shares to her mother-in-law, board resolutions passed without proper notice or quorum, and fabricated records suggesting her resignation.
While the NCLT ruled in her favor, holding the acts to be fraudulent and restoring her shareholding and directorship, the National Company Law Appellate Tribunal (NCLAT) reversed this decision. The NCLAT concluded that the issues of fraud and validity of the gift deed fell outside NCLT’s summary jurisdiction.
Supreme Court’s Observations
Setting aside the NCLAT’s decision, the Supreme Court relied upon its earlier ruling in Tata Consultancy Services Ltd. v. Cyrus Investments (P) Ltd. (2021). Justice Datta, authoring the judgment, stated:
“The Tribunal is duty-bound to resolve complaints of oppression and mismanagement effectively and must not adopt an approach that prolongs such disputes.”
The Court emphasized that the NCLT/CLB enjoys wide jurisdiction to decide matters integral or incidental to complaints of oppression and mismanagement, subject only to explicit legislative restrictions.
Findings of the Court
The Court noted that the validity of the gift deed was central to the dispute and that the NCLT was competent to determine its authenticity as well as the compliance of related actions with the Companies Act, 1956, and the company’s internal rules, including its Articles of Association and Memorandum of Association.
The Supreme Court found that:
- The gift deed and subsequent transfer of shares were highly questionable and must be declared invalid.
- The board meetings approving her removal were conducted in a mala fide manner, violating statutory provisions and internal company regulations.
Collectively, these acts demonstrated clear oppression and mismanagement that prejudicially affected the appellant.
Final Verdict
The Supreme Court allowed the appeal, set aside the NCLAT’s ruling, and reinstated the NCLT’s decision. It held that the company’s actions lacked probity and were designed to undermine the appellant’s rights.
