Full Judgment Text
REPORTABLE
2025 INSC 1065
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 6377-6378 OF 2023
MRS. SHAILJA KRISHNA … APPELLANT
VS.
SATORI GLOBAL LIMITED & ORS. … RESPONDENTS
J U D G M E N T
DIPANKAR DATTA, J.
T HE A PPEALS
1 2
1. National Company Law Tribunal, Allahabad Bench allowed a company petition
3
filed by Mrs. Shailaja Krishna under Sections 397 & 398 of the Companies Act,
4 5
1956 by its judgment and order dated 04.09.2018. In appeals thereagainst , the
6
National Company Appellate Tribunal, Principal Bench at New Delhi vide its
nd
common judgment and order dated 2 June, 2023 set aside the said judgment
CLT
and order of the N and allowed two sets of appeals of the respondents. These
civil appeals assail the said appellate judgment and order of the N CLAT .
1
CLT
N
2
CP. IB No. 107/ND/2013
3
Appellant
4
1956 Act
5
Company Appeal (AT) No. 379/2018
6
N CLAT
Signature Not Verified
Digitally signed by
JATINDER KAUR
Date: 2025.09.02
16:31:57 IST
Reason:
1
B RIEF F ACTS
7
2. The first respondent - “Satori Global Limited” - a private limited company was
earlier known as Sargam Exim Private Limited. The C OMPANY , incorporated on
13.04.2006, primarily engaged in trading of paper. Sargam Exim Private Limited’s
transition to Satori Global Limited will unfold as we proceed to narrate the facts.
OMPANY
3. At the time of incorporation in 2006, the authorized share capital of the C
was Rs. 2 crores divided in to 20,00,000 equity shares of Rs. 10 each. The
subscribed and paid-up capital of the C OMPANY initially was Rs. 3 lac divided into
30,000 equity shares of Rs. 10 each.
4. The Appellant and the second respondent – Mr. Ved Krishna – the Appellant’s
OMPANY
husband were the original promoters of the C . The Appellant initially
subscribed to 5,000 equity shares, while the second respondent subscribed to the
remaining 25,000 shares. In December 2006, the second respondent transferred
24,500 shares to the Appellant, thereby increasing her shareholding to 29,500
shares. The remaining 500 shares of the second respondent were transferred to
the third respondent-Mr. Nirupam Mishra.
5. Subsequently, an additional 10,000 shares were issued to the Appellant. By the
OMPANY
end of financial year 2006-2007, she held 39,500 shares of the C out of a
total of 40,000 equity shares of the issued and paid-up share capital, representing
more than 98% of the C OMPANY ’s shareholding.
6. On 01.02.2007, the second respondent resigned from the directorship of the
C OMPANY . His resignation was accepted at the board meeting and the third
OMPANY
respondent was inducted as Director of the C in his place.
7
C OMPANY
2
7. In the same year, the company made a long-term investment in M/s Yash Papers
Ltd. (now known as Pakka Limited) by acquiring 10 lakh equity shares of the said
company of Rs 10 each including 30 lakh equity warrants of Rs 11 each of which
Rs 1.10 per warrant was paid. The balance sheet for the year 2007 reflected a
holding of approximately 33,34,500 shares in M/s Yash Papers Ltd., representing
around 14% of its shareholding.
8. On 15.12.2010, the fifth respondent was inducted as an additional director in the
C OMPANY . Subsequently, on 17.12.2010, the Appellant is stated to have resigned
from the C OMPANY . Her resignation was accepted at a board meeting attended by
the third respondent and the fifth respondent.
9. On the same day, that is, on 17.12.2010, a gift deed was executed in Faizabad
through which the Appellant purportedly transferred her entire shareholding in
the C OMPANY to the fourth respondent – Mrs. Manjula Jhunjhunwala – her mother-
in-law out of love and affection.
10. The Appellant’s entire shareholding was transferred to fourth
respondent vide Share Transfer Form dated 01.10.2010 and the validity of which
was allegedly extended up to 12.11.2011.
11. Around 2009-2010, the Appellant and the second respondent drifted apart
resulting in a strained marital relationship.
12. On 05.02.2011 and then again on 25.03.2011, the Appellant lodged police
complaints alleging that she had been coerced into signing some blank
documents. On or about 15.06.2011, the second respondent left India for the
USA, where he instituted divorce proceedings against the Appellant.
3
13. In the meantime, a meeting of the Board of Directors was convened wherein
notice was issued for an Extraordinary General Meeting (“EoGM”) to be held on
20.06.2011. The second respondent was re-appointed as Director of the C OMPANY
OMPANY
and, at the said EoGM, the C was converted into a public limited company
under the name Satori Global Limited.
14. Appellant thereafter lodged her third police complaint on the same lines as the
8
first two. She also addressed communications to the Registrar of Companies and
9
the Ministry of Corporate Affairs , informing them of the circumstances. On
18.11.2011, the alleged transfer forms were utilised to effect transfer of her
shares in favour of the fourth respondent.
15. Appellant also filed a petition under the Protection of Women from Domestic
Violence Act, 2006 against the second and the fourth respondent. Later that year,
she came to know that her name has been removed from the list of shareholders
and instead, the fourth respondent was shown to have acquired her
shareholdings. This led to filing of another complaint by the appellant, which
resulted in registration of FIR No. 105/2013 against the second to fifth
10
respondents under Sections 406, 419 and 420 of the Indian Penal Code, 1860 .
16. Subsequently, the fourth respondent also filed an FIR against the appellant under
Section 406, IPC alleging breach of trust with regard to the family jewellery
belonging to the fourth respondent wherein she claimed that on 17.12.2010, the
appellant changed her bank locker from a joint locker that she held with the
second respondent to a locker singly held by her.
8
RoC
9
MoCA
10
IPC
4
11
17. Amidst these circumstances, the appellant filed a company petition before the
12
Company Law Board, New Delhi which was ultimately allowed with costs by the
N CLT , vide its judgment and order dated 04.09.2018. The Board resolutions dated
CLT
15.12.2010 and 17.12.2010 were set aside. N restored the appellant as an
Executive Director of the C OMPANY and declared her as the lawful owner of 39,500
equity shares, holding the share transfer dated 18.11.2011 in favour of the fourth
respondent null and void. The C OMPANY was directed to reinstate the appellant as
Director, and the fourth respondent ordered to return the share certificates within
15 days. N CLT found overwriting and manipulation in the share transfer form, and
noted that it was executed after its validity had expired. RoC was found to be
lacking the power under Section 108(1-D) of the 1956 Act to extend its validity
in such circumstances. N CLT also found Form 7C to be incomplete and the
extension of validity by RoC doubtful, warranting inquiry by the MoCA.
18. Aggrieved thereby, two separate appeals were carried to the N CLAT – one by the
13 14
C OMPANY and the fifth respondent and the other by the fourth respondent .
CLAT
N , as noted at the beginning of this judgment, allowed the appeals and held
the company petition to be not maintainable.
MPUGNED UDGMENT
I J
19. N CLAT set aside the judgment and order of the N CLT on the ground that it did not
have jurisdiction to decide issues of fraud, manipulation and coercion; more so,
in the exercise of its summary jurisdiction when examination of elaborate
11
Company Petition No 107/ND/2013
12
CLB
13
Company Appeal (AT) No. 379 of 2018
14
Company Appeal (AT) no. 395 of 2018
5
evidence is required. Hence, the appropriate course of action available to the
Appellant was to approach the civil court under Sections 31 and 34 of the Specific
15
Relief Act, 1963 for cancellation of the disputed gift deed.
RGUMENTS
A
S UBMISSIONS O F T HE A PPELLANT
20. Learned senior Counsel for the Appellant, Mr. Dhruv Mehta advanced extensive
arguments in support of his contention that the impugned judgment and order of
the N CLAT is unsustainable in law and hence, liable to be set aside; and prayed
that the judgment and order of the N CLT be restored. A brief synopsis of his
argument is as follows:
a. The Companies Act, 2013, particularly Section 242 thereof, empowers the
N CLT to look into acts of oppression and mismanagement even when they
involve fraudulent transfer of shares.
b. N CLAT travelled beyond its jurisdiction by re-appreciating factual findings,
particularly on issues of fraud, coercion, and oppression, which squarely fell
CLT
within the province of the N .
c. The bar under Section 399 of the 1956 Act which, inter alia , provides for
the requirement of 10% of the shareholding for a member to initiate an
action under this said section does not stand in the way, since the Appellant
was a member of the C OMPANY at all material times and the impugned Gift
Deed being vitiated by fraud could not divest her of her membership. In
addition to this, Section 399 of the 1956 Act has consistently been
15
1963 Act
6
interpreted liberally, to ensure that minority shareholders are not rendered
remediless.
d. The affairs of the C OMPANY were being conducted in a manner which was
oppressive to the Appellant and prejudicial to public interest. Appellant had
been excluded from participation in management and her name was
wrongly removed from the register of members, resulting in her ouster as
Director without following due process.
e. Gift Deed dated 17.12.2010 is invalid:
i. in view of Clause 16 read with Clause 2(c) of the Articles of
16
Association . Clause 16 of AoA of the C OMPANY allows the transfer of
shares of a member by way of a gift to a specific category of persons
only, namely, ‘Members, Wife, Husband, Son, Daughter-in-law, Son-
in-law, Father, Mother, Brother, Sister, Uncle, Nephew, Niece or
Cousin’. Clause 2(c) of the AoA lays down that the right to transfer
the shares of the C OMPANY shall be and is restricted in a manner and
to the extent provided in the AoA. Hence, Clause 16 of AoA must be
read in the context of and along with clause 2(c) and cannot be read
in isolation. This way the transfer in favour of the mother-in-law by
way of ‘gift’ is not permitted under the AoA of the C OMPANY .
ii. because it was obtained under fraud, coercion, and undue influence.
The second respondent had obtained the signatures of the Appellant
on blank papers and later forged it, as the Appellant was not in the
city of Faizabad on the relevant date.
16
AoA
7
f. Board meetings dated 15.12.2010 and 17.12.2010 are invalid:
i. because they were conducted in clear violation of the AoA of the
C OMPANY and the provisions of the 1956 Act.
ii. clause 53 of the AoA stipulates that every board meeting should have
a quorum of at least 2 members. However, in the present factual
milieu, on the date of the board meeting dated 15.12.2010 the
quorum was not complete as the Appellant never attended this
meeting. The C OMPANY at that point of time had only two directors,
the Appellant and the third respondent.
iii. quorum was also not met in the meeting dated 17.12.2010 as
inclusion of the fifth respondent as a director via the board meeting
dated 15.12.2010 has no legal sanction.
iv. clauses 30 and 61 of the AoA mandate that the notice of a meeting
must be served on the members either personally or by sending a
registered post on the registered address. This position is also
supplemented by Section 286 of the 1956 Act. Even though the
Appellant was a director of the C OMPANY throughout the duration of
these meetings, she never received any notices for the board
meetings held on both 15.12.2010 and 17.12.2010, nor was any
proof of service of notices on her produced before the N CLT .
v. no minutes of the meeting have been produced regarding these
meetings, which violate Section 193 of the 1956 Act.
g. Share Transfer Forms were fraudulently prepared:
8
i. share Transfer Form was issued on 01.10.2010 and was only valid for
2 months, i.e., till 01.12.2010 as per Section 108 (1A) of the 1956
Act, whereas share transfer form was allegedly signed by the
Appellant on 17.12.2010, when the form had already expired.
Moreover, the Appellant was not even there on the said date.
ii. form 20B of 2012 itself shows that the shares were transferred only
on 18.11.2011, whereas the Share Transfer Form stipulated that the
extended period for transfer was only up to 12.11.2011. Realizing
that the transfer on 18.11.2011 was beyond the permissible period,
the respondents tampered with and overwrote the Share Certificates,
altering the date from 18.11.2011 to 10.11.2011 solely to bring it
within the extended period, thereby fabricating the very basis of the
alleged transfer and rendering the transaction illegal, null and void
ab initio , and incapable of conferring any rights upon the
respondents.
iii. in any event, the extension granted by the RoC up to 12.11.2011
cannot cure or validate the Share Transfer Form, as the
execution/signature of the Appellant thereon had already expired
on 01.12.2010, thereby rendering the alleged transfer wholly illegal
and void.
iv. extension of validity of the Share Transfer Form under Section
108(1D) of the 1956 Act through Form No. 7C, is fraught with serious
inconsistencies and illegalities, inasmuch as the said Form does not
even bear a date, the particulars of payment are conspicuously
9
absent in Column No. 10, and the reason for seeking extension has
been vaguely stated as “misplaced”, which by no stretch of
interpretation can fall within the statutory purview of Section 108(1D)
that restricts extension only to “avoid hardship”.
v. further, the second respondent is shown to have attended and signed
the documents relating to the AGM dated 24.09.2011; however, this
is demonstrably false for the simple reason that as per the second
respondent’s own sworn affidavit filed before the District Court of
Idaho, USA, he had left India on or about 15.06.2011 and was
continuously residing in the USA until 31.10.2011, during which
period he had also initiated divorce proceedings there. Consequently,
he could not have been physically present in India or attended the
AGM on 24.09.2011, and the documents purporting to bear his
signature on that date are fabricated and unreliable.
vi. moreover, the Form is not even signed by the mother-in-law, who
was the transferee, but instead by some other person, thereby
rendering the entire process of extension invalid, non-est and
incapable of conferring any legal sanctity to the alleged transfer.
h. The C OMPANY was purportedly converted from a Private Limited Company
into a Public Limited Company and its name was changed to Satori Global
Limited through an alleged Extraordinary General Meeting (EOGM).
However, no notice of such meeting was ever issued to or served upon the
Appellant. Through this EOGM, 5 (five) new shareholders were added to the
register and no notice was served on the Appellant.
10
S UBMISSIONS OF THE R ESPONDENTS
21. Mr. Niranjan Reddy, learned senior counsel representing the C OMPANY sought to
defend the impugned judgment and order by submitting that:
CLT
a. N fell into manifest error in proceeding to declare the Gift Deed invalid,
particularly when serious allegations of fraud, coercion, and forgery were
raised. Such questions involve adjudication of complex factual
controversies which necessarily require a full-fledged trial involving oral
evidence - examination of witnesses and cross-examination – a feature
wholly absent from proceedings before the N CLT under Section 155 of the
2013 Act, which grants it power only to rectify the register of members.
The only competent forum to adjudicate upon the validity of the Gift Deed
would be a civil court exercising jurisdiction under Sections 31 and 34 of
the 1963 Act.
b. Moreover, the Appellant had no locus standi to institute the company
petition under Sections 397 and 398 of the 1956 Act.
c. NCLT exceeded its jurisdiction:
i. first, regarding the finding that the RoC did not have power to extend
the validity of the Share Transfer Form, the transfer forms were
initially presented to the RoC on 01.10.2010 and executed
on 17.12.2010. Since the same were not submitted to the C OMPANY
within the statutory two-month period, an application was made
under Section 108(1D) of the 1956 Act whereupon an extension was
duly granted up to 12.11.2011. The transfer deed was thereafter
submitted to the C OMPANY on 10.11.2011, well within the extended
11
time, thereby ensuring full compliance with the statutory framework.
The finding of the N CLT , to the contrary, is unsustainable.
ii. second, with respect to the finding on the validity of the Gift Deed,
CLAT CLT
the N has correctly held that the N lacked jurisdiction to
adjudicate upon the same.
iii. even otherwise, assuming arguendo that the Gift Deed was not validly
executed and notarised, the N CLT erred in holding it forged without
following due process. The notary was never examined, no oral
evidence was recorded, and no opportunity of cross-examination was
afforded to the parties. In the absence thereof, N CLT could not have
returned findings on such disputed and complex issues.
iv. N CLT ’s order dated 04.09.2018 reinstating the Appellant as Executive
Director and directing rectification of the register of members was
manifestly beyond jurisdiction. Rectification of register of members is
governed by Section 111A of the 1956 Act. Appellant, however, did
not invoke that provision, and in its absence, no relief as granted
could have been granted. N CLT ’s direction, therefore, was without
jurisdiction, contrary to statute, and rightly interfered with by the
N CLAT .
d. Resignation letter submitted by the appellant on 17.12.2010 was valid and
effective. Under the 1956 Act, once a director submits a resignation, it takes
effect immediately without requiring acceptance by the Board or service of
acknowledgment upon the resigning director. The resignation was duly
recorded in Form 32 filed with the RoC on 30.12.2010, and the same
12
became a matter of public record. Appellant ceased to draw salary from the
C OMPANY after December 2010, unequivocally confirming her cessation of
office.
e. Appellant, despite being a law graduate, claimed to have signed certain
documents under threat and coercion but raised no immediate protest or
complaint. Indeed, she filed no police complaint for nearly three months
thereafter, citing the unconvincing excuse of being in Kolkata at the material
time. Even when a complaint was lodged belatedly on 05.02.2011, wherein
the police ultimately filed a closure report finding no offence being made
out, the said report was duly accepted by the competent Magistrate. In
addition to this, even the company petition before the CLB was filed after a
delay of two and half years without any valid explanation for the delay,
suggesting that it was an afterthought.
f. Notice of the meeting scheduled for 15.12.2010 was duly delivered at the
Appellant’s registered address and was received by her guard. Appellant,
being the sole Executive Director (alongside the third respondent) cannot
be heard to complain of non-receipt of notice.
OMPANY
g. AoA of the C contained no restriction on transfer of shares by way of
gift. Article 16 of the AoA clearly permitted transfers by gift to any
individual, including non-members.
22. Learned senior counsel for the fourth respondent, Mr. Gopal Sankarnarayanan,
adopted the arguments advanced on behalf of the C OMPANY but specifically
stressed on the following points:
13
a. Allegations relating to fraud, coercion, and manipulation could not be
adjudicated by the N CLT and squarely fell within the province of the civil
courts under the 1963 Act.
b. At the material time, the appellant did not fulfil the tests present in Section
399 of the 1956 Act and, therefore, she was disentitled to file the company
petition.
I SSUES
23. Having heard the parties and on consideration of the materials on record, the
following points arise for determination:
a. Whether the company petition, decided in favour of the Appellant by the
CLT
N , was maintainable under Sections 397 and 398 of the 1956 Act?
b. Assuming that the company petition was maintainable, whether the N CLT
had jurisdiction to decide whether the gift deed is valid or not?
c. If the answer to the above question is in the affirmative, were the facts on
record and the law such so as to support the finding of the N CLT that the
gift deed is invalid?
d. Whether the Appellant was able to prove that she has been a victim of
OMPANY
mismanagement and oppression by the Directors of the C ?
A NALYSIS
M AINTAINABILITY
24. Whether the company petition under Section 397 and 398 of the 1956 Act was
maintainable in view of the bar created by Section 399 thereof was a specific
CLT
issue before the N . This issue was answered in favour of the Appellant by the
N CLT by assigning reasons. N CLAT did not hold the company petition to be not
14
maintainable; however, it proceeded to set aside the order of the N CLT on the
ground noticed above. Respondents have not questioned the omission of the
N CLAT to not dismiss the company petition on the ground of its non-
maintainability; on the contrary, they have supported the same. Without anything
more, this would have afforded good ground for us to answer this issue in favour
of the Appellant. However, we do not wish to rest our conclusion on this issue
merely on such a technicality.
25. We have perused the discussion of the N CLT while answering Issue No. II. Upon
threadbare examination of the case pleaded by the Appellant in the company
petition as well as the materials on record vis-à-vis the applicable law, the N CLT
CLT
held such petition maintainable. The findings returned by the N and more
particularly having noticed the allegations of fraud and coercion as well as
fabrication of documents, which were proved to its satisfaction by the Appellant,
we record our concurrence with the reasons assigned and hold the company
petition to be maintainable.
D ID THE NCLT HAVE JURISDICTION TO DECIDE WHETHER THE GIFT DEED IS VALID OR NOT ?
26. This issue pertains to the central question in the current case. The gift deed has
been challenged on various grounds, but before we proceed to decide on the
merits, we would first decide whether the NCLT possesses jurisdiction to decide
this issue itself.
17
27. In Radharamanan v. Chandrasekara Raja , this Court held that the CLB
would be denuded of the power to provide the diverse reliefs present in the 1956
Act if the Court does not give effect to the wide jurisdiction conferred on the CLB
17
(2008) 6 SCC 750
15
in matters concerning Sections 397 and 398 thereof. The instructive passages
read as follows:
2025 INSC 1065
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 6377-6378 OF 2023
MRS. SHAILJA KRISHNA … APPELLANT
VS.
SATORI GLOBAL LIMITED & ORS. … RESPONDENTS
J U D G M E N T
DIPANKAR DATTA, J.
T HE A PPEALS
1 2
1. National Company Law Tribunal, Allahabad Bench allowed a company petition
3
filed by Mrs. Shailaja Krishna under Sections 397 & 398 of the Companies Act,
4 5
1956 by its judgment and order dated 04.09.2018. In appeals thereagainst , the
6
National Company Appellate Tribunal, Principal Bench at New Delhi vide its
nd
common judgment and order dated 2 June, 2023 set aside the said judgment
CLT
and order of the N and allowed two sets of appeals of the respondents. These
civil appeals assail the said appellate judgment and order of the N CLAT .
1
CLT
N
2
CP. IB No. 107/ND/2013
3
Appellant
4
1956 Act
5
Company Appeal (AT) No. 379/2018
6
N CLAT
Signature Not Verified
Digitally signed by
JATINDER KAUR
Date: 2025.09.02
16:31:57 IST
Reason:
1
B RIEF F ACTS
7
2. The first respondent - “Satori Global Limited” - a private limited company was
earlier known as Sargam Exim Private Limited. The C OMPANY , incorporated on
13.04.2006, primarily engaged in trading of paper. Sargam Exim Private Limited’s
transition to Satori Global Limited will unfold as we proceed to narrate the facts.
OMPANY
3. At the time of incorporation in 2006, the authorized share capital of the C
was Rs. 2 crores divided in to 20,00,000 equity shares of Rs. 10 each. The
subscribed and paid-up capital of the C OMPANY initially was Rs. 3 lac divided into
30,000 equity shares of Rs. 10 each.
4. The Appellant and the second respondent – Mr. Ved Krishna – the Appellant’s
OMPANY
husband were the original promoters of the C . The Appellant initially
subscribed to 5,000 equity shares, while the second respondent subscribed to the
remaining 25,000 shares. In December 2006, the second respondent transferred
24,500 shares to the Appellant, thereby increasing her shareholding to 29,500
shares. The remaining 500 shares of the second respondent were transferred to
the third respondent-Mr. Nirupam Mishra.
5. Subsequently, an additional 10,000 shares were issued to the Appellant. By the
OMPANY
end of financial year 2006-2007, she held 39,500 shares of the C out of a
total of 40,000 equity shares of the issued and paid-up share capital, representing
more than 98% of the C OMPANY ’s shareholding.
6. On 01.02.2007, the second respondent resigned from the directorship of the
C OMPANY . His resignation was accepted at the board meeting and the third
OMPANY
respondent was inducted as Director of the C in his place.
7
C OMPANY
2
7. In the same year, the company made a long-term investment in M/s Yash Papers
Ltd. (now known as Pakka Limited) by acquiring 10 lakh equity shares of the said
company of Rs 10 each including 30 lakh equity warrants of Rs 11 each of which
Rs 1.10 per warrant was paid. The balance sheet for the year 2007 reflected a
holding of approximately 33,34,500 shares in M/s Yash Papers Ltd., representing
around 14% of its shareholding.
8. On 15.12.2010, the fifth respondent was inducted as an additional director in the
C OMPANY . Subsequently, on 17.12.2010, the Appellant is stated to have resigned
from the C OMPANY . Her resignation was accepted at a board meeting attended by
the third respondent and the fifth respondent.
9. On the same day, that is, on 17.12.2010, a gift deed was executed in Faizabad
through which the Appellant purportedly transferred her entire shareholding in
the C OMPANY to the fourth respondent – Mrs. Manjula Jhunjhunwala – her mother-
in-law out of love and affection.
10. The Appellant’s entire shareholding was transferred to fourth
respondent vide Share Transfer Form dated 01.10.2010 and the validity of which
was allegedly extended up to 12.11.2011.
11. Around 2009-2010, the Appellant and the second respondent drifted apart
resulting in a strained marital relationship.
12. On 05.02.2011 and then again on 25.03.2011, the Appellant lodged police
complaints alleging that she had been coerced into signing some blank
documents. On or about 15.06.2011, the second respondent left India for the
USA, where he instituted divorce proceedings against the Appellant.
3
13. In the meantime, a meeting of the Board of Directors was convened wherein
notice was issued for an Extraordinary General Meeting (“EoGM”) to be held on
20.06.2011. The second respondent was re-appointed as Director of the C OMPANY
OMPANY
and, at the said EoGM, the C was converted into a public limited company
under the name Satori Global Limited.
14. Appellant thereafter lodged her third police complaint on the same lines as the
8
first two. She also addressed communications to the Registrar of Companies and
9
the Ministry of Corporate Affairs , informing them of the circumstances. On
18.11.2011, the alleged transfer forms were utilised to effect transfer of her
shares in favour of the fourth respondent.
15. Appellant also filed a petition under the Protection of Women from Domestic
Violence Act, 2006 against the second and the fourth respondent. Later that year,
she came to know that her name has been removed from the list of shareholders
and instead, the fourth respondent was shown to have acquired her
shareholdings. This led to filing of another complaint by the appellant, which
resulted in registration of FIR No. 105/2013 against the second to fifth
10
respondents under Sections 406, 419 and 420 of the Indian Penal Code, 1860 .
16. Subsequently, the fourth respondent also filed an FIR against the appellant under
Section 406, IPC alleging breach of trust with regard to the family jewellery
belonging to the fourth respondent wherein she claimed that on 17.12.2010, the
appellant changed her bank locker from a joint locker that she held with the
second respondent to a locker singly held by her.
8
RoC
9
MoCA
10
IPC
4
11
17. Amidst these circumstances, the appellant filed a company petition before the
12
Company Law Board, New Delhi which was ultimately allowed with costs by the
N CLT , vide its judgment and order dated 04.09.2018. The Board resolutions dated
CLT
15.12.2010 and 17.12.2010 were set aside. N restored the appellant as an
Executive Director of the C OMPANY and declared her as the lawful owner of 39,500
equity shares, holding the share transfer dated 18.11.2011 in favour of the fourth
respondent null and void. The C OMPANY was directed to reinstate the appellant as
Director, and the fourth respondent ordered to return the share certificates within
15 days. N CLT found overwriting and manipulation in the share transfer form, and
noted that it was executed after its validity had expired. RoC was found to be
lacking the power under Section 108(1-D) of the 1956 Act to extend its validity
in such circumstances. N CLT also found Form 7C to be incomplete and the
extension of validity by RoC doubtful, warranting inquiry by the MoCA.
18. Aggrieved thereby, two separate appeals were carried to the N CLAT – one by the
13 14
C OMPANY and the fifth respondent and the other by the fourth respondent .
CLAT
N , as noted at the beginning of this judgment, allowed the appeals and held
the company petition to be not maintainable.
MPUGNED UDGMENT
I J
19. N CLAT set aside the judgment and order of the N CLT on the ground that it did not
have jurisdiction to decide issues of fraud, manipulation and coercion; more so,
in the exercise of its summary jurisdiction when examination of elaborate
11
Company Petition No 107/ND/2013
12
CLB
13
Company Appeal (AT) No. 379 of 2018
14
Company Appeal (AT) no. 395 of 2018
5
evidence is required. Hence, the appropriate course of action available to the
Appellant was to approach the civil court under Sections 31 and 34 of the Specific
15
Relief Act, 1963 for cancellation of the disputed gift deed.
RGUMENTS
A
S UBMISSIONS O F T HE A PPELLANT
20. Learned senior Counsel for the Appellant, Mr. Dhruv Mehta advanced extensive
arguments in support of his contention that the impugned judgment and order of
the N CLAT is unsustainable in law and hence, liable to be set aside; and prayed
that the judgment and order of the N CLT be restored. A brief synopsis of his
argument is as follows:
a. The Companies Act, 2013, particularly Section 242 thereof, empowers the
N CLT to look into acts of oppression and mismanagement even when they
involve fraudulent transfer of shares.
b. N CLAT travelled beyond its jurisdiction by re-appreciating factual findings,
particularly on issues of fraud, coercion, and oppression, which squarely fell
CLT
within the province of the N .
c. The bar under Section 399 of the 1956 Act which, inter alia , provides for
the requirement of 10% of the shareholding for a member to initiate an
action under this said section does not stand in the way, since the Appellant
was a member of the C OMPANY at all material times and the impugned Gift
Deed being vitiated by fraud could not divest her of her membership. In
addition to this, Section 399 of the 1956 Act has consistently been
15
1963 Act
6
interpreted liberally, to ensure that minority shareholders are not rendered
remediless.
d. The affairs of the C OMPANY were being conducted in a manner which was
oppressive to the Appellant and prejudicial to public interest. Appellant had
been excluded from participation in management and her name was
wrongly removed from the register of members, resulting in her ouster as
Director without following due process.
e. Gift Deed dated 17.12.2010 is invalid:
i. in view of Clause 16 read with Clause 2(c) of the Articles of
16
Association . Clause 16 of AoA of the C OMPANY allows the transfer of
shares of a member by way of a gift to a specific category of persons
only, namely, ‘Members, Wife, Husband, Son, Daughter-in-law, Son-
in-law, Father, Mother, Brother, Sister, Uncle, Nephew, Niece or
Cousin’. Clause 2(c) of the AoA lays down that the right to transfer
the shares of the C OMPANY shall be and is restricted in a manner and
to the extent provided in the AoA. Hence, Clause 16 of AoA must be
read in the context of and along with clause 2(c) and cannot be read
in isolation. This way the transfer in favour of the mother-in-law by
way of ‘gift’ is not permitted under the AoA of the C OMPANY .
ii. because it was obtained under fraud, coercion, and undue influence.
The second respondent had obtained the signatures of the Appellant
on blank papers and later forged it, as the Appellant was not in the
city of Faizabad on the relevant date.
16
AoA
7
f. Board meetings dated 15.12.2010 and 17.12.2010 are invalid:
i. because they were conducted in clear violation of the AoA of the
C OMPANY and the provisions of the 1956 Act.
ii. clause 53 of the AoA stipulates that every board meeting should have
a quorum of at least 2 members. However, in the present factual
milieu, on the date of the board meeting dated 15.12.2010 the
quorum was not complete as the Appellant never attended this
meeting. The C OMPANY at that point of time had only two directors,
the Appellant and the third respondent.
iii. quorum was also not met in the meeting dated 17.12.2010 as
inclusion of the fifth respondent as a director via the board meeting
dated 15.12.2010 has no legal sanction.
iv. clauses 30 and 61 of the AoA mandate that the notice of a meeting
must be served on the members either personally or by sending a
registered post on the registered address. This position is also
supplemented by Section 286 of the 1956 Act. Even though the
Appellant was a director of the C OMPANY throughout the duration of
these meetings, she never received any notices for the board
meetings held on both 15.12.2010 and 17.12.2010, nor was any
proof of service of notices on her produced before the N CLT .
v. no minutes of the meeting have been produced regarding these
meetings, which violate Section 193 of the 1956 Act.
g. Share Transfer Forms were fraudulently prepared:
8
i. share Transfer Form was issued on 01.10.2010 and was only valid for
2 months, i.e., till 01.12.2010 as per Section 108 (1A) of the 1956
Act, whereas share transfer form was allegedly signed by the
Appellant on 17.12.2010, when the form had already expired.
Moreover, the Appellant was not even there on the said date.
ii. form 20B of 2012 itself shows that the shares were transferred only
on 18.11.2011, whereas the Share Transfer Form stipulated that the
extended period for transfer was only up to 12.11.2011. Realizing
that the transfer on 18.11.2011 was beyond the permissible period,
the respondents tampered with and overwrote the Share Certificates,
altering the date from 18.11.2011 to 10.11.2011 solely to bring it
within the extended period, thereby fabricating the very basis of the
alleged transfer and rendering the transaction illegal, null and void
ab initio , and incapable of conferring any rights upon the
respondents.
iii. in any event, the extension granted by the RoC up to 12.11.2011
cannot cure or validate the Share Transfer Form, as the
execution/signature of the Appellant thereon had already expired
on 01.12.2010, thereby rendering the alleged transfer wholly illegal
and void.
iv. extension of validity of the Share Transfer Form under Section
108(1D) of the 1956 Act through Form No. 7C, is fraught with serious
inconsistencies and illegalities, inasmuch as the said Form does not
even bear a date, the particulars of payment are conspicuously
9
absent in Column No. 10, and the reason for seeking extension has
been vaguely stated as “misplaced”, which by no stretch of
interpretation can fall within the statutory purview of Section 108(1D)
that restricts extension only to “avoid hardship”.
v. further, the second respondent is shown to have attended and signed
the documents relating to the AGM dated 24.09.2011; however, this
is demonstrably false for the simple reason that as per the second
respondent’s own sworn affidavit filed before the District Court of
Idaho, USA, he had left India on or about 15.06.2011 and was
continuously residing in the USA until 31.10.2011, during which
period he had also initiated divorce proceedings there. Consequently,
he could not have been physically present in India or attended the
AGM on 24.09.2011, and the documents purporting to bear his
signature on that date are fabricated and unreliable.
vi. moreover, the Form is not even signed by the mother-in-law, who
was the transferee, but instead by some other person, thereby
rendering the entire process of extension invalid, non-est and
incapable of conferring any legal sanctity to the alleged transfer.
h. The C OMPANY was purportedly converted from a Private Limited Company
into a Public Limited Company and its name was changed to Satori Global
Limited through an alleged Extraordinary General Meeting (EOGM).
However, no notice of such meeting was ever issued to or served upon the
Appellant. Through this EOGM, 5 (five) new shareholders were added to the
register and no notice was served on the Appellant.
10
S UBMISSIONS OF THE R ESPONDENTS
21. Mr. Niranjan Reddy, learned senior counsel representing the C OMPANY sought to
defend the impugned judgment and order by submitting that:
CLT
a. N fell into manifest error in proceeding to declare the Gift Deed invalid,
particularly when serious allegations of fraud, coercion, and forgery were
raised. Such questions involve adjudication of complex factual
controversies which necessarily require a full-fledged trial involving oral
evidence - examination of witnesses and cross-examination – a feature
wholly absent from proceedings before the N CLT under Section 155 of the
2013 Act, which grants it power only to rectify the register of members.
The only competent forum to adjudicate upon the validity of the Gift Deed
would be a civil court exercising jurisdiction under Sections 31 and 34 of
the 1963 Act.
b. Moreover, the Appellant had no locus standi to institute the company
petition under Sections 397 and 398 of the 1956 Act.
c. NCLT exceeded its jurisdiction:
i. first, regarding the finding that the RoC did not have power to extend
the validity of the Share Transfer Form, the transfer forms were
initially presented to the RoC on 01.10.2010 and executed
on 17.12.2010. Since the same were not submitted to the C OMPANY
within the statutory two-month period, an application was made
under Section 108(1D) of the 1956 Act whereupon an extension was
duly granted up to 12.11.2011. The transfer deed was thereafter
submitted to the C OMPANY on 10.11.2011, well within the extended
11
time, thereby ensuring full compliance with the statutory framework.
The finding of the N CLT , to the contrary, is unsustainable.
ii. second, with respect to the finding on the validity of the Gift Deed,
CLAT CLT
the N has correctly held that the N lacked jurisdiction to
adjudicate upon the same.
iii. even otherwise, assuming arguendo that the Gift Deed was not validly
executed and notarised, the N CLT erred in holding it forged without
following due process. The notary was never examined, no oral
evidence was recorded, and no opportunity of cross-examination was
afforded to the parties. In the absence thereof, N CLT could not have
returned findings on such disputed and complex issues.
iv. N CLT ’s order dated 04.09.2018 reinstating the Appellant as Executive
Director and directing rectification of the register of members was
manifestly beyond jurisdiction. Rectification of register of members is
governed by Section 111A of the 1956 Act. Appellant, however, did
not invoke that provision, and in its absence, no relief as granted
could have been granted. N CLT ’s direction, therefore, was without
jurisdiction, contrary to statute, and rightly interfered with by the
N CLAT .
d. Resignation letter submitted by the appellant on 17.12.2010 was valid and
effective. Under the 1956 Act, once a director submits a resignation, it takes
effect immediately without requiring acceptance by the Board or service of
acknowledgment upon the resigning director. The resignation was duly
recorded in Form 32 filed with the RoC on 30.12.2010, and the same
12
became a matter of public record. Appellant ceased to draw salary from the
C OMPANY after December 2010, unequivocally confirming her cessation of
office.
e. Appellant, despite being a law graduate, claimed to have signed certain
documents under threat and coercion but raised no immediate protest or
complaint. Indeed, she filed no police complaint for nearly three months
thereafter, citing the unconvincing excuse of being in Kolkata at the material
time. Even when a complaint was lodged belatedly on 05.02.2011, wherein
the police ultimately filed a closure report finding no offence being made
out, the said report was duly accepted by the competent Magistrate. In
addition to this, even the company petition before the CLB was filed after a
delay of two and half years without any valid explanation for the delay,
suggesting that it was an afterthought.
f. Notice of the meeting scheduled for 15.12.2010 was duly delivered at the
Appellant’s registered address and was received by her guard. Appellant,
being the sole Executive Director (alongside the third respondent) cannot
be heard to complain of non-receipt of notice.
OMPANY
g. AoA of the C contained no restriction on transfer of shares by way of
gift. Article 16 of the AoA clearly permitted transfers by gift to any
individual, including non-members.
22. Learned senior counsel for the fourth respondent, Mr. Gopal Sankarnarayanan,
adopted the arguments advanced on behalf of the C OMPANY but specifically
stressed on the following points:
13
a. Allegations relating to fraud, coercion, and manipulation could not be
adjudicated by the N CLT and squarely fell within the province of the civil
courts under the 1963 Act.
b. At the material time, the appellant did not fulfil the tests present in Section
399 of the 1956 Act and, therefore, she was disentitled to file the company
petition.
I SSUES
23. Having heard the parties and on consideration of the materials on record, the
following points arise for determination:
a. Whether the company petition, decided in favour of the Appellant by the
CLT
N , was maintainable under Sections 397 and 398 of the 1956 Act?
b. Assuming that the company petition was maintainable, whether the N CLT
had jurisdiction to decide whether the gift deed is valid or not?
c. If the answer to the above question is in the affirmative, were the facts on
record and the law such so as to support the finding of the N CLT that the
gift deed is invalid?
d. Whether the Appellant was able to prove that she has been a victim of
OMPANY
mismanagement and oppression by the Directors of the C ?
A NALYSIS
M AINTAINABILITY
24. Whether the company petition under Section 397 and 398 of the 1956 Act was
maintainable in view of the bar created by Section 399 thereof was a specific
CLT
issue before the N . This issue was answered in favour of the Appellant by the
N CLT by assigning reasons. N CLAT did not hold the company petition to be not
14
maintainable; however, it proceeded to set aside the order of the N CLT on the
ground noticed above. Respondents have not questioned the omission of the
N CLAT to not dismiss the company petition on the ground of its non-
maintainability; on the contrary, they have supported the same. Without anything
more, this would have afforded good ground for us to answer this issue in favour
of the Appellant. However, we do not wish to rest our conclusion on this issue
merely on such a technicality.
25. We have perused the discussion of the N CLT while answering Issue No. II. Upon
threadbare examination of the case pleaded by the Appellant in the company
petition as well as the materials on record vis-à-vis the applicable law, the N CLT
CLT
held such petition maintainable. The findings returned by the N and more
particularly having noticed the allegations of fraud and coercion as well as
fabrication of documents, which were proved to its satisfaction by the Appellant,
we record our concurrence with the reasons assigned and hold the company
petition to be maintainable.
D ID THE NCLT HAVE JURISDICTION TO DECIDE WHETHER THE GIFT DEED IS VALID OR NOT ?
26. This issue pertains to the central question in the current case. The gift deed has
been challenged on various grounds, but before we proceed to decide on the
merits, we would first decide whether the NCLT possesses jurisdiction to decide
this issue itself.
17
27. In Radharamanan v. Chandrasekara Raja , this Court held that the CLB
would be denuded of the power to provide the diverse reliefs present in the 1956
Act if the Court does not give effect to the wide jurisdiction conferred on the CLB
17
(2008) 6 SCC 750
15
in matters concerning Sections 397 and 398 thereof. The instructive passages
read as follows:
| ‘27. … Jurisdiction of the CLB (and ultimately of this Court in appeal) under | |
| Sections 397/398 and 402 is much wider and direction can be given even | |
| contrary to the provisions of the articles of association. It has even right to | |
| terminate, set aside or modify the contractual arrangement between the | |
| company and any person [see Sections 402(d) and (e)]. Section 397 | |
| specifically provides that once the oppression is established, the Court may, | |
| with a view to bringing to an end the matters complained of, make an order | |
| as it thinks fit. Thus, the Court has ample power to pass such orders as it | |
| thinks fit to render justice and such an order has to be reasonable. It is also | |
| an accepted principle that ‘just and equitable’ provision in Section 402(g) is | |
| an equitable supplement to the common law of the company to be found in | |
| its memorandum and articles of association.’ | |
| (emphasis ours) | |
18
v. Ruby General Hospital Ltd. held that the CLB while deciding petitions
under Sections 397 and 398 of the 1956 Act exercises quasi-judicial power and
as an original authority. The relevant paragraphs of the decision are reproduced
hereunder:
18
(2006) 7 SCC 613
16
23. ... There are no two opinions in the matter that when CLB exercised its power
under Sections 397 and 398 of the Act, it exercised its quasi-judicial power as
original authority. It may not be a court but it has all the trapping of a court.
Therefore, CLB while exercising its original jurisdiction under Sections 397 and
398 of the Act passed the order and against that order appeal lies to the learned
Single Judge of the High Court and thereafter no further appeal could be filed.
(emphasis ours)
| 9. In the landmark decision of Tata Consultancy Services Ltd. v. Cyrus | |
|---|---|
| Investments (P) Ltd.19, this Court eruditely delineated the jurisdiction of the | |
| Tribunal while passing orders on an application complaining of oppression and | |
| mismanagement which is that the Tribunal ought to bring an end to the | |
| complaints of oppression and mismanagement and must not only avoid providing | |
| solutions that tend to elongate the complaints, but must also provide a solution | |
| to the problems. The relevant passages from such judgment read as follows: | |
| 180. Therefore, despite the law relating to oppression and mismanagement | |
| undergoing several changes, the object that a Tribunal should keep in mind while | |
| passing an order in an application complaining of oppression and mismanagement, | |
| has remained the same for decades. This object is that the Tribunal, by its order, | |
| should bring to an end the matters complained of. | |
| 181. In other words the purpose of an order both under the English law and under | |
| the Indian law, irrespective of whether the regime is one of “oppressive conduct” | |
| or “unfairly prejudicial conduct” or a mere “prejudicial conduct”, is to bring to an | |
| end the matters complained of by providing a solution. The object cannot be to | |
| provide a remedy worse than the disease. The object should be to put an end to | |
| the matters complained of and not to put an end to the company itself, forsaking | |
| the interests of other stakeholders. It is relevant to point out that once upon a | |
| time, the provisions for relief against oppression and mismanagement were | |
| construed as weapons in the armoury of the shareholders, which when brandished | |
| in terrorem, were more potent than when actually used to strike with. While such | |
| a position is certainly not desirable, they cannot today be taken to the other | |
| extreme where the tail can wag the dog. | |
| 182. The Tribunal should always keep in mind the purpose for which remedies are | |
| made available under these provisions, before granting relief or issuing directions. | |
| It is on the touchstone of the objective behind these provisions that the | |
| correctness of the four reliefs granted by the Tribunal should be tested. If so done, | |
| it will be clear that NCLAT could not have granted the reliefs of: | |
| 182.1. Reinstatement of CPM. | |
| 182.2. Restriction on the right to invoke Article 75. | |
| 182.3. Restraining RNT and the nominee Directors from taking decisions in | |
| advance. | |
| 182.4. Setting aside the conversion of Tata Sons into a private company. |
19
(2021) 9 SCC 449
17
| (emphasis ours) | |
|---|---|
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.
31. In the instant case, it is an admitted fact that the determination of whether the
gift deed is valid or not is central to the decision herein and, therefore, the N CLT
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
C OMPANY , including but not limited to the AoA and the Memorandum of
Association.
O PPRESSION A ND M ISMANAGEMENT
32. We will take the third and fourth issues together as they both relate to the
question of whether the appellant was a victim of oppression and
mismanagement.
33. Oppression and mismanagement have been discussed a number of times by this
Court in previous decisions. Oppression, in company law, can never have a
straitjacket definition and takes within its fold various forms and actions. The
dictionary meaning of the word oppression is any act exercised in a manner that
20
is burdensome, harsh and wrongful .
20
A. Ramaiya, Guide to the Companies Act, 2013, vol. 3, at 4020 (18th ed. LexisNexis 2015).
18
34. The legal concept of oppression and mismanagement comes from the colonial
21
law. In Scottish Co-Operative Wholesale Society Ltd. Appellant v. Meyer ,
22
the House of Lords referring to the prior decision in Elder v. Elder and Watson
noted the primary element of what constitutes oppression – that is, a “lack of
probity and fair dealing in the affairs of a company to the prejudice of some
portion of its members” .
35. Following Meyer (supra), Jenkins, L.J speaking for the Court of Appeal in In re H.
23
R. Harmer Ltd. , stated the word “oppressive” must be understood in its
ordinary sense and the question must be whether in that sense the conduct
complained of is oppressive to a member or members as such.
36. Hon’ble K.N. Wanchoo, J. (as his Lordship then was) speaking for a three judge
24
Bench of this Court in Shanti Prasad Jain v. Kalinga Tubes Ltd. noted the
three prior decisions above from English and Scottish jurisprudence with approval
and noted that the law in this regard had not defined what oppression meant for
the purposes of Section 397 read with Section 402 of the 1956 Act and would,
therefore, involve a case-to-case examination of the facts to determine whether
oppression had occurred.
37. In Needle Industries (India) Ltd. v. Needle Industries Newey (India)
25
Holding Ltd. , this Court had the occasion to observe that while an isolated act
may not amount to oppression and mismanagement, a series of actions one upon
21
(1958) 3 All ER 66 (HL)
22
(1952) Scottish Cases 49.
23
[1959] 1 WLR 62
24
1965 SCC OnLine SC 15
25
(1981) 3 SCC 333
19
| the other can justifiably lead to such a conclusion. The erudite words of Hon’ble | |
|---|---|
| Y.V. Chandrachud, CJI. speaking for the three-judge Bench are worth quoting: | |
| 49. …Neither the judgment of Bhagwati, J. nor the observations in Elder [1952 SC | |
| 49] are capable of the construction that every illegality is per se oppressive or that | |
| the illegality of an action does not bear upon its oppressiveness. In Elder [1952 | |
| SC 49] a complaint was made that Elder had not received the notice of the Board | |
| meeting. It was held that since it was not shown that any prejudice was occasioned | |
| thereby or that Elder could have bought the shares had he been present, no | |
| complaint of oppression could be entertained merely on the ground that the failure | |
| to give notice of the Board meeting was an act of illegality. The true position is | |
| that an isolated act, which is contrary to law, may not necessarily and by itself | |
| support the inference that the law was violated with a mala fide intention or that | |
| such violation was burdensome, harsh and wrongful. But a series of illegal acts | |
| upon one another can, in the context, lead justifiably to the conclusion that they | |
| are a part of the same transaction, of which the object is to cause or commit the | |
| oppression of persons against whom those acts are directed. This may usefully be | |
| illustrated by reference to a familiar jurisdiction in which a litigant asks for the | |
| transfer of his case from one Judge to another. An isolated order passed by a | |
| Judge which is contrary to law will not normally support the inference that he is | |
| biased; but a series of wrong or illegal orders to the prejudice of a party are | |
| generally accepted as supporting the inference of a reasonable apprehension that | |
| the Judge is biased and that the party complaining of the orders will not get justice | |
| at his hands. | |
| … | |
| 52. It is clear from these various decisions that on a true construction of Section | |
| 397, an unwise, inefficient or careless conduct of a Director in the performance of | |
| his duties cannot give rise to a claim for relief under that section. The person | |
| complaining of oppression must show that he has been constrained to submit to | |
| a conduct which lacks in probity, conduct which is unfair to him and which causes | |
| prejudice to him in the exercise of his legal and proprietary rights as a shareholder. | |
| It may be mentioned that the Jenkins Committee on Company Law Reform had | |
| suggested the substitution of the word “oppression” in Section 210 of the English | |
| Act by the words “unfairly prejudicial” in order to make it clear that it is not | |
| necessary to show that the act complained of is illegal or that it constitutes an | |
| invasion of legal rights (see Gower's Company Law, 4th Edn., p. 668). But that | |
| recommendation was not accepted and the English law remains the same as | |
| in Meyer [1959 AC 324 : (1958) 3 All ER 66 (HL)] and in Re H.R. Harmer | |
| Ltd. [1959 WLR 62 : (1958) 3 All ER 689 (CA)] as modified in Re Jermyn St. | |
| Turkish Baths [(1971) 3 All ER 184 (CA)] . We have not adopted that modification | |
| in India. | |
| (emphasis ours) | |
| 8. In Hind Overseas (P) Ltd. v. Raghunath Prasad Jhunjhunwalla26, this Court | |
| while dealing with oppression and mismanagement in a company formed by |
26
(1976) 3 SCC 259
20
family members/close friends observed that the principle of “just and equitable”
clause baffles a precise definition. It must rest with the judicial discretion of the
court depending upon the facts and circumstances of each case. These are
necessarily equitable considerations and may, in a given case, be superimposed
on law. Whether it would be so done in a particular case cannot be put in the
straitjacket of an inflexible formula.
27
39. In Dale & Carrington Invt. (P) Ltd. v. P.K. Prathapan , this Court ruled that
the acts of Directors in a private limited company are required to be tested on a
much finer scale in order to rule out any misuse of power for personal gains or
ulterior motives. The Court also succinctly observed that while a right to do an
act may be present to the Directors under Company Law, this right enjoins with
it the duty to act fairly and in the overall interest of the company. It was, thus,
held that if a member who holds the majority of shares in a company is reduced
to the position of minority shareholder in the company by an act of the company
or by its Board of Directors in a mala fide manner, the said act must ordinarily
be considered to be an act of oppression against the said member.
28
40. In the case of Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad , this
Court while setting aside the allotment of shares noted that the surrounding
circumstances of the allotment are seriously suspect and do not satisfy the
required standards of proof to sustain the same.
41. A profitable reference may also be made to the decision of V.S. Krishnan v.
29
Westfort Hi-Tech Hospital Ltd. wherein it was observed as follows:
27
(2005) 1 SCC 212
28
(2005) 11 SCC 314
29
(2008) 3 SCC 363
21
14. In a number of judgments, this Court considered in extenso the scope of
Sections 397 and 398. The following judgments could be usefully referred to:
…
From the above decisions, it is clear that oppression would be made out:
( a ) Where the conduct is harsh, burdensome and wrong.
( b ) Where the conduct is mala fide and is for a collateral purpose where although
the ultimate objective may be in the interest of the company, the immediate
purpose would result in an advantage for some shareholders vis-à-vis the others.
( c ) The action is against probity and good conduct.
( d ) The oppressive act complained of may be fully permissible under law but may
yet be oppressive and, therefore, the test as to whether an action is oppressive
or not is not based on whether it is legally permissible or not since even if legally
permissible, if the action is otherwise against probity, good conduct or is
burdensome, harsh or wrong or is mala fide or for a collateral purpose, it would
amount to oppression under Sections 397 and 398.
( e ) Once conduct is found to be oppressive under Sections 397 and 398, the
discretionary power given to the Company Law Board under Section 402 to set
right, remedy or put an end to such oppression is very wide.
( f ) As to what are facts which would give rise to or constitute oppression
is basically a question of fact and, therefore, whether an act is oppressive or not
is fundamentally/basically a question of fact.
42. 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 C OMPANY . Both of these instances show that
the affairs of the C OMPANY were being conducted in a manner prejudicially
affecting the Appellant.
G IFT D EED A ND S HARE T RANSFER F ORMS A RE I NVALID
43. The gift deed is invalid first and foremost since it is against the AoA, specifically
clause 16. The clause does not allow a transfer to the mother-in-law and,
therefore, the gift deed cannot be called in aid to defeat the claims of the
Appellant in the C OMPANY . Any action taken which is not permitted by the AoA
22
here cannot be sustained. One may usefully refer to V.B. Rangaraj vs V.B.
30
Gopalakrishnan & Ors. for this proposition.
44. Further, as alluded to previously, the circumstances surrounding the gift deed are
questionable since the deed specifically mentions it being purportedly executed
by the Appellant to the fourth respondent out of “love and affection”. However,
what paints a divergent image is that the fourth respondent on 01.06.2013 lodged
an FIR alleging that the appellant purportedly committed acts constituting breach
of trust qua family jewellery on 17.12.2010, i.e., the very date that the Share
Transfer Form was purportedly signed by the Appellant.
45. There is also considerable merit in the Appellant’s argument that the share
transfer forms are suspect. A bare perusal of the same discloses that (i) the share
transfer form was purportedly signed by the Appellant after the extended period
and such transfers cannot be upheld by this Court in good conscience and (ii)
there is clear overwriting and mismatch of dates on the share transfer form. We
have no hesitation to hold that the share transfer needs to be set aside on these
grounds.
46. At this stage, however, we do not find this to be an appropriate case to decide
whether the RoC had the power to extend and whether the extension in this case
is valid, especially considering that we have already decided that the share
transfer cannot be sustained. Moreover, the RoC not being impleaded as a party
in these appeals, we cannot and must not venture into determining whether the
actions of the RoC have been made as per the provisions of the respective
Companies Act and rules thereunder.
30
(1992) 1 SCC 160
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B OARD M EETINGS WERE I NVALIDLY C ONDUCTED
47. With reference to the Board Meetings dated 15.12.2010 and 17.12.2010, we are
of the considered view that it suffers from fundamental illegality and cannot be
sustained in law. The same were undoubtedly conducted in violation of the AoA
and the 1956 Act, on two counts.
48. First , on the issue of notice, clauses 30 and 61 of the AoA read with Section 286
of the 1956 Act, unequivocally mandate that notice of every board meeting must
be served on all Directors. Specifically, clause 30 stipulates that “twenty-one
days’ notice specifying the place, day and hour of a General Meeting shall be
given to the members of the company” . Mr. Mehta contended that the Appellant,
who continued as a Director during the relevant period, was never served with
notice of either of the meetings dated 15.12.2010 or 17.12.2010. Moreover, such
notices and/or proof of service of such notices were never produced on record
before the N CLT . Not only that, the minutes of the meetings were also not
produced. Hence, the requirement of notice being mandatory, non-service thereof
renders the meetings invalid. Reliance placed by Mr. Mehta on Sri Parmeshwari
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Prasad Gupta v. Union of India is relevant here as it was held that absence
of notice vitiates the entire proceedings of a board meeting.
49. Regarding the contention of Mr. Reddy that the notice was accepted by the
security guard, the same has been urged to be rejected. The notice accepted by
the guard was in respect of the Extra-Ordinary General Meeting (EOGM) which
was held on 20.06.2011. This is admittedly not the subject matter of dispute.
What we are concerned with are the meetings dated 15.12.2010 and 17.12.2010.
31
(1973) 2 SCC 543
24
50. At this stage, we wish to highlight the contradictory stances taken by the
respondents before the N CLT , the N CLAT and before us. Before the N CLT , the stance
taken by the C OMPANY is that notice for the EOGM was taken by the guard, and
not for the meetings held on 15.02.2010 and 17.12.2010. The Appellant rightly
contested the same in her rejoinder before the N CLT . Before the N CLAT in the
appeal petition, the respondents do not even mention that a notice was sent and
the same was accepted by the guard. The only plea they took is that since the
Appellant resigned on 17.12.2010, no further notice was required to be sent to
her. Before us, in the reply filed to the civil appeal, the C OMPANY has taken the
stand that the notice for the meeting dated 15.12.2010 was duly received by the
guard. This inconsistent stand, we are sure, is only an untoward error, lest our
observations be construed as casting imputations. That being said, no
documentary proof has been attached to show that the guard accepted any notice
for the meetings scheduled on 15.02.2010 or 17.02.2010. Therefore, the
requirement of notice was not complied with.
51. Secondly, on the issue of quorum, clause 53 of the AoA mandates that every
Board Meeting of the C OMPANY must have a quorum of at least two validly
appointed Directors. It is an admitted fact that on 15.12.2010, the Appellant was
a Director holding 98% shareholding in the C OMPANY and the only other Director
was the third respondent. Hence, in the absence of the Appellant, the meeting
did not have the requisite quorum.
52. Additionally , since the alleged induction of the fifth respondent as an Additional
Director in the meeting of 15.12.2010 was itself illegal, the fifth respondent could
not be deemed to be a validly appointed Director, and his presence in the
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subsequent meeting dated 17.12.2010 could not have cured the defect of
quorum. Thus, both meetings were vitiated for want of proper quorum.
53. In light of the above, we find that the Board Meetings held on 15.12.2010 and
17.12.2010 were invalid on both counts and the resolutions purportedly passed
therein, including the acceptance of the Appellant’s alleged resignation, do not
warrant validation by us.
C ONCLUSION
54. Collectively taken, all these actions of the C OMPANY in serial fashion demonstrate
clear oppression and mismanagement in its affairs. Probity is lacking which is
prejudicial to the appellant.
CLAT CLT
55. Thus, interference by the N with the judgment and order of the N , in our
opinion, was quite unnecessary. Hence, we set aside the common appellate
judgment and order of the N CLAT on the appeals of the respondents and restore
that of the N CLT .
56. These civil appeals are, accordingly, allowed. Parties shall, however, bear their
own costs.
………………………………J
(DIPANKAR DATTA)
………………………………J
(K. VINOD CHANDRAN)
New Delhi,
SEPTEMBER 02, 2025.
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