2026 (3) TMI 665 - AT - Companies Law

Transmission of shares to legal heirs may be ordered interim on prima facie entitlement while reserving full title adjudication.

The note addresses maintainability and interim relief in oppression and mismanagement proceedings: it clarifies that petitioners meeting the numerical and ... Entitlement to transmission of shares by legal heirs - jurisdiction of the NCLT to decide validity of transfer instruments incidental to oppression and mismanagement proceedings - company's duty to facilitate transmission of dematerialised shares - preliminary objections of maintainability - Deceased KJS Ahluwalia had gifted his shares to the wife of the appellant and in terms of such gift deed the appellant had filed letters before the various banks for releasing Mr. KJS Ahluwalia from various guarantees. He referred to the additional documents filed by him to show in June, 2017 Mr KJS Ahluwalia as well as his another brother Mr. Prashant had resigned as director from this company and intimations to this effect were sent to ROC. Further, it was argued the issue of inheritance of shares etc. cannot be looked into by the Ld. NCLT per settled law by the Hon’ble Supreme Court. Entitlement to transmission of shares by legal heirs - HELD THAT:- The Tribunal upheld the finding that Respondents Nos.1 and 2, being Class I legal heirs of the deceased member, are prima facie entitled to transmission of the shares recorded in the deceased's name and therefore meet the numerical and percentage thresholds under Section 244. The impugned order relied on the register of members and the company's annual statements which continued to record the shares in the name of the deceased; it noted absence of transmission effectuated by the purported donee and observed suspicious circumstances surrounding the alleged gift deed and the Power of Attorney. The Court recorded and applied the reasoning in the impugned order that, on the material before the NCLT, legal representatives stand in the shoes of the deceased member and may seek transmission under the statutory scheme, and found no reason to interfere with those findings. [Paras 15, 16, 17] The entitlement to transmission and consequent maintainability of the petition under Section 244 is sustained. Jurisdiction of the NCLT to decide validity of transfer instruments - The NCLT has jurisdiction in proceedings under Sections 241-242 to examine, on a prima facie basis, the validity of instruments such as a gift deed and related documents that are integral to the complaint. - HELD THAT:- The Court accepted the NCLT's conclusion that determination of the validity of the gift deed and related instruments is integral to the oppression and mismanagement petition and falls within the Tribunal's wide jurisdiction to decide matters incidental or integral to such complaints. The impugned order applied the principles extracted from the cited authority Shailja Krishna [2025 (9) TMI 413 - SUPREME COURT] to hold that the NCLT may examine the validity of the transfer-instrument as part of exercising its summary jurisdiction; while noting that issues of fabrication and forgery are serious, the Tribunal found on the material before it that the circumstances warranted a prima facie conclusion in favour of the legal heirs and that further enquiry could continue in the main proceedings. [Paras 15, 16, 17] The NCLT's exercise of jurisdiction to examine the validity of the gift deed and related instruments in the course of the company petition is upheld. Company's duty to facilitate transmission of dematerialised shares - The company cannot evade its statutory obligation to effect transmission by invoking dematerialisation; it must follow the prescribed procedure to facilitate transmission and register the legal heirs upon compliant application. - HELD THAT: - The Court endorsed the impugned direction that the company must process transmission in accordance with the Articles and statutory procedure even where shares are in demat form and that there is no requirement of a succession certificate to compel transmission. The impugned order noted correspondence from Respondent seeking transmission which the company did not act upon, and the Tribunal directed the company to apply the prescribed rules for effecting transmission and to enter the names of the legal heirs in the register upon receipt of a proper application. The Court found no error in treating the company's failure to respond as insufficient to absolve it of its transmission duties. [Paras 19] The direction to the company to proceed with transmission and registration in accordance with law is maintained. Final Conclusion: The appellate challenge fails. The NCLT's interim conclusions on maintainability, the prima facie entitlement of the legal heirs to transmission, and the Tribunal's jurisdiction to examine the validity of the transfer instruments are sustained, and the directions to the company to facilitate transmission are upheld; the appeal is dismissed. Issues: (i) Whether the petition under Sections 241-242 was maintainable by Respondents Nos.1 and 2 under Section 244 on the date of filing; (ii) Whether the Tribunal could, in interim proceedings, direct transmission of shares to legal heirs and whether the NCLT had jurisdiction to examine the validity of the gift deed and related title disputes at the interlocutory stage.Issue (i): Whether the petition satisfied the statutory eligibility threshold under Section 244 on the date of institution.Analysis: The shareholding records, including the annual return and financial statements, were considered to assess whether the petitioners collectively met the numerical and percentage threshold required by Section 244. The register/records showed that the petitioners constituted more than one-tenth of members and held aggregate shareholding exceeding the statutory minimum. The impugned order applied the proviso to Section 244(1)(b) where necessary to permit prosecution of the petition.Conclusion: The petition was held maintainable; the respondents satisfied the requirements of Section 244 and, in any event, the proviso to Section 244(1)(b) was exercised to permit the petition to proceed.Issue (ii): Whether the Tribunal could direct transmission of shares to legal heirs in interim relief and whether it could adjudicate the validity of the gift deed and related title issues in summary proceedings.Analysis: The tribunal's power to decide matters incidental and integral to oppression and mismanagement proceedings was applied to evaluate whether prima facie the legal heirs were entitled to transmission. The registered status of the shares in the name of the deceased, absence of transmission through depositories, lack of documentary evidence showing the deceased's executed consent to the alleged gift, and the limited scope of the power of attorney were examined. Precedents recognising tribunal jurisdiction to examine validity of transfer instruments in such proceedings were taken into account. The tribunal directed transmission in accordance with statutory procedure, noting transmission by operation of law and prescribed company procedure for dematerialised shares.Conclusion: The Tribunal was entitled to direct transmission of the shares to the class 1 legal heirs on prima facie review and to examine the validity of the gift deed and related documents in proceedings under Sections 241-242; accordingly, the interim direction for transmission was upheld.Final Conclusion: The appellate challenge to the impugned order was dismissed and the interim direction for transmission and the tribunal's determinations on maintainability and prima facie entitlement to transmission were affirmed, without precluding further adjudication on remaining substantive issues in the underlying petition.Ratio Decidendi: Where shares remain registered in the name of a deceased member and no valid transmission has been effected, the tribunal under Sections 241-242 has jurisdiction to consider prima facie entitlement of class 1 legal heirs to transmission and may direct transmission in interim relief while reserving full adjudication of disputed title and validity of transfer instruments for the substantive hearing.