TaxTMI 
TaxTMI 
2025 (9) TMI 413
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....al Bench at New Delhi [NCLAT] vide its common judgment and order dated 2nd June, 2023 set aside the said judgment and order of the NCLT and allowed two sets of appeals of the respondents. These civil appeals assail the said appellate judgment and order of the NCLAT. BRIEF FACTS 2. The first respondent - "Satori Global Limited" [COMPANY] - a private limited company was earlier known as Sargam Exim Private Limited. The COMPANY, 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. 3. At the time of incorporation in 2006, the authorized share capital of the COMPANY was Rs. 2 crores divided in to 20,00,000 equity shares of Rs. 10 each. The subscribed and paid-up capital of the COMPANY 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 husband were the original promoters of the COMPANY. 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 respond....
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....vened 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 COMPANY and, at the said EoGM, the COMPANY 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 first two. She also addressed communications to the Registrar of Companies [RoC] and the Ministry of Corporate Affairs [MoCA], 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 respondents under Sections 406, 419 and 420 of the Indian Penal Code, 1860 [....
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....Mr. Dhruv Mehta advanced extensive arguments in support of his contention that the impugned judgment and order of the NCLAT is unsustainable in law and hence, liable to be set aside; and prayed that the judgment and order of the NCLT be restored. A brief synopsis of his argument is as follows: a. The Companies Act, 2013, particularly Section 242 thereof, empowers the NCLT to look into acts of oppression and mismanagement even when they involve fraudulent transfer of shares. b. NCLAT travelled beyond its jurisdiction by re-appreciating factual findings, particularly on issues of fraud, coercion, and oppression, which squarely fell within the province of the NCLT. 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 COMPANY 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 interpreted liberally, to ensure that minority shareholders are ....
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....ction 286 of the 1956 Act. Even though the Appellant was a director of the COMPANY 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 NCLT. 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: 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 10.1....
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....OF THE RESPONDENTS 21. Mr. Niranjan Reddy, learned senior counsel representing the COMPANY sought to defend the impugned judgment and order by submitting that: a. NCLT 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 NCLT 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 Ro....
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....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. g. AoA of the COMPANY 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 COMPANY but specifically stressed on the following points: a. Allegations relating to fraud, coercion, and manipulation could not be adjudicated by the NCLT and squarely fell within th....
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.... to be maintainable. DID 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. 27. In Radharamanan v. Chandrasekara Raja (2008) 6 SCC 750, 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 in matters concerning Sections 397 and 398 thereof. The instructive passages read as follows: 23. Sections 397 and 398 of the Act empower the Company Law Board to remove oppression and mismanagement. If the consequences of refusal to exercise jurisdiction would lead to a total chaos or mismanagement of the company, would still the Company Law Board be powerless to pass appropriate orders is the question. If a literal interpretation to the provisions of Section 397 or 398 is taken recourse to, may be that would be the consequence. But jurisdiction of the ....
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....hen 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) 29. In the landmark decision of Tata Consultancy Services Ltd. v. Cyrus Investments (P) Ltd. (2021) 9 SCC 449, 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 appli....
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....gift deed is valid or not, or whether it is against the provisions of the 1956 Act and/or internal regulations of the COMPANY, including but not limited to the AoA and the Memorandum of Association. OPPRESSION AND MISMANAGEMENT 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 is burdensome, harsh and wrongful [A. Ramaiya, Guide to the Companies Act, 2013, vol. 3, at 4020 (18th ed. LexisNexis 2015).]. 34. The legal concept of oppression and mismanagement comes from the colonial law. In Scottish Co-Operative Wholesale Society Ltd. Appellant v. Meyer (1958) 3 All ER 66 (HL), the House of Lords referring to the prior decision in Elder v. Elder and Watson (1952) Scottish Cases 49. noted the primary element of what constitutes oppression - that is, a "....
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.... 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....
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.... 41. A profitable reference may also be made to the decision of V.S. Krishnan v. Westfort Hi-Tech Hospital Ltd. (2008) 3 SCC 363 wherein it was observed as follows: 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 pu....
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....as 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. BOARD MEETINGS WERE INVALIDLY CONDUCTED 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 o....