NCLT Has Full Jurisdiction to Strike Down Fraudulent Share Transfers When They Are the Core of Oppression Complaint: Supreme Court

Today, On September 2, 2025, the Supreme Court of India delivered a landmark ruling restoring the National Company Law Tribunal’s order which had declared void the transfer of shares by way of a “gift deed” to the appellant’s mother-in-law. The Court ruled that the National Company Law Appellate Tribunal erred in directing the parties to pursue civil remedies, making it clear that “the NCLT/CLB possess a wide jurisdiction to decide all such matters that are incidental and/or integral to the complaint alleging oppression and mismanagement.”

The judgment is significant for its emphatic affirmation that when the validity of a gift deed or transfer is central to the issue of oppression, the company tribunal itself must decide it, rather than relegating shareholders to long-drawn civil suits.

“Determination of Whether the Gift Deed Is Valid or Not Is Central to the Decision—Therefore NCLT Did Have Full Jurisdiction”

The controversy began with the appellant holding nearly the entirety of the company’s shareholding—39,500 out of 40,000 shares—until December 2010, when she was allegedly coerced into signing blank documents. A “gift deed” was then prepared transferring all her shares to her mother-in-law. Around the same time, she was said to have resigned as director and a series of board meetings were convened without proper notice.

The NCLT (Allahabad Bench) intervened, setting aside the resolutions, restoring her as executive director, and invalidating the share transfer. But the NCLAT reversed, holding that fraud cannot be adjudicated in company proceedings. The Supreme Court flatly rejected this reasoning, holding that “the determination of whether the gift deed is valid or not is central to the decision of the NCLT,” and therefore within its jurisdiction.

“Gift Deed Runs Afoul of Articles of Association—Transfer to Mother-in-Law Cannot Stand”

The Court scrutinized the Articles of Association and held that they did not permit a transfer of shares by way of gift to a mother-in-law. “Any action not permitted by the Articles cannot stand,” the Court observed, ruling that the transfer was fundamentally flawed.

Equally damaging to the respondents was the discovery of “seriously questionable” documents—share transfer forms with altered or overwritten dates, purportedly executed well beyond the permissible extended period. “Such instruments are incapable of being upheld in conscience,” said the Bench, confirming the NCLT’s finding that the transfer was invalid.

“No Mandatory Notice, No Quorum—Board Meetings of December 2010 Are Fundamentally Illegal”

Turning to the board proceedings, the Court found that the meetings of December 15 and 17, 2010 suffered from “fundamental illegality.” There was no mandatory notice under Section 286 of the Companies Act or the Articles; minutes were not produced; and the supposed induction of an additional director on December 15 could not retrospectively create a quorum where only two directors existed and one was absent.

The respondents’ contradictory claims about service of notices to the appellant were dismissed by the Court as untrustworthy. “Probity is lacking which is prejudicial to the appellant,” the Court remarked, stressing that the pattern of conduct showed deliberate exclusion and manipulation.

“Collectively Taken, All These Actions Demonstrate Clear Oppression and Mismanagement—Probity Is Lacking”

The Supreme Court summed up the case by noting: “Collectively taken, all these actions of the COMPANY in serial fashion demonstrate clear oppression and mismanagement in its affairs. Probity is lacking which is prejudicial to the appellant.”

It restored the NCLT’s comprehensive order, reinstating the appellant’s directorship and shareholding while nullifying the impugned transfer, and dismissed the NCLAT’s judgment as “quite unnecessary interference.”

This ruling reaffirms that the oppression and mismanagement jurisdiction under Sections 397/398 of the Companies Act, 1956 (now Sections 241/242 of the 2013 Act) is designed to be wide, equitable, and effective. By declaring the gift deed void, condemning sham board processes, and restoring the appellant’s rights, the Supreme Court has clarified that the NCLT’s role is to bring finality to shareholder oppression disputes—“the object cannot be to provide a remedy worse than the disease.”

Date of Decision: September 2, 2025