ARTICLE
10 October 2025

NCLT To Decide On Fraud In Oppression And Mismanagement Cases

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The Supreme Court of India's landmark ruling in Shailja Krishna. 2025 INSC 1065 marks a watershed moment in Indian company law. This decision addresses the issue whether the National Company Law Tribunal...
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Introduction

The Supreme Court of India's landmark ruling in Shailja Krishna. 2025 INSC 1065 marks a watershed moment in Indian company law. This decision addresses the issue whether the National Company Law Tribunal ("NCLT") can decide claims involving fraud when such an issue arises as part of oppression and mismanagement petitions under the Companies Act.

Factual background

Shailja Krishna ("Shailaja") and her husband, Ved Krishna were the promoters, shareholders and directors of a company called Satori Global Limited (earlier known as Sargam Exim Private Limited) ("Company"). By early 2007, Shailaja came to hold more than 98% of the company's shareholding. Also, in February 2007, Ved Krishna resigned from the directorship of the Company and another person (who eventually was impleaded as the Third Respondent before the Supreme Court) was appointed as the director.

On 15 December 2010, a board meeting was purportedly conducted and a certain person (who eventually was impleaded as the Fifth Respondent before the Supreme Court) was appointed as an additional director of the Company. Subsequently, another board meeting was purportedly held on 17 December 2010, wherein Shailaja's alleged resignation was accepted. Further, on the same day, i.e., 17 December 2010, Shailaja's shares were purportedly transferred to her mother-in-law via a gift deed. Share Transfer forms were also executed to effectuate the transfer.

Thereafter, in February 2011, a purported Extraordinary General Meeting (EGM) of the Company was conducted wherein Ved Krishna was reappointed as the director of the Company and the Company was converted to a public company from a private company. Subsequently, Shailaja's name was also removed from the register of members.

According to Shailaja, the gift deed was fraudulently executed and that she never intended to transfer her shares. Further, according to her, even the board meetings in December 2010 were invalid as she was not given any notice of them, which precluded her from participating in them. According to her, the decision taken at these meetings, including the appointment of the Fifth Respondent and the acceptance of her purported resignation, were invalid for want of quorum. To report these irregularities, she wrote to the Registrar of Companies and the Ministry of Corporate Affairs. She also lodged complaints with the police stating that her signatures were misused, and that she was coerced into the gift deed.

In the above backdrop, Shailaja approached the NCLT by way of an oppression and mismanagement petition under Sections 397 and 398 of the Companies Act, 1956 (corresponding to Section 241 and 242 of the Companies Act, 2013). The NCLT ruled in favor of Shailaja and held that the share transfer and board resolutions were invalid and restored her directorship and her 98% shareholding.

The NCLT's decision was appealed to the National Company Law Appellate Tribunal ("NCLAT"), and the NCLAT set aside the NCLT's decision on the ground that the NCLT lacked jurisdiction to decide on allegations of fraud and as that was the remit of the civil courts. Aggrieved by the NCLAT's decision, Shailaja appealed to the Supreme Court.

Question before the Supreme Court

The primary question before the Supreme Court was whether the NCLT had jurisdiction to decide on the validity of the gift deed, which was alleged to be fraudulent. Further, the Court was called upon to examine if Shailaja was a victim of oppression.

The Supreme Court's verdict

Relying on the decisions in Radharamanan v. Chandrasekara Raja(2008) 6 SCC 750 and Tata Consultancy Services Ltd. v. Cyrus Investments (P) Ltd.(2021) 9 SCC 449, the Supreme Court held that the NCLT "possess a wide jurisdiction to decide all such matters that are incidental and/or integral to the complaint alleging oppression and mismanagement". The Court took effectively took the view that if determining a question relating to fraud was integral to the oppression and mismanagement action, then NCLT would have jurisdiction to do the same. Applying this principle to the facts at hand, the Supreme Court held that the NCLT had the jurisdiction to determine the validity of the gift deed as it was central to determine whether Shailaja was the victim of oppression.

Further, the Court also found that Shailaja was a victim of oppression for the following reasons: (i) the circumstances surrounding the gift deed were questionable and that the gift deed was violative of the articles of association ("AoA") of the Company, (ii) the share transfer forms suffered from multiple infirmities, and (iii) the board meetings dated 15 December 2010 and 17 December 2010 were illegal as they were in contravention of company law and the AoA of the Company, particularly the fact that there was no valid quorum in both the meetings in view of no notice being served on Shailaja.

In view of the above, the Supreme Court set aside the decision of the NCLAT and reinstated the decision of the NCLT.

Our Thoughts

This decision significantly broadens the scope of the NCLT's jurisdiction, affirming that it can adjudicate on allegations of fraud when such issues are central to oppression and mismanagement claims. This is a progressive step as that strengthens shareholder protection and ensures that if attempts are made to sideline any shareholder's interests through procedural manipulation, fraud or coercion, the NCLT would come to the rescue of such shareholder by looking into such manipulation, fraud or coercion and taking necessary action on it. By recognizing the NCLT's authority to examine issues of fraud in oppression and mismanagement cases, the Court has reinforced the NCLT's role as a holistic forum for resolving complex corporate disputes, potentially reducing the need for parallel civil litigation and ensuring quicker access to justice.

Further, from a corporate governance perspective, this ruling serves as a stark warning that attempts to remove shareholders or directors through fraud, coercion, improper board meetings, or document tampering can be swiftly challenged in the NCLT. Companies must follow due process, maintain robust documentation and ensure that governance mechanisms must be both procedurally sound and substantively fair. This strengthens the institutional framework for redressing grievances within companies and deters the misuse of corporate structures for personal gain.

However, this expansion of jurisdiction also raises concerns about the potential overreach of the NCLT into areas traditionally reserved for civil courts, particularly in matters involving intricate questions of facts and evidence. The decision may blur the lines between corporate adjudication and civil litigation, leading to jurisdictional overlaps. There may be questions as to whether the finding of the NCLT on an issue of fraud would be binding on a civil court. For instance, if the NCLT holds that a certain document is vitiated by fraud, particularly without applying the rigors of evidence law, will it also mean that a civil court also, in a case relating to such document, accept the view of the NCLT and proceed on the footing that the document is fraudulent?, especially when the civil courts cannot come to a conclusion on a factual matter without applying evidence law strictly. This could lead to inconsistencies in adjudication and potentially conflicting results.

While the judgment is a win for corporate accountability, it also calls for a careful balancing act to ensure that the NCLT's expanded role does not compromise procedural rigor or judicial consistency.

Introduction

The Supreme Court of India's landmark ruling in Shailja Krishna. 2025 INSC 1065 marks a watershed moment in Indian company law. This decision addresses the issue whether the National Company Law Tribunal ("NCLT") can decide claims involving fraud when such an issue arises as part of oppression and mismanagement petitions under the Companies Act.

Factual background

Shailja Krishna ("Shailaja") and her husband, Ved Krishna were the promoters, shareholders and directors of a company called Satori Global Limited (earlier known as Sargam Exim Private Limited) ("Company"). By early 2007, Shailaja came to hold more than 98% of the company's shareholding. Also, in February 2007, Ved Krishna resigned from the directorship of the Company and another person (who eventually was impleaded as the Third Respondent before the Supreme Court) was appointed as the director.

On 15 December 2010, a board meeting was purportedly conducted and a certain person (who eventually was impleaded as the Fifth Respondent before the Supreme Court) was appointed as an additional director of the Company. Subsequently, another board meeting was purportedly held on 17 December 2010, wherein Shailaja's alleged resignation was accepted. Further, on the same day, i.e., 17 December 2010, Shailaja's shares were purportedly transferred to her mother-in-law via a gift deed. Share Transfer forms were also executed to effectuate the transfer.

Thereafter, in February 2011, a purported Extraordinary General Meeting (EGM) of the Company was conducted wherein Ved Krishna was reappointed as the director of the Company and the Company was converted to a public company from a private company. Subsequently, Shailaja's name was also removed from the register of members.

According to Shailaja, the gift deed was fraudulently executed and that she never intended to transfer her shares. Further, according to her, even the board meetings in December 2010 were invalid as she was not given any notice of them, which precluded her from participating in them. According to her, the decision taken at these meetings, including the appointment of the Fifth Respondent and the acceptance of her purported resignation, were invalid for want of quorum. To report these irregularities, she wrote to the Registrar of Companies and the Ministry of Corporate Affairs. She also lodged complaints with the police stating that her signatures were misused, and that she was coerced into the gift deed.

In the above backdrop, Shailaja approached the NCLT by way of an oppression and mismanagement petition under Sections 397 and 398 of the Companies Act, 1956 (corresponding to Section 241 and 242 of the Companies Act, 2013). The NCLT ruled in favor of Shailaja and held that the share transfer and board resolutions were invalid and restored her directorship and her 98% shareholding.

The NCLT's decision was appealed to the National Company Law Appellate Tribunal ("NCLAT"), and the NCLAT set aside the NCLT's decision on the ground that the NCLT lacked jurisdiction to decide on allegations of fraud and as that was the remit of the civil courts. Aggrieved by the NCLAT's decision, Shailaja appealed to the Supreme Court.

Question before the Supreme Court

The primary question before the Supreme Court was whether the NCLT had jurisdiction to decide on the validity of the gift deed, which was alleged to be fraudulent. Further, the Court was called upon to examine if Shailaja was a victim of oppression.

The Supreme Court's verdict

Relying on the decisions in Radharamanan v. Chandrasekara Raja(2008) 6 SCC 750 and Tata Consultancy Services Ltd. v. Cyrus Investments (P) Ltd.(2021) 9 SCC 449, the Supreme Court held that the NCLT "possess a wide jurisdiction to decide all such matters that are incidental and/or integral to the complaint alleging oppression and mismanagement". The Court took effectively took the view that if determining a question relating to fraud was integral to the oppression and mismanagement action, then NCLT would have jurisdiction to do the same. Applying this principle to the facts at hand, the Supreme Court held that the NCLT had the jurisdiction to determine the validity of the gift deed as it was central to determine whether Shailaja was the victim of oppression.

Further, the Court also found that Shailaja was a victim of oppression for the following reasons: (i) the circumstances surrounding the gift deed were questionable and that the gift deed was violative of the articles of association ("AoA") of the Company, (ii) the share transfer forms suffered from multiple infirmities, and (iii) the board meetings dated 15 December 2010 and 17 December 2010 were illegal as they were in contravention of company law and the AoA of the Company, particularly the fact that there was no valid quorum in both the meetings in view of no notice being served on Shailaja.

In view of the above, the Supreme Court set aside the decision of the NCLAT and reinstated the decision of the NCLT.

Our Thoughts

This decision significantly broadens the scope of the NCLT's jurisdiction, affirming that it can adjudicate on allegations of fraud when such issues are central to oppression and mismanagement claims. This is a progressive step as that strengthens shareholder protection and ensures that if attempts are made to sideline any shareholder's interests through procedural manipulation, fraud or coercion, the NCLT would come to the rescue of such shareholder by looking into such manipulation, fraud or coercion and taking necessary action on it. By recognizing the NCLT's authority to examine issues of fraud in oppression and mismanagement cases, the Court has reinforced the NCLT's role as a holistic forum for resolving complex corporate disputes, potentially reducing the need for parallel civil litigation and ensuring quicker access to justice.

Further, from a corporate governance perspective, this ruling serves as a stark warning that attempts to remove shareholders or directors through fraud, coercion, improper board meetings, or document tampering can be swiftly challenged in the NCLT. Companies must follow due process, maintain robust documentation and ensure that governance mechanisms must be both procedurally sound and substantively fair. This strengthens the institutional framework for redressing grievances within companies and deters the misuse of corporate structures for personal gain.

However, this expansion of jurisdiction also raises concerns about the potential overreach of the NCLT into areas traditionally reserved for civil courts, particularly in matters involving intricate questions of facts and evidence. The decision may blur the lines between corporate adjudication and civil litigation, leading to jurisdictional overlaps. There may be questions as to whether the finding of the NCLT on an issue of fraud would be binding on a civil court. For instance, if the NCLT holds that a certain document is vitiated by fraud, particularly without applying the rigors of evidence law, will it also mean that a civil court also, in a case relating to such document, accept the view of the NCLT and proceed on the footing that the document is fraudulent?, especially when the civil courts cannot come to a conclusion on a factual matter without applying evidence law strictly. This could lead to inconsistencies in adjudication and potentially conflicting results.

While the judgment is a win for corporate accountability, it also calls for a careful balancing act to ensure that the NCLT's expanded role does not compromise procedural rigor or judicial consistency.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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