NCLT Allows YS Jagan’s Plea to Cancel Share Transfer to Sister Sharmila Amid Strained Family Ties

NCLT Allows YS Jagan’s Plea to Cancel Share Transfer to Sister Sharmila Amid Strained Family Ties

Introduction

The National Company Law Tribunal (NCLT) Hyderabad bench has allowed a petition filed by YS Jagan Mohan Reddy, the former Chief Minister of Andhra Pradesh, seeking to cancel what he termed the “illegal” transfer of shares held by him and his wife in Saraswati Power and Industries Pvt. Ltd. to his sister YS Sharmila and their mother Vijayamma.

Factual Background

Jagan Mohan Reddy and his wife Bharathi had intended to transfer shares through a gift deed “out of love and affection” under a Memorandum of Understanding (MoU). However, Jagan later alleged that the transfer was completed by board resolution without fulfilling legal obligations and court clearance, including pending Enforcement Directorate attachments. He argued that the MoU was subject to these conditions.

Jagan, his wife Bharathi, and their mother Vijayamma together hold about 74.26 lakh shares (29.88%), 41 lakh shares (16.30%), and 1.22 crore shares (48.99%), respectively, in Saraswati Power, while the remaining shares are held by Classic Realty Pvt. Ltd.

Procedural Background

Jagan filed a petition with the NCLT on September 3, 2024, seeking to cancel, annul, and nullify the transfer of shares and reinstate his and his wife’s names in the company. The NCLT Hyderabad bench heard the plea and accepted the petition.

Contentions of the Parties

Petitioner’s Contentions:

• The transfer of shares was done without fulfilling legal obligations and clearance from the court.
• The MoU and gift deed were subject to pending cases and attachments by the Enforcement Directorate.
• Jagan argued that he had already given his sister ₹200 crore directly or through their mother over the past decade, fulfilling the intended obligation.
• The strained relations between Jagan and Sharmila render the MoU and share transfer invalid.

Respondent’s Contentions:

• Sharmila’s advocate stated that they would file an appeal against the order in the Appellate Tribunal or High Court.

Reasoning and Analysis

The NCLT allowed Jagan’s petition, directing the cancellation of the share transfer. The tribunal’s decision was based on the petitioner’s contentions that the “no love left between the two siblings” and the public statements by Sharmila showed the relationship had deteriorated, nullifying the basis of the MoU.

Implications

This decision has significant implications for the relationship between Jagan and Sharmila, as well as the ownership structure of Saraswati Power and Industries Pvt. Ltd. The decision may lead to further litigation and appeals.

Outcome

The NCLT allowed Jagan’s petition, directing the cancellation of the share transfer. The order copy is awaited, and Sharmila’s advocate has stated that they would file an appeal against the order.