Aruna Oswal vs Pankaj Oswal on 6 July, 2020
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Supreme Court of India
Aruna Oswal vs Pankaj Oswal on 6 July, 2020
Author: Arun Mishra
Bench: Arun Mishra, Navin Sinha
1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.9340 OF 2019
ARUNA OSWAL … APPELLANT
VS.
PANKAJ OSWAL & ORS. … RESPONDENTS
WITH
CIVIL APPEAL NO.9399 OF 2019
AND
CIVIL APPEAL NO.9401 OF 2019
JUDGMENT
ARUN MISHRA, J.
1. These appeals have been preferred against the judgment and
order dated 14.11.2019 passed by the National Company Law
Appellate Tribunal, New Delhi, (for short ‘the NCLAT’) in Company
Appeal (AT) No.411 of 2018, thereby affirming the order passed by the
National Company Law Tribunal (for short ‘the NCLT’) concerning
maintainability of the applications filed under sections 241 and 242 of
the Companies Act, 2013 (hereinafter referred to as ‘the Act’).
Signature Not Verified
Digitally signed by
MUKESH KUMAR
Date: 2020.07.06
17:54:19 IST
Reason:
2
2. The case is the outcome of a family tussle. Late Mr. Abhey
Kumar Oswal, during his lifetime, held as many as 5,35,3,960 shares
in M/s. Oswal Agro Mills Ltd., a listed company. He breathed his last
on 29.3.2016 in Russia. On or about 18.6.2015, Mr. Abhey Kumar
Oswal filed a nomination according to section 72 of the Act in favour
of Mrs. Aruna Oswal, his wife. Two witnesses duly attested the
nomination in the prescribed manner. As per the appellant, it was
explicitly provided therein that: “This nomination shall supersede any
prior nomination made by me/us and any testamentary document
executed by me/us.” The name of Mrs. Aruna Oswal, the appellant,
was registered as a holder on 16.4.2016 as against the shares held by
her deceased husband.
3. Mr. Pankaj Oswal, respondent No.1, filed a partition suit being
C.S. No.53/2017 claiming entitlement to onefourth of the estate of
Mr. Abhey Kumar Oswal. He claimed onefourth of the deceased’s
shareholdings who was holding shares to the extent of 39.88% in
Oswal Agro Mills. Ltd., respondent No.2. The deceased also held
11.11% shares in M/s. Oswal Greentech Ltd., respondent No.16. The
partition suit was filed on 3.2.2017 by respondent No.1 for 1/4 th each
of 39.88% shareholding in respondent No.2 company and 11.11%
shareholding in respondent No.16 company. Prayer was made for an
interim injunction in the civil suit. The High Court vide order dated
3
8.2.2017 directed the parties to maintain the status quo concerning
shares and other immoveable property. As on 8.2.2017, the shares
stood registered in the ownership of Mrs. Aruna Oswal, who continues
to be the owner of the shares.
4. After the demise of Mr. Abhey Kumar Oswal, respondent No.1
entered into the corporate offices of respondent Nos.2 and 16 along
with his wife for which a criminal complaint was lodged. FIR
No.54/2016 was registered at Police Station Barakhamba Road, New
Delhi. As a counterblast, respondent No.1 also filed a criminal
complaint against the appellant as well as the officials of respondent
No.2 and respondent No.16 companies, alleging illegal transmission of
shares. The application filed by respondent No.1 for registration of the
FIR was dismissed vide order dated 13.8.2018, and the revision
petition filed against the said dismissal is pending.
5. Mr. Pankaj Oswal, respondent No.1 filed Company Petition
No.56/CHD/PB/2018 Pankaj Oswal v. Oswal Agro Mills Ltd. & Ors.,
alleging oppression and mismanagement in the affairs of respondent
No.2 company. A prayer was also made against M/s. Oswal
Greentech. Ltd. Respondent No.1 claimed eligibility to maintain the
petition on the ground of being a holder of 0.03% shareholding and
claiming entitlement and legitimate expectation to 9.97% shareholding
4
of M/s. Oswal Agro Mills Ltd. by virtue of his being the son of
deceased Abhey Kumar Oswal.
6. An application was filed before NCLT in May 2018 by the
appellant challenging maintainability of the petition, inter alia, on the
following grounds:
(i) That respondent No.1 only holds 42,900 shares to the extent of
0.03% shares of the total paidup capital of M/s. Oswal Agro Mills
Ltd., which were acquired in June 2017. The claim made by Pankaj
Oswal to 9.97% out of 39.88% shareholding held by Late Abhey
Kumar Oswal could not be made basis to maintain a petition under
sections 241 and 242 read with section 244 of the Act. It was pointed
out that the entire shareholding of deceased stood transmitted in
ownership of Mrs. Aruna Oswal with effect from 16.4.2016. She is the
absolute owner of shares that rest in her under the provisions
contained in section 72 of the Act and rules framed thereunder.
(ii) Respondent No.1 failed to indicate the violation of any provisions of
the Act. The averments made as to oppression and mismanagement
were bald and vague.
(iii) Respondent No.1 indulged in forum shopping, which could not be
allowed in view of the availing remedy of filing of the partition suit due
to which company petition could not be said to be maintainable.
5
(iv) The High Court ordered status quo on 8.2.2017, according to
which, as the shareholding had been transferred in the name of Mrs.
Aruna Oswal, she would continue to be the owner during the
pendency of the suit.
(v) Similar prayer has been made in the suit as well as in the company
petition concerning the shareholding. The prayer regarding the
determination of the ownership of shares in the company petition was
the subjectmatter of the civil suit, as such the application under
sections 241 and 242 of the Act could not be said to be maintainable.
The appropriate remedy was to apply under section 59 of the Act.
(vi) The main dispute raised as to the inheritance of the estate of the
deceased is a civil dispute and could not be said to be an act of
oppression and mismanagement. Such a dispute could not be
adjudicated in a company petition filed during the civil suit’s
pendency. Thus, the company petition deserves to be dismissed.
(vii) Respondent No.1 was not having the requisite shareholding as
mandated under section 244(1) to invoke the provisions of section 241
of the Act.
6
(viii) The parallel proceedings on the same issue could not be termed
to be appropriate, and thus, the application could not be said to be
maintainable.
7. The NCLT, Chandigarh, directed the appellants and other
respondents to file a reply to the company petition sans deciding the
question of maintainability, an appeal was preferred before the
NCLAT, and the same was disposed of on 29.5.2018 and NCLT was
directed to decide the issue of maintainability before proceeding to
decide the company petition on merits.
8. The NCLT vide order dated 13.11.2018 dismissed the
application, including C.A. No.146/2018 challenging the company
petition’s maintainability. NCLT held respondent No.1 as legal heir
was entitled to onefourth share of the property/shares. Aggrieved
thereby, three appeals were filed before NCLAT, which have been
dismissed vide judgment and order dated 14.11.2019. Aggrieved
thereby, the appellants are before this Court.
9. Time was granted on 17.2.2020 to the parties to reach an
amicable settlement that could not be arrived. Hence, the matter was
heard on merits.
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10. Dr. A.M. Singhvi, learned senior counsel appearing on behalf of
Mrs. Aruna Oswal, wife of the deceased, vehemently argued that the
appellant was the sole nominee of shares of erstwhile shareholder Late
Abhey Kumar Oswal. In view of the provisions contained in section 71
of the Act, respondent No.1 could not claim any interest in the said
shares because of the nomination. After excluding shares in the name
of mother Mrs. Aruna Oswal, respondent No.1 Pankaj Oswal would
have only 0.03% of the shareholding in M/s. Oswal Agro Industries
Ltd. Given the provisions in section 244 of the Act, as respondent
no.1 lacked requisite shareholding of 10%, as such, the application
was not maintainable under sections 241 and 242 of the Act. Mr.
Abhey Kumar Oswal died intestate. Because of the provisions of
section 72 of the Act, all the rights vested in Mrs. Aruna Oswal, the
appellant. Thus, the shareholding purchased by respondent No.1 to
the extent of 0.03% in May, 2017 after filing of civil suit, did not
bestow any right upon him to maintain the company petition.
Respondent No.1 indisputably has settled in Australia and had
nothing to do with the management of the company. He has tried to
interfere in the management of M/s. Oswal Agro Mills Ltd illegally. The
NCLT and NCLAT ignored and overlooked the rights of the deceased
shareholder that would vest in the nominee. The application could not
be said to be maintainable. The matter of inheritance is pending
8
adjudication before this Court in another C.A. No.7107/2017 – Shakti
Yezdani v. Jayanand Jayant. It would not be appropriate for NCLT to
decide a civil dispute. Respondent No.1 did not claim waiver on the
rigors of section 244 of the Act and also did not file an application
seeking a waiver under the proviso to section 244 of the Act.
11. Mr. Neeraj Kishan Kaul, learned senior counsel appearing for
M/s. Oswal Agro Mills Ltd. fervently argued that in the wake of the
civil suit’s pendency, it was not appropriate for the NCLT to entertain
the application. Reliance placed on the decision of this Court in World
Wide Agencies Pvt. Ltd. & Anr. v. Margarat T. Desor & Ors., (1990) 1
SCC 536 could not be said to be appropriate as the question of
nomination was not involved in the said matter. There was no
nomination made in the said case. That was a case of inheritance of
shares. Thus, the legal representatives were given the right to
maintain the application regarding oppression and mismanagement.
Given the provisions of section 72 of the Act, and particularly in the
absence of requisite shareholding, it was not permissible to Pankaj
Oswal, respondent No.1, to maintain the company petition. As a civil
suit had been filed earlier in point of time and similar issue as to
ownership of shares is also raised therein, further proceedings in the
company petition deserve to be stayed, even assuming that the
company petition is maintainable.
9
12. Mr. P.S. Narasimhan learned senior counsel representing M/s.
Oswal Green Tech Ltd., respondent No.16, strenuously argued that
the deceased was having 11.11% of the shareholding out of which
respondent No.1 claimed only onefourth interest. Thus, given the
total shareholding which would be available, even if respondent No.1
is deemed to be the owner to the extent of 2.78%, it would be much
less than what is required to maintain an application under sections
241 and 242 in view of the provisions contained in section 244 of the
Act. It is a case of a civil dispute. As such, it would not be appropriate
to maintain a company petition. It amounts to sheer abuse of the
process of law to file successive petitions concerning the same relief.
Respondent No.1 has no locus standi to maintain the application, and
the principle of estoppel comes in the way of maintaining the
application.
13. Mr. Siddhartha Dave, learned senior counsel appearing on
behalf of respondent No.1, strenuously argued that the application
filed under sections 241 and 242 of the Act was maintainable. The
nomination was made only to hold the shares for the benefit of legal
representatives. It is permissible for a legal representative to maintain
the proceedings for oppression and mismanagement in the affairs of
the company, though his/her name is not entered as a registered
10
owner of the shares. He has relied upon World Wide Agencies Pvt. Ltd.
decision (supra), Smt. Sarbati Devi & Anr. v. Smt. Usha Devi, (1984) 1
SCC 424, Vishin N. Khanchandani & Anr. v. Vidya Lachmandas
Khanchandani & Anr., (2000) 6 SCC 724; and Ram Chander Talwar &
Anr. v. Devender Kumar Talwar & Ors., (2010) 10 SCC 671. He further
argued that the waiver requirement to hold 10% shares, had been
pleaded in the company petition filed by respondent No.1. The NCLT,
as well as the NCLAT rightly held the petition to be maintainable. The
civil suit’s pendency could not have come in the way of maintaining
the application concerning oppression and mismanagement, as only
civil rights have to be determined in the civil suit. The company
petition is prima facie maintainable because of the verdicts mentioned
above of this Court. Hence, no case for interference in the appeals is
made out.
14. The first argument advanced by learned counsel for the parties
concerns the effect of nomination under section 72 of the Act, the
same is extracted hereunder:
“72. Power to nominate (1) Every holder of
securities of a company may, at any time, nominate,
in the prescribed manner, any person to whom his
securities shall vest in the event of his death.
(2) Where the securities of a company are held by
more than one person jointly, the joint holders may
together nominate, in the prescribed manner, any
11person to whom all the rights in the securities shall
vest in the event of death of all the joint holders.
(3) Notwithstanding anything contained in any other
law for the time being in force or in any disposition,
whether testamentary or otherwise, in respect of the
securities of a company, where a nomination made
in the prescribed manner purports to confer on any
person the right to vest the securities of the
company, the nominee shall, on the death of the
holder of securities or, as the case may be, on the
death of the jointholders, become entitled to all the
rights in the securities, of the holder or, as the case
may be, of all the joint holders, in relation to such
securities, to the exclusion of all other persons,
unless the nomination is varied or cancelled in the
prescribed manner.
(4) Where the nominee is a minor, it shall be lawful
for the holder of the securities, making the
nomination to appoint, in the prescribed manner,
any person to become entitled to the securities of the
company, in the event of the death of the nominee
during his minority.”
(emphasis supplied)
15. It is quite apparent from a bare reading of the aforesaid
provisions of section 72(1), every holder of securities has a right to
nominate any person to whom his securities shall “vest” in the event of
his death. In the case of jointholders also, they have a right to
nominate any person to whom “all the rights in the securities shall
vest” in the event of death of all joint holders. Subsection (3) of
section 72 contains a nonobstante clause in respect of anything
contained in any other law for the time being in force or any
disposition, whether testamentary or otherwise, where a nomination is
12
validly made in the prescribed manner, it purports to confer on any
person “the right to vest” the securities of the company, all the rights
in the securities shall vest in the nominee unless a nomination is
varied or cancelled in the prescribed manner. It is prima facie
apparent that vesting is absolute, and the provisions supersede by
virtue of a nonobstante clause any other law for the time being in
force. Prima facie shares vest in a nominee, and he becomes absolute
owner of the securities on the strength of nomination. Rule 19(2) of
the Companies (Share Capital and Debentures) Rules, 2014 framed
under the Act, also indicates to the same effect. Under Rule 19(8), a
nominee becomes entitled to receive the dividends or interests and
other advantages to which he would have been entitled to if he were
the registered holder of the securities; and after becoming a registered
holder, he can participate in the meetings of the company. Rule 19(8)
is extracted hereunder:
“19(8). A person, being a nominee, becoming entitled
to any securities by reason of the death of the holder
shall be entitled to the same dividends or interests
and other advantages to which he would have been
entitled to if he were the registered holder of the
securities except that he shall not, before being
registered as a holder in respect of such securities,
be entitled in respect of these securities to exercise
any right conferred by the membership in relation to
meetings of the company:
Provided that the Board may, at any time, give
notice requiring any such person to elect either to be
registered himself or to transfer the securities and if
13the notice is not complied with within ninety days,
the Board may thereafter withhold payment of all
dividends or interests, bonuses or other moneys
payable in respect of the securities, as the case may
be, until the requirements of the notice have been
complied with.”
16. In World Wide Agencies Pvt. Ltd. (supra), this Court held that a
legal representative has a right to maintain an application regarding
oppression and mismanagement without being registered as a member
against the securities of a company. However, the question of
nomination was not involved in the said decision, as such, Court was
not required to decide the question of the effect of nomination whether
it vests all the rights in the securities in nominee to the exclusion of
legal representatives. The Court concerning the right of a legal
representative to maintain the petition held thus:
“12. On behalf of the appellants it was contended
that the right which is a specific statutory right, is
given only to a member of the company and until
and unless one is a member of the company, there is
no right to maintain application under Section 397 of
the Act. Mr Nariman contended that there was no
automatic transmission of shares in the case of
death of a shareholder to his legal heir and
representatives, and the Board has a discretion and
can refuse to register the shares. Hence, the legal
representatives had no locus standi to maintain an
application under Sections 397 and 398 of the Act.
Mr Nariman submitted that the rights under
Sections 397 and 398 of the Act are statutory rights
and must be strictly construed in the terms of the
statute. The right, it was submitted, was given to
“any member” of a company and it should not be
enlarged to include “any one who may be entitled to
become a member”.
14
13. In order to decide the question involved, it would
be necessary to examine certain provisions of the
Act. Section 2(27) of the Act states that “member” in
relation to company does not include a bearer of a
sharewarrant of the company issued in pursuance
of Section 114 of the Act. Section 41 of the Act
provides as follows:
“41. (1) The subscribers of the memorandum
of a company shall be deemed to have agreed to
become members of the company, and on its
registration, shall be entered as members in its
register of members.
(2) Every other person who agreed in writing
to become a member of a company and whose
name is entered in its register of members,
shall be a member of the company.”
14. Section 26 of the English Companies Act, 1948 is
substantially the same.
15. Section 109 of the Act states as follows:
“A transfer of the share or other interest in a
company of a deceased member thereof made
by his legal representative shall, although the
legal representative is not himself a member, be
as valid as if he had been a member at the time
of the execution of the instrument of transfer.”
16. In this connection, it would be relevant to refer
to Articles 25 to 28 of Table A of the Act, which deal
with the transmission of shares and which are in the
following terms:
“25. (1) On the death of a member the
survivor where the member was a joint holder,
and his legal representatives where he was a
sole holder, shall be the only persons
recognised by the company as having any title
to his interest in the shares.
(2) Nothing in clause (1) shall release the
estate of a deceased joint holder from any
15
liability in respect of any share which had been
jointly held by him with other persons.
26. (1) Any person becoming entitled to a
share in consequence of the death or
insolvency of a member may, upon such
evidence being produced as may from time to
time properly be required by the Board and
subject as hereinafter provided, elect, either —
(a) to be registered himself as holder of
the share; or
(b) to make such transfer of the share
as the deceased or insolvent member could
have made.
(2) The Board shall, in either case, have the
same right to decline or suspend registration as
it would have had, if the deceased or insolvent
member had transferred the share before his
death or insolvency.
27. (1) If the person so becoming entitled
shall elect to be registered as holder of the
share himself, he shall deliver or send to the
company a notice in writing signed by him
stating that he so elects.
(2) If the person aforesaid shall elect to
transfer the share, he shall testify his election
by executing a transfer of the share.
(3) All the limitations, restrictions and
provisions of these regulations relating to the
right to transfer and the registration of
transfers of shares shall be applicable to any
such notice or transfer as aforesaid as if the
death or insolvency of the member had not
occurred and the notice or transfer were a
transfer signed by that member.
28. A person becoming entitled to a share by
reason of the death or insolvency of the holder
shall be entitled to the same dividends or other
advantages to which he would be entitled if he
16
were the registered holder of the share, except
that he shall not, before being registered as a
member in respect of the share, be entitled in
respect of it to exercise any right conferred by
membership in relation to meetings of the
company:
Provided that the Board may, at any time,
give notice requiring any such person to elect
either to be registered himself or to transfer
the share, and if the notice is not complied
with within ninety days, the Board may
thereafter withhold payment of all dividends,
bonuses or other moneys payable in respect
of the share, until the requirements of the
notice have been complied with.”
17. Article 28 is more or less in pari materia to
Article 32 of Table A to the English Companies Act. It
may also be mentioned, as it has been mentioned by
the High Court, that Section 210 of the English
Companies Act, before its amendment in 1980, was
substantially the same as Section 397 of the Act.”
24. We do not agree for the reason mentioned before.
It further appears to us the Australian judgment
does not reconcile to logic in accepting that legal
representative can petition for winding up, which is
called the “sledgehammer remedy”, but would refuse
the lesser and alternative remedy of seeking relief
against oppression and mismanagement though the
latter remedy requires establishment of winding up
on just and equitable ground as a precondition for its
invocation. It would be rather incongruous to hold
that the case for winding up on just and equitable
ground can be made out by the legal representatives
under Section 439(4)(b) of the Act but not the other.
This does not appear to be logical. It appears to us
that to hold that the legal representatives of a
deceased shareholder could not be given the same
right of a member under Sections 397 and 398 of the
Act would be taking a hypertechnical view which
does not advance the cause of equity or justice. The
High Court in its judgment under appeal proceeded
17
on the basis that legal representatives of a deceased
member represent the estate of that member whose
name is on the register of members. When the
member dies, his estate is entrusted in the legal
representatives. When, therefore, these vestings are
illegally or wrongfully affected, the estate through the
legal representatives must be enabled to petition in
respect of oppression and mismanagement and it is
as if the estate stands in the shoes of the deceased
member. We are of the opinion that this view is a
correct view. It may be mentioned in this connection
that succession is not kept in abeyance and the
property of the deceased member vests in the legal
representatives on the death of the deceased and
they should be permitted to act for the deceased
member for the purpose of transfer of shares under
Section 109 of the Act.
25. In some situations and contingencies, the
“member” may be different from a “holder”. A
“member” may be a “holder” of shares but a “holder”
may not be a “member”. In that view of the matter, it
is not necessary for the present purpose to examine
this question from the angle in which the learned
Single Judge of the Calcutta High Court analysed the
position in the case of Kedar Nath Agarwal v. Jay
Engineering Works Ltd., (1963) 33 Com Cas 102 (Cal)
to which our attention was drawn.
26. Admittedly in the present case, the legal
representatives have been more than anxious to get
their names put on the register of members in place
of deceased member, who was the Managing Director
and Chairman of the company and had the
controlling interest. It would, therefore, be wrong to
insist their names must be first put on the register
before they can move an application under Sections
397 and 398 of the Act. This would frustrate the very
purpose of the necessity of action. It was contended
on behalf of the appellant before the High Court that
if legal representatives who were only potential
members or persons likely to come on the register of
members, are permitted to file an application under
18
Sections 397 and 398 of the Act, it would create
havoc, as then persons having blank transfer forms
signed by members, and as such having a financial
interest, could also claim to move an application
under Sections 397 and 398 of the Act. The High
Court held that this is a fallacy, that in the case of
persons having blank transfer forms, signed by
members, it is the members themselves who are
shown on the register of members and they are
different from the persons with the blank transfer
forms whereas in the case of legal representatives it
is the deceased member who is shown on the register
and the legal representatives are in effect exercising
his right. A right has devolved on them through the
death of the member whose name is still on the
register. In our opinion, therefore, the High Court
was preeminently right in holding that the legal
representatives of deceased member whose name is
still on the register of members are entitled to
petition under Sections 397 and 398 of the Act. In
the view we have taken, it is not necessary to
consider the contention whether as on the date of
petition, they were not members. In that view of the
matter, it is not necessary for us to consider the
decision of this Court in Rajahmundry Electric
Supply Corpn. Ltd. v. A. Mageshwara Rao, AIR 1956
SC 213. In view of the observations of this Court in
Life Insurance Corporation of India v. Escorts Limited,
(1986) 1 SCC 264, it is not necessary, in our
opinion, to consider the contention as made on
behalf of the appellant before the High Court that the
permission of the Reserve Bank of India had been
erroneously obtained and consequently amounts to
no permission. In the present context, we are of the
opinion that the High Court was right in the view it
took on the first aspect of the matter.”
The effect of nomination did not fall for consideration before this
Court in World Wide Agencies Pvt. Ltd. & Anr. (supra). There is no
doubt that in the absence of nomination, a legal representative cannot
19
be denied the right to maintain a petition regarding oppression and
mismanagement. In the instant case, the nomination had been made,
and the nominee is registered as the holder of shares. What is the
effect of the same is required to be decided to determine the extent of
shareholding of respondent No. 1, concerning which civil suit filed
earlier in point of time is pending consideration.
17. Learned senior counsel has also placed reliance on Smt. Sarbati
Devi & Anr. v. Smt. Usha Devi, (1984) 1 SCC 424 in which question
came up for consideration regarding section 39 of the Life Insurance
Act, 1938 concerning rights of a nominee in the amount covered under
policy when the assured died intestate. It was held that nomination
was subject to a claim of the heirs of the assured under the law of
succession. The provisions of section 39 of the Life Insurance Act,
1938, are quite different from the provisions contained in section 72 of
the Act. The rights of the nominee would depend upon what is
provided statutorily. There was no vesting of interest provided in the
nominee under section 39 of the Act of 1938. Hence, the decision
does not espouse the cause of the appellant.
18. Learned senior counsel also referred to the decision in Vishin N.
Khanchandani & Anr. v. Vidya Lachmandas Khanchandani & Anr.,
(2000) 6 SCC 724, wherein the provisions of sections 6 to 8 of the
20
Government Savings Certificates Act, 1959 came up for consideration.
It was held that the nominee was entitled to receive the sum due on
the savings certificates, yet he retained the same for the persons
entitled to it under the relevant law of succession. The argument that
the nonobstante clause in section 6 entitled the nominee to utilise the
sum so received by him, in the manner he likes, was rejected. In the
sections mentioned above of Act of 1959, vesting was not provided;
thus, the provisions being quite different, the decision is
distinguishable.
19. Learned senior counsel representing respondent No.1, lastly
referred to Ram Chander Talwar & Anr. v. Devender Kumar Talwar &
Ors., (2010) 10 SCC 671, wherein section 45ZA(2) of the Banking
Regulation Act, 1949 was considered by this Court as well as the
provisions of the Hindu Succession Act, 1925 and that of 1956.
Nomination made under the provisions of section 45ZA of the said Act
was to receive the amount of deposit from the banking company on
the death of the sole depositor. There was no similar provision
regarding the vesting of rights in nominee in section 45ZA(2). Hence,
the decision is to no avail.
20. Admittedly, respondent No.1 is not holding the shares to the
extent of eligibility threshold of 10% as stipulated under section 244 in
21
order to maintain an application under sections 241 and 242. He has
purchased the holding of 0.03% in M/s. Oswal Agro Mills Ltd. in June
2017 after filing civil suit and remaining 9.97% is in dispute, he is
claiming on the strength of his being a legal representative. In M/s.
Oswal Greentech Ltd., the shareholding of the deceased was 11.11%,
out of which onefourth share is claimed by respondent No.1.
Admittedly, in a civil suit for partition, he is also claiming a right in
the shares held by the deceased to the extent of onefourth. The
question as to the right of respondent no.1 is required to be
adjudicated finally in the civil suit, including what is the effect of
nomination in favour of his mother Mrs. Aruna Oswal, whether
absolute right, title, and interest vested in the nominee or not, is to be
finally determined in the said suit. The decision in a civil suit would be
binding between the parties on the question of right, title, or interest.
It is the domain of a civil court to determine the right, title, and
interest in an estate in a suit for partition.
21. Respondent no.1 had pleaded in paragraph 23 of the petition
filed under section 241 of the Companies Act, 2013, as under:
“23. Late 1990s and early 2000s saw increased
liberalization in Indian economic policies. Foreign
investors and MNCs had a positive outlook towards
doing business in India. Similarly, Indian business
houses were looking to increase their exposure in the
international arena. In these circumstances, Petitioner
father, on or about 2000, desired that the Petitioner
22gain some international exposure to doing business
outside India and encouraged him towards that end.
On or about 2001, the Petitioner started exploring
opportunities in Australia and ultimately moved there
to set up his own business Gradually, he increasingly
got involved in setting up his business in Australia.
Therefore, the Petitioner was not involved in day to day
affairs of the Company after making.”
It is admitted by respondent no.1 that he was not involved in day
to day affairs of the company and had shifted to Australia to set up his
independent business w.e.f. 2001. His grievance is that the family
had not recognised him as holder of the onefourth shares. They were
registered in the ownership of his mother Mrs. Aruna Oswal; that also
he had submitted to be an act of oppression. He acquired 0.03%
share capital after filing of the civil suit, otherwise he was not having
any shareholding in M/s. Oswal Agro Mills Ltd.
22. In Sangramsinh P. Gaekwad and Ors. v. Shantadevi P. Gaekwad
(Dead) through LRs. and Ors., (2005) 11 SCC 314, it was held that the
dispute as to inheritance of shares is eminently a civil dispute and
cannot be said to be a dispute as regards oppression and/or
mismanagement so as to attract Company Court’s jurisdiction under
sections 397 and 398. Adjudication of the question of ownership of
shares is not contemplated under Section 397. The relevant portion is
extracted hereunder:
“143. It is also not in dispute that the matter relating
to her claim to succeed FRG as his Class I heir is
23pending adjudication in Civil Suit No. 725 of 1991 in
the Baroda Civil Court. She claimed title in respect of
8000 shares by inheritance in terms of the Hindu
Succession Act. Indisputably, in terms of Section 15
of the said Act she is a Class I heir but the
appellants herein contend that the said provision has
no application having regard to Section 5(2) thereof
as inheritance in the family is governed by the rule of
primogeniture. A pure question of title is alien to an
application under Section 397 of the Companies Act
wherefor the lack of probity is the only test.
Furthermore, it is now well settled that the
jurisdiction of the civil court is not completely ousted
by the provisions of the Companies Act, 1956. (See
Dwarka Prasad Agarwal v. Ramesh Chander
Agarwal, (2003) 6 SCC 220)
144. A dispute as regards right of inheritance
between the parties is eminently a civil dispute and
cannot be said to be a dispute as regards oppression
of minority shareholders by the majority
shareholders and/or mismanagement.”
(emphasis supplied)
In view of the aforesaid decision, we are of the opinion that the
basis of the petition is the claim by way of inheritance of 1/4 th
shareholding so as to constitute 10% of the holding, which right
cannot be decided in proceedings under section 241/242 of the Act.
Thus, filing of the petition under sections 241 and 242 seeking waiver
is a misconceived exercise, firstly, respondent no.1 has to firmly
establish his right of inheritance before a civil court to the extent of
the shares he is claiming; more so, in view of the nomination made as
per the provisions contained in Section 71 of the Companies Act,
2013.
24
23. In M/s. Dale & Carrington Invt. (P) Ltd. and Anr. v. P.K.
Prathapan and Ors., AIR 2005 SC 1624, the question of locus standi to
entertain the petition under sections 397 and 398 of the Companies
Act, 1956, which are pari materia to sections 241 and 242 of the
Companies Act, 2013, was considered. This Court held that in order
to maintain the petition, one should have requisite number of shares
in the company on the date of filing of the petition. It was observed:
“32. It is to be further noted that the entire scheme
regarding purchase of shares in the name of the
mother of Prathapan was suggested by Ramanujam
himself. He saw to it that the shares were transferred
by the company in the name of Prathapan and his
wife. The company has recorded the transfer and
corrected its Register of Members in this behalf
which, in fact, led Ramanujam to file a petition for
rectification of the Register of Members as a
counterblast to the petition filed by Prathapan under
Sections 397/398 of the Companies Act. It is not
open to Ramanujam now to raise the question of
FERA violation, more particularly in view of his
having recorded the transfer of shares in the name of
Prathapan and his wife Pushpa in the records of the
Company. This also answers the objection regarding
locus standi of Prathapan and his wife to file the
Sections 397/398 petition before the Company Law
Board. Since they were registered as shareholders of
the company on the date of filing of the petition and
they held the requisite number of shares in the
company, they could maintain the petition.”
(emphasis supplied)
24. In J.P. Srivastava & Sons Pvt. Ltd. and Ors. v. M/s. Gwalior
Sugar Co. Ltd. and Ors., AIR 2005 SC 83, this Court considered the
25
object of prescribing a qualifying percentage of shares to entertain
petition under sections 397 and 398. It was held that the object is to
ensure that frivolous litigation is not indulged in by persons, who have
no legal stake in the company. If the Court is satisfied that the
petitioners represents the body of shareholders holding the requisite
percentage, the Court may proceed with the matter. This Court held
thus:
“47. The object of prescribing a qualifying percentage
of shares in petitioners and their supporters to file
petitions under Sections 397 and 398 is clearly to
ensure that frivolous litigation is not indulged in by
persons who have no real stake in the company.
However, it is of interest that the English Companies
Act contains no such limitation. What is required in
these matters is a broad commonsense approach. If
the Court is satisfied that the petitioners represent a
body of shareholders holding the requisite
percentage, it can assume that the involvement of
the company in litigation is not lightly done and that
it should pass orders to bring to an end the matters
complained of and not reject it on a technical
requirement. Substance must take precedence over
form. Of course, there are some rules which are vital
and go to the root of the matter which cannot be
broken. There are others where noncompliance may
be condoned or dispensed with. In the latter case,
the rule is merely directory provided there is
substantial compliance with the rules read as a
whole and no prejudice is caused. (See Pratap Singh
v. Shri Krishna Gupta, (AIR 1956 SC 140). In our
judgment, Section 399(3) and Regulation 18 have
been substantially complied with in this case.”
(emphasis supplied)
In the instant case, considering on the anvil of aforesaid
decisions, we are satisfied that respondent no.1, as pleaded by him,
26
had nothing to do with the affairs of the company and he is not a
registered owner. The rights in estate/shares, if any, of respondent
no.1 are protected in the civil suit. Thus, we are satisfied that
respondent no.1 does not represent the body of shareholders holding
requisite percentage of shares in the company, necessary in order to
maintain such a petition.
25. It is also not disputed that the High Court in the pending civil
suit passed an order maintaining the status quo concerning
shareholding and other properties. Because of the status quo order,
shares have to be held in the name of Mrs. Aruna Oswal until the suit
is finally decided. It would not be appropriate given the order passed
by the civil Court to treat the shareholding in the name of respondent
No.1 by NCLT before ownership rights are finally decided in the civil
suit, and propriety also demands it. The question of right, title, and
interest is essentially adjudication of civil rights between the parties,
as to the effect of the nomination decision in a civil suit is going to
govern the parties’ rights. It would not be appropriate to entertain
these parallel proceedings and give waiver as claimed under section
244 before the civil suit’s decision. Respondent No.1 had himself
chosen to avail the remedy of civil suit, as such filing of an application
under sections 241 and 242 after that is nothing but an afterthought.
27
26. Learned senior counsel for appellants argued that respondent
No.1, a disgruntled son disowned by family, settled in Australia for the
last 2530 years. He admittedly did not have anything to do with the
affairs of the company. On the other hand, it was vigorously argued by
Mr. Siddhartha Dave, learned senior counsel appearing for the
respondent, that owing to the rampant COVID19 pandemic,
respondent No.1 is in Dubai. Be that as it may. Merely disowning a
son by late father or by the family, is not going to deprive him of any
right in the property to which he may be otherwise entitled in
accordance with the law. The pertinent question needs to be tried in a
civil suit and adjudicated finally, it cannot be decided by NCLT in
proceedings in question. Hence, we refrain from deciding the
aforesaid question raised on behalf of the appellants in the present
proceedings. In the facts and circumstances, it would not be
appropriate to permit respondent No.1 to continue the proceedings for
mismanagement initiated under sections 241 and 242, that too in the
absence of having 10% shareholding and firmly establishing his rights
in civil proceedings to the extent he is claiming in the shareholding of
the companies.
27. We refrain to decide the question finally in these proceedings
concerning the effect of nomination, as it being a civil dispute, cannot
be decided in these proceedings and the decision may jeopardise
28
parties’ rights and interest in the civil suit. With regard to the dispute
as to right, title, and interest in the securities, the finding of the civil
Court is going to be final and conclusive and binding on parties. The
decision of such a question has to be eschewed in instant proceedings.
It would not be appropriate, in the facts and circumstances of the
case, to grant a waiver to the respondent of the requirement under the
proviso to section 244 of the Act, as ordered by the NCLAT.
28. It prima facie does not appear to be a case of oppression and
mismanagement. Our attention was drawn by the learned senior
counsel appearing for respondent No.1 to certain company
transactions. From transactions simpliciter, it cannot be inferred that
it is a case of oppression and mismanagement.
29. We are of the opinion that the proceedings before the NCLT filed
under sections 241 and 242 of the Act should not be entertained
because of the pending civil dispute and considering the minuscule
extent of holding of 0.03%, that too, acquired after filing a civil suit in
company securities, of respondent no. 1. In the facts and
circumstances of the instant case, in order to maintain the
proceedings, the respondent should have waited for the decision of the
right, title and interest, in the civil suit concerning shares in question.
The entitlement of respondent No.1 is under a cloud of pending civil
29
dispute. We deem it appropriate to direct the dropping of the
proceedings filed before the NCLT regarding oppression and
mismanagement under sections 241 and 242 of the Act with the
liberty to file afresh, on all the questions, in case of necessity, if the
suit is decreed in favour of respondent No.1 and shareholding of
respondent No.1 increases to the extent of 10% required under section
244. We reiterate that we have left all the questions to be decided in
the pending civil suit. Impugned orders passed by the NCLT as well as
NCLAT are set aside, and the appeals are allowed to the aforesaid
extent. We request that the civil suit be decided as expeditiously as
possible, subject to cooperation by respondent No.1. Parties to bear
their costs as incurred.
…………………….J.
(Arun Mishra)
…….……………….J.
(S. Abdul Nazeer)
New Delhi;
July 06, 2020.