# ARUNA OSWAL v. PANKAJ OSWAL & ORS

- **Citation:** [2020] 7 S.C.R. 476
- **Court:** Supreme Court of India
- **Decided:** 2020-07-06
- **Case number:** Civil Appeal No. 9340 of 2019
- **Bench:** Arun Mishra, S. Abdul Nazeer
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/aruna-oswal-v-pankaj-oswal-ors-34662
- **Pages:** 22

## Headnote

Companies Act, 2013 - ss. 241 and 242 - Respondent no. 1
filed a partition suit claiming entitlement to one-fourth of the estate/
shares of his father - The High Court directed status quo between
the parties and the said suit is pending - Thereafter, respondent no.
1 filed Company petition alleging oppression and mismanagement
in the affairs of respondent no. 2 company and claimed eligibility
to maintain the petition on the ground of being holder of 0.03%
shareholding and legitimate expectation to 9.97% shareholding of
respondent no. 2 company - The NCLT held the petition maintainable
and respondent no. 1 as legal heir was entitled to one-fourth share
of the property/shares - NCLAT affirmed the order passed by the
NCLT - On appeal, held: The basis of petition is the claim by way
of inheritance of one-fourth shareholding so as to constitute 10%
of the holding, which right cannot be decided in proceedings u/s.
241/242 of the Act - Respondent no. 1 has to firmly establish his
right of inheritance before a civil Court to the extent of the shares
he is claiming - The respondent no. 1 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 - Respondent no. 1 does not represent the body of shareholders
holding a requisite percentage of shares in the company, necessary
in order to maintain such a petition - 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 - Therefore, the proceedings
filed before the NCLT regarding oppression and mismanagement
u/ss. 241/242 of the Act are directed to be dropped - The impugned
orders passed by the NCLT and NCLAT are set aside.
[2020] 7 S.C.R. 476
476
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Allowing the appeals, the Court
HELD: 1. Admittedly, respondent No.1 is not holding the
shares to the extent of eligibility threshold of 10% as stipulated
under section 244 of the Companies Act, 2013 in order to maintain
an application under sections 241 and 242. He has purchased the
holding of 0.03% in respondent no. 2 company 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 respondent
no. 16 company, the shareholding of the deceased was 11.11%,
out of which one-fourth 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 one-fourth.
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 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. [Para 20]
[491-H][492-A-C]
2. 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. [Para 21][492-G]
3. The basis of the petition is the claim by way of inheritance
of 1/4th 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. [Para 22][493-F-G]
4. In the instant case, this Court is satisfied that

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ARUNA OSWAL
v.
PANKAJ OSWAL & ORS.
(Civil Appeal No. 9340 of 2019)
JULY 06, 2020
[ARUN MISHRA AND S. ABDUL NAZEER, JJ.]
Companies Act, 2013 - ss. 241 and 242 - Respondent no. 1
filed a partition suit claiming entitlement to one-fourth of the estate/
shares of his father - The High Court directed status quo between
the parties and the said suit is pending - Thereafter, respondent no.
1 filed Company petition alleging oppression and mismanagement
in the affairs of respondent no. 2 company and claimed eligibility
to maintain the petition on the ground of being holder of 0.03%
shareholding and legitimate expectation to 9.97% shareholding of
respondent no. 2 company - The NCLT held the petition maintainable
and respondent no. 1 as legal heir was entitled to one-fourth share
of the property/shares - NCLAT affirmed the order passed by the
NCLT - On appeal, held: The basis of petition is the claim by way
of inheritance of one-fourth shareholding so as to constitute 10%
of the holding, which right cannot be decided in proceedings u/s.
241/242 of the Act - Respondent no. 1 has to firmly establish his
right of inheritance before a civil Court to the extent of the shares
he is claiming - The respondent no. 1 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 - Respondent no. 1 does not represent the body of shareholders
holding a requisite percentage of shares in the company, necessary
in order to maintain such a petition - 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 - Therefore, the proceedings
filed before the NCLT regarding oppression and mismanagement
u/ss. 241/242 of the Act are directed to be dropped - The impugned
orders passed by the NCLT and NCLAT are set aside.
[2020] 7 S.C.R. 476
476
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477
Allowing the appeals, the Court
HELD: 1. Admittedly, respondent No.1 is not holding the
shares to the extent of eligibility threshold of 10% as stipulated
under section 244 of the Companies Act, 2013 in order to maintain
an application under sections 241 and 242. He has purchased the
holding of 0.03% in respondent no. 2 company 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 respondent
no. 16 company, the shareholding of the deceased was 11.11%,
out of which one-fourth 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 one-fourth.
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 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. [Para 20]
[491-H][492-A-C]
2. 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. [Para 21][492-G]
3. The basis of the petition is the claim by way of inheritance
of 1/4th 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. [Para 22][493-F-G]
4. In the instant case, this Court is satisfied that respondent
no.1, as pleaded by him, had nothing to do with the affairs of the
ARUNA OSWAL v. PANKAJ OSWAL & ORS.
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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.
[Para 24][495-D-E]
5. 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.
[Para 26][496-C-D]
Sangramsinh P. Gaekwad and Ors. v. Shantadevi P.
Gaekwad (Dead) through LRs. and Ors. (2005) 11 SCC
314 : [2005] 1 SCR 624; M/s. Dale & Carrington Invt.
(P) Ltd. and Anr. v. P.K. Prathapan and Ors. AIR 2005
SC 1624 : [2004] 4 Suppl. SCR 334; J.P. Srivastava &
Sons Pvt. Ltd. and Ors. v. M/s. Gwalior Sugar Co. Ltd.
and Ors. AIR 2005 SC 83 : [2004] 5 Suppl. SCR 648 -
relied on.
Vishin N. Khanchandani & Anr. v. Vidya Lachmandas
Khanchandani & Anr. (2000) 6 SCC 724 : [2000] 2
Suppl. SCR 415 - distinguished.
World Wide Agencies Pvt. Ltd. & Anr. v. Margarat T.
Desor& Ors. (1990) 1 SCC 536 : [1989] 2 Suppl. SCR
545; Smt. Sarbati Devi & Anr. v. Smt. Usha Devi, (1984)
1 SCC 424 : [1984] 1 SCR 992; Ram Chander Talwar
& Anr. v. Devender Kumar Talwar & Ors. (2010) 10
SCC 671 : [2010] 11 SCR 897 - referred to.
Case Law Reference
[1989] 2 Suppl. SCR 545
referred to
Para 11
[1984] 1 SCR 992
referred to
Para 13
[2000] 2 Suppl. SCR 415
distinguished
Para 13
[2010] 11 SCR 897
referred to
Para 13
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[2005] 1 SCR 624
relied on
Para 22
[2004] 4 Suppl. SCR 334
relied on
Para 23
[2004] 5 Suppl. SCR 648
relied on
Para 24
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 9340
Of 2019.
From the Judgment and Order dated 14.11.2019 of the National
Company Law Appellate Tribunal, New Delhi in Company Appeal (AT)
No. 411 of 2018.
With
C.A. No. 9401 and 9399 of 2019
Dr. A.M. Singhvi, Neeraj Kishan Kaul, Siddhartha Dave, P.S.
Narasimhan, Sr. Advs., Ms. Swarupama Chaturvedi, Azeem Samuel,
Ms. Babita Yadav, Ms. Manisha Chaddha, Bhakti Vardhan Singh, Amar
Gupta, Pallavi Kumar, Raghav Sabharwal, Sidharth Sethi, Aman Jha,
and R.C. Kohli, Advs. for the appearing parties.
The Judgment of the Court was delivered by
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').
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.
ARUNA OSWAL v. PANKAJ OSWAL & ORS.
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3. Mr. Pankaj Oswal, respondent No.1, filed a partition suit being
C.S. No.53/2017 claiming entitlement to one-fourth of the estate of Mr.
Abhey Kumar Oswal. He claimed one-fourth 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 1/4theach 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 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.1also 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 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 paid-up capital of M/s. Oswal Agro Mills Ltd.,
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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.
(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 subject-matter 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.
(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.
ARUNA OSWAL v. PANKAJ OSWAL & ORS.
[ARUN MISHRA, J.]
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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
one-fourth 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.
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 adjudication before this Court in another C.A. No.7107/2017
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- 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.
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 one-fourth 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
ARUNA OSWAL v. PANKAJ OSWAL & ORS.
[ARUN MISHRA, J.]
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for oppression and mismanagement in the affairs of the company, though
his/her name is not entered as a registered 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; andRam 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 person 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 joint-holders, 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.
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(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 joint-holders 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. Sub-section (3) of section 72 contains
a non-obstante 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 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 non-obstante 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:
ARUNA OSWAL v. PANKAJ OSWAL & ORS.
[ARUN MISHRA, J.]
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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 the 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".
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 share-warrant 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
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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 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.
ARUNA OSWAL v. PANKAJ OSWAL & ORS.
[ARUN MISHRA, J.]
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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
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 "sledge-hammer remedy", but would refuse
the lesser and alternative remedy of seeking relief against
oppression and mismanagement though the latter remedy requires
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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
hyper-technical view which does not advance the cause of equity
or justice. The High Court in its judgment under appeal proceeded
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
ARUNA OSWAL v. PANKAJ OSWAL & ORS.
[ARUN MISHRA, J.]
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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
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 pre-eminently 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 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
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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
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 45-ZA(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 45-ZA 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 45-ZA(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
order to maintain an application under sections 241 and 242.He has
ARUNA OSWAL v. PANKAJ OSWAL & ORS.
[ARUN MISHRA, J.]
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purchased the holding of 0.03% in M/s. Oswal Agro Mills Ltd. in June
2017after 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 one-fourth 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 one-fourth. 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 partieson 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 gain 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 one-fourth 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
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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.