Aruna Oswal vs Pankaj Oswal & Ors

Arun Mishra, J

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’).

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.

Mr. Pankaj Oswal, respondent No.1, filed a partition suit being C.S. No.53/2017 claiming entitlement to oneÂfourth of the estate of Mr. Abhey

Kumar Oswal. He claimed oneÂfourth 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 1/4th 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 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.

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.

Mr. Pankaj Oswal, respondent No.1 filed Company Petition No.56/CHD/PB/2018 Â 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.

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 paidÂup 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.

(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 subjectÂmatter 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.

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.

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 oneÂfourth 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.

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.

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 â€" 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.

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.

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 oneÂfourth 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.

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 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.

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 jointÂ​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.

(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.â€​

(emphasis supplied)

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 jointÂholders 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. SubÂsection (3) of section 72 contains a nonÂobstante 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 nonÂobstante 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 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.â€​

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 memberâ€​.

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 shareÂwarrant 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.â€​

Section 26 of the English Companies Act, 1948 is substantially the same.

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.â€​

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.

(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 â€

(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.

(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.

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.â€​

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.â€​

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 “sledgeÂhammer remedyâ€, 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 hyperÂtechnical 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.

In some situations and contingencies, the “member†may be different from a “holderâ€. A “member†may be a “holder†of shares

but a “holder†may not be a “memberâ€. 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.

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 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 preÂeminently 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.â€​

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 shareholding of respondent No. 1, concerning which civil suit filed earlier in point of time is pending consideration.

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.

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 nonÂobstante 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.

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 45ÂZA(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 45ÂZA 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 45Â‐

ZA(2). Hence, the decision is to no avail.

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 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 oneÂfourth 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 oneÂfourth. 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.

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.â€​

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 oneÂfourth 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.

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

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 pending 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 Ac.t 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)

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.â€​

(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 1/4th 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.

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.â€​

(emphasis supplied)

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 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 nonÂcompliance 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.â€​

(emphasis supplied)

In the instant case, considering on the anvil of aforesaid decisions, we are satisfied that respondent no.1, as pleaded by him, 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.

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.

Learned senior counsel for appellants argued that respondent No.1, a disgruntled son disowned by family, settled in Australia for the last 25Â30

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 COVIDÂ19 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.

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 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.

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.

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 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.