Case: ARUNA OSWAL Vs. PANKAJ OSWAL &amp; ORS.

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 one-fourth of the estate of Mr. Abhey Kumar Oswal. He claimed one-fourth of the deceaseds 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 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 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., 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 suits 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.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 petitions 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.

Court's reasoning:
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.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.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 non-obstante 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 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 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 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.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 Courts 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 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 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.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.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.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 suits 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.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 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.