ARUNA OSWAL versus PANKAJ OSWAL & ORS. on 6 July 2020

476

[2020] 7 S.C.R. 476

SUPREME COURT REPORTS

[2020] 7 S.C.R.

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ARUNA OSWAL

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PANKAJ OSWAL & ORS.

(Civil Appeal No. 9340 of 2019)

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JULY 06, 2020

[ARUN MISHRA AND S. ABDUL NAZEER, JJ.]

Companies Act, 2013 – ss. 241 and 242 – Respondent no. 1Cfiled a partition suit claiming entitlement to one-fourth of the estate/shares of his father – The High Court directed status quo betweenthe parties and the said suit is pending – Thereafter, respondent no.1 filed Company petition alleging oppression and mismanagementin the affairs of respondent no. 2 company and claimed eligibilityto maintain the petition on the ground of being holder of 0.03%Dshareholding and legitimate expectation to 9.97% shareholding ofrespondent no. 2 company – The NCLT held the petition maintainableand respondent no. 1 as legal heir was entitled to one-fourth shareof the property/shares – NCLAT affirmed the order passed by theNCLT – On appeal, held: The basis of petition is the claim by wayEof 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 hisright of inheritance before a civil Court to the extent of the shareshe is claiming – The respondent no. 1 had nothing to do with theaffairs of the company and he is not a registered owner – The rightsFin estate/shares, if any, of respondent no. 1 are protected in the civilsuit – Respondent no. 1 does not represent the body of shareholdersholding a requisite percentage of shares in the company, necessaryin order to maintain such a petition – It would not be appropriategiven the order passed by the civil Court to treat the shareholdingGin the name of respondent no. 1 by NCLT before ownership rightsare finally decided in the civil suit – Therefore, the proceedingsfiled before the NCLT regarding oppression and mismanagementu/ss. 241/242 of the Act are directed to be dropped – The impugnedorders passed by the NCLT and NCLAT are set aside.

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Allowing the appeals, the Court

HELD: 1. Admittedly, respondent No.1 is not holding theshares to the extent of eligibility threshold of 10% as stipulatedunder section 244 of the Companies Act, 2013 in order to maintainan application under sections 241 and 242. He has purchased theholding of 0.03% in respondent no. 2 company in June 2017 afterfiling civil suit and remaining 9.97% is in dispute, he is claimingon the strength of his being a legal representative. In respondentno. 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 rightin 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 beadjudicated finally in the civil suit, including what is the effect ofnomination in favour of his mother whether absolute right, title,and interest vested in the nominee or not, is to be finallydetermined in the said suit. The decision in a civil suit would bebinding between the parties on the question of right, title, orinterest. 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 involvedin day to day affairs of the company and had shifted to Australia toset up his independent business w.e.f. 2001. [Para 21][492-G]

3. The basis of the petition is the claim by way of inheritanceof 1/4[th] shareholding so as to constitute 10% of the holding, whichright cannot be decided in proceedings under section 241/242 ofthe Act. Thus, filing of the petition under sections 241 and 242seeking waiver is a misconceived exercise, firstly, respondentno.1 has to firmly establish his right of inheritance before a civilcourt to the extent of the shares he is claiming; more so, in viewof the nomination made as per the provisions contained in Section71 of the Companies Act, 2013. [Para 22][493-F-G]

4. In the instant case, this Court is satisfied that respondentno.1, as pleaded by him, had nothing to do with the affairs of the A

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Acompany 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 representthe body of shareholders holding requisite percentage of sharesin the company, necessary in order to maintain such a petition.[Para 24][495-D-E]B

5. In the facts and circumstances, it would not beappropriate to permit respondent No.1 to continue theproceedings for mismanagement initiated under sections 241 and242, that too in the absence of having 10% shareholding andfirmly establishing his rights in civil proceedings to the extentChe 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 SCC314 : [2005] 1 SCR 624; M/s. Dale & Carrington Invt.D(P) Ltd. and Anr. v. P.K. Prathapan and Ors. AIR 2005SC 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.

EVishin N. Khanchandani & Anr. v. Vidya LachmandasKhanchandani & Anr. (2000) 6 SCC 724 : [2000] 2Suppl. SCR 415 – distinguished.

World Wide Agencies Pvt. Ltd. & Anr. v. Margarat T.Desor& Ors. (1990) 1 SCC 536 : [1989] 2 Suppl. SCRF545; 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) 10SCC 671 : [2010] 11 SCR 897 – referred to.

Case Law Reference

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[2005] 1 SCR 624relied onPara 22[2004] 4 Suppl. SCR 334relied onPara 23[2004] 5 Suppl. SCR 648relied onPara 24

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 9340Of 2019.

From the Judgment and Order dated 14.11.2019 of the NationalCompany 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, AmarGupta, 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 andorder dated 14.11.2019 passed by the National Company Law AppellateTribunal, New Delhi,(for short ‘the NCLAT’) in Company Appeal (AT)No.411 of 2018, thereby affirming the order passed by the NationalCompany Law Tribunal (for short ‘the NCLT’)concerning maintainabilityof the applications filed under sections 241 and 242 of the CompaniesAct, 2013 (hereinafter referred to as ‘the Act’).

2. The case is the outcome of a family tussle. Late Mr. AbheyKumar Oswal, during his lifetime, held as many as 5,35,3,960 shares inM/s. Oswal Agro Mills Ltd., a listed company. He breathed his last on29.3.2016 in Russia. On or about 18.6.2015, Mr. Abhey Kumar Oswalfiled a nomination according to section 72 of the Act in favour ofMrs.Aruna Oswal, his wife. Two witnesses duly attested the nominationin the prescribed manner. As per the appellant, it was explicitly providedtherein that: “This nomination shall supersede any prior nomination madeby me/us and any testamentary document executed by me/us.” Thename of Mrs. Aruna Oswal, the appellant, was registered as a holder on16.4.2016 as against the shares held by her deceased husband.

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A3. Mr. Pankaj Oswal, respondent No.1, filed a partition suit beingC.S. No.53/2017 claiming entitlement to one-fourth of the estate of Mr.Abhey Kumar Oswal. He claimed one-fourth of the deceased’sshareholdings who was holding shares to the extent of 39.88% in OswalAgro Mills. Ltd., respondent No.2. The deceased also held 11.11% sharesin M/s. Oswal Greentech Ltd., respondent No.16. The partition suit wasBfiled 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 inrespondent No.16 company. Prayer was made for an interim injunctionin the civil suit. The High Court vide order dated 8.2.2017 directed theparties to maintain the status quo concerning shares and other immoveableCproperty. As on 8.2.2017, the shares stood registered in the ownershipof Mrs. Aruna Oswal, who continues to be the owner of the shares.

4. After the demise of Mr. Abhey Kumar Oswal, respondent No.1entered into the corporate offices of respondent Nos.2 and 16 alongwith his wife for which a criminal complaint was lodged. FIR No.D54/2016 was registered at Police Station Barakhamba Road, New Delhi.

As a counterblast, respondent No.1also filed a criminal complaint againstthe appellant as well as the officials of respondent No.2 and respondentNo.16 companies, alleging illegal transmission of shares. The applicationfiled by respondent No.1 for registration of the FIR was dismissed videorder dated 13.8.2018, and the revision petition filed against the saidEdismissal is pending.

5. Mr. Pankaj Oswal, respondent No.1 filed Company PetitionNo.56/CHD/PB/2018 - Pankaj Oswal v. Oswal Agro Mills Ltd. &Ors., alleging oppression and mismanagement in the affairs of respondentNo.2 company. A prayer was also made against M/s. Oswal Greentech.FLtd. Respondent No.1 claimed eligibility to maintain the petition on theground of being a holder of 0.03% shareholding and claiming entitlementand legitimate expectation to 9.97% shareholding of M/s. Oswal AgroMills Ltd. by virtue of his being the son of deceased Abhey KumarOswal.G6. An application was filed before NCLT in May 2018 by theappellant challenging maintainability of the petition, inter alia, on thefollowing grounds:

(i) That respondent No.1 only holds 42,900 shares to the extent of0.03% shares of the total paid-up capital of M/s. Oswal Agro Mills Ltd.,H

which were acquired in June 2017. The claim made by Pankaj Oswal to9.97% out of 39.88% shareholding held by Late Abhey Kumar Oswalcould not be made basis to maintain a petition under sections 241 and242 read with section 244 of the Act. It was pointed out that the entireshareholding of deceased stood transmitted in ownership of Mrs. ArunaOswal with effect from 16.4.2016. She is the absolute owner of sharesthat rest in her under the provisions contained in section 72 of the Actand rules framed thereunder.

(ii) Respondent No.1 failed to indicate the violation of any provisionsof the Act. The averments made as to oppression and mismanagementwere bald and vague.

(iii) Respondent No.1 indulged in forum shopping, which couldnot be allowed in view of the availing remedy of filing of the partition suitdue to which company petition could not be said to be maintainable.

(iv) The High Court ordered status quo on 8.2.2017, according towhich, as the shareholding had been transferred in the name ofMrs. Aruna Oswal, she would continue to be the owner during thependency of the suit.

(v) Similar prayer has been made in the suit as well as in thecompany petition concerning the shareholding. The prayer regarding thedetermination of the ownership of shares in the company petition wasthe subject-matter of the civil suit, as such the application under sections241 and 242 of the Act could not be said to be maintainable. Theappropriate remedy was to apply under section 59 of the Act.

(vi) The main dispute raised as to the inheritance of the estate ofthe deceased is a civil dispute and could not be said to be an act ofoppression and mismanagement. Such a dispute could not be adjudicatedin a company petition filed during the civil suit’s pendency. Thus, thecompany petition deserves to be dismissed.

(vii) Respondent No.1 was not having the requisite shareholdingas mandated under section 244(1)to invoke the provisions of section 241of the Act.

(viii) The parallel proceedings on the same issue could not betermed to be appropriate, and thus, the application could not be said tobe maintainable.

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A7. The NCLT, Chandigarh, directed the appellants and otherrespondents to file a reply to the company petition sans deciding thequestion of maintainability, an appeal was preferred before the NCLAT,and the same was disposed of on 29.5.2018 and NCLT was directed todecide the issue of maintainability before proceeding to decide thecompany petition on merits.B

8. The NCLT vide order dated 13.11.2018 dismissed the application,including C.A. No.146/2018 challenging the company petition’smaintainability. NCLT held respondent No.1 as legal heir was entitled toone-fourth share of the property/shares. Aggrieved thereby, three appealswere filed before NCLAT, which have been dismissed vide judgmentCand order dated 14.11.2019. Aggrieved thereby, the appellants are beforethis Court.

9. Time was granted on 17.2.2020 to the parties to reach anamicable settlement that could not be arrived. Hence, the matter washeard on merits.D

10. Dr. A.M. Singhvi, learned senior counsel appearing on behalfof Mrs. Aruna Oswal, wife of the deceased, vehemently argued that theappellant was the sole nominee of shares of erstwhile shareholder LateAbhey Kumar Oswal. In view of the provisions contained in section 71of the Act, respondent No.1 could not claim any interest in the saidEshares because of the nomination. After excluding shares in the name ofmother Mrs. Aruna Oswal, respondent No.1 Pankaj Oswal would haveonly 0.03% of the shareholding in M/s. Oswal Agro Industries Ltd. Giventhe provisions in section 244 of the Act, as respondent no.1 lackedrequisite shareholding of 10%, as such, the application was notFmaintainable under sections 241 and 242 of the Act. Mr. Abhey KumarOswal died intestate. Because of the provisions of section 72 of theAct, all the rights vested in Mrs. Aruna Oswal, the appellant. Thus, theshareholding purchased by respondent No.1 to the extent of 0.03% inMay, 2017 after filing of civil suit, did not bestow any right upon him tomaintain the company petition. Respondent No.1 indisputably has settledGin 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 MillsLtd illegally. The NCLT and NCLAT ignored and overlooked the rightsof the deceased shareholder that would vest in the nominee. Theapplication could not be said to be maintainable. The matter of inheritanceHis pending adjudication before this Court in another C.A. No.7107/2017

– Shakti Yezdani v. Jayanand Jayant. It would not be appropriate forNCLT to decide a civil dispute. Respondent No.1 did not claim waiveron the rigors of section 244 of the Act and also did not file an applicationseeking a waiver under the proviso to section 244 of the Act.

11. Mr. Neeraj Kishan Kaul, learned senior counsel appearing forM/s. Oswal Agro Mills Ltd. fervently argued that in the wake of the civilsuit’s pendency, it was not appropriate for the NCLT to entertain theapplication. Reliance placed on the decision of this Court in World WideAgencies Pvt. Ltd. & Anr. v. Margarat T. Desor& Ors., (1990) 1 SCC536 could not be said to be appropriate as the question of nominationwas not involved in the said matter. There was no nomination made inthe said case. That was a case of inheritance of shares. Thus, the legalrepresentatives were given the right to maintain the application regardingoppression and mismanagement. Given the provisions of section 72 ofthe Act, and particularly in the absence of requisite shareholding, it wasnot permissible to Pankaj Oswal, respondent No.1, to maintain thecompany petition. As a civil suit had been filed earlier in point of timeand similar issue as to ownership of shares is also raised therein, furtherproceedings in the company petition deserve to be stayed, even assumingthat the company petition is maintainable.

12. Mr. P.S. Narasimhan learned senior counsel representingM/s. Oswal Green Tech Ltd., respondent No.16, strenuously arguedthat the deceased was having 11.11% of the shareholding out of whichrespondent No.1 claimed only one-fourth interest. Thus, given the totalshareholding which would be available, even if respondent No.1 is deemedto be the owner to the extent of 2.78%, it would be much less than whatis required to maintain an application under sections 241 and 242 in viewof the provisions contained in section 244 of the Act. It is a case of acivil dispute. As such, it would not be appropriate to maintain a companypetition. It amounts to sheer abuse of the process of law to file successivepetitions concerning the same relief. Respondent No.1 has no locusstandi to maintain the application, and the principle of estoppel comes inthe way of maintaining the application.

13. Mr. Siddhartha Dave, learned senior counsel appearing onbehalf of respondent No.1, strenuously argued that the application filedunder sections 241 and 242 of the Act was maintainable. The nominationwas made only to hold the shares for the benefit of legal representatives.It is permissible for a legal representative to maintain the proceedings A

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Afor oppression and mismanagement in the affairs of the company, thoughhis/her name is not entered as a registered owner of the shares. He hasrelied upon World Wide Agencies Pvt. Ltd. decision (supra), Smt. SarbatiDevi & 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. DevenderBKumar Talwar & Ors., (2010) 10 SCC 671. He further argued that thewaiver requirement to hold 10% shares, had been pleaded in the companypetition filed by respondent No.1. The NCLT, as well as the NCLATrightly held the petition to be maintainable. The civil suit’s pendencycould not have come in the way of maintaining the application concerningCoppression and mismanagement, as only civil rights have to be determinedin the civil suit. The company petition is prima facie maintainable becauseof the verdicts mentioned above of this Court. Hence, no case forinterference in the appeals is made out.

14. The first argument advanced by learned counsel for the partiesDconcerns the effect of nomination under section 72 of the Act, the sameis extracted hereunder:

“72. Power to nominate (1) Every holder of securities of acompany may, at any time, nominate, in the prescribed manner,any person to whom his securities shall vest in the event of hisEdeath.(2) Where the securities of a company are held by more than oneperson jointly, the joint holders may together nominate, in theprescribed manner, any person to whom all the rights in thesecurities shall vest in the event of death of all the joint holders.

F(3) Notwithstanding anything contained in any other law for thetime being in force or in any disposition, whether testamentary orotherwise, in respect of the securities of a company, where anomination made in the prescribed mannerpurports to confer onany person the right to vest the securities of the company, theGnominee shall, on the death of the holder of securities or, as thecase may be, on the death of the joint-holders, become entitled toall 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 exclusionof all other persons, unless the nomination is varied or cancelledin the prescribed manner.

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(4) Where the nominee is a minor, it shall be lawful for the holderof the securities, making the nomination to appoint, in the prescribedmanner, any person to become entitled to the securities of thecompany, in the event of the death of the nominee during hisminority.”

15. It is quite apparent from a bare reading of the aforesaidprovisions of section 72(1), every holder of securities has a right tonominate any person to whom his securities shall “vest” in the event ofhis death. In the case of joint-holders also, they have a right to nominateany person to whom “all the rights in the securities shall vest” in theevent of death of all joint holders. Sub-section (3) of section 72 containsa non-obstante clause in respect of anything contained in any other lawfor the time being in force or any disposition, whether testamentary orotherwise, where a nomination is validly made in the prescribed manner,it purports to confer on any person “the right to vest” the securities ofthe company, all the rights in the securities shall vest in the nomineeunless a nomination is varied or cancelled in the prescribed manner. It isprima facie apparent that vesting is absolute, and the provisions supersedeby virtue of a non-obstante clause any other law for the time being inforce. Prima facie shares vest in a nominee, and he becomes absoluteowner of the securities on the strength of nomination. Rule 19(2) of theCompanies (Share Capital and Debentures) Rules, 2014 framed underthe Act, also indicates to the same effect. Under Rule 19(8), a nomineebecomes entitled to receive the dividends or interests and otheradvantages to which he would have been entitled to if he were theregistered holder of the securities; and after becoming a registered holder,he can participate in the meetings of the company. Rule 19(8) is extractedhereunder:

“19(8). A person, being a nominee, becoming entitled to anysecurities by reason of the death of the holder shall be entitled tothe same dividends or interests and other advantages to which hewould have been entitled to if he were the registered holder of thesecurities except that he shall not, before being registered as aholder in respect of such securities, be entitled in respect of thesesecurities to exercise any right conferred by the membership inrelation to meetings of the company:

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AProvided that the Board may, at any time, give noticerequiring any such person to elect either to be registered himselfor to transfer the securities and if the notice is not complied withwithin ninety days, the Board may thereafter withhold paymentof all dividends or interests, bonuses or other moneys payable inrespect of the securities, as the case may be, until the requirementsBof the notice have been complied with.”

16. In World Wide Agencies Pvt. Ltd.(supra), this Court held thata legal representative has a right to maintain an application regardingoppression and mismanagement without being registered as a memberagainst the securities of a company. However, the question of nominationCwas not involved in the said decision,as such, Court was not required todecide the question of the effect of nomination whether it vests all therights in the securities in nominee to the exclusion of legal representatives.The Court concerning the right of a legal representative to maintain thepetition held thus:

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“12. On behalf of the appellants it was contended that the rightwhich is a specific statutory right, is given only to a member ofthe company and until and unless one is a member of the company,there is no right to maintain application under Section 397 of theAct. Mr Nariman contended that there was no automaticEtransmission of shares in the case of death of a shareholder to hislegal heir and representatives, and the Board has a discretion andcan refuse to register the shares. Hence, the legal representativeshad no locus standi to maintain an application under Sections 397and 398 of the Act. Mr Nariman submitted that the rights underSections 397 and 398 of the Act are statutory rights and must beFstrictly construed in the terms of the statute. The right, it wassubmitted, was given to “any member” of a company and it shouldnot be enlarged to include “any one who may be entitled to becomea member”.

13. In order to decide the question involved, it would be necessaryGto examine certain provisions of the Act. Section 2(27) of the Actstates that “member” in relation to company does not include abearer of a share-warrant of the company issued in pursuance ofSection 114 of the Act. Section 41 of the Act provides as follows:

“41. (1) The subscribers of the memorandum of acompany shall be deemed to have agreed to become members H

ARUNA OSWAL v. PANKAJ OSWAL & ORS.[ARUN MISHRA, J.]

of the company, and on its registration, shall be entered asmembers in its register of members.

(2) Every other person who agreed in writing to becomea member of a company and whose name is entered in itsregister of members, shall be a member of the company.”

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

15. Section 109 of the Act states as follows:

“A transfer of the share or other interest in a company of adeceased member thereof made by his legal representative shall,although the legal representative is not himself a member, be asvalid as if he had been a member at the time of the execution ofthe instrument of transfer.”

16. In this connection, it would be relevant to refer to Articles 25to 28 of Table A of the Act, which deal with the transmission of sharesand which are in the following terms:

“25. (1) On the death of a member the survivor where themember was a joint holder, and his legal representatives wherehe was a sole holder, shall be the only persons recognised by thecompany as having any title to his interest in the shares.

(2) Nothing in clause (1) shall release the estate of adeceased joint holder from any liability in respect of any sharewhich had been jointly held by him with other persons.

26. (1) Any person becoming entitled to a share inconsequence of the death or insolvency of a member may, uponsuch evidence being produced as may from time to time properlybe 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 orinsolvent member could have made.

(2) The Board shall, in either case, have the same right todecline or suspend registration as it would have had, if the deceasedor insolvent member had transferred the share before his deathor insolvency.

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27. (1) If the person so becoming entitled shall elect to beregistered as holder of the share himself, he shall deliver or sendto the company a notice in writing signed by him stating that he soelects.

(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 theseregulations relating to the right to transfer and the registration oftransfers of shares shall be applicable to any such notice or transferas aforesaid as if the death or insolvency of the member had notoccurred and the notice or transfer were a transfer signed by thatmember.

28. A person becoming entitled to a share by reason of thedeath or insolvency of the holder shall be entitled to the samedividends or other advantages to which he would be entitled if hewere the registered holder of the share, except that he shall not,before being registered as a member in respect of the share, beentitled in respect of it to exercise any right conferred bymembership in relation to meetings of the company:

Provided that the Board may, at any time, give noticerequiring any such person to elect either to be registeredhimself or to transfer the share, and if the notice is notcomplied with within ninety days, the Board may thereafterwithhold payment of all dividends, bonuses or other moneyspayable in respect of the share, until the requirements ofthe notice have been complied with.”

17. Article 28 is more or less in pari materia to Article 32 ofTable A to the English Companies Act. It may also be mentioned,as it has been mentioned by the High Court, that Section 210 ofthe English Companies Act, before its amendment in 1980, wassubstantially the same as Section 397 of the Act.”

24. We do not agree for the reason mentioned before. It furtherappears to us the Australian judgment does not reconcile to logicin accepting that legal representative can petition for winding up,which is called the “sledge-hammer remedy”, but would refusethe lesser and alternative remedy of seeking relief againstoppression and mismanagement though the latter remedy requires establishment of winding up on just and equitable ground as aprecondition for its invocation. It would be rather incongruous tohold that the case for winding up on just and equitable ground canbe 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. Itappears to us that to hold that the legal representatives of adeceased shareholder could not be given the same right of amember under Sections 397 and 398 of the Act would be taking ahyper-technical view which does not advance the cause of equityor justice. The High Court in its judgment under appeal proceededon the basis that legal representatives of a deceased memberrepresent the estate of that member whose name is on the registerof members. When the member dies, his estate is entrusted in thelegal representatives. When, therefore, these vestings are illegallyor wrongfully affected, the estate through the legal representativesmust be enabled to petition in respect of oppression andmismanagement and it is as if the estate stands in the shoes of thedeceased member. We are of the opinion that this view is a correctview. It may be mentioned in this connection that succession isnot kept in abeyance and the property of the deceased membervests in the legal representatives on the death of the deceasedand they should be permitted to act for the deceased member forthe purpose of transfer of shares under Section 109 of the Act.

25. In some situations and contingencies, the “member” may bedifferent from a “holder”. A “member” may be a “holder” ofshares but a “holder” may not be a “member”. In that view of thematter, it is not necessary for the present purpose to examine thisquestion from the angle in which the learned Single Judge of theCalcutta High Court analysed the position in the case of KedarNath Agarwal v. Jay Engineering Works Ltd., (1963) 33 ComCas 102 (Cal) to which our attention was drawn.

26. Admittedly in the present case, the legal representatives havebeen more than anxious to get their names put on the register ofmembers in place of deceased member, who was the ManagingDirector and Chairman of the company and had the controllinginterest. It would, therefore, be wrong to insist their names mustbe first put on the register before they can move an applicationunder Sections 397 and 398 of the Act. This would frustrate the ABC

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Avery purpose of the necessity of action. It was contended on behalfof the appellant before the High Court that if legal representativeswho were only potential members or persons likely to come onthe register of members, are permitted to file an application underSections 397 and 398 of the Act, it would create havoc, as thenpersons having blank transfer forms signed by members, and asBsuch having a financial interest, could also claim to move anapplication under Sections 397 and 398 of the Act. The High Courtheld that this is a fallacy, that in the case of persons having blanktransfer forms, signed by members, it is the members themselveswho are shown on the register of members and they are differentCfrom the persons with the blank transfer forms whereas in thecase of legal representatives it is the deceased member who isshown on the register and the legal representatives are in effectexercising his right. A right has devolved on them through thedeath of the member whose name is still on the register. In ouropinion, therefore, the High Court was pre-eminently right in holdingDthat the legal representatives of deceased member whose nameis still on the register of members are entitled to petition underSections 397 and 398 of the Act. In the view we have taken, it isnot necessary to consider the contention whether as on the dateof petition, they were not members. In that view of the matter, itEis not necessary for us to consider the decision of this Court inRajahmundry Electric Supply Corpn. Ltd. v. A. MageshwaraRao, AIR 1956 SC 213. In view of the observations of this Courtin Life Insurance Corporation of India v. Escorts Limited,(1986) 1 SCC 264, it is not necessary, in our opinion, to considerthe contention as made on behalf of the appellant before the HighFCourt that the permission of the Reserve Bank of India had beenerroneously obtained and consequently amounts to no permission.In the present context, we are of the opinion that the High Courtwas right in the view it took on the first aspect of the matter.”

The effect of nomination did not fall for consideration before thisGCourt in World Wide Agencies Pvt. Ltd. & Anr. (supra). There is nodoubt that in the absence of nomination, a legal representative cannot bedenied the right to maintain a petition regarding oppression andmismanagement. In the instant case, the nomination had been made,and the nominee is registered as the holder of shares. What is the effectHof the same is required to be decided to determine the extent of shareholding of respondent No. 1, concerning which civil suit filed earlierin 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 whichquestion came up for consideration regarding section 39 of the LifeInsurance Act, 1938 concerning rights of a nominee in the amountcovered under policy when the assured died intestate. It was held thatnomination was subject to a claim of the heirs of the assured under thelaw of succession. The provisions of section 39 of the Life InsuranceAct, 1938, are quite different from the provisions contained in section 72of the Act. The rights of the nominee would depend upon what is providedstatutorily. There was no vesting of interest provided in the nomineeunder section 39 of the Act of 1938. Hence, the decision does not espousethe cause of the appellant.

18. Learned senior counsel also referred to the decision in VishinN. Khanchandani & Anr. v. Vidya Lachmandas Khanchandani &Anr., (2000) 6 SCC 724, wherein the provisions of sections 6 to 8 of theGovernment Savings Certificates Act, 1959 came up for consideration.It was held that the nominee was entitled to receive the sum due on thesavings certificates, yet he retained the same for the persons entitled toit under the relevant law of succession. The argument that the non-obstante clause in section 6 entitled the nominee to utilise the sum soreceived by him, in the manner he likes, was rejected. In the sectionsmentioned above of Act of 1959, vesting was not provided; thus, theprovisions being quite different, the decision is distinguishable.

19. Learned senior counsel representing respondent No.1, lastlyreferred to Ram Chander Talwar & Anr. v. Devender Kumar Talwar& Ors., (2010) 10 SCC 671, wherein section 45-ZA(2) of the BankingRegulation Act, 1949 was considered by this Court as well as theprovisions of the Hindu Succession Act, 1925 and that of 1956. Nominationmade under the provisions of section 45-ZA of the said Act was toreceive the amount of deposit from the banking company on the deathof the sole depositor. There was no similar provision regarding the vestingof rights in nominee in section 45-ZA(2). Hence, the decision is to noavail.

20. Admittedly, respondent No.1 is not holding the shares to theextent of eligibility threshold of 10% as stipulated under section 244 inorder to maintain an application under sections 241 and 242.He has A

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Apurchased the holding of 0.03% in M/s. Oswal Agro Mills Ltd. in June2017after filing civil suit and remaining 9.97% is in dispute, he is claimingon the strength of his being a legal representative. In M/s. OswalGreentech Ltd., the shareholding of the deceased was 11.11%, out ofwhich one-fourth share is claimed by respondent No.1. Admittedly, in acivil suit for partition, he is also claiming a right in the shares held by theBdeceased to the extent of one-fourth. The question as to the right ofrespondent 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 thenominee or not, is to be finally determined in the said suit. The decisionCin a civil suit would be binding between the partieson the question ofright, title, or interest. It is the domain of a civil court to determine theright, title, and interest in an estate in a suit for partition.

21. Respondent no.1 had pleaded in paragraph 23 of the petitionfiled under section 241 of the Companies Act, 2013, as under:

D“23. Late 1990s and early 2000s saw increased liberalization inIndian economic policies. Foreign investors and MNCs had apositive outlook towards doing business in India. Similarly, Indianbusiness houses were looking to increase their exposure in theinternational arena. In these circumstances, Petitioner father, onEor about 2000, desired that the Petitioner gain some internationalexposure to doing business outside India and encouraged himtowards that end. On or about 2001, the Petitioner started exploringopportunities in Australia and ultimately moved there to set up hisown business Gradually, he increasingly got involved in setting uphis business in Australia. Therefore, the Petitioner was not involvedFin day to day affairs of the Company after making.”

It is admitted by respondent no.1 that he was not involved in dayto day affairs of the company and had shifted to Australia to set up hisindependent business w.e.f. 2001. His grievance is that the family hadnot recognised him as holder of the one-fourth shares. They wereGregistered in the ownership of his mother Mrs. Aruna Oswal; that alsohe had submitted to be an act of oppression. He acquired 0.03% sharecapital after filing of the civil suit, otherwise he was not having anyshareholding in M/s. Oswal Agro Mills Ltd.

22. In Sangramsinh P. Gaekwad and Ors. v. Shantadevi P.HGaekwad (Dead) through LRs. and Ors., (2005) 11 SCC 314, it was held that the dispute as to inheritance of shares is eminently a civil disputeand cannot be said to be a dispute as regards oppression and/ormismanagement so as to attract Company Court’s jurisdiction undersections 397 and 398. Adjudication of the question of ownership ofshares is not contemplated under Section 397. The relevant portion isextracted hereunder:

“143. It is also not in dispute that the matter relating to her claimto succeed FRG as his Class I heir is pending adjudication in CivilSuit No. 725 of 1991 in the Baroda Civil Court. She claimed titlein respect of 8000 shares by inheritance in terms of the HinduSuccession Act.Indisputably, in terms of Section 15 of the saidAct she is a Class I heir but the appellants herein contend that thesaid provision has no application having regard to Section 5(2)thereof as inheritance in the family is governed by the rule ofprimogeniture. A pure question of title is alien to an applicationunder Section 397 of the Companies Act wherefor the lack ofprobity is the only test. Furthermore, it is now well settled that thejurisdiction of the civil court is not completely ousted by theprovisions of the Companies Act, 1956. (See Dwarka PrasadAgarwal v. Ramesh Chander Agarwal, (2003) 6 SCC 220)

144. A dispute as regards right of inheritance between the partiesis eminently a civil dispute and cannot be said to be a dispute asregards oppression of minority shareholders by the majorityshareholders and/or mismanagement.”

In view of the aforesaid decision, we are of the opinion that thebasis of the petition is the claim by way of inheritance of 1/4[th] shareholdingso as to constitute 10% of the holding, which right cannot be decided inproceedings under section 241/242 of the Act. Thus, filing of the petitionunder sections 241 and 242 seeking waiver is a misconceived exercise,firstly, respondent no.1 has to firmly establish his right of inheritancebefore a civil court to the extent of the shares he is claiming; more so, inview of the nomination made as per the provisions contained in Section71 of txhe Companies Act, 2013.

23. In M/s. Dale & Carrington Invt. (P) Ltd. and Anr. v. P.K.Prathapan and Ors., AIR 2005 SC 1624, the question of locus standi toentertain the petition under sections 397 and 398 of the Companies Act, A

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A1956, which are pari materia to sections 241 and 242 of the CompaniesAct, 2013, was considered. This Court held that in order to maintain thepetition, one should have requisite number of shares in the company onthe date of filing of the petition. It was observed:

“32. It is to be further noted that the entire scheme regardingBpurchase of shares in the name of the mother of Prathapan wassuggested by Ramanujam himself. He saw to it that the shareswere transferred by the company in the name of Prathapan andhis wife. The company has recorded the transfer and correctedits Register of Members in this behalf which, in fact, led Ramanujamto file a petition for rectification of the Register of Members as aCcounterblast to the petition filed by Prathapan under Sections 397/398 of the Companies Act. It is not open to Ramanujam now toraise the question of FERA violation, more particularly in view ofhis having recorded the transfer of shares in the name of Prathapanand his wife Pushpa in the records of the Company. This alsoDanswers the objection regarding locus standi of Prathapan andhis wife to file the Sections 397/398 petition before the CompanyLaw Board. Since they were registered as shareholders of thecompany on the date of filing of the petition and they held therequisite number of shares in the company, they could maintain”the petition.E

24. In J.P. Srivastava & Sons Pvt. Ltd. and Ors. v.M/s. Gwalior Sugar Co. Ltd. and Ors., AIR 2005 SC 83, this Courtconsidered the object of prescribing a qualifying percentage of shares toFentertain petition under sections 397 and 398. It was held that the objectis to ensure that frivolous litigation is not indulged in by persons, whohave no legal stake in the company. If the Court is satisfied that thepetitioners represents the body of shareholders holding the requisitepercentage, the Court may proceed with the matter. This Court heldthus:G“47.The object of prescribing a qualifying percentage of sharesin petitioners and their supporters to file petitions under Sections397 and 398 is clearly to ensure that frivolous litigation is notindulged in by persons who have no real stake in the company.However, it is of interest that the English Companies Act containsH

no such limitation. What is required in these matters is a broadcommonsense approach. If the Court is satisfied that thepetitioners represent a body of shareholders holding the requisitepercentage, it can assume that the involvement of the company inlitigation is not lightly doneand that it should pass orders to bringto an end the matters complained of and not reject it on a technicalrequirement. Substance must take precedence over form. Ofcourse, there are some rules which are vital and go to the root ofthe matter which cannot be broken. There are others where non-compliance may be condoned or dispensed with. In the latter case,the rule is merely directory provided there is substantial compliancewith the rules read as a whole and no prejudice is caused. (SeePratap Singh v. Shri Krishna Gupta, (AIR 1956 SC 140). Inour judgment, Section 399(3) and Regulation 18 have beensubstantially complied with in this case.”

In the instant case, considering on the anvil of aforesaid decisions,we are satisfied that respondent no.1, as pleaded by him, had nothing todo 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 inthe civil suit. Thus, we are satisfied that respondent no.1 does not representthe body of shareholders holding requisite percentage of shares in thecompany, necessary in order to maintain such a petition.

25. It is also not disputed that the High Court in the pending civilsuit passed an order maintaining the status quo concerning shareholdingand other properties. Because of the status quo order, shares have to beheld in the name of Mrs. Aruna Oswal until the suit is finally decided. Itwould not be appropriate given the order passed by the civil Court totreat the shareholding in the name of respondent No.1 by NCLT beforeownership rights are finally decided in the civil suit, and propriety alsodemands it. The question of right, title, and interest is essentiallyadjudication of civil rights between the parties, as to the effect of thenomination decision in a civil suit is going to govern the parties’ rights. Itwould not be appropriate to entertain these parallel proceedings andgive 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, assuch filing of an application under sections 241 and 242 after that isnothing but an afterthought.

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A26. Learned senior counsel for appellants argued that respondentNo.1, a disgruntled son disowned by family, settled in Australia for thelast 25-30 years. He admittedly did not have anything to do with theaffairs of the company. On the other hand, it was vigorously argued byMr. Siddhartha Dave, learned senior counsel appearing for the respondent,that owing to the rampant COVID-19 pandemic, respondent No.1 is inBDubai. Be that as it may. Merely disowning a son by late father or by thefamily, is not going to deprive him of any right in the property to which hemay be otherwise entitled in accordance with the law. The pertinentquestion needs to be tried in a civil suit and adjudicated finally, it cannotbe decided by NCLT in proceedings in question.Hence, we refrain fromCdeciding the aforesaid question raised on behalf of the appellants in thepresent proceedings. In the facts and circumstances, it would not beappropriate to permit respondent No.1 to continue the proceedings formismanagement initiated under sections 241 and 242, that too in theabsence of having 10% shareholding and firmly establishing his rights incivil proceedings to the extent he is claiming in the shareholding of theDcompanies.

27. We refrain to decide the question finally in these proceedingsconcerning the effect of nomination, as it being a civil dispute, cannot bedecided in these proceedings and the decision may jeopardise parties’rights and interest in the civil suit. With regard to the dispute as to right,Etitle, and interest in the securities, the finding of the civil Court is going tobe final and conclusive and binding on parties. The decision of such aquestion has to be eschewed in instant proceedings. It would not beappropriate, in the facts and circumstances of the case, to grant a waiverto the respondent of the requirement under the proviso to section 244 ofFthe Act, as ordered by the NCLAT.

28. It prima facie does not appear to be a case of oppression andmismanagement.Our attention was drawn by the learned senior counselappearing for respondent No.1 to certain company transactions. Fromtransactions simpliciter, it cannot be inferred that it is a case of oppressionGand mismanagement.

29. We are of the opinion that the proceedings before the NCLTfiled under sections 241 and 242 of the Act should not be entertainedbecause of the pending civil dispute and considering the minuscule extentof holding of 0.03%, that too, acquired after filing a civil suitin companyHsecurities, of respondent no.1. In the facts and circumstances of the instant case, in order to maintain the proceedings, the respondent shouldAhave waited for the decision of the right, title and interest, in the civil suitconcerning shares in question. The entitlement of respondent No.1 isunder a cloud of pending civil dispute. We deem it appropriate to directthe dropping of the proceedings filed before the NCLT regardingoppression and mismanagement under sections 241 and 242 of the ActBwith the liberty to file afresh,on all the questions, in case of necessity, ifthe suit is decreed in favour of respondent No.1 and shareholding ofrespondent No.1 increases to the extent of 10% required under section244. We reiterate that we have left all the questions to be decided in thepending civil suit. Impugned orders passed by the NCLT as well asNCLAT are set aside, and the appeals are allowed to the aforesaidCextent. We request that the civil suit be decided as expeditiously aspossible, subject to cooperation by respondent No.1. Parties to bear theircosts as incurred.

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