Aruna Oswal vs Pankaj Oswal - (Supreme Court) (06 Jul 2020)

Dispute as to inheritance of shares is a civil dispute cannot be decided in proceedings under Section 241/242 of Companies Act, 2013

MANU/SC/0507/2020

Company

Present appeals have been preferred against the judgment passed by the National Company Law Appellate Tribunal, New Delhi, (‘the NCLAT’) in Company Appeal, thereby affirming the order passed by the National Company Law Tribunal (‘the NCLT’) concerning maintainability of the applications filed under Sections 241 and 242 of the Companies Act, 2013. The case is the outcome of a family tussle. Late Abhey Kumar Oswal, during his lifetime, held as many as 5,35,3,960 shares in Oswal Agro Mills Ltd., a listed company. Pankaj Oswal, respondent No.1, filed a partition suit being claiming entitlement to one-¬fourth of the estate of Abhey Kumar Oswal.

Learned senior counsel appearing on behalf of 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 Companies Act, 2013 Respondent No.1 could not claim any interest in the said shares because of the nomination. After excluding shares in the name of mother Aruna Oswal, respondent No.1 Pankaj Oswal would have only 0.03% of the shareholding in 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. Abhey Kumar Oswal died intestate. Because of the provisions of Section 72 of the Act, all the rights vested in 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. The application could not be said to be maintainable.

Admittedly, Respondent No.1 is not holding the shares to the extent of eligibility threshold of 10% as stipulated under Section 244 of Act in order to maintain an application under Sections 241 and 242 of Act. The question as to the right of respondent no.1 is required to be adjudicated finally in the civil 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.

In Sangramsinh P. Gaekwad and Ors. v. Shantadevi P. Gaekwad (Dead) through LRs. and Ors., 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 of Act. Adjudication of the question of ownership of shares is not contemplated under Section 397 of Act. In M/s. Dale & Carrington Invt. (P) Ltd. and Anr. v. P.K. Prathapan and Ors., 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.

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. 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 of Act 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 of Act after that is nothing but an afterthought.

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 of Act, 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.

Present Court refrains to decide the question finally in these proceedings concerning the effect of nomination, as it being a civil dispute, cannot be decided in present 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.

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. Present Court deems 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. Impugned orders passed by the NCLT as well as NCLAT are set aside, and the appeals are allowed.

Relevant : Sangramsinh P. Gaekwad and Ors. v. Shantadevi P. Gaekwad (Dead) thr. Lrs. and Ors. MANU/SC/0052/2005, Dale and Carrington Invt. (P) Ltd. and Ors. v. P.K. Prathapan and Ors. MANU/SC/0748/2004

Tags : SHARES CIVIL DISPUTE MAINTAINABILITY