NCLT and NCLAT allowing the petition
of Pankaj Oswal who holds just 0.037% of shares in the company alleging
oppression and mismanagement and
against the nominee of his father’s shares by Aruna Oswal , his mother.
of Pankaj Oswal who holds just 0.037% of shares in the company alleging
oppression and mismanagement and
against the nominee of his father’s shares by Aruna Oswal , his mother.
However , in an appeal BY IN ARUNA OSWAL , SUPREME
COURT HELD THAT NCLT & NCLAT DO NOT HAVE AUTHORITY TO DECIDE ABOUT CIVIL
MATTERS.
By observing that inheritance of shares is a civil matter
and cannot be decided by company tribunals, the Apex Court has set a precedent
that will do away with parallel proceedings in future disputes.
Supreme
Court decided eminently and authoritatively a dual legal battle as to
inheritance of shares involving the family members of an industrial house, in
the matter of Aruna Oswal vs Pankaj Oswal & Ors(Civil Appeal No. 9340 of
2019, decided on July 6, 2020).
Court decided eminently and authoritatively a dual legal battle as to
inheritance of shares involving the family members of an industrial house, in
the matter of Aruna Oswal vs Pankaj Oswal & Ors(Civil Appeal No. 9340 of
2019, decided on July 6, 2020).
The latest judgment of the Supreme Court will
bring clarity to the corporate sector while dealing with such disputes.
bring clarity to the corporate sector while dealing with such disputes.
The case is the outcome of a family tussle. The
patriarch, during his lifetime, made a nomination in the prescribed manner in
favour of his wife in respect of his shares (amounting to 39.88 per cent) in
Oswal Agro Mills Ltd. The disgruntled son (respondent 1) filed a partition suit
in the High Court, claiming entitlement to one-fourth of the estate of the
father, including one-fourth of the shares inherited by his mother from his
father in the said Company, and similarly one-fourth of the shares out of the
11 per cent in another company as inherited by the mother from his father. The
High Court passed an interim order to maintain status quo concerning shares and
other immoveable property. It is to be noted that as on the date of the interim
order, the shares stood registered in the name of the mother, who continues to
own the shares.
patriarch, during his lifetime, made a nomination in the prescribed manner in
favour of his wife in respect of his shares (amounting to 39.88 per cent) in
Oswal Agro Mills Ltd. The disgruntled son (respondent 1) filed a partition suit
in the High Court, claiming entitlement to one-fourth of the estate of the
father, including one-fourth of the shares inherited by his mother from his
father in the said Company, and similarly one-fourth of the shares out of the
11 per cent in another company as inherited by the mother from his father. The
High Court passed an interim order to maintain status quo concerning shares and
other immoveable property. It is to be noted that as on the date of the interim
order, the shares stood registered in the name of the mother, who continues to
own the shares.
While the suit was pending, respondent 1 also moved
the National Company Law Tribunal (NCLT) alleging ‘oppression and
mis-management’ under the provisions of the Companies Act, 2013, without even owning the threshold limit
of 10 per cent of the shares in the company.
the National Company Law Tribunal (NCLT) alleging ‘oppression and
mis-management’ under the provisions of the Companies Act, 2013, without even owning the threshold limit
of 10 per cent of the shares in the company.
His mother filed an application before the NCLT
challenging the maintainability of the oppression and mismanagement petition on
various grounds, including that she was the absolute owner of shares as per the
provisions of the Act.
challenging the maintainability of the oppression and mismanagement petition on
various grounds, including that she was the absolute owner of shares as per the
provisions of the Act.
In essence, it was the principal contention of the
mother that the main dispute raised as to inheritance of the deceased father’s
estate was a civil dispute
and could not be said to be an act of ‘oppression and mismanagement’,
and parallel proceedings
on the same issue were not appropriate.
mother that the main dispute raised as to inheritance of the deceased father’s
estate was a civil dispute
and could not be said to be an act of ‘oppression and mismanagement’,
and parallel proceedings
on the same issue were not appropriate.
However, curiously, the NCLT directed filing of reply
to the petition, without deciding the question of maintainability. This was
challenged before the National Company Law Appellate Tribunal (NCLAT), which in
turn directed the NCLT to decide the question of maintainability of the
petition. The NCLT thereafter dismissed the challenge to maintainability and
held that the son, being a legal heir, was entitled to one-fourth of the
shares. Therefore, the matter eventually reached the Supreme Court of India.
to the petition, without deciding the question of maintainability. This was
challenged before the National Company Law Appellate Tribunal (NCLAT), which in
turn directed the NCLT to decide the question of maintainability of the
petition. The NCLT thereafter dismissed the challenge to maintainability and
held that the son, being a legal heir, was entitled to one-fourth of the
shares. Therefore, the matter eventually reached the Supreme Court of India.
Right to vest
According to Section 72 of the Companies Act, every
holder of securities has a right to nominate any person to whom his securities
shall “vest” in the event of his death. Section 72(3) Companies
Act overrides anything
contained in any other law in force or any disposition, whether testamentary or
otherwise, where a nomination is validly made in the prescribed
manner.
holder of securities has a right to nominate any person to whom his securities
shall “vest” in the event of his death. Section 72(3) Companies
Act overrides anything
contained in any other law 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, and all the rights in the security shall
vest in the nominee, unless the nomination is varied or cancelled in the
prescribed manner.
vest” the securities of the company, and all the rights in the security shall
vest in the nominee, unless the nomination is varied or cancelled in the
prescribed manner.
Prima facie,
once shares vest in a nominee, he becomes absolute owner of the securities on
the strength of nomination and can participate in the company meetings.
once shares vest in a nominee, he becomes absolute owner of the securities on
the strength of nomination and can participate in the company meetings.
The Court observed that there was no doubt that in
the absence of nomination, a legal representative cannot be denied the right to
maintain a petition regarding oppression and mismanagement.
the absence of nomination, a legal representative cannot be denied the right to
maintain a petition regarding oppression and mismanagement.
In this case,
however, the nomination has been made and the nominee is registered as the
holder of shares. What is the effect of the same is to be decided by the civil court in the pending civil
suit. The right of the nominee would depend upon what is provided
statutorily.
however, the nomination has been made and the nominee is registered as the
holder of shares. What is the effect of the same is to be decided by the civil court in the pending civil
suit. The right of the nominee would depend upon what is provided
statutorily.
The decision in the civil suit would be binding
between the parties on the question of right, title or interest, and it is the
civil court’s domain to determine in a suit for partition. Dispute as to inheritance of shares, is eminently a civil dispute and cannot be said to be a dispute as regards ‘oppression
and mismanagement’ so as to attract company law jurisdiction.
between the parties on the question of right, title or interest, and it is the
civil court’s domain to determine in a suit for partition. Dispute as to inheritance of shares, is eminently a civil dispute and cannot be said to be a dispute as regards ‘oppression
and mismanagement’ so as to attract company law jurisdiction.
Thus, the Supreme Court, after weighing a catena of
cases cited at the Bar, held that the respondent has nothing to do with the
affairs of the company and that he was not a registered owner of shares. He did
not represent the body of shareholders holding requisite percentage of shares
in the company necessary in order to maintain the petition for oppression and
mismanagement.
cases cited at the Bar, held that the respondent has nothing to do with the
affairs of the company and that he was not a registered owner of shares. He did
not represent the body of shareholders holding requisite percentage of shares
in the company necessary in order to maintain the petition for oppression and
mismanagement.
The question of right, title and interest is
essentially an adjudication of civil rights between the parties as to the
effect of nomination. The decision taken in a civil suit will govern the rights
of the parties; it would not be appropriate to entertain parallel proceedings.
Hence, the Supreme Court directed dropping of the proceedings before the NCLT
regrading ‘oppression and mismanagement’ by setting aside the orders of both
the NCLT and NCLAT.
essentially an adjudication of civil rights between the parties as to the
effect of nomination. The decision taken in a civil suit will govern the rights
of the parties; it would not be appropriate to entertain parallel proceedings.
Hence, the Supreme Court directed dropping of the proceedings before the NCLT
regrading ‘oppression and mismanagement’ by setting aside the orders of both
the NCLT and NCLAT.
What we learn from the cases :
1.
NCLT or NCALT cannot entertain Civil disputes.
NCLT or NCALT cannot entertain Civil disputes.
2.
Waiving 10% of total voting power cannot be overlooked by NCLT where a
proper nomination has been made and ownership of shares is yet to be decided by
a civil court.
Waiving 10% of total voting power cannot be overlooked by NCLT where a
proper nomination has been made and ownership of shares is yet to be decided by
a civil court.
3.
No parallel proceedings will be entertained both in Civil Court and NCLT
on the same matter.
No parallel proceedings will be entertained both in Civil Court and NCLT
on the same matter.
Inheritance of shares, is eminently a civil dispute
and cannot be said to be a dispute as regards ‘oppression and mismanagement’ so
as to attract company law jurisdiction.
and cannot be said to be a dispute as regards ‘oppression and mismanagement’ so
as to attract company law jurisdiction.
·
Section 72(3) of Companies Act 2013 overrides anything contained in any other law in force or any
disposition, whether testamentary or otherwise
Section 72(3) of Companies Act 2013 overrides anything contained in any other law in force or any
disposition, whether testamentary or otherwise
·
Here , Mr Oswal did not write
any will and hence , the inheritance issue is being raised by the legal heirs
against their own mother.
Here , Mr Oswal did not write
any will and hence , the inheritance issue is being raised by the legal heirs
against their own mother.
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