ARUNA OSWALversusPANKAJ OSWAL & ORS.

476                    [2020]REPORTS
             SUPREME COURT    7 S.C.R. 476               [2020] 7 S.C.R.


A                             ARUNA OSWAL
                                      v.
                         PANKAJ OSWAL & ORS.
                       (Civil Appeal No. 9340 of 2019)
B
                               JULY 06, 2020
           [ARUN MISHRA AND S. ABDUL NAZEER, JJ.]
         Companies Act, 2013 – ss. 241 and 242 – Respondent no. 1
C filed a partition suit claiming entitlement to one-fourth of the estate/
  shares of his father – The High Court directed status quo between
  the parties and the said suit is pending – Thereafter, respondent no.
  1 filed Company petition alleging oppression and mismanagement
  in the affairs of respondent no. 2 company and claimed eligibility
  to maintain the petition on the ground of being holder of 0.03%
D shareholding and legitimate expectation to 9.97% shareholding of
  respondent no. 2 company – The NCLT held the petition maintainable
  and respondent no. 1 as legal heir was entitled to one-fourth share
  of the property/shares – NCLAT affirmed the order passed by the
  NCLT – On appeal, held: The basis of petition is the claim by way
E of 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 his
  right of inheritance before a civil Court to the extent of the shares
  he is claiming – The respondent no. 1 had nothing to do with the
  affairs of the company and he is not a registered owner – The rights
F in estate/shares, if any, of respondent no. 1 are protected in the civil
  suit – Respondent no. 1 does not represent the body of shareholders
  holding a requisite percentage of shares in the company, necessary
  in order to maintain such a petition – It would not be appropriate
  given the order passed by the civil Court to treat the shareholding
G in the name of respondent no. 1 by NCLT before ownership rights
  are finally decided in the civil suit – Therefore, the proceedings
  filed before the NCLT regarding oppression and mismanagement
  u/ss. 241/242 of the Act are directed to be dropped – The impugned
  orders passed by the NCLT and NCLAT are set aside.

H
                                     476
          ARUNA OSWAL v. PANKAJ OSWAL & ORS.                             477


      Allowing the appeals, the Court                                    A
       HELD: 1. Admittedly, respondent No.1 is not holding the
shares to the extent of eligibility threshold of 10% as stipulated
under section 244 of the Companies Act, 2013 in order to maintain
an application under sections 241 and 242. He has purchased the
holding of 0.03% in respondent no. 2 company in June 2017 after          B
filing civil suit and remaining 9.97% is in dispute, he is claiming
on the strength of his being a legal representative. In respondent
no. 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 right   C
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 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       D
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. [Para 20]
[491-H][492-A-C]
      2. It is admitted by respondent no.1 that he was not involved      E
in day to day affairs of the company and had shifted to Australia to
set up his independent business w.e.f. 2001. [Para 21][492-G]
       3. 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          F
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        G
71 of the Companies Act, 2013. [Para 22][493-F-G]
      4. In the instant case, this Court is satisfied that respondent
no.1, as pleaded by him, had nothing to do with the affairs of the

                                                                         H
478           SUPREME COURT REPORTS                      [2020] 7 S.C.R.


A     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.
      [Para 24][495-D-E]
B
            5. 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
C
      he 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 SCC
            314 : [2005] 1 SCR 624; M/s. Dale & Carrington Invt.
D
            (P) Ltd. and Anr. v. P.K. Prathapan and Ors. AIR 2005
            SC 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.
E           Vishin N. Khanchandani & Anr. v. Vidya Lachmandas
            Khanchandani & Anr. (2000) 6 SCC 724 : [2000] 2
            Suppl. SCR 415 – distinguished.
            World Wide Agencies Pvt. Ltd. & Anr. v. Margarat T.
            Desor& Ors. (1990) 1 SCC 536 : [1989] 2 Suppl. SCR
F           545; 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) 10
            SCC 671 : [2010] 11 SCR 897 – referred to.
                            Case Law Reference
G
      [1989] 2 Suppl. SCR 545       referred to             Para 11
      [1984] 1 SCR 992              referred to             Para 13
      [2000] 2 Suppl. SCR 415       distinguished           Para 13
      [2010] 11 SCR 897             referred to             Para 13
H
           ARUNA OSWAL v. PANKAJ OSWAL & ORS.                                479


[2005] 1 SCR 624                  relied on                Para 22           A
[2004] 4 Suppl. SCR 334           relied on                Para 23
[2004] 5 Suppl. SCR 648           relied on                Para 24
      CIVIL APPELLATE JURISDICTION: Civil Appeal No. 9340
Of 2019.                                                                     B
      From the Judgment and Order dated 14.11.2019 of the National
Company Law Appellate Tribunal, New Delhi in Company Appeal (AT)
No. 411 of 2018.
      With
                                                                             C
      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, Amar
Gupta, Pallavi Kumar, Raghav Sabharwal, Sidharth Sethi, Aman Jha,
                                                                             D
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 and
order dated 14.11.2019 passed by the National Company Law Appellate          E
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’).                            F
       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           G
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.                H
480            SUPREME COURT REPORTS                          [2020] 7 S.C.R.


A            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 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
B
      filed on 3.2.2017 by respondent No.1 for 1/4 theach 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
C     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.
D     54/2016 was registered at Police Station Barakhamba Road, New Delhi.
      As a counterblast, respondent No.1also 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
E     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.
F     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.
G           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.,
H
           ARUNA OSWAL v. PANKAJ OSWAL & ORS.                                    481
                   [ARUN MISHRA, J.]

which were acquired in June 2017. The claim made by Pankaj Oswal to              A
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
                                                                                 B
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.
                                                                                 C
       (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                   D
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             E
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            F
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
                                                                                 G
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.
                                                                                 H
482            SUPREME COURT REPORTS                           [2020] 7 S.C.R.


A           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.
B
             8. 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
      one-fourth share of the property/shares. Aggrieved thereby, three appeals
      were filed before NCLAT, which have been dismissed vide judgment
C     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.
D
             10. 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
E     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
F     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
G     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
H     is pending adjudication before this Court in another C.A. No.7107/2017
           ARUNA OSWAL v. PANKAJ OSWAL & ORS.                                  483
                   [ARUN MISHRA, J.]

– Shakti Yezdani v. Jayanand Jayant. It would not be appropriate for           A
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.
       11. Mr. Neeraj Kishan Kaul, learned senior counsel appearing for
M/s. Oswal Agro Mills Ltd. fervently argued that in the wake of the civil      B
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
                                                                               C
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      D
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.
        12. Mr. P.S. Narasimhan learned senior counsel representing
M/s. Oswal Green Tech Ltd., respondent No.16, strenuously argued               E
that the deceased was having 11.11% of the shareholding out of which
respondent No.1 claimed only one-fourth 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       F
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.                                        G
        13. 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       H
484            SUPREME COURT REPORTS                               [2020] 7 S.C.R.


A     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; andRam Chander Talwar & Anr. v. Devender
B
      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
C     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.
             14. The first argument advanced by learned counsel for the parties
D     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
E           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.
F           (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
G           nominee shall, on the death of the holder of securities or, as the
            case may be, on the death of the joint-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.
H
           ARUNA OSWAL v. PANKAJ OSWAL & ORS.                                  485
                   [ARUN MISHRA, J.]

      (4) Where the nominee is a minor, it shall be lawful for the holder      A
      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.”
                                                      (emphasis supplied)      B
       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        C
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        D
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       E
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     F
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      G
      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:
                                                                               H
486             SUPREME COURT REPORTS                            [2020] 7 S.C.R.


A                    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
B
             of the notice have been complied with.”
              16. 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
C     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:
D            “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
E            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
F            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 member”.
             13. In order to decide the question involved, it would be necessary
G            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 share-warrant 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
H               company shall be deemed to have agreed to become members
           ARUNA OSWAL v. PANKAJ OSWAL & ORS.                                 487
                   [ARUN MISHRA, J.]

          of the company, and on its registration, shall be entered as        A
          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.”
      14. Section 26 of the English Companies Act, 1948 is substantially      B
the same.
      15. 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,         C
      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.”
       16. 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       D
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.
                                                                              E
            (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.
             26. (1) Any person becoming entitled to a share in
      consequence of the death or insolvency of a member may, upon            F
      such evidence being produced as may from time to time properly
      be 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 or               G
      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.                                                          H
488      SUPREME COURT REPORTS                            [2020] 7 S.C.R.


A             27. (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,
B     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
C     occurred and the notice or transfer were a transfer signed by that
      member.
             28. 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
D     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
E            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.”
F
      17. 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.”
G
      24. 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 “sledge-hammer remedy”, but would refuse
      the lesser and alternative remedy of seeking relief against
H     oppression and mismanagement though the latter remedy requires
    ARUNA OSWAL v. PANKAJ OSWAL & ORS.                                 489
            [ARUN MISHRA, J.]

establishment of winding up on just and equitable ground as a          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
                                                                       B
deceased shareholder could not be given the same right of a
member under Sections 397 and 398 of the Act would be taking a
hyper-technical 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      C
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
                                                                       D
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.        E
25. In some situations and contingencies, the “member” may be
different from a “holder”. A “member” may be a “holder” of
shares but a “holder” may not be a “member”. 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       F
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.
26. Admittedly in the present case, the legal representatives have
been more than anxious to get their names put on the register of       G
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
                                                                       H
490            SUPREME COURT REPORTS                           [2020] 7 S.C.R.


A           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
B
            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
C           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 pre-eminently right in holding
D
            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
E           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
F
            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.”
            The effect of nomination did not fall for consideration before this
G     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
H     of the same is required to be decided to determine the extent of
           ARUNA OSWAL v. PANKAJ OSWAL & ORS.                                 491
                   [ARUN MISHRA, J.]

shareholding of respondent No. 1, concerning which civil suit filed earlier   A
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              B
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         C
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      D
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       E
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                F
& 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   G
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            H
492             SUPREME COURT REPORTS                             [2020] 7 S.C.R.


A     purchased the holding of 0.03% in M/s. Oswal Agro Mills Ltd. in June
      2017after 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
B
      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
C     in a civil suit would be binding between the partieson 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.
             21. Respondent no.1 had pleaded in paragraph 23 of the petition
      filed under section 241 of the Companies Act, 2013, as under:
D            “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
E            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
F            in day to day affairs of the Company after making.”
             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 one-fourth shares. They were
G     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.
           22. In Sangramsinh P. Gaekwad and Ors. v. Shantadevi P.
H     Gaekwad (Dead) through LRs. and Ors., (2005) 11 SCC 314, it was
           ARUNA OSWAL v. PANKAJ OSWAL & ORS.                                    493
                   [ARUN MISHRA, J.]

held that the dispute as to inheritance of shares is eminently a civil dispute   A
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 397. The relevant portion is
extracted hereunder:
                                                                                 B
       “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      C
       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    D
       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        E
       regards oppression of minority shareholders by the majority
       shareholders and/or mismanagement.”
                                                        (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   F
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     G
view of the nomination made as per the provisions contained in Section
71 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 to
entertain the petition under sections 397 and 398 of the Companies Act,
                                                                                 H
494            SUPREME COURT REPORTS                          [2020] 7 S.C.R.


A     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
B           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
C           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
D           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.”
E
                                                           (emphasis supplied)
             24. 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
F     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:
G
            “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
H
           ARUNA OSWAL v. PANKAJ OSWAL & ORS.                                    495
                   [ARUN MISHRA, J.]

       no such limitation. What is required in these matters is a broad          A
       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
                                                                                 B
       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 non-
       compliance 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           C
       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.”
                                                       (emphasis supplied)
       In the instant case, considering on the anvil of aforesaid decisions,     D
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           E
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       F
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   G
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.                                                     H
496             SUPREME COURT REPORTS                               [2020] 7 S.C.R.


A            26. Learned senior counsel for appellants argued that respondent
      No.1, a disgruntled son disowned by family, settled in Australia for the
      last 25-30 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 COVID-19 pandemic, respondent No.1 is in
B
      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
C     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
D
      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,
E     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
F     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
G     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 suitin company
H     securities, of respondent no.1. In the facts and circumstances of the
             ARUNA OSWAL v. PANKAJ OSWAL & ORS.                                    497
                     [ARUN MISHRA, J.]

instant case, in order to maintain the proceedings, the respondent should          A
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
                                                                                   B
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                  C
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.


Ankit Gyan                                                      Appeals allowed.
                                                                                   D




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