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Dispute as to inheritance of shares is a civil dispute and not of oppression or mismanagement, NCLT has no jurisdiction: Supreme Court

The SC on July 6, 2020 {ARUNA OSWAL vs PANKAJ OSWAL & ORS.} held that from   a   bare   reading   of   the   provisions of section 72(1) of the Companies Act, 2013, every holder of securities has a right to nominate any person to whom his securities shall “vest” in the event of his death. It was held that 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. It was held that prima facie shares vest in a nominee, and he becomes absolute owner of the securities on the strength of nomination.

The SC Bench, comprising of Justice Arun Mishra and Justice S. Abdul Nazeer further held that 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. It was held that in the instant case, the nomination had been made, and the nominee is registered as the holder of shares.

The SC 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.

It was held that 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. It was held that the decision in a civil suit would be binding between the parties on the question of right, title, or interest. It was held that it is the domain of a civil court to determine the right, title, and interest in an estate in a suit for partition.

In view of the aforesaid, the SC held that 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 the Act. Thus, it was held that filing of the petition under sections 241 and 242 seeking waiver is   a   misconceived   exercise,   firstly,   respondent   no.1   has   to   firmly establish his right of inheritance before a civil court to the extent of the shares he is claiming; more so, in view of the nomination made as per the provisions contained in Section 71 of the Companies Act, 2013.

The SC concluded that it is 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. It was held that the rights in estate/shares, if any, of respondent no.1   are protected   in the   civil suit.

It was held that the Court is of the opinion that the proceedings before the NCLT filed under sections 241 and 242 of the Act should not be entertained because of the pending civil dispute and considering the minuscule extent of holding of 0.03%, that too, acquired after filing a civil suit in company   securities,   of   respondent   no.   1.  It was held that in   the   facts   and circumstances   of   the   instant   case,   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. It was held that the entitlement of respondent No.1 is under a cloud of pending civil dispute. 

The SC held that it 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, 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. Accordingly, impugned orders passed by the NCLT as well as NCLAT were set aside, and the appeals were allowed by the SC.

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