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TMI Blog2020 (7) TMI 168X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. In WORLD WIDE AGENCIES PVT. LTD. AND VERSUS MRS. MARGARAT T. DESOR AND ORS [ 1989 (12) TMI 245 - SUPREME COURT] , 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 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 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, 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 claimin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. 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 filed on 3.2.2017 by respondent No.1 for 1/4th each 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 property. As on 8.2.2017, the shares stood registered in the ownership of Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 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 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 of the Act. (viii) The parallel pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the deceased shareholder that would vest in the nominee. The application could not be said to be maintainable. The matter of inheritance is pending adjudication before this Court in another C.A. No.7107/2017 Shakti Yezdani v. Jayanand Jayant. It would not be appropriate for 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 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n concerning 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 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 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. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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: 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 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 was not involved in the said decision, as such, Court was not required to decide the ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al with the transmission of shares 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. (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 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 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. 27. (1) If the person so becoming entitled shall elect to be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39(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 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 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 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 shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter, it 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 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 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 of the same is required to be decided to determine the extent of shareholding of respondent No. 1, concerning which civil su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to maintain an application under sections 241 and 242. He has purchased the holding of 0.03% in M/s. Oswal Agro Mills Ltd. in June 2017 after 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 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 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. 21. Respondent no.1 had pleaded in paragraph 23 of the petition filed under section 241 of the Companies Act, 2013, as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation under Section 397 of the Companies Act wherefor the lack of probity is the only test. Furthermore, it is now well settled that the 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 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 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 view of the nomination made as per the provisions contained in Section 71 of the Companies Act, 2013. 23. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e no real stake in the company. However, it is of interest that the English Companies Act contains no such limitation. What is required in these matters is a broad 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 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 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, we are satisfied that respondent no.1, as pleaded by him, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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, 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 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 inferre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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