Aruna Oswal v. Pankaj Oswal & Ors

INTRODUCTION
This landmark case before the Supreme Court of India involved the complexities of inheritance, company law, and inter-family disputes arising from the transmission of shares following the death of the Late Mr. Abhey Kumar Oswal. The heart of the dispute arose from the competing claims of entitlement to large blocks of shares and whether such entitlement determined the ability to maintain the proceedings under sections 241 and 242 (oppression and mismanagement) read with section 244 of the Companies Act, 2013. The questions for the court included whether a nominee in whose name shares were registered becomes the full and absolute owner of those shares to the exclusion of the other legal heirs; and, whether a shareholder who owned only 0.03% of shares could pursue an application for oppression and mismanagement on the basis of a contention relating to an unproven claim of additional shares.

FACTS
Background and Parties:
The late Mr. Abhey Kumar Oswal owned 5,35,39,60 shares representing 39.88% shareholding in Oswal Agro Mills Ltd. (a listed company) and 11.11% shareholding in Oswal Greentech Ltd. He died in Russia on March 29, 2016.
Nomination and Succession:
On June 18, 2015 Mr. Oswal nominated Mrs. Aruna Oswal, his wife, to be the nominee of his shares under the provisions of Section 72 of the Companies Act, 2013. Subsequently, Mrs. Oswal’s name was registered as the holder of the shares on April 16, 2016 after the death of Mr. Oswal.
Family Dispute and Civil Proceedings:
Mr. Pankaj Oswal (the son of the deceased) has initiated a partition suit for one-fourth share in the estate of his father covering Oswal Agro Mills Ltd, and Oswal Greentech Ltd. Both parties have been ordered by the Delhi High Court to maintain status quo on the shares and other immoveable properties. Mrs. Aruna Oswal has remained as the registered holder during this time.
Criminal Proceedings:
Both parties initiated criminal complaint and FIRs alleging illegal transmission and entry of shares. One FIR was dismissed.
Company Law Proceedings:
Mr. Pankaj Oswal in the National Company Law Tribunal (NCLT) has made a petition alleging oppression and mismanagement, eligibility (per Section 244) was claimed on the basis of holding 0.03% shares, claiming 9.97% more shares by inheritance.
Applications & Appeals:
Mrs. Aruna Oswal (appellant) challenged the maintainability of the company petition. The NCLT and the National Company Law Appellate Tribunal NCLAT found Pankaj Oswal eligible as legal heir to maintain the proceedings, they eventually moved the Supreme Court.

ISSUES RAISED
1. Effect of Nomination versus Inheritance Rights
Does a nomination order under Section 72 of the Companies Act, 2013 show absolute ownership of shares in the nominee, or can legal heirs still exercise their rights to claim succession?
2. Eligibility to Maintain Company Petition
Can a shareholder, who only presently holds 0.03% of shares, maintain an application for oppression and mismanagement based only on a claim to more shares by inheritance that hasn’t been adjudicated?
3. Jurisdiction and Maintainability
Did NCLT and NCLAT err in entertaining the company petition while the same matter was subject of a parallel civil suit?

ARGUEMENTS
Appellant (Mrs. Aruna Oswal & Supporting Parties):
Ownership through Nomination:
Claims that she is the absolute owner of shares by virtue of the nomination by the deceased under Section 72 which, with the non-obstante clause, says that it prevails over any law and anything in a Will or other testamentary disposition.
Insufficient Shareholding:
Says that the respondent holds only 0.03% shares which is much less than the 10% shareholding limit under Section 244 to bring a petition under Section 241 or 242.
Forum and Subject Matter:
Argues that the disbursement of an inheritance is civil in nature and is being adjudicated upon in a partition suit; therefore bringing a proceeding in company law forum is disputable and duplicity.
No Waiver Is Relied Upon:
Said that they did not seek any waiver of the 10% threshold formally under Section 244.
Respondent (Mr. Pankaj Oswal):
Rightful Shareholder by Inheritance:
Said he is entitled to one-fourth of his father’s estate, including shares, as a legal successor.
In the Maintainability of Petition:
Considers the cases of World Wide Agencies Pvt. Ltd. v. Margarat T. Desor & Ors. to argue that the legal representatives of a deceased owner, can bring company petitions regarding oppression and mismanagement even if they are not registered members.
Nominees rights:
Argues that the nominee only holds the shares for the benefit of the legal heirs and that a nominee does not extinguish succession rights.
Waiver Pleaded:
Claimed that a waiver of the 10% shareholding requirement had been pleaded in the company petition.




JUDGEMENT
The Supreme Court interpreted Section 72 of the Companies Act, 2013 and set it apart from the provisions in the legislation related to insurance and banking legislation, stating Section 72 has a non-obstante clause and provided vesting and “absolute” rights in respect of securities to the nominee so that transfer can be smooth and uncertainty avoided.


However, on the facts of the case, the Court found:


No Sufficient Shareholding:
Pankaj Oswal only held 0.03% shares as of the date of the petition, the balance of his claim to shares had not been adjudicated and was before the Court in the partition proceedings.
Inappropriate Parallel Proceedings:
The Supreme Court found that where civil proceedings are on foot to determine succession rights in shares then the company proceedings on what could be the same issue is not appropriate, the right, title and interest in respect of the shares was a matter for the civil Court.
Precedent Analysis:
The Supreme Court thought the earlier decision in World Wide Agencies Pty. Ltd. was distinguishable as that case did not concern nomination, and the factual circumstances regarding the entitlement of the legal heirs were different.

FINAL DIRECTIONS:
The appeals were allowed and the proceedings under sections 241 and 242 were also stayed and would have liberty to be filed afresh upon the outcome of the civil suit determining entitlement and if shareholding reached threshold of 10% (Perpetual vs. JDIP).
The question of the effect of nomination and shareholding rights were left for final determination in civil court.
Other than saying that the legal heir could not always commence an oppression and mismanagement claim if not a registered member there was no substantive finding, rather it was a decision on the basis of now lack of requisite shareholding and pending civil resolution on the question of inheritance rights.
The parties were to bear their own costs.

CONCLUSION
In this landmark ruling, the Supreme Court of India upheld established company law and succession principles, while ensuring the terms of the division between civil disputes and remedies in company law were not blurred. The Court clarified that while the nominee under Section 72 is the registered holder of the securities, the right of succession among heirs and the consequential eligibility of legal heirs to maintain an action under sections 241 and 242, must be decided by a civil court with jurisdiction. The nominee cannot seek remedies in respect of oppression or mismanagement on a notional or disputed shareholdings. The court focused on substantive rights, judicial propriety, and duplication of interventions, all while noting that in instances, such as this case, which involved only technical disputes within company law, the ownership inherited should not restrict the jurisdiction of civil courts over inheritance, unless the rights have first been completely settled.
This judgement presents significant guidance on the relationship between nomination, succession and company law remedies, and will provide guidance for disputes involving inherited shareholdings, the limits of nominee rights, and the extent of company law claims which can operate in parallel with other claims.