Dispute As To Inheritance Of Shares Cannot Be Decided In Proceedings U/s 241/242 Of Companies Act, 2013: SC [Read Judgment]

The Supreme Court has observed that a dispute as to inheritance of shares cannot be decided in proceedings under section 241/242 of the Companies Act, 2013.

Section 241 of the Companies Act deals with application to the National Company Tribunal for Relief in Cases of Oppression, etc and Section 242 deals with the power of Tribunal to deal with such applications. The case pertains to family tussle between wife and son of Late Mr. Abhey Kumar Oswal, who during his lifetime, held as many as 5,35,3,960 shares in M/s. Oswal Agro Mills Ltd., a listed company. In this case, NCLT and NCLAT held that the application filed by Pankaj Oswal, alleging oppression and mismanagement in the affairs of the company is maintainable. The Tribunal rejected the contentions of Aruna Oswal that 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 and that such a dispute could not be adjudicated in a company petition filed during the civil suit's pendency.

In appeal, the bench comprising Justices Arun Mishra and S. Abdul Nazeer noted that, in Sangramsinh P. Gaekwad and Ors. v. Shantadevi P. Gaekwad (Dead) through LRs. and Ors., (2005) 11 SCC 314, it was 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 of Companies Act, 1956. The bench, taking note of the facts of the case and pleadings, said:

"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. "

"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 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."

The Court said that Pankaj Oswal should have waited for the decision of the right, title and interest, in the civil suit concerning shares in question. Therefore, the Court directed the dropping of the proceedings filed before the NCLT with the liberty to file afresh, on all the questions, in case of necessity, if the suit is decreed in favour of Pankaj Oswal and his shareholding increases to the extent of 10% required under section 244.  

Case name: ARUNA OSWAL vs. PANKAJ OSWAL

Case no.:CIVIL APPEAL NO.9340 OF 2019

Coram: Justices Arun Mishra and S. Abdul Nazeer

Counsel: Senior Advocates Dr. A.M. Singhvi, Neeraj Kishan Kaul, P.S. Narasimhan and Siddhartha Dave 

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