Shares in a company determine participation in the company's capital sans liable for its debt. Shareholders enjoy several significant rights and always become part of the most vital decisions of the company. Shareholders also experience monetary benefits according to demand and supply in the market. Transfer or transmission of shares can be done in various ways, including making someone nominee after shareholder's death u/s 72 of the Companies Act, 2013. This is the stage where optimum disputes arise. The Supreme Court, in its judgment, Aruna Oswal vs. Pankaj Oswal & Ors., dated 06.07.2020, dealt with a similar issue of transmission of shares by way of nomination.
Mr Abhey Oswal, the deceased, filed a nomination on 18.06.2015 in favour of Mrs Aruna Oswal (Appellant) for shares held in M/s Oswal Agro Mills Ltd, accordingly, after the demise, on 16.04.2016, the Appellant registered as a holder of shares. Such nomination would supersede any prior testamentary document made by them. Mr Pankaj Oswal (Respondent no. 1) initially filed a civil suit for partition of the estate of the deceased and claimed one-fourth of deceased shareholding in M/s Oswal Agro Mills Ltd and M/s Oswal Greentech Ltd. The High Court, on 08.02.2017, dismissed the interim injunction and ordered for status quo concerning shares and other estates of the deceased. Consequently, the Appellant remains the holder of shares. Further, the Respondent no.1 filed a Petition before NCLT for mismanagement and oppression in the affairs of M/s Oswal Agro Mills Ltd. and claiming the entitlement of 9.97% of the shareholding in M/s Oswal Agro Mills Ltd.NCLT dismissed and NCLAT upheld the decision of NCLT in respect of the application challenging maintainability of Petition.
Relied on provisions of law and case law, SC held that the Respondent no.1 u/s 244 of the Act is not holding shares required to maintain an application u/s 241 and 242 of the Act. The Respondent no. 1 owns only 0.03% shares in M/s Oswal Agro Mills Ltd, whereas, 9.97% are in dispute in the civil suit. Also, the claim of one-fourth from M/s Oswal Greentech Ltd. and entitlement of estate of deceased are the subject matter of the civil suit. The SC made its reliance on the case of Sangramsinh P. Gaekwad and Ors. v. Shantadevi P. Gaekwad through LRs. and Ors., (2005) 11 SCC 314, where it was held that the dispute of inheritance of shares is apparently a civil dispute and should not come u/s 397 and 398 of Companies Act, 1956 pari materia with section 241 and 242 of the Act. Consequently, the SC directed the Respondent no.1 to establish his right of inheritance in the civil suit. In the cases of M/s. Dale & Carrington Invt.(P)Ltd. &Anr. v. P.K. Prathapan and Ors., AIR 2005 SC 1624 and J.P.Srivastava& Sons Pvt. Ltd. and Ors. v. M/s. Gwalior Sugar Co. Ltd. and Ors., AIR 2005 SC 83, the SC observed the requirement of several shares for maintaining the Petition u/s 397 and 398 of the Companies Act,1956. The SC denied the interference of Respondent no.1 into the company's affairs, as he was not the registered, owner. The SC denied the reliance of Respondent no. 1 on World Wide Agencies Pvt. Ltd. &Anr. v. Margaret T. Desor&Ors., and held that the effect of a nomination did not arise in the above mentioned case and therefore only the issue of determination of the extent of shareholding has remained. After perusal of section 72 of the Act, SC observed; every security holder has a right to nominate any person to whom securities shall vest in case of death. Further, under subsection 3 of the same, it observed that all rights should vest with the nominee unless the nomination is varied or cancelled. In this case, the nomination is absolute and provisions supersede any other law.
At last, the SC allowed the appeal with appropriate reasoning. It prevailed the nomination u/s 72 of the Act and held Appellant as the holder of shares. The question of rights, interest and title comes under the adjudication of civil courts; to effect the nomination, parties must govern under the civil suit, as the Respondent no. 1 himself chose the remedy of a civil suit. The SC observed that there is no oppression prima facie. The Petition before NCLT shall not be entertained, as Respondent no. 1 is holding only 0.03% shares, which does not fulfill the provisions of Section 244 of the Act. The Court has given liberty to Respondent no. 1 to file a fresh Petition in the case under civil suit he increases the shareholding to 10%. The findings of the civil Court regarding title, interest and rights must be final, conclusive and binding on both parties.
The person in the family could not entitle for the inheritance of shares when the nominee is appointed and could not interfere in the affairs of the company unless being a registered owner. Claim in the deceased's estate or any claim for acquiring the immovable property and claim for the holding of shares are in the ambit of succession and land laws. Therefore, the appropriate remedy would be an only civil suit. As far as company's concern, when the nomination is made, it was bound to transmit such shares in the name of the nominee after the event of death, therefore no question of mismanagement and oppression would arise.
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