SC: Whether Admission Of Petition By NCLT Is Valid When A Civil Suit Is Pending

Aruna Oswal (Appellant) Vs. Pankaj Oswal &Ors (Respondent)
Civil Appeal No. 9340 of 2019
Dated : 6th July,2022

BRIEF FACTS

1. The Appellant is the mother while the respondent No.1 is the son of Late Mr. Abhey Kumar Oswal, who was holding 39.88% shares in OswalAgro Mills. Ltd. and 11.11% shares in M/s. Oswal Greentech Ltd.

2. He filed a nomination according to section 72 of the Act in favour of the appellant, his wife.

3. The name the appellant, was registered as a holder as against the shares held by her deceased husband.

4. The respondent No.1, filed a partition suit claiming onefourth share in the shareholdings of his father in the above two companies.

5. Further he filed a petition before the NCLT claiming oppression and suppression against his mother and others.

6. The appellant challenged the maintainability of the petition, inter alia, under the ground that the respondent No.1 is not holding the required shares to file such petition.

7. The NCLT dismissed the application challenging the company petition’s maintainability.

8. NCLT held respondent No.1 as legal heir was entitled to one-fourth share of the property/shares.

9. Aggrieved thereby, three appeals were filed before NCLAT, which have been dismissed vide the impugned judgment and order.

10. Aggrieved thereby, the appellants are before this Court.

OBSERVATIONS & DECISION OF APEX COURT

11. Admittedly, respondent No.1 is not holding the shares to the extent of eligibility threshold of 10% as stipulated under section 244 in order to maintain an application under sections 241 and 242.

12. He has purchased the holding of 0.03% in M/s. OswalAgro 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.

13. In M/s. Oswal Greentech Ltd., the shareholding of the deceased was 11.11%, out of which onefourth share is claimed by respondent No.1.

14. 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. ArunaOswal, whether absolute right, title, and interest vested in the nominee or not, is to be finally determined in the said suit.

15. 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 partitionIt is admitted by respondent no.1 that he was not involved in day to day affairs of the company and had shifted to Australia to set up his independent business w.e.f. 2001. His grievance is that the family had not recognised him as holder of the onefourth shares.

16. They were registered in the ownership of his mother Mrs. ArunaOswal; that also he had submitted to be an act of oppression. He acquired 0.03% share capital after filing of the civil suit, otherwise he was not having any shareholding in M/s. OswalAgro Mills Ltd.

17. In the instant case, we are 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.

18. The rights in estate/ shares, if any, of respondent no.1 are protected in the civil suit. Thus, we are satisfied that respondent no.1 does not represent the body of shareholders holding requisite percentage of shares in the company, necessary in order to maintain such a petition. It is also not disputed that the High Court in the pending civil suit passed an order maintaining the status quo concerning shareholding and other properties. Because of the status quo order, shares have to be held in the name of Mrs. ArunaOswal until the suit is finally decided.

19. It would not be appropriate, given the order passed by the civil Court to treat the shareholding in the name of respondent No.1 by NCLT before ownership rights are finally decided in the civil suit, and propriety also demands it.
20. 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.

21. 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. 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.

22. 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.

23. 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 inferred that it is a case of oppression and mismanagement.

24. We are 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.

25. 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. The entitlement of respondent No.1 is under a cloud of pending civil dispute.

26. We deem 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.

27. We reiterate that we have left all the questions to be decided in the pending civil suit. Impugned orders passed by the NCLT as well as NCLAT are set aside, and the appeals are allowed to the aforesaid extent.

28. We request that the civil suit be decided as expeditiously as possible, subject to cooperation by respondent No.1. Parties to bear their costs as incurred.