The multifaceted connection between business law and estate law frequently results in intricate dispute, particularly over ownership of shares. The breakthrough Supreme Court decision in ‘Aruna Oswal v. Pankaj Oswal (2020)’ is a classic illustration of this complexity, arising out of a family dispute relating to the shares in two closely held companies due to the death of the family head, Mr. Abhey Kumar Oswal. This article examines the notable facts, issues of law, statute law, and judicial thought that shed light on the prevailing legal conflict between a legal heir and the nominee who is specially appointed to take shares.
Background and Facts
This case arose from a family tussle, after the death of the patriarch Mr. Abhey Kumar Oswal who passed away on 29 March 2016 intestate. During his lifetime he had accrued 5,353,960 equitiesof company‘M/s Oswal Agro Mills Ltd. (Respondent no.2)’ which amount to significant share that is 39.88%, and 11.11% of company ‘M/s Oswal Greentech Ltd. (Respondent no. 16)’. Later, during his lifetime he transferred his shares in favor of Mrs. Aruna Oswal his wife (Appellant) as per Section 72 of Companies Act 2013[1]on 18th June 2015, clearly stating that this nomination would supersede any prior nominations or testamentary documents, also nomination was attested by two witnesses. Following this, on 16th April 2016 the shares were registered under the name of Mrs. Aruna Oswal.
On 3 February 2017, Mr. Pankaj Kumar Oswal (Respondent no. 1) the surviving son initiated a law suit before the High Court of Delhi related to partition, affirming entitlement to one-fourth of his father’s estate, as per the Indian Succession Laws, which included the shares. After hearing both the parties the high court ordered, to sustain the ‘status quo’ regarding shares in the companies and the immovable assets, meaning that as per the nomination the shares were in favor of Mrs Oswal on the date of the status quo. Hence, shares continued in favor of Mrs Oswal.
Moreover, Mr. Pankaj Oswal also before the National Company Law Tribunal (NCLT), Chandigarh filed a company petition, claiming oppression and mismanagement as per Sections 241 & 242 in the affairs of Oswal Agro Mills Limited. He further stated that he met the criteria to file a petition for ‘oppression and mismanagement as per Section 244 of Companies Act 2013,’ based on his shareholding in the company which will cumulatively meet the criteria of the 10% threshold, as he had an existing shareholding of 0.03% and, by inheritance from his father 9.97% shares, the suit will be maintainable.
Further, the appellant questioned the jurisdiction of the company petition before the NCLT, stating the fact that she was the absolute owner of the shares in the companies as per the nomination under section 72, and she also argued that the main issue related to the case is the inheritance, which would fall under the ambit of a civil matter; it is not the case of oppression and mismanagement. Hence, the petition before NCLT is not maintainable.
The NCLT dismissed her application, declaring that as legal heir Mr. Pankaj Oswal, was qualified to one-fourth of the shares/property. Mrs. Oswal approached the National Company Law Appellant Tribunal (NCLAT); with the same issue, they also dismissed Mrs. Aruna Oswal’s appeal, upholding the NCLT’s decision on 13th November 2018. Aggrieved by these orders, Mrs. Aruna Oswal appealed to the Supreme Court on 14th November 2019.
Legal issues and judicial dispute
The legal confrontation primarily hinged upon three critical questions:
- Validity of the nomination under section 72: whether the nomination made in favor Mrs. Aruna Oswal overrides the inheritance claims of the deceased’s legal heirs.
- Maintainability of Petition on Oppression and Mismanagement: Is it possible for a legal heir to file a petition under Sections 241 and 242 of the Companies Act pleading oppression and mismanagement on account of shares which are disputed?
- Proper Forum for Succession Disputes: Should succession disputes over shares be adjudicated by company law tribunals like the National Company Law Tribunal (NCLT) or civil courts?
Mr. Pankaj Oswal had approached the High Court of Delhi and later the NCLT with a petition accusing oppression and mismanagement in Oswal Agro Mills Ltd. He alleged qualifying shareholding — a combination of his own 0.03% holding and the inherited shares from his deceased father totalling 9.97% — thus satisfying the 10% threshold requirement in Section 244 of the Companies Act to be able to file such a petition.
The NCLT adjudicated against Mrs. Aruna Oswal, holding that the right to petition for oppression was vested in Mr. Pankaj Oswal by way of legal heirship. The National Company Law Appellate Tribunal (NCLAT) also confirmed the same, and Mrs. Oswal took the issue to the Supreme Court.
Statutory Framework
Section 72 of the Companies Act, 2013, authorizes shareholders to nominate any individual who can receive their shares in case of their death. Most importantly, Section 72(3) provides that such nomination shall override any other testamentary disposition.
Sections 241 and 242 pertain to immunity from oppression and mismanagement in the affairs of a company. Section 244 creates a criterion only for members who have at least a 10% equity to apply for relief. This section is intended to provide immunity so that insignificant or frivolous stakeholders cannot topple companies by making such claims.
The Society (Share Capital and Debentures) Rules, 2014, notably Rules 19(2) and 19(8), safeguard shareholder rights subsequent to registration, including entitlement to dividends and participation inn company management.
Supreme Court’s Analysis
The Supreme Court marked priority of ‘Section 72’ nominations. It ruled that the nomination made by Mr. Abhey Oswal unequivocally conferred undivided ownership of the shares to his wife, Mrs. Aruna Oswal, thus overriding any inherence claims by legal heir unless a civil court rules otherwise.
The Supreme Court clarified that claims under ‘Section 241 and 242 of the Companies act’ alleging ‘oppression and mismanagement’. Jurisdiction for issues arising out of inheritance rests squarely with civil courts, and not company law tribunals.
The Court also required compliance with the 10% shareholding requirement, emphasizing that undecided succession shares cannot be combined with outstanding shares in order to satisfy this requirement. The son’s argument of cumulative shareholding to exceed the threshold was denied until civil court decision.
According to precedent judgments — most famously ‘Sangramsinh P. Gaekwad v. Shantadevi’— the Court drew a distinction between conflicts of companies and succession disputes, keeping the latter for civil courts alone.
Additionally, the court invoked the Doctrine against multiplicity of proceedings to promote judicial economy and prevent concurrent litigation on the same subject matter before different courts.
Judgement
The Apex Court ruled that the nomination made as per‘Section 72 of the Companies Act’ grants exclusive ownership of shares in the nominee, overriding any claim of successors unless conclusively adjudicated by civil judicial authority. The Court ruled that legal heirs cannot initiate proceedings under ‘Sections 241 and 242’ rising allegations of oppression and mismanagement if their inheritance rights are not conclusively resolved, thereby affirming that conflicts over succession and estate rights of shares lie solely within the authority of civil courts. The Court ordered that the civil suit regarding inheritance rights be promptly decided and temporarily halt actions related to company proceedings on the admissibility reason
Impact and key takeaways:
The ruling provided important clarifications on several key aspects:
- Supremacy of Nomination- Under Section 72 of the Companies Act, a nominee’s rights to share take precedence, effectively protecting against competing claims from legal heirs.
- Jurisdictional Boundaries- disputes related to succession of shares are exclusively within the remit of civil courts, thereby relieving company law tribunals of jurisdiction over such matters.
- Threshold for company petition – The 10% shareholding requirement for filing oppression petition ensures that only significant shareholders may bring claims, and this threshold cannot be met by counting disputed inheritance shares.
- Promotion of Judicial efficiency – The Court underscored the importance of avoiding multiple concurrent lawsuits on the same on the same issue in different courts, reinforcing the doctrine against multiplicity of proceedings.
This case highlights the need to reconcile family disputes over shares in closely held companies within the dual legal frameworks of corporate law and inheritance law, with clear demarcations on the jurisdiction of the respective forums.
Conclusion
In this case the law supports the claim of the Appellant, as the shares was in the favor of the appellant as per section 72 it will supersede the claim made by the respondent no. 1 and she will be the absolute owner of the shares after her husband death. The supreme court in this case clearly solved the dilemma which arose related to the jurisdiction of the court, the court clearly stated that the matter was of succession and cannot be dealt by company law tribunals as a case of oppression and mismanagement.
This decision not only clarified the issue related to the maintainability of the petition under different courts but also given a clear picture to solve the tussle between the legal heir and the nominee, it clearly stated that a legal heir cannot maintain a petition before a company law tribunal until and unless his inheritance right is declared by the civil court.
Hence, this is one of the most important decisions to erase the confusion of maintainability of the suit related to succession and the right of the nominee
Author Name- Tanya Mittal is a 3rd. Year B.A., LL.B (Hons.) at College – UPES School of Law, Dehradun
