Question of right, title, interest is domain of civil court and cannot be decided by NCLT in proceedings u/s 241 and 242- Supreme Court
ABCAUS Case Law Citation:
ABCAUS 3327 (2020) (07) SC
Important case law relied upon by the parties:
Sangramsinh P. Gaekwad and Ors. v. Shantadevi P. Gaekwad (2005) 11 SCC 314
P. Srivastava & Sons Pvt. Ltd. and Ors. v. M/s. Gwalior Sugar Co. Ltd. and Ors., AIR 2005 SC 83
M/s. Dale & Carrington Invt. (P) Ltd. And Anr. v. P. K. Prathapan and Ors., AIR 2005 SC 1624
In the instant case, appeals had been preferred against the judgment passed by the National Company Law Appellate Tribunal (NCLAT) affirming the order passed by the National Company Law Tribunal (NCLT) concerning maintainability of the applications filed under sections 241 and 242 of the Companies Act, 2013 (the Act).
The case was primarily arose out of a family dispute. The deceased husband had filed a nomination according to section 72 of the Act in favour of his wife. It was explicitly provided therein that the nomination shall supersede any prior nomination made by him and any testamentary document executed by him. The name of his wife (Appellant) was registered as a holder against the shares held by her deceased husband.
However, his son (respondent) filed a partition suit claiming entitlement to one fourth of the estate including shareholdings of his deceased father. The High Court directed the parties to maintain the status quo concerning shares and other immoveable property.
Later the son filed a Company Petition alleging oppression and mismanagement in the affairs of the company. On the issue of maintainability of the Petition, the NCLT allowed the application holding the son as legal heir entitled to one fourth share of the property/shares.
Aggrieved, thereby, the appellant filed appeal(s) before NCLAT, which were dismissed. Hence, the Appellant approached the Hon’ble Supreme Court.
The Hon’ble Supreme Court observed that the respondent was not holding 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. He was claiming only on the strength of his being a legal representative.
Question of right, title, interest is domain of civil court not NCLT
The Hon’ble Supreme Court held that the question as to the right of son was required to be adjudicated finally in the civil suit, including the effect of nomination in favour of his mother. Whether absolute right, title, and interest vested in the nominee or not, was to be finally determined in the civil suit. 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 partition.
The Hon’ble Supreme Court observed that it had 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. Adjudication of the question of ownership of shares is not contemplated under Section 397.
The Hon’ble Supreme Court opined that that the basis of the petition by the son was the claim by way of inheritance of ¼ shareholding which cannot be decided in proceedings under section 241/242 of the Act. Thus, filing of the petition under sections 241 and 242 seeking waiver was a misconceived exercise. Firstly, the respondent had 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.
The Hon’ble Supreme Court noted that High Court in the pending civil suit had passed an order maintaining the status quo concerning shareholding and other properties. The Hon’ble Supreme Court stated that it would not be appropriate given the order passed by the civil Court to treat the shareholding in the name of respondent by NCLT before ownership rights are finally decided in the civil suit.
The Hon’ble Supreme Court stated that 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.
Since, the respondent had himself chosen to avail the remedy of civil suit, filing of an application u/s 241 and 242 after that was nothing but an afterthought.
The Hon’ble Supreme Court also stated that merely disowning a son by late father or by the family, is not going to deprive him of any right in the property to which he may be otherwise entitled in accordance with the law. The pertinent question needed to be tried in a civil suit and adjudicated finally, it cannot be decided by NCLT in proceedings u/s 241 and 242.
The Hon’ble Supreme Court directed dropping of the proceedings filed before the NCLT regarding oppression and mismanagement u/s 241 and 242 of the Act leaving all the questions to be decided in the pending civil suit.
Accordingly, the Impugned orders passed by the NCLT and NCLAT were set aside and the appeals were allowed
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