Partition suit and preliminary decree- LAW &
procedure
Whether the
right to nominee shall precede the claim of other legal heirs of deceased
The
issue of partition between the legal heirs of deceased has invariably been a
vexed issue for the reasons of pleas and defence raised by and between the
siblings/. In such a situation and vigorous consent necessitate the reference
of various Acts and rules and interplay between such acts vis a vis fact also
needed determination. The partition, of course, can only be claimed in the
estate of deceased, if he died intestate. In case, the deceased has left
the Will, registered or unregistered as the case may be, then, the trap of
Indian Succession Act 1925 shall apply and petition for seeking probate or
Letter of Administration shall have to be preferred. In case, the partition is
sought based on Will, then, a plea for declaration and partition on the
strength of Will could be claimed. In such a scenario, the normal course of
inheritance or succession shall be altered, if the Will, pass muster.
The partition is generally sought for immoveable property, however, even the
moveable assets along with immoveable property may form part of a partition
plaint. The preliminary decree can also be claimed in a plaint for partition,
if there are certain admissions by the parties, and if the case is made out,
while leaving aside other disputed issues for adjudication later on and in due
course.
The
Delhi High Court, recently, in a matter captioned as Pankaj Oswal vs
Aruna Oswal & ors bearing no. CS (OS) 53/2017, has discussed the
law, principles and procedure in respect of granting of preliminary decree, in
case, the deceased left behind his estate intestate. While so doing, the
provisions of various Acts, Code and its interplay or applicability has also
been deliberated in greater details. The various provisions contained in
various Acts, code and enactment has also been discussed in the context of
partition. It is therefore imperative to cull out the principles and the Acts/Code
which has been the crux of the analysis that follows herein:
|
S.N |
The Acts/Code/Regulations/Principes |
Provisions |
|
1. |
Code of Civil
Procedure ( principles of preliminary decree) |
Order XII Rule 6,
Order VIII Rule 3, Order 20 Rule 18(2), Section 151 |
|
2. |
The Hindu
Succession Act 1956 and principles of intestate succession |
Section 8 |
|
3. |
The Indian
Succession Act 1925 |
2(h), 63,65,66 |
|
4. |
The Companies Act
2013 |
72, 241, 242,244 |
|
5 |
The depositories
Act, 1996 |
Bye Law 9.11 |
|
6. |
Family Settlement |
Law discussed |
|
7. |
The rights of
nominees-whether absolute in the touchstone of law |
Law discussed Shakti Yezdani
& Anr. vs. Jayanand Jayant Salgaonkar & Ors., (2024) 4 SCC 642 is a binding precedent |
|
8. |
Case laws under
Order 12 Rule 6 CPC |
Law discussed |
In
Pankaj Oswal (Supra), since, a suit for partition
was filed and based on alleged admissions, application under Order 12 Rule 6 of
CPC and Order XX Rule 18 of CPC was preferred for seeking preliminary decree
based on admission in respect of estate of late Mr Abhey Kumar Oswal.
FACTUAL
MATRIX
Pankaj
Oswal vs Aruna Oswal & ors bearing no.CS (OS)
53/2017
(1)
That the plaintiff is the eldest son of Late Mr. Abhey Kumar Oswal [‘Decedent’]
and has filed the present suit inter alia seeking partition of estate of
his late father claiming to be his class-I legal heir. It is averred that
Decedent was a Hindu by religion and a substantial shareholder, director and
chairperson of the board of directors of Oswal Agro Mills Limited [‘OAML’]
and Oswal Greentech Limited [‘OGL’], the two main holding companies of
the Abhey Oswal Group. It was further averred that the Decedent held 53530960
(39.88%) shares in OAML and 28540318 (11.11%) shares in OGL. The said shares
form part of the scheduled properties as per the amended schedule which was
taken on record by the High Court vide
order dated 14.05.2018.
(2)
That it is the case of the plaintiff that on 29.03.2016, the “Decedent” passed away
intestate leaving behind plaintiff and defendants as his Class-I legal heirs. Defendant
no.1 is the wife; whereas defendant nos.2 and 3 are the younger son and
daughter respectively, of Decedent. It is also stated that soon after passing
of Decedent multiple meetings of OAML and OGL were clandestinely held whereby
defendant no.1 was appointed as the Additional Director and Chairperson of both
the companies. Also, defendant no.1 and one Mr. Anil Bhalla, who was the
director of OAML and CEO & MD of OGL were authorized to act as authorized
signatories and manage bank accounts of both the companies.
(3)
That as the oppression and mismanagement in the affairs of the OAML after the
demise of the Decedent was perceived, hence, the plaintiff approached the NCLT,
Chandigarh by filing a petition being C.P. No. 56/CHD/PB/2018 under Sections
241 and 242 of the Companies Act, 2013. In the said petition, plaintiff
asserted his locus to maintain the petition as being the beneficial owner of
1/4th shares held by the Decedent. The rectification of the Register of Members
to record his name as the member of the Company to the extent of 1/4th shares
held by the Decedent, at the time of his demise was also prayed for. The defendant
no. 1 in the said petition had filed an application objecting to the
maintainability of the petition on the ground that the plaintiff does not hold
requisite shares to file the said petition. The NCLT vide order dated
13.11.2018 held that the company petition is maintainable since the plaintiff
was entitled to claim 1/4th shares held by the Decedent in OAML as his own
shares. It was further held that the purported nomination in favour of
defendant no. 1 by the Decedent will not affect the rights of the plaintiff to
maintain the company petition. The order passed by NCLT was upheld by the NCLAT
vide order dated 14.11.2019. The order of NCLAT was impugned before the
hon’ble Supreme Court by filing a Civil Appeal no. 9340 of 2019. The Supreme Court, vide judgement
dated 06.07.2020, was pleased to set aside the order dated 14.11.2019. The
relevant extract of the judgment dated 06.07.2020 is reproduced herein:
“21.…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. Aruna
Oswal, whether absolute right, title, and interest vested in the nominee or
not, is to be finally determined in the said 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.”
(4)
That according to the plaintiff as per some credible information, OAML, which
is controlled by defendant no. 1 was engaged in talks to sell its most valuable
asset, i.e., a parcel of land at village Anik, Taluka Kurla, Chembur, Mumbai ad
measuring approximately 2,95,693.75 square yards. The defendants had filed their respective written statements.
The defendant nos.1 and 2 had filed a joint written statement on 11.05.2017.
Thereafter, an amended written statement was filed on 12.10.2018. However,
subsequently on 12.02.2023 defendant no.2 issued a letter of even date stating
that said filing was made unauthorizedly on his behalf. He submits that
defendants nos.2 and 3 have not filed any reply to the instant application and
only defendant no.1 has opposed the present application by filing her reply.
(5)
That the application was therefore, preferred by the plaintiff, seeking a judgement
on admission and a preliminary decree in favour of the plaintiff declaring that:
a.
The plaintiff is a Class-I legal heir of Late Mr. Abhey Kumar Oswal; and
b.
The plaintiff is entitled to 1/4th share in the suit properties as
listed in the amended schedule, specifically in the shares held by Late Mr. Abhey
Kumar Oswal in OAML [53530960 (39.88%)] and OGL [28540318 (11.11%)] at the time
of his demise on 29.03.2016.
ORAL FAMILY SETTLEMENT
It
was submitted that a bare perusal of written statements filed by the defendants
shows that the following basic facts of the present case as averred in the
plaint have not been disputed:
i.
The Decedent was a Hindu;
ii.
The plaintiff is the eldest son of Decedent;
iii.
The Decedent passed away intestate on 29.03.2016.
It
was further submitted by the plaintiff, that, in the written statement, a stand
has been taken that sometime in October 2006, a purported oral family
settlement was acted upon, whereby plaintiff was excluded from all the
properties owned by the Decedent, and thus, plaintiff is not entitled to any
part of the Decedent’s estate. It was also submitted that the case set up in
the written statement that defendant no. 1 has been appointed as the sole nominee
by Decedent in respect of all the shares of the two flagship Companies viz.,
OAML and OGL by execution of a nomination form in her favour. As per defendant
no.1’s stand taken in the amended written statement, such nomination read with
section 72 of the Companies Act, 2013 has the effect of a ‘Will’ and therefore,
the plaintiff is not entitled to any share in the estate of the Decedent.
LAW ON RIGHT OF NOMINEE
The
plaintiff, while placing reliance on a recent Supreme Court judgment reported
as Shakti Yezdani & Anr. vs. Jayanand Jayant Salgaonkar & Ors.,
(2024) 4 SCC 642 has contended that law stands settled as
regards the effect of “nomination” under various statutes including the
erstwhile Section 109A of Companies Act, 1956, which is pari materia to
the present Section 72 of the Companies Act, 2013. It has been laid down that
nomination does not grant absolute rights of ownership in the shares in favour
of the nominee.
It
was contended that if the amended written statement is meaningfully read,
defendant no.1 is opposing the reliefs sought in the instant application only
on following grounds:
i.
there is an oral family settlement whereby the Decedent has disowned plaintiff
and therefore, plaintiff cannot claim any interest as Class I legal heir; and
ii.
the nomination by way of the Nomination Form amounts to and has the effect of a
‘Will’ in view of section 72 of the Companies Act, 2013, and the said document
fulfils the pre-condition of a ‘Will’ since it is attested by two witnesses.
It
was further contended that even if it is assumed for the sake of arguments that
there was an oral partition / settlement, the said stand of defendant no.1 is untenable
in the eyes of law as there cannot be an oral settlement during the lifetime of
the Decedent regarding devolution of his estate after his demise. This is
nothing but propounding an Oral Will. He submits that oral disposition of
self-acquired properties by a Hindu is not permitted in terms of the provisions
of the Hindu Succession Act, 1956. Reliance in this regard is placed on the
decision of this Court in Goutam Bhadra & Anr. vs. Gouri Bhadra &
Anr., 2014 SCC OnLine Del 1272.
In
terms of provisions of Indian Succession Act, 1925, particularly, as per
section 63 read with sections 65 and 66 and schedule III, only a soldier,
sailor or airman, serving in expedition or engaged in war, is allowed to make a
Privileged Will, which can be made by word of mouth. Reliance has been placed
on the decisions of Delhi High Court in Sunita Shivdasani vs. Geeta
Gidwani, 2007 SCC OnLine Del 200 and Neelima Sharma
& Ors. vs. Satyavrat Sharma & Anr., 2025 SCC OnLine Del
807 to submit that in the said decisions, it has been held that a Hindu
cannot make a Privileged Will or an oral Will in terms of sections 65 and 66 of
the Indian Succession Act, 1925.
The
only way to exclude a legal heir from succession is by the way of a
testamentary Will or any other testamentary documents. Any settlement during
the lifetime of the Decedent cannot operate as a Will. Reliance in this regard
is placed on the decision of Division Bench of High Court of Madras in Appandainatha
Nainar vs. Appadurai, 2003 (2) CTC 202 and the decision of High Court
of Kerala in Narayani & Anr. vs. Sreedharan, 2011 SCC
OnLine Ker 4059. Therefore, plea of oral family settlement having been
acted upon, disinheriting plaintiff, during lifetime of the Decedent does not
hold any water.
As
regards the plea of nomination, it was contended that the law in this regard
has been settled in Shakti Yezdani (supra). The reliance is placed
on the decision of Delhi High Court in Paminder Gujral & Ors. vs.
Kiranjit Gujral & Ors., 2024:DHC:4870 to submit that the position
settled in Shakti Yezdani (supra) has been applied in the said decision.
It
was also submitted by the plaintiff that the Nomination Form relied upon by
defendant no. 1 in her amended written statement is a generic/standard ‘Know
Your Client (KYC)’ application form of Stock Holding Corporation of India
Limited (SHCIL) and not a testamentary document evidencing propounding of a ‘Will’,
with specificity. The said Nomination Form does not fulfil the conditions
stipulated under the definition of ‘Will’ as defined under section 2(h) of the
Indian Succession Act. Reliance was placed on a Delhi High Court decision reported
as K.L. Malhotra vs. Sudershan Kumari & Anr., (2008)
149 DLT 783 to submit that in the said decision, in the context of
section 2(h) of the Indian Succession Act, 1925, it has been held that while
interpreting the nature of the document purported to be a ‘Will’, the courts
have to examine whether the document contains specific words of bequest to come
into effect after the death of the testator. The onus probandi lies upon
the party propounding the ‘Will’ and if no evidence is given by the said party,
the issue must be decided against it.
Since,
the plea of defendants were based on alleged nomination in the nature of Will
in favour of the defendants, while ousting other legal heirs, therefore, the plea
of the plaintiff revolved around law related to nominee and that the nomination
was not in the nature of a Will and cannot be construed as such. Moreover, the
right of nominee based on the nomination is circumscribed and no unbridled
title shall be vested in the party claiming to be nominated. The legal supports
were also referred to by the plaintiff by way of judicial precedents.
CONTENTIONS
OF DEFENDANTS
(A)
Per contra, the application was
objected to and it was submitted that it is entirely misconceived and not
maintainable, in as much as, the plaintiff has grossly failed to point out any
admission which would warrant the indulgence of this Court under Order XII Rule
6. In the scheme of Order XII Rule 6 admission has to be clear, unequivocal, unambiguous
and unconditional, which is not the case here. The said requirement cannot be
something that has to be dissected from the pleadings/documents or arrived at
after a lengthy process of deduction. The reliance were placed on the following
decisions passed by Hon’ble Supreme Court as well as Delhi High Court:
i.
Rajesh Mitra @ Rajesh Kumar
Mitra vs. Karnani Properties Limited, 2024 SCC OnLine SC 2607;
ii.
Himani Alloys Ltd. vs. Tata
Steel Ltd. (2011) 15 SCC 273;
iii.
Karan Kapoor vs. Madhuri Kapoor
(2022) 10 SCC 496;
iv.
Rakesh Kumar Aggarwal & Anr.
vs. Caravan Commercial Company Limited, 2023 SCC OnLine Del 223; and
v.
Sunil Goel vs. Mis Rational
Enterprises & Ors. -Order dt. 22.03.2024 passed in CS (COMM) No.536 of
2016.
(B).
That there is no specific, clear and categorical
admission of facts and documents by defendant no.1 warranting passing of a
preliminary decree. In fact, there are various triable issues like: effect of
nomination made by Late Mr. Abhey Kumar Oswal in the Nomination Application
Form; and effect of oral family settlement acted upon between the parties, for
which detailed evidence has to be led by the parties.
(C)
That the decision in Shakti
Yezdani (supra) was passed in different facts and circumstances, thus, it
was contended that the plaintiff’s reliance on the same is misconstrued and
based on a completely incorrect reading of the said decision.
(D) That elaborating
further, it was submitted that Shakti Yezdani (supra) the deceased
therein had first nominated a beneficiary in the nomination form and drawn a
Will i.e., the testamentary document. The deceased also clarified his wishes
not only qua the shares but also other positions The deceased revoked
his gift deed in favour of some people, excluded some people from shareholding
in his estate and expressed his desire for distribution of his estate as per
his wishes among the selected members of his family (not all). Thus, the
testamentary document in the said case had to prevail over all other documents
i.e. nomination etc. Further, the nomination form was witnessed and
acknowledged by two witnesses in compliance of mandatory conditions of a ‘Will’
under section 63 of the Indian Succession Act, 1925.
(E) That
it was submitted that in Shakti Yezdani (supra), unlike the present case, relates to
the deceased's 'Will' therein, which clearly detailed the assets division
including the shares contrary to the prior nominations, the Hon'ble Supreme
Court held that deceased's ‘Will’ was to prevail over the nomination for Bank
accounts, shares, lockers etc. In the present case, the position is to the
contrary, as the nomination form is the written 'Will' of the Decedent as far
as his shares are concerned. As the Decedent did not execute any written and
superseding 'Will' post the nomination form, therefore, the desire of the
Decedent to 'Will' his shares, as he did under the aforesaid nomination form,
has to prevail.
(F)
That it was further contended that the
nomination form in favour of defendant no.1 constitutes an absolute and binding
declaration. As per Section 72 of the Companies Act, 2013, a nomination validly
made supersedes all claims regarding the transfer of shares upon the demise of
the nominator. The nomination form unequivocally vests ownership of the shares
in defendant no.1 leaving no scope for disputes or division among other
claimants. Therefore, it was submitted that the rights arising from the
nomination are final and conclusive.
(G) That
the disputes between the parties are directly covered by the principles laid
down by Hon’ble Supreme Court in Aruna Oswal vs. Pankaj Oswal & Ors.
(2020) 8 SCC 79 which specifically govern the disputes between family
members regarding shareholding and inheritance.
(H)
That it is a settled principle of law
that the earlier judgment of a bench of a coordinate strength is binding on the
subsequent bench of equal strength. Therefore, the decision in Aruna
Oswal (supra) will hold the field between the same parties as far as
the issue of Nomination and its effect is concerned. Reliance in this regard is
placed on the decision of the Hon'ble Supreme Court in Union of India
& Drs vs. S.X Kapoor, 2011 (4) SCC 591.
(I)
That the nomination and its effect is
a matter of trial and cannot be decided in a summary manner. A plain reading
and comparison of the nomination form in the present case with all other
nomination forms available in public domain would show that all other
nomination forms are to be signed by only one witness, whereas the nomination
form in the present case has been signed by two witnesses. Therefore, the
nomination form in the present case is entirely different from the other
nomination forms and is not a standard template nomination form.
(J)
That it is also a matter of fact that
the oral family settlement of 2006 disinheriting the plaintiff has been acted
upon, inasmuch as in furtherance thereof, the Decedent had removed the
plaintiff’s name from the HUF account maintained in the HDFC Bank on
07.08.2007, factum of which can easily be verified from the records of the Bank
itself.
(K) That
the Decedent has only included defendant nos.1 and 2 as his co-parceners in the
HUF account held by him. Therefore, plaintiff cannot be treated as the legal
heir to legally succeed to the estate of Late Mr. Abhey Kumar Oswal and claim
any interest therein. The account opening form of "AK Oswal & Sons
HUF" dated 07.08.2007 clearly shows that the Oral Family Settlement
was given effect to and the plaintiff was excluded from the estate of Late Mr.
Abhey Kumar Oswal.
(L) That
the attention of the Court was drawn to the to the judgment dated 02.08.2019
passed by the Delhi High Court to submit that whilst allowing application of
defendant no.1 under Order VI Rule 17, the High Court had observed that there
are prima facie no obvious admissions about any right having been inherited
by the plaintiff. Thus, there are no admissions qua entitlement of plaintiff
in the estate of Decedent.
(M) That
it is settled law that the nomenclature of a document is not determinative of
its true nature, rather the Court must look into the contents of the document
and the intention of the executant. Merely calling a document a ‘nomination
form’ does not restrict the Court from treating it as a testamentary
disposition if its language and execution reflect such an intent.
(N) That it is reiterated that in the present
case, the nomination form executed by Decedent expressly supersedes all prior
nominations as well as all testamentary documents; and confers absolute
entitlement on defendant no.1 qua all the shares of Decedent. Also, it
was executed in the presence of two witnesses in conformity with section 63 of
Indian Succession Act, 1925.
(O) That it is the content and intent underlying
the nomination form that must prevail, and not the label attached to it. Reference
in this regard is made to the decisions of Hon’ble Supreme Court in B.K.
Maniraju vs. state of Karnataka and Ors., (2008) 4 SCC 166 and
Meena Pradhan & Ors. vs. Kamla Pradhan & Anr, (2023)
9 SCC 734.
(P) That the plaintiff’s present application
cannot be decided in part as declaration sought in Prayer A cannot be granted
in isolation of Prayer B. Under these circumstances, the question of passing a Preliminary
Decree on admission does not arise till the respective shares, if any, of the
parties are determined which at present are in a fluid state. The question of
passing a piecemeal order or judgment on a particular fact is neither
permissible nor warranted under the provisions of Order XII Rule 6 CPC which
only contemplates a passing of a decree on admission and not a decision
regarding any fact in issue and that too without a trial.
REJOINDER SUBMISSIONS BY PLAINTIFF
The
purported oral family settlement is a sham defence, in as much as, the defendant no.1 has failed to provide material
particulars of the said settlement in the written statement.
The
following material particulars have not been provided:
i.
details of parties to the alleged oral settlement;
ii.
details of witnesses to such settlement; and
iii.
details of when and where the alleged settlement was arrived at.
In
Aruna Oswal (supra) the Hon’ble Supreme Court did not
conclusively decide the question pertaining to the effect of nomination under
section 72 of the Companies Act in the facts of the present case. The Court
only made “prima facie” observations regarding effect of section 72 of
the Companies Act. The Court left it open for this Court to decide whether
absolute right, title, and interest is to be vested in the nominee or not.
The
Shakti Yezdani (supra) is
an authoritative pronouncement on the scope and effect of nomination under
section 72 of the Companies Act, and it continues to hold the field.
Whether
nomination has the effect of a ‘Will’ or not is purely a legal question which
does not require any evidence or trial. In any case, it is trite law that
pleadings ought to be read meaningfully and, in a context, to understand their
true meaning and import. Evasive and mechanical denials without substantiation
are meaningless. In this regard, reliance has been placed on the decision of
Division Bench of the Delhi High Court in Vijaya Myne vs. Satya Bhushan
Kaura, (2007) 142 DLT 483 (DB). It was also contended
that there are not only specific, clear and categorical admissions but also
constructive admissions on the part of defendant no.1.
ANALYSIS BY THE COURT
Pankaj
Oswal (Supra)
(i)
In the main suit, the plaintiff had prayed for decree of rendition of accounts,
as well as, preliminary decree of partition to the extent that plaintiff is
entitled to 1/4th share in the suit properties listed in the schedule as also
the properties belonging to the Oswal Family, with further prayer for grant of
final decree of partition.
(ii)
In the present application under Order XII Rule 6 CPC and Order XX Rule 18 of
CPC, the plaintiff, however had sought judgment on admissions and preliminary
decrees to the following effect:
a.
Pass a judgment on admission and a preliminary decree declaring that the
Plaintiff is a Class-I legal heir of Late Mr. Abhey Kumar Oswal;
b.
Grant a preliminary decree declaring that the Plaintiff is entitled to 1/4th
share in the suit properties as listed in the Amended Schedule, more
specifically the Plaintiff is entitled to 1/4th share in the shares held by
Late Mr. Abhey Kumar Oswal in OAML [53530960 (39.88%)] and OGL [28540318
(11.11%)] at the time of his demise on 29.03.2016”. Yet another aspect was
noted i.e when the present application was finally
heard and the judgment was reserved, the I.A. 12308/2025 (under Order I Rule 10
CPC) was pressed and it was contended that the applicants in the said application
are claiming to be legal heirs of late Abhey Kumar Oswal, and in the event they
are held to be legal heirs, they would also have share in the estate of late
Abhey Kumar Oswal. In this backdrop, the plaintiff/applicant had submitted that
in the event the present application is allowed, the shares may not be declared
while allowing the application, and only an observation may be made that declaration
of shares of the parties will be subject to the outcome of the aforesaid
application i.e. IA. 12308/2025.
(iii)
The objective of enacting the provisions under Order XII Rule 6 CPC is to
enable the Court to pronounce the judgment on admission when the admissions are
sufficient to entitle the plaintiff to get the decree inasmuch as the said
provision has been enacted to render speedy judgment and save the parties from
going through the rigmarole of a protracted trial. It is equally settled that
the power under Order XII Rule 6 CPC is discretionary and cannot be claimed as
a matter of right, or in other words, judgment on admission is a matter of
discretion of the Court. Where the defendants have raised objections which goes
to the root of the case, it would not be appropriate to exercise discretion
under Order XII Rule 6 CPC (Ref: Vijaya Myne vs. Satya Bhushan Kaura, (2007)
SCC OnLine Del 828). The said Rule is an enabling provision which confers
discretion on the Court in delivering a quick judgment on admission and to the
extent of the admission by one of the parties of his opponent’s claim. Insofar
as the present suit is concerned, the foundational facts are not in dispute.
The Decedent was a Hindu, who died on 29.03.2016, and is survived by the
plaintiff (eldest son), defendant no.1 (wife), defendant no.2 (younger son) and
defendant no.3 (daughter).. The Decedent’s shareholding in OAML and OGL and the
extent thereof has been mentioned in the prayer clause of the instant
application, which again is not in controversy. The Decedent died intestate. In
the amended written statement filed by the defendant no.1 on her own behalf, as
well as on behalf of defendant no.2, as his general attorney, particularly in
para 2 of the para wise reply, it has been admitted that the Decedent was a
Hindu who left behind four legal heirs i.e., all the four parties to the suit,
but it has been denied that the Decedent died intestate. In the Preliminary
Objections, the defendant no.1 has elaborated that she has been appointed by
Decedent as his nominee in his DEMAT account qua his shareholding in
OAML and OGL, and said nomination constitutes the legal testament of decedent.
The defendant no.1 has also pleaded oral family settlement that was purportedly
arrived at in the month of October, 2006 in the Oswal family whereby the
plaintiff was expelled, disowned and disinherited from the estate of decedent.
As the pleading with regard to the oral family settlement would assume
relevance in the latter part of the present judgment, therefore, it is
considered appropriate to reproduce para 4 of the preliminary submissions for
ready reference, which reads thus:
“4.
Since the misdeeds of the Plaintiff and financial forgeries, manipulation and
misadventure of the Plaintiff have been bringing a bad name to Late Mr. Abhey
Kumar Oswal and his family, Late Mr. Abhey Kumar Oswal, in the month of
October, 2006 decided to completely expel, disown and disinherit the Plaintiff
from his estate. It was categorically stated by Late Mr. Abhey Kumar Oswal that
after his death only the Defendant No. 1 shall be entitled to inherit his
estate and the Plaintiff will have no right, title or interest to any part of
his estate. As such an oral family settlement was arrived at in the month of
October, 2006 in the Oswal family and as such the Plaintiff shall not be
entitled to inherit any estate of Late Mr. Abhey Kumar Oswal.”
(iv)
The defence of the contesting defendant i.e. defendant no.1 essentially rests
on two pleas viz. :
(i)
an oral family settlement of October, 2006 whereby the plaintiff was
disinherited; and
(ii)
nomination qua the shareholding of decedent in OAML and OGL in favour of
defendant no.1, which according to her operates as a ‘Will’ and confers upon
her absolute ownership.
PLEA
OF ORAL FAMILY SETTLEMENT DISINHERITING THE PLAINTIFF
(v)
It has to be ascertained as to whether the plaintiff’s right of inheritance as
Class I legal heir of Decedent stands established on the basis of clear and
unequivocal admissions and whether the defence of the defendant no.1, even if
assumed to be correct, does not disclose a legally sustainable answer to the
claim of plaintiff, not giving rise to any triable issue. In this context it
may be noted that in Para 4 of preliminary submissions of amended written
statement that in the month of October, 2006, the Decedent and his family
decided to completely expel, disown and disinherit the plaintiff from his
estate. It is further alleged that it was categorically stated by Decedent that
after his death only defendant no.1shall be entitled to inherit his estate and
plaintiff will have no right, title or interest to any part of his estate. As
such, an oral family settlement was arrived at in the month of October, 2006,
disinheriting the plaintiff from the estate of the Decedent.
The
court upon examining the plea of oral family settlement as articulated in the
amended written statement of defendant no.1, had observed that the said oral family
settlement proposed to regulate the devolution of the estate of Decedent after
his death and the same would not take effect during his lifetime. Therefore, the
very first question to be addressed is- whether the oral family settlement
alleged to have been arrived at in the month of October, 2006, is a
‘Settlement’ or a ‘Will’? An oral family settlement as articulated by the
defendant no.1 in the amended written statement is an attempt to effect post
death disposition, which clearly has a testamentary character. However, the law
does not permit an oral ‘Will’ except when made under Section 65 and 66 of the Indian
succession Act, 1925 by a soldier, airman or mariner, and that too in in the
case of privileged Wills. The provisions are as under:
65.
Privileged wills-
Any
soldier being employed in an expedition or engaged in actual warfare, 1*[or an airman
so employed or engaged,] or any mariner being at sea, may, if he has completed
the age of eighteen years, dispose of his property by a will made in the manner
provided in section 66. Such wills are called privileged wills.
66. Mode of making, and rules for
executing, privileged wills.-
(1)
Privileged wills may be in writing, or may be made by word of mouth.
(2)
The execution of privileged wills shall be governed by the following rules:--
(a)
The will may be written wholly by the testator, with his own hand. In such case
it need not be signed or attested.
The
conditions as defined therein. A Hindu under section 63 of the said Act can
only make an unprivileged ‘Will’, which means it has to be a document in
writing which bears his signature and attested by two witnesses. Admittedly, no
written ‘Will’ was executed by the Decedent in respect of his entire estate in
terms of Section 63 of the Indian succession Act. Only in respect of
shareholding of the Decedent, defendant no.1 has set up a case that there is a
nomination in her favour, which according to her is a testamentary disposition,
which aspect will be dealt with separately in the latter part of this judgment.
(b)
It may be written wholly or in part by another person, and signed by the
testator. In such case it need not be attested.
(c)
If the instrument purporting to be a will is written wholly or in part by
another person and is not signed by the testator, it shall be deemed to be his
will, if it is shown that it was written by the testator's directions or that
he recognised it as his will.
(d)
If it appears on the face of the instrument that the execution of it in the
manner intended by the testator was not completed, the instrument shall not, by
reason of that circumstance, be invalid, provided that his non-execution of it
can be reasonably ascribed to some cause other than the abandonment of the testamentary
intentions expressed in the instrument.
(e)
If the soldier, *[airman] or mariner has written instructions for the
preparation of his will, but has died before it could be prepared and executed,
such instructions shall be considered to constitute his will.
(f)
If the soldier, *[airman] or mariner has, in the presence of two witnesses,
given verbal instructions for the preparation of his will, and they have been
reduced into writing in his lifetime, but he has died before the instrument
could be prepared and executed, such instructions shall be considered to
constitute his will, although they may not have been reduced into writing in
his presence, nor read over to him.
(g)
The soldier, *[airman] or mariner may make a will by word of mouth by declaring
his intentions before two witnesses present at the same time.
(h)
A will made by word of mouth shall be null at the expiration of one month after
the testator, being still alive, has ceased to be entitled to make a privileged
will.
63.
Execution of unprivileged wills.-
Every
testator, not being a Collected by the All India Christian Council, soldier
employed in an expedition or engaged in actual warfare, *[or an airman so
employed or engaged,] or a mariner at sea, shall execute his will according to the
following rules:-
(a)
The testator shall sign or shall affix his mark to the will, or it shall be
signed by some other person in his presence and by his direction.
(b)
The signature or mark of the testator, or the signature of the person signing
for him, shall be so placed that it shall appear that it was intended thereby
to give effect to the writing as a will.
(c)
The will shall be attested by two or more witnesses, each of whom has seen the
testator sign or affix his mark to the will or has seen some other person sign
the will, in the presence and by the direction of the testator, or has received
from the testator a personal acknowledgment of his signature or mark, or of the
signature of such other person; and each of the witnesses shall sign the will
in the presence of the testator, but it shall not be necessary that more than
one witness be present at the same time, and no particular form of attestation
shall be necessary.
To
properly appreciate the rival contentions, it is necessary to delineate the
distinction between a ‘Settlement’ and a ‘Will’. The determination does not
depend on the nomenclature of the document, which is not conclusive. Rather,
the document must be read as a whole, with emphasis on its recitals and the
intention of the executant as discernible therefrom. The crucial test is
whether the document creates any interest in the property in praesenti so
as to operate inter vivos, conferring any irrevocable right in favour of
the beneficiary. Conversely, where the intention is that the interest in the
property should pass only upon the demise of the executant, the instrument
partakes the character of a testamentary disposition. Reference in this regard
may be had to the decision in Namburi Basava Subrahmanyam vs. Alapati
Hymavathi & Ors., (1996) 9 SCC 388 wherein the Hon’ble Supreme
Court had articulated the guiding principles in that behalf as under: -
“3.
The only question is the interpretation of the deed Ex. B-1. It is true
that the nomenclature of the document is not conclusive. The recitals in the
document as a whole and the intention of the executant and acknowledgement
thereof by the parties are conclusive. The Court has to find whether the
document confers any interest in the property in praesenti so as to take effect
intra vivos and whether an irrevocable interest thereby, is created in favour
of the recipient under the document, or whether the executant intended to
transfer the interest in the property only on the demise of the settlor.
Those could be gathered from the recitals in the document as a whole………….”
Following
the decision in Namburi (supra), the Kerala High Court in Narayani
and Anr. vs. Sreedharan, 2011 SCC OnLine Ker 4059, in the context of
written settlement deed, laid down that when a right is transferred (Neelima
Sharma and Ors. v. Satyavrat Sharma and Anr. 2025 SCC OnLine Del 807 in
praesenti, it can only be treated as settlement deed. However, if no right is
transferred in praesenti and provision is made only for transfer of the
right after the death of executant, it could only be treated as a ‘Will’. The relevant
extract from the said decision reads thus:
First
question to be decided is whether Ext. B1 is a settlement deed or a will. This
aspect was not considered by the courts below evidently for the reason that no
such contention was raised before the courts below. Whatever it be, in the
light of the submissions made, it is necessary to settle that question. If
by execution of Ext. B1, right is transferred in praesenti, it can only be
treated as a settlement deed. On the other hand, if no right is transferred in
praesenti and by execution of Ext. B1, provision is made only for transfer of
the right, after the death of either or both of the executants, it could only
be treated as a will.”
It
was found that the pleaded oral family settlement is not a transfer of right by
the Decedent qua his estate in praesenti. It is rather an oral
understanding to exclude the plaintiff, a Class-I legal heir, from succession
after the demise of Decedent, which will fall within the ambit of an oral
‘Will’. It is only a privileged Will which can be made orally as provided in
Section 66 of the Indian Succession Act, 1925 and by the category of persons
mentioned in Section 65 thereof. The Decedent was not belonging to the
categories as enumerated in Section 65; therefore, he was not competent to make
an oral ‘Will’, rather he could have made only an ‘unprivileged Will’, which
law requires to be in writing.
Under
the statutory scheme of the Indian Succession Act, 1925, intestate succession
is governed by Section 87 of the said Act whereunder it is stipulated that
intention of the testator must be effectuated as far as possible, even in such
case or cases where the entire Will cannot take effect and it cannot be set
aside, merely, because it cannot be fully carried out.
As
per the Hindu Succession Act (1956) as amended and up to date, the scheme of
succession has clearly bee3n discerned therein.
8.
General rules of succession in the case of males.―
The
property of a male Hindu dying intestate shall devolve according to the
provisions of this Chapter:―
(a)
firstly, upon the heirs, being the relatives specified in class I of the
Schedule; the property of male Hindu dying intestate firstly, devolves upon his
Class-I legal heirs, and thereafter sequentially upon Class-II legal heirs;
agnates; and cognates. Such intestate succession can be displaced only by –
(i)
a valid testamentary disposition, which takes effect after the death of
testator; or
(ii)
a legally recognized transfer inter vivos which is between living
people, by way of gift etc. Merely an oral understanding to disinherit a
Class-I legal heir without execution of valid ‘Will’ or without transfer inter
vivos in praesenti is not known to law. It is not the case of the defendant
no.1 that the Decedent made any transfer inter vivos qua his estate.
Therefore, the claim of defendant no.1 that the plaintiff was disinherited,
based only on purported oral family settlement pleaded by her, is not legally
tenable.
Insofar
as the plea of defendant no.1 that the settlement was acted upon in as much as ,the
plaintiff’s name from HUF account was removed, it was observed that the removal
of plaintiff’s name from an HUF account does not, alter, the legal position in
respect of the inheritance of Decedent’s estate. The reasons are as follows-
(i)
Firstly, the HUF coparcener arrangements will not have any bearings on
the succession of individual estate of the Decedent;
(ii)
Secondly, no legally tenable extinguishment of plaintiff’s share in the
estate of Decedent has been shown either by inter vivos transfer during
the lifetime of decedent or by testamentary disposition after his death; and
(iii)
Thirdly, even assuming the pleaded fact of oral family settlement to be
true, the same does not constitute a lawful mode of extinguishing the
plaintiff’s statutory right of inheritance under the Hindu Succession Act,
1956.
(B)
If there is no heir of class I, then
upon the heirs, being the relatives specified in class II of the Schedule;
(c) Thirdly,
if there is no heir of any of the two classes, then upon the agnates of the
deceased; and
(d) Lastly,
if there is no agnate, then upon the cognates of the deceased.
Further,
the Court also noted that in the amended written statement filed by defendant
no.1, she has failed to provide any relevant details apropos the oral
family settlement viz.,
(i)
details of the parties to said settlement;
(ii)
who all from the Oswal family were present when such family settlement was
arrived at;
(iii)
details of witness(es), if any, to the said settlement; and
(iv)
other material particulars like date, time and place of such oral family
settlement. Incidentally, the alleged family settlement was not followed by
recording of any written memorandum of family settlement. Furthermore, it is
not the case of defendant no.1 that the plaintiff was present when alleged oral
family settlement was arrived at and he consented to the same. Under normal
circumstances, the plaintiff could not be expected to be a consenting party to
an oral family settlement whereby he is being disinherited. This crucial
circumstance divests the alleged settlement of its character as a ‘family
settlement’.
That
apart, Defendant No. 2, another member of the Oswal family, expressly disowned
the said amended written statement which contains the plea of oral family
settlement, by issuing a ‘Cease and Desist Notice’ dated 17.02.2023 to
defendant no.1.
Besides
that, it has already been held that purported oral family settlement is not a
‘settlement’ but an oral ‘Will’, which is not legally permissible. Therefore,
the defence of oral family settlement cannot succeed on either count. In this
backdrop, merely making an averment that an oral family settlement was arrived
at to disinherit plaintiff without providing material particulars, does not
make such a strong defence that will enable the defendant no. 1 to succeed in
the suit, even after the matter is put on trial. The plea of oral family
settlement is thus, devoid of merit and does not raise a triable issue which
would require leading of evidence.
The
Hon’ble Supreme Court in Maria Margarida Sequira & Ors. vs. Erasmo
Jack De Sequeria, (2012) 5 SCC 370 has held that
pleadings of a case must contain sufficient particulars and until the pleadings
raise a sufficient case, they will not constitute sufficient claim of defence.
The relevant part of the decision reads as under :
“74.
If the pleadings do not give sufficient details, they will not raise an issue,
and the court can reject the claim or pass a decree on admission. On vague
pleadings, no issue arises. Only when he so establishes, does the question of
framing an issue arise. Framing of issues is an extremely important
stage in a civil trial. Judges are expected to carefully examine the pleadings
and documents before framing of issues in a given case.
75.
In pleadings, whenever a person claims right to continue in possession of
another property, it becomes necessary for him to plead with specificity about
who was the owner, on what date did he enter into possession, in what capacity
and in what manner did he conduct his relationship with the owner over the
years till the date of suit. He must also give details on what basis he is
claiming a right to continue in possession. Until the pleadings raise a
sufficient case, they will not constitute sufficient claim of defence.
77.
The court must ensure that pleadings of a case must contain sufficient
particulars. Insistence on details reduces the ability to put forward a
non-existent or false claim or defence. In dealing with a civil case,
pleadings, title documents and relevant records play a vital role and that
would ordinarily decide the fate of the case.”
A
co-ordinate bench of Delhi High Court in Rajeev Tandon and Another Vs Rashmi
Tandon, 2019 SCC OnLine Del 7336, whilst, deciding an application
filed under Order XII Rule 6 CPC observed that vague, unsubstantiated and
evasive pleas are sufficient ground to hold that there are admissions in the
pleadings and a decree is liable to be passed under Order XII Rule 6. The
relevant extract reads thus:
“24.
The substance of the actual defence of the defendant from a perusal of the
written statement is that the property in question has been purchased from the
joint family fund obtained from the joint family business belonging to the
father of the parties. It is also stated that the suit property was bought from
the funds generated after disposal of the joint family property in which the
defendant had an equal share and entitlement. This is the sum and substance of
the defence raised by the defendant in her written statement. It is manifest that
the defence is vague, evasive and lacks material particulars.
Under
Order 8 Rule 3 CPC, a defendant is obliged to deal specifically with each
allegation of fact of which he does not admit the truth. Similarly, under Order
8 Rule 4 CPC, if a defendant denies an allegation of fact, he must not do so
evasively but answer the point of substance. In the present case, the denials
are evasive and cannot be said to be a specific response.
35.
Clearly, vague, unsubstantiated and evasive pleas have been held to be
sufficient ground to hold that there are admissions in the pleadings and a
decree is liable to be passed under Order 12 Rule 6 CPC. As noted above,
the pleas taken by the defendant in the written statement are vague,
inconsistent and do not in any manner whatsoever show that any worthwhile
defence is raised or any right exists in favour of the defendant to enable her
to continue to occupy the suit property.
36.
In my opinion, the defence taken by the defendant is vague and unsubstantiated
and a mere attempt to prolong the present litigation. Accordingly, no defence
is available to the defendant. The present application under Order 6 Rule 12
CPC is liable to be allowed.”
The
decision of Rajeev Tandon (supra) has been followed in subsequent
decision of this Court in Rajeev Chawla vs. Deepak Chawla, 2022 SCC
OnLine Del 3177, wherein the Court observed that the admission can also
be constructive admission, which can be inferred from the vague and evasive
denial. The Court noted that the averments in the written statement therein
with regard to the HUF are vague and unsubstantiated. Accordingly, the Court
decreed the suit under Order XII Rule 6 CPC observing that no useful purpose
will be served by sending the matter for the trial. The relevant part of the
decision reads thus:
“15.
The legal proposition that emerges from a reading of the aforesaid paragraph is
that a party setting up an HUF has to plead and give details in respect of the
date when the HUF was created, who were its members/coparceners, who was the
Karta and if the HUF was created after 1956 and when was the property put into
the common hotchpotch of the HUF.
16.
It is clear from the reading of the written statement that no such averments
have been made in the written statement filed on behalf of the defendant. Only
vague and unsubstantiated pleas with regard to the suit property being part of
the HUF have been made without any particulars or documents in support thereof.
Admittedly, the suit property was purchased after 1956, yet no details have
been given as to when the property was thrown into the hotchpotch of HUF.
20.
In Rajeev Tandon (supra), a Co-ordinate Bench of this Court has observed
that for the purposes of passing a decree under Order XII Rule 6 of the CPC,
the admissions can be in the pleadings or in the documents filed on behalf of
the parties. The admissions can also be constructive admissions, which can be
inferred from the vague and evasive denial in the written statement.
26.
The averments made in the written statement with regard to existence of an
HUF and the suit property being owned by the HUF, are vague and
unsubstantiated. No useful purpose would be served by sending the matter for
trial. Therefore, the plaintiff is entitled to a preliminary decree of
partition in terms of Order XII Rule 6 of the CPC”.
PLEA OF
NOMINATION AND ITS EFFECT
The
second limb of the defence articulated by defendant no.1 is that the nomination
form executed by the Decedent under Section 72 of the Companies Act, 2013
operates as a ‘Will’ and vests absolute ownership of Decedent’s shares in OAML
and OGL in defendant no.1. The said defence is predicated on the fact that –
(i)
the nomination form is signed by two witnesses; and
(ii)
it is specifically mentioned therein that this nomination shall supersede any
prior nomination and also any testamentary document.
Since
defendant no.1 has placed reliance on Section 72 of the Companies Act, 2013 in
support of this plea, the said section is also extracted below for better
appreciation of the controversy:
“72.
Power to nominate.—
(1)
Every holder of securities of a company may, at any time, nominate, in the
prescribed manner, any person to whom his securities shall vest in the event of
his death.
(2)
Where the securities of a company are held by more than one person jointly, the
joint holders may together nominate, in the prescribed manner, any person to
whom all the rights in the securities shall vest in the event of death of all
the joint holders.
(3)
Notwithstanding anything contained in any other law for the time being in force
or in any disposition, whether testamentary or otherwise, in respect of the
securities of a company, where a nomination made in the prescribed manner
purports to confer on any person the right to vest the securities of the
company, the nominee shall, on the death of the holder of securities or, as the
case may be, on the death of the joint holders, become entitled to all the
rights in the securities, of the holder or, as the case may be, of all the
joint holders, in relation to such securities, to the exclusion of all other
persons, unless the nomination is varied or cancelled in the prescribed manner.
(4)
Where the nominee is a minor, it shall be lawful for the holder of the
securities, making the nomination to appoint, in the prescribed manner, any
person to become entitled to the securities of the company, in the event of the
death of the nominee during his minority.”
Notably,
Section 72 of the Companies Act, 2013 is pari materia with Section 109-A
of the erstwhile Act, i.e., Companies Act, 1956. An identical controversy had
arisen for consideration of the Hon’ble Supreme Court in Shakti Yezdani (supra).
The Hon’ble Supreme Court noted that the following questions were formulated
for decision by the Division Bench of Bombay High Court by way of an appeal
which had arisen out of the Civil Suit and as testamentary petition: -
“(i)
Whether a nominee of a holder of shares or securities appointed under Section
109-A of the Companies Act, 1956 read with the bye laws under the Depositories
Act, 1996 is entitled to the beneficial ownership of the shares or securities
subject-matter of nomination to the exclusion of all other persons who are
entitled to inherit the estate of the holder as per the law of succession?
(ii)
Whether a nominee of a holder of shares or securities on the basis of the
nomination made under the provisions of the Companies Act, 1956 read with the
bye-laws under the Depositories Act, 1996 is entitled to all rights in respect
of the shares or securities subject matter of nomination to the exclusion of
all other persons or whether he continues to hold the securities in trust and
in a capacity as a beneficiary for the legal representatives who are entitled
to inherit securities or shares under the law of inheritance?
Whether
a bequest made in a will executed in accordance with the Succession Act, 1925
in respect of shares or securities of the deceased supersedes the nomination
made under the provisions of Section 109-A and Bye Law 9.11 framed under the
Depositories Act, 1996?”
The
Hon’ble Supreme Court after noting that section 109-A of the Companies Act,
1956 is pari materia with Section 72 of the Companies Act, 2013 adverted
to the intent and purpose behind introduction of sections 109- A and 109-B8 of
the Companies Act, 1956 and observed that the object behind introduction of a
nomination facility was to provide an impetus to the Corporate Sector in the
light of slow investment during those times. In fact, Section 109A and 109 B
were introduced by the Companies Amendment Act, 1999. the provisions of
nomination facility were made in order to ease the erstwhile cumbersome process
of obtaining multiple letters of succession from various authorities and also
to promote a better climate for corporate investments within the country. It
was also emphasized that the ownership in securities is not granted to the
nominee nor there is any distinct legislative move to revamp the extant
position of law with respect to the nomination.
The
Court further observed that reading the provisions of nomination under the
Companies Act, 1956 (now Companies Act, 2013) with the broadest possible
contours, it is not possible to say that the same deals with the matter of
succession in any manner. It was further held that there is no material to say
that the intention of the legislature behind introducing a method of nomination
through the Companies Amendment Act, 1999 was to confer absolute title or
ownership of properties/shares on the nominee.
The
Hon’ble Supreme Court after comparative study of provisions with regard to the
nomination under different statutes went on to conclude that there is no third
line of succession contemplated under the Companies Act and the nominee would
not get an absolute title to the subject matter of nomination.
Finally,
it was held that the vesting of securities in favour of the nominee
contemplated under the erstwhile Section 109A of the Companies Act, 1956 (pari
materia with Section 72 of the Companies Act, 2013) is for a limited
purpose i.e., to ensure that there exists no confusion pertaining to legal
formalities that are undertaken upon the death of the holder and by extension
to protect the subject matter of nomination from any protracted litigation
until the legal representatives of the aforesaid holder are able to take
appropriate steps.
The
relevant extract from Shakti Yezdani (supra) reads thus:
“14.
Looking at the provisions relating to nominations under different statutory
enactments and the way the courts have interpreted those to the effect that the
nominee does not get absolute title to the property which is the subject-matter
of nomination, the Division Bench interpreting the provisions under Sections
109-A and 109-B the Companies Act, 1956 declared that they do not override the
law in relation to testamentary or intestate succession. The judgment in
Kokate [Nitin Kokate v. Saraswat Coop. Bank Ltd., 2010 SCC OnLine Bom 615] was
declared to be incorrect as it failed to consider the law laid down in
Khanchandani [Vishin N. Khanchandani v. Vidya Lachmandas Khanchandani, (2000) 6
SCC 724] and Talwar [Ram Chander Talwar v. Devender Kumar Talwar, (2010) 10 SCC
671 : (2010) 4 SCC (Civ) 313] as these cases preceded Kokate [Nitin Kokate v.
Saraswat Coop. Bank Ltd., 2010 SCC OnLine Bom 615] .
The
object behind the introduction of a nomination facility as can be appreciated
was to provide an impetus to the corporate sector in light of the slow
investment during those times. In order to overcome such conditions, boosting
investors' confidence was deemed necessary along with ensuring that company law
remained in consonance with contemporary economic policies of liberalisation.
In fact, the provision of nomination facility was made in order to ease the
erstwhile cumbersome process of obtaining multiple letters of succession from various
authorities and also to promote a better climate for corporate investments
within the country. In contrast, one must note that ownership of the
securities is not granted to the nominee nor there is any distinct legislative
move to revamp the extant position of law, with respect to the same.
At
this juncture, it would hold us in good stead to note what the Court succinctly
held in Salomon v. Salomon & Co. [Salomon v. Salomon & Co., 1897 AC 22
at p. 38 (HL)] : (AC p. 38)
“…
In a Court of Law or Equity, what the legislature intended to be done or not to
be done can only be legitimately ascertained from that which it has chosen to
enact, either in express words or by reasonable and necessary implication.”
In
this context, the act of the legislature to enact Section 109-A in the Companies
Act, 1956 and provide a nomination facility to holders also aids in
ascertaining the intent. The Companies Act, 1956 and subsequent amendments as
parliamentary legislations are rooted in Schedule VII List I Entry 43, which
deals with incorporation, regulation and winding up of corporations. There is
no mention of nomination and/or succession within the provisions or the
Statement of Objects and Reasons or any other material pertaining to the Companies
Act, 1956. Same is also not seen in subsequent amendments to the Act.
Reading
the provision of nomination within the Companies Act, 1956 with the broadest
possible contours, it is not possible to say that the same deals with the
matter of succession in any manner. There is no material to show that the
intent of the legislature behind introducing a method of nomination through the
Companies (Amendment) Act, 1999 was to confer absolute title of ownership of property/shares,
on the said nominee.
In
fact, while interpreting other enactments that are similar in nature by virtue
of the fact that the provision of nomination within the statute begins with a
non obstante clause and/or is armed with the term “vest” such as the (Banking
Regulation Act, 1949, the Government Savings Certificates Act, 1959 and/or the
Employees' Provident Funds and Miscellaneous Provisions Act, 1952), multiple
courts have rejected the argument that the nominee would become the absolute
owner to the exclusion of the legal heirs. To hold otherwise would, in our
opinion, exceed the scope and extent of Section 109-A of the Companies Act, 1956.
In
an illuminating list of precedents, Delhi High Court as well as several High
Courts have dealt with the concept of “nomination” under legislations like the
Government Savings Certificates Act, 1959, the Banking Regulation Act, 1949,
the Life Insurance Act, 1939 (quaere Insurance Act, 1938) and the Employees'
Provident Fund and Miscellaneous Provisions Act, 1952. It would be apposite to
refer to what the Court said on nomination, in reference to these legislations:
A
consistent view appears to have been taken by the courts, while interpreting
the related provisions of nomination under different statutes. It is clear from
the referred judgments that the nomination so made would not lead to the
nominee attaining absolute title over the subject property for which such
nomination was made. In other words, the usual mode of succession is not to be
impacted by such nomination. The legal heirs therefore have not been excluded
by virtue of nomination.
In
a similar vein, the appellants contend that the “non obstante clause” in
Section 109-A of the Companies Act, 1956 confers overriding effect to the
nomination over any other law and disposition, testamentary or otherwise, and
entitles the nominee absolute rights over the shares/securities. Such a clause
was also found in the Banking Regulation Act, 1949 and the Government Savings
Certificates Act, 1959. However, while interpreting the provision concerning
nomination in those enactments, this Court in Talwar [Ram Chander Talwar v.
Devender Kumar Talwar, (2010) 10 SCC 671 : (2010) 4 SCC (Civ) 313] rejected the
argument that the nominee would be the absolute owner of the subject-matter, to
the exclusion of the legal heirs, because of the non obstante clause.
It
is settled law that general words and phrases used in a statute, regardless of
their wide ambit, must be interpreted taking into account the objects of the
statute. The clauses and sections within a statute are not to be read in
isolation, but their textual interpretation is determined by the scheme of the
entire statute. [RBI v. Peerless General Finance & Investment Co. Ltd.,
(1987) 1 SCC 424] Notably, a non obstante clause is to be considered on the
basis of the context within which it is used, as has also been observed in R.S.
Raghunath v. State of Karnataka [R.S.Raghunath v. State of Karnataka, (1992) 1
SCC 335 : 1992 SCC (L&S)286] . Applying the afore stated rule of
interpretation, the non obstante clause in Section 109-A of the Companies Act,
1956 should also be interpreted keeping in mind the scheme of the Companies
Act, 1956 and the intent of introduction of nomination facility under Sections
109-A and 109-B of the Companies Act, 1956 vide the Companies (Amendment) Act,
1999 wherein emphasis was laid on building investor confidence and bringing the
company law in tune with policies of liberalisation and deregulation. With this
backdrop, it can be concluded that the use of the non obstante clause, serves a
singular purpose of allowing the company to vest the shares upon the nominee to
the exclusion of any other person, for the purpose of discharge of its
liability against diverse claims by the legal heirs of the deceased shareholder.
This arrangement is until the legal heirs have settled the affairs of the
testator and are ready to register the transmission of shares, by due process
of succession law.
No third line of succession contemplated under the
Companies Act
The
contention that a nomination validly made under Section 109-A of the Companies
Act, 1956 and Bye-law 9.11 of the Depositories Act, 1996 constitutes a
“statutory testament” that overrides testamentary/ intestate succession is
untenable. It is worth noting that the argument of nomination as a “statutory
testament” in respect of instruments such as life insurance policies,
government savings certificates, provident fund, etc. were considered and
emphatically rejected by the Courts in multiple rulings. The nominations under
Section 109-A of the Companies Act, 1956 & Bye-law 9.11 of the Depositories
Act, 1996 suggest the intention of the shareholder, to bequeath the shares/securities
absolutely to the nominee, to the exclusion of any other persons (including
legal representatives) and constitutes a “statutory testament”. However, the
Delhi High Court has not accepted the argument for the following reasons:
(a)
The Companies Act, 1956 does not contemplate a “statutory testament” that
stands over and above the laws of succession,
(b)
The Companies Act, 1956 as iterated above is concerned with regulating the
affairs of corporates and is not concerned with laws of succession.
(c)
The “statutory testament” by way of nomination is not subject to the same
rigours as is applicable to the formation and validity of a will under the
succession laws, for instance, Section 63 of the Indian Succession Act, wherein
the rules for execution of a will are laid out.
The
Delhi High Court in Pankaj Oswal (Supra), has held that nomination
as a “statutory testament” cannot be countenanced simply, because, the Companies
Act, 1956 does not deal with succession, nor does it override the laws of
succession. It is beyond the scope of the company's affairs to facilitate
succession planning of the shareholder. In case of a will, it is
upon the administrator or executor under the Succession Act, 1925, or in case
of intestate succession, the laws of succession shall determine the line of
succession.
NOMINEE does not get Title
The
consistent interpretation is given by the courts on the question of nomination
i.e. upon the holder's death, the nominee would not get an absolute title to
the subject-matter of nomination, and those would apply to the Companies Act,
1956 (pari materia provisions in the Companies Act, 2013) and the Depositories
Act, 1996 as well. An individual dealing with estate planning or succession
laws understands nomination to take effect, in a particular manner and expects
the implication to be no different for devolution of securities per se.
Therefore, an interpretation otherwise, would inevitably lead to confusion and
possibly complexities, in the succession process, something that ought to be
eschewed.
The
vesting of securities in favour of the nominee contemplated under Section 109-A
of the Companies Act, 1956 (pari materia Section 72 of the Companies Act, 2013)
& Bye-Law 9.11.1 of the Depositories Act, 1996 is for a limited purpose
i.e. to ensure that there exists no confusion pertaining to legal formalities
that are to be undertaken upon the death of the holder and by extension, to protect
the subject-matter of nomination from any protracted litigation until the legal
representatives of the deceased holder are able to take appropriate steps. The
object of introduction of nomination facility vide the Companies (Amendment)
Act, 1999 was only to provide an impetus to the investment climate and ease the
cumbersome process of obtaining various letters of succession, from different
authorities upon the shareholder's death.”
Nomination shall
not be in the nature of Will
In
view of the above authoritative pronouncement in Shakti Yezdani (supra)
on the effect of nomination, the Delhi High Court in Pankaj Oswal
(Supra) was pleased to reject submissions on behalf of defendant no.1 that the
nomination form be construed as the ‘Will’ of Decedent cannot be accepted. The
document relied upon by defendant no.1 was held to be simply a nomination form,
executed in a prescribed statutory format for demat transmission. Merely, because,
it is attested by two witnesses or contains a clause contemplating superseding
of prior nominations and other testamentary documents, does not change its
character into a testamentary instrument in view of law exposited in Shakti
Yezdani (supra).
The
Delhi High Court has held that Shakti Yezdani (Supra) is not
distinguishable on facts of Pankaj Oswal (Supra). It is to be borne in mind that the ratio
therein is not facts specific, but declaratory of legal position apropos Section
72 of the Companies Act, 2013 and provisions analogous thereto. Further,
reliance on Aruna Oswal (supra) to contend that the disputes between
the parties are directly covered by the principles laid therein as the said
decision specifically governs the dispute between the family members of
erstwhile nominee regarding shareholding and inheritance, is also misplaced. It
is so, because, in Aruna Oswal (supra) it was expressly held that
question of right, title and interest in the shareholding of the Decedent is to
be determined by the Civil Court and the observations made therein are only prima
facie in nature. However, the said decision did not conclusively hold that
the nomination vests absolute ownership, rather the Hon’ble Supreme Court made
a pertinent observation 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 relevant paragraphs
from Aruna Oswal (supra) pronounced by the Supreme Court, are
reproduced hereinbelow:
“10…………….NCLT
and NCLAT ignored and overlooked the rights of the deceased shareholder that
would vest in the nominee. The application could not be said to be
maintainable. The matter of inheritance is pending adjudication before this
Court in another CA No. 7107 of 2017 — Shakti Yezdani v. Jayanand Jayant. It
would not be appropriate for NCLT to decide a civil dispute. Respondent 1 did not
claim waiver on the rigors of Section 244 of the Act and also did not file an
application seeking a waiver under the proviso to Section 244 of the Act.
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
Aruna Oswal until the suit is finally decided. It would not be appropriate
given the order passed by the civil court to treat the shareholding in the name
of Respondent 1 by NCLT before ownership rights are finally decided in the
civil suit, and propriety also demands it. 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 1 had himself chosen to avail the remedy of the civil suit, as such
filing of an application under Sections 241 and 242 after that is nothing but
an afterthought.
To
argue that Respondent 1, is a disgruntled son disowned by family, settled in Australia
for the last 25-30 years shall be far fetched. He admittedly did not have anything
to do with the affairs of the company. On the other hand, it was vigorously
argued that owing to the rampant Covid-19 Pandemic, Respondent 1 is in Dubai. Be
that as it may. 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 to in accordance with the law. The pertinent question needs to be
tried in a civil suit and adjudicated finally, it cannot be decided by NCLT in
proceedings in question.
The
Supreme Court refrained from deciding the aforesaid question raised on behalf
of the appellants in the said proceedings. In the facts and circumstances, it
would not be appropriate to permit Respondent 1 to continue the proceedings for
mismanagement initiated under Sections 241 and 242, that too in the absence of
having 10% shareholding and firmly establishing his rights in civil proceedings
to the extent he is claiming in the shareholding of the companies.
The
Supreme Court has further refrained from
deciding 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.
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 NCLAT.
It was therefore, held that the
proceedings before 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 1. 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 1 is under a cloud
of pending civil dispute. It was thus deemed appropriate to direct the dropping
of the proceedings filed before 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 and shareholding of Respondent increases to the extent of 10% required
under Section 244. All the questions were left open to be decided in the
pending civil suit. Impugned orders passed by NCLT [Pankaj Oswal v. Oswal
Agro Mills Ltd., 2018 SCC OnLine NCLT 29970] as well as [Oswal Greentech Ltd.
v. Pankaj Oswal, 2019 SCC OnLine NCLAT 1526] are set aside, and the appeals are
allowed to the aforesaid extent.
The
civil suit was directed to be decided as expeditiously as possible, subject to
cooperation by Respondent. Parties to bear their costs as incurred.
CONCLUSION
The
Delhi High Court in Pankaj Oswal (Supra), taking note of the judicial
precedents of Shakti Yezdani (supra) is a binding precedent, as
it has authoritatively clarified the position that the vesting of securities in
favour of the nominee contemplated under Section 109-A of the Companies Act,
1956 (pari materia Section 72 of the Companies Act, 2013) & Bye-Law 9.11.1
of the Depositories Act, 1996 is only for a limited purpose i.e to ensure that
there exists no confusion pertaining to legal formalities that are to be
undertaken upon the death of the holder and by extension, to protect the
subject-matter of nomination from any protracted litigation until the legal
representatives of the deceased holder are able to take appropriate steps. It
was further held that the Companies Act does not contemplate a “statutory
testament” that stands over and above the laws of succession. The Court,
therefore, does not find any inconsistency between the aforesaid two decisions.
Consequently,
the contention of defendant no.1 that nomination validly made under Section 72
of the Companies Act, 2013 constitutes “statutory testament” that overrides
testamentary/intestate succession was rejected. According to Delhi High Court,
the defence predicated on nomination having been found legally untenable, it will
not enable the defendant no.1 to succeed in the suit, even after the matter is
put on trial. Resultantly, the submission that nomination and its effect is a
matter of trial and cannot be decided in a summary manner, is misconceived and
cannot be sustained.
Another
submission that piecemeal order or judgment on a particular fact is neither
permissible nor warranted under the provisions of Order XII Rule 6 CPC, is
noted to be rejected. The expression “…and without waiting for the
determination of any other question between the parties, make such order or
give such judgement as it may think fit..” in Order XII Rule 6 makes it
plain that the Court in its discretion has the jurisdiction to pass partial
decree on the basis of the admitted facts.
It
was also contended that that the high court in its earlier order dated
22.08.2019 while dealing with an application filed by defendant no. 1 and 2
under Order VI Rule 17 had observed that there are prima facie no obvious
admissions about any right having been inherited by plaintiff, therefore,
there is no admissions made by the defendant no.1. In this regard, it is to be
noted that vide said order dated 22.08.2019, this Court was only
deciding the application filed by defendant no.1 and 2 under Order VI Rule 17
CPC, therefore, any prima facie view taken therein cannot have any
bearing on the findings recorded herein above while deciding applicant under
Order XII Rule 6 of the Code.
In
view of the above discussion in Pankaj Oswal (Supra) , the
application under Order 12 Rule 6 of CPC was allowed and it was declared that the
plaintiff is Class-I legal heir of the Decedent namely, Late Abhay Kumar Oswal,
who died intestate, and in that capacity he shall be entitled to a share in
Decedent’s estate including in the shares held by Decedent in OAML and OGL at
the time of his demise i.e. 29.03.2016. The declaration of plaintiff’s or other
parties exact share shall be subject to the outcome of the application i.e. IA
No. 12380/2025. A decree sheet was ordered to be drawn accordingly.
------
Anil K Khaware
Founder
& Senior Associate
Societylawandjustice.com
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