Mr. Abhey Kumar Oswal (“Deceased”) held 5,35,30,960 shares in Oswal Agro Mills Limited (“Company”). In 2015, the Deceased filed a nomination in terms of Section 72 of the Act in favour of Mrs. Aruna Oswal (“Nominee”). The nomination provided “This nomination shall supersede any prior nomination made by me/ us and also any testamentary document executed by me/us”.
After the Deceased’s death, the nominee made a request of registration as the holder of the Shares; and the same was granted to her on 16th April, 2016.
Mr. Pankaj Oswal (“Legal Heir”) had subsequently filed for a suit of partition in February 2017, before the Delhi High Court claiming 1/4th of the share in the property. The suit of partition, however, was still pending. Further, the Legal Heir instituted a petition before the National Company Law Tribunal (“NCLT”) alleging acts of oppression and mismanagement in the affairs of the Company, on the premise that the Company transmitted the Shares to the Nominee in contravention of law. However, one of the pre-requisites for institution of the said proceedings under the Act is that the shareholder must own at least 10% of the total capital of the Company, unless a waiver has been given.
Unfortunately, the Legal Heir held only 0.03% shares in the Company. However, he claimed that he was entitled to more than 10% of the total capital on the basis that he was one of the four heirs on intestacy of the deceased – Thus, the resultant holding would be 10% of the total capital. The NCLT (on 13th November, 2018) accepted the contention of the Legal Heir and held that the petition was maintainable under Section 241-242 of the Companies Act, 2013.
The matter was then appealed by the Company and reached the NCLAT. The Company argued that in view of the nomination filed by the deceased during his lifetime and the registration of the name of the Nominee after his death, the Legal Heir cannot claim to be entitled to exercise any rights over the Shares.
The National Company Law Appellate Tribunal, New Delhi (“NCLAT”), had held that nomination does not amount to beneficial ownership to an asset and the nominee holds the asset for and on behalf of the legal heirs of the deceased.
The NCLAT also held that on the death of the holder of the instrument, the amount / share vests with the legal heirs, the nominee merely holds the amount / share till the matter of vesting is decided in favour of the legal heirs. Thus, a nominee is merely a caretaker of the deceased’s property until the same is distributed amongst the legal heirs. To make it explicitly clear, a nominee (pursuant to a nomination given by the deceased during his / her lifetime) would act only as a trustee on behalf of the rightful legal heir(s), and hold such property until the matter of succession or inheritance is decided and implemented.