Nominee Of Deceased Share Holder Does Not Get Absolute Ownership; Nomination Process Under Companies Act Does Not Override Succession Laws: SC

The Supreme Court observed that a nominee of a deceased share holder does not get absolute ownership.

In that context, the Bench of Justice Hrishikesh Roy and Justice Pankaj Mithal observed that, "Consistent interpretation is given by 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 material provisions in Companies Act, 2013) and the Depositories Act, 1996 as well."

Counsel Abhimanyu Bhandari appeared for the appellants, while Counsel Rohit Anil Rathi and Counsel Aniruddha A Joshi appeared for the respondents.

In this case, the appellants were the legal heirs of Jayant Shivram Salgaonkar, contested a suit filed by respondent no. 1 seeking administration of the deceased's properties, including fixed deposits (FDs) and mutual fund investments (MFs). The deceased had made nominations for FDs and MFs.

The appellants argued they were the sole nominees and, per statutory provisions, were entitled to absolute ownership upon the testator's death. However, the Bombay High Court rejected this claim in a 2015 order, citing the Kokate judgment, which considered the nominee as the beneficial owner. The appellants challenged this decision, leading to a Division Bench's 2016 ruling.

The Division Bench declared the Kokate judgment per incuriam, emphasizing that nominations under the Companies Act do not override succession laws. The Court clarified that nominees do not acquire absolute ownership, supporting the appellants' contentions.

The Apex Court, upholding the impugned decision, provided the following conclusions:

- 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 S. 109A of the Companies Act 1956 (pair materia S. 72 of Companies Act, 2013) & Bye-Law 9.11.1 of 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.

- Additionally, there is a complex layer of commercial considerations that are to be taken into account while dealing with the issue of nomination pertaining to companies or until legal heirs are able to sufficiently establish their right of succession to the company. Therefore, offering a discharge to the entity once the nominee is in picture is quite distinct from granting ownership of securities to nominees instead of the legal heirs. Nomination process therefore does not override the succession laws. Simply said, there is no third mode of succession that the scheme of the Companies Act, 1956 (pari materia provisions in Companies Act, 2013) and Depositories Act, 1996 aims or intends to provide.

- Upon a careful perusal of the provisions within the Companies Act, it is clear that it does not deal with the law of succession. Therefore, a departure from this settled position of law is not at all warranted.

Cause Title: Shakti Yezdani & Anr. vs Jayanand Jayant Salgaonkar & Ors.

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