TESTAMENTARY DISPOSITIONS OVERRULE NOMINATIONS UNDER THE COMPANIES ACT
The
Bombay High Court has in the recent judgement of Shakti
Yezdani And Anr vs Jayanand Jayant Salgonkar ("Yezdani" ) clarified
the contentious question regarding legal rights of nominees with respect to
shares by holding that nominations with respect to shares of a company, do not
overrule testamentary dispositions with respect thereof and a mere nomination
does not confer beneficial ownership to the nominee.
The question of a nominee's ownership rights, first arose before the Court, in 2010 in the case of Harsha Nitin Kokate v. Saraswat Co-operative Bank Limited (2010 ( 112 ) BOMLR 2014) ("Kokate") wherein after a judicial analysis of Sections 109A and 109B of the Companies Act, 1956 (which deal with nomination), it was held that a nominee is entitled to the beneficial ownership of the shares or securities which are the subject matter of nomination to the exclusion of all other persons who are entitled to inherit the estate of the holder, according to applicable succession laws.
However, this view was overruled in the case of Jayanand Jayant Salgaonkar vs. Jayshree Jayant Salgaonkar ("Salgaonkar" ) in 2015, where it was held that legal heirs and not nominees are entitled to beneficial ownership of the shares and securities of a company. In that case, late Jayant Shivram Salgaonkar expired, leaving behind shares in several companies. However, there were discrepancies between the bequests of the said shares in his will and persons appointed as nominees of the same, thereby leading to a dispute with regards to their ownership.
One of the Defendants in Salgaonkar preferred an appeal to the division bench against the said decision, thereby leading to the present case. The division bench considered a slew of judgements in Yezdani, put forth by both parties, including the recent judgement of Indrani Wahi vs. Registrar of Co-operative Societies, pronounced by the apex court, wherein it was held that a nominee of shares in a co-operative society is a mere trustee for the legal heirs of the member and nomination by itself does not have any relevance to the issue of title between the inheritors or successors to the property of the Deceased. The Court also considered a number of judgements dealing with statutes that contain similar provisions for nomination. While upholding the view pronounced in Salgaonkar and denouncing the stance taken by the Kotate judgement, the Court held that
"Considering the consistent view taken by the Apex Court while interpreting the provisions relating to nominations under various Statutes, there is no reason to make a departure from the consistent view. The provisions of the Companies Act including Sections 109A and 109B, in the light of the object of the said Enactment, do not warrant any such departure. The so called vesting under Section 109A does not create a third mode of succession. It is not intended to create a third mode of succession. The Companies Act has nothing to do with the law of succession...Hence, the view taken in Kokate's case is not correct."
The question of a nominee's ownership rights, first arose before the Court, in 2010 in the case of Harsha Nitin Kokate v. Saraswat Co-operative Bank Limited (2010 ( 112 ) BOMLR 2014) ("Kokate") wherein after a judicial analysis of Sections 109A and 109B of the Companies Act, 1956 (which deal with nomination), it was held that a nominee is entitled to the beneficial ownership of the shares or securities which are the subject matter of nomination to the exclusion of all other persons who are entitled to inherit the estate of the holder, according to applicable succession laws.
However, this view was overruled in the case of Jayanand Jayant Salgaonkar vs. Jayshree Jayant Salgaonkar ("Salgaonkar" ) in 2015, where it was held that legal heirs and not nominees are entitled to beneficial ownership of the shares and securities of a company. In that case, late Jayant Shivram Salgaonkar expired, leaving behind shares in several companies. However, there were discrepancies between the bequests of the said shares in his will and persons appointed as nominees of the same, thereby leading to a dispute with regards to their ownership.
One of the Defendants in Salgaonkar preferred an appeal to the division bench against the said decision, thereby leading to the present case. The division bench considered a slew of judgements in Yezdani, put forth by both parties, including the recent judgement of Indrani Wahi vs. Registrar of Co-operative Societies, pronounced by the apex court, wherein it was held that a nominee of shares in a co-operative society is a mere trustee for the legal heirs of the member and nomination by itself does not have any relevance to the issue of title between the inheritors or successors to the property of the Deceased. The Court also considered a number of judgements dealing with statutes that contain similar provisions for nomination. While upholding the view pronounced in Salgaonkar and denouncing the stance taken by the Kotate judgement, the Court held that
"Considering the consistent view taken by the Apex Court while interpreting the provisions relating to nominations under various Statutes, there is no reason to make a departure from the consistent view. The provisions of the Companies Act including Sections 109A and 109B, in the light of the object of the said Enactment, do not warrant any such departure. The so called vesting under Section 109A does not create a third mode of succession. It is not intended to create a third mode of succession. The Companies Act has nothing to do with the law of succession...Hence, the view taken in Kokate's case is not correct."
MHCO COMMENTS:
Even
though this decision appears inconsistent with the wordings of Section 109A and
109B of the Companies Act, 1956 (which is identical to the corresponding
Section 72 of the Companies Act, 2013), it goes a long way in clearing up the
confusion on the legal rights of nominees. Accordingly, this decision
constitutes a binding precedent for future cases as well, unless set aside by
the apex court.
The views expressed in this update are personal and should not be construed as any legal advice.Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.
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