Supreme Court: Nomination Process Under Companies Act Does Not Override Succession Laws

• Published date: 04 April 2024
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Securities, Shareholders
• Law Firm: Argus Partners
• Author: Mr Ranjit Shetty and Yuvraj Choksy

The Supreme Court recently in Shakti Yezdani v. Jayanand Jayant Salgaonkar, (Judgment dated December 14, 2023 in Civil Appeal No. 7107 of 2017) held that the Bombay High Court took the correct view in Shakti Yezdani v. Jayanand Jayant Salgaonkar, (2016 SCC OnLine Bom 9834) that the law of succession supersedes a 'nomination' under the Companies Act, 1956 and Depositories Act, 1996 and explained the effect of such 'nomination'.

Facts:

In this matter, the deceased had executed a will specifying devolution of his estate upon his successors. Apart from the properties in the will, the testator had certain fixed deposits (FDs) and mutual fund investments (MFs) in respect of which some of the Respondents were made nominees. After the passing of the testator:

1. One of his heirs filed a Suit for a declaration that the properties of the testator be administered under the Bombay High Court's supervision.
2. However, the nominees contended that the FDs and MFs exclusively vested with them after the testator's death.

Single Bench of the Bombay High Court:

The Single Judge of the Bombay High Court held that inter alia the nominee continues to hold the shares/securities in fiduciary capacity and is answerable to all claims in succession law. Further, that the decision in Harsha Nitin Kokate v. The Sarswat Co-operative Bank Limited, ((2010) SCC OnLine Bom 615) is per incuriam.

Division Bench of the Bombay High Court:

Thereafter, an appeal was filed before the Division Bench of the Bombay High Court and it held in Shakti Yezdani (supra) that:

1. The object of Companies Act, 1956 is not to provide a mode of succession or to deal with succession at all.
2. The object of section 109A of Companies Act, 1956 is to ensure that the deceased shareholder is represented.
3. 'Vesting' under section 109A does not create another mode of succession and the provisions do not intend to create another mode of succession.
4. Nominee of a share/securities is not entitled to the beneficial ownership of the shares/securities which are subject matter of nomination to the exclusion of persons entitled to inherit the estate of the holder as per the applicable law of succession.
5. A will executed in accordance with the Indian Succession Act 1925 in respect of shares/securities of the deceased supersedes the nomination made under the Companies Act, 1956 and Bye-Laws under the Depositories...