NOMINATION V. SUCCESSION – THE DEBATE SETTLES
Introduction:
Nomination as a process involves selecting another person as a legal nominee or representative by a person during his lifetime in respect of specific assets or properties.
In the recent case of Shakti Yezdani vs. Jayanand Jayant Salgaonkar, the Bombay High Court grappled with the complexities surrounding the status of nominees as nominated under Section 109A of the Companies Act, 1956 (‘Act’) in the context of succession laws. This case comment seeks to analyse the court’s reasoning, the implications of its ruling, and the potential impact on future jurisprudence in succession laws.
Case title: Shakti Yezdani & Anr vs. Jayanand Jayant Salgaonkar & Ors.
Court: Supreme Court of India
Citation: Civil Appeal No: 7107 of 2017
Petitioner(s): Shakti Yezdani & Anr
Respondent(s): Jayanand Jayant Salgaonkar & Ors
Bench: J. Pankaj Mittal, J. Hrishikesh Roy
Date of Judgement: 14th December, 2023
Facts of the case:
The deceased (Jayant Shivram Salgaonkar) had made nominations for certain fixed deposits (FDs) and mutual fund investments (MFs). The appellants, who were the legal heirs, argued they were entitled to absolute ownership of these assets based on their nomination. The respondent, Jayanand Jayant Salgaonkar, contested this, seeking administration of the deceased’s properties under the supervision of Bombay High Court.
Legal issues:
- The primary legal issue was whether the nomination under the Companies Act, 1956 (and its successor, the Companies Act, 2013) and the Depositories Act, 1996, grants absolute ownership of the nominated assets to the nominee, or whether the assets should devolve according to the laws of succession.
Legal Provisions:
- Section 109A and Section 109B of the Companies Act, 1956
- Depositories Act, 1996
Contention:
- Arguments from the appellant’s side:
- Mr. Abhimanyu Bhandari, learned counsel appearing for the appellants, argued that as nominees, they should receive absolute ownership of the assets.
- They pleaded that being nominees, their rights to the property were absolutely vested with the securities made in the IDBI bank upon the testator’s death.
- Additionally, they contested that the nominations made, were within the meaning of the words “vest” and “nominee” under section 109A and section 109B of the Companies act, and bye-laws of the Depositories act, 1996.
- Arguments from respondent’s side:
- Mr. Rohit Anil Rathi and Mr. Aniruddha A. Joshi, learned counsel appearing for respondents, contended that the nomination does not override the legal heir’s rights under the succession laws.
- The respondent prayed that he need absolute power to administer the properties and also prayed for permanent injunction which would restrain all other appellants and respondents from disposing, transferring, alienating, assigning or creating third-party interests in respect of the properties.
Judgments:
Single Bench of the Bombay High Court: The contentions from appellant’s side were rejected and they ruled that nominees hold assets in a fiduciary capacity and are subject to succession laws, rendering the nominee decision in Harsha Nitin Kokate v. The Sarswat Co-operative Bank Limited as per incuriam.
Division Bench of the Bombay High Court: Upheld the Single Bench’s ruling, emphasizing that the Companies Act does not create a new mode of succession and that the nomination only allows the company to deal with the nominee temporarily.
Supreme Court: Confirmed the Division Bench’s decision, stating that nominations do not confer ownership and do not override succession laws. The term “vesting” used in the Companies Act means only holding the assets temporarily, not ownership.
Analysis:
The Supreme Court’s ruling clarifies that the nomination process under corporate and depository laws does not substitute for traditional succession laws. The court interpreted section 109A and 109B of the Companies Act as follows:
- Nomination has to be made during the life time of the holder as per procedure prescribed by law. And if the procedure is followed, the nominee would be entitled to all the rights in the shares. The right would include right to transfer shares, pledge the shares, or hold them.
This decision ensures that the legal heirs retain their rights to the deceased’s assets, preventing nominees from gaining absolute ownership merely by virtue of being nominated.
- Indian Succession laws require the legal heir to obtain a certificate of succession from the competence authority.
The ruling highlights the limited purpose of nominations, which is to streamline Administrative processes rather than alter inheritance rights.
This case is significant in reinforcing the precedence of succession laws over corporate nominations, thereby providing clarity and consistency in the interpretation of asset devolution upon a shareholder’s death.
LAKSHMI ANAGHA
3rd YEAR (SEMESTER 6)
PADALA RAMA REDDI LAW COLLEGE, HYD