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2016 Supreme(Bom) 1722
IN THE HIGH COURT OF BOMBAY
A.S. OKA, A.A. SAYED, JJ.
Shakti Yezdani and Another - Appellants
Vs.
Jayanand Jayant Salgaonkar and Others - Respondents
Appeal No. 313 of 2015 In Notice of Motion No. 822 of 2014 In Suit No. 503 of 2014 Along with Appeal No. 311 of 2015 In Testamentary Petition No. 457 of 2014
Decided On : 01-12-2016
For the Appellants : Shri Rajendra Pai, Shri A.R. Pai, Ms. Bina R. Pai
For the Respondents: Shri Snehal Shah, Shri Yatin R. Shah, Yatin R. Shah, Shri Santosh D. Raje, Ms. Madhura Dalvi, Rajiv Jadhav
A nominee of a holder of shares or securities appointed under Section 109A of the Companies Act, 1956 read with the Byelaws under the Depositories Act, 1996 is not entitled to the beneficial ownership of the shares or securities subject matter of nomination to the exclusion of all other persons who are entitled to inherit the estate of the holder as per the law of succession.
Headnote:
The Court held that a nominee of a holder of shares or securities appointed under Section 109A of the Companies Act, 1956 read with the Byelaws under the Depositories Act, 1996 is not entitled to the beneficial ownership of the shares or securities subject matter of nomination to the exclusion of all other persons who are entitled to inherit the estate of the holder as per the law of succession. The Court further held that a nominee of a holder of shares or securities on the basis of the nomination made under the provisions of the Companies Act, 1956 read with the Byelaws under the Depositories Act, 1996 is not entitled to all rights in respect of the shares or securities subject matter of nomination to the exclusion of all other persons or whether he continues to hold the securities in trust and in a capacity as a beneficiary for the legal representatives who are entitled to inherit securities or shares under the law of inheritance. Lastly, the Court held that a bequest made in a Will executed in accordance with the Indian Succession Act, 1925 in respect of shares or securities of the deceased supersedes the nomination made under the provisions of Sections 109A and Bye-Law No.9.11 framed under the Depositories Act, 1996.
Fact of the Case:
The issue before the Court was whether a nominee of a holder of shares or securities appointed under Section 109A of the Companies Act, 1956 read with the Byelaws under the Depositories Act, 1996 is entitled to the beneficial ownership of the shares or securities subject matter of nomination to the exclusion of all other persons who are entitled to inherit the estate of the holder as per the law of succession.
Finding of the Court:
The Court held that a nominee of a holder of shares or securities appointed under Section 109A of the Companies Act, 1956 read with the Byelaws under the Depositories Act, 1996 is not entitled to the beneficial ownership of the shares or securities subject matter of nomination to the exclusion of all other persons who are entitled to inherit the estate of the holder as per the law of succession. The Court further held that a nominee of a holder of shares or securities on the basis of the nomination made under the provisions of the Companies Act, 1956 read with the Byelaws under the Depositories Act, 1996 is not entitled to all rights in respect of the shares or securities subject matter of nomination to the exclusion of all other persons or whether he continues to hold the securities in trust and in a capacity as a beneficiary for the legal representatives who are entitled to inherit securities or shares under the law of inheritance. Lastly, the Court held that a bequest made in a Will executed in accordance with the Indian Succession Act, 1925 in respect of shares or securities of the deceased supersedes the nomination made under the provisions of Sections 109A and Bye-Law No.9.11 framed under the Depositories Act, 1996.
Issues: 1. Whether a nominee of a holder of shares or securities appointed under Section 109A of the Companies Act, 1956 read with the Byelaws under the Depositories Act, 1996 is entitled to the beneficial ownership of the shares or securities subject matter of nomination to the exclusion of all other persons who are entitled to inherit the estate of the holder as per the law of succession? 2. Whether a nominee of a holder of shares or securities on the basis of the nomination made under the provisions of the Companies Act, 1956 read with the Byelaws under the Depositories Act, 1996 is entitled to all rights in respect of the shares or securities subject matter of nomination to the exclusion of all other persons or whether he continues to hold the securities in trust and in a capacity as a beneficiary for the legal representatives who are entitled to inherit securities or shares under the law of inheritance ? 3. Whether a bequest made in a Will executed in accordance with the Indian Succession Act, 1925 in respect of shares or securities of the deceased supersedes the nomination made under the provisions of Sections 109A and Bye-Law No.9.11 framed under the Depositories Act, 1996?
Ratio Decidendi: The Court relied on the following principles in reaching its decision: 1. The provisions of Section 109A of the Companies Act, 1956 and Bye-Law No.9.11 framed under the Depositories Act, 1996 do not confer absolute title to the nominee over the shares or securities subject matter of the nomination. 2. The nomination does not override the law in relation to testamentary or intestate succession. 3. The provisions regarding nomination are made with a view to ensure that the estate or the rights of the deceased subject matter of the nomination are protected till the legal representatives of the deceased take appropriate steps. 4. The object of the provisions of the Companies Act is not to either provide a mode of succession or to deal with succession.
Final Decision: Appeal No.313 of 2015 is hereby dismissed with no order as to costs; We make it clear that the impugned order stands confirmed as far as the Suit No.503 of 2014 is concerned; The impugned order stands quashed and set aside insofar as the Testamentary Petition No.457 of 2014 is concerned only on the ground that the issue of the effect of nomination made by the testator cannot be gone into by the Testamentary Court in the probate proceedings. The Appeal No.311 of 2015 is accordingly allowed with no order as to costs.
A.S. Oka, J.
THE CONTROVERSY
1. The issue which arises for consideration in this group of Appeals is whether the view taken by the learned Single Judge in the case of Harsha Nitin Kokate Vs. The Saraswat Cooperative Bank Limited and Others, 2010 (3) Mh.L.J 780 is correct. In Harsha Nitin Kokate's case, in paragraphs 24 and 25, it was held thus:
“24. In the light of these judgments section 109A of the Companies Act is required to be interpreted with regard to the vesting of the shares of the holder of the shares in the nominee upon his death. The act sets out that the nomination has to be made during the life time of the holder as per procedure prescribed by law. If that procedure is followed, the nominee would become entitled to all the rights in the shares to the exclusion of all other persons. The nominee would be made beneficial owner thereof. Upon such nomination, therefore, all the rights incidental to ownership would follow. This would include the right to transfer the shares, pledge the shares or hold the shares. The specific statutory provision making the nominee entitled to all the rights in the shares excluding all other persons would show expressly the legislative intent. Once all other persons are excluded and only the nominee becomes entitled under the statutory provision to have all the rights in the shares none other can have it. Further section 9.11 of the Depositories Act 1996 makes the nominee's position superior to even a testamentary disposition. The non-obstante Clause in section 9.11.7 gives the nomination the effect of the Testamentary Disposition itself. Hence, any other disposition or nomination under any other law stands subject to the nomination made under the Depositories Act. Section 9.11.7 further shows that the last of the nominations would prevail. This shows the revocable nature of the nomination much like a Testamentary Disposition. A nomination can be cancelled by the holder and another nomination can be made. Such later nomination would be relied upon by the Depository Participant. That would be for conferring of all the rights in the shares to such last nominee.
25. A reading of section 109A of the Companies Act and 9.11 of the Depositories Act makes it abundantly clear that the intent of the nomination is to vest the property in the shares which includes the ownership rights thereunder in the nominee upon nomination validly made as per the procedure prescribed, as has been done in this case. These sections are completely different from section 39 of the Insurance Act set out (supra) which require a nomination merely for the payment of the amount under the Life Insurance Policy without confirming any ownership rights in the nominee or under section 30 of the Maharashtra Cooperative Societies Act which allows the Society to transfer the shares of the member which would be valid against any demand made by any other person upon the Society. Hence these provisions are made merely to give a valid discharge to the Insurance Company or the Cooperative Society without vesting the ownership rights in the Insurance Policy or the membership rights in the Society upon such nominee. The express legislature intent under section 109A of the Companies Act and section 9.11 of the Depositories Act is clear.” (emphasis added)
By the impugned order dated 31st March 2015, the learned Single Judge held that the view taken by the learned Single Judge in the case of Harsha Nitin Kokate Vs. The Saraswat Cooperative Bank Limited (for short “Kokate's case”) is per incuriam.
2. In short, the questions to be decided in these Appeals can be formulated as under:-
(i) Whether a nominee of a holder of shares or securities appointed under Section 109A of the Companies Act, 1956 read with the Byelaws under the Depositories Act, 1996 is entitled to the beneficial ownership of the shares or securities subject matter of nomination to the exclusion of all other persons who are entitled to inherit the estate of the holder as p
