The Supreme Court of India, in a recent judgment in the case of Shakti Yezdani & Anr. vs. Jayanand Jayant Salgaonkar & Ors., has delivered a crucial verdict clarifying the legal standing of nominees in the context of shares and securities under the Companies Act. This ruling, significant for its clarification on the interplay between the rights of nominees and legal heirs, holds substantial precedential value for lawyers and stakeholders in the corporate sector.
In this case, the appellants argued that being nominees to mutual funds (MFs) and fixed deposits (FDs), they were vested with absolute rights over these securities after the testator’s death, as per Sections 109A and 109B of the Companies Act, 1956, and Bye-law 9.11.7 of the Depositories Act, 1996. However, the Bombay High Court, in its earlier ruling, had rejected this contention, opining that these sections do not override succession laws. The Supreme Court, upon review, upheld this interpretation.
The Apex Court, while analyzing the provisions of the Companies Act and related legislations, noted that the primary purpose of the nomination provisions was to streamline the transfer of shares and securities and not to create a new mode of succession. The Court observed that the legislative intent behind these provisions was to ease the process of transfer and not to confer ownership rights to nominees to the exclusion of legal heirs.
Further, the Court highlighted the consistent judicial view that nominations do not bestow absolute ownership over the nominated property, aligning with the principles of succession law. It emphasized that the terms ‘nomination’ and ‘vesting’ should be understood in their ordinary sense and not construed to confer ownership rights, thereby maintaining the sanctity of succession laws.
The Supreme Court’s judgment reinforces the principle that nominations in the context of shares and securities are not determinative of ownership rights and are subject to the laws of succession. This ruling brings clarity to the legal community, particularly in matters involving corporate succession and inheritance disputes.
Table of Case Details
| Case Title | Names of Judges | Names of Lawyers | Date of Order |
|---|---|---|---|
| Shakti Yezdani & Anr. vs. Jayanand Jayant Salgaonkar & Ors. | Hrishikesh Roy J. | Mr. Abhimanyu Bhandari, Mr. Rohit Anil Rathi, Mr. Aniruddha A. Joshi | 14-Dec-2023 |
Table of Key Legal Points and Findings
- Nomination under Companies Act: The nomination in shares and securities under the Companies Act does not confer absolute ownership rights to the nominee.
- Role of Succession Laws: Succession laws continue to govern the inheritance of shares and securities, despite the presence of a nominee.
- Interpretation of ‘Vesting’: The term ‘vesting’ in the context of the Companies Act should be understood in a limited sense, not conferring ownership but facilitating the transfer process.
- Purpose of Nomination Provisions: These provisions are intended to streamline corporate procedures and not to create a new mode of succession.
- Impact on Legal Heirs: Legal heirs are not excluded by virtue of nomination in the context of shares and securities.
Timeline of Events in the Case
- April 29, 2014: Respondent No. 1 filed Suit No. 503/2014.
- March 31, 2015: The Bombay High Court passed an order in the Notice of Motion, rejecting the appellants’ contentions.
- Date of Appeals: The appellants filed Appeal No. 313/2015 and Appeal No. 311/2015.
- December 1, 2016: The Division Bench’s judgment observed the non-applicability of the nomination provisions to succession laws.
- December 14, 2023: The Supreme Court delivered its judgment, upholding the High Court’s interpretation.
