In a recent ruling, the Supreme Court delivered a significant verdict, clarifying that the nomination process outlined in the Companies Act, 1956 (aligned with Companies Act, 2013) does not supersede succession laws. The court maintained that a company’s purview does not extend to facilitating the succession planning of a shareholder, leaving the determination of the line of succession to the administrator or executor under the Indian Succession Act, 1925, or relevant laws in cases of intestate succession.
The decision affirms a High Court order, asserting that the nominee of a share or securities holder does not automatically gain beneficial ownership, excluding other individuals entitled to inherit the estates as per succession laws.
Justices Hrishikesh Roy and Pankaj Mithal, part of the bench, highlighted the complexity of commercial considerations in dealing with nominations related to companies. They emphasized that offering a discharge to the entity after the nominee is identified is distinct from granting ownership of securities to nominees rather than legal heirs. In essence, the court declared that the nomination process does not supersede succession laws, debunking any notion of a third mode of succession under the Companies Act.
The case leading to this ruling involved the estate of Mr. Jayant Shivram Salgaonkar, who executed a will for estate distribution. Disputes arose over mutual fund investments with nominees named under Sections 109A and 109B of the Companies Act, 1956. The Supreme Court’s decision rejected the argument that a valid nomination constitutes a ‘statutory testament,’ underscoring that the Companies Act does not address matters of succession.
The verdict serves as a crucial clarification, ensuring that the Companies Act does not interfere with established succession laws, maintaining legal heirs’ rights to inherit estates. The court’s decision upholds the Division Bench’s order from the High Court, emphasizing the need to adhere to established legal principles in matters of succession.
This ruling, in the case of Shakti Yezdani & Anr. v Jayanand Jayant Salgaonkar & Ors., reinforces the boundaries of the Companies Act in estate succession, setting a precedent for future cases dealing with the intersection of company law and succession matters.
