Succession triumphs nomination in re company shares, rules Bombay High Court

Gautam Patel

Darshan Furia

The Division Bench of the Bombay High Court by an Order dated December  1, 2016 reaffirmed the view taken by the single judge of the Bombay High Court in the Salgaonkar Vs. Salgaonkar [1] (“Salgaonkar Case”), that the rights of the successors prevail over that of the nominee in connection with the shares of a company.

The Division Bench of Justice Oak and Justice Sayed, has held that the provisions regarding nomination are made with a view to ensure that the estate or the rights of the deceased relating to the subject matter of the nomination are protected till the legal representatives of the deceased take appropriate steps.

The Controversy

In the Salgaonkar Case a single judge of the Bombay High Court had ruled that the decision of another single judge decision in Harsha Nitin Kokate v. The Saraswat Cooperative Bank Limited [2] (“Kokate Case”) upholding the rights of the nominee over the successors in case of shares of a Company, was per incuriam.

However, since the Salgaonkar Case was also a single judge decision, its competency to review the findings of the Kokate Case was questioned in this matter.

The Verdict

After considering all the provisions relating to nomination of shares under Section 109A and 109B of the Companies Act read with the bye-laws under the Depositories Act of 1996, and the provisions relating to intestate and testate succession as per the Indian Succession Act of 1925, the Court held that nomination does not override the law in relation to testamentary or intestate succession.

The Court also looked at various decisions relating to the rights of the nominee vis-à-vis the rights of the successors, the subject of the nomination being shares in a company or a society, investments in Employee Provident Fund, Government Savings Certificate or in Life Insurance, or a nominee in respect of bank accounts.

The High Court held that the provisions relating to nominations under the various enactments have been consistently interpreted by the Apex Court by holding that the nominee does not get absolute title to the property subject matter of the nomination. The reason is by its very nature, when a share holder or a deposit holder or an insurance policy holder or a member of a Cooperative Society makes a nomination during his life time, he does not transfer his interest in favour of the nominee.

In this judgment, the Court also considered the recent decision of the Apex Court is in the case of Indrani Wahi v. Registrar of Coop. Societies and Others (“Indrani Wahi Case”), wherein the Apex Court considered the provisions of nomination under Sections 69 and 70 of the West Bengal Cooperative Societies Act, 1983 and had held that where a member of a Cooperative Society nominates a person in consonance with the provisions of the Rules framed under the West Bengal Act of 1983, the Cooperative Society is mandated to transfer all the shares or interest of such member in the name of the nominee.

Taking note of this decision, the Bombay High Court held that even in Indrani Wahi, the Apex Court has specifically observed that it will be open for other members of the family of the deceased member to pursue their case of succession or inheritance in consonance with law. At no point had the Supreme Court decided that the rights of nominees will prevail over that of the successors or legatees.

Thus, the conclusion drawn by the Apex Court was that a Cooperative Society is bound by the nomination made by the member. In case of such nomination, the Society has no option except to transfer the shares in the name of the nominee after the death of the member.

However, those who are claiming inheritance will be entitled to pursue their remedies and claim title in the shares on the basis of inheritance.

Darshan Furia is an Associate with Juris Corp

[1] Order dated 31st March 2015, in Notice of Motion No. 822 OF 2014 in Suit No. 503 of 2014

[2] 2010(3)Mh.L.J 780

(You may read the judgement passed by the Bombay High Court below.)