In the matter of Shakti Yezdani v. Jayanand Jayant Salgaonkar, the  hon’ble Supreme Court of India (Supreme Court), on December 14, 2023, while ruling in favour of the legal heir as opposed to the nominee and confirming the consistent view of courts on the concept of nomination, pronounced that nomination does not amount to statutory testament and that a nomination under the provisions of company laws does not supersede the provisions Indian succession laws.

 

While the deceased, in this matter, had executed a will specifying devolution of his estate upon his successors, with respect to certain fixed deposits (FDs) and mutual fund investments (MFs), the deceased had identified some of the respondents as his nominees. One of the heirs of the deceased filed a suit for declaration for administration of deceased’s properties upon the passing of the deceased. In response to such suit the nominee contended that the FDs and MFs exclusively vested with them after the testator’s death.

 

In deciding the case, the Supreme Court pronounced a verdict on the following:

  • intent behind introducing sections 109A and 109B of the Companies Act, 1956 (the provisions which introduced nomination);
  • the implications of the scheme of nomination under the above mentioned provisions;
  • the use of the term ‘vest’ and the ‘non obstante’ clause in these provisions; and
  • the relationship of succession law with the concept of ‘nomination’.

 

The Supreme Court observed that a nomination facility has been introduced to provide an impetus to the corporate sector. It eased the process of obtaining multiple letters of succession from various authorities and boosted investor confidence. However, it does not grant complete ownership of shares to nominees. The Supreme Court further observed that courts have consistently interpreted nomination provisions in various statutes to hold that nomination does not grant ownership rights.

 

Further, the Supreme Court interpreted the term ‘vest’ in section 109A of the Companies Act, 1956 to hold that the same has a variable meaning and the mere use of it doesn’t imply complete ownership.  Also, interpreting the non-obstante clause in section 109A of the Companies Act, 1956, the Supreme Court held that it serves the specific purpose of enabling the company to transfer shares to the nominee, excluding other individuals. This way, it fulfills the company’s responsibility against claims from the deceased shareholders’ legal heirs.

 

Discussing the concept of nomination, the Supreme Court also held that considering nomination as a ‘statutory testament’ is not acceptable because the Companies Act, 1956 does not address succession. It also does not override Indian succession laws. The company’s role does not extend to facilitating its shareholders’ succession planning. In the case of a will, it’s the administrator or the executor under the Indian Succession Act, 1925, and for intestate succession, the laws of succession determine the line of succession.