Shakti Yezdani vs Jayanand Jayant Salgaonkar

REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 7107 OF 2017

SHAKTI YEZDANI & ANR. APPELLANT(S)

VERSUS

JAYANAND JAYANT SALGAONKAR & ORS. RESPONDENT(S)

JUDGMENT

Hrishikesh Roy, J.

1. Heard Mr. Abhimanyu Bhandari, learned counsel appearing for

the appellants. Also heard Mr. Rohit Anil Rathi, learned counsel

representing respondent no. 1. Mr. Aniruddha A. Joshi, learned

counsel appears for respondent nos. 4, 6, 7 and 8.

Signature Not Verified 2. Digitally signed by

The appellants and respondent nos. 1 to 9 are the legal heirs Jayant Kumar Arora Date: 2023.12.15 17:06:35 IST Reason:

and representatives of an individual – Jayant Shivram Salgaonkar.

1 of 42 The family patriarch executed a will on 27.06.2011 making provisions

for the devolution of his estates upon the successors. Apart from the

properties mentioned in the will, the testator had certain fixed

deposits (FDs) for the sum of Rs. 4,14,73,994/- in respect of which

the respondent nos. 2, 4 and appellant no. 2 were made nominees.

Additionally, there were certain mutual fund investments (MFs) of the

amount of Rs. 3,79,03,207/- in respect of which appellants and Jay

Ganesh Nyas Trust (respondent no. 9) were made nominees. The

testator Jayant Shivram Salgaonkar passed away on 20.08.2013.

3. On 29.04.2014, the respondent no. 1 filed Suit No. 503/2014

with the prayer for declaration inter alia that the properties of the

testator may be administered under the court’s supervision and

seeking absolute power to administer the same. He also prayed for

permanent injunction restraining all other respondents and

appellants from disposing, transferring, alienating, assigning and/or

creating any third-party interests in respect of the properties in

Exhibit A.

4. In their reply to the notice of motion in Suit No. 503/2014, the

appellants pleaded that they were the sole nominee(s) to the MFs. The

2 of 42 essence of their claim was that the appellants being nominees were

absolutely vested with the securities on the testator’s death. The

appellant no.2 was additionally nominated and entitled to the FDs of

the testator in the IDBI Bank. It was also the appellants’ contention

that nominations made under/in Jayant Shivram Salgaonkar’s

MFs/shares were made as per Section 109A & 109B of Companies Act,

1956 and bye-law 9.11.7 of the Depositories Act, 1996. Section 109A

and 109B of the Companies Act, 1956 must be read as a code in

themselves, wherein the meaning of words ‘vest’ and ‘nominee’ are to

be seen from the statute alone bearing in mind the non-obstante

clause contained therein. Therefore, the provisions should be

interpreted without reference to any outside consideration.

5. On 31.03.2015, the learned Single Judge of the Bombay High

Court while passing the order in the Notice of Motion mainly

considered whether the law laid down in the case of Harsha Nitin

Kokate v. The Saraswat Co-operative Bank Limited and Others 1 was

per incuriam. Further, the contentions of the appellants were rejected

by the court by observing that S. 109A & S. 109B of the Companies

Act, 1956 cannot be read in a vacuum and it is permissible for the

1(2010) SCC Online Bom 615.

3 of 42 court to look at pari materia provisions in other statutes. The court,

while considering the argument of a ‘statutory testament’ raised in

Sarbati Devi v. Usha Devi2, expressly negated those and opined that it

would not be proper to limit the ratio in Sarbati Devi (supra) to the

narrow confines of Section 39 of the Insurance Act, 1939. The same

was thereafter reaffirmed in Vishin N. Khanchandani and Anr. v. Vidya

Lachmandas Khanchandani & Anr.3, Shipra Sengupta v. Mridual

Sengupta & Ors.4, Ramchander Talwar & Ors. v. Devendra Kumar

Talwar & Ors.5, Nozer Gustad Commissariat v. Central Bank of India &

Ors.6 and Antonio Joao Fernandes v. Asst. Provident Fund

Commissioner7. According to the learned judge, the decision in Kokate

(supra) failed to consider the decision of the Supreme Court in

Khanchandani (supra), Shipra Sengupta (supra) or even those of the

Single Judge of the Bombay High Court in Nozer Gustad Commissariat

(supra) and Antonio Joao Fernandes (supra), although each of these

decisions were binding on the court, while it was deciding Kokate.

2(1984) 1 SCC 424

3(2000) 6 SCC 724

4(2009) 10 SCC 680

5(2010) 10 SCC 671

6(1993) 1 Mah LJ 228

7(2010) 4 Mah LJ 751

4 of 42

6. It was accordingly expressed that the decision in Kokate (supra)

is per incuriam as it was rendered without considering relevant and

binding precedents. The learned Judge also opined that the

fundamental focus of S. 109A & S. 109B of the Companies Act, 1956

and Bye-law 9.11.7 of the Depositories Act is not the law of succession

nor it is intended to restrict the law of succession in any manner.

Addressing the mischief that was sought to be avoided by the two

statutory provisions, the court observed that it was intended to afford

the company or the depository in question, a legally valid quittance so

that it does not remain answerable forever to succession litigations

and endless slew of claims under the succession law. It was therefore

opined that the statutory provisions allow for the liability to be moved

from the company or the depository to the nominee but the nominee

continues to hold the shares/securities in fiduciary capacity and is

also answerable to all claims in the succession law.

7. With the above understanding of the legal provisions, the

learned Judge declared that the view in Kokate (supra) generates

inconsistencies as it renders a nomination under the Companies Act

the status of a ‘superwill’ that is bereft of the rigour applicable to a

will for its making or the test of its validity under the Indian

5 of 42 Succession Act, 1925. According to the ruling, S. 109A & S. 109B of

the Companies Act, 1956 and the Bye-law 9.11 of the Depositories Act,

1996 does not displace the law of succession nor does it stipulate a

third line of succession.

8. Even while declaring Kokate (supra) to be per incuriam, it was

made clear that the aforesaid judgment (31.3.2015) does not dispose

of the Notice of Motion No. 822/2014 in Suit No. 503/2014 and

Chamber Summons No. 72/2014 in Testamentary Petition No.

457/2014 and those were posted for final hearing on the basis of the

law as declared.

9. The appellants being aggrieved by the decision (dated 31.3.2015)

of the learned Single Judge, filed Appeal No. 313/2015 to challenge

the order. Appeal No. 311/2015 was also filed in the Testamentary

Petition No. 457/2014.

10. While dealing with the appeals, the Division Bench at the outset

noticed that the consideration to be made is whether the view taken

by the learned Single Judge vis-a-vis the Kokate (supra) judgment is

the correct opinion. Accordingly, the following questions were

formulated for decision in the appeals:

6 of 42 “(i) Whether a nominee of a holder of shares or securities appointed under Section 109A of the Companies Act, 1956 read with the Bye-laws 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?

(ii)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 securitie or shares under the law of inheritance?

(iii) Whether a bequest made in a Will executed in accordance with the Inidan Succession Act, 1925 in respect of shares or securities of the deceased supersedes the nomination made under the provisiosn of Sections 109A and Bye Law No. 9.11 framed under the Depositories Act, 1996?”

11. To appreciate the precise ratio in Kokate (supra), the following

two paragraphs of the Kokate judgment were extracted by the Division

Bench:

“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

7 of 42 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 bye-law 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 Co-operative 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.”

12. The Division Bench under the impugned judgment (dated

01.12.2016) observed that the object and provisions of the Companies

Act, 1956 is not to either provide a mode of succession or to deal with

succession at all. The object of S. 109A Companies Act, 1956 is to

8 of 42 ensure that the deceased shareholder is represented, as the value of

the shares is subject to market forces and various advantages keep on

accruing to the shareholders, such as allotment of shares &

disbursement of dividends. Moreover, a shareholder is required to be

represented in the general meetings of the Company and therefore,

the court opined that the provision is enacted to ensure that

commerce does not suffer due to delay on part of the legal heirs in

establishing their rights of succession and then claiming shares of a

Company. Adverting to and interpreting the pari materia provisions

relating to nominations under various statutes, the Division Bench

felt that the consistent view in the various judgments of the Supreme

Court and the Bombay High Court must be followed and those do not

warrant any departure. It was expressly opined that the so-called

‘vesting’ under S. 109A of the Companies Act, 1956 does not create a

third mode of succession and the provisions are not intended to

create another mode of succession. In fact, the Companies Act, 1956

has nothing to do with the law of succession. Accordingly, the

Division Bench declared that the nominee of a holder of a share or

securities is not entitled to the beneficial ownership of the shares or

securities which are the subject matter of nomination to the exclusion

9 of 42 of all other persons who are entitled to inherit the estates of the

holders as per the law of succession. Answering the third question,

the Division Bench 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 provision of S. 109A of Companies Act and Bye-law 9.11 framed

under the Depositories Act, 1996. The bench accordingly ruled that an

incorrect view was taken in Kokate (supra).

13. The object of S. 109A(3) of the Companies Act, 1956, according to

the Division Bench, is not materially different from S. 6(1) of the

Government Savings Certificates Act, 1959 and S. 109B of the

Companies Act, 1956 is likewise similar to S. 45-ZA(2) of the Banking

Regulation Act, 1949. The law relating to S. 6(1) of the Government

Savings Certificates Act, 1959 has already been settled in the case of

N. Khanchandani (supra) where the Supreme Court upheld the law

declared in Sarbati Devi (supra).

14. Looking at the provisions relating to nominations under different

statutory enactments and the way the courts have interpreted those

to the effect that the nominee does not get absolute title to the

10 of 42 property which is the subject matter of nomination, the Division

Bench interpreting the provisions under S. 109A & S. 109B

Companies Act, 1956 declared that they do not override the law in

relation to testamentary or intestate succession. The judgment in

Kokate (supra) was declared to be incorrect as it failed to consider the

law laid down in Khanchandani (supra) and Talwar (supra) as these

cases preceded Kokate (supra).

ARGUMENTS

15. The learned counsels for the appellants and the respondents put

forth the following arguments for consideration:

15.1 Mr. Abhimanyu Bhandari, the learned counsel for the

appellants argues that the scheme of nomination as provided in the

Companies Act, 1956 is not analogous to nomination as provided

under other legislations. Unlike in other legislations, the term ‘vesting’

& ‘to the exclusion of others’ along with a ‘non-obstante clause’ are

placed together in the Companies Act, 1956. Therefore, it would be

incorrect to rely on the ratio of the judgments pertaining to other

legislations (such as the Insurance Act, 1939, Banking Regulation Act,

1949, National Savings Certificates Act, 1959, Employees Provident

11 of 42 Fund and Miscellaneous Provisions Act, 1952) to then interpret the

provisions of S. 109A & S. 109B of the Companies Act, 1956.

Provisions pertaining to the same in other legislations cannot be the

basis for interpretation of the term ‘nomination’ under the Companies

Act as those are not pari materia with S. 109A & S. 109B (now S. 72

of the Companies Act, 2013) of the Companies Act, 1956.

15.2 It is contended that S. 109A & S. 109B (now S. 72 of the

Companies Act, 2013) introduced in the Companies Act, 1956 by the

legislature on 31.08.1988 with the language so used makes it clear

that a nominee, upon the death of the shareholder/debenture holder,

will secure full and exclusive ownership rights in respect of the

shares/debentures for which he/she is the nominee. In fact, adverting

to the hierarchy laid down under the provision, shareholding in an

individual capacity (S. 109A(1)), then a joint shareholder owning the

shares jointly (S. 109A(2)) and then finally, a nominee (S. 109A(3)) in

whom the shares shall vest in the event of death of the

shareholder/joint shareholders, it is contended that the intent is clear

that such nomination would trump any disposition, whether

testamentary or otherwise.

12 of 42 15.3 It is further contended that S. 187C & S. 109A(3) of the

Companies Act, 1956 have to be read together, to mean that shares

shall ‘vest’ with the nominee to the exclusion of all other persons

unless nomination is varied or cancelled. It is argued that S. 187C

itself provides for the mechanism to vary the nomination by making

appropriate declaration and therefore, these provisions are to be

understood as complete codes within themselves. When read together,

no declaration varying the nomination would imply that the intention

was to grant beneficial ownership of the shares to the appellants

through a mechanism of nomination of rights. As Mr. Jayant S.

Salgaonkar’s Will had categorically mentioned all other properties of

the deceased except the shares for which the appellants were named

as nominees, the implication is naturally that the ownership rights of

such shares would pass on to the nominees after the death of the

testator i.e., the appellants’ grandfather.

15.4 The learned counsel for appellants would then refer to Bye-law

9.11 of the Depositories Act, 1996 which provides for transmission of

securities in case of nomination. Within the provision, the presence of

a non-obstante clause would reasonably imply that the effect of

nomination under the said bye-law is that it would vest in the

13 of 42 nominee a complete title of the shares notwithstanding anything

contained in the testamentary disposition(s) or nomination(s) made

under other laws dealing with securities.

15.5 In addition, it is argued that the nomination for shares i.e.,

Form SH-13 provided under Rule 19(1) of the Companies (Share

Capital & Debentures) Rules, 2014 indicates that the shareholder or

joint shareholder may nominate one or more persons as nominee in

whom all rights of the holder shall vest. Since such nomination can

also be in the favour of a third party or a minor (who can never be a

trustee or executor), it is argued that the legislature under the

Companies Act intended to give complete ownership to the nominee.

15.6 Mr. Bhandari then refers to Regulation 29A of SEBI (Mutual

Funds) Regulations, 1996, by virtue of which an asset management

company is required to provide the option to its unit holder to

nominate a person in whom all rights of the units shall vest in the

event of the death of the unit holder. It is contended that when a joint

shareholder cannot make any change to the nomination without the

consent of the other joint shareholder (since such shares continue in

the ownership of the remaining shareholders in the event of the death

14 of 42 of one of the shareholders), the same cannot be done by way of a Will

or testamentary disposition or law of succession either.

15.7 Therefore, as per Mr. Bhandari, the interpretation accorded by

the High Court is not in sync with the developments of law intended

by insertion of S. 109A & S. 109B to the Companies Act, 1956. The

ease of succession planning which the legislature intended would be

rendered otiose if the interpretation given by the High Court on the

implication for the nominee under S. 109A & S. 109B of the

Companies Act is accepted.

16. Canvassing the opposite view, Mr. Rohit Anil Rathi, the learned

counsel appearing for Respondent No. 1 would argue that on account

of the consistent view taken by this Court while interpreting various

legislative enactments pertaining to nominations and more

particularly, in view of the latest interpretation in the case of Indrani

Wahi v. Registrar of Cooperative Societies and Others 8, departure from

the consistent view is not warranted and ‘vesting’ provided under S.

109A would not create a third mode of succession.

8(2016) 6 SCC 440

15 of 42 16.1 The learned counsel submits that the Companies Act has

nothing to do with the law of succession. In support of his contention,

Mr. Rathi would refer to Part IV of the Companies Act, 1956 which

deals with share capitals and debentures as well as S. 108 to S. 112

in Part IV which relate to ‘transfer of shares and debentures’. Adverting

to the aforesaid provisions, it is argued that the limited object is to

provide a facility for transfer of shares or debentures through a proper

instrument of transfer and consequential actions such as registration

and in case of grievances, appeal thereof. The introduction of S. 109A

& S. 109B merely provides for facility of nomination aiding in the

process of such transfer. Therefore, no third mode of succession by

way of nomination has been contemplated and the position has

remained unaltered, despite numerous amendments made to the

Companies Act from time to time.

16.2 On the other hand, the object behind the Indian Succession

Act, 1925 is to provide for an act to consolidate and amend the law

applicable to intestate and testamentary succession. It is argued by

Mr. Rathi that the legislature in no uncertain terms recognised a

transfer being made by a legal representative as a valid mode of

transfer and the legal representative is vested with the properties of

16 of 42 the deceased as a custodian subject to devolution in terms of the

applicable law i.e., the Indian Succession Act, 1925 as per S. 211

within Part VIII of the same.

16.3 Further, it is argued by the learned counsel for the Respondent

No. 1 that the terms ‘transfer’, ‘transmission’ and ‘transmission by

operation of law’ are distinct and convey different meanings, i.e.,

transfer inter vivos in case of the term ‘transfer’ and devolution by

operation of law in case of ‘transmission’. Since these phrases have

been retained even under the Companies Act, 2013, there is no

alteration of the position of law on transfer and transmission of

securities. In addition, several provisions provide an unfettered power

to a company to register any person to whom rights to

shares/debentures had been transmitted by operation of law as a

shareholder/debenture holder (second proviso, S. 108 of the

Companies Act, 1956). Moreover, there is an obligation to inform the

transferor, transferee or the person who gave intimation of transfer,

the reason for refusing the registration or transmission by operation

of law (S. 111 of the Companies Act, 1956).

17 of 42

17. Mr. Aniruddha Joshi, learned counsel for the Respondent Nos.

4 and 6 to 8 would argue that in light of the consistent view taken by

this Court and most High Courts on the question of nominee not

becoming a full owner of the estate of which he has been nominated

by the deceased owner of the property, the nominee by virtue of S.

109A & S. 109B of the Companies Act, 1956 cannot impact the rights

of the legal heirs/legatees obtained through application of the

succession law.

17.1 The learned counsel accepts the position that the languages

used in the enactments interpreted by the court are not alike. Some

enactments possess a non-obstante clause while some do not. Few use

the term ‘vest’ while others do not. However, since none of the Acts

define the terms ‘nominee’ and ‘nomination’, it is contended by Mr.

Joshi that those terms are to be considered as ordinarily understood

by persons making the nomination, for their moveable or immovable

properties.

17.2 Mr. Joshi therefore argues that the term ‘vest’ must be

understood in a limited sense and would not necessarily confer

ownership. Addressing the implication of the non-obstante clause in

18 of 42 the Companies Act, the counsel submits that the same is intended to

offer a discharge to the company and to facilitate the company in their

dealings after the death of the shareholder/securities holder. More

specifically, it is to protect the company from being dragged into a

succession litigation. Therefore, the term ‘vest’ must be interpreted in

a limited sense to the effect that the nominee would deal with the

company but not in the capacity as a title holder but more in the

nature of a trustee holding the estate for the lawful successor(s) and

would be accountable to the successor(s) of the estate. In the same

context, the term ‘vest’ as used in the Indian Succession Act, 1925

would be understood to mean that neither the administrator nor the

executor would become the owner of the property. Such vesting is

therefore limited to the specific purpose of distribution of the estate

amongst the lawful successor(s).

17.3 The counsel submits that the Companies Act, 1956 and/or the

Companies Act, 2013 is referable to Entry 43 and/or Entry 44 of List I,

Schedule VII of the Constitution which provide for incorporation,

regulation and winding up of companies. Therefore, the legislation

deals with the limited aspects of birth of a legal entity/company, its

management/the affairs of the company and its death/winding up of

19 of 42 the company. It was argued that the widest interpretation of the same

would still not attract or cover succession or estate planning of an

individual, even if the said person were to be a member of a company.

On the other hand, the Indian Succession Act, 1925 or Hindu

Succession Act, 1956 or other enactments pertaining to succession

relate to Entry 5 in List III, Schedule VII of the Constitution. Therefore,

their source of power is entirely different. In light of the same, it is

argued that a third mode of succession not contemplated by laws

would be provided through an interpretative exercise instead of a

legislative exercise.

17.4 As per Mr. Joshi, if the contention of appellants were to be

accepted, nomination would be rendered similar to a ‘will’ or a

‘testamentary disposition’ to the extent of securities, of a particular

company. However, the Indian Succession Act, 1925 prescribes a

detailed judicial process to obtain letters of administration or

succession certificates or probates, as the case may be. Therefore, in

case the contentions of the appellants are accepted, the judicial

process for determination of successors’ rights would not be required

at all and the nominee(s) would be able to claim the estate without

verification of the claimants’ rights by the prescribed judicial process.

20 of 42 17.5 Finally, it is submitted that as per Article 141 of the

Constitution, only this Court’s interpretation on provisions become

binding. It cannot however be said that the legislature has taken note

of the interpretation of the High Court judgment and accepted the

interpretation.

DISCUSSION

18. Before we proceed any further, it would be appropriate to

indicate the position of the contesting parties vis-à-vis the testator,

Jayant Shivram Salgaonkar.

21 of 42 R-2/Late Ms. Jayashree Late Jayant Shivram Jayant Salgaonkar Salgaonkar (Wife of Testator/ grand (Testator/Nominator) mother of appellants)

Jayraj Jayant Jayanand Jayant Jayendra Jayant Salgaonkar/R-3/S/o Salgaonkar/R-1/S/o Salgaonkar/R-4/S/o Nominator (Father of Nominator (Uncle of Nominator (Uncle of appellants) appellants) appellants)

R-5/Bharti Salgaonkar R-6/Seema Wife of R-3 (Mother of Salgaonkar/Wife of R-4 appellants) (Aunt of appellants)

Appellant-1 - Shakti R-7/Samarth Yezdani/Daughter of R-3 Salgaonkar/Son of R-4 & R-5 (Granddaughter of (Cousin of appellants) Nominator)

Appellant 2 - Lalita Laxmi R-8/Siddhi Salgaonkar/ Salgaonkar/Daughter of Daughter of R-4 (Cousin R-3 & R-5 of appellants) (Granddaughter of Nominator)

19. Having considered the submissions and the materials placed

on record, the following issues require our careful attention and

have been discussed at length below:

(i.) The scheme, intent & object behind the Companies (Amendment) Act, 1999,

(ii.) The implication of the scheme of ‘nomination’ under the Companies Act, 1956 as well as other comparable legislations,

(iii.) The use of the term ‘vest’ and the presence of the non-obstante clause within the provisions of the Companies Act, 1956,

22 of 42 (iv.) Nomination under the Companies Act, 1956 vis-à-vis law of succession.

SCHEME OF THE COMPANIES ACT

20. Both sides’ lawyers have relied on the intent & purpose behind

the introduction of S. 109A & S. 109B in the larger context of the

Companies Act, 1956 or the pari materia provisions (Section 72,

Companies Act, 2013) in support of their respective stand. Having

perused the scheme behind the Companies Act, 1956 and the

Companies (Amendment) Act, 1999 that also introduced S. 109A &

S. 109B of the Companies Act, 1956, the relevant extracts are

reproduced as follows:

“…………….2. (b) to provide for nomination facility to the holders of shares, debentures and fixed deposit holders; ……………………………

…………………….. 3. The corporate sector is going through difficult times. The capital market is also at low ebb, which requires immediate morale boosting efforts on the part of the Government to promote investors' confidence. Besides, the economy needs certain impetus for promoting inter-corporate investments considering slow flow of funds in new investments. In order to overcome these adverse conditions faced by the corporate sector. it was felt that the company should be permitted to buy-back their own shares, to make investments or loans freely without prior approval of the Central Government, to provide for nomination facility to the holders of shares, deposits and debentures and also to make provision in law for establishment of Investors Education and Protection Fund broadly on the line of provisions contained in the Companies Bill, 1997…………………………………..”9

“…………… Under the Companies (Amendment) Act, 1999, the shareholders have been allowed to nominate a person for their shares,

9Statement of Objects & Reasons, The Companies (Amendment) Act 1999

23 of 42 debentures and deposits………. Earlier, holders of shares and debentures in a company did not enjoy the nomination facility for shares, debentures and deposits, which caused hardships to them.

They were required to obtain a letter of succession from the competent authority. The facility of nomination is intended to make the company law in tune with the present-day economic policies of liberalisation and deregulation. This is also intended to promote investors’ confidence in capital market and to promote the climate for inter-corporate investment in the country.”10

21. The object behind the introduction of a nomination facility as

can be appreciated was to provide an impetus to the corporate

sector in light of the slow investment during those times. In order to

overcome such conditions, boosting investors’ confidence was

deemed necessary along with ensuring that company law remained

in consonance with contemporary economic policies of

liberalisation. In fact, the provision of nomination facility was made

in order to ease the erstwhile cumbersome process of obtaining

multiple letters of succession from various authorities and also to

promote a better climate for corporate investments within the

country. In contrast, one must note that ownership of the securities

is not granted to the nominee nor there is any distinct legislative

move to revamp the extant position of law, with respect to the same.

10Press Information Bureau, Press Release, July 23, 1999

24 of 42

22. At this juncture, it would hold us in good stead to note what

the Court succinctly held in Salomon v. Salomon & Co.11:

“In a Court of Law or Equity, what the Legislature intended to be done or not to be done can only be legitimately ascertained from that which it has chosen to enact, either in express words or by reasonable and necessary implication."

In this context, the act of the legislature to enact S. 109A in the

Companies Act, 1956 and provide a nomination facility to holders

also aids in ascertaining the intent. The Companies Act, 1956 and

subsequent amendments as parliamentary legislations are rooted in

Entry 43, List I of Seventh Schedule, which deals with incorporation,

regulation and winding up of corporations. There is no mention of

nomination and/or succession within the provisions or the

statement of objects & reasons or any other material pertaining to

the Companies Act, 1956. Same is also not seen in subsequent

amendments to the Act.

23. Reading the provision of nomination within the Companies

Act, 1956 with the broadest possible contours, it is not possible to

say that the same deals with the matter of succession in any

manner. There is no material to show that the intent of the

11(1897) AC 22, 38

25 of 42 legislature behind introducing a method of nomination through the

Companies (Amendment) Act, 1999 was to confer absolute title of

ownership of property/shares, on the said nominee.

24. In fact, while interpreting other enactments that are similar in

nature by virtue of the fact that the provision of nomination within

the statute begins with a non-obstante clause and/or is armed with

the term ‘vest’ such as the (Banking Regulation Act, 1949, the

Government Savings Certificate Act, 1959 and/or the Employees

Provident Fund Act, 1952), multiple courts have rejected the

argument that the nominee would become the absolute owner to

the exclusion of the legal heirs. To hold otherwise would, in our

opinion, exceed the scope and extent of S. 109A of the Companies

Act, 1956.

NOMINATION UNDER VARIOUS LEGISLATIONS

25. In an illuminating list of precedents, this Court as well as

several High Courts have dealt with the concept of ‘nomination’

under legislations like the Government Savings Certificate Act 1959,

the Banking Regulation Act, 1949, the Life Insurance Act, 1939 and

the Employees Provident Fund and Miscellaneous Provisions Act,

26 of 42 1952. It would be apposite to refer to what the Court said on

nomination, in reference to these legislations:

Case Law/Precedent Held Sarbati Devi & Anr. v. Usha Nomination under S. 39 of the Insurance Act Devi12 1938 is subject to the claim of heirs of the assured under the law of succession.

Nozer Gustad Commissariat Nomination under S. 10(2) of the EPF & Misc. v. Central Bank of India13 Provisions Act 1952 cannot be made in favour of a non-family person. Relied upon Sarbati Devi (supra) to state that the principles therein were applicable to the Employees Provident Funds Act as well and not merely restricted to the Insurance Act.

Vishin N. Khanchandani & Nominee entitled to receive the sum due on Anr. v. Vidya L. the savings certificate under S. 6(1) of the 14 Khanchandani Govt. Savings Certificate Act 1959, but cannot utilise it. In fact, the nominee may retain the same for those entitled to it under the relevant law of succession.

Ram Chander Talwar & Anr. Nomination made under provisions of S. 45ZA v. Devender Kumar Talwar & of the Banking Regulation Act 1949 entitled Ors.15 the nominee to receive the deposit amount on the death of the depositor.

26. A consistent view appears to have been taken by the courts,

while interpreting the related provisions of nomination under

different statutes. It is clear from the referred judgments that the

nomination so made would not lead to the nominee attaining

12(1984) 1 SCC 424

13(1993) 1 Mah LJ 228

14(2000) 6 SCC 724

15(2010) 10 SCC 671

27 of 42 absolute title over the subject property for which such nomination

was made. In other words, the usual mode of succession is not to

be impacted by such nomination. The legal heirs therefore have not

been excluded by virtue of nomination.

27. The presence of the three elements i.e., the term ‘vest’, the

provision excluding others as well as a non-obstante clause under

S.109A of the Companies Act, 1956 have not persuaded us in the

interpretation to be accorded vis-à-vis nomination, in any different

manner. Different legislations with provisions pertaining to

nomination that have been a subject of adjudication earlier before

courts, have little or no similarity with respect to the language used

or the provisions contained therein. While the Government Savings

Certificates Act, 1959, Banking Regulation Act, 1949 and Public

Debts Act, 1944 contain a non-obstante clause, the Insurance Act,

1939 and Cooperative Societies Act, 1912 do not.

28. Similarly, there are variations with respect to the word ‘vest’

being present in some legislations (the Employees Provident Fund

Act, 1952) and absent in others (the Insurance Act, 1939, the

Cooperative Societies Act, 1912). Looking at the dissimilarities and

28 of 42 the fact that uniform definition is not available relating to the rights

of ‘nominee’ and/or whether such ‘nomination’ bestows absolute

ownership over nominees, it is only appropriate that the terms are

considered as ordinarily understood by a reasonable person making

nominations, with respect to their movable or immovable

properties. A reasonable individual arranging for the disposition of

his property is expected to undertake any such nomination, bearing

in mind the interpretation on the effect of nomination, as given by

courts consistently, for a number of years. The concept of

nomination if interpreted by departing from the well-established

manner would, in our view, cause major ramifications and create

significant impact on disposition of properties left behind by

deceased nominators.

29. The legislative intent of creating a scheme of nomination under

the Companies Act, 1956 in our opinion is not intended to grant

absolute rights of ownership in favour of the nominee merely

because the provision contains three elements i.e., the term ‘vest’, a

non-obstante clause and the phrase ‘to the exclusion of others’,

which are absent in other legislations, that also provide for

nomination.

29 of 42 EFFECT OF ‘VEST’ IN S. 109A OF THE COMPANIES ACT, 1956 & BYE-LAW

9.11.1 OF THE DEPOSITORIES ACT, 1996

30. The appellants’ case is grounded in the interpretation of the

term ‘vest’ in Section 109A of the Companies Act, 1956 and Bye-law

9.11.1 under the Depositories Act, 1996, and according to them, the

use of the term ‘vest’ indicates the intent to bestow ownership of the

securities upon the nominee on the shareholder’s death. To address

the aforesaid argument, it is apposite to note how the term ‘vest’ or

‘vesting’ has been defined by the courts, from time to time.

31. In Fruits & Vegetable Merchant Union v. Delhi Improvement

Trust,16 the Supreme Court held that the term ‘vest’ has a variety of

meanings dependent on the context within which it operates.

“11. . . . . . . In this chapter occur Sections 45 to 48 which provide for the vesting of certain properties in the Trust. Section 45 lays down the conditions and the procedure according to which any building, street, square or other land vested in the Municipality or Notified Area Committee may become vested in a Trust. Similarly, Section 46 deals with the vesting in the Trust of properties like a street or a square as are not vested in a Municipality or Notified Area Committee. These sections, as also Sections 47 and 48 make provision for compensation and for empowering the Trust to deal with such property vested in it. The vesting of such property is only for the purpose of executing any improvement scheme which it has undertaken and not with a view to clothing it with complete title. As will presently appear, the term “vesting” has a variety of meaning which has to be gathered from the 16AIR 1957 SC 344

30 of 42 context in which it has been used. It may mean full ownership, or only possession for a particular purpose, or clothing the authority with power to deal with the property as the agent of another person or authority.” (Emphasis supplied)

32. In Vatticherukuru Village Panchayat v. Nori Venkatarama

Deekshithulu,17 this Court considered the question of the effect of

‘vesting’ under S. 85 of the AP Gram Panchayat Act, 1964 of the

water works & appurtenant land on the Gram Panchayat. It was

held that the word ‘vesting’ in S. 85 did not confer absolute title

on the Gram Panchayat. Even after vesting, the Government, in

appropriate cases, was amenable to place restrictions on the

Gram Panchayat on enjoyment of such waterworks & lands. It is

apposite to refer to the discussion at para 10, wherein the varied

meaning of the term ‘vest’ was considered:

“10. The word ‘vest’ clothes varied colours from the context and situation in which the word came to be used in a statute or rule. Chamber's Mid- Century Dictionary at p. 1230 defines ‘vesting’ in the legal sense “to settle, secure, or put in fixed right of possession; to endow, to descend, devolve or to take effect, as a right”. In Black's Law Dictionary, (5th edn. at p. 1401) the meaning of the word ‘vest’ is given as : “to give an immediate, fixed right of present or future enjoyment; to accrue to; to be fixed; to take effect; to clothe with possession; to deliver full possession of land or of an estate; to give seisin; to enfeoff”. In Stroud's Judicial Dictionary, (4th edn., Vol. 5 at p. 2938), the word ‘vested’ was defined in several senses. At p. 2940 in item 12 it is stated thus “as to the interest acquired by public bodies, created for a particular purpose, in works such as embankments which are 171991 Supp (2) SCC 228

31 of 42 ‘vested’ in them by statute”, see Port of London Authority v. Canvey Island Commissioners [(1932) 1 Ch 446] in which it was held that the statutory vesting was to construct the sea wall against inundation or damages etc. and did not acquire fee simple. Item 4 at p. 2939, the word ‘vest’, in the absence of a context, is usually taken to mean “vest in interest rather than vest in possession”. In item 8 to ‘vest’, “generally means to give the property in”. Thus the word ‘vest’ bears variable colour taking its content from the context in which it came to be used.” (Emphasis supplied)

33. In Municipal Corpn. of Greater Bombay v. Hindustan

Petroleum Corpn.,18 it was observed that the term ‘vesting’ is

capable of bearing the meaning of limited vesting, in title as well

as possession, and is referrable to the context and situation

within which it operates. The above would suggest that the word

‘vest’ has variable meaning and the mere use of the word ‘vest’ in

a statute does not confer absolute title over the subject matter.

34. Further, the term ‘vesting’ is also used in other contexts

such as the Indian Succession Act, 1925 wherein S. 211 vests the

deceased’s estate in the administrator or executor, although

neither become the owner of the said property but merely hold

the same until it is distributed among the lawful successor(s).

18(2001) 8 SCC 143

32 of 42 The term ‘vests’ in S. 109A of the Companies Act 1956 is therefore

required to be interpreted in these logical lines.

35. In the context of the facts of the present case, S. 109A of the

Companies Act (pari materia to S. 72 of the Companies Act, 2013)

provides for vesting of shares/debentures of a share/debenture

holder unto his nominee ‘in the event of his death’. Similarly, Bye-

law 9.11.1 under the Depositories Act, 1996 provides for ‘vesting’

of the securities unto the nominee on the death of the beneficial

owner. Applying the law laid down in the aforenoted decisions of

this Court, the use of the word ‘vest’ does not by itself, confer

ownership of the shares/securities in question, to the nominee.

The vesting of the shares/securities in the nominee under the

Companies Act, 1956 and the Depositories Act, 1996 is only for a

limited purpose, i.e., to enable the Company to deal with the

securities thereof, in the immediate aftermath of the

shareholder’s death and to avoid uncertainty as to the holder of

the securities, which could hamper the smooth functioning of the

affairs of the company. Therefore, the contrary argument of the

appellants on this aspect is rejected.

33 of 42 EFFECT OF NON-OBSTANTE CLAUSE

36. In a similar vein, the appellants contend that the ‘non-

obstante clause’ in S. 109A of the Companies Act, 1956 confers

overriding effect to the nomination over any other law and

disposition, testamentary or otherwise, and entitles the nominee

absolute rights over the shares/securities. Such a clause was

also found in the Banking Regulation Act, 1949 and the

Government Savings Certificate Act, 1959. However, while

interpreting the provision concerning nomination in those

enactments, this Court in Talwar (supra) rejected the argument

that the nominee would be the absolute owner of the subject

matter, to the exclusion of the legal heirs, because of the non

obstante clause. In addition, in Vishin N. Khanchandani v. Vidya

Lachmandas Khanchandani19, it was held that the non-obstante

clause is to be applied in view of the scheme and object of the

enactment in question. The relevant extract on the ruling is

reproduced herein:

“11. It is contended on behalf of the appellants that the non obstante clause in Section 6 excludes all other persons, including the legal heirs of the deceased holder, to claim any right over the sum paid on account

19(2000) 6 SCC 724

34 of 42 of the National Savings Certificates, to the nominee. There is no doubt that by the non obstante clause the legislature devises means which are usually applied to give overriding effect to certain provisions over some contrary provisions that may be found either in the same enactment or some other statute. In other words, such a clause is used to avoid the operation and effect of all contrary provisions. The phrase is equivalent to showing that the Act shall be no impediment to the measure intended. To attract the applicability of the phrase, the whole of the section, the scheme of the Act and the objects and reasons for which such an enactment is made have to be kept in mind.”

(Emphasis supplied)

37. It is settled law that general words and phrases used in a

statute, regardless of their wide ambit, must be interpreted taking

into account the objects of the statute. The clauses & sections

within a statute are not to be read in isolation, but their textual

interpretation is determined by the scheme of the entire statute. 20

Notably, a non-obstante clause is to be considered on the basis of

the context within which it is used, as has also been observed in

R.S. Raghunath v. State of Karnataka.21 Applying the aforestated

rule of interpretation, the non-obstante clause in S. 109A of the

Companies Act, 1956 should also be interpreted keeping in mind

the scheme of the Companies Act, 1956 and the intent of

introduction of nomination facility under S. 109A & S.109B of the

Companies Act, 1956 vide the Companies (Amendment) Act, 1999

20Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd., (1987) 1 SCC 424 21(1992) 1 SCC 335

35 of 42 wherein emphasis was laid on building investor confidence and

bringing the company law in tune with policies of liberalisation &

deregulation. With this backdrop, it can be concluded that the

use of the non-obstante clause, serves a singular purpose of

allowing the company to vest the shares upon the nominee to the

exclusion of any other person, for the purpose of discharge of its

liability against diverse claims by the legal heirs of the deceased

shareholder. This arrangement is until the legal heirs have settled

the affairs of the testator and are ready to register the

transmission of shares, by due process of succession law.

38. As per Bye-law 9.11.7 of the Depositories Act, 1996, the non-

obstante clause confers overriding effect to the nomination over

any other disposition/nomination ‘for the purposes of dealing with

the securities lying to the credit of deceased nominating person(s)

in any manner’. Therefore, the purpose of invoking such a non-

obstante clause is clearly delineated and limited to the extent of

enabling the depository to deal with the securities, in the

immediate aftermath of the securities holder’s death. The upshot

of the above discussion is that the non-obstante clause in both S.

109A(3) of the Companies Act, 1956 & Bye-law 9.11.7 of the

36 of 42 Depositories Act, 1996 cannot be held to exclude the legal heirs

from their rightful claim over the securities, against the nominee.

NO THIRD LINE OF SUCCESSION CONTEMPLATED UNDER COMPANIES ACT

39. The appellants also contend that a nomination validly made

under S. 109A of the Companies Act, 1956 and Bye-law 9.11 of the

Depositories Act, 1996 constitutes a ‘statutory testament’ that

overrides testamentary/intestate succession. It is worth noting

that the argument of nomination as a ‘statutory testament’ in

respect of instruments such as life insurance policies, government

savings certificates, provident fund etc. were considered and

emphatically rejected by this Court in multiple rulings.

40. In Sarbati Devi (supra) this Court held that nomination

under S. 39 of the Life Insurance Act, 1938 does not contemplate a

third line of succession styled as a ‘statutory testament’ and any

amount paid to a nominee on the policy holder’s death forms a

part of the estate of the deceased policy holder and devolves upon

his/her heirs, as per testamentary or intestate succession.

Further, in Ram Chander Talwar (supra), while discussing the

rights of a nominee of a deceased depositor (S. 45-ZA(2) Banking

37 of 42 Regulation Act, 1949), this court concluded that the right to

receive the money lying in the depositor’s account was to be

conferred on the nominee but the nominee would not become the

owner of such deposits. The said deposit is a part of the deceased

depositor’s estate and is subject to the laws of succession, that

governs the depositor.

41. The appellants’ have contended that nominations under S.

109A of the Companies Act, 1956 & Bye-law 9.11 of the

Depositories Act, 1996 suggest the intention of the shareholder, to

bequeath the shares/securities absolutely to the nominee, to the

exclusion of any other persons (including legal representatives)

and constitutes a ‘statutory testament’. However, aforesaid

argument is not acceptable for the following reasons:

a. The Companies Act, 1956 does not contemplate a ‘statutory testament’ that stands over and above the laws of succession,

b. The Companies Act, 1956 as iterated above is concerned with regulating the affairs of corporates and is not concerned with laws of succession.

c. The ‘statutory testament’ by way of nomination is not subject to the same rigours as is applicable to the formation & validity of a will under the succession laws, for instance, S. 63 of the Indian Succession Act, wherein the rules for execution of a Will are laid out.

38 of 42

42. Therefore, the argument by the appellants of nomination as

a ‘statutory testament’ cannot be countenanced simply because

the Companies Act, 1956 does not deal with succession nor does

it override the laws of succession. It is beyond the scope of the

company’s affairs to facilitate succession planning of the

shareholder. In case of a will, it is upon the administrator or

executor under the Indian Succession Act, 1925, or in case of

intestate succession, the laws of succession to determine the line

of succession.

CONCLUSION

43. Consistent interpretation is given by courts on the question

of nomination, i.e., upon the holder’s death, the nominee would

not get an absolute title to the subject matter of nomination, and

those would apply to the Companies Act, 1956 (pari materia

provisions in Companies Act, 2013) and the Depositories Act, 1996

as well.

39 of 42

44. An individual dealing with estate planning or succession

laws understands nomination to take effect in a particular

manner and expects the implication to be no different for

devolution of securities per se. Therefore, an interpretation

otherwise would inevitably lead to confusion and possibly

complexities, in the succession process, something that ought to

be eschewed. At this stage, it would be prudent to note the

significance of a settled principle of law. In Shanker Raju v. Union

of India, the Court held:22

“10. It is a settled principle of law that a judgment, which has held the field for a long time, should not be unsettled. The doctrine of stare decisis is expressed in the maxim stare decisis et non quieta movere, which means “to stand by decisions and not to disturb what is settled”. Lord Coke aptly described this in his classic English version as “those things which have been so often adjudged ought to rest in peace”. The underlying logic of this doctrine is to maintain consistency and avoid uncertainty. The guiding philosophy is that a view which has held the field for a long time should not be disturbed only because another view is possible.”

45. The vesting of securities in favour of the nominee

contemplated under S. 109A of the Companies Act 1956 (pari

materia S. 72 of Companies Act, 2013) & Bye-Law 9.11.1 of

Depositories Act, 1996 is for a limited purpose i.e., to ensure that

there exists no confusion pertaining to legal formalities that are to

22(2011) 2 SCC 132

40 of 42 be undertaken upon the death of the holder and by extension, to

protect the subject matter of nomination from any protracted

litigation until the legal representatives of the deceased holder are

able to take appropriate steps. The object of introduction of

nomination facility vide the Companies (Amendment) Act, 1999

was only to provide an impetus to the investment climate and

ease the cumbersome process of obtaining various letters of

succession, from different authorities upon the shareholder’s

death.

46. Additionally, there is a complex layer of commercial

considerations that are to be taken into account while dealing

with the issue of nomination pertaining to companies or until

legal heirs are able to sufficiently establish their right of

succession to the company. Therefore, offering a discharge to the

entity once the nominee is in picture is quite distinct from

granting ownership of securities to nominees instead of the legal

heirs. Nomination process therefore does not override the

succession laws. Simply said, there is no third mode of

succession that the scheme of the Companies Act, 1956 (pari

41 of 42 materia provisions in Companies Act, 2013) and Depositories Act,

1996 aims or intends to provide.

47. Upon a careful perusal of the provisions within the

Companies Act, it is clear that it does not deal with the law of

succession. Therefore, a departure from this settled position of

law is not at all warranted. The impugned decision takes the

correct view. The appeal is accordingly dismissed without any

order on cost.

...……………………J. [HRISHIKESH ROY]

………….…………..J. [PANKAJ MITHAL] NEW DELHI DECEMBER 14, 2023

42 of 42