2010 (4) TMI 614 - HC - Companies Law

Transfer of shares - Nomination of shares - Held that - A reading of section 109A of the Companies Act and 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 which require a nomination merely for the payment of the amount member the Life Insurance Policy without confirming any ownership rights in the nominee or under section 30 of the Maharashtra Co-operative 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. Since the nomination is shown to be correctly made by her husband who was the holder of the Suit shares, the Plaintiff would have no right to get the shares of her deceased husband sold or to otherwise deal with the same.

Issues Involved:
1. Plaintiff's claim to shares as heir and legal representative.
2. Validity and effect of the nomination executed by the deceased.
3. Interpretation of Section 109A of the Companies Act and Section 9.11 of the Depositories Act.
4. Comparison with Section 39 of the Insurance Act and Section 30 of the Maharashtra Co-operative Societies Act.
5. Legal meaning and implications of the term "vest."

Issue-wise Detailed Analysis:

1. Plaintiff's Claim to Shares as Heir and Legal Representative:
The Plaintiff, who married the deceased on 3-12-2004, claimed an interest in the shares held by her late husband in a D-mat account with Defendant No. 1. She sought to sell these shares as his heir and legal representative. However, the court emphasized that the Plaintiff must demonstrate her legal right, title, and interest in those shares to be entitled to sell, transfer, or hold them.

2. Validity and Effect of the Nomination Executed by the Deceased:
The deceased had executed a nomination in favor of Defendant No. 3, his nephew, on 11-7-2006, following the prescribed procedure of the Depository Participant, Defendant No. 1 Bank. The court noted that the nomination was executed and registered as required, and its effect needed to be examined. According to the nomination form, the rights of transfer and/or the amount payable in respect of the securities held by the deceased vested in Defendant No. 3 as the nominee.

3. Interpretation of Section 109A of the Companies Act and Section 9.11 of the Depositories Act:
Section 109A of the Companies Act, as amended on 31-10-1998, allows the holder of shares to nominate a person to whom the shares shall vest in the event of the holder's death. The court highlighted that upon a valid nomination, the shares vest in the nominee, who becomes entitled to all rights in the shares to the exclusion of all other persons. Similarly, Section 9.11 of the Depositories Act outlines the procedure for the transmission of securities in case of nomination, emphasizing that the securities automatically transfer to the nominee upon the death of the holder, subject to the prescribed procedure.

4. Comparison with Section 39 of the Insurance Act and Section 30 of the Maharashtra Co-operative Societies Act:
The Plaintiff's counsel argued that the nominee under the Companies Act should be considered a trustee, similar to nominees under the Insurance Act and the Maharashtra Co-operative Societies Act. However, the court distinguished these provisions. Under the Insurance Act, the nominee only receives the payment amount and holds it in trust for the estate. Similarly, under the Maharashtra Co-operative Societies Act, the nominee can transfer shares to discharge the society from further claims but does not obtain ownership rights. In contrast, Section 109A of the Companies Act specifically vests the property in the shares in the nominee, giving them ownership rights.

5. Legal Meaning and Implications of the Term "Vest":
The court examined the term "vest" as defined in Black's Law Dictionary and various legal precedents. It concluded that "vest" implies conferring ownership of property upon a person, giving them an immediate and fixed right of present or future enjoyment. The court emphasized that the legislative intent behind Section 109A of the Companies Act and Section 9.11 of the Depositories Act was to vest ownership rights in the nominee, excluding all other persons.

Conclusion:
The court concluded that the nomination executed by the deceased was valid and correctly made. Consequently, the Plaintiff, as the widow, had no right to sell or otherwise deal with the shares of her deceased husband. The Notice of Motion was dismissed, affirming the nominee's entitlement to the shares.

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