2015 (6) TMI 86 - HC - Indian Laws

Distribution of estate of deceased s investments - Nomination of FDs in favor of Daughter - whether such nominated assets to be excluded from the estate of the deceased - Whether or not the daughter is entitled to file and maintain a caveat in opposition to the probate petition - Whether this caveat must be held to be defective and non-est - Whether Will have supremacy over nomination - Held that - The decision in Kokate does not consider the decisions of the Supreme Court in Khanchandani 2000 (8) TMI 77 - SUPREME Court , Shipra Sengupta 2009 (8) TMI 1124 - SUPREME COURT or Challamma 2009 (7) TMI 1213 - SUPREME COURT , or those of learned single Judges of this Court in Nozer Gustad Commissariat and Antonio Joao Fernandes. Each one of these was binding on the Kokate court. The view taken in Kokate is contrary to, and does not consider any of these. It is, for that reason, per incuriam. In short, a nomination, in the Kokate formulation, is some sort of super-will , one that partakes of none of the defining traits of a properly executed will and none of the tests of its validity, one that is never displaced by a later, properly made will that deals with the very same property. Mr. Pai asks that we should place ourselves in the armchair of the nominator . That, as it happens, is the same furniture used by a testator, and it simply cannot be that the view from that seat depends on the nature of the document before the executant. There is no particular form for a will, but there are requirements attendant to its proper making. These do not apply to all nominations even the requirement of witnesses is a matter of prudence rather than statute. If that be so, no nomination per se requires attestation, and if that be so, it is admissible in evidence under Section 68 of the Evidence Act, 1872 without the evidence of any witness (simply because a witness to a nomination is not, in any sense, an attesting witness ). But no will can be so read in evidence without such evidence. From the fundamental definitions to the decisions cited, it is clear that a nomination only provides the company or the depository a quittance. The nominee continues to hold the securities in trust and as a fiduciary for the claimants under the succession law. Nominations under Sections 109A and 109B of the Companies Act and Bye-Law 9.11 of the Depositories Act, 1996 cannot and do not displace the law of succession, nor do they open a third line of succession. This is the consistent view of the Supreme Court in Khanchandai 2000 (8) TMI 77 - SUPREME Court , Shipra Sengupta 2009 (8) TMI 1124 - SUPREME COURT , all decisions that preceded Kokate; and the submission made in paragraph 9 of Kokate was correctly placed and was in line with those decisions. Those decisions were all binding on the Kokate Court. They were neither noticed nor considered. The Kokate Court could not have taken a view contrary to those decisions. Kokate is, therefore, per incuriam. - This judgment does not dispose of the Notice of Motion in Salgaonkar or the application in Ghatalia. Those will be considered on their merits in view of the legal position enunciated above. Given that this judgment deals only with a question of law, there is no question of a stay of the judgment.

Summary

Issues Involved:
1. Whether the judgment in Harsha Nitin Kokate v The Saraswat Cooperative Bank Ltd & Ors. was per incuriam.
2. The legal implications of nominations under Section 109A of the Companies Act, 1956 and Bye-Law 9.11 of the Depositories Act, 1996.
3. The fiduciary responsibilities of nominees in respect of securities and other investments.

Detailed Analysis:

1. Whether the judgment in Harsha Nitin Kokate v The Saraswat Cooperative Bank Ltd & Ors. was per incuriam:
The court in this judgment addressed whether the decision in Kokate was per incuriam. It was argued that the Kokate decision was not consistent with binding precedents from the Supreme Court and other High Court decisions. The court noted that the Kokate judgment did not consider several binding decisions, including those from the Supreme Court in Smt. Sarbati Devi v Smt. Usha Devi, Shri Vishin N. Khanchandani & Anr. v Vidya Lachmandas Khanchandani & Anr., and Shipra Sengupta v Mridul Sengupta & Ors. All these decisions emphasized that a nominee does not acquire beneficial ownership of the securities but holds them in a fiduciary capacity for the legal heirs. The court concluded that Kokate was per incuriam as it failed to consider these binding precedents and took a contrary view.

2. The legal implications of nominations under Section 109A of the Companies Act, 1956 and Bye-Law 9.11 of the Depositories Act, 1996:
The court examined the provisions of Section 109A of the Companies Act, 1956, and Bye-Law 9.11 of the Depositories Act, 1996, which were central to the Kokate decision. Section 109A and Bye-Law 9.11 contain non-obstante clauses that were interpreted in Kokate to mean that nominees acquire full ownership of the securities to the exclusion of all other heirs. However, the court in this judgment clarified that these provisions were intended to provide a valid discharge to companies and depositories, not to alter the law of succession. The court held that the nominee holds the securities in trust for the legal heirs and does not acquire beneficial ownership. This interpretation aligns with the Supreme Court's decisions in Sarbati Devi and Khanchandani, which held that nominations do not create a third line of succession but are meant to facilitate the discharge of the company's or depository's liability.

3. The fiduciary responsibilities of nominees in respect of securities and other investments:
The court emphasized that nominees act in a fiduciary capacity and are responsible for holding the securities for the benefit of the legal heirs. This view is supported by the definitions and interpretations of 'nominee' in various legal dictionaries and judicial decisions. The court noted that a nominee does not acquire ownership rights but is merely an agent or trustee for the legal heirs. This interpretation is consistent with the principles laid down in Sarbati Devi, Khanchandani, and other relevant decisions, which held that the nominee is entitled to receive the securities but must distribute them according to the law of succession.

Conclusion:
The court concluded that the Kokate decision was per incuriam as it did not consider binding precedents and took a view contrary to established legal principles. It clarified that nominations under Section 109A of the Companies Act, 1956, and Bye-Law 9.11 of the Depositories Act, 1996, do not confer beneficial ownership on the nominee but merely provide a valid discharge to companies and depositories. The nominee holds the securities in trust for the legal heirs and must distribute them according to the law of succession. The applications in the respective cases will be heard on their merits in light of this legal position.