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2023 (12) TMI 1387 - SC - Companies LawBeneficial ownership nominee of a holder of shares or securities of the shares or securities subject matter of nomination - Scheme intent object behind the Companies (Amendment) Act 1999 - implication of the scheme of nomination under the Companies Act 1956 as well as other comparable legislations - use of the term vest and the presence of the non- obstante clause within the provisions of the Companies Act 1956 - Nomination under the Companies Act 1956 vis- -vis law of succession. Scheme intent object behind the Companies (Amendment) Act 1999 - HELD THAT - 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 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 - 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 exceed the scope and extent of S. 109A of the Companies Act 1956. Implication of the scheme of nomination under the Companies Act 1956 as well as other comparable legislations - HELD THAT - 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 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. 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 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 year - 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. Use of the term vest and the presence of the non- obstante clause within the provisions of the Companies Act 1956 - HELD THAT - In Vatticherukuru Village Panchayat v. Nori Venkatarama Deekshithulu 1991 (4) TMI 447 - SUPREME COURT 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 - In Municipal Corpn. of Greater Bombay v. Hindustan Petroleum Corpn. 2001 (8) TMI 1406 - SUPREME COURT 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. 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 - 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. Nomination under the Companies Act 1956 vis- -vis law of succession - HELD THAT - 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. 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 - 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 - 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. 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.
1. ISSUES PRESENTED and CONSIDERED The Supreme Court of India considered the following core legal issues in this judgment:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Entitlement of Nominee to Beneficial Ownership
Issue 2: Nominee's Role as Trustee
Issue 3: Supersession by Will
3. SIGNIFICANT HOLDINGS
The judgment underscores the distinction between the role of a nominee and the rights of legal heirs under succession law, reaffirming that nominations serve a limited purpose and do not alter the established modes of succession. The Court's decision aligns with the consistent interpretation of nomination provisions across various statutes, emphasizing the fiduciary role of nominees and the supremacy of testamentary dispositions.
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