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TMI Blog2016 (12) TMI 308X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 109B of the Companies Act does not advance the case of the Appellants any further. Section 109B does not suggest that on nomination being made by a deceased shareholder of a Company, his nominee becomes the owner of the shares to the exclusion of all other legal heirs. In the present case, we find that the provisions of Section 109A and in particular Subsection (3) thereof are not materially different from the provisions of Subsection (1) of Section 6 of the Government Savings Certificates Act, 1959. Subsection (2) of Section 45ZA of the Banking Regulation Act, 1949 is also similar to Subsection (2) of Section 109B. The same is the case with Byelaw 9.11 of the Depositories Act,1996. Even assuming that the format of the nomination requires attestation as required by a will under the Indian Succession Act,1925, the nomination does not become a testamentary disposition. Therefore, the decision of the Apex Court in the case of State of Himachal Pradesh and Others v. Ashwani Kumar and Others [2015 (11) TMI 1610 - SUPREME COURT] is of no help to the Appellants. The nominee does not get absolute title to the property subject matter of the nomination. The reason is by its very n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 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 nonobstante Clause in section 9.11.7 gives the nominat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersons 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 securities or shares under the law of inheritance ? (iii) Whether 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 provisions of Sections 109A and ByeLaw No.9.11 framed under the Depositories Act, 1996?. 3. When these Appeals were placed before a Division Bench of this Court on 7th September 2015, the following order was passed: 2. It is urged by the learned counsel appearing on behalf of the Appellants that the learned Single Judge, while passing the impugned order, has observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt for contesting the suit. In the said written statement, it is contended that late Jayant left behind his last Will and testament dated 27th June 2011 by which he has dealt with his shares in the suit properties and in particular the shares held by him in M/s.Sumangal Press Private Limited. It is claimed that the second and third Defendants have been appointed as the Executors under the last Will and testament who have filed an Application for grant of probate in respect of the said Will. It is stated that the said Application has been converted into a suit which is still pending. It is contended that by the said Will, a bequest has been made by late Jayant of his share in the properties listed at Item Nos.2, 3, 6 and 7 of the ExhibitA to the Plaint in favour of a Public Trust which is the tenth Defendant in the suit. Item Nos.6 and 7 in Exhibit A are the shares held by late Jayant in Sumangal Press Pvt. Ltd and M/s Sumangal Artech. 6. The fifth and sixth Defendants filed their written statement in which they claimed that they were the nominees of late Jayant in respect of the investments made by him in Mutual Funds. By virtue of the nomination, they claimed that the securitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Bye-Law No.9.11 framed under the said Act of 1996. THE SUMMARY OF THE SUBMISSIONS MADE BY THE PARTIES 8. The Appellant appearing in person in Appeal No.311 of 2015 made detailed submissions. Similarly, the learned counsel appearing for the Appellants in Appeal No.313 of 2015 made detailed submissions. The view taken by the learned Single Judge in the impugned order is that the decision of the learned Single Judge in Kokate's case is per incuriam and the nomination will not affect the validity of the testamentary disposition made by the owner of the securities/shares. 9. The Appellant appearing in person in Appeal No.311 of 2015 submitted that the learned Single Judge had no jurisdiction to decide the issue which has been decided under the impugned order inasmuch as the jurisdiction of the Testamentary Court dealing with an Application for grant of probate is very limited. He submitted that the jurisdiction is confined to decide the issue of proof of execution, genuineness and validity of the Will set up by the propounder. He urged that the Testamentary Court dealing with a Petition for Probate has no jurisdiction to adjudicate upon the issue of title of the deceas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he nomination under the Insurance Act, 1939, Banking Regulations Act, 1949, National Saving Certificates Act, 1959, Employees' Provident Fund and the Miscellaneous Provisions Act, 1952. He submitted that the provisions regarding nomination under none of the said Acts are pari materia with the provisions of the Companies Act. Another issue canvassed by him was that the issue decided by the learned Single Judge could have been considered only at the time of final hearing of the Notice of Motion. He pointed out the order dated 7th May 2014 passed in the said Notice of Motion by the learned Single Judge which directed that the Notice of Motion should be heard finally. He submitted that there was no occasion for deciding the said issue as a preliminary issue 11. Learned counsel appearing for the Appellants further submitted that if the learned Judge was of the view that Kokate's case was not correctly decided, the propriety required the learned Single Judge to make a request to the Hon'ble the Chief Justice for making a reference to a Larger Bench. He submitted that the learned Single Judge has not considered the intention of the legislature while dealing with Section 109 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 2009 151 COM Cases 92 (Delhi). He has taken us through the various decisions which are referred to and relied upon in Kokate's case as well as in the impugned judgment and order. He referred to the various other decisions to which we will make a reference in the subsequent part of the judgment. He also invited our attention to the relevant provisions of the Indian Succession Act, 1925. He submitted that the provisions regarding testamentary succession under the Indian Succession Act, 1925 do not apply when the provisions of the testamentary succession as provided in any other law for the time being in force are applicable. He urged that the learned Single Judge has completely overlooked the fact that the provisions of Section 109A and in particular SubSection 3 thereof incorporate a nonobstante clause which specifically provides that it will override the provisions of any other law for the time being in force or in any disposition, whether testamentary or otherwise, in respect of shares or debentures of the Company. It specifically provides for vesting of shares or debentures in a Company in the nominee on the death of the shareholder or holder of debentures, as the case may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cases of Kanwarjit Singh Dhillon v. Hardyal Singh Dhillon (2007)11 SCC 357). Hence, the contention of the Appellant appearing in person that the issue could not have been decided in Testamentary Petition appears to be correct. The issues will certainly arises in Suit No.503 of 2014 in view of the stand taken in the written statement of the concerned Defendants. Therefore, in the Appeal arising out of the said suit, the issue will have to be decided in any case. THE RELEVANT STATUTORY PROVISIONS 15. In these Appeals, we are concerned with the two provisions of the Companies Act which are Sections 109A and 109B which read thus: 109A. NOMINATION OF SHARES. (1) Every holder of shares in, or holder of debentures of, a company may, at any time, nominate, in the prescribed manner, a person to whom his shares in, or debentures of, the company shall vest in the event of his death. (2) Where the shares in, or debentures of, a company are held by more than one person jointly, the joint holders may together nominate, in the prescribed manner, a person to whom all the rights in the shares or debentures of the company shall vest in the event of death of all the joint h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oming entitled to a share or debenture by reason of the death of the holder shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share or debenture except that he shall not, before being registered a member in respect of his share or debenture, be entitled in respect of it to exercise any right conferred by membership in relation to meetings of the company: Provided that the Board may, at any time, give notice requiring any such person to elect either to be registered himself or to transfer the share or debenture, and if the notice is not complied with within ninety days, the Board may thereafter withhold payment of all dividends, bonuses or other moneys payable in respect of the share or debenture, until the requirements of the notice have been complied with.] 16. Apart from the provisions of the Companies Act, we are also concerned with the ByeLaw No.9.11 framed in exercise of the powers under the Depositories Act, 1996 which reads thus: 9.11. TRANSMISSION OF SECURITIES IN THE CASE OF NOMINATION: 9.11.1. In respect of every account, the Beneficial Owner(s) ( Nominating Person(s) ) may n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Plaintiff therein was the widow of one Nitin Kokate, who died on 5th July 2007. Her deceased husband held certain shares in Dmat Account with the Depository Participant Cell of the first Defendant in the suit. The husband of the Plaintiff had made a nomination in favour of the third Defendant. The third Defendant was the nephew of the deceased husband of the Plaintiff. The Plaintiff claimed a title in the said shares after the demise of her husband as the sole heir and legal representative under the law of succession. The third Defendant claimed ownership of the shares on the basis of the nomination made by the deceased husband of the Plaintiff. The learned Single Judge considered the provisions of Section 109A of the Companies Act and the ByeLaw No.9.11 framed under the Depositories Act, 1996. Section 109A and the ByeLaw No.9.11 are already quoted above. The learned Single Judge considered the decision of the Apex Court in the case of Sarbati Devi dealing with the nomination under Section 39 of the Insurance Act. The learned Single Judge also dealt with the nomination made in accordance with Section 30 of the Maharashtra Cooperative Societies Act, 1960. The learned Single Judge in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip 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 Cooperative 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. (emphasis added) CONSIDERATION OF VARIOUS DECISIONS AND CONCLUSIONS 18. We must make a reference to the decisions of the Apex Court and this Court dealing with the issue of nomination under the different enactments. A recent decision of the Apex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of a nominee, the transfer of the share or interest of the erstwhile member, would be made on the basis of a claim supported by an order of probate, a letter of administration or a succession certificate (issued by a court of competent jurisdiction). 21. Insofar as the instant aspect of the matter is concerned, there is no doubt in our mind, that even Rules 127 and 128 of the 1987 Rules, lead to the inference, that in case of a valid nomination, under Section 79 of the 1983 Act, the cooperative society is liable to transfer the share or interest of a member in the name of the nominee. We hold accordingly. 22. Having recorded the above conclusion, it is imperative for us to deal with the conclusion recorded in para 6 (already extracted above at p. 448fh and p. 449ab) of the judgment of this Court in Usha Ranjan Bhattacharjee case [Usha Ranjan Bhattacharjee v. Abinash Chandra Chakraborty, (1997) 10 SCC 344]. In this behalf, it is necessary to clarify that transfer of share or interest, based on a nomination under Section 79 in favour of the nominee, is with reference to the cooperative society concerned, and is binding on the said society. The cooperative society has no optio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision Bench in Paragraph 9. Ultimately, in Paragraph 10, the learned Single Judge concluded that by a nomination under Section 30 of the Maharashtra Cooperative Societies Act, 1960, there is no disposition of the properties by the member of the Society and, therefore, the nominee on the demise of the member does not become the owner of the properties in question held by virtue of the membership of the Society. 20. We may note here that Section 80 of the West Bengal Act of 1983 specifically provides that on the death of a member of a Cooperative Society, the share or interest of the member in the Cooperative Society shall stand transferred to the person nominated under Section 79. Subsection (4) of Section 30 of the Maharashtra Cooperative Societies Act, 1960 specifically provides that all transfers duly made by the Society under the said provision to the nominee shall be valid and effectual against any demand made upon the Society by any other person. Notwithstanding the provision of Section 80 of the West Bengal Act of 1983 which mandates that on the death of a member of a Cooperative Society, his share or interest shall be transferred to nominee, the Apex Court did not hold t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2)Bom.C.R. 8, the learned Single Judge of this Court considered the effect of nomination under the Employees' Provident Fund Scheme, 1952. In Paragraph 8, the learned Single Judge quoted the relevant provisions of the Employees' Provident Fund and Miscellaneous Provisions Act, 1952. Section 10 of the said Act reads thus: 10. Protection against attachment. (1) Amount standing to the credit of any member in Fund or of any exempted employee in a provident fund shall not in any way be capable of being assigned or charged and shall not be liable to attachment under any decree or order of any court in respect of any debt or liability incurred by the member or the exempted employee, and neither the official assignee appointed under the Presidency Towns Insolvency Act, 1909 (3 of 1909) nor any receiver appointed under the Provincial Insolvency Act, 1920 (5 of 1920), shall be entitled to have any claim on, any such amount. (2) Any amount standing to the credit of a member in the fund or of an exempted employee in a provident fund at the time of his death and payable to his nominee under the Scheme or the rules of the provident fund shall, subject to any deduction authorise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Trust, AIR 1957 SC 344 and holding that the word vest in the context could mean mere possession for specific purpose without any title was not cited before the Hon'ble High Court of Calcutta. If the various English and Indian cases noticed by Hon'ble Justice Sinha of the Supreme Court in the above-referred judgment are to be considered and applied having regard to the context and object of the Act, it would follow that the use of the word vest in section 10(2) of the Act merely means that the nominee is merely entitled to collect the amount for benefit of heirs of the deceased coupled with exemption thereof from attachment and subject to category of heirs being restricted as specified in Provident Funds Scheme. I therefore, hold that the provident fund amount forms belonging to the estate of the deceased and the petitioner is solely entitled thereto. Having regard to the facts of this case, the respondent No. 4 is liable to be restrained from collecting the said amount from the former employer of the deceased. It is the duty of this Court to pass appropriate orders so as to safeguard the interest of petitioner minor and pass order of injunction against respondent No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing shall not have the effect of cancelling a nomination but the right of the nominee shall be subject to the right of the person so holding it. 7. Payment on death of holder.- (1) If the holder of a savings certificate dies and there is in force at the time of his death a nomination in favour of any person, payment of the sum due thereon shall be made to the nominee. (2) Where the nominee is a minor, payment of the sum due thereon shall be made- (a) in any case where a person has been appointed to receive it under sub::: section (3) of Section 6, to that person, and (b) where there is no such person, to any guardian of the property of the minor appointed by a competent court, or where no such guardian has been so appointed, to either parent of the minor, or where neither parent is alive, to any other guardian of the minor. (3) Where the sum due on a savings certificate is payable to two or more nominees, and either or any of them dies, the sum shall be paid to the surviving nominee or nominees. (4) If a person dies and is at the time of his death the holder of a savings certificate and there is no nomination in force at the time of his death and probate of his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that in case where the nominee is a minor, the holder of the savings certificate has a right to make the nomination to appoint in the prescribed manner any person to receive the sum due thereon in the event of his death during the minority of the nominee. It is contended that if the intention was not to entitle the nominee to be paid and to retain the sum due on such National Savings Certificates, there was no necessity of making a provision as has been incorporated in subsection (3) of Section 6. Section 7 was also relied upon to urge that after the death of the holder, the nominee becomes entitled to the payment of the sum due without there being any further obligation upon him. In support of such an argument further reliance was placed upon subsections (3) and (4) of Section 7. He also tried to distinguish the verdict of this Court in Sarbati Devi v. Usha Devi [(1984) 1 SCC 424 : 1984 SCC (Tax) 59] by pointing out the difference of the language and phraseology in Section 6 of the Act and Section 39 of the Insurance Act. According to him the words, on the death of the holder of the savings certificate, become entitled to the savings certificate and to be paid the sum due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt to those in whose favour the law creates a beneficial interest, subject to the provisions of subsection (2) of Section 8 of the Act. (emphasis added) 24. In the case of Antonio Joao Fernandes v. The Assistant Provident Fund Commissioner and Others 2010(3) All MR 599, the learned Single Judge of this Court had an occasion to consider the provisions of Subsection (2) of Section 10 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 and in particular the meaning of the expression vests used in the said provisions. The learned Single Judge followed the view taken in the case of Nozer Gustad Commissariat. 25. Now we come to the decision of the Apex Court in the case of Ram Chander Talwar and Others v. Devender Kumar Talwar and Others (2010)10 SCC 671. The issue before the Apex Court was whether a nominee in the bank account held by the deceased can claim full rights over the money lying in the account to the exclusion of the legal heirs. Paragraphs 4 to 6 of the said decision read thus: 4. Subsection (2) of Section 45ZA, reads as follows: 45ZA. * * * (2) Notwithstanding anything contained in any other law for the time being in forc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e death of all the depositors becomes entitled to all rights as the sole depositor in relation to such deposit to the exclusion of all other persons. The Apex Court held that the Banking Regulation Act, 1949 is no way concerned with the question of succession and, therefore, all the monies receivable by the nominee by virtue of Subsection (2) of Section 45ZA would form part of the estate of the deceased depositor and would be governed by the law of succession by which the depositor was governed. Though Subsection (2) of Section 45ZA seeks to override any other law for the time being in force or any disposition, whether testamentary or otherwise, the Apex Court held that the nominee does not become the owner of the money lying in the account. 27. Coming back to the decision in the case of Vishin N. Khanchandani and Another, as stated earlier, the Apex Court interpreted Section 6 of the Government Savings Certificates Act, 1959. We have already quoted Section 6 of the said Act. As pointed out earlier, even Subsection (1) of Section 6 starts with a similar nonobstante clause. The submission of the Appellant before the Apex Court which is noted in Paragraph 6 based on the nonobst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Regulation Act, 1949. There is no material difference between Subsection (3) of Section 109A of the Companies Act and Subsection (1) of Section 6 of the Government Savings Certificates Act, 1959 as well as Subsection (2) of Section 45ZA of the Banking Regulation Act, 1949 which have been interpreted by the Apex Court as aforesaid. The said provisions start with nonobstante clause and seek to provide that nomination will override the disposition whether testamentary or otherwise. The said provisions seek to exclude all other persons except the nominee. 29. Section 109B of the Companies Act does not advance the case of the Appellants any further. Section 109B does not suggest that on nomination being made by a deceased shareholder of a Company, his nominee becomes the owner of the shares to the exclusion of all other legal heirs. 30. The learned counsel appearing for the Respondent relied upon a decision of the Apex Court in the case of Gajanan and Others v. Seth Brindaban1970(2) SCC 360 and in particular Paragraph 15 thereof which reads thus: 15. There is also another aspect which may legitimately be kept in view. People in arranging their affairs are entitled to rely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Act,1925 which reads thus: 58. General application of Part.-(1) The provisions of this Part shall not apply to testamentary succession to the property of any Muhammadan nor, save as provided by Section 57, to testamentary succession to the property of any Hindu, Buddhist, Sikh or Jaina; nor shall they apply to any will made before the first day of January, 1866. (2) Save as provided in subsection (1) or by any other law for the time being in force, the provisions of this Part shall constitute the law of [India] applicable to all cases of testamentary succession. Sections 109A was not on the Statute Book when the Indian Succession Act,1925 came into force. We do not see how the said provision will help the Appellants. 34. The provisions relating to nominations under the various Enactments have been consistently interpreted by the Apex Court by holding that the nominee does not get absolute title to the property subject matter of the nomination. The reason is by its very nature, when a share holder or a deposit holder or an insurance policy holder or a member of a Cooperative Society makes a nomination during his life time, he does not transfer his interest in favour of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a mode of succession or to deal with succession. The object of the Section 109A is to ensure that the deceased shareholder is represented by some one as the value of the shares is subject to market forces. Various advantages keep on accruing to shareholders. For example, allotment of Bonus shares. There are general meetings held of the Companies in which a shareholder is required to be represented. The provision is enacted to ensure that the commerce does not suffer due to delay on the part of the legal heirs in establishing their rights of succession and claiming the shares of a Company. 35. Considering the consistent view taken by the Apex Court while interpreting the provisions relating to nominations under various Statutes (including the view in the recent decision in the case of Indrani Wahi), there is no reason to make a departure from the consistent view. The provisions of the Companies Act including Sections 109A and 109B, in the light of the object of the said Enactment, do not warrant any such departure. The so called vesting under Section 109A does not create a third mode of succession. It is not intended to create a third mode of succession. The Companies Act has n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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