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TMI Blog2023 (12) TMI 1387X X X X Extracts X X X X X X X X Extracts X X X X ..... ccessors. 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 essence of their claim was that the appellants being nominees were absolutely vested with the securities on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppreciate 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 under the statutory provision to have all the rights in the shares, none other can have it. Further, section 9.11 of the Depositorie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of all other persons who are entitled to inherit the estates of the holders as per the law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 15.3 It is further contended that S. 187C & S. 109A(3) of the Companies Act, 1956 have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inue in the ownership of the remaining shareholders in the event of the death 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 (2016) 6 SCC 440, departure from the consistent view is not warranted and 'vesting' provided under S. 109A would not create a third mode of succession. 16.1 The learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S. 111 of the Companies Act, 1956). 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 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellants 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. 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. 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 Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limate for inter-corporate investment in the country." Press Information Bureau, Press Release, July 23, 1999 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. 22. At this juncture, it would hold us in good stead to note what the Court succinctly held in Salomon v. Salomon & Co. (1897) AC 22, 38: "In a Court of Law or Equity, what the Legislature intended to be done or not to be done can only be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim of heirs of the assured under the law of succession. Nozer Gustad Commissariat v. Central Bank of India (1993) 1 Mah LJ 228 Nomination under S. 10(2) of the EPF & Misc. 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 & Anr. v. Vidya L. Khanchandani (2000) 6 SCC 724 Nominee entitled to receive the sum due on the savings certificate under S. 6(1) of the 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. v. Devender Kumar Talwar & Ors. (2010) 10 SCC 671 Nomination made under provisions of S. 45ZA of the Banking Regulation Act 1949 entitled 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich are absent in other legislations, that also provide for nomination. 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, AIR 1957 SC 344 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 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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., (2001) 8 SCC 143 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, alt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udes all other persons, including the legal heirs of the deceased holder, to claim any right over the sum paid on account 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. Reserve Bank of India v. Peerless Gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 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 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 bequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vere, 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 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 s ..... 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