Nominations under Companies Act can’t displace law of succession: HC

MUMBAI: Nominations under sections of the Companies Act cannot displace the law of succession or open a third line of succession, the Bombay high court recently held. Justice Gautam Patel also clarified that nominees can only be trustees of the actual legal heirs and beneficiaries under a will.
The judge was dealing with a legal question over a nominee’s rights arising in two disputes over estates.The nominees claimed their exclusive rights, citing a verdict passed by Justice Roshan Dalvi in 2010, which put their rights on a “higher pedestal” than that of legal heirs and legatees. But Snehal Shah, counsel for J J Salgaonkar, who had moved the HC, said the verdict was “per incuriam” (of no force) and not good law, a submission that Patel held was right.
Salgaonkar moved court for administration of his late father’s estate, but two persons said a substantial fixed deposit of Rs 50 lakh and a bulk of mutual fund investments had their names as nominees. Their lawyer Rajendra Pai said as nominees they succeeded to these investments which no longer can form part of the deceased’s estate. He cited Sebi (Mutual Fund Regulations) and Banking Regulation Act, 1949.
In the second case, Cuffe Parade resident Nanak Ghatalia seeking the probate of his mother’s will, said as a nominee to some of her investments, only he, and not his siblings, had exclusive rights to them.
But citing Supreme Court rulings and the definition of nominee, Patel, who was deciding only whether nominees could claim such exclusive rights, held that “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 of 9.11 of the Depositories Act, 1996, cannot and do not displace the law of succession.”
The binding SC decisions were neither noticed nor considered by the earlier single judge, who could not have taken a contrary view and hence, that judgment is per incuriam, said Patel. His judgment now paves the path for the two disputes to be actually heard on merit.
Advocates Shah and Carl Tamboly said if nominees were allowed rights over investments or properties, it would defeat laws of intestacy and make wills redundant. To name a nominee is a corporate provision intended for the protection of the firm. Patel also agreed that “a nomination will only serve to discharge the responsibility or liability of the issuing depository vis-à-vis the nominee, but the nominee continues to be in a fiduciary capacity vis-à-vis all other claimants under either of the two statutorily recognized modes of succession”.
Bombay High Court Paves The Path For 2 Disputes To Be Actually Heard On Merit