Recently, the Hon'ble Supreme Court ("Court") ruled that upon the death of the holder of financial instruments viz. shares and other securities, the nominee would not get an absolute title and its devolution shall be subject to the laws of succession.1

Brief Facts:

In this case, the testator had fixed deposits for the sum of Rs. 4,14,73,994/- ("FDs") in respect of which respondent nos. 2, 4 and appellant no. 2 were made nominees and Mutual fund investments of Rs. 3,79,03,207/- ("MFs") in respect of which appellants and respondent no. 9 were made nominees. Respondent no. 1 filed a Suit for the testator's properties to be administered while the appellants filed a Reply pleading that they were the sole nominees to the MFs.

Vide Order dated 31.03.2015, a Single Bench of the Hon'ble Bombay High Court passed an order where it held that the law laid down in Harsha Nitin Kokate v. The Saraswat Co-operative Bank Limited and Others2 was per incuriam. It was held that S.109A and S.109B of the Companies Act, 1956 ("CA, 1956") cannot be read in isolation and that they allow for the liability to be moved from the company to the nominee but the nominee continues to hold the shares in a fiduciary capacity of a Trustee and is answerable to all claims in succession law. Accordingly, it was ruled that S. 109A & S.109B of the CA, 1956 and the Bye-law 9.11 of the Depositories Act ("Statutory Provisions") do not displace the law of succession nor do they stipulate a third line of succession.

In Appeal, the Division Bench upheld the Order passed by the Single Bench while concluding that the statutory provisions do not override the laws of testamentary/intestate succession. Aggrieved, the Appellants approached the Supreme Court.

Contentions of the Parties:

The Appellants' submissions:

  • The nomination scheme in the Statutory Provisions differs significantly from other legislations.
  • Phrases like 'vesting,' 'to the exclusion of others,' and the inclusion of a 'non-obstante clause' are distinct in CA, 1956, setting it apart from other legislations such as the Insurance Act, 1939.
  • Relying on judgments from other legislations for interpreting the term 'nomination' in the Companies Act is inappropriate as the provisions are not pari materia.
  • The introduction of Sections 109A and 109B in 1988 shows that a nominee, upon the shareholder's death, obtains full ownership rights in the respective shares. The High Court's interpretation is not aligned with the legislative intent behind the insertion of said Sections.
  • The non-obstante clause in Bye-law 9.11 of the Depositories Act, 1996 implies that the effect of nomination vests complete title in the nominee, overriding testamentary laws.

The Respondents' submissions:

  • 'Vesting' under Section 109A does not create a third mode of succession. Such an approach would be an interpretative exercise, not a legislative one.
  • CA, 1956, is primarily concerned with share capitals, debentures, and their transfer mechanisms, as seen in Part IV and Sections 108 to 112. The introduction of Sections 109A and 109B is a facility for nomination within the transfer process, not a third mode of succession.
  • The Indian Succession Act, 1925, ("ISA") addresses broader context of intestate and testamentary succession where the legal representative is vested with the testator's properties.
  • Terms like 'transfer', 'transmission' and 'transmission by operation of law' are distinguishable.
  • Retention of these phrases, along with the provisions allowing the company to register persons to whom rights have been transmitted, demonstrates no alteration in the position of law regarding transfer and transmission of securities.
  • The term 'vest' should be understood in a limited sense, where the nominee does not become the owner but acts more like a trustee holding the estate for lawful successors.
  • Accepting the appellants' contention would equate nomination to a 'will' or 'testamentary disposition' for securities, bypassing the detailed judicial process prescribed by ISA.

Findings Of The Court:

In its findings, the Court opined as under:

  • Reading the provision of nomination within the CA, 1956 holistically, it cannot be said that it deals with 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 shares. Multiple courts3 have held that nominees would not become absolute owners to the exclusion of legal heirs It concludes that a contrary view would go beyond the statutory provisions' scope.
  • From the judgments4, it is clear that the legal heirs have not been excluded by virtue of nomination. The concept of nomination if interpreted by departing from the well-established manner would cause major ramifications on the disposition of properties.
  • The legislative intent of nomination under CA, 1956 is not intended to grant absolute rights of ownership merely because the provision contains the term 'vest', a non-obstante clause and the phrase 'to the exclusion of others', which are absent in other legislations, that provide for nomination.
  • In Fruits & Vegetable Merchant Union v. Delhi Improvement Trust5, the Court held that the term 'vest' has a variety of meanings depending on the context. In Vatticherukuru Village Panchayat v. Nori Venkatarama Deekshithulu6, it was held that the word 'vesting' did not confer absolute title on the Gram Panchayat. In Municipal Corpn. of Greater Bombay v. Hindustan Petroleum Corpn.7, it was observed that 'vesting' could also mean limited vesting, in title as well as possession. Thus, the word 'vest' has variable meaning and the mere use of the word 'vest' does not confer absolute title.
  • The vesting of the shares/securities in the nominee under the Statutory Provisions is only for a limited purpose of enabling 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.
  • It is well-established that the non-obstante clause is to be applied in view of the scheme of the act.8 The provisions within a statute are not to be read in isolation, but in the scheme of the entire statute.9 The non-obstante clause in S. 109A of CA, 1956 should also be interpreted keeping in mind the scheme of CA, 1956.
  • The CA, 1956 does not contemplate a 'statutory testament' that stands over the laws of succession. 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 ISA, wherein the rules for execution of a Will are laid out.

In light of the above, the Court came to a conclusion that the Companies Act does not deal with the laws of succession and that a departure from the settled position of law was unwarranted.


1. Shakti Yezdani v. Jayanand Jayant Salgaonkar, 2023 SCC OnLine SC 1679.

2. (2010) SCC Online Bom 615.

3. Sarbati Devi & Anr. v. Usha Devi, (1984) 1 SCC 424; Nozer Gustad Commissariat v. Central Bank of India, (1993) 1 Mah LJ 228; Vishin N. Khanchandani & Anr. v. Vidya L. Khanchandani, (2000) 6 SCC 724; Ram Chander Talwar & Anr. v. Devender Kumar Talwar & Ors., (2010) 10 SCC 671.

4. Ibid.

5. AIR 1957 SC 344.

6. 1991 Supp (2) SCC 228.

7. (2001) 8 SCC 143.

8. Vishin N. Khanchandani & Anr. v. Vidya L. Khanchandani, (2000) 6 SCC 724

9. Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd., (1987) 1 SCC 424.

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