NOMINATION CAN’T TAKE PRECEDENCE OVER LAW OF SUCCESSION: JUDGEMENT BY BOMBAY HC

A division bench of the Bombay High Court has held that the right of succession prevails over the rights of a nominee. The bench of Justices A.S. Oka and A.A. Sayed have held that the rights of the successors overrides that of the nominee of a holder of shares or securities appointed under Section 109A of Companies Act, 1953.

The division bench was hearing appeals arising out of an order passed by a single bench. By an order dated March 31, 2015 a single judge of the Bombay High Court held that in the case of Harsha Nitin Kokate v. The Saraswat Cooperative Bank Limited(Kokate case) the view taken by Roshan Dalvi J was per incuriam or bad in law. These appeals were placed before the division bench after the Chief Justice passed an administrative order directing the same.

During the citation of the Supreme Court’s decision in the case of Indrani Wahi v. Registrar of Co-op Societies and Others the bench analyzed that-

“The conclusion drawn by the Apex Court was that a Cooperative Society is bound by the nomination made by the member. In case of such nomination, the Society has no option except to transfer the shares in the name of the nominee after the death of the member. However, those who are claiming inheritance will be entitled to pursue their remedies and claim title in the shares on the basis of inheritance. Thus, the conclusion drawn by the Apex Court was not that the nomination binds the legal representatives of the deceased shareholder or a member of the Society or that it overrides the law of succession.”

In conclusion the bench observed-

“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 nominee. It is always held that the nomination does not override the law in relation to testamentary or intestate succession. The provisions regarding nomination are made with a view to ensure that the estate or the rights of the deceased subject matter of the nomination are protected till the legal representatives of the deceased take appropriate steps.” “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 nothing to do with the law of succession.”

Megha Kumari

Indore Institute of Law

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