The recent Supreme Court ruling in the case of Shakti Yezdani vs JJ Salgaonkar has clarified that nomination in the context of shares in a company does not confer absolute legal ownership to the nominee. This decision resolves confusion arising from a Bombay High Court ruling on the impact of nomination for company shares. The case involves Salgaonkar’s nomination of certain individuals and entities as nominees for his mutual fund investments and shares, leading to a dispute with legal heirs over ownership rights based on the nomination.
The nominees relied on the Bombay HC’s decision in Harshada Kokate vs Saraswat Co-op Bank, where the HC held that nominee rights are similar to a testamentary disposition, granting absolute legal ownership over shares. However, the trial court rejected this argument, considering the Kokate decision as per incuriam, i.e., not in line with relevant court rulings at the time. The matter eventually reached the Supreme Court for resolution.
The Supreme Court addressed key issues, including the intent behind introducing nomination provisions in the Companies (Amendment) Act, the effect of the term ‘vest’ and non-obstante clause in the Companies Act 1956, and the implications of nomination in comparison to other succession laws. The court concluded that there was no evidence to suggest that the nomination provisions intended to confer absolute title to shares on nominees.
The court emphasized that the Companies Act of 1956 focuses on company affairs, not succession laws. Therefore, a nomination cannot be treated as a ‘statutory testament.’ The term ‘vesting’ and the non-obstante clause were not intended to grant ownership rights to nominees but rather to protect companies from succession disputes. The court highlighted that the Companies Act and Depositories Act do not aim to provide a third mode of succession.
This ruling aligns with consistent judicial views over the years that nominee rights do not imply absolute ownership. A departure from this established perspective could have significant implications.
