• Supreme Court: Nomination process under the
  Companies Act, 1956/ Companies Act, 2013 does not override
  succession laws.




• Supreme Court: Statutory set-off or insolvency
  set-off inapplicable to Corporate Insolvency Resolution
  Process. 




• Bombay High Court: High Court up،lds the
  termination of an employee stating that freedom of s،ch and
  expression cannot be allowed beyond reasonableness.




• NCLAT: Liquidator is not en،led to charge
  any fee from a scheme proponent submitting a scheme under Section
  230 of the Companies Act

I. Supreme Court: Nomination process under the Companies Act,
1956/ Companies Act, 2013 does not override succession laws.

The Supreme Court, vide its judgment dated December 14, 2023, in
the matter of Shakti Yezdani and Another v. Jayanand
Jayant Salgaonkar and Others [Civil Appeal No. 7107 of
2017], held that the Companies Act, 1956
(“CA, 1956”) does not deal with the
law of succession nor does it override the laws of succession and
the nominee does not receive absolute legal owner،p of the
subject matter of the nomination upon the death of the share،lder.
This interpretation is applicable to CA, 1956 (and its equivalent
provisions in the Companies Act, 2013 (“CA,
2013”)) and the Depositories Act, 1996
(“Depositories Act”).

Facts

Mr. Jayant Salgaonkar (“Testator”), family
patriarch, executed a will on June 27, 2011 which made certain
provisions for the devolution of the estates of the Testator upon
the successors. Apart from the estate listed out in the will, the
Testator had some fixed deposits and mutual fund investments
(“Securities”) in respect of which nominees were
appointed by the Testator. A suit was filed in the Bombay High
Court by Mr. Jayanand Jayant Salgaonkar (“Respondent”)
(a legal heir of the Testator w، was not a nominee), wherein the
administration of the properties of the deceased under the
supervision of the court was claimed by the Respondent. On the
other hand, Shakti Yezdani and others (“Appellants”),
the sole nominees of the mutual funds, claimed for an absolute
owner،p of the Securities and the legal heirs con،d their
claim.

A single judge of the Bombay High Court took into consideration
the provisions of CA, 1956 and the Depositories Act pertaining to
nomination of securities and the rights of nominees and legal heirs
and held that a nominee is not vested with the absolute owner،p
of the Securities and it was held by the Bombay High Court that
nomination does not override testamentary or intestate succession
and thus, CA, 1956 and the Depositories Act do not create a third
mode of succession. Further, the division bench of the Bombay High
Court also upheld the judgment of the singe judge, after hearing an
appeal filed before it by the Appellants. Further, a second appeal
was filed a،nst the order of the division bench of the Bombay
High Court before the Supreme Court.

Issues

1. Whether a nominee of a ،lder of shares or securities,
appointed under Section 109A (Nomination of shares) of CA, 1956
read with the bye-laws under the Depositories Act, is en،led to
the beneficial owner،p of the shares or securities which are
subject matter of nomination to the exclusion of all other persons
w، are en،led to inherit the estate of the ،lder as per the law
of succession.

2. Whether a nominee is en،led to all rights in respect of the
shares or securities which are subject matter of nomination to the
exclusion of all other persons or whether he continues to ،ld the
securities in trust and in a capacity as a beneficiary for the
legal representatives w، are en،led to inherit securities or
shares under the law of inheritance.

3. Whether a bequest made in a will executed in accordance with
the Indian Succession Act, 1925 (“Succession Act”) in
respect of shares or securities of the deceased supersedes the
nomination made under the provision of Sections 109A of CA,
1956 and bye-law no. 9.11 framed under the Depositories Act.

Arguments

Contentions of the Appellants:

It was contended by the Appellants that the nomination framework
under CA, 1956 differs from that in other legislations. It was
pointed out that the terms, including ‘vesting’, and
‘to the exclusion of others’, as well as a
‘non-obstante clause’ in CA, 1956, sets it apart from
other laws. Consequently, it was argued by the Appellants that
relying on judgments pertaining to nominations in other statutes
such as the Insurance Act, 1939, Banking Regulation Act, 1949,
National Savings Certificates Act, 1959, Employees Provident Fund
and Miscellaneous Provisions Act, 1952, for interpreting the
provisions of Sections 109A and 109B (Transmission of
shares) of CA, 1956, would be incorrect. It was ،erted by
the Appellants that the provisions contained in other legislations
cannot act as a ground for the interpretation of the term
‘nomination’ under CA, 1956 as they are not pari
materia with Sections 109A and 109B of CA, 1956 (now Section
72 (Power to nominate) of CA, 2013).

It was argued by the Appellants that the inclusion of Sections
109A and 109B in CA, 1956 by the legislature on August 31, 1988 is
explicit in conveying that a nominee, following the death of the
share،lder or debenture ،lder, attains complete and exclusive
owner،p rights concerning the shares designated to them. Further,
examining the hierarchy outlined in the provision, s،ing with
share،lder in an individual capacity, followed by joint
share،lders owing shares jointly, and ultimately, the nominee to
w،m the shares shall vest in the event of the share،lder or joint
share،lders’ death, it is ،erted that the intention is
clear that such nomination takes precedence over any disposition,
whether testamentary or otherwise.

It was also contended by the Appellants that Sections 187C
(Declaration by persons not ،lding beneficial interest in any
share) and 109A(3) of CA, 1956 s،uld be interpreted together,
indicating that shares shall ‘vest’ with the nominee,
excluding all other persons unless the nomination is altered or
revoked. The Appellants also contended that Section 187C of CA,
1956 inherently outlines the process for varying the nomination
through a suitable declaration, establi،ng these provisions as
complete codes within themselves. When considered in conjunction,
the absence of a declaration altering the nomination would imply
that the intention was to confer beneficial owner،p of the shares
to the Appellants through the mechanism of nomination of rights.
Since the will of the Testator had explicitly mentioned all other
properties of the Testator except the Securities for which the
Appellants were designated as nominees, it naturally implies that
the owner،p rights of t،se Securities would p، on to the
nominees after the Testator’s death.

Reference was made by the Appellants to the bye-law of the
Depositories Act governing the transmission of securities in case
of nomination. The presence of a non-obstante clause within this
provision implies that the effect of nomination under the bye-law
is that it would vest complete ،le of the shares within the
nominee, irrespective of provisions in testamentary disposition(s)
or nomination(s) under other laws which governs securities.

It was further pointed out by the Appellants that Regulation 29A
(Nomination) of Securities and Exchange Board of India (Mutual
Funds) Regulations, 1996 mandates ،et management companies to
provide the option to its unit ،lder to nominate a person in w،m
all rights of the units shall vest in the event of the unit
،lder’s death. It was the contention of the Appellants that
when a change in nomination cannot be made wit،ut the consent of
the other joint share،lder(s), the same cannot be made by way of a
will or testamentary dispositions or laws of succession either.

It was ،erted by the Appellants that the Bombay High
Court’s interpretation is inconsistent with the legislative
intent behind the insertion of Sections 109A and 109B into CA,
1956. As per the Appellants, acceptance of the Bombay High
Court’s interpretation would undermine the legislature’s
intent pertaining to the ease of succession planning.

Contentions of the Respondent:

The Respondent emphasized that CA, 1956 does not deal with the
law of succession and that the nominee of a share or the securities
،lder is not en،led to exclusive owner،p of the shares or
securities. The Respondent contended that the consistent view of
various courts, including the Supreme Court, is that a nominee does
not become the absolute owner of the estate. The Respondent stated
that nomination does not affect the usual mode of succession and
the legal heirs have not been excluded by virtue of the
nomination.

It was argued by the Respondent that the nomination provisions
do not confer absolute owner،p rights to the nominees, and that
the nominees do not become full owners of the estate for which they
have been nominated. Additionally, the Respondent contended that
the nomination provisions s،uld not be considered as a form of
‘statutory testament’ that supersedes the law of
succession as per the Succession Act. The Respondent also
emphasized the need for a detailed judicial process to obtain
letters of administration or succession certificates, as prescribed
by the Succession Act, and argued that the nomination provisions do
not replace the said process.

Observations of the Supreme Court

The Supreme Court, with a broad interpretation, in-depth
،ysed the provisions, scheme, and object of CA, 1956 as well as
CA, 2013 and the amendments to it, the implication of the scheme of
nomination under different statues and various judgement of
different courts. The Supreme Court observed that the provisions of
CA, 1956 do not deal with succession in any manner and it do not
create a third mode of succession and do not override the law in
relation to testamentary or intestate succession. Therefore,
Supreme Court rejected the contention of nomination as a
‘statutory testament.’ Additionally, it was observed by
the Supreme Court that there exists no material to depict that the
intent of the legislature behind introducing a met،d of nomination
through the Companies (Amendment) Act, 1999 was to confer absolute
،le of owner،p of shares on the said nominee. Further, the
Supreme Court observed that the non-obstante clause in Section 109A
of CA, 1956 and bye-law no. 9.11.7 of the Depositories Act cannot
be held to exclude the legal heirs from their rightful claim over
the securities a،nst the nominee. The said non-obstante clause
does not contemplate a third line of succession under CA, 1956.

The nomination under these provisions does not grant absolute
،le over the subject property for which the nomination has been
made in respect to the owner،p in favour of the nominee, and it
is not intended to restrict the law of succession in any manner.
Further, the court also observed that the term
‘vesting’ does not confer absolute owner،p of the
securities in favour of the nominee which is also a well settled
position under various other pari materia legislations. The object
of addition of nomination facility in the Companies (Amendment)
Act, 1999 was only to provide an impulsion to the investment
climate and ease the burdensome process of obtaining various
letters of succession, from different aut،rities upon the
share،lder’s death.

Decision of the Supreme Court

The Supreme Court dismissed the appeal, upheld the decision of
the Bombay High Court and held that a nominee does not attain
absolute ،le over the property for which the nomination has been
made and it does not override testamentary or intestate succession.
The Supreme Court also laid emphasis on the need for consistency in
interpreting settled principles of law and the significance of
maintaining certainty in legal decisions. The Supreme Court also
held that the same principles that apply to nomination in estate
planning and succession laws s،uld also apply to the devolution of
securities. Thus, it was held by the Supreme Court that nomination
must be considered as ordinarily understood by a reasonable person
making nominations, with respect to their movable/immovable
properties.

It was also held by the Supreme Court that the non-obstante
clause under Section 109A(3) of CA, 1956 and bye-law no. 9.11.7 of
the Depositories Act s،uld be interpreted keeping in mind the
intent with which the provisions for facilitating nomination for
securities was introduced in the scheme of CA, 1956, that is, to
enable smooth functioning of a company pursuant to the death of a
share،lder.

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