THIS ARTICLE WAS WRITTEN BY PIYUSH TIWARI, A STUDENT OF WBNUJS.

Section 72 of the Companies Act 2013 states that each shareholder or debenture owner in a corporation has the right to nominate any person in a specified manner for whom the shares or debentures will become vested in the event of the death of the person who originally owned them. In section 72(3) [1] of the Act stipulates it states that ” Notwithstanding anything contained in any other law for the time being in force or in any disposition, whether testamentary or otherwise, in respect of such shares in, or debentures of, the company, where a nomination made in the prescribed manner purports to confer on any person the right to vest the shares in, or debentures of, the company, the nominee shall, on the death of the shareholder or holder of debentures of the company or, as the case may be, on the death of the joint holders become entitled to all the rights in the shares or debentures of the company or, as the case may be, all the joint holders, in relation to such shares in, or debentures of the company to the exclusion of all other persons, unless the nomination is varied or cancelled in the prescribed manner.” 2 This subsection is accompanied by a non-obstante provision which states that if the nomination is done in a manner that is prescribed, then upon the death of the shareholder, the shares or debentures become into the nominee’s possession, and it will function similar to when the owner given the claims over to the nominee. In the event of death, the nominee is entitled to all rights without regard to the legal successors to the deceased.

The issue with the law in question is how it establishes another kind of succession. It has been suggested in certain cases that the nomination doesn’t confer any title rights for the beneficiary. It is merely a trustee in order to avoid issues that could arise from having shares without a title. In other cases, the Court has decided that nomination confers ownership rights.

In M/S Dayagen Pvt. Ltd. in v. M. Rajendra Dorian Punj Anr.,[3 the Delhi High Court debated the meaning of Sections A of Section 109A under the Companies Act, 1956, which is in pari materia with Article 72, 2013 Act. The argument in the Court is that a nomination confers the power of the nominee to manage the assets that the decedent left as trustee, and the inheritance doesn’t transfer over to the named nominee. The court dismissed this argument because the language in Section 109A was very clear. The Court declared that it was very clear from the interpretation of the statute that the legislative body intended to establish an exception to the law of succession generally to the nominations made pursuant to this section for dividends or shares. The Court also stated that a ‘will’ must be executed in a particular manner if it meets specific requirements. If it is not done, it is not an effective will. It must be made in a specified procedure and must be followed strictly to achieve the effect of reversing the law of succession. [4]

The position was also confirmed through the Bombay High Court in the case of Harsha Nitin Kokate v. The Saraswat Co-Op. Bank Ltd. and others.[5The issue that the Court had to decide was whether a nomination made under Section 109A of the Companies Act grants ownership rights to those who nominate the nominee in case of the death of the shareholder originally named. It was claimed that the nomination made under Section 39 of the Insurance Act and Section 30 of the Maharashtra Co-operation Societies Act is the only one that creates the nominee as trustee of the payment or property and does not confer any ownership rights in the named nominee. [6] However, the language of the action mentioned above is vastly different from that in Section 109A, which is part of the Companies Act. This section has a non-obstante provision that goes over the succession laws. It clarifies that shares or debentures are to become the property of the nominee in the event of the death of the shareholder or joint shareholders, to the exclusion of other individuals, including legal heirs. In addition, the Court examined the meaning of the word “vest,” which is the term used within this subsection. The word vest has a variety of implications and is typically employed for various purposes. In the case of this one, the High Court interpreted it as “to confer ownership rights” due to the words that were used to describe the provision. The language was simple in meaning and meant that the nomination confers ownership rights to the nominee in the event of dying of the shareholder(s). The Court continued to note that nominations are irrevocable and only the final nomination can be relied on, just like a testamentary disposition [77.