[Harsha Nitin Kokate v.
The Saraswat Co-op. Bank Ltd. & Ors., Notice of Motion No. 2351 of 2008 in
Suit No. 1972 of 2008, dated 20-4-2010, Bombay High Court.]
The plaintiff, wife of the
late Shri Nitin Kokate claimed right and interest in the shares of her husband
held in Demat Account. Her husband had executed a nomination in the prescribed
form in favour of his nephew which was filed with the depository participant
and so registered. The nephew had also claimed right title and interest in the
shares pursuant to the nomination executed in his favour. The nomination had
been executed well prior to the death of the deceased and well after his
marriage with the plaintiff.
The issue arose for
consideration as to the effect of such nomination. The Court observed that the
nomination form itself shows that the rights of transfer and/or the amount
payable in respect of the securities held by the late Nitin Kokate, vests in
the said nominee. The law relating to nomination is set out in S. 109A of the
Companies Act pursuant to the amendment which came into effect on 31st October
1998. It is common knowledge that prior to 1996, shares were not held in
dematerialised form. Consequent upon the dematting of the shares the share
certificates in physical form are not mandatorily required to be issued by the
limited companies listed on the Stock Exchanges. Shares can be transferred by
word of mouth or on the Internet from person to person. Upon such transfer the
membership rights of the holder of the shares change. Since the share is an
intangible movable property, it is bequeathable estate. The nomination in
respect of the shares is, therefore, important. S. 109A sets out the rights of
the holder of shares to nominate as well as the rights of the nominees.
The Depositories Act 1996,
S. 9.11 thereof relates to transmission of securities in the case of
nomination. Upon such nomination the dematted securities automatically get
transferred in the name of the nominee upon the death of the holder of shares.
The nomination is required to be duly registered with the depository
participant (Bank) in accordance with the Business Rules. On death of the
holder of the shares the nominee would be entitled to elect to be registered
as a beneficiary owner by notifying the Bank along with the certified copy of
the death certificate. The Bank would be required to scrutinise the election
and nomination of the nominee registered with it. Such nomination carries
effect notwithstanding anything contained in a testamentary disposition or
nominations made under any other law dealing with the securities. The last of
the many nominations would be valid. Under the said Section the holders of the
shares would nominate any person in whom the securities would vest in the
event of his death.
The nomination would have
the effect of vesting in the nominee complete title in the shares. He would be
entitled to elect to be registered as a beneficial owner of the shares or he
would have the right to transfer the shares. These are inter alia the rights
of every shareholder of listed companies. These rights show that the vesting
of the shares is upon the death of the shareholder, provided only that the
nomination is made as per the procedure set out by the Depository Participant.
The purpose and object of this Section is to simplify the procedure relating
to the transmission of shares which is otherwise an intangible movable
property.
Under the Insurance Act,
the nomination entails payment by the insurance company to the nominee to
obtain a complete discharge. Once the amount under the policy is paid to the
nominee, the nominee would hold it in trust or the estate, because under the
Insurance Act there is no legislative provision that the nominee would obtain
any other right.
It may be mentioned that
the position u/s.30 of the Maharashtra Cooperative Societies Act is similar
for nominees in respect of shares in a housing society. Hence in a cooperative
society also the shares of the member can be simplicitor transferred to the
nominee which transfer would effectually discharge the society as against any
other person making a demand. Such a transfer, therefore, cannot and does not
result in vesting of the flat in such nominee. Hence such nominee is merely a
trustee for the estate of the deceased. The society is not concerned with the
dispute amongst the heirs of the deceased.
The provision pursuant to
the amendment of the Companies Act is quite the contrary. The nomination
u/s.109A of the Companies Act does not entail mere payment of the amount of
shares. It specifically vests the property in the shares in the nominee, in
the event of the death of the holder of the shares.
It is observed that the
word ‘vest’ is a word of variable import even under Indian Statutes. Under the
Insolvency Act which provides that the property vests in the Receiver. Such
vesting is held to be temporary and only for the purpose of management of the
properties of the insolvent for payment of his debts after distributing his
assets. Consequently, the Receiver would have no interest of his own in the
property vested in him. The vesting under the Land Acquisition Act is shown to
be different. Under that Act the property would vest ‘absolutely in the
Government, free from all encumbrances’. Hence upon such vesting the property
acquired becomes the property of the Government without any conditions or
limitations either as to its title or possession. A reading of S. 109A of the
Companies Act and S. 9.11 of the Depositories Act makes it abundantly clear
that the intent of the nomination is to vest the property in the shares which
includes the ownership rights thereunder in the nominee upon nomination
validly made as per the procedure prescribed, as has been done in this case.
These Sections are completely different from S. 39 of the Insurance Act which
requires a nomination merely for the payment of the amount under the Life
Insurance Policy without confirming any ownership rights in the nominee or
u/s.30 of the Maharashtra Cooperative Societies Act which allows the society
to transfer the shares of the member which would be valid against any demand
made by anydemand made by any other person upon the society.
Since the nomination is shown to be correctly made by her husband who was the holder of the suit shares, the plaintiff wife would have no right to get the shares of her deceased husband sold or to otherwise deal with the same.
