Case Note & Summary
These appeals arose from a common judgment and order dated 31st March 2015 passed by a Single Judge of the Bombay High Court in two proceedings: Suit No.503 of 2014 (a suit for administration of the estate of late Jayant Shivram Salgaonkar) and Testamentary Petition No.457 of 2014. The Single Judge held that the decision in Harsha Nitin Kokate v. The Saraswat Cooperative Bank Limited and Others, which had interpreted Sections 109A of the Companies Act, 1956 and 9.11 of the Depositories Act, 1996 to mean that a valid nomination vests beneficial ownership of shares in the nominee to the exclusion of all others, was per incuriam. The appellants in both appeals challenged this order. Appeal No.313 of 2015 was preferred by original defendants 5 and 6 in the suit, and Appeal No.311 of 2015 by the petitioner in the testamentary petition. The main controversy before the Division Bench was the correctness of the view in Kokate’s case and, consequently, the legal position on the rights of a nominee versus legal heirs of a deceased shareholder. The Division Bench formulated three questions: whether a nominee under Section 109A of the Companies Act, 1956 read with Byelaws under the Depositories Act, 1996 becomes the beneficial owner of shares to the exclusion of all other heirs; whether the nominee holds the securities in trust for the legal representatives under succession law; and whether a bequest in a Will under the Indian Succession Act, 1925 overrides such a nomination. The appeals were referred by an earlier Division Bench to the Hon’ble Chief Justice for assignment to an appropriate bench because the Single Judge had disagreed with a coordinate bench’s decision without referring the matter to a larger bench, an issue of judicial discipline. The matters were heard by the present Bench on 19th July 2016 and judgment was reserved. The text of the judgment does not contain the final decision or reasoning.
Issue of Consideration
(i) Whether a nominee of a holder of shares or securities appointed under Section 109A of the Companies Act, 1956 read with the Byelaws under the Depositories Act, 1996 is entitled to the beneficial ownership of the shares or securities subject matter of nomination to the exclusion of all other persons who are entitled to inherit the estate of the holder as per the law of succession? (ii) Whether a nominee of a holder of shares or securities on the basis of the nomination made under the provisions of the Companies Act, 1956 read with the Byelaws under the Depositories Act, 1996 is entitled to all rights in respect of the shares or securities subject matter of nomination to the exclusion of all other persons or whether he continues to hold the securities in trust and in a capacity as a beneficiary for the legal representatives who are entitled to inherit securities or shares under the law of inheritance? (iii) Whether a bequest made in a Will executed in accordance with the Indian Succession Act, 1925 in respect of shares or securities of the deceased supersedes the nomination made under the provisions of Sections 109A and ByeLaw No.9.11 framed under the Depositories Act, 1996?
Law Points
- Interpretation of Section 109A Companies Act
- 1956
- Nominee’s rights in shares vis-à-vis legal heirs
- Conflict between nomination and testamentary disposition
- Effect of Byelaw 9.11 under Depositories Act
- 1996
- Whether nomination creates trust for legal heirs
- Whether nomination overrides Will under Indian Succession Act
- 1925
- Correctness of Harsha Nitin Kokate v. Saraswat Cooperative Bank Limited
- Per incuriam doctrine
- Judicial discipline when Single Judge disagrees with coordinate bench
Case Details
2016 LawText (BOM) (12) 25
Appeal No. 313 of 2015 in Notice of Motion No.822 of 2014 in Suit No.503 of 2014 along with Appeal No.311 of 2015 in Testamentary Petition No.457 of 2014
Shri Rajendra Pai, Shri A.R. Pai, Ms. Bina R. Pai (for Appellants in 313/2015); Shri Snehal Shah, Shri Yatin R. Shah, Yatin R. Shah & Co (for Respondent No.1 in 313/2015); Shri Santosh D. Raje, Ms. Madhura Dalvi, Rajiv Jadhav (for Respondent Nos.4, 6, 7 and 8 in 313/2015); Shri Nanak S. Ghatalia (Appellant in person in 311/2015); Shri Rohan Cama, Kalpeshg Joshi Associates (for Respondent in 311/2015)
Shakti Yezdani and Another (in Appeal No.313/2015); Nanak S. Ghatalia (in Appeal No.311/2015)
Jayanand Jayant Salgaonkar and Others (in Appeal No.313/2015); Swati Shatishchandra Ghatalia (in Appeal No.311/2015)
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Nature of Litigation
Appeals against a Single Judge's common order holding a prior decision on nomination rights in shares as per incuriam; underlying dispute involves administration of estate and testamentary petition where rival claims of nominee and legal heirs under succession law are contested.
Remedy Sought
To set aside the order dated 31st March 2015 and obtain a ruling on the correct interpretation of nomination provisions under the Companies Act and Depositories Act, and to determine whether the view in Harsha Nitin Kokate’s case is correct.
Filing Reason
The Single Judge departed from a coordinate bench’s decision without referring the issue to a larger bench, and the appellants contended that the decision was per incuriam; the appeals were necessitated to resolve the conflict on the legal effect of nomination on shares vis-à-vis succession law.
Previous Decisions
Harsha Nitin Kokate v. The Saraswat Cooperative Bank Limited and Others (Single Judge, Bombay High Court) held that a valid nomination under Section 109A Companies Act vests beneficial ownership exclusively in the nominee; the impugned common order dated 31st March 2015 held that view per incuriam; earlier Division Bench order dated 7th September 2015 referred the matter to the Chief Justice for assignment to an appropriate bench; Administrative Order dated 25th April 2016 assigned the appeals to this Division Bench.
Issues
Whether a nominee of a holder of shares or securities appointed under Section 109A of the Companies Act, 1956 read with the Byelaws under the Depositories Act, 1996 is entitled to the beneficial ownership of the shares or securities subject matter of nomination to the exclusion of all other persons who are entitled to inherit the estate of the holder as per the law of succession?
Whether a nominee of a holder of shares or securities on the basis of the nomination made under the provisions of the Companies Act, 1956 read with the Byelaws under the Depositories Act, 1996 is entitled to all rights in respect of the shares or securities subject matter of nomination to the exclusion of all other persons or whether he continues to hold the securities in trust and in a capacity as a beneficiary for the legal representatives who are entitled to inherit securities or shares under the law of inheritance?
Whether a bequest made in a Will executed in accordance with the Indian Succession Act, 1925 in respect of shares or securities of the deceased supersedes the nomination made under the provisions of Sections 109A and ByeLaw No.9.11 framed under the Depositories Act, 1996?
Submissions/Arguments
The learned counsel for the appellants urged that the learned Single Judge, while passing the impugned order, had observed that the judgment in Harsha Nitin Kokate v. The Saraswat Cooperative Bank Ltd. was per incuriam, and that the only option available before the learned Single Judge, if he disagreed with the view taken by another learned Single Judge, was to refer the matter to the Hon'ble Chief Justice so that the issue could be referred to a Larger Bench or Division Bench.
Judgment Excerpts
The issue which arises for consideration in this group of Appeals is whether the view taken by the learned Single Judge in the case of Harsha Nitin Kokate v. The Saraswat Cooperative Bank Limited and Others is correct.
(i) Whether a nominee of a holder of shares or securities appointed under Section 109A of the Companies Act, 1956 read with the Byelaws under the Depositories Act, 1996 is entitled to the beneficial ownership of the shares or securities subject matter of nomination to the exclusion of all other persons who are entitled to inherit the estate of the holder as per the law of succession?
(ii) Whether a nominee of a holder of shares or securities on the basis of the nomination made under the provisions of the Companies Act, 1956 read with the Byelaws under the Depositories Act, 1996 is entitled to all rights in respect of the shares or securities subject matter of nomination to the exclusion of all other persons or whether he continues to hold the securities in trust and in a capacity as a beneficiary for the legal representatives who are entitled to inherit securities or shares under the law of inheritance?
(iii) Whether a bequest made in a Will executed in accordance with the Indian Succession Act, 1925 in respect of shares or securities of the deceased supersedes the nomination made under the provisions of Sections 109A and ByeLaw No.9.11 framed under the Depositories Act, 1996?
Procedural History
The Single Judge passed a common judgment and order dated 31st March 2015 in Suit No.503 of 2014 and Testamentary Petition No.457 of 2014, holding that the view in Harsha Nitin Kokate v. The Saraswat Cooperative Bank Limited and Others was per incuriam. Appeals were filed against this order. On 7th September 2015, a Division Bench passed an order noting the submission that the only option for the Single Judge when disagreeing with a coordinate bench was to refer the matter to the Chief Justice, and accordingly directed that the matter be placed before the Hon'ble Chief Justice for appropriate orders. By an Administrative Order dated 25th April 2016, the Hon'ble Chief Justice assigned the appeals to the present Division Bench. The appeals were heard on 19th July 2016 and judgment was pronounced on 1st December 2016.
Acts & Sections
- Companies Act, 1956: 109A
- Depositories Act, 1996: 9.11, 9.11.7, ByeLaw No.9.11
- Indian Succession Act, 1925:
- Insurance Act, 1938: 39
- Maharashtra Cooperative Societies Act, 1960: 30
