Reaffirming the Legal Distinction Between Nomination and Inheritance: The Shakti Yezdani vs. Jayanand Salgaonkar Case

The dispute in this case centered on the ownership of assets left behind by Jayant Shivram Salgaonkar, who passed away in 2013. The case hinged on the interpretation of provisions related to nominees in the Companies Act, 1956, and the Depositories Act, 1996. The appeal was filed by Shakti Yezdani & Anr., against respondent who were the legal heirs and representatives of the deceased.

Mr. Salgaonkar had executed a will in 2011 to outline the distribution of his estates. The focus, however, turned to his fixed deposits (FDs) and mutual fund investments (MFs), for which certain individuals were nominated. Following Mr. Salgaonkar's passing, a suit was filed in 2014 seeking the administration of his properties under court supervision. This action triggered a legal debate about the rights of the nominees. The appellants argued that, as nominees, they held absolute rights to the securities. They contended that the provisions of the Companies Act should be interpreted independently.

A Single Judge of the Bombay High Court ruled that the provisions of the Companies Act and the Depositories Act did not override the law of succession. Nominees were seen as holding securities in a fiduciary capacity. The appellants appealed, but the Division Bench upheld the view that a valid will under the Indian Succession Act would take precedence over nominations.The Supreme Court, in its judgment, affirmed that nominees did not have exclusive ownership rights over assets subject to nomination. A valid will executed under the Indian Succession Act would take precedence over such nominations.

Major Takeaways

1. Courts have consistently interpreted that the nominee does not become the absolute owner of securities or assets upon the shareholder's death. This interpretation applies to the Companies Act, 1956, and the Depositories Act, 1996 as well.

2. Nomination should be understood in the context of estate planning and succession laws, and it should not lead to confusion or complexities in the succession process.

3. The doctrine of stare decisis is emphasized.

4. The vesting of securities in favor of the nominee is for the purpose of avoiding confusion and protecting the subject matter of nomination until legal representatives of the deceased shareholder can take appropriate steps.

5. The introduction of the nomination facility was aimed at boosting the investment climate and simplifying the process of obtaining letters of succession, not at granting absolute ownership to nominees.

6. The Companies Act does not deal with the law of succession, and there is no intention to provide a third mode of succession through nomination.

The decision serves as a reminder that estate planning and creation of a valid will, are crucial aspects of one's financial affairs. It also highlights the importance of understanding the legal nuances of nomination and inheritance, ensuring that assets are transferred according to one's wishes.