'Nominee' in general parlance means a person nominated by another person to act in the capacity of the person who is appointing the nominee to act on his behalf. Blacks Law Dictionary defines 'nominee' as 'one who has been nominated or proposed for an office' or 'one designated to act for another as his representative in a rather limited sense. It is used sometimes to signify an agent or a trustee. It has no connotation, however, other than that of acting for another, in representation of another, or as grantee of another'.
The term is not defined in law. However, is used under different laws such as insurance, company, banking and securities laws. The nominee accedes to the rights of the original holder after his/her death. For instance, the Companies Act, 2013 provides that on death of the holder of securities, the nominee becomes entitled to all the rights in the securities1. Similar power is given under other laws.
However, the right of the nominee as provided in these laws is subject to succession laws in India. Under the succession laws applicable to an individual in India, succession can be either testamentary (where property of the person is disposed as per the will made by him) or intestate (where the person dies without making any will). In either case, the right over the property of the person goes to the successor in-line or a legal heir. The term 'heir' under the Hindu Succession Act, 1956 is defined as a person who is entitled to the property of a person in the absence of a will2. To complicate matters further, different personal laws dictate inheritance.
The question therefore arises, what is the position of a nominee in relation to the property of the holder after his death? Most of the laws that provide for power to nominate have an overriding effect over other provisions or enactments. This issue has been dealt with by various courts in India in relation to various laws. The principle in this regard is settled. In case a person is nominated by the original holder, the nominee is only a 'trustee' or an 'agent' of the original holder and his right over the property is only till the time the legal heirs are decided. However, the position of the apex court in this regard is still undecided.
The settled principle was challenged due to a different stance taken by single judge bench of the Bombay High Court in the case of Harsh Kokate v. The Sarawat Co-operative Bank Limited3 ("Kotake Case"), where the court held that 'the nominee would be entitled to the shares of the original holder to the exclusion of the legal heirs'. The Kokate case has, therefore, created ambiguity in law, which was settled by the division bench of the Bombay High Court in the decision of Shakti Yezadi and another v. Jayanand Jayant Salgaonkar4 ("Shakti Case"). The Bombay High Court ruled that 'the Companies Act has nothing to do with the law of succession' and that 'legal heirs and not the nominee will hold ownership rights on the share certificate'.
The issue has come to light again in the recent case of Oswal Greentech Limited v. Pankaj Oswal and others5 ("Oswal Case"). The issue at hand was discussed by the National Company Law Appellate Tribunal ("NCLAT") and the tribunal laid down that "the right arising out of an instrument does not vest with the nominee automatically on death of the original holder of the instrument. Nominee does not mean that the amount or the share belongs to the nominee. On death of the holder of the instrument, the amount/share vests with the legal heirs, the nominee merely holds the amount/share herein till the matter of vesting is decided in the favour of the legal heirs".
In the Oswal Case, a partition suit was initially filed by the legal heir in the Delhi Hight Court for grant of 1/4th shares since he was the legal heir. While the case was still pending in the Delhi High Court, another case was filed by the legal heir in the NCLAT on the ground of oppression mismanagement under Section 241 and 242 of the Companies Act, 2013. The maintainability of the petition was raised as a contention since the legal heir was not a shareholder in the Company in which the original holder held shares. The argument raised by the legal heir was 'he is the legal heir of the original holder and therefore he will be entitled to 10% of the issued paid up capital of the company'. However, the original holder had filed a nomination before his death under Section 72 of the Companies Act, 2013. Therefore, the right of the legal heir to the shares was disputed.
The judgment in the Oswal Case was reversed by the Supreme Court in the case of Aruna Oswal v. Pankaj Oswal and Ors.6 wherein the court held that the matter of inheritance of shares was a civil dispute and cannot be said to be a dispute regarding oppression and mismanagement under the Companies Act, 2013. The Supreme Court did not delve into the matter at hand.
The whole issue therefore circles back to the same position laid down in the Shakti Case. However, an appeal, has been filed against the Shakti Case in the Supreme Court, which once decided will bring clarity on the issue.
Footnotes
1. Companies Act, 2013, Section 72
2. Indian Succession Act, 1956, Section 3(f)
3. 2010 (3) Mh. L.J 780
4. (2017) 1 Bom CR 319
5. 2019 SCC Online NCLAT 1526
6. Civil Appeal No. 9340 of 2019
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