Nomination process does not override succession law: SC

The Supreme Court has held that nomination process does not override the succession laws. It said vesting of securities in favour of a nominee as per Companies Act 1956 and Depositories Act, 1996 is to avoid confusion upon the death of the holder and to give an impetus to investment climate but it would not override succession laws.

A bench of Justices Hrishikesh Roy and Pankaj Mithal, in a recent judgment, said that the concept of nomination if interpreted by departing from the well-established manner would cause major ramifications and create significant impact on disposition of properties left behind by deceased nominators.

"It is beyond the scope of the company’s affairs to facilitate succession planning of the shareholder. In case of a will, it is upon the administrator or executor under the Indian Succession Act, 1925, or in case of intestate succession, the laws of succession to determine the line of succession," the bench said.

Rejecting an appeal filed by Shakti Yezdani and another, the bench upheld the Bombay High Court's division bench judgment which upheld a single judge's view and held that the object and provisions of the Companies Act, 1956 is not to either provide a mode of succession or to deal with succession at all.

The bench pointed out that the object behind the introduction of a nomination facility as can be appreciated was to provide an impetus to the corporate sector in light of the slow investment during those times. In order to overcome such conditions, boosting investors’ confidence was deemed necessary along with ensuring that company law remained in consonance with contemporary economic policies of liberalisation, it said.

In fact, the provision of nomination facility was made in order to ease the erstwhile cumbersome process of obtaining multiple letters of succession from various authorities and also to promote a better climate for corporate investments within the country, the bench said.

"In contrast, one must note that ownership of the securities is not granted to the nominee nor there is any distinct legislative move to revamp the extant position of law, with respect to the same," the bench added.

Under the Government Savings Certificate Act 1959, the Banking Regulation Act, 1949, the Life Insurance Act, 1939 and the Employees Provident Fund and Miscellaneous Provisions Act, the bench said that the usual mode of succession is not to be impacted by nomination and the legal heirs; therefore, have not been excluded by virtue of nomination.