The Tax Publishers

Companies Act, 2013--Transmission

Right to Vest the Property in Shares--Nominee or Legal Heir?

Pragya Bhandari

In the light of various judicial pronouncements of Supreme Court and High Courts, the learned author, in this write up, elaborately discusses a moot point as to whether the rights of the nominee under section 109A of Companies Act, 1956/ section 72of the Companies Act, 2013 can override the rights of the legal heir.

1. Nomination under Companies Act

Section 72 of the Companies Act, 2013 envisages the nomination facility to security holder of a company. Every holder of securities of a company may, at any time, nominate, any person to whom his securities will vest in the event of his death. The provisions of section 72 of Companies Act, 2013 are similar to the section 109A of the Companies Act, 1956.

On the death of the individual holder or joint holders of securities of the company, the nominee would become entitled to all the rights in the securities held by an individual holder or joint holders, as the case may be, in relation to such securities to the exclusion of all other persons, unless the nomination is varied or cancelled. The nomination prevails over anything contained in any other law for the time being in force or in any disposition, whether testamentary or otherwise. [Section 72(3)].

2. Provisions of personal laws

As is apparent, personal laws like Hindu Succession Act contain provisions in regard to various matters, including succession, which include right of successors in respect of properties owned by his predecessors. The said Act specifies detailed provisions in regard to person, who would be entitled to get assets of their predecessors singly or jointly.The Hindu Succession Act, 1956, Indian Succession Act, 1925 and other personal laws govern the law of succession.

3. Matter of consideration

With passage of time, making nomination has become mandatory under various laws including the Employees Provident Fund and Miscellaneous Provisions Act, 1952, Banking Regulations Act, 1948 and other Debts, Monetary and Financial laws, including Government Saving Certificates Act, 1959, Depositories Act, 1996 etc.

A debatable question arises as to whether the provisions therein are in direct conflict with the provisions contained in section 72 of Companies Act, 2013/ section 109A of the Companies Act, 1956 as it contains the non-obstante clause and whether the nominee to the shares enjoys the rights of a shareholder, after the death of the original shareholder, to the exclusion of legal heirs of the original shareholder or legal heirs can exercise their rights of inheritance to the shares.

This is a subject matter of litigation in various decisions of the court, including that of Supreme Court and High Courts, in this regard.

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