# CASE DETAILS SHAKTI YEZDANI & ANR v. JAYANAND JAYANT SALGAONKAR & ORS

- **Citation:** 2023 INSC 1076
- **Court:** Supreme Court of India
- **Decided:** 2023-12-14
- **Case number:** Civil Appeal No. 7107 of 2017
- **Bench:** Hrishikesh Roy, Pankaj Mithal
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/case-details-shakti-yezdani-anr-v-jayanand-jayant-salgaonkar-ors-36954
- **Pages:** 29

## Headnote

Issue for consideration: Whether a nominee of a holder of shares
or securities appointed u/s. 109A of the Companies Act, 1956 read with
the Bye-laws under the Depositories Act, 1996 is entitled to the benefi cial
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 on testator's death as per the law of succession.
Companies Act, 1956 - s. 109A and s. 109B - Companies Act, 2013
- s. 72 - Depositories Act, 1996 - Byelaw 9.11.1 - Nomination of shares
- Eff ect - Nominee of a holder of shares or securities appointed u/s.
109A if, entitled to the benefi cial ownership of the shares or securities,
upon the holder's death:
Held: Upon the holder's death, the nominee would not get an absolute
title to the subject matter of nomination, and those would apply to the
Companies Act, 1956 (pari materia provisions in Companies Act, 2013)
and the Depositories Act, 1996 as well - Usual mode of succession is not
to be impacted by such nomination - Legal heirs have not been excluded
by virtue of nomination - Vesting of securities in favour of the nominee
contemplated u/s. 109A of the Companies Act 1956 (pari materia s. 72 of
Companies Act, 2013) and Bye-Law 9.11.1 of Depositories Act, 1996 is for
a limited purpose - It is to ensure that there exists no confusion pertaining
to legal formalities that are to be undertaken upon the death of the holder
and by extension, to protect the subject matter of nomination from any
protracted litigation until the legal representatives of the deceased holder
are able to take appropriate steps - Object of introduction of nomination
facility vide the Companies (Amendment) Act, 1999 was only to provide
696
SUPREME COURT REPORTS
[2023] 16 S.C.R.
an impetus to the investment climate and ease the cumbersome process
of obtaining various letters of succession, from diff erent authorities upon
the shareholder's death - Nomination process, thus does not override the
succession laws - There is no third mode of succession that the scheme of
the Companies Act, 1956 and Depositories Act, 1996 aims or intends to
provide - Thus, it is clear that the Companies Act does not deal with the
law of succession - Impugned decision takes the correct view. [Paras 26,
44, 45, 46, 47]
Companies Act, 1956 - Companies (Amendment) Act, 1999 -
Scheme, intent and object - Nomination under the Companies Act,
1956 vis-a-vis law of succession:
Held: 1956 Act does not contemplate a 'statutory testament' that
stands over and above the laws of succession - 1956 Act is concerned
with regulating the aff airs of corporates and is not concerned with laws
of succession - 'Statutory testament' by way of nomination is not subject
to the same rigours as is applicable to the formation and validity of a will
under the succession laws - Submission of the appellants of nomination as
a 'statutory testament' cannot be accepted because the Companies Act, 1956
does not deal with succession nor does it override the laws of succession - It
is beyond the scope of the company's aff airs to facilitate succession planning
of the shareholder - In case of a will, it is upon the administrator or executor
under the Succession Act, 1925, or in case of intestate succession, the laws
of succession to determine the line of succession. [Para 41, 42]
Companies Act, 1956 - s. 109A - Eff ect of term 'vest' in s. 109A
and Byelaw 9.11.1 under the Depositories Act, 1996:
Held: s. 109A of the 1956 Act (pari materia to s. 72 of the Companies
Act, 2013) provides for vesting of shares/debentures of a share/debenture
holder unto his nominee 'in the event of his death' - Byelaw 9.11.1 under
the Depositories Act, 1996 provides for 'vesting' of the securities unto the
nominee on the death of the benefi cial owner - Use of the word 'vest' does
not by itself, confer ownership of the shares/securities to the nominee -
Vesting of the shares/securities in the nominee under the Companies Act,
195

## Text

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[2023] 16 S.C.R. 695 : 2023 INSC 1076
695
CASE DETAILS
SHAKTI YEZDANI & ANR.
v.
 JAYANAND JAYANT SALGAONKAR & ORS.
Civil Appeal No. 7107 of 2017
DECEMBER 14, 2023
[HRISHIKESH ROY AND PANKAJ MITHAL, JJ.]
HEADNOTES
Issue for consideration: Whether a nominee of a holder of shares
or securities appointed u/s. 109A of the Companies Act, 1956 read with
the Bye-laws under the Depositories Act, 1996 is entitled to the benefi cial
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 on testator's death as per the law of succession.
Companies Act, 1956 - s. 109A and s. 109B - Companies Act, 2013
- s. 72 - Depositories Act, 1996 - Byelaw 9.11.1 - Nomination of shares
- Eff ect - Nominee of a holder of shares or securities appointed u/s.
109A if, entitled to the benefi cial ownership of the shares or securities,
upon the holder's death:
Held: Upon the holder's death, the nominee would not get an absolute
title to the subject matter of nomination, and those would apply to the
Companies Act, 1956 (pari materia provisions in Companies Act, 2013)
and the Depositories Act, 1996 as well - Usual mode of succession is not
to be impacted by such nomination - Legal heirs have not been excluded
by virtue of nomination - Vesting of securities in favour of the nominee
contemplated u/s. 109A of the Companies Act 1956 (pari materia s. 72 of
Companies Act, 2013) and Bye-Law 9.11.1 of Depositories Act, 1996 is for
a limited purpose - It is to ensure that there exists no confusion pertaining
to legal formalities that are to be undertaken upon the death of the holder
and by extension, to protect the subject matter of nomination from any
protracted litigation until the legal representatives of the deceased holder
are able to take appropriate steps - Object of introduction of nomination
facility vide the Companies (Amendment) Act, 1999 was only to provide
696
SUPREME COURT REPORTS
[2023] 16 S.C.R.
an impetus to the investment climate and ease the cumbersome process
of obtaining various letters of succession, from diff erent authorities upon
the shareholder's death - Nomination process, thus does not override the
succession laws - There is no third mode of succession that the scheme of
the Companies Act, 1956 and Depositories Act, 1996 aims or intends to
provide - Thus, it is clear that the Companies Act does not deal with the
law of succession - Impugned decision takes the correct view. [Paras 26,
44, 45, 46, 47]
Companies Act, 1956 - Companies (Amendment) Act, 1999 -
Scheme, intent and object - Nomination under the Companies Act,
1956 vis-a-vis law of succession:
Held: 1956 Act does not contemplate a 'statutory testament' that
stands over and above the laws of succession - 1956 Act is concerned
with regulating the aff airs of corporates and is not concerned with laws
of succession - 'Statutory testament' by way of nomination is not subject
to the same rigours as is applicable to the formation and validity of a will
under the succession laws - Submission of the appellants of nomination as
a 'statutory testament' cannot be accepted because the Companies Act, 1956
does not deal with succession nor does it override the laws of succession - It
is beyond the scope of the company's aff airs to facilitate succession planning
of the shareholder - In case of a will, it is upon the administrator or executor
under the Succession Act, 1925, or in case of intestate succession, the laws
of succession to determine the line of succession. [Para 41, 42]
Companies Act, 1956 - s. 109A - Eff ect of term 'vest' in s. 109A
and Byelaw 9.11.1 under the Depositories Act, 1996:
Held: s. 109A of the 1956 Act (pari materia to s. 72 of the Companies
Act, 2013) provides for vesting of shares/debentures of a share/debenture
holder unto his nominee 'in the event of his death' - Byelaw 9.11.1 under
the Depositories Act, 1996 provides for 'vesting' of the securities unto the
nominee on the death of the benefi cial owner - Use of the word 'vest' does
not by itself, confer ownership of the shares/securities to the nominee -
Vesting of the shares/securities in the nominee under the Companies Act,
1956 and the Depositories Act, 1996 is only for a limited purpose-to enable
the Company to deal with the securities thereof, in the immediate aftermath
of the shareholder's death and to avoid uncertainty as to the holder of the
697
securities, which could hamper the smooth functioning of the aff airs of the
company. [Para 34, 35]
Companies Act, 1956 - s. 109A - Non-obstante clause - Eff ect of:
Held: Non-obstante clause in s. 109A should be interpreted keeping
in mind the scheme of the Act and the intent of introduction of nomination
facility u/ss. 109A and 109B wherein emphasis was laid on building
investor confi dence and bringing the company law in tune with policies
of liberalisation and deregulation - Use of the non-obstante clause serves
a singular purpose of allowing the company to vest the shares upon the
nominee to the exclusion of any other person, for the purpose of discharge
of its liability against diverse claims by the legal heirs of the deceased
shareholder - This arrangement is until the legal heirs have settled the aff airs
of the testator and are ready to register the transmission of shares, by due
process of succession law - As per Bye-law 9.11.7 of the Depositories Act,
1996, the non-obstante clause confers overriding eff ect to the nomination
over any other disposition/nomination 'for the purposes of dealing with
the securities lying to the credit of deceased nominating person(s) in any
manner' - Purpose of invoking such non-obstante clause is delineated and
limited to the extent of enabling the depository to deal with the securities,
in the immediate aftermath of the securities holder's death - Thus, nonobstante clause in both s. 109A(3) of the 1956 Act and Bye-law 9.11.7 of
the Depositories Act, 1996 cannot be held to exclude the legal heirs from
their rightful claim over the securities, against the nominee - Interpretation
of statutes. [Paras 37, 38]
Interpretation of statutes - Rules of interpretation - Words and
phrases - Interpretation of:
Held: General words and phrases used in a statute, regardless of their
wide ambit, must be interpreted taking into account the objects of the statute
- Clauses and sections within a statute are not to be read in isolation, but
their textual interpretation is determined by the scheme of the entire statute
- Non-obstante clause is to be considered on the basis of the context within
which it is used. [Para 37]
Companies Act, 1956 - Scheme of 'nomination' under the 1956 Act
as well as other comparable legislations-Government Savings Certifi cate
SHAKTI YEZDANI & ANR. v. JAYANAND JAYANT
SALGAONKAR & ORS.
698
SUPREME COURT REPORTS
[2023] 16 S.C.R.
Act 1959, the Banking Regulation Act, 1949, the Life Insurance Act,
1939 and the Employees Provident Fund and Miscellaneous Provisions
Act, 1952 - Implication of - Stated. [Paras 24-26]
LIST OF CITATIONS AND OTHER REFERENCES
Harsha Nitin Kokate v. The Saraswat Co-operative Bank Limited
and Others (2010) SCC Online Bom 615; Sarbati Devi v. Usha Devi
[1984] 1 SCR 992: (1984) 1 SCC 424; Vishin N. Khanchandani and
Anr. v. Vidya Lachmandas Khanchandani & Anr. [2000] 2 Suppl.
SCR 415: (2000) 6 SCC 724; Shipra Sengupta v. Mridual Sengupta
& Ors [2009] 13 SCR 407: (2009) 10 SCC 680; Ramchander Talwar
& Ors. v. Devendra Kumar Talwar & Ors. [2010] 11 SCR 897:
(2010) 10 SCC 671; Nozer Gustad Commissariat v. Central Bank
of India & Ors (1993) 1 Mah LJ 228; Antonio Joao Fernandes v.
Asst. Provident Fund Commissioner (2010) 4 Mah LJ 751; Indrani
Wahi v. Registrar of Cooperative Societies and Others [2016] 4 SCR
307: (2016) 6 SCC 440; Salomon v. Salomon & Co.(1897) AC 22,
38; Fruits & Vegetable Merchant Union v. Delhi Improvement Trust
[1957] SCR 1: AIR 1957 SC 344; Vatticherukuru Village Panchayat
v. Nori Venkatarama Deekshithulu [1990] 3 Suppl. SCR 691: 1991
Supp (2) SCC 228; Municipal Corpn. of Greater Bombay v. Hindustan
Petroleum Corpn. [2001] 2 Suppl. SCR 50: (2001) 8 SCC 143; Vishin
N. Khanchandani v. Vidya Lachmandas Khanchandani [2000] 2
Suppl. SCR 415: (2000) 6 SCC 724; Reserve Bank of India v. Peerless
General Finance and Investment Co. Ltd., (1987) 1 SCC 424: [1987]
2 SCR 1; R.S. Raghunath v. State of Karnataka (1992) 1 SCC 335:
[1991] 1 Suppl. SCR 387; Shanker Raju v. Union of India (2011) 2
SCC 132: [2011] 2 SCR 1 - referred to.
OTHER CASE DETAILS INCLUDING IMPUGNED
ORDER AND APPEARANCES
CIVIL APPELLATE JURISDICTION : Civil Appeal No.7107 of 2017.
From the Judgment and Order dated 01.12.2016 of the High Court
of Bombay in AN No.313 of 2015 in NOM No.822 of 2014 in SN No.503
of 2014.
699
Appearances:
Abhimanyu Bhandari, Ms. Rooh-e-hina Dua, Arav Pandit, Harshit
Khanduja, Advs. for the Appellants.
Rohit Anil Rathi, Mrs. Aditi Dani, Mrs. Ranu Purohit, Aniruddha A.
Joshi, Rajeev Maheshwaranand Roy, Advs. for the Respondents.
JUDGMENT / ORDER OF THE SUPREME COURT
JUDGMENT
HRISHIKESH ROY, J.
1. Heard Mr. Abhimanyu Bhandari, learned counsel appearing for the
appellants. Also heard Mr. Rohit Anil Rathi, learned counsel representing
respondent no. 1. Mr. Aniruddha A. Joshi, learned counsel appears for
respondent nos. 4, 6, 7 and 8.
2. The appellants and respondent nos. 1 to 9 are the legal heirs
and representatives of an individual - Jayant Shivram Salgaonkar. The
family patriarch executed a will on 27.06.2011 making provisions for the
devolution of his estates upon the successors. Apart from the properties
mentioned in the will, the testator had certain fi xed deposits (FDs) for
the sum of Rs. 4,14,73,994/- in respect of which the respondent nos. 2, 4
and appellant no. 2 were made nominees. Additionally, there were certain
mutual fund investments (MFs) of the amount of Rs. 3,79,03,207/- in respect
of which appellants and Jay Ganesh Nyas Trust (respondent no. 9) were
made nominees. The testator Jayant Shivram Salgaonkar passed away on
20.08.2013.
3. On 29.04.2014, the respondent no. 1 fi led Suit No. 503/2014 with
the prayer for declaration inter alia that the properties of the testator may
be administered under the court's supervision and seeking absolute power
to administer the same. He also prayed for permanent injunction restraining
all other respondents and appellants from disposing, transferring, alienating,
assigning and/or creating any third-party interests in respect of the properties
in Exhibit A.
4. In their reply to the notice of motion in Suit No. 503/2014, the
appellants pleaded that they were the sole nominee(s) to the MFs. The
SHAKTI YEZDANI & ANR. v. JAYANAND JAYANT
SALGAONKAR & ORS.
700
SUPREME COURT REPORTS
[2023] 16 S.C.R.
essence of their claim was that the appellants being nominees were absolutely
vested with the securities on the testator's death. The appellant no.2 was
additionally nominated and entitled to the FDs of the testator in the IDBI
Bank. It was also the appellants' contention that nominations made under/in
Jayant Shivram Salgaonkar's MFs/shares were made as per Section 109A &
109B of Companies Act, 1956 and bye-law 9.11.7 of the Depositories Act,
1996. Section 109A and 109B of the Companies Act, 1956 must be read as a
code in themselves, wherein the meaning of words 'vest' and 'nominee' are
to be seen from the statute alone bearing in mind the non-obstante clause
contained therein. Therefore, the provisions should be interpreted without
reference to any outside consideration.
5. On 31.03.2015, the learned Single Judge of the Bombay High Court
while passing the order in the Notice of Motion mainly considered whether
the law laid down in the case of Harsha Nitin Kokate v. The Saraswat
Co-operative Bank Limited and Others1 was per incuriam. Further, the
contentions of the appellants were rejected by the court by observing that
S. 109A & S. 109B of the Companies Act, 1956 cannot be read in a vacuum
and it is permissible for the court to look at pari materia provisions in
other statutes. The court, while considering the argument of a 'statutory
testament' raised in Sarbati Devi v. Usha Devi2, expressly negated those and
opined that it would not be proper to limit the ratio in Sarbati Devi (supra)
to the narrow confi nes of Section 39 of the Insurance Act, 1939. The same
was thereafter reaffi rmed in Vishin N. Khanchandani and Anr. v. Vidya
Lachmandas Khanchandani & Anr.3, Shipra Sengupta v. Mridual Sengupta
& Ors.4, Ramchander Talwar & Ors. v. Devendra Kumar Talwar & Ors.5,
Nozer Gustad Commissariat v. Central Bank of India & Ors.6 and Antonio
Joao Fernandes v. Asst. Provident Fund Commissioner7. According to the
learned judge, the decision in Kokate (supra) failed to consider the decision
of the Supreme Court in Khanchandani (supra), Shipra Sengupta (supra) or
1
(2010) SCC Online Bom 615.
2
(1984) 1 SCC 424
3
(2000) 6 SCC 724
4
(2009) 10 SCC 680
5
(2010) 10 SCC 671
6
(1993) 1 Mah LJ 228
7
(2010) 4 Mah LJ 751
701
even those of the Single Judge of the Bombay High Court in Nozer Gustad
Commissariat (supra) and Antonio Joao Fernandes (supra), although each
of these decisions were binding on the court, while it was deciding Kokate.
6. It was accordingly expressed that the decision in Kokate (supra) is
per incuriam as it was rendered without considering relevant and binding
precedents. The learned Judge also opined that the fundamental focus of
S. 109A & S. 109B of the Companies Act, 1956 and Bye-law 9.11.7 of the
Depositories Act is not the law of succession nor it is intended to restrict
the law of succession in any manner. Addressing the mischief that was
sought to be avoided by the two statutory provisions, the court observed
that it was intended to aff ord the company or the depository in question,
a legally valid quittance so that it does not remain answerable forever to
succession litigations and endless slew of claims under the succession law.
It was therefore opined that the statutory provisions allow for the liability
to be moved from the company or the depository to the nominee but the
nominee continues to hold the shares/securities in fi duciary capacity and is
also answerable to all claims in the succession law.
7. With the above understanding of the legal provisions, the learned
Judge declared that the view in Kokate (supra) generates inconsistencies as
it renders a nomination under the Companies Act the status of a 'superwill'
that is bereft of the rigour applicable to a will for its making or the test of
its validity under the Indian Succession Act, 1925. According to the ruling,
S. 109A & S. 109B of the Companies Act, 1956 and the Bye-law 9.11 of the
Depositories Act, 1996 does not displace the law of succession nor does it
stipulate a third line of succession.
8. Even while declaring Kokate (supra) to be per incuriam, it was made
clear that the aforesaid judgment (31.3.2015) does not dispose of the Notice
of Motion No. 822/2014 in Suit No. 503/2014 and Chamber Summons No.
72/2014 in Testamentary Petition No. 457/2014 and those were posted for
fi nal hearing on the basis of the law as declared.
9. The appellants being aggrieved by the decision (dated 31.3.2015)
of the learned Single Judge, fi led Appeal No. 313/2015 to challenge the
order. Appeal No. 311/2015 was also fi led in the Testamentary Petition No.
457/2014.
SHAKTI YEZDANI & ANR. v. JAYANAND JAYANT
SALGAONKAR & ORS. [HRISHIKESH ROY, J.]
702
SUPREME COURT REPORTS
[2023] 16 S.C.R.
10.While dealing with the appeals, the Division Bench at the outset
noticed that the consideration to be made is whether the view taken by the
learned Single Judge vis-a-vis the Kokate (supra) judgment is the correct
opinion. Accordingly, the following questions were formulated for decision
in the appeals:
"(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 benefi cial
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 Bye laws 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 benefi ciary for the legal
representatives who are entitled to inherit securitie or shares under
the law of inheritance?
(iii) Whether a bequest made in a Will executed in accordance with
the Inidan Succession Act, 1925 in respect of shares or securities of
the deceased supersedes the nomination made under the provisiosn of
Sections 109A and Bye Law No. 9.11 framed under the Depositories
Act, 1996?"
11. To appreciate the precise ratio in Kokate (supra), the following two
paragraphs of the Kokate judgment were extracted by the Division Bench:
"24. In the light of these judgments section 109A of the Companies
Act is required to be interpreted with regard to the vesting of the
shares of the holder of the shares in the nominee upon his death. The
act sets out that the nomination has to be made during the life time
of the holder as per procedure prescribed by law. If that procedure is
followed, the nominee would become entitled to all the rights in the
shares to the exclusion of all other persons. The nominee would be
made benefi cial owner thereof. Upon such nomination, therefore, all
703
the rights incidental to ownership would follow. This would include
the right to transfer the shares, pledge the shares or hold the shares.
The specifi c statutory provision making the nominee entitled to all the
rights in the shares excluding all other persons would show expressly
the legislative intent. Once all other persons are excluded and only
the nominee becomes entitled under the statutory provision to have all
the rights in the shares, none other can have it. Further, section 9.11
of the Depositories Act 1996 makes the nominee's position superior to
even a testamentary disposition. The non-obstante Clause in section
9.11.7 gives the nomination the eff ect of the Testamentary Disposition
itself. Hence, any other disposition or nomination under any other law
stands subject to the nomination made under the Depositories Act.
Section 9.11.7 further shows that the last of the nominations would
prevail. This shows the revocable nature of the nomination much like
a Testamentary Disposition. A nomination can be cancelled by the
holder and another nomination can be made. Such later nomination
would be relied upon by the Depository Participant. That would be for
conferring of all the rights in the shares to such last nominee.
25. A reading of section 109A of the Companies Act and bye-law 9.11
of the Depositories Act makes it abundantly clear that the intent of
the nomination is to vest the property in the shares which includes
the ownership rights thereunder in the nominee upon nomination
validly made as per the procedure prescribed, as has been done in
this case. These sections are completely diff erent from section 39 of
the Insurance Act set out (supra) which require a nomination merely
for the payment of the amount under the Life Insurance Policy without
confi rming any ownership rights in the nominee or under section 30 of
the Maharashtra Cooperative Societies Act which allows the Society
to transfer the shares of the member which would be valid against
any demand made by any other person upon the Society. Hence these
provisions are made merely to give a valid discharge to the Insurance
Company or the Co-operative Society without vesting the ownership
rights in the Insurance Policy or the membership rights in the Society
upon such nominee. The express legislature intent under section 109A
of the Companies Act and section 9.11 of the Depositories Act is clear."
SHAKTI YEZDANI & ANR. v. JAYANAND JAYANT
SALGAONKAR & ORS. [HRISHIKESH ROY, J.]
704
SUPREME COURT REPORTS
[2023] 16 S.C.R.
12. The Division Bench under the impugned judgment (dated
01.12.2016) observed 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 object of S. 109A Companies Act, 1956 is to ensure
that the deceased shareholder is represented, as the value of the shares is
subject to market forces and various advantages keep on accruing to the
shareholders, such as allotment of shares & disbursement of dividends.
Moreover, a shareholder is required to be represented in the general meetings
of the Company and therefore, the court opined that the provision is enacted
to ensure that commerce does not suff er due to delay on part of the legal
heirs in establishing their rights of succession and then claiming shares
of a Company. Adverting to and interpreting the pari materia provisions
relating to nominations under various statutes, the Division Bench felt that
the consistent view in the various judgments of the Supreme Court and
the Bombay High Court must be followed and those do not warrant any
departure. It was expressly opined that the so-called 'vesting' under S. 109A
of the Companies Act, 1956 does not create a third mode of succession and
the provisions are not intended to create another mode of succession. In
fact, the Companies Act, 1956 has nothing to do with the law of succession.
Accordingly, the Division Bench declared that the nominee of a holder of a
share or securities is not entitled to the benefi cial ownership of the shares or
securities which are the subject matter of nomination to the exclusion of all
other persons who are entitled to inherit the estates of the holders as per the
law of succession. Answering the third question, the Division Bench held that
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 provision of S. 109A of Companies Act and Byelaw 9.11 framed under the Depositories Act, 1996. The bench accordingly
ruled that an incorrect view was taken in Kokate (supra).
13. The object of S. 109A(3) of the Companies Act, 1956, according to
the Division Bench, is not materially diff erent from S. 6(1) of the Government
Savings Certifi cates Act, 1959 and S. 109B of the Companies Act, 1956 is
likewise similar to S. 45-ZA(2) of the Banking Regulation Act, 1949. The
law relating to S. 6(1) of the Government Savings Certifi cates Act, 1959
has already been settled in the case of N. Khanchandani (supra) where the
Supreme Court upheld the law declared in Sarbati Devi (supra).
705
14. Looking at the provisions relating to nominations under diff erent
statutory enactments and the way the courts have interpreted those to the
eff ect that the nominee does not get absolute title to the property which
is the subject matter of nomination, the Division Bench interpreting the
provisions under S. 109A & S. 109B Companies Act, 1956 declared that they
do not override the law in relation to testamentary or intestate succession.
The judgment in Kokate (supra) was declared to be incorrect as it failed to
consider the law laid down in Khanchandani (supra) and Talwar (supra) as
these cases preceded Kokate (supra).
ARGUMENTS
15. The learned counsels for the appellants and the respondents put
forth the following arguments for consideration:
15.1 Mr. Abhimanyu Bhandari, the learned counsel for the appellants
argues that the scheme of nomination as provided in the Companies Act,
1956 is not analogous to nomination as provided under other legislations.
Unlike in other legislations, the term 'vesting' & 'to the exclusion of others'
along with a 'non-obstante clause' are placed together in the Companies
Act, 1956. Therefore, it would be incorrect to rely on the ratio of the
judgments pertaining to other legislations (such as the Insurance Act, 1939,
Banking Regulation Act, 1949, National Savings Certifi cates Act, 1959,
Employees Provident Fund and Miscellaneous Provisions Act, 1952) to
then interpret the provisions of S. 109A & S. 109B of the Companies Act,
1956. Provisions pertaining to the same in other legislations cannot be the
basis for interpretation of the term 'nomination' under the Companies Act
as those are not pari materia with S. 109A & S. 109B (now S. 72 of the
Companies Act, 2013) of the Companies Act, 1956.
15.2 It is contended that S. 109A & S. 109B (now S. 72 of the Companies
Act, 2013) introduced in the Companies Act, 1956 by the legislature on
31.08.1988 with the language so used makes it clear that a nominee,
upon the death of the shareholder/debenture holder, will secure full and
exclusive ownership rights in respect of the shares/debentures for which
he/she is the nominee. In fact, adverting to the hierarchy laid down under
the provision, shareholding in an individual capacity (S. 109A(1)), then a
joint shareholder owning the shares jointly (S. 109A(2)) and then fi nally, a
nominee (S. 109A(3)) in whom the shares shall vest in the event of death
SHAKTI YEZDANI & ANR. v. JAYANAND JAYANT
SALGAONKAR & ORS. [HRISHIKESH ROY, J.]
706
SUPREME COURT REPORTS
[2023] 16 S.C.R.
of the shareholder/joint shareholders, it is contended that the intent is clear
that such nomination would trump any disposition, whether testamentary
or otherwise.
15.3 It is further contended that S. 187C & S. 109A(3) of the Companies
Act, 1956 have to be read together, to mean that shares shall 'vest' with the
nominee to the exclusion of all other persons unless nomination is varied
or cancelled. It is argued that S. 187C itself provides for the mechanism to
vary the nomination by making appropriate declaration and therefore, these
provisions are to be understood as complete codes within themselves. When
read together, no declaration varying the nomination would imply that the
intention was to grant benefi cial ownership of the shares to the appellants
through a mechanism of nomination of rights. As Mr. Jayant S. Salgaonkar's
Will had categorically mentioned all other properties of the deceased except
the shares for which the appellants were named as nominees, the implication
is naturally that the ownership rights of such shares would pass on to the
nominees after the death of the testator i.e., the appellants' grandfather.
15.4 The learned counsel for appellants would then refer to Bye-law
9.11 of the Depositories Act, 1996 which provides for transmission of
securities in case of nomination. Within the provision, the presence of a nonobstante clause would reasonably imply that the eff ect of nomination under
the said bye-law is that it would vest in the nominee a complete title of the
shares notwithstanding anything contained in the testamentary disposition(s)
or nomination(s) made under other laws dealing with securities.
15.5 In addition, it is argued that the nomination for shares i.e., Form
SH-13 provided under Rule 19(1) of the Companies (Share Capital &
Debentures) Rules, 2014 indicates that the shareholder or joint shareholder
may nominate one or more persons as nominee in whom all rights of the
holder shall vest. Since such nomination can also be in the favour of a third
party or a minor (who can never be a trustee or executor), it is argued that the
legislature under the Companies Act intended to give complete ownership
to the nominee.
15.6 Mr. Bhandari then refers to Regulation 29A of SEBI (Mutual
Funds) Regulations, 1996, by virtue of which an asset management company
is required to provide the option to its unit holder to nominate a person in
whom all rights of the units shall vest in the event of the death of the unit
707
holder. It is contended that when a joint shareholder cannot make any change
to the nomination without the consent of the other joint shareholder (since
such shares continue in the ownership of the remaining shareholders in the
event of the death of one of the shareholders), the same cannot be done by
way of a Will or testamentary disposition or law of succession either.
15.7 Therefore, as per Mr. Bhandari, the interpretation accorded by the
High Court is not in sync with the developments of law intended by insertion
of S. 109A & S. 109B to the Companies Act, 1956. The ease of succession
planning which the legislature intended would be rendered otiose if the
interpretation given by the High Court on the implication for the nominee
under S. 109A & S. 109B of the Companies Act is accepted.
16. Canvassing the opposite view, Mr. Rohit Anil Rathi, the learned
counsel appearing for Respondent No. 1 would argue that on account of the
consistent view taken by this Court while interpreting various legislative
enactments pertaining to nominations and more particularly, in view of the
latest interpretation in the case of Indrani Wahi v. Registrar of Cooperative
Societies and Others8, departure from the consistent view is not warranted
and 'vesting' provided under S. 109A would not create a third mode of
succession.
16.1 The learned counsel submits that the Companies Act has nothing
to do with the law of succession. In support of his contention, Mr. Rathi
would refer to Part IV of the Companies Act, 1956 which deals with share
capitals and debentures as well as S. 108 to S. 112 in Part IV which relate to
'transfer of shares and debentures'. Adverting to the aforesaid provisions, it
is argued that the limited object is to provide a facility for transfer of shares
or debentures through a proper instrument of transfer and consequential
actions such as registration and in case of grievances, appeal thereof. The
introduction of S. 109A & S. 109B merely provides for facility of nomination
aiding in the process of such transfer. Therefore, no third mode of succession
by way of nomination has been contemplated and the position has remained
unaltered, despite numerous amendments made to the Companies Act from
time to time.
8
 (2016) 6 SCC 440
SHAKTI YEZDANI & ANR. v. JAYANAND JAYANT
SALGAONKAR & ORS. [HRISHIKESH ROY, J.]
708
SUPREME COURT REPORTS
[2023] 16 S.C.R.
16.2 On the other hand, the object behind the Indian Succession Act,
1925 is to provide for an act to consolidate and amend the law applicable
to intestate and testamentary succession. It is argued by Mr. Rathi that the
legislature in no uncertain terms recognised a transfer being made by a legal
representative as a valid mode of transfer and the legal representative is
vested with the properties of the deceased as a custodian subject to devolution
in terms of the applicable law i.e., the Indian Succession Act, 1925 as per
S. 211 within Part VIII of the same.
16.3 Further, it is argued by the learned counsel for the Respondent No. 1
that the terms 'transfer', 'transmission' and 'transmission by operation of law'
are distinct and convey diff erent meanings, i.e., transfer inter vivos in case of
the term 'transfer' and devolution by operation of law in case of 'transmission'.
Since these phrases have been retained even under the Companies Act, 2013,
there is no alteration of the position of law on transfer and transmission of
securities. In addition, several provisions provide an unfettered power to a
company to register any person to whom rights to shares/debentures had been
transmitted by operation of law as a shareholder/debenture holder (second
proviso, S. 108 of the Companies Act, 1956). Moreover, there is an obligation to
inform the transferor, transferee or the person who gave intimation of transfer,
the reason for refusing the registration or transmission by operation of law (S.
111 of the Companies Act, 1956).
17. Mr. Aniruddha Joshi, learned counsel for the Respondent Nos.
4 and 6 to 8 would argue that in light of the consistent view taken by this
Court and most High Courts on the question of nominee not becoming a
full owner of the estate of which he has been nominated by the deceased
owner of the property, the nominee by virtue of S. 109A & S. 109B of the
Companies Act, 1956 cannot impact the rights of the legal heirs/legatees
obtained through application of the succession law.
17.1 The learned counsel accepts the position that the languages used
in the enactments interpreted by the court are not alike. Some enactments
possess a non-obstante clause while some do not. Few use the term 'vest'
while others do not. However, since none of the Acts defi ne the terms
'nominee' and 'nomination', it is contended by Mr. Joshi that those terms are
to be considered as ordinarily understood by persons making the nomination,
for their moveable or immovable properties.
709
17.2 Mr. Joshi therefore argues that the term 'vest' must be understood
in a limited sense and would not necessarily confer ownership. Addressing
the implication of the non-obstante clause in the Companies Act, the counsel
submits that the same is intended to off er a discharge to the company and to
facilitate the company in their dealings after the death of the shareholder/
securities holder. More specifi cally, it is to protect the company from being
dragged into a succession litigation. Therefore, the term 'vest' must be
interpreted in a limited sense to the eff ect that the nominee would deal with
the company but not in the capacity as a title holder but more in the nature
of a trustee holding the estate for the lawful successor(s) and would be
accountable to the successor(s) of the estate. In the same context, the term
'vest' as used in the Indian Succession Act, 1925 would be understood to
mean that neither the administrator nor the executor would become the owner
of the property. Such vesting is therefore limited to the specifi c purpose of
distribution of the estate amongst the lawful successor(s).
17.3 The counsel submits that the Companies Act, 1956 and/or the
Companies Act, 2013 is referable to Entry 43 and/or Entry 44 of List
I, Schedule VII of the Constitution which provide for incorporation,
regulation and winding up of companies. Therefore, the legislation
deals with the limited aspects of birth of a legal entity/company, its
management/the aff airs of the company and its death/winding up of the
company. It was argued that the widest interpretation of the same would
still not attract or cover succession or estate planning of an individual,
even if the said person were to be a member of a company. On the other
hand, the Indian Succession Act, 1925 or Hindu Succession Act, 1956
or other enactments pertaining to succession relate to Entry 5 in List
III, Schedule VII of the Constitution. Therefore, their source of power
is entirely diff erent. In light of the same, it is argued that a third mode
of succession not contemplated by laws would be provided through an
interpretative exercise instead of a legislative exercise.
17.4 As per Mr. Joshi, if the contention of appellants were to be
accepted, nomination would be rendered similar to a 'will' or a 'testamentary
disposition' to the extent of securities, of a particular company. However, the
Indian Succession Act, 1925 prescribes a detailed judicial process to obtain
letters of administration or succession certifi cates or probates, as the case
may be. Therefore, in case the contentions of the appellants are accepted,
SHAKTI YEZDANI & ANR. v. JAYANAND JAYANT
SALGAONKAR & ORS. [HRISHIKESH ROY, J.]
710
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[2023] 16 S.C.R.
the judicial process for determination of successors' rights would not be
required at all and the nominee(s) would be able to claim the estate without
verifi cation of the claimants' rights by the prescribed judicial process.
17.5 Finally, it is submitted that as per Article 141 of the Constitution,
only this Court's interpretation on provisions become binding. It cannot
however be said that the legislature has taken note of the interpretation of
the High Court judgment and accepted the interpretation.
DISCUSSION
18. Before we proceed any further, it would be appropriate to indicate
the position of the contesting parties vis-à-vis the testator, Jayant Shivram
Salgaonkar.
Late Jayant Shivram
Salgaonkar
(Testator/Nominator)
R-2/Late Ms. Jayashree
Jayant Salgaonkar
(Wife of Testator/grand
mother of appellants)
Jayraj Jayant
Salgaonkar/R-3/S/o
Nominator (Father of
appellants)
Jayanand Jayant
Salgaonkar/R-1/S/o
Nominator (Uncle of
appellants)
Jayendra Jayant
Salgaonkar/R-4/S/o
Nominator (Uncle of
appellants)
R-5/Bharti Salgaonkar
Wife of R-3 (Mother of
appellants)
R-6/Seema
Salgaonkar/Wife of R-4
(Aunt of appellants)
Appellant-1 Shakti
Yezdani/Daughter of R-3
& R-5 (Granddaughter of
Nominator)
Appellant-2 Lalita Laxmi
Salgaonkar/Daughter of
R-3 & R-5
(Granddaughter of
Nominator )
R-7/Samarth
Salgaonkar/Son of R-4
(Cousin of appellants)
R-8/Siddhi Salgaonkar/
Daughter of R-4 (Cousin
of appellants)
19. Having considered the submissions and the materials placed on
record, the following issues require our careful attention and have been
discussed at length below:
711
(i.) The scheme, intent & object behind the Companies (Amendment)
Act, 1999,
(ii.) The implication of the scheme of 'nomination' under the
Companies Act, 1956 as well as other comparable legislations,
(iii.) The use of the term 'vest' and the presence of the non-obstante
clause within the provisions of the Companies Act, 1956,
(iv.) Nomination under the Companies Act, 1956 vis-à-vis law of
succession.
SCHEME OF THE COMPANIES ACT
20. Both sides' lawyers have relied on the intent & purpose behind the
introduction of S. 109A & S. 109B in the larger context of the Companies
Act, 1956 or the pari materia provisions (Section 72, Companies Act, 2013)
in support of their respective stand. Having perused the scheme behind the
Companies Act, 1956 and the Companies (Amendment) Act, 1999 that also
introduced S. 109A & S. 109B of the Companies Act, 1956, the relevant
extracts are reproduced as follows:
"................2. (b) to provide for nomination facility to the holders of
shares, debentures and fi xed deposit holders; .................................
.......................... 3. The corporate sector is going through diffi cult
times. The capital market is also at low ebb, which requires immediate
morale boosting eff orts on the part of the Government to promote
investors' confi dence. Besides, the economy needs certain impetus for
promoting inter-corporate investments considering slow fl ow of funds
in new investments. In order to overcome these adverse conditions
faced by the corporate sector. it was felt that the company should be
permitted to buy-back their own shares, to make investments or loans
freely without prior approval of the Central Government, to provide for
nomination facility to the holders of shares, deposits and debentures
and also to make provision in law for establishment of Investors
Education and Protection Fund broadly on the line of provisions
contained in the Companies Bill, 1997........................................."9
9
 Statement of Objects & Reasons, The Companies (Amendment) Act 1999
SHAKTI YEZDANI & ANR. v. JAYANAND JAYANT
SALGAONKAR & ORS. [HRISHIKESH ROY, J.]
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[2023] 16 S.C.R.
"............... Under the Companies (Amendment) Act, 1999, the
shareholders have been allowed to nominate a person for their
shares, debentures and deposits.......... Earlier, holders of shares
and debentures in a company did not enjoy the nomination facility
for shares, debentures and deposits, which caused hardships to them.
They were required to obtain a letter of succession from the competent
authority. The facility of nomination is intended to make the company
law in tune with the present-day economic policies of liberalisation and
deregulation.