Bombay HC rules that nominees, not legal heirs get ownership rights of shares

A 20th April judgement of the Bombay High Court has overturned established practice in the matter of transmission of shares by giving all ownership rights to the nominee rather than the legal heirs.

This means that anyone who has nominated persons other than their chosen or legal heirs in their demat accounts would do well to make appropriate changes.

In the verdict, Justice Roshan Dalvi struck down a petition filed by Harsha Nitin Kokate, who was seeking permission to sell some shares held by her late husband. The Court noted that as she was not the nominee, she had no ownership rights over the shares.

Ms Kokate’s lawyer had argued that as she was the heir of her husband who had died intestate (without a will), she should have ownership rights of the shares, and be able to do anything with them as she wished. In this case, Ms Kokate’s husband had nominated his nephew in favour of the shares.

Ms Kokate’s lawyer went on to claim that the nominee had no legal ownership rights over shares, and was merely entitled to hold the shares in trust for the estate of the deceased. He pointed out similar cases under the Insurance Act with respect to life insurance where although the policy is paid to the nominee of the deceased policy holder, it is only held by them in trust for the estate, as the Act provides no other provision for any other rights of the nominee. He also pointed out that under the Maharashtra Co-operative Societies Act, while the shares in the society are transferred to the nominee, it does not result in the flat being transferred to the nominee. He again acts as a trustee for the estate of the deceased and the society is not concerned with any disputes between the heirs over the property.

Justice Dalvi however noted that under the provisions of the Companies Act and the Depositories Act, Acts which govern the transfer of shares, the role of a nominee was different.

“A reading of Section 109(A) of the Companies Act and 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.”

This excerpt from the judgement makes it clear that since the nomination was done in the proper and prescribed manner, the nomination was valid, and the nominee was entitled to ownership rights of the shares, to the exclusion of the legal heir.

“The Court has reemphasised and clarified the position in law both in regard to nomination as far as shares in companies, as well as nomination as under the Maharashtra Co-operative Societies Act which has an analogous provision, and therefore the ambiguity that used to exist in the minds of legal descendents should now be put to rest,” said Advocate Jamshed Mistry of the Bombay High Court.

“In light of this judgement, it would be prudent for legal descendents to get themselves nominated rather than wait for the law to take its course, in which case the person who has been nominated will get the shares,” said Advocate Dipesh Siroya of the Bombay High Court.

Ms Kokate can now appeal to the Supreme Court, and if the apex court delivers a contradicting judgement, the High Court’s judgment will be null and void.

The notice of motion was No. 2351 of 2008, in suit No. 1972 of 2008
AK Maheshwari had appeared for Ms Kokate, while Shyama Parkar and HS Shreepad Murthy appeared on behalf of the defendants.


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    rajesh naidu

    10 years ago

    My aged aunt when alive changed the nomination from her daughters name to my name as nominee, for 2 of her L.I.C Policies, this change was done after her daughter got married, reason for my nomination is my sincere care,love and affection to her.
    And after my aunts death her daughter has come back after 4 long years, has filed a case against me to hand over the L.I.C. Amt.

    Dear Readers please advise.

    Rajesh Naidu.


    1 decade ago

    SEBI should take the case law to "Investors' Education ". Does NSDL/CDSL allow multiple names with ratios defined as Nominee ?
    Do they accept HUF or a Trust as nominee ?
    Without such facility, investor/holder will be in a dilemma


    1 decade ago

    One must review his decisions after lapse of some time in such matters. A sr.citizen bought his case to me for advise/solution. Angered by his (only) son's decision, he mentioned his nephew as second holder to which the nephew willingly agreed. After lapse of some 15years time, the old man reconciled and wanted to change the ownership. Now shares had appreciated in a fortune and nephew refused to sign the transfer deed. He wanted "his pound of flesh". Old man had now 2nd round of anger. I was asked to intervene. With great difficulty, I pursuaded the old man to settle with 10% price. Fortunately, nephew agreed. In the unfortunate event of his death the nephew wud be sitting on tons of money. Moral there is no moral - of the story or in the life.

    Small fields in KG-D6 block unviable at $4.20 per mmBtu: RIL

    The company has made 18 gas finds in the eastern offshore KG-D6 block, of which Dhirubhai-1 and 3 were put into production last April, at a cost of $8.836 billion

    Reliance Industries (RIL) has said that developing smaller gas fields in the KG-D6 block is economically unviable at the current price of $4.20 per (million metric British thermal unit (mmBtu) and it may seek a rate of at least $6 per mmBtu in 2014, when the fields are put into production, reports PTI.

    RIL has made 18 gas finds in the eastern offshore KG-D6 block, of which two–Dhirubhai-1 and 3–were put into production from April, 2009, at a cost of $8.836 billion.

    The private sector explorer is working on an integrated development plan for the rest, but wants a price higher than the $4.2 per million metric British thermal unit rate paid for gas from Dhirubhai-1 and 3.

    "It is absolutely not viable (to develop smaller fields adjoining Dhirubhai-1 and 3 fields in KG-D6 block) at current prices," RIL executive director P M S Prasad told PTI.

    The smaller fields are proposed to be developed as a common pool, using existing facilities of the Dhirubhai-1 and 3 fields and RIL was in the process of preparing a multi-billion dollar integrated development plan, he said.

    RIL had in 2008 submitted plans to the government to invest $5.91 billion to develop nine satellite fields, but last year pruned the list to just four, as the current gas price of $4.2 per mmBtu did not justify such a huge investment.

    The amended $1.5 billion development plan for the four fields is being withdrawn and a new integrated plan will be submitted, he added.

    The fields would start producing in 2014, the same year when the existing price of $4.20 per mmBtu expires. The government had in September, 2007, approved $4.205 per mmBtu as the price of gas from Dhirubhai-1 and 3 for five years, which was to be reviewed at the end of this period.

    Though Prasad refused to speculate on what price RIL would seek for the marginal fields and the revised rates for fields currently under production, sources in the know said that $6-7 per mmBtu is the rate RIL may be looking at.

    In all likelihood, the company may go in for a common rate for both sets of fields (current as well as small ones).

    "I cannot say what will be the price discovery then (2014), but our economics tell us that they (smaller fields) are not viable at current prices," Prasad said.

    Under the Production Sharing Contract (PSC), RIL has to discover the price the market is willing to pay and submit it to the government for approval. The government may approve it as it is, or do it with minor changes, or even reject it.

    It will take four to five years to bring these fields into production and may help RIL extend the 80 million cubic metres per day peak output envisaged from KG-D6. Peak output from the Dhirubhai-1 and 3 fields is envisaged for five years.


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    BDI, Indian shipping stocks out of sync with each other

    The Baltic Dry Index has been on the upside over the past few days on the increase in demand for Capesize vessels. On the other hand, Indian shipping stocks have not been in tune with the Index

    The Baltic Dry Index (BDI) has been on an upward trend over the past two months. The Index moved up by 11% over the past two months. However, Indian shipping stocks have not been on a similar upward trend.

    The BDI has moved from 3,242 points on 5 March 2010 to 3,608 points on 7 May 2010, a positive change of 11%. However, Indian shipping stocks are not in tune with the shipping index movement. The Moneylife shipping index witnessed a change of -1% for the period of 8th March-7th May. 

    Stock prices of shipping companies (for 30th March-7th May) have moved in the following fashion: Great Eastern Shipping Co Ltd (-1%), Mercator Lines (-15%), Shipping Corporation of India (7%), Shreyas Shipping (7%) and Varun Shipping

    Analysts say that the main reason for this anomaly between the Indian shipping industry’s stock prices and the BDI is the concentration of the Index on Capesize vessels. “The BDI is basically dominated by the Capesize index, with the Supramax, Panamax and Handymax indices playing a comparatively small role.

    The Capesize index is moving upwards—the Panamax, Supramax and Handymax indices are currently soft. If you look at the asset modelling of shipping companies in India, we do not have major Capesize capacity; we have major concentration on Handymax & Panamax, and some amount on Supramax. That is one of the reasons why Indian shipping company stocks are not moving in line with the BDI,” explained Kunal Lakhan, research analyst, KR Choksey.

    The analyst pointed out that the increase in Indian iron-ore export duty by 5% has led to a shift of Chinese iron-ore purchases from other countries, specifically Australia and Brazil. This is turn had a positive effect on the BDI, as iron-ore exports from Australia and Brazil are generally through Capesize vessels.

    Going forward, the BDI is likely to show a positive change with growing demand for iron ore. Further, China’s coal demand is also expected to increase, thus adding to more robust growth in global shipping traffic.

    What do all these changes hold for India? A positive growth for Indian companies seems to be unlikely, at least on the bulk side. “Shipping traffic has shifted from India (iron ore) to countries like Australia and Brazil. In addition, with the onset of the monsoon, shipping of coal and iron ore will take a hit,” added the analyst.


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