Bombay HC rules that nominees, not legal heirs get ownership rights of shares
Rudreshwar Malkani 10 May 2010

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.


rajesh naidu
1 decade 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.
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