This document discusses the legal rights of nominees versus legal heirs with respect to shares of deceased shareholders under Section 109A of the Indian Companies Act. It notes that while nominees are typically considered trustees under other laws like banking, the court in Harsha Nitin Kokate v. The Saraswat Co-op. Bank Limited ruled that under Section 109A, nominees become entitled to all rights in the shares, excluding all other persons including legal heirs. However, it argues that Section 109A may violate Article 14 of the Indian Constitution by treating legal heirs and nominees unequally without a reasonable basis.

1. Nomination of
shares u/s 109A
of the Companies
Act:
Contravention to
the law of
inheritance?
- Bhaskar jyoti
Mukherjee.

2. “A son can bear with equanimity the loss of his father, but the
loss of his inheritance may drive him to despair.”
-Niccolo Machiavelli
Controversy
Who can rightfully claim the
shares of a deceased share-
Deceased holder?
Shareholder
Harsha Nitin Kokate
v.
The Saraswat Co-op. Bank Limited &
Legal Heirs Nominees Ors.
[2010] 159 CompCas 221 (Bom);
(2010) 3 CompLJ508 (Bom)

3. Legal Heirs
• Islamic Law of inheritance
When a Muslim dies, after payment of his funeral
expenses, debts and legacies, his property is divided
into the following class of persons:
The Principal Classes:
1. Sharers or Quranic heirs
2. Residuaries
3. Distant kindred
• Hindu Law of inheritance
Section 10 of the Hindu Succession Act, 1956 lays down
4 rules, in accordance to which the property of an
intestate shall be divided among the heirs in class I of
the schedule to the Act.

4. Nominee
• According to the New York times Dictionary of Money
and Investing, a nominee is “a person or firm to whom
securities or other properties are transferred to facilitate
transactions, while leaving the customer as the actual
owner.”
• The legal position of a nominee under most of the
statutes has always been accepted to be that of a
trustee.
• Smt. Sarbati Devi v. Smt. Usha Devi AIR 1984 SC 346
Section 30 of the Maharashtra Co-operatives Act
• nominee is a mere trustee with whom the Society can
initially or prima facie deal.
• the nominee cannot exclude the heirs.

5. Nominee (Life Insurance)
• Section 39 of the Insurance Act deals with
nomination by a policy holder. According to LIC
website:
“…The Nominee does not get any other benefit
except to receive the policy moneys on the
death of the Life Assured…”
• Nominee entitled to the policy amount only in
event of death of the policy holder.
• Nomination ensures easy settlement of claims.
• The nominee, in turn, is supposed to hold the
proceeds in trust and the legal heir can claim
the money.

6. Nominee (Banking)
• Section 45ZA of the Banking Regulation Act, 1949 and the
Banking Companies (Nomination) Rules 1985 speak about
nomination in Saving/Current/FD/RD account in Banks and
also in safe-deposit lockers and safe custody articles.
• Ram Chander Talwar v. Devender Kumar Talwar
(2010)159CompCas646 (SC)
“Section 45ZA(2)… by no stretch of imagination make the
nominee the owner of the money lying in the account.”
It needs to be remembered that the Banking Regulation Act is
enacted to consolidate and amend the law relating to banking.
It is in no way concerned with the question of succession.

7. Nomination as u/s 109A of the Companies Act,
1956.
• Inserted by the Companies (Amendment) Act,
1999.
• The absence of any such provision in the Act
created hardship to the survivors or successors
of deceased members or debenture-holders.
They had to obtain probate, letters of
administration of succession certificate which is
a time consuming and expensive procedure.
• Section 109A of the Companies Act, 1956.
• Section 9.11 of the Depositories Act 1996.
(TRANSMISSION OF SECURITIES IN THE
CASE OF NOMINATION)

8. Harsha Nitin Kokate v. The Saraswat Co-op.
Bank Limited & Ors.
• The position of a nominee under Section 109A
of the Companies Act, 1956 is not merely that of
a trustee for the estate of the deceased.
• On the death of the share holder, the nominee
would become entitled to all rights in the shares
to the exclusion of all other persons.
• Sarabati Devi v. Usha Devi restricted to
insurance law only.
• 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.

9. Section109A of the Companies Act
vis-à-vis
Section 45ZA of the Banking Regulation Act.
• (3) Notwithstanding anything contained in any other law for the time
being in force or in any disposition, whether testamentary or
otherwise… where a nomination made in the prescribed manner
purports to confer on any person the right to vest the shares in, or
debentures of, the company, the nominee shall… become entitled to
all the rights in the shares or debentures of the company…
• (2) Notwithstanding anything contained in any other law for the time
being in force or in any disposition, whether testamentary or
otherwise… where a nomination made in the prescribed manner
purports to confer on any person the right to receive the amount
of deposit from the banking company, the nominee shall… become
entitled to all the rights of the sole depositor … in relation to such
deposit…

10. Nomination as u/s 109A of the Companies Act.
• Vest: 1. To confer ownership of (property) upon a person.
2. To invest (a person) with the full title to property.
3. To give (a person) an immediate, fixed right of present or future
enjoyment.
• Vested right: A right that so completely and definitely belongs to a person
that it cannot be impaired or taken away without the person's consent.
• Vested interest: An interest the right to the enjoyment of which, either
present or future, is not subject to the happening of a condition
precedent.
• Vested estate: An estate with a present right of enjoyment or a present
fixed right of future enjoyment.
• VESTED LEGACY: A legacy the interest in which is so fixed as to be
transmissible to the personal representative of the legatee.

11. Judicial Pronouncements
• The Fruit & Vegetable Merchants Union v. The Delhi Improvement Trust
AIR 1957 SC 344
“It would thus appear that the word "vest" has not got a fixed connotation... It
may vest in title, or it may vest in possession, or it may vest in a limited sense,
as indicated in the context in which it may have been used in a particular piece
of legislation.”
• Dr. M. Ismail Faruqui v. Union of India AIR 1995 SC 605
“vesting of the disputed land was limited to holding it by the Civil
Government as Statutory Receiver”
• Municipal Corporation of Greater Bombay v. Hindustan Petroleum
Corporation (2001) 8 SCC 143
“the vesting of watercourse in the Municipal Corporation was held not to be
except for entrustment of the duty of the Municipality to maintain them in the
manner provided under Section 220A of the Bombay Municipal Corporation
Act, 1888.”

12. Companies Bill, 2011
• Clause 72:
Power to
nominate
-Exact
reproduction of
section 109A of
Companies Act.
- the words
“Shares and
debentures”
replaced by
“securities”

13. Section 109A under the light of the Constitution
of India.
• Article 14 - The State shall not
deny to any person equality
before the law or the equal
protection of the laws within
the territory of India.
• Test of reasonable
classification
-The classification must be found
on an „intelligible differentia‟.
-The differentia must have a
„rational relation‟ to the object
sought to be achieved by the
Act.

14. Section 109A under the light of the Constitution
of India.
No intelligible differentia in Here unequal are treated
differentiating the legal as equal in the like
heirs from the nominees. circumstances.
No “rational relation” in the
differentia to the object
sought to be achieved as
nominees will then override
the rights of legal heirs.

15. Conclusion
Thank You!