In a contrast to its earlier judgment in the case of Harsha Nitin Kokatevs. The Saraswat Cooperative Bank Ltd. & Ors., 2010(112) Bom. LR 2014, the High Court of Bombay in the case of Jayanand Jayant Salgaonkar and Ors. vs. Jayashree Jayant Salgaonkar and Ors., [2015] 190 CompCas 44 (Bom) held,

a nomination only provides the company or the depository a quittance. The nominee continues to hold the securities in trust and as a fiduciary for the claimants under the succession law. Nominations under Sections 109A and 109B of the Companies Act and Bye-Law 9.11 of the Depositories Act, 1996 cannot and do not displace the law of succession, nor do they open a third line of succession.”

Earlier in the judgment of Kokate (supra), the High Court of Bombay interpreting Section 109A of the Companies Act, ruled that the rights of a nominee to shares of a company would override the rights of heirs to whom property may be bequeathed. In other words, what one writes in one’s will would have no meaning if one has made a nomination on the shares in favour of someone other than the heir mentioned in the will.

The said judgment of the Bombay High Court in Kokate was in stark contrast to the decisions of the Hon’ble Supreme Court in various cases wherein the Supreme Court had held that the amount in any head can be received by the nominee, but the amount can be claimed by the heirs of the deceased in accordance with law of succession governing them. In other words, nomination does not confer any beneficial interest on the nominee. The said judgment in Kokate required that shareholders to be alert to changing their nominations every time they changed their will.

The Bombay High in the present case of Jayanand Jayant Salgaonkar without deciding into the merits of the case, has put rest to controversy created by the Kokate case, wherein the Court held,

The decision in Kokate does not consider the decisions of the Supreme Court in Khanchandani, Shipra Sengupta or Challamma, or those of learned single Judges of this Court in Nozer Gustad Commissariat and Antonio Joao Fernandes. Each one of these was binding on the Kokate court. The view taken in Kokate is contrary to, and does not consider any of these. It is, for that reason, per incuriam.”

Hence, it is once again clear that nomination means only naming a person for holding an office for the time till he discharges his respective duties. Thus in nomination, there is no complete transfer of ownership but merely an appointment for the specific purpose.


VA View

However, it is not yet conclusive whether this judgment delivered in the context of securities can beconsidered to be a law for nominations under laws governing other assets, more so because of the divergent language used in the special statutes governing such assets.

For example, Sections 38 and 39 of the Insurance Act, 1938 as amended by Insurance Laws (Amendment) Act, 2015 have introduced the concept of a beneficial nominee. In view of this, it is arguable that under insurance policies, beneficial nominee’s rights exclude all others’ rights, irrespective of any provision in succession law or other law or even a provision in the will. Therefore, how rights of legal heirs would be interpreted vis-à-vis Insurance Act, 1938 remains an issue despite the Salgaonkar Judgement.