Inheritance Vs. Nominee’s Rights in shares

Whether nomination of shares of a company would override the laws of succession has long been debated?

The Supreme Court has set aside the NCLT order which was affirmed by NCLAT in the case of Oswal Greentech v. Mr Pankaj Oswal and Ors[1] that rightful ownership of shares remains with the legal heir and not the nominees, stating that the case is wrongly instituted against the oppression and mismanagement as, on the day of instituting case, petitioner did not hold minimum 10% of the shareholding.

The SC noted that on a prima facie review of Section 72 of the Companies Act, securities vested with a nominee are vested absolutely and supersede disposition made by any other law.

This interpretation is further reinforced by Rule 19(8) of the Companies (Share Capital and Debentures) Rules, 2014, under which a nominee becomes entitled to receive the dividends or interests and other advantages, including a right to participate in the meetings of the company, to which he would have been entitled to if he were the registered holder of the securities.

Bombay High Court has opined differently in the case of Shakti Yezdani v Jayanand Jayant (2016), that nomination made under the Companies Act will not override the law of testamentary or intestate succession and that legal heirs are entitled to such shares. It is pertinent to note that this case is pending in appeal before the Supreme Court.

However, in the absence of a nomination, a legal representative (such as an heir) would be well within his / her right to have a legitimate expectation to a portion of the shares in question. The principle prevailing no is that the nominee only holds asset son behalf of the legal heirs, mere nomination does not amount to beneficial ownership of an asset.

[1] Company Appeal (AT) No. 4100f 2018