Nominations under Companies Act can’t displace law of succession, says Bombay High Court

Nominations under the Companies Act cannot displace the law of succession or open a third line of succession, the Bombay High Court held. Justice Gautam Patel clarified that the nominees can only be trustees of the actual legal heirs and beneficiaries under the will. The judge was dealing with the legal question over a nominee’s rights arising in two disputes over estates.

JJ Salgaonkar, the petitioner in the first case, moved Court for administration of his late father’s estate, but two persons said that a substantial fixed deposit of Rs50 lakh and a bulk of mutual fund investments had their names as nominees.

In the second case, Nanak Ghatalia, seeking the probate of his mother’s will, said as a nominee to some of her investments, only he, and not his siblings, had exclusive rights to them.

Citing Supreme Court rulings, Justice Patel held that “it is clear that a nomination only provides the company or the depository a quittance.” He added, “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 of 9.11 of the Depositories Act, 1996, cannot and do not displace the law of succession.”

Justice Patel continued, “a nomination will only serve to discharge the responsibility or liability of the issuing depository vis-à-vis the nominee, but the nominee continues to be in a fiduciary capacity vis-à-vis all other claimants under either of the two statutorily recognised modes of succession.”

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