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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Changes in Our Business Model
25th Sept 2020
Greetings from Moneylife Advisory Services
Between financial years 2019-21, SEBI has come up with extensive changes to investor advisor regulations. On Sep 23, 2020, SEBI had issued new additional guidelines. This comes just two months after extensive changes announced in July 2020. Earlier, in December 2019 there was an ad hoc circular
As a result of these changes, IAs, cannot accept fees through credit cards, will have to sign a 26-clause investor agreement, have to maintain physical record written & signed by client, telephone recording, emails, SMS messages and any other legally verifiable record for five years. IAs were already asked to record the suitability and rationale for every piece of advice given, sign them and store them for five years.
While these extensive and frequent changes, designed to strengthen the conduct of IAs are well-meaning, these have sharply increased compliance efforts and cost. We, being online advisors, find many of changes harder to implement, compared to advisors working in the physical space. We will have to have an army of advisors, administrative and tech staff to be compliant. If we do this, we will have to divert money to these areas and the cost of our service will double. We want to remain the least-cost service in the market to benefit more and more people. In the circumstances, we are forced to change our business model from “advisory” to “research”. This will mean the following:
What remains the same:
  • Recommendations on insurance, investment and Lion stocks, will continue as a part of the MAS premium subscription. Our strength has always been research and this will remain available to you through our recommendations.
  • The magazine and all textual content will remain as part of the service
  • We will have to suspend the restructuring tool.
What changes:
  • The interactions in Ask / Handholding will offer investment advice but not specific to your situation. It will offer information on investment products and also clarify your doubts about various financial products. It will be a forum for information, not for advice. This will be implemented with immediate effect and our guidelines in Ask, reflect this now.
Over the next few weeks our site and our communication to you will reflect these and other additional changes.
We feel this will not affect you much in terms of what really matters in investing: knowing what to buy and when to buy. This is our edge and it will still be available to you.
Debashis Basu