| Headnote |
Issue for consideration: Whether a nominee of a holder of shares or securities appointed u/s. 109A of the Companies Act, 1956 read with the Bye-laws under the Depositories Act, 1996 is entitled to the beneficial ownership of the shares or securities subject matter of nomination to the exclusion of all other persons who are entitled to inherit the estate of the holder on testator’s death as per the law of succession. Companies Act, 1956 – s. 109A and s. 109B – Companies Act, 2013 – s. 72 – Depositories Act, 1996 – Byelaw 9.11.1 – Nomination of shares – Effect – Nominee of a holder of shares or securities appointed u/s. 109A if, entitled to the beneficial ownership of the shares or securities, upon the holder’s death:Held: Upon the holder’s death, the nominee would not get an absolute title to the subject matter of nomination, and those would apply to the Companies Act, 1956 (pari materia provisions in Companies Act, 2013) and the Depositories Act, 1996 as well – Usual mode of succession is not to be impacted by such nomination – Legal heirs have not been excluded by virtue of nomination – Vesting of securities in favour of the nominee contemplated u/s. 109A of the Companies Act 1956 (pari materia s. 72 of Companies Act, 2013) and Bye-Law 9.11.1 of Depositories Act, 1996 is for a limited purpose – It is to ensure that there exists no confusion pertaining to legal formalities that are to be undertaken upon the death of the holder and by extension, to protect the subject matter of nomination from any protracted litigation until the legal representatives of the deceased holder are able to take appropriate steps – Object of introduction of nomination facility vide the Companies (Amendment) Act, 1999 was only to provide an impetus to the investment climate and ease the cumbersome process of obtaining various letters of succession, from different authorities upon the shareholder’s death – Nomination process, thus does not override the succession laws – There is no third mode of succession that the scheme of the Companies Act, 1956 and Depositories Act, 1996 aims or intends to provide – Thus, it is clear that the Companies Act does not deal with the law of succession – Impugned decision takes the correct view. [Paras 26, 44, 45, 46, 47] Companies Act, 1956 – Companies (Amendment) Act, 1999 – Scheme, intent and object – Nomination under the Companies Act, 1956 vis-a-vis law of succession:Held: 1956 Act does not contemplate a ‘statutory testament’ that stands over and above the laws of succession – 1956 Act is concerned with regulating the affairs of corporates and is not concerned with laws of succession – ‘Statutory testament’ by way of nomination is not subject to the same rigours as is applicable to the formation and validity of a will under the succession laws – Submission of the appellants of nomination as a ‘statutory testament’ cannot be accepted because the Companies Act, 1956 does not deal with succession nor does it override the laws of succession – It is beyond the scope of the company’s affairs to facilitate succession planning of the shareholder – In case of a will, it is upon the administrator or executor under the Succession Act, 1925, or in case of intestate succession, the laws of succession to determine the line of succession. [Para 41, 42] Companies Act, 1956 – s. 109A – Effect of term ‘vest’ in s. 109A and Byelaw 9.11.1 under the Depositories Act, 1996:Held: s. 109A of the 1956 Act (pari materia to s. 72 of the Companies Act, 2013) provides for vesting of shares/debentures of a share/debenture holder unto his nominee ‘in the event of his death’ – Byelaw 9.11.1 under the Depositories Act, 1996 provides for ‘vesting’ of the securities unto the nominee on the death of the beneficial owner – Use of the word ‘vest’ does not by itself, confer ownership of the shares/securities to the nominee – Vesting of the shares/securities in the nominee under the Companies Act, 1956 and the Depositories Act, 1996 is only for a limited purpose-to enable the Company to deal with the securities thereof, in the immediate aftermath of the shareholder’s death and to avoid uncertainty as to the holder of the securities, which could hamper the smooth functioning of the affairs of the company. [Para 34, 35]Companies Act, 1956 – s. 109A – Non-obstante clause – Effect of: Held: Non-obstante clause in s. 109A should be interpreted keeping in mind the scheme of the Act and the intent of introduction of nomination facility u/ss. 109A and 109B wherein emphasis was laid on building investor confidence and bringing the company law in tune with policies of liberalisation and deregulation – Use of the non-obstante clause serves a singular purpose of allowing the company to vest the shares upon the nominee to the exclusion of any other person, for the purpose of discharge of its liability against diverse claims by the legal heirs of the deceased shareholder – This arrangement is until the legal heirs have settled the affairs of the testator and are ready to register the transmission of shares, by due process of succession law – As per Bye-law 9.11.7 of the Depositories Act, 1996, the non-obstante clause confers overriding effect to the nomination over any other disposition/nomination ‘for the purposes of dealing with the securities lying to the credit of deceased nominating person(s) in any manner’ – Purpose of invoking such non-obstante clause is delineated and limited to the extent of enabling the depository to deal with the securities, in the immediate aftermath of the securities holder’s death – Thus, nonobstante clause in both s. 109A(3) of the 1956 Act and Bye-law 9.11.7 of the Depositories Act, 1996 cannot be held to exclude the legal heirs from their rightful claim over the securities, against the nominee – Interpretation of statutes. [Paras 37, 38] Interpretation of statutes – Rules of interpretation – Words and phrases – Interpretation of:Held: General words and phrases used in a statute, regardless of their wide ambit, must be interpreted taking into account the objects of the statute – Clauses and sections within a statute are not to be read in isolation, but their textual interpretation is determined by the scheme of the entire statute – Non-obstante clause is to be considered on the basis of the context within which it is used. [Para 37] Companies Act, 1956 – Scheme of ‘nomination’ under the 1956 Act as well as other comparable legislations-Government Savings Certificate Act 1959, the Banking Regulation Act, 1949, the Life Insurance Act, 1939 and the Employees Provident Fund and Miscellaneous Provisions Act, 1952 – Implication of – Stated. [Paras 24-26] |
