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Shakti Yezdani & Anr. vs Jayanand Jayant Salgaonkar & Ors.

Civil Appeal · 2023 INSC 1076Decided 14 Dec 2023
Civil Appeal No. 7107 of 2017
Hrishikesh Roy · Pankaj Mithal

Background

After Jayant Shivram Salgaonkar died in 2013 leaving a will, a dispute arose among his legal heirs over fixed deposits and mutual fund investments for which certain family members had been named "nominees." The nominees (the appellants) argued that under Section 109A of the Companies Act, 1956 and the Depositories Act bye-laws, a valid nomination vested them with absolute beneficial ownership of the securities, excluding all other legal heirs, relying on an earlier Bombay High Court ruling, Harsha Nitin Kokate. The Bombay High Court's Division Bench in this very case rejected that view and held Kokate to be wrongly decided, prompting the nominees' appeal to the Supreme Court.

Decision Breakdown

The Supreme Court held that nomination under the Companies Act and Depositories Act does not create a "third line of succession" or a "statutory testament" that overrides the law of succession (the Indian Succession Act or intestate succession law). Following its own consistent precedent on nominations under other statutes (such as life insurance and bank deposits, e.g., Sarbati Devi and Ram Chander Talwar), the Court explained that the purpose of nomination is only to give the company or depository a valid, simple way to discharge its obligations immediately after a shareholder's death, so someone is authorized to deal with the company pending the succession process, not to confer real ownership rights that trump a will or the succession laws. The nominee therefore holds the shares/securities only until the legal heirs establish their rightful claim, and a valid bequest under a will supersedes the nomination. The Court expressly overruled Kokate and dismissed the appeal, upholding the Bombay High Court's Division Bench ruling.

Lesson Learnt

Naming someone as a "nominee" for shares, mutual funds, or bank/demat holdings does not make that person the legal owner of the asset after your death. It only authorizes them to receive or deal with the asset temporarily; the actual ownership still passes according to your will or the ordinary laws of inheritance, so nomination is not a substitute for proper estate planning.

Official source (sci.gov.in)View Judgment (PDF)

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