The Supreme Court has ruled that succession laws will override the Companies Act 2013 in deciding a person’s right over property and securities in instances where a deceased shareholder has left behind a nominee.

The Companies Act 1956 does not deal with succession, nor does it override the laws of succession such as the Indian Succession Act, 1925, or the Hindu Succession Act, 1956, the apex court ruled.

It is beyond the scope of the company’s affairs to facilitate the succession planning of the shareholder, the apex court said.

In other words, if a company shareholder dies leaving behind a nominee, the latter is not automatically entitled to the legacy of the deceased shareholder in the form of shares, mutual funds, securities, debentures and bonds.

Rather, the nominee is entitled to share the property along with other family members of the deceased, and only under the Indian Succession Act/ Hindu Succession Act or other laws governing such testamentary or intestate succession.

Intestate succession refers to the devolution of property in instances where the deceased has not left behind a will. In these cases, the succession rights are governed by personal laws such as Hindu, Muslim or Parsi personal laws.

“There is no mention of nomination and/ or succession within the provisions or the statement of objects & reasons or any other material pertaining to the Companies Act, 1956. Same is also not seen in subsequent amendments to the Act,” the apex court said in a recent judgment.

“Reading the provision of nomination within the Companies Act, 1956 with the broadest possible contours, it is not possible to say that the same deals with the matter of succession in any manner. There is no material to show that the intent of the legislature behind introducing a method of nomination through the Companies (Amendment) Act, 1999 was to confer absolute title of ownership of property/ shares, on the said nominee.”

The bench of Justices Hrishikesh Roy and Pankaj Mithal passed the ruling while upholding the concurrent findings of a single judge and division bench of Bombay High Court, which had dismissed the petition filed by a person named Shakti Yezdani and certain family members of the late Jayant Shivram Salgaonkar. The petitioners had claimed they were the sole nominee(s) to Salgaonkar’s mutual fund (MF) holdings as they had been declared nominees of the deceased in the MF certificates and were therefore entitled to succeed on the testator’s death.

In this case, the appellants, respondent No. 1 Jayanand Jayant Salgaonkar and eight other family members are the legal heirs and representatives of Jayant Salgaonkar, the family patriarch who had executed a will on June 27, 2011, making provisions for the devolution of his estates among the successors.

He had also made the appellants his nominees to his mutual fund holdings. Jayant Salgaonkar passed away on August 20, 2013, after which the succession battle among the family members started.

The appellants insisted that they were absolute owners of the MFs while other family members disputed this. In the legal battle, the single judge and later the division bench of the high court ruled that despite being nominees under the Companies Act, the right of succession to the claimants would accrue only in terms of the Indian Succession Act or the Hindu Succession Act, as the case may be.

Aggrieved, the appellants filed the present appeal in the top court.

Dismissing the appeal, Justice Hrishikesh Roy, who authored the judgment, said the vesting of shares/ securities in nominees under the Companies Act, 1956, and the Depositories Act, 1996, was only for a limited purpose, i.e., to enable the company to deal with the securities in the immediate aftermath of the shareholder’s death and to avoid uncertainty over who is the holder of the securities, which could hamper the smooth handling of the company’s affairs.

“Therefore, the argument by the appellants of nomination as a ‘statutory testament’ cannot be countenanced simply 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 Indian Succession Act, 1925, or in case of intestate succession, the laws of succession to determine the line of succession,” the apex court said.

“Upon a careful perusal of the provisions within the Companies Act, it is clear that it does not deal with the law of succession. Therefore, a departure from this settled position of law is not at all warranted. The impugned decision takes the correct view. The appeal is accordingly dismissed without any order on cost.”