Shakti Yezdani & Anr. Vs Jayanand Jayant Salgaonkar & Ors. (Supreme Court of India)
Introduction:
The Supreme Court of India recently delivered a crucial judgment in the case of Shakti Yezdani & Anr. Vs Jayanand Jayant Salgaonkar & Ors. The central question revolved around the rights of a nominee of shares and whether they enjoy absolute ownership or are subject to the laws of succession.
The Supreme Court of India in this case was considering the rights of a nominee of shares which was challenged by other legal heirs as according to them, the shares should be distributed as per the Indian Succession Act. While the nominee of shares argued that in view of non obstacle clause in Section 109A and 109B of the Companies Act,1956 (now Section 72 of the companies Act 2013), he was the sole owner of these shares. However, the other legal heirs argued that Companies Act cannot determine and/or override the law of succession. It was also argued that the word “vest” and the non-obstinate clause in Section 109A/109B and/or Section 72 was only to protect the company from being dragged into a protracted litigation. Moreover the source of power in so far as enactment under the Companies Act[Entry 44 of List 1] and/or Indian Succession Act[Entry 5 of List 3] was concerned ,was different and thus the companies Act could not have trampled upon the power under a different entry.
The Ld judges analysed the law in detail and arrived at a conclusion that the Companies Act cannot be said to have dealt with the law of succession in any manner.
The view in Kokate (supra) generates inconsistencies as it renders a nomination under the Companies Act the status of a ‘superwill’ that is bereft of the rigour applicable to a will for its making or the test of its validity under the Indian Succession Act, 1925. According to the ruling, S. 109A & S. 109B of the Companies Act, 1956 and the Bye-law 9.11 of the Depositories Act, 1996 does not displace the law of succession nor does it stipulate a third line of succession.
Moreover the meaning of the word “vest” and interpretation of the Non obstinate clause was thread bare dealt with and finally it was held that an individual while dealing with the estate planning understands the succession in a particular manner and it will not be appropriate to interpret the law which will lead to confusion and held that the shares acquired by way of nomination are subject to laws of inheritance.
The object of S. 109A(3) of the Companies Act, 1956, according to the Division Bench, is not materially different from S. 6(1) of the Government Savings Certificates Act, 1959 and S. 109B of the Companies Act, 1956 is likewise similar to S. 45-ZA(2) of the Banking Regulation Act, 1949. The law relating to S. 6(1) of the Government Savings Certificates Act, 1959 has already been settled in the case of N. Khanchandani (supra) where the Supreme Court upheld the law declared in Sarbati Devi.
The Division Bench interpreting the provisions under S. 109A & S. 109B Companies Act, 1956 declared that they do not override the law in relation to testamentary or intestate succession. The judgment in Kokate (supra) was declared to be incorrect as it failed to consider the law laid down in Khanchandani (supra) and Talwar (supra) as these cases preceded Kokate (supra).
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