Mr. X. held certain shares in dematerialized account with a depository. Mr. X executed nomination in the prescribed form following the prescribed procedures in favor of his nephew (Mr Y). Upon the demise Mr. X, wife of Mr. X (say Mrs. X) filed a suit claiming an interest in those shares as a legal heir and representative.
The Bombay High Court interpreted provisions of Section 109A of the Companies Act (Nomination of Shares), the Depositories Act and the bye law 9.11 of National Securities Depository Limited [NSDL] and held that where a shareholder of a company executes valid nomination form in the prescribed manner, upon death of the shareholder (i.e. Mr. X), the rights in shares including ownership rights vests in the nominee (Mr. Y) to the exclusion of other person (i.e. Mrs. X).
The High Court further held that the bye law 9.11 of NSDL makes the nominee’s position superior to even a testamentary disposition and that the non obstante clause in bye law no. 9.11.7 gives the nomination the effect of the testamentary disposition itself.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
NOTICE OF MOTION NO. 2351 OF 2008
IN SUIT NO. 1972 OF 2008
Harsha Nitin Kokate
Vs.
The Saraswat Co-op. Bank Ltd. & Ors.
Mr. A.K. Maheshwari for Plaintiff
Ms. Shyama Parkar i/b. M.P.Rege & Co., for Defendant No.1
Mr. H.S. Shreepad Murthy for Defendant No.3
CORAM : SMT. ROSHAN DALVI, J.
DATED : 20TH APRIL, 2010
JUDGMENT
1. The Plaintiff married one Nitin Kokate on 3rd December 2004. Her husband expired on 5th July 2007. Nitin Kokate held certain shares in Dmat Account with the Depository Participant Cell of Defendant No.1. Her husband executed a nomination in the prescribed form following the prescribed procedure set out by the Depository Participant, Defendant No.1 Bank in favour of the Defendant No.3, his nephew on 11th July 2006. The Plaintiff claims an interest in the said shares as his heir and legal 2 representative. She claims to have them sold.
2. This Suit is not concerned with the reason why she claims the sale of the shares. The Plaintiff must show her legal right, title and interest in those shares. If that is shown, the Plaintiff would be entitled to sell or transfer those shares or to hold them as her own.
3. The Defendant No.3 claims right, title and interest in the shares pursuant to the nomination executed in his favour. The nomination has been executed well prior to the death of the deceased and well after his marriage with the Plaintiff. The Defendant No.1 Bank has stated that the nomination is executed as required and has been so registered with the Depository Participant. The effect of the nomination is, therefore, to be seen. The nomination form itself shows that the rights of transfer and/or the amount payable in respect of the securities held by Nitin Kokate, Defendant No.3 vests in him as the said nominee.
4. The law relating to nomination is set out in 109A of the Companies Act pursuant to the amendment which came into effect on 31st October 1998. It is common knowledge that prior to 1996 shares were not held in dematerialized form. Consequent upon the Dematting of the shares the Share Certificates in physical form are not mandatorily required to be issued by the Limited Companies listed on the Stock Exchanges. Shares can be transferred by word of mouth or on the Internet from person to person. Upon such transfer the membership rights of the holder of the shares changes. Since the share is an intangible movable property it is 3 bequeath able estate The nomination in respect of the shares is, therefore, important. Section 109A sets out the rights of the holder of shares to nominate as well as the rights of the nominees thus:
