The case of Shakti Yezdani vs Jayanand Jayant Salgaonkar (Civil Appeal No. 7107 of 2017) is that the appellants in this case, who are the legitimate heirs of Jayant Shivram Salgaonkar, contested a lawsuit that respondent no. 1 had filed to administer the deceased’s assets, which included investments in mutual funds and fixed deposits (FDs). The deceased had nominated people for his Fixed Deposits and Mutual Funds.
A legal heir filed a suit in the Hon’ble Bombay High Court, requesting a declaration allowing the testator’s properties to be managed under court supervision. The nominees responded by claiming that they were automatically entitled to the Securities by virtue of their nomination. The arguments put forth by the nominees were rejected by a single judge of the High Court. The judge pointed out that neither the Companies Act nor the Depositories Act create a third mode of succession, meaning that a nominee is not entitled to the Securities to the exclusion of the legal heirs. In the appeal process, the Single Judge’s ruling was upheld by a Division Bench of the High Court. Aggrieved by this they preferred appeal in the supreme court.
The court held that the vesting of securities in favor of the nominee stipulated by the Companies Act and Depositories Act serves a limited purpose, namely, to ensure that there is no confusion regarding the legal formalities that must be completed upon the death of the holder, and, by extension, to protect the subject matter of nomination from any protracted litigation until the deceased holder’s legal representatives are able to take appropriate steps. The introduction of the nomination facility under the Companies (Amendment) Act, 1999 was solely to boost the investment climate and simplify the time-consuming process of obtaining various letters of succession from various authorities following the death of a shareholder.
It stated that there is a complex layer of commercial considerations that must be considered when dealing with company nomination issues or until legal heirs can sufficiently establish their right of succession to the company. As a result, providing a discharge to the entity once the nominee is involved differs significantly from granting nominees ownership of securities rather than legal heirs. The nomination process thus does not supersede the succession laws. Simply put, the Companies Act of 1956 and the Depositories Act of 1996 do not aim or intend to provide a third mode of succession. And it is clear that the Companies Act isn’t dealing with the law of succession.
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Written by – Surya Venkata Sujith
