Declaring the judgment of Harsha Nitin Kokate v. The Saraswat Cooperative Bank Ltd 2010 to be per incuriam, a bench comprising of G.S. Patel, J has held that legal heirs and not the nominees will get the ownership rights of share certificates. The Court declared the earlier judgment to be per incuriam, which means it had been wrongly decided and does not have to be followed. In the Kokate judgment,the Court had mistakenly concluded that once a nomination is made, the securities in question automatically get transferred in the name of the nominee upon the death of the holder of the shares and not to the legal heirs.
The Court had considered the provisions of Section 109A of the Companies Act, 1956, and Bye-Law 9.11 under the Depositories Act and held that they do not displace the law of succession. The Court also discussed the purpose of nomination under Section 39 of the Insurance Act and various Supreme Court cases where it has been laid down that although the insurance company would pay the amount due on insured’s death to the nominee, they would hold it in “trust” and ultimately only the legal heirs of the deceased could claim the property. Disagreeing with the views of Kokate judgment, the Court observed that it had failed to consider many binding judgments of the Supreme Court including the judgment ofSarbati Devi v Smt. Usha Devi (1984) 1 SCC 424.
The Court held that that the rights of a nominee to shares of a company cannot override the rights of legal heirs of deceased and therefore the amount received by the nominee can be claimed by the legal heirs of the deceased.
IN THE HIGH COURT OF JUDICATURE AT BOMBAYTESTAMENTARY & INTESTATE JURISDICTION
NOTICE OF MOTION NO. 822 OF 2014
IN
SUIT NO. 503 OF 2014
In the matter between
JAYANAND JAYANT SALGAONKAR,
versus
JAYASHREE JAYANT SALGAONKAR,
JUDGMENT PRONOUNCED ON : 31st March 2015
1. A common question of law arises in these two otherwise
unrelated cases. In this judgment, I have addressed only that
question of law, but not the respective applications on merits.
2. The question first came up in Jayanand Jayant Salgaonkar v
Jayashree Jayant Salgaonkar (“Salgaonkar”) when Mr. Snehal
Shah, learned Counsel for the Plaintiff in that matter, urged that the
decision of a learned single Judge of this Court in Harsha Nitin
Kokate v The Saraswat Cooperative Bank Ltd & Ors.1 was per incuriam
and not good law. As a substantially similar issue arose in the second
of these cases Nanak Ghatalia v Swati Ghatalia, I invited Mr.
Ghatalia, the Petitioner appearing pro-se and Mr. Karl Tamboly,
learned Counsel for the Caveatrix, to make their submissions on the
question as well.
3. I am not in this judgment deciding the merits of the
applications in Salgaonkar or Ghatalia, but only considering whether
Kokate was or was not per incuriam. The applications in both cases
will then have to be heard on their merits. However, it is necessary
to set out briefly how the question for determination arises.
4. Salgaonkar (Suit No.503 of 2014) is an action for
administration of the estate of one Jayant Shivram Salgaonkar. The
Plaintiff’s Notice of Motion No. 822 of 2014 seeks reliefs in respect
of his estate described in the list at Exhibit “A” to the Plaint. Item 9
of that list speaks of investments in Mutual Funds, etc. These are
detailed in Exhibit “D” to the Plaint. This is a list of various
investments in Mutual Funds and it shows the name of the
‘nominee’ in respect of each such investment. Defendants Nos. 5
and 6 seem to be the nominees in respect of the bulk of these mutual
fund investments. In their Affidavits in Reply to the Notice of
Motion, Defendants Nos. 5 and 6, represented by Mr. Rajendra Pai,
learned Counsel, have specifically urged that these investments do
not form part of the Jayant Salgaonkar’s estate. They each claim to
be exclusively entitled in law to ‘succeed to’ these investments qua
such nominees, and they invoke, inter alia, Regulation 29A of the
SEBI (Mutual Fund) Regulations, 1996. Defendant No.6 makes a
similar claim on the basis of Section 45-ZA of the Banking
Regulation Act, 1949 in respect of a fixed deposit receipt for Rs.50
lakhs with IDBI Bank.
5. In Ghatalia, probate is sought to the will of one Urmila S.
Ghatalia. The Petitioner is one of the deceased’s sons. The other
son has consented to the grant of probate. The action is opposed by
the deceased’s daughter. At present, the controversy is only whether
or not the daughter is entitled to file and maintain a caveat in
opposition to the probate petition or whether this caveat must be
held to be defective and non-est. In the course of the hearing, a
settlement was suggested and was very nearly reached. The only
contentious issue related to some of the deceased’s investments.
The Petitioner, Mr. Nanak S. Ghatalia, submitted that being a
nominee in respect of those investments he alone was entitled to
them and, notwithstanding anything in the will, these investments
came to him exclusively on his mother’s death. They did not form
part of her distributable estate and were not required to be
distributed in accordance with the will that he propounds.
6. In both cases, the claims of exclusive rights to and ownership
of the investments are founded on the judgment of the learned
single Judge in Kokate. That decision was in a Notice of Motion in a
Suit in which the plaintiff claimed an interest in certain shares as the
heir and legal representative of one Nitin Kokate, the plaintiff’s
deceased husband. Nitin Kokate had, in his lifetime, made a
nomination in respect of these shares in favour of his nephew, the
3rd defendant to the suit. The question placed before the Court was
whether the plaintiff, Nitin Kokate’s widow, could “show her legal
right, title and interest in those shares”.2 There was no dispute
about the correctness of the nomination or that Nitin Kokate made
that nomination inter vivos after his marriage to the plaintiff. The
Court then considered the provisions of Section 109A of the
Companies Act, 1956,3 and Bye-Law 9.11 under the Depositories
Act, 1996,4 and found that once a nomination is made, the securities
in question:
2 Para 2 of the Maharashtra Law Journal report. All page and paragraph
references to Kokate are to those in this report.
3 Equivalent to Section 72 of the Companies Act, 2013.
4 Incorrectly described in Kokate as Section 9 to the Act.
automatically get transferred in the name of the nominee
upon the death of the holder of the shares.5
and, further, that:
“such nomination carries effect notwithstanding anything
contained in a Testamentary Disposition or nominations
made under any other law dealing with the securities.
The last of the many nominations would be valid.”6
7. In opposition to the 3rd defendant’s claim, the submission
made on behalf of the plaintiff was noted in paragraph 9 of Kokate
thus:
“9. Mr. Maheshwari on behalf of the Plaintiff contends
that the nomination only makes a nominee a trustee for
the shares. He holds the shares in trust for the estate of
the deceased, the deceased died intestate and hence
the Plaintiff as the widow would be entitled to the shares
to the exclusion of the nominee.”
This is precisely the formulation that Mr. Shah and Mr. Tamboly
commend before me today.
8. The plaintiff’s counsel in Kokate also placed before the Court
the Supreme Court decision in Smt. Sarbati Devi v Smt. Usha Devi,7
a decision under Section 39 of the Insurance Act. Similarly,
attention was also invited to Section 30 of the Maharashtra
Cooperative Societies Act, 1960. The Kokate Court held that these
analogies were misplaced, and that the position under the
Companies Act, 1956 was to the contrary. The Court considered
various standard texts on the meaning of the word ‘vest’,8 and the
decisions of the Supreme Court in The Fruit & Vegetable Merchants’
Union v The Delhi Improvement Trust9, Dr. M. Ismail Faruqi v Union
of India,10 Municipal Corporation of Greater Bombay v Hindustan
Petroleum Corporation,11 and Bharat Coking Coal v Karam Chand
Thapar & Bros.12 Then, in paragraphs 24 to 26 of Kokate, the Court
concluded:
“24. In the light of these judgments Section 109A of
the Companies Act is required to be interpreted w ith re -
gard to the vesting of the shares of the holder of the
shares in the nominee upon his death. The act sets out
that the nomination has to be made during the life time of
the holder as per procedure prescribed by law. If that
procedure is followed, the nominee would become
entitled to all the rights in the shares to the exclusion
of all other persons. The nominee would be made beneficial
owner thereof. Upon such nomination, therefore,
all the rights incidental to ownership would follow.
This would include the right to transfer the
shares, pledge the shares or hold the shares. The
specific statutory provision making the nominee entitled
to all the rights in the shares excluding all other persons
would show expressly the legislative intent. Once all
other persons are excluded and only the nominee becomes
entitled under the statutory provision to have
all the rights in the shares none other can have it.
Further Section 9.11 of the Depositories Act 1996
8 Paragraphs 14 through 23.
9 AIR 1957 SC 344; Kokate, paragraph 18.
10 (1994) 6 SCC 360 : AIR 1995 SC 605; Kokate, paragraph 21.
11 (2001) 8 SCC 143; Kokate, paragraph 22.
12 (2003) 1 SCC 6 : 2002 (8) SCALE 388; Kokate, paragraph 23.
makes the nominee's position superior to even a
testamentary disposition. The non-obstante Clause
in Section 9.11.7 gives the nomination the effect of
the Testamentary Disposition itself. Hence, any other
disposition or nomination under any other law stands
subject to the nomination made under the Depositories
Act. Section 9.11.7 further shows that the last of
the nominations would prevail. This shows the revocable
nature of the nomination much like a Testamentary
Disposition. A nomination can be cancelled by
the holder and another nomination can be made.
Such later nomination would be relied upon by the
Depository Participant. That would be for conferring
of all the rights in the shares to such last nominee.
25. A reading of Section 109A of the Companies Act
and 9.11 of the Depositories Act makes it abundantly
clear that the intent of the nomination is to vest the property
in the shares which includes the ownership rights
there under in the nominee upon nomination validly
made as per the procedure prescribed,, as has been
done in this case. These Sections are completely different
from Section 39 of the Insurance Act set out
(supra) which require a nomination merely for the
payment of the amount under the Life Insurance
Policy without confirming any ownership rights in the
nominee or under Section 30 of the Maharashtra Cooperative
Societies Act which allows the Society to
transfer the shares of the member which would be
valid against any demand made by any other person
upon the Society. Hence these provisions are made
merely to give a valid discharge to the Insurance
Company or the Co-operative Society without vesting
the ownership rights in the Insurance Policy or
the membership rights in the Society upon such
nominee. The express legislature intent under Section
109A of the Companies Act and Section 9.11 of the Depositories
Act is clear.
26. Since the nomination is shown to be correctly
made by her husband who was the holder of the Suit
shares, the Plaintiff would have no right to get the shares
of her deceased husband sold or to otherwise deal with
the same.”
(Emphasis supplied)
9. Mr. Shah and Mr. Tamboly submit that in arriving at this
conclusion, although the Kokate Court did consider the Supreme
Court decision in Sarbati Devi, its attention was not drawn to several
other binding decisions of the Supreme Court and of this Court, all
of which considered statutory provisions in pari materia with
Section 109A of the Companies Act, 1956 and Bye-Law 9.11 under
the Depositories Act, 1996. These decisions, they submit, make it
clear that the emphasis is not on vesting, a term that is necessarily to
be viewed in its context, but on whether a third line of succession, in
addition to testamentary and intestate succession, was contemplated
by the statutory provisions before the Kokate court. This, they
submit, is not what the previous decisions of the Supreme Court
and this High Court say; to the contrary, those decisions make it
clear that the submission on behalf of Harsha Kokate were indeed
accurate and were the only possible view in law, viz., that a
nomination will only serve to discharge the responsibility or liability
of the issuing depository vis-à-vis the nominee, but the nominee
continues to be in a fiduciary capacity vis-à-vis all other claimants
under either of the two statutorily recognized modes of succession.
To hold otherwise, they submit, would be to put these corporate
statutes in direct and irreconcilable conflict with the Indian
Succession Act, 1925. For, Mr. Shah and Mr. Tamboly say, not only
would succession by intestacy be defeated by a corporate provision
intended for the protection of the corporate, but, and perhaps more
significantly, a testamentary disposition would be wholly defeated by
a nomination, even if the will in question is actually made after the
nomination and does contain a perfectly legitimate bequest of the
very securities in respect of a nomination is made. In other words, a
nomination not only becomes a testamentary disposition of sorts but
stands on a higher pedestal, and, at the same time, is unguarded by
any of the checks, balances and tests against which the validity of a
will and its due execution are to be tested. This was not, they say,
the intendment of the corporate statutes considered, and this
construct of the law is directly contrary to decisions of the Supreme
Court and the High Court, each of which was binding on the Kokate
Court. I will turn presently to the decisions cited in this regard, and
to these arguments in greater detail.
10. Mr. Shah invites attention to the preamble to the Depositories
Act, 1996. This is:
An Act to provide for regulation of depositories in
securities and for matters connected therewith or
incidental thereto.
When Mr. Shah says, therefore, that this has nothing whatever to do
with succession or disposition inter vivos, I believe he is correct.
Plainly, the Depositories Act is concerned with the regulation of
depositories, i.e., those entities providing depository services, and
not in relation to the holders of the securities in such services, or the
manner in which those security-holders might choose to conduct
their affairs or to leave the distribution of these securities either to
be governed by actions and deeds inter vivos, testamentary
succession or inheritance.
11. Section 2(1)(a) of the Depositories Act defines the expression
‘beneficial owner’ thus:
(a) “beneficial owner” means a person whose name is
recorded as such with a depository;
This, Mr. Shah says, is a definition wholly unrelated to any fiduciary
responsibilities, and there is no other section that deals with
nominations per se. That issue (nomination) is to be found only in
Bye-Law 9.11 framed under the Depositories Act; and the purpose
of this Bye-Law is made clear in 9.11.7. The relevant Bye-Laws (as
also reproduced in Kokate) read:
9.11. TRANSMISSION OF SECURITIES IN THE CASE
OF NOMINATION:
9.11.1. In respect of every account, the Beneficial
Owner(s) ("Nominating Person(s)") may nominate any
person ("Nominee") to whom his securities shall vest in
the event of his death in the manner prescribed under
the Business Rules from time to time.
9.11.2. The securities held in such account shall
automatically be transferred in the name of the Nominee,
upon the death of the Nominating Person, or as the case
may be, all the Nominating Persons subject to the other
Bye Laws mentioned hereunder.
9.11.3 ...
9.11.4. Beneficial Owner(s) may substitute or cancel
a nomination at any time. A valid nomination, substitution
or cancellation of nomination shall be dated and
duly registered with the Participant in accordance with
the Business Rules prescribed therefore. The closure of
the account by the Nominating Person(s) shall conclusively
cancel the nomination.
9.11.5. A Nominee shall not be entitled to exercise
any right conferred on Beneficial Owners under these
Bye Laws, upon the death of the Nominating Person(s),
unless the Nominee follows the procedure prescribed in
the Business Rules for being registered as the Beneficial
Owner of the securities of the Nominating Person(s) in
the books of the Depository.
9.11.6. A nominee shall on the death of the Nominating
Person(s) be entitled to elect himself to be registered
as a Beneficial Owner by delivering a notice in
writing to the Depository, along with the certified true
copy of the death certificate issued by the competent
authority as prescribed under the Business Rules. Subject
to scrutiny of such election, the securities in the Account
shall be transmitted to the account of the Nominee
held with any depository.
9.11.7. Notwithstanding anything contained in any
other disposition and/or nominations made by the Nominating
Person(s) under any other law for the time being
in force, for the purposes of dealing with the securities
lying to the credit of deceased Nominating Person(
s) in any manner, the Depository shall rely upon
the last nomination validly made prior to the demise of
the Nominating Person(s). The Depository shall not be liable
for any action taken in reliance upon and on the
basis of nomination validly made by the Nominating Person(
s).
(Emphasis supplied)
Now while it is true that Bye-Law 9.11.7 contains a non-obstante
clause, the reason for this is clear from the following phrase, viz.,
“for the purposes of dealing with the securities lying to the credit of
the deceased Nominating Person(s) in any manner”.
12. Section 109A of the Companies Act, 1956 was introduced in
1999 and this was done, Mr. Shah submits, for conformity with the
Depositories Act which preceded it by three years. Sub-section (3)
of the newly introduced section of the Companies Act, 1956 reads:
(3) Notwithstanding anything contained in any other
law for the time being in force or in any disposition,
whether testamentary or otherwise, in respect of such
shares in, or debentures of, the company, where a
nomination made in the prescribed manner purports to
confer on any person the right to vest the shares in, or
debentures of, the company, the nominee shall, on the
death of the shareholder or holder of debentures of, the
company or, as the case may be, on the death of the
joint-holders become entitled to all the rights in the
shares or debentures of the company or, as the case
may be, all the joint-holders, in relation to such shares in,
or debentures of the company to the exclusion of all
other persons, unless the nomination is varied or
cancelled in the prescribed manner.
13. The purpose of the Companies Act is to consolidate the law
relating to companies and certain other associations. It is not in any
sense intended or directed to settled laws of succession or transfer
of property, but only the law relating to companies. Therefore, Mr.
Shah submits, any provision of the Companies Act must be viewed
in context, and there is nothing in this sub-section that can or should
be viewed as an amendment sub-silentio of the testamentary and
other dispositive laws, ones that concern themselves with the
transfers (inter vivos or by inheritance or succession) of all property,
including corporate securities. What Section 109A does is to ringfence
the liability of companies vis-à-vis the holders of securities. It
does not absolve the nominees of those securities from their
fiduciary responsibilities to the heirs or legatees of the original
holder of the securities, the nominator.
14. The decision of the Supreme Court in Utkal Contractors &
Joinery Pvt. Ltd. & Ors. v State of Orissa & Ors.13 reiterates wellsettled
principles governing the interpretation of statutes. The
Supreme Court held:
9. In considering the rival submissions of the learned
Counsel and in defining and construing the area and the
content of the Act and its provisions, it is necessary to
make certain general observations regarding the
interpretation of statutes. A statute is best understood
if we know the reason for it. The reason for a statute
is the safest guide to its interpretation. The words of
a statute take their colour from the reason for it. How
do we discover the reason for a statute? There are
external and internal aids. The external aids are
statement of Objects and Reasons when the Bill is
presented to Parliament, the reports of Committees
which preceded the Bill and the reports of Parliamentary
13 (1987) 3 SCC 279
Committees. Occasional excursions into the debates of
Parliament are permitted. Internal aids are the preamble,
the scheme and the provisions of the Act. Having
discovered the reason for the statute and so having set
the sail to the wind, the interpreter may proceed ahead.
No provision in the statute and no word of the statute
may be construed in isolation. Every provision and
every word must be looked at generally before any
provision or word is attempted to be construed. T he
setting and the pattern are important. It is again
important to remember that Parliament does not
waste its breath unnecessarily. Just as Parliament is
not expected to use unnecessary expressions,
Parliament is also not expected to express itself
unnecessarily. Even as Parliament does not use any
word without meaning something, P arliament does
not legislate where no legislation is called for.
Parliament cannot be assumed to legislate for the
sake of legislation; nor can it be assumed to make
pointless legislation. Parliament does not indulge in
legislation merely to state what it is unnecessary to
state or to do what is already validly done. Parliament
may not be assumed to legislate unnecessarily.
Again, while the words of an enactment are
important, the context is no less important. For
instance, “the fact that general words are used in a
statute is not in itself a conclusive reason why every case
falling literally within them should be governed by that
statute, and the context of an Act may well indicate that
wide or general words should be given a restrictive
meaning’ (see Halsbury, 4th edn. Vol. 44 para 874).
10. In Attorney General v. H.R.H. Prince Augustus
1957 (1) All ER 49, Viscount Simonds said,
My Lords, the contention of the Attorney-
General was, in the first place met by the
bald general proposition that, where the
enacting part of a statute is clear and
unambiguous, it cannot be cut down by the
preamble, and a large part of the time which
the hearing of this case occupied was spent
in discussing authorities which were said to
support that proposition. I wish, at the
outset, to express my dissent from it, if it
means that I cannot obtain assistance from
the preamble in ascertaining the meaning of
the relevant enacting part. For words, and
particularly general words, cannot be
read in isolation; their colour and content
are derived from their context. So it is that
I conceive it to be my right and duty to
examine every word of a statute in its
context, and I use context in its widest
sense which I have already indicated as
including not only other enacting
provisions of the same statute, but its
preamble, the existing state of the law,
other statutes i n pari materia , and the
mischief which I can, by those and other
legitimate means, discern that the statute
was intended to remedy.
11. In Chertsey, V.D.C. v. Mixnam’s Properties 1964
(2) All ER 627, Lord Reid said that the general effect of
the authorities was properly in Maxwell’s Interpretation of
Statutes as follows:
General words and phrases therefore,
however wide and comprehensive they
may be in their literal sense, must usually
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be construed as being limited to the
actual objects of the Act.
Though no reference was made to Maxwell this Court in
Empress Mills v. Municipal Committee, Wardha [1958] 1
SCR 1102 , stated the same proposition:
It is also a recognised principle of
construction that general words and
phrases however wide and
comprehensive they may be in their
literal sense, must usually be construed
as being limited to the actual objects of
the Act.
12. In Maunsell v. Olins 1975 (1) All ER 16, Lord
Wilberforce observed,
...I am not, myself, able to solve the problem
by a simple resort to plain meaning. Most
language, and particularly all languages
used in rent legislation, is opaque: all
general words are open to inspection, many
general words demand inspection, to see
whether they really bear their widest
possible meaning.
13. But we think that when we rely upon rules of
construction we must always bear in mind Lord Reid’s
admonition in Maunsell v. Olins (supra) to the following
effect:
Then rules of construction are relied on.
They are not rules in the ordinary sense of
having some binding force. They are our
servants not our masters. They are aids
to constructions, presumptions or
pointers. Not infrequently one ‘rule’
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points in one direction, another in a
different direction. In each case we must
look at all relevant circumstances and,
decide as a matter of judgment what
weight to attach to any particular ‘rule’.
(Emphasis supplied)
15. Mr. Shah submits that if a mere nomination was to effect a
full-fledged transfer with all the incidents of ownership, it could not
be dependent on the death of the nominator. If the nominator died
holding securities, they necessarily fell into the deceased’s estate
and could not be abstracted from it. The position would be different
in the case of a transfer inter vivos, for then the securities would no
longer be the property of the nominator and, on his death, would
form no part of his or her estate. The consequence of Kokate is that
there is a transfer in praesenti, but to take effect only on death. That
creates an inherent conflict: would it mean, for instance, that the
nominator could not truck with those shares? Would the
nomination, on account of the transfer eo instante, divest the
nominator of ownership? If not, then the property in the form of
securities would necessarily form part of the nominator’s estate on
his demise, and it cannot be otherwise.
16. This is evident, Mr. Shah says, when one looks at the
accepted definitions of ‘nominee’ rather than ‘vesting’. That
definition will tell us whether or not a nominee properly so called
can ever acquire the full panoply of the incidents of ownership. In
Black’s Law Dictionary, 8th edition, a nominee is defined thus:
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Nominee (nom-i-nee), n. 1. A person who is proposed
for an office, membership, award, or like title or status; an
individual seeking nomination, election or appointment is
a candidate. A candidate for an election becomes a
nominee after being formally nominated. See CANDIDATE.
2. A person designated to act in place of another, usu. in
a very limited way. 3. A party who holds bare legal title
for the benefit of others or who receives and
distributes funds for the benefit of others.
(Emphasis supplied)
It is the third of these definitions that Mr. Shah commends as the
correct meaning for our purposes. That definition, he says, makes it
clear that the nominee holds title in a fiduciary capacity and none
other.
Iyer’s Judicial Dictionary includes this definition under the entry
‘nomination’:14
Nominee. It is clearly wide enough to include a
transferee of shares who was paying for them from his
own resources.
Should not be given the narrow meaning of a
trustee for the company, but should be given its ordinary
meaning of any person nominated by the company.
[Motor & General Insurance Co Ltd v Gobin, 1987 LRC
(Comm) 824 (PC)]
This expression is not defined in the
Companies Act. It apparently means a holder of
shares, having no beneficial interest in the shares, the
14 Page 1098
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whole beneficial interest remaining in one or more
other persons.
(Emphasis supplied)
17. No nomination can ever result in a divesting, Mr. Shah
submits. It is merely a matter of convenience for the company or the
depository, not for the nominator and certainly it does not transfer
ownership to the nominee. The reason for this is that the company
or depository should not have to face a legal vacuum till the
contesting rights are decided. Vatticherukuru Village Panchayat v
Nori Venkatarama Deekshithulu & Ors.15 is a decision of vital import
to the present discussion because it not only considers the meaning
of the word ‘vest’, but also the decision in Fruit & Vegetable
Merchants’ Union, which was cited before and considered by the
Kokate Court. In paragraph 10 of Vatticherukuru, the Supreme Court
considered the implications and meaning of the word ‘vest’ in the
context of a local tenancy and land law and revenue records. It said:
10. The word ‘vest’ clothes varied colours from the
context and situation in which the word came to be
used in a statute or rule. In Chamber’s Mid-Century
Dictionary at p. 1230 defined “vesting” in the legal sense
‘to settle, secure, or put in fixed right of possession; to
endow, to descend, devolve or to take effect, as a right’.
In Black’s Law Dictionary, 5th Ed. 1401, the word, ‘vest’,
to give an immediate, fixed right of present or future
enjoyment, to accrue to, to be fixed, to take effect, to
clothe with possession, to deliver full possession of land
or of an estate, to give seisin to enfeoff. In Stroud’s
Judicial Dictionary, 4th Edition, Vol. 5 at p. 2938, the
15 1991 Supp (2) SCC 228
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word ‘vested’ was defined in several senses. At p. 2940
in item 12 it is stated thus ‘as to the interest acquired by
public bodies, created for a particular purpose, in works
such as embankments which are ‘vested’ in them by
statute, see Port of London Authority v. Canvey Island
Commissioners [1932] 1 Ch. 446 in which it was held
that the statutory vesting was to construct the sea wall
against inundation or damages etc. and did not acquire
fee simple. Item 4 at p. 2939, the word ‘vest’, in the
absence of a context, is usually taken to mean vest in
interest rather than vest in possession’. In item 8 to ‘vest’,
“generally means to give the property in”. Thus the word
‘vest’ bears variable colour taking its content from
the context in which it came to be used. Take for
instance, the land acquired under the Land Acquisition
Act. By operation of Sections 16 & 17 thereof, the
property so acquired shall vest absolutely in the
Government free from all encumbrances. Thereby,
absolute right, title and interest is vested in the
Government without any limitation divesting the preexisting
rights of its owner. Similarly, under Section 56 of
the Provincial Insolvency Act, 1920, the estate of the
insolvent vests in the receiver only for the purpose of its
administration and to pay off the debts to the creditors.
The receiver acquired no personal interest of his own in
the property. The receiver appointed by the court takes
possession of the properties in the suit on behalf of the
court and administer the property on behalf of the
ultimate successful party as an officer of the court and
he has no personal interest in the property vested
thereunder. In Fruit and Vegetable Merchants Union v.
Delhi Improvement Trust [1957] SCR 1 the question was
whether the Delhi Improvement Trust was vested of the
Nazul land belonging to the Government with absolute
right, when the property was entrusted under the
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scheme for construction of the markets etc. It was held
by this Court that placing the property at the disposal
of the trust did not signify that the Government had
divested itself of its title to the property and
transferred the same to the trust. The clauses in the
agreement show that the Government had created
the Trust as its agent not on permanent basis but as a
convenient mode of having the scheme of
improvement implemented by the Trust subject to
the control of the Government.
18. The Supreme Court decision in Smt. Sarbati Devi v Smt. Usha
Devi16 was placed before the Kokate Court. This was a case under
Section 39 of the Insurance Act, 1938. The question, as set out in
paragraph 1, was whether a nominee of life insurance policy under
that Section, on the death intestate of the assured, would be entitled
to ‘the beneficial interest’ in the amount received under the policy
to the exclusion of all the heirs of the assured. The section under
consideration contained no non-obstante clause akin to the ones in
Section 109A of the Companies Act, 1956 or Bye-Law 9.11.7 under
the Depositories Act, 1996. In Mr. Shah’s submission, this makes no
difference, for that non-obstante clause only serves to protect the
company or the depository not divest an heir. In Sarbati Devi, the
Supreme Court said that there was no warrant for the position that
Section 39 of the Insurance Act “operates as a third kind of
succession which is styled as a ‘statutory testament’ in paragraph 16
of the decision in Uma Sehgal’s case.” The Supreme Court said:
“5. ... It is difficult to hold that Section 39 of the
Act was intended to act as a third mode of
succession provided by the statute. The provision in
16 (1984) 1 SCC 424 : AIR 1984 SC 346, supra.
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Sub-section (6) of Section 39 which says that the
amount shall be payable to the nominee or nominees
does not mean that the amount shall belong to the
nominee or nominees. We have to bear in mind here
the special care which law and judicial precedents
take in the matter of execution and proof of wills,
which have the effect of diverting the estate from the
ordinary course of intestate succession and that the
rigour of the rules governing the testamentary
succession is not relaxed even where wills are
registered.
(Emphasis supplied)
Later, in paragraph 8, the Supreme Court said:
“8. We have carefully gone through the judgment of
the Delhi High Court in Mrs. Uma Sehgal’s (case) supra.
In this case of the High Court of Delhi clearly came to
the conclusion that the nominee had no right in the
lifetime of the assured to the amount payable under the
policy and that his rights would spring up only on the
death of the assured. The Delhi High Court having
reached that conclusion did not proceed to examine
the possibility of an existence of a conflict between
the law of succession and the right of the nominee
under Section 39 of the Act arising on the death of
the assured and in that event which would prevail.
We are of the view that the language of Section 39 of
the Act is not capable of altering the course of
succession under law. The second error committed by
the Delhi High Court in this case is the reliance placed
by it on the effect of the amendment of Section 60(1)
(kb) of the CPC, 1908 providing that all moneys payable
under a policy of insurance on the life of the judgment
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debtor shall be exempt from attachment by his creditors.
The High Court equated a nominee to the heirs and
legatees of the assured and proceeded to hold that
the nominee succeeded to the estate with all ‘plus
and minus points’. We find it difficult to treat a
nominee as being equivalent to an heir or legatee
having regard to the clear provisions of Section 39 of
the Act. ...”
(Emphasis supplied)
19. Mr. Shah submits that this decision was on all fours with the
case before the Kokate Court and was incorrectly distinguished.
What the Kokate Court also did not consider was that Sarbati Devi
was also considered by the Supreme Court itself in Shri Vishin N.
Khanchandani & Anr. v Vidya Lachmandas Khanchandani & Anr.17
That case came up to the Supreme Court from a decision of this
court in a First Appeal. It dealt with a nomination under the
Government Savings Certificates Act, 1959. The question before the
Supreme Court was whether the nominee specified in the National
Savings Certificate, on the death of its holder, became entitled to the
sum due under the certificate to the exclusion of all other persons,
or whether the amount of the certificate was to be retained by him
for the benefit of the deceased’s legal heirs. Clearly, this was
substantially the question in Sarbati Devi. The contention by the
appellants in Khanchandani was precisely the same as is taken here
by Mr. Pai and Mr. Ghatalia:
4. Feeling aggrieved, the appellants- the nominees
of the National Savings Certificates have filed this appeal
contending that under Section 6 of the Government
17 (2000) 6 SCC 724
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Savings Certificates Act, 1959, after the death of the
holder they had become entitled to the payment of such
saving certificates in which they were nominees, to the
exclusion of all other persons including the respondents
and entitled to utilise the aforesaid amounts in the
manner they like. It is contended that by their
nomination, the holder of the National Savings
Certificates, namely, Shri Lachmandas Naraindas
Khanchandani has diverted the normal course of
succession. According to them Section 6 provides
another mode of succession, to the exclusion of
testamentary and non-testamentary successions.
Alternatively, it was urged that nomination itself
amounted to testamentary succession.
20. The statutory provision in question is set out in paragraph 6
of Khanchandani. Section 6(1) of the act in question also contained a
non-obstante clause, thus:
6. Nomination by holders of savings certificates.
(1) Notwithstanding anything contained in any law
for the time being in force, or in any disposition,
testamentary or otherwise in respect of any savings
certificate, where a nomination made in the prescribed
manner purports to confer on any person the right to
receive payment of the sum for the time being due on
the savings certificate on the death of the holder
thereof and before the maturity of the certificate, or
before the certificate having reached maturity has been
discharged, the nominee shall, on the death of the
holder of the savings certificate, become entitled to
the savings certificate and to be paid the sum due
thereon to the exclusion of all other persons, unless the
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nomination is varied or cancelled in the prescribed
manner.
(Emphasis supplied)
21. Section 8 then said that payment made in accordance with the
previous sections would discharge the insurer; and then followed
Section 8(2), one that is without a comparable parallel in Section
109A and the Depositories Act, 1996:
8. Payment to be a full discharge.—
(1) Any payment made in accordance with the
foregoing provisions of this Act to a minor or to his
parent or guardian or to a nominee or to any other
person shall be a full discharge from all further liability in
respect of the sum so paid.
(2) Nothing in Sub-section (1) shall be deemed to
preclude any executor or administrator or other
representative of a deceased holder of a savings
certificate from recovering from the person receiving
the same under Section 7 the amount remaining in
his hands after deducting the amount of all debts or
other demands lawfully paid or discharged by him in
due course of administration.
(3) Any creditor or claimant against the estate of a
holder of a savings certificate may recover his debt or
claim out of the sum paid under this Act to any person
and remaining in his hands unadministered in the same
manner and to the same extent as if the latter had
obtained letters of administration to the estate of the
deceased.
(Emphasis supplied)
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22. Mr. Pai and Mr. Ghatalia submit that Khanchandani clearly
has no application because the statutory provision there had a failsafe
in Section 8(2) that specifically saved the interests of heirs or
legatees. There is no such provision in the Companies Act or the
Depositories Act, they say, and the two legal schemas are distinct
and different from the one under the Government Savings
Certificate Act. I do not believe this to be an argument of substance.
The savings provision in Section 8(2) was clarificatory and perhaps
ex majore cautela. It does not take away the settled position in law,
and this is clear from paragraph 9 of Khanchandani in which Sarbati
Devi is considered and quoted at length. These are the same
passages I have extracted above. If there was any doubt about this, it
is put to rest by paragraphs 11 to 13 in Khanchandani:18
11. It is contended on behalf of the appellants that
the n on-obstante clause in Section 6 excludes all
other persons, including the legal heirs of the
deceased holder, to claim any right over the sum paid
on account of the National Savings Certificates, to
the nominee. There is no doubt that by n on-obstante
clause the Legislature devices means which are
usually applied to give overriding effect to certain
provisions over some contrary provisions that may be
found either in the same enactment or some other
statute. In other words such a clause is used to avoid
the operation and effect of all contrary provisions.
The phrase is equivalent to showing that the Act
shall be no impediment to measure intended. To
attract the applicability of the phrase, the whole of
the Section, the scheme of the Act and the objects
18 Paragraph numbers follow the SCC report.
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and reasons for which such an enactment is made
has to be kept in mind.
12. The submission made on behalf of the appellants
has no substance in view of Sub-section (2) of Section 8
and the Statement of Objects and Reasons necessitating
the passing of the Act. Sub-section (1) of Section 8
provides that if any payment is made in accordance with
the provisions of the Act to a nominee, the same shall be
a full discharge from all further liabilities in respect of the
sum so paid. Section 7 of the Act provides that after the
death of the holder of the savings certificates payment of
the sum shall be made to the nominee, if any, and Subsection
(1) of Section 8 declares that such payment shall
be a full discharge from all further liabilities in respect of
the sum so paid. However, Sub-section (2) of Section
8 specifies that the payment made to the nominee
under Sub-section (1) shall not preclude any
executor or administrator or the legal representative
of the deceased holder of a savings certificate from
recovering from the person receiving the same under
Section 7; the amount remaining in nominee’s hand
after deducting the amount of all debts or other
demands lawfully paid or discharged by him in due
course of administration. In other words though the
nominee of the National Savings Certificates has a
right to be paid the sum due on such savings
certificates after the death of the holder, yet he
retains the said amount for the benefit of the persons
who are entitled to it under the law of succession
applicable in the case, however, subject to the
exception of deductions mentioned in the Subsection.
In the Statement of Objects and Reasons of the
Act it is stated:
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13. In the light of what has been noticed
hereinabove, it is apparent that though language and
phraseology of Section 6 of the Act is different than
the one used in Section 39 of the Insurance Act, yet,
the effect of both the provisions is the same. The Act
only makes the provisions regarding avoiding delay and
expense in making the payment of the amount of the
National Savings Certificates, to the nominee of holder,
which has been considered to be beneficial both for the
holder as also for the post office. Any amount paid to the
nominee after valid deductions becomes the estate of
the deceased. Such an estate devolves upon all persons
who are entitled to succession under law, custom or
testament of the deceased holder. In other words, the
law laid down by this Court in Sarbati Devi’s case holds
the field and is equally applicable to the nominee
becoming entitled to the payment of the amount on
account of National Savings Certificates received by him
under Section 6 read with Section 7 of the Act who in
turn is liable to return the amount to those, in whose
favour law creates beneficial interest, subject to the
provisions of Sub-section (2) of Section 8 of the Act.
23. The Supreme Court in Khanchandani though it had before it a
statute with a provision of express saving in Section 8(2), placed the
entirety of the case on par with Sarbati Devi, a decision that
considered Section 39 of the Insurance Act and did not have a
provision parallel to Section 8(2) of the Government Savings
Certificates Act. Consequently, the argument that a saving provision
of that nature is essential and that, in its absence, there is an
absolute devolvement to the exclusion of all heirs or legatees, on the
nominee is an argument that was expressly raised and rejected by
the Supreme Court.
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24. But that is not all. Both Sarbati Devi and Khanchandani were
considered in Shipra Sengupta v Mridul Sengupta & Ors.19 Here again
a claim was made on the basis of a nomination, the nominee
contending that he succeeded, by virtue of that nomination made
inter vivos, to specific movable property to the exclusion of heirs.
Sarbati Devi20 was considered as was Khanchandani.21 Then the
Supreme Court held:
17. The controversy involved in the instant case is
no longer r es integra . The nominee is entitled to
receive the same, but the amount so received is to be
distributed according to the law of succession. In
terms of the factual foundation laid in this case, the
deceased died on 8.11.1990 leaving behind his mother
and widow as his only heirs and legal representatives
entitled to succeed. Therefore, on the day when the right
of succession opened, the appellant, his widow became
entitled to one half of the amount of the general
provident fund, the other half going to the mother and on
her death, the other surviving son getting the same.
19. In view of the clear legal position, it is made
abundantly clear that the amount in any head can be
received by the nominee, but the amount can be
claimed by the heirs of the deceased in accordance
with law of succession governing them. In other
words, nomination does not confer any beneficial
interest on the nominee. In the instant case amounts so
received are to be distributed according to the Hindu
Succession Act, 1956. The State Bank of India is
directed to release half of the amount of general
19 (2009) 10 SCC 680
20 Shipra Sengupta, paragraph 14
21 Shipra Sengupta, paragraph 15
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provident fund to the appellant now within two months
from today along with interest.
(Emphasis supplied)
25. Now Shipra Sengupta is a decision of 20th August 2009;
Kokate is of 20th April 2010, about eight months later. Shipra
Sengupta contains an absolutely unambiguous statement of the law
without any qualification on account of this or that statutory
provision. This decision was preceded by just a few months by that
of the Supreme Court in Challamma v Tilaga & Ors.22 on 31st July
2009, and this decision too reiterates and follows Sarbati Devi and
Khanchandani. It reaffirms paragraph 4 of Sarbati Devi:
14. In Sarbati Devi v. Usha Devi [(1984) 1 SCC 424 :
1984 SCC (Tax) 59] this Court held: (SCC p. 427, para
4)
“4. At the outset it should be mentioned
that except the decision of the Allahabad
High Court in Kesari Devi v. Dharma Devi
[AIR 1962 All 355] on which reliance was
placed by the High Court in dismissing the
appeal before it and the two decisions of the
Delhi High Court in S. Fauza Singh v. Kuldip
Singh [AIR 1978 Del 276] and Uma Sehgal v.
Dwarka Dass Sehgal [AIR 1982 Del 36] in all
other decisions cited before us the view
taken is that the nominee under Section 39
of the Act is nothing more than an agent to
receive the money due under a life
insurance policy in the circumstances
similar to those in the present case and
22 (2009) 9 SCC 299
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that the money remains the property of the
assured during his lifetime and on his
death forms part of his estate subject to
the law of succession applicable to him.”
26. On 6th April 2010, another learned single Judge of this Court
considered precisely the question of a nomination in relation to
provident fund dues in Antonio Joao Fernandes v The Assistant
Provident Fund Commissioner & Ors.23 Mr. Justice N.A. Britto had
before him a First Appeal from an order dismissing a suit in which
the plaintiff claimed to be entitled to 50% of the provident fund dues
as one of the two nominees of the deceased holder of the provident
fund account, his cousin. The deceased’s sister, the 3rd defendant to
the suit, was the nominee of the remaining 50%. The learned single
Judge expressly rejected the argument that the nomination would
operate to the exclusion of the legal heir. Both Sarbati Devi and
Khanchandani were cited and followed;24 and Mr. Justice Britto
specifically held that the word ‘vests’ takes its colour from its
context and has different connotations.25 In this regard, the learned
single Judge relied on the decision of this Court in Nozer Gustad
Commissariat v Central Bank of India & Ors.26 (which, in turn, relied
on the Supreme Court decision in Fruit & Vegetable Merchants’
Union), and to which Mr. Tamboly draws attention. Nozer
Commissariat was also a decision in relation to an employee’s
provident fund, and in that decision, Mr. Justice D.R. Dhanuka
categorically held that the decision in Sarbati Devi was not limited in
23 2010 (4) Bom. C. R. 208 : 2010 (3) All M.R. 599
24 Paras 13 and 15 of the equivalent Manupatra report,
MANU/MH/0330/2010
25 Paragraph 15 of the equivalent Manupatra report, supra.
26 1993 Mh. L.J. 228
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any way to claims under the Insurance Act but set a general
principle in relation to nominees. Both Nozer Commissariat and
Antonio Joao Fernandes preceded Kokate (the latter by about two
weeks). Neither was cited nor noticed in Kokate. Neither was
distinguished.
27. The Supreme Court’s decision in Ram Chander Talwar &
Anr. v Devender Kumar Talwar & Ors.27 was delivered on 6th
October 2010 a few months after Kokate. Its relevance lies in the fact
that it quite unequivocally reiterates the legal position in relation to a
nominee and a nomination following Khanchandani; and Talwar
does so in the context of Section 45ZA of the Banking Regulation
Act, 1949, a provision that is in pari materia with Section 109A of
the Companies Act, 1956:
45ZA(2). Notwithstanding anything contained in any
other law for the time being in force or in any disposition,
whether testamentary or otherwise, in respect of such
deposit, where a nomination made in the prescribed
manner purports to confer on any person the right to
receive the amount to deposit from the banking
company, the nominee shall, on the death of the sole
depositor or, as the case may be, on the death of all the
depositors, become entitled to all the rights of the sole
depositor or, as the case may be, of the depositors, in
relation to such deposit to the exclusion of all other
persons, unless the nomination is varied or cancelled in
the prescribed manner.
27 (2010) 10 SCC 671
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28. Mr. Pai’s submission that the expression ‘right to receive’ is
materially different from ‘the right to vest’ is not one that
commends itself. The Supreme Court in Talwar said:
5. Section 45ZA(2) merely puts the nominee in the
shoes of the depositor after his death and clothes him
with the exclusive right to receive the money lying in the
account. It gives him all the rights of the depositor so far
as the depositor's account is concerned. But it by no
stretch of imagination makes the nominee the owner of
the money lying in the account. It needs to be
remembered that the Banking Regulation Act is enacted
to consolidate and amend the law relating to banking. It
is in no way concerned with the question of succession.
All the monies receivable by the nominee by virtue of
Section 45ZA(2) would, therefore, form part of the estate
of the deceased depositor and devolve according to the
rule of succession to which the depositor may be
governed.
29. Talwar came after Kokate, and it is not, of course, a reason to
hold that the latter decision is per incuriam. But Talwar is significant
because it reiterates in demonstrably comparable circumstances a
statement of law that was canvassed before the Kokate court and
expressly rejected; and, further, traces this statement of law at least
to Khanchandani, a decision that preceded Kokate by several
months.
30. The concept of a nomination has been extensively covered in
the decision of a learned single Judge of the Delhi High Court in
Leelawati Singh & Anr. v State of Delhi & Ors.28 There again, a
28 1998 (75) DLT 694
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question of nomination arose in a contested probate action. The
learned single Judge not only followed Sarbati Devi but also set out
an exhaustive survey of decisions of various courts on this aspect,
saying inter alia that the legal effect of a nomination is no longer res
integra. The learned single Judge quoted from an early decision in
Aimai v Awabai Dhanjishaw Jamsetji & Ors.29 That passage is a
crystalline articulation of the law and is best reproduced in its
entirety:
“To take the second point first, that is, let us assume that
the amount at the credit of Master in the fund, or at any
rate the right to recover that amount from the fund,
formed part of the estate of Master during his life-time.
Has he done anything to divest himself of his right
thereto? All he did was to direct that in case of his death
the sum should be paid to Aimai. This is in itself a mere
mandate the validity of which expires with the death of
the mandator. It is true the validity is extended by Statute
beyond such death but such statutory extension does
not by itself produce any change in the nature of the
mandate. The question as to what the recipient is to do
with the fund when she has obtained it is still for
decision. The nomination paper is not a Will. In no
case could a Parsi execute a Will in that form. But
even in the case of those persons who can make a
valid informal Will the nomination paper could not be
considered as a Will and nothing more; if it were so
considered the whole object of the nomination would
be frustrated. The object of the nomination system is
to designate some person to whom the Provident
Fund may pay over the amount due to the subscriber,
and obtain a valid quittance. If the nominee were
29 AIR 1924 Sind 57
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merely the legatee under the nomination paper
considered as a Will then in so much as a Will can be
revoked by a later Will even if not communicated to
the fund or by some former instrument of revocation
or in some cases by marriage of the testator the fund
could never be certain whether the person nominated
was the person entitled to receive payment, that is, if
the nominee is to be regarded as legatee only. True it
is that the fund is made safe in respect of the
payment made to the nominee, but I am not now
considering that, I am merely ascertaining what the
legal effect on Master’s rights to this fund was by his
executing this nomination, paper, and it is certain that
the nomination paper cannot operate as a Will.”
... I should hesitate, unless the words of the Statute and
of the rules framed there under were explicit, to suppose
that the perpetration of such unnatural injustice was
rendered obligatory on a subscriber to a Provident Fund.
Nor can I conceive why the Provident Fund should
wish to introduce so strange a law of inheritance. I do
not find in the Statutes anything which renders it
obligatory for me to take this view. The object of Section
4, as amended by Act IV of 1903, is to render the fund
incapable of attachment in the hands of the nominee for
debts due by the subscriber. It is true that the
Legislature uses the word “vest” but that word does
not necessarily connote title. A person, in whom the
property of another vests, has the same rights of
dominion over the property as the owner would have
had, no more and no less. But no one has the right to
deal with his property so as to defeat the legal claims
of others.”
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The learned single Judge of the Delhi High Court found that no
nominee gets any right or title by virtue of a nomination alone. This
was also the view of the Lahore High Court in Hardial Devi Ditta v
Janki Das & Anr.,30 which held that:
“Nomination would not amount to a Will or a gift or trust
in favour of the nominee. The nominee would only get
the right to receive the amount and he holds the
amount for the benefit of the heirs.”
This was also the view of the Madras High Court in D. Mohanavelu
Mudaliar v Indian Insurance & Banking Corporation, Salem & Anr.:31
“So far as nomination is concerned we do not see any
appreciable difference between the English and
American Laws on the one hand, and what obtains in our
country. According to the English Law the payee or
the nominee is nothing more than an agent to receive
the money, which money remains as the property of
the assured and at his disposal during his life time
and on his death forms part of the estate. The result
is that the payee or the nominee takes no beneficial
interest in it.”
The views of the Kerala High Court, the Calcutta High Court, the
Andhra Pradesh High Court and the Delhi High Court all to the
same effect were also considered.
31. Mr. Shah and Mr. Tamboly both relied on the 2009 decision
of a learned single Judge in Ramdas Shivram Sattur v Rameshchandra
30 AIR 1928 Lah 773
31 AIR 1957 Mad 115
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alias Ramchandra Popatlal Shah & Ors.32 This was a decision under
Section 30 of the Maharashtra Co-operative Societies Act, 1960.
The learned single Judge (A.P. Deshpande, J) held that the purpose
of a nomination is to make certain the person to whom the society
must look, and not to create an interest in the nominee to the
exclusion of those in law entitled to the estate of a deceased
member. This was also the view of another learned single Judge of
this Court (R.D. Dhanuka, J) in Shashikiran Ashok Parekh v Rajesh
Virendra Agarwal & Ors.33 Mr. Shah and Mr. Tamboly submit that
although Kokate sets out Section 30 of the Maharashtra Cooperative
Societies Act, 1960, it is set apart only on an interpretation
of the word ‘vest’, one that is unsupported in law, and is also an
interpretation that fades into insignificance when the other decisions
squarely on the aspect of the legal effect of nominations under
diverse statutes are taken into account. Further, if the purposive
approach is to be taken, as it should be in the submission of Mr.
Warerkar, who also supports Mr. Shah and Mr. Tamboly, then the
preamble to the Indian Succession Act, 1925 should leave no room
for doubt, for that is clearly an act to ‘consolidate the Indian law
relating to succession.’ Till then there were very many ‘large and
important enactments’ on the subject, making ascertainment
difficult.
32. Mr. Pai’s response to all this is that there are only two modes
of transfer of property: by operation of law and by act of parties.
Transfer by law may be voluntary or involuntary. A transfer inter
vivos is followed by an absolute vesting, and this is apparent from
32 2009 (3) Bom. C. R. 705
33 2012 (4) Mh. L. J. 370
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Section 5 of the Transfer of Property Act and Section 130 which
deals with transfers of actionable claims. Mr. Pai claims that the
nomination is a ‘statutory testament’, something known,
contemplated and approved by the Indian Succession Act. The
purposes of a will and a nomination are identical, and both serve to
disrupt a natural line of succession. Therefore, the same
considerations must apply to both. Further, Section 58(2) of the
Indian Succession Act specifically excludes from that Act other
modes of succession, i.e., it recognizes that other modes of
testamentary succession are possible, for it says that Part VI of the
Indian Succession Act constitutes the law of India applicable to all
cases of testamentary succession save as provided in sub-section (1)
or by any other law for the time being in force. According to Mr. Pai, all
the other decisions are subject to a rider and each has to be confined
to the facts of its particular case, since none of them deal with the
Companies Act, 1956 or the Depositories Act, 1996, two statutes
that stand alone and apart. He invites attention to a comparative
tabulation in this regard. According to Mr. Pai, the transfer in a
nomination takes place absolutely on the death of the holder, and
this is contemplated by Section 58(2) of the Indian Succession Act.
The statutory intention, he says, was to ‘avoid disputes’ between
heirs.
33. Mr. Pai also cites the decision of a Division Bench of the
Calcutta High Court in Smt. Usha Majumdar v Smt. Smriti Basu,34
which held that a nominee in respect of a provident fund account is
exclusively entitled to the amount in that account to the exclusion of
the others. It is not possible to accept this submission. That decision
34 AIR 1988 Cal 115
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was considered by Mr. Justice Britto in Antonio Joao Fernandes, and
expressly not accepted in view of Sarbati Devi and Khanchandani.35
Mr. Justice Britto’s decision binds me; that of the Calcutta High
Court, with respect, does not. To accept Mr. Pai’s submission, I
would have to hold that Antonio Joao Fernandes was incorrect and
refer the matter to a larger Bench, or to hold that it was per incuriam.
I can do neither.
34. Similarly, I am unable to accept Mr. Pai’s submission that the
decision of a learned single Judge of the Delhi High Court in
Dayagen P. Ltd v Rajendra Dorian Punj & Anr.36 should be followed.
There, the learned single Judge held that the submission that the
nominee under Section 109A of the Companies Act, 1956 held
merely in trust was negatived on account of the non-obstante clause.
The learned single Judge held that legislative intent was to override
the general law of succession and to carve out an exception in
relation to nominations in respect of shares and debentures. But
Dayagen too does not consider the Supreme Court decision in
Khanchandani.37
35. I have also considered Mr. Ghatalia’s remarkably fluent and
concise written submissions. He makes the point that Sections 109A
and 109B of the Companies Act must be read as a code in
themselves and their statutory intent must be gleaned, in the first
instance, from the plain meaning of the words. The words ‘vest’ and
‘nominee’ are to be seen, he submits, from that statute alone and no
35 Paragraph 15 of the Manupatra report in Antonio Joao Fernandes.
36 [2009] 151 Com Cas 92 (Del)
37 Dayagen preceded Shipra Sengupta by amount a month.
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other; and the non-obstante clause over-rides every other statutory
provision, including the Succession Act. Mr. Ghatalia too cites
Dayagen in this behalf.38 He joins Mr. Pai in submitting that the
words of the statute must be seen without reference to outside
considerations.39 There can be no quarrel with this well-settled
proposition. But none of these are to be read to suggest that statutes
must be read in a vacuum and that it is never permissible to look at
others in pari materia, for that would mean that every new statute
would have to be read and construed in a bubble of isolation. There
is absolutely nothing in any portion of the Companies Act, 1956 or
the Depositories Act, 1996 to support the view that Mr. Pai and Mr.
Ghatalia commend.
36. I must also note that the argument of a ‘statutory testament’
was raised before the Supreme Court in Sarbati Devi and was
expressly negatived there. To accept it now would be to confine
Sarbati Devi to the narrow confines of Section 39 of the Insurance
Act, a view that has since been rejected, most clearly in
Khanchandani, Shipra Sengupta, Talwar, Nozer Gustad Commissariat
and Antonio Joao Fernandes.
37. The decision in Kokate does not consider the decisions of the
Supreme Court in Khanchandani, Shipra Sengupta or Challamma, or
38 I am not at this stage considering the remaining submissions made by
Mr. Ghatalia, as these are on the merits of his case, one that I am not
taking up presently.
39 New Piecegoods Bazar Co Ltd v Commissioner of Income Tax Bombay, AIR
1950 SC 165; Nathuprasad v Singhai Kapurchand, AIR 1976 MP 136;
Ram Krishna Ram Nath v Janpad Sabha, AIR 1962 SC 1073; Harcharan
Singh v Shivrani, (1981) 2 SCC 535.
those of learned single Judges of this Court in Nozer Gustad
Commissariat and Antonio Joao Fernandes. Each one of these was
binding on the Kokate court. The view taken in Kokate is contrary to,
and does not consider any of these. It is, for that reason, per
incuriam.
38. The interpretation on Section 109A and Bye-Law 9.11 placed
by the Kokate Court does not seem to me to be reconcilable with the
explicit decisions of the Supreme Court and of this Court. What was
the ‘mischief’, if any, sought to be avoided by those two statutes?
The succession law is unchanged. There are no further
complications on account of testamentary or intestate succession.
The nature of corporate instruments and securities has, however,
undergone a massive change and so has the way corporations
(including banks and depositories) conduct their business. The
fundamental focus of Section 109A and Section 109B of the
Companies Act and Bye-Law 9.11 of the Depositories Act is not the
law of succession, nor is it intended to trammel that in any way. The
sole intention is, quite clearly, to afford the company or depository
in question a legally valid quittance so that it does not remain
forever answerable to a raft of succession litigations and an endless
slew of claimants under succession law. It allows that liability to
move from the company or the depository to the nominee. The
company or depository gets a legally valid discharge; but the
nominee continues to hold in a fiduciary capacity and is answerable
to all claimants under succession law.
39. It cannot be otherwise. The Kokate view generates the very
inconsistencies and conflicts that Sarbati Devi and, later,
Khanchandani, Shipra Sengupta and the decisions of this Court
(Nozer Gustad Commissariat and Antonio Joao Fernandes) were
careful to avoid. Take for instance the example I referred to earlier,
of a will being made after a nomination. In the ordinary law of
succession, if the nomination is indeed a testamentary instrument, it
would be displaced by a later will. Yet, in the formulation that Mr.
Pai and Mr. Ghatalia commend, the nomination stands apart and is
unaffected by any later will though they call the nomination a
‘statutory’ will. Further, testamentary dispositive capacities are not
all identical. There are, for instance, restrictions in Mohammedan
law on how much can be disposed by will. The so-called ‘statutory’
testament would oust this personal law entirely, even though there is
nothing in either of the corporate statutes to indicate that this was
ever the legislative intent. Moreover, nominations when viewed as
Kokate would have it, create insoluble problems: no such ‘statutory
testament’ can be displaced on the one ground that can always be
invoked in a challenge to a will, viz., that it is ‘unnatural’ and gives
to an outsider to the exclusion of heirs, or prefers one heir over all
others.
40. There are additional problems too. The ‘statutory testament’
is not subject to the rigour of the Succession Act. It does require
witnesses, but not the discipline mandated by Section 63 of the
Indian Succession Act. A nomination, though said to be a
‘testament’, requires no probate or other proof ‘in solemn form’. Yet
it is said to be a will. Witnesses need not be in the presence of the
nominator. Yet it is said to be a will. Witnesses need not act at the
instance of the nominator. Yet it is said to be a will. Witnesses need
not see the nominator execute the nomination. Yet it is said to be a
will. No nomination can be assailed on the ground of importunity,
fraud, coercion or undue influence; Section 61 of the Indian
Succession Act is wholly defenestrated, as is Section 59. Yet it is
said to be a will. There can be no codicil to a nomination. Yet it is
said to be a will. In short, a nomination, in the Kokate formulation, is
some sort of ‘super-will’, one that partakes of none of the defining
traits of a properly executed will and none of the tests of its validity,
one that is never displaced by a later, properly made will that deals
with the very same property. Mr. Pai asks that we should place
ourselves in the ‘armchair of the nominator’. That, as it happens, is
the same furniture used by a testator, and it simply cannot be that
the view from that seat depends on the nature of the document
before the executant. There is no particular form for a will, but there
are requirements attendant to its proper making. These do not apply
to all nominations: even the requirement of witnesses is a matter of
prudence rather than statute. If that be so, no nomination per se
requires attestation, and if that be so, it is admissible in evidence
under Section 68 of the Evidence Act, 1872 without the evidence of
any witness (simply because a witness to a nomination is not, in any
sense, an ‘attesting witness’). But no will can be so read in evidence
without such evidence. From the fundamental definitions to the
decisions cited, it is clear that a nomination only provides the
company or the depository a quittance. The nominee continues to
hold the securities in trust and as a fiduciary for the claimants under
the succession law. Nominations under Sections 109A and 109B of
the Companies Act and Bye-Law 9.11 of the Depositories Act, 1996
cannot and do not displace the law of succession, nor do they open a
third line of succession. This is the consistent view of the Supreme
Court in Khanchandai, Shipra Sengupta and of our Court in Nozer
Gustad Commissariat and Antonio Joao Fernandes, all decisions that
preceded Kokate; and the submission made in paragraph 9 of Kokate
was correctly placed and was in line with those decisions. Those
decisions were all binding on the Kokate Court. They were neither
noticed nor considered. The Kokate Court could not have taken a
view contrary to those decisions. Kokate is, therefore, per incuriam.
41. This judgment does not dispose of the Notice of Motion in
Salgaonkar or the application in Ghatalia. Those will be considered
on their merits in view of the legal position enunciated above. Given
that this judgment deals only with a question of law, there is no
question of a stay of the judgment.
42. List Notice of Motion 822 of 2014 in Suit No.503 of 2014 and
Chamber Summons No.72 of 2014 in Testamentary Petition 457 of
2014 for final hearing on 16th April 2015 at 3:00 pm. These matters
will now be heard separately and are not to be tagged together.
(G.S. PATEL, J.)
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