Notice of Motion No. 822 of 2014, in Suit No. 503 of 2014, a/w Testamentary Petition No. 457 of 2014. Case: Jayanand Jayant Salgaonkar Vs Jayashree Jayant Salgaonkar. High Court of Bombay (India)

Case NumberNotice of Motion No. 822 of 2014, in Suit No. 503 of 2014, a/w Testamentary Petition No. 457 of 2014
CounselFor Applicant: Snehal Shah, i/b Y. R. Shah, Advs. and For Respondents: P. G. Karande, Rajendra V. Pai, a/w A. R. Pai, A. A. Dandekar, N. Thakkar, Prashant Karande i/b Mrs. Bina R. Pai. Vikas Warerkar, i/b M/s. Warerkar and Warerkar, Advs.
JudgesG. S. Patel, J.
IssueSuccession Act (39 of 1925) - Section 58; Companies Act (1 of 1956) - Section 109A; Depositories Act (22 of 1996) - Section 2(1)(a)
CitationAIR 2015 BOM 296
Judgement DateMarch 31, 2015
CourtHigh Court of Bombay (India)

Judgment:

  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 Co-operative Bank Ltd and Ors., 2010 (112) Bom LR 2014 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, Defendant 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, Regulationm 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". Para 2 of the Maharashtra Law Journal report. All page and paragraph references to Kokate are to those in this report. 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, Equivalent to Section 72 of the Companies Act, 2013 and Bye-Law 9.11 under the Depositories Act, 1996, Incorrectly described in Kokate as Section 9 to the Act and found 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. Paragraph 6.

    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". Paragraph 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 (1984) 1 SCC 424: AIR 1984 SC 346, a decision under Section 39 of the Insurance Act. Similarly, attention was also invited to Section 30 of the Maharashtra Co-operative 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', Paragraphs 14 through 23 and the decisions of the Supreme Court in The Fruit and Vegetable Merchants' Union v. The Delhi Improvement Trust, AIR 1957 SC 344; Kokate, paragraph 18, Dr. M. Ismail Faruqi v. Union of India (1994) 6 SCC 360: AIR 1995 SC 605; Kokate, paragraph 21, Municipal Corporation of Greater Bombay v. Hindustan Petroleum Corporation (2001) 8 SCC 143: (AIR 2001 SC 3630); Kokate, paragraph 22 and Bharat Coking Coal v. Karam Chand Thapar and Bros. (2003) 1 SCC 6: 2002 (8) SCALE 388; Kokate, paragraph

  9. 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 with regard 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 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.

  10. 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 Co-operative 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.

  11. 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)

  12. 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 (AIR 1984 SC 346) its attention was not drawn to several other binding decisions of the...

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