In this legal article we are going to discuss about Rights of the nominee in the flat paper and does it automatically becomes the legal heir, and what the whole procedure as per the law.
What is the mean of an nominee:
A legal question that has been put to test time and again before various courts, is whether the rights of nominees prevail over those of successors, in respect of various subjects of nomination, such as financial instruments, shares in a cooperative society, etc.
Conflicting decisions on the rights of nominees and successors:
There have been some contradictory observations in the past. In one such case (Harsha Nitin Kokate v The Saraswat Cooperative Bank Limited, also known as the ‘Kokate Case’), a single judge of the Bombay High Court had ruled that the rights of the nominee prevail over that of the successors, in case of shares held in a company. Finding this decision per incuriam, another single judge of the Bombay High Court subsequently upheld the contrary, i.e., in favour of the successors. However, the competency of a single judge to review the findings of another single judge created a controversy, which was questioned in this matter before the two-judge bench of the Bombay High Court.
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Difference between Legal Heir and Nominee:
The Indian Judiciary has time and again been confronted with the contentious issue whether the rightful ownership of asset (including shares/securities, properties etc.) rests with the legal heir or nominee?
The obscurity pertaining to this legal aspect has compelled nominees and legal heirs to knock the doors of justice which has resulted in settling the legal principle that nominees only hold the assets on behalf of the legal heirs of the deceased and that mere nomination of shares does not amount to beneficial ownership of an asset.
What does the law say:
The provisions governing the law relating to nomination of shares and the power to nominate are enumerated under the Companies Act.:
Nomination of Shares- Section 109A of the Companies Act, 1956 provides for the nomination of shares and states that 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 become entitled to all the rights in the shares or debentures of the company to the exclusion of all other persons, unless the nomination is varied or cancelled in the prescribed manner. Section 109B of the Companies Act provides for transmission of shares.
The statutory provisions under Section 109A and B were elaborately discussed by the Division Bench of the High Court of Bombay in the case of Shakti Yezdani v. Jayanand Jayant Salgaonkar, wherein the Court while interpreting the provisions was of the view that the nominee of a holder of shares or securities appointed under Section 109A of the Companies Act, 1956 is not entitled to the beneficial ownership of the shares or securities subject matter of nomination to the exclusion of all other persons who are entitled to inherit the estate of the holder as per the law of succession. Thus, the High Court held that nomination does not override the law in relation to testamentary or intestate succession. The provision regarding nomination are made with a view to ensure that the estate or the rights of the deceased subject matter of the nomination are protected till the legal representatives of the deceased take appropriate steps.
Judiciary’s Stance:
Recent order by NCLAT- rightful ownership of shares remains with the legal heir and not the nominees-Oswal Greentech v. Mr Pankaj Oswal and Ors
Brief facts: In this case, the deceased namely Mr. Abhay Oswal held majority shares in Oswal Agro Mills Limited. The deceased had filed nomination in favour of one, Mrs. Aruna Oswal (nominee). After the death of deceased, the nominee filed request for registration of the impugned shares in her favour and the Company accordingly transferred the shares in the name of nominee. Thereafter, Mr. Pankaj Oswal (hereinafter referred to as ‘legal heir/ representative’), approached the National Company Law Tribunal (‘NCLT’) and contended that the transfer of shares to the nominee was in contravention of the law. The NCLT considering the above, held that the petition was maintainable. Aggrieved by the decision of the NCLT, the Company approached the NCLAT.
NCLAT’s order: The NCLAT passed an order in favour of the legal heir to hold that the shares of the deceased ultimately vest with the legal heir. The nominee appointed by the deceased is in possession of the shares only till the ownership is not transferred to the legal heir.
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“The right arising out of an instrument does not vest with nominee automatically on the death of the original holder of the instrument. Nominee does not mean that the amount or the share belongs to the nominee. On the death of the holder of the instrument, the amount/ share vests with the legal heirs, the nominee merely holds the amount/ share herein till the matter of vesting is decided in favour of the legal heirs.”
It was further noted by the Appellate Tribunal that nominees only hold the assets on behalf of the legal heirs of the deceased and that mere nomination of shares does not amount to beneficial ownership of an asset.
The Courts have time and again reiterated that the legal heir and not the nominees have the rightful position to obtain ownership of the assets of the Deceased. In another case of Smt. Sarbati Devi and Anr. V. Smt. Usha Devi, the Hon’ble Supreme Court has held that a nomination cannot be given the same position as that of a will. Nomination and will are two different concepts and nomination could not be given the same legal status as that of a will. A nominee could not be considered as owner of a property. Mere nomination does not bestow beneficial ownership of assets to the nominees.
Other similar judgments on the issue are Uma Sehgal and Ors. vs Dwarka Dass Sehgal And Ors., wherein the High Court of Delhi remarked that a nominee is nothing but a person who receives the payment on behalf of the heirs of the assured. Similarly in the case of Shipra Sengupta vs Mridul Sengupta and Ors, the Supreme Court held 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.
Nominee in the shares of a co-op society is not the owner – Recent amendment to the Maharashtra Co-op. Societies Act reaffirms the position in law.
Nominee in the shares of a co-op society is not the owner – Recent amendment to the Maharashtra Co-op. Societies Act reaffirms the position in law:
Background
The ongoing pandemic has had a devastating effect on the lives of every Indian, with many losing their loved ones a little too early and without any chances of saying goodbye. The impact which the pandemic shall have can only be assessed once the dust settles and it is likely to lead to a vast influx of litigation flooding our courts.
As the death toll increases with each passing day, unfortunate as it maybe, inevitably this may lead to an increase in succession and property related disputes posing issues of inheritance. While, the law of succession is more or less settled as a result of various judgments of the Supreme Court and the High Courts, the competing rights of the nominee and the legal heir have always been a matter of debate. This debate finds its way onto the aspects of the inheritance of bank accounts, fixed deposits and shares in a company. However, perhaps the most significant of all is the aspect of inheritance of immovable property, especially in cities such as Mumbai where real estate plays a major role in the economics of the city. This article attempts to provide a brief primer on the following aspect of the law
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A member of a co-operative housing society dies with a nominee in place for his shares in the housing society but also has legal heirs other than the person he has nominated. In such a situation, who is entitled to the shares and therefore, in turn, the apartment or the flat?
The law on nominee in Maharashtra:
The Maharashtra Co-operative Societies Act, 1960, which governs the law related to societies including housing societies in Maharashtra, earlier provided under section 30 that the society, ‘Shall’ transfer the shares and the membership of the Society to the Nominee. As such, the nominee then became a regular member of the Society.
Amendment by an Ordinance:
The Act has since been amended by way of an Ordinance in 2019 later enacted as a part of the law through an amendment in the same year. As per the newly introduced Section 154B-13 of the Maharashtra Co-operative Societies Act, 1960 (which overrides section 30 mentioned above), a society can transfer the interest of a deceased member in the flat only when testamentary documents or succession certificate or headship certificate or document of family arrangement has been produced by the legal heirs of the deceased member or person/s entitled to the flat.
The first proviso under this section further clarifies and clears the cloud of doubts that a nominee shall only be admitted as a provisional member in place of the deceased member till the time legal heirs or person/s entitled to the flat are admitted as member/s.
The concept of “provisional member” has been newly incorporated and the term has been defined under section 154B-1(18) as a person who is duly admitted as a member of a society temporarily after death of a member on the basis of nomination till the admission of legal heir/s as the member of the society in place of deceased member.
In light of the recent Maharashtra Co-operative Societies (Amendment) Act, 2019 the long-standing controversy of nomination vs. succession has been put to rest once and for all.
Therefore, now more than ever, correct estate planning is the need of the hour to ensure that properties are passed on smoothly as per the wishes and intentions of the deceased.
What the Supreme Court held:
After some initial conflicting judgments of various High Courts, the Supreme Court in 2016, in the landmark case of Indrani Wahi vs Registrar of Co-operative Society and others held that a co-operative society was bound by the nomination made by the deceased and that it was bound to transfer the shares to the nominee. However, transfer of shares in such a manner does not confer any right, title or interest over the property in favour of the nominee. The Supreme Court further held that it is always open to the legal heirs to pursue their case for succession or inheritance as per law.
Therefore, co-operative societies must transfer the shares in the name of the nominee on death of a member. This does not mean that the nominee becomes the owner of the property. The nominee merely holds the property in trust for the legal heirs. The legal heirs of the deceased can always approach the appropriate court to stake their claim to their share of the deceased’s property including the flat/apartment in question. Once they obtain the relevant order from the court, the legal heirs become the owners of the property and the society is bound to transfer the flat/apartment in their name.
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Despite this clear position in law, several housing societies, once the shares were transferred to the nominee as a member, allowed the nominee to transfer the Flat without insisting on getting the no-objection from the other heirs, who may be otherwise entitled to the shares. Such societies freely gave their NOCs for sale of the flat to third parties.
Now we would like to share some cases regarding our concept of this article.
Chiranjilal Shrilal Goenka … vs Jasjit Singh And Ors on 18 March, 1993
Equivalent citations:- 1993 SCR (2) 454, 1993 SCC (2) 507
DATE OF JUDGMENT: 18/03/1993
BENCH:- RAMASWAMY K, SAHAI, R.M. (J)
Sections 8, 14, 17, 20, 30 and 33-Arbitrator-Whether Entitled to enquire into execution and genuineness of will. Indian Succession Act, 1925. Sections 213, 217, 222, 223 And 276-Will-Probate of jurisdiction of probate court to Enquire into execution and genuineness of will-Whether- Arbitrator can enquire into such issues under Arbitration Act.
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We really liked to learn and make you aware to such kind of topics and the concept regarding it. This was really an amazing topic which we had given to do research and write an article on it with our views on it . And frame the article with full of knowledgeable concept. So that all can easily understand what it basically deals with and what are their rights in these kind of cases and also get to know about what our supreme court has held regarding with these cases or in this matter.
Conclusion :-
We liked all the decision of supreme court on this matter which is nowadays becoming much more day to day life issue for many of us. Now at last we would like to thanks to our team who supported me to cover much information regarding this and right this article for all.
This article written by Legal Advisory Interen Ms. Vaishali Pal, She is 3rd-year law student at Amity University, Patna
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