Nomination and Succession: The Importance of the Statutory Language

I had earlier highlighted a judgment of the Bombay High Court in Harsha Nitin Kokate. I had stated:

“The Bombay High Court in Harsha Nitin Kokate v. The Saraswat Co-operative Bank has held that the position of a nominee under Section 109A of the Companies Act, 1956 is not merely that of a trustee for the estate of the deceased, but “on the death of the share holder, the nominee would become entitled to all rights in the shares to the exclusion of all other persons…” Until now, the law in relation to nomination was controlled by the decision of the Supreme Court delivered in the context of Section 39 of the Insurance Act, Sarabati Devi v. Usha Devi. This judgment had then been cited by various High Courts in a non-insurance context. Kokate appears to restrict Sarbati Devi to insurance law only; and holds that Section 109A of the Companies Act lays down a different principle…”

The underlying reasoning of the High Court was based on the text of Section 109A of the Companies Act. The Supreme Court in a matter concerned with Section 45ZA of the Banking Regulation Act, 1949, has however reached a different conclusion. The Court, in Ram Chander Talwar v. Devender Kumar Talwar, Civil Appeal 1684 of 2004, (2010) 159 Comp Cas 646 (SC), has held:

“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…”

The question which then arises is whether this would mean that the reasoning in Kokate is no longer good law. The answer to this turns on whether there is a material difference between the relevant sections. 

The Supreme Court in Talwar’s case was concerned with Section 45ZA(2) of the Banking Regulation Act, which states:

“(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 of 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.”

The Bombay High Court in Kokate’s case was concerned with Section 109A(3) of the Companies Act, 1956, which states:

“(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.”

It is arguable that there is a material distinction in the sections – the Banking Regulation Act merely speaks of a “right to receive” and grants “all the rights of the sole depositor”. On the other hand, the Companies Act speaks of a “right to vest” and grants “all the rights in the shares”. Indeed, a large part of the reasoning of the Bombay High Court was based on the meaning of the word “vest”, which is present in Section 109A(3) of the Companies Act but is absent from Section 45ZA(2) the Banking Regulation Act. Consequently, it is submitted that the reasoning of the Bombay High Court continues to be good in law; and the ultimate result must depend on the specific language used in the particular statutes; and no general principle can be drawn to describe the effect of all nominations irrespective of the relevant statute.