Nominee, not heir, to get shares after holder’s death: HC
Shibu Thomas, TNN, Times of India, Apr 21, 2010,

MUMBAI: A nominee has the right to the shares after the original shareholder’s death and not the deceased’s heirs, Bombay High Court has ruled.

Dismissing the application of a widow who sought permission to sell the shares belonging to her late husband, Justice Roshan Dalvi held that she had no right to do so since she was not the nominee. The nominee was her late husband’s nephew.

“The Companies Act sets out that the nomination has to be made during the lifetime of the holder, according to legal procedures. If that procedure is followed, the nominee would become entitled to all the rights in the shares to the exclusion of all other persons (following the death of the shareholder),” said the judge. The court said that Harsha Kokate would have no rights over the shares owned by her deceased husband Nitin Kokate. Harsha had married Nitin in December 2004. Their marital life was short-lived as Nitin passed away in 2007. A year later Harsha moved the HC seeking to sell the shares in Nitin’s demat account with Saraswat Cooperative Bank. It was found that a year before his death Nitin had nominated his nephew in respect of the shares.

Harsha’s lawyers argued that she was entitled to the shares as she was her late husband’s heir and legal representative. The lawyers also pointed out to the nomination provisions relating to insurance papers as well as shares of a flat in a cooperative housing society. Under the provisions of the Insurance Act as well as the Maharashtra Cooperative Societies Act, nomination only makes a nominee a trustee for the insurances policy or shares of the flat, argued the lawyer. The nominee holds the policy/shares in trust for the estate of the deceased, but has no right over them.

“Since Nitin died intestate (without leaving a will), his widow would be entitled to the shares to the exclusion of the nominee,” claimed Harsha’s advocate.

The HC disagreed. “The provisions (relating to insurance and housing societies) are made merely to give a valid discharge to the insurance company or the cooperative society without vesting the ownership rights in the insurance policy or the membership rights in the Society upon such nominee,” said the judge, while pointing out that the provisions of the Companies Act and Depositories Act, that govern equity shares are different. Both these laws say that the shares would be vested with the nominee on the death of the share holder.

“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,” said the judge.

Therefore, in case of HUF investments, in place of nominee a provision for “Alternate Karta” can be made.