Saturday, February 24, 2024
HomeSEBI and Stock ExchangesONLY SUCCESSOR CAN CLAIM SHARES OR DEBENTURES, AND NOT NOMINEE, RULES SC

ONLY SUCCESSOR CAN CLAIM SHARES OR DEBENTURES, AND NOT NOMINEE, RULES SC

The claim over financial instruments such as share and debenture certificates should be with the successor by law or by will of the original owner, and not with the nominee, the Supreme Court has ruled.

As per a judgment on December 14, even if a person is a nominee in a share/debenture certificate, he is not entitled to inherit it by default. The inheritance or the succession of these instruments will be determined by the contents of the deceased’s will or as per the succession laws. Succession in India is determined either by a will written by the owner or by laws such as the Hindu Succession Act or the Indian Succession Act.

The judgment was passed in a family dispute where the patriarch of the family gave the inheritance of shares and debentures to one of his two sons. The other son, who was the nominee in the instruments, objected to this. The nominee had claimed that he was the beneficial owner of the shares by virtue of being the nominee.

The issue reached the Bombay High Court where a division bench held that nominees are appointed to ensure that the instruments are protected, until the legal heirs or legal representatives of the deceased take appropriate steps to claim their rights over it. The HC concluded that the provisions relating to nomination do not have precedence over the law in relation to testamentary or intestate (succession without will).

The issue ultimately reached the Supreme Court in 2017, and a decision in the case was passed by a two-judge bench comprising Justice Hrishikesh Roy and Sanjay Karol.

It was contended in the court that none of the laws contemplate for a ‘third mode of succession’ wherein a person inherits financial instruments merely by being named as a successor. It was also contended that the provisions of the Companies Act, 1956 and 2013 the intention of having a nominee in the share/debenture certificate is to only aid the process of transfer of shares and not be made a successor.

www.startupstreets.com , www.intellexCFO.com, www.economiclawpractice.com

RELATED ARTICLES

Most Popular

Recent Comments