TaxTMI 
TaxTMI 
2010 (4) TMI 614
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....or transfer those shares or to hold them as her own. 3. The Defendant No. 3 claims right, title and interest in the shares pursuant to the nomination executed in his favour. The nomination has been executed well prior to the death of the deceased and well after his marriage with the Plaintiff. The Defendant No. 1 Bank has stated that the nomination is executed as required and has been so registered with the Depository Participant. The effect of the nomination is, therefore, to be seen. The nomination form itself shows that the rights of transfer and/or the amount payable in respect of the securities held by Nitin Kokate, Defendant No. 3 vests in him as the said nominee. 4. The law relating to nomination is set out in 109A of the Companies Act pursuant to the amendment which came into effect on 31-10-1998. It is common knowledge that prior to 1996 shares were not held in de-materialised form. Consequent upon the Dematting of the shares the Share Certificates in physical form are not mandatorily required to be issued by the Limited Companies listed on the Stock Exchanges. Shares can be transferred by word of mouth or on the Internet from person-to-person. Upon such transfer the mem....
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....the name of the Nominee, upon the death of the Nominating Person, or as the case may be, all the Nominating Persons subject to the other Bye Laws mentioned hereunder. 9.11.3 ....... 9.11.4 Beneficial Owner (s) may substitute or cancel a nomination at any time. A valid nomination, substitution or cancellation of nomination shall be dated and duly registered with the Participant in accordance with the Business Rules prescribed therefor. The closure of the account by the Nominating Person(s) shall conclusively cancel the nomination. 9.11.5 A Nominee shall not be entitled to exercise any right conferred on Beneficial Owners under these Bye Laws, upon the death of the Nominating Person(s), unless the Nominee follows the procedure prescribed in the Business Rules for being registered as the Beneficial Owner of the securities of the Nominating Person's) in the books of the Depository. 9.11.6 A nominee shall on the death of the Nominating Person(s) be entitled to elect himself to be registered as a Beneficial Owner by delivering a notice in writing to the Depository, along with the certified true copy of the death certificate issued by the competent authority as prescribed under the Bu....
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.... These rights show that the vesting of the shares is upon the death of the shareholder provided only that the nomination is made as per the procedure set out by the Depository Participant. This procedure is the registration of the form of nomination constituting the nomination of the nominee with his photograph signed by the holder as well as the nominee and witnessed by at least 2 persons and registered with the Bank. The purpose and object of this section is clear. It is simplifies the procedure relating to the transmission of shares which is otherwise an intangible movable property. As the shares are now held in D-mat form and can be purchased and sold in the market by word of mouth or on the Internet, and no physical share certificates are issued by Companies, only one nomination for all the shares in all the companies need be made. That can be registered only with the Depository Participant who records all the share transactions of the holder of the shares who is mandatorily required to open a D-mat account with the Depository Participant. Hence the Legislature has simplified and specified the procedure for vesting of shares by nomination made in the prescribed manner. 9. Mr.....
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.... Co-operative Society also the shares of the member can be simplicitor transferred to the nominee which transfer would effectually discharge the Society as against any other person making a demand. Such a transfer, therefore, cannot and does not result in vesting of the flat in such nominee. Hence such nominee is merely a trustee for the estate of the deceased. The Society is not concerned with the dispute amongst the heirs of the deceased. 13. The provision pursuant to the amendment of the Companies Act is quite the contrary. The nomination under section 109A of the Co-operative Act does not entail mere payment of the amount of shares. It specifically vests the property in the shares in the nominee, in the event of the death of the holder of the shares. The analogy drawn from the judgment in the case of Sarbati Devi (supra ) is completely misplaced. 14. The meaning and definition of the word "Vest" is required to be considered. Black's Law Dictionary 8th Edition at page 1594 shows the meaning of "Vest" thus :- "Vest.-(1) To confer ownership of (property) upon a person. (2) To invest (a person) with the full title to property. (3) To give (a person) an immediate, fixed right ....
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....ay vest in title, or it may vest in possession, or it may vest in a limited sense, as indicated in the context in which it may have been used in a particular piece of legislation." 20. Hence under that judgment which considered the provisions of the U.P. Town Improvement Act it was held that the land vesting in the Municipal or Legal Body was so vested only for the purpose of managing that land and would not transfer ownership of the property to the Authority. 21. In the case of Dr. M. Ismail Faruqui v. Union of India AIR 1995 SC 605 the concept of vesting the property in the Acquiring Authority came to be considered under the Acquisition of Certain Area at Ayodhya Act (33 of 1993). Considering the pith and substance of the Act, which was for the acquisition of the property at Ram Janma Bhoomi-Babri Masjid site under a legislation, it was held that vesting of the disputed land (Ram Janma Bhoomi-Babri Masjid) was limited to holding it by the Civil Government as Statutory Receiver and vesting of the area in excess of the disputed structure was absolute. Hence, it is seen that the intention of the Legislature is of primary importance in considering the effect of the term "vest" in ....
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.... 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. 25. A reading of section 109A of the Companies Act and 9.11 of the Depositories Act makes....