WHO WILL INHERIT SHARES OR PROPERTIES AFTER THE DEATH OF THE OWNER IS ...

“NCLAT”), on
November 14th, 2019 had held that nomination does not amount to beneficial ownership to an asset and the
nominee holds the asset for and on behalf of the legal heirs of the deceased
n the case of Oswal Greentech v Mr Pankaj Oswal and Ors[1] (“Oswal”) whilst
listening to the question of maintainability of the petition under Section 241-242 of the Companies Act, 2013 (“Act”).

in Shakti Yezdani v.
Jayanand Jayant Salgaonkar,[2] which settled the controversy regarding the
rights of legal heirs as opposed to nominees. The High Court held that the rights of legal heirs supersede
the rights of the nominee of a shareholder. Now, the same has been
reaffirmed in the Oswal case.

Mr. Abhey Kumar
Oswal (“Deceased”) held 5,35,30,960 shares (“Shares”) in Oswal Agro Mills
Limited (“Company”). In 2015, the Deceased filed a nomination in terms of
Section 72 of the Act in favour of Mrs. Aruna Oswal (“Nominee”).

After the Deceased’s
death, the nominee made a request of registration as the holder of the Shares;
and the same was granted to her on 16th April, 2016.

Mr. Pankaj Oswal
(“Legal Heir”) had subsequently filed for a suit of partition in February 2017,
before the Delhi High Court claiming 1/4th of the share in the property.

The suit of
partition, however, was still pending. Further, the Legal Heir instituted a
petition before the National Company Law Tribunal (“NCLT”) alleging acts of
oppression and mismanagement in the affairs of the Company, on the premise that
the Company transmitted
the Shares to the Nominee in contravention of law. However, one of the
pre-requisites for institution of the said proceedings under the Act is that
the shareholder must own at least 10% of the total capital of the Company,
unless a waiver has been given by NCLT

Unfortunately, the
Legal Heir held only 0.03% shares in the Company. However, he claimed that he
was entitled to more than 10% of the total capital on the basis that he was one
of the four heirs on intestacy of the deceased – Thus, the resultant holding
would be 10% of the total capital. The NCLT (on 13th November, 2018) accepted
the contention of the Legal Heir and held that the petition was maintainable.

The matter was then
appealed by the Company and reached the NCLAT. The Company argued that in view
of the nomination filed by the deceased during his lifetime and the
registration of the name of the Nominee after his death, the Legal Heir cannot
claim to be entitled to exercise any rights over the Shares.

Reliance was placed
on Section 72 of the  Companies Act 2013, with the accompanying
rules, according to which the title of the securities vests in the nominee and
the nominee is entitled to all the rights in the securities to the exclusion of
all other persons.

The Company further
relied on the decision of the Delhi High Court in Dayagen Private Limited v. Rajendra Dorian Punj,
wherein the Court held that Section
72 overrides the general law of succession, and vests the nominee with full and
exclusive ownership rights in respect of the shares

Supreme Court’s
ruling in World Wide Agencies
Pvt. Ltd“ that legal representatives of a deceased member represent the
estate of that member whose name is on the register of members. When the member
dies, his estate is
entrusted in the legal representatives. When, therefore, these vesting’s
are illegally or wrongfully affected, the estate through the legal
representatives must be enabled to petition in respect of oppression and
mismanagement and it is as if the estate stands in the shoes of the deceased
member.”

Accordingly, the NCLAT
held that on the death of
the holder of the instrument, the amount / share vests with the legal heirs,
the nominee merely holds
the amount / share till the matter of vesting is decided in favour of the legal
heirs. Thus, a
nominee is merely a caretaker of the deceased’s property until the same is distributed
amongst the legal heirs.

What
we Learn from this Case ?

·      
It is the legal heir
who is the ultimate, rightful owner of the property of a deceased

·      
A nominee (pursuant
to a nomination given by the deceased during his / her lifetime) would act only
as a trustee on behalf of the rightful legal heir(s), and hold such property
until the matter of succession or inheritance is decided and implemented.

·      
It is advisable to
create a will . Here no will has been written by the deceased. If his intention
that the shares had to go to his wife, he should spell it in a will and
register the same. After his death , the wife as a nominee and legal owner in
the will can claim the ownership of the shares. Here Legal heirs will not get
any thing. After her death , the shares may be passed on to her legal heirs.

·       This
is also applicable to bank deposits and bank accounts where nominee has been
appointed , if there is no will, legal heirs will get priority.

·       NCLT
in this case has allowed the appellant to apply for relief against oppression
even though the appellant had just 0.03% shares in the Company as against 10%
stipulated in the section 241 of CA 2013.