[Opinion] Nominee of a Security is Not Full Owner of Security After It is Transmitted in His Name, He is Liable to Heirs of Deceased

V S DATEY – [2024] 158 taxmann.com 32 (Article)

There is general impression that nomination is easy way of transmitting property, security, bank deposits or insurance money to successor. Actually, law is quite different.

Under normal legal provisions about nomination, the nominee gets property, securities, bank deposit money or insurance amount in his name. Liability of company, depository, insurer or Banker is fully discharged once securities are transferred in name of nominee or payment is made in name of nominee. However, nominee continues to be liable to legal heirs of the deceased.

In Sarbati Devi v. Smt. Usha Devi [1984] 17 Taxman 1 (SC), it was held that nomination does not confer on nominee any beneficial interest in the amount payable under nomination. – The nomination only indicates the hand authorised to receive the amount. The amount, however, can be claimed by the heirs of deceased person in accordance with law of succession governing them. [Based on section 39 of Insurance Act] – same view in Challamma v. Tilaga [2009] 9 SCC 299 – same view in respect of nomination of National Savings Certificates in Vishin N Khanchandani v. Vidya Lachmandas Khanchandani [2002] 123 Taxman 227/[2000] 246 ITR 306 (SC) – same view in respect of provident fund in Shipra Sengupta v. Mridul Sengupta [2009] 10 SCC 680 – same view in respect of Bank deposits in Ram Chander Talwar v. Devender Kumar Talwar [2011] 105 SCL 109 (SC).

All rights of securities vest in name of nominee as per Company Law

Section 72(1) of Companies Act, 2013 [Corresponding to section 109A(2) of the 1956 Act] states that holder/s will nominate a person to whom all rights of shares shall vest in the event of death of holder/all joint holders.

Meaning of ‘Vest’

‘Vested’ means having become completed, not contingent, unconditional, absolute – Indore Development Authority v. Manoharlal [2020] 8 SCC 129 (SC 5 member bench).

However, ‘vest’ does not mean transfer of complete ownership.

In Fruit and Vegetable Merchants Union v. Delhi Development Trust AIR 1957 SC 344, it was observed that the word ‘vest’ is a word of variable import. The word ‘vest’ has not got a fixed connotation, meaning in all cases that the property is owned by the person or authority in whom it vests. It may 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.

In Municipal Corporation v. Hindustan Petroleum [2001] 8 SCC 143, it was observed, ‘ The word ‘vest’ means vesting in title, vesting in possession or vesting in a limited sense, as indicated in the context in which it is used in a particular provision in the Act.

These decisions were considered in Harsha Nitin Kokate v. Saraswat Coop Bank Ltd. [2010] 101 SCL 145 = 5 taxmann.com 43 (Bom HC), and it was observed that the word ‘vest’ is a word of variable import under Indian statutes. Intention of the Legislature is of primary importance in considering effect of ‘vest’ in a given legislature. In this case, it was held that nominee of securities become full and absolute owner of securities when these are transmitted in his name, [This judgment has not been approved by division bench in Shakti Yezdani v. Jayanand Jayant Salgaonkar [2016] 76 taxmann.com 161/[2017] 139 SCL 432 (Bom.).

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