This article is written by Chandana Lakshman, pursuing a Diploma in Companies Act, Corporate Governance and SEBI Regulations from LawSikho.com. Here she discusses “How to Nominate the Shares Owned in Your Own Name”.
The word “Nomination” refers to the act of nominating a person in whom the shares would vest in the event of death of the shareholder. On the death of the shareholder, the nominee shall be entitled to the rights, dividend and interest in relation to shares which are held by the deceased shareholder. Shares are freely transferable from one person to another in case of public companies subject to any restriction imposed by the AOA.
Appointment of Nominee
- However, companies act 2013 doesn’t lay down any specific qualifications which are required to appoint a nominee.
- And it is not compulsory to appoint a nominee under Companies Act, 2013.
- Only individuals who are holding shares either individually or jointly can make nominations.
- Non-individuals like society, trust, body corporate, Karta of undivided family, holders of power of attorney are exempted to appoint as a nominee.
- Where a minor is appointed as a nominee, the guardian of minor has to sign on behalf of minor and along with that the name, address of the minor, the name, address and photograph of the guardian must be submitted.
- A nominee can be a non-resident too, there are no restrictions.
Nomination of shares- Procedure
Section 72 of companies act, 2013 gives right to the shareholder the power to nominate:
- Shareholder irrespective of the time, nominate any person to whom all his securities are vested in the event of his death.
- In case the shares are held by joint shareholders jointly then the joint shareholders can nominate any person to whom all their securities be vested in the event of death of the joint holders.
- Only the nominee can get all the rights which are vested in the shareholders in the event of his death and there is exclusion of all other members unless the nomination is varied or cancelled.
- Where the shareholders appoint any minor as nominee, he may be during the appointment of minor, may appoint any other person entitled to securities of the company in the event of the death of the nominee during his minority.
Rules for nomination of shares [Companies (Share Capital and Debenture) Rules, 2014]
Rule 19 of companies ( share capital and debenture) rule 2014 states:
- Shareholders may nominate any person as his nominee at any time by filing the Form No. SH1 and the securities shall be vested in the nominee as soon as the death of the shareholder.
- As soon as the nomination is completed, entry shall be registered by the shareholder in the register.
- Joint shareholders shall file their nomination application in the Form No. SH13.
- The request for nomination should be recorded by the company within two months from the date of receipt of the duly filed and signed in a nomination form.
- In the event of shareholders death the nominee acquires two rights he can either:
- Register himself as holder of the securities; or
- Transfer the securities.
- In case if the nominee chose the first option he shall send to the company a notice in writing which is signed by him stating his intention and along with the death certificate of the deceased share it with the debenture holder.
- All the limitations, restrictions and provisions of the act relating to the right of transfer and registration of transfer shall be applicable.
- After registering himself as the member of the company he shall be entitled to the same dividend, interest and other advantages as the deceased shareholder.
- By giving notice to the company in Form No. SH.14 a nomination may be cancelled or varied by nominating any other person in place of present nominee by the holder of securities who has made the nomination.
- Where the nominee is a minor, the holder of securities making the nomination, may appoint a person in Form No. SH13 who shall be entitled to the securities of the company, in the event of death of the nominee during his majority.
Circumstances when nomination can be cancelled
There are few circumstances in which after the appointment of nominee, the shareholder can revoke the former nominee and appoint a new nominee for his shares:
- By giving a notice of cancellation to the company in Form No. SH-14, the shareholder can appoint a new nominee.
- After appointment of nominee by the joint holders and if any one of joint holders dies during or after appointment of nominee the other shareholder can revoke the first nominee and appoint a new nominee.
- When the nominee dies before the shareholder, the nomination automatically gets cancelled.
Rights of a Nominee
- On the event of death of the shareholder, the nominee takes the place of the deceased shareholder immediately.
- Nominees enjoy all the rights of the deceased shareholder only when he registers himself as a member of the company.
- If articles of association permits he can exercise membership rights in relation to the meetings.
However, the ownership rights of the nominee have been in conflict with the legal heirs of the deceased. It was in Dayagen Pvt Ltd v. Rajendra Dorian Punji [Co. A.(SB) No.14 of 2007, High Court held that the nominee has exclusive ownership rights on the shares held by him, upon the death of the shareholder.
In Harsha Nitin Kokate v. Saraswat Co-operative Bank Limited [2010 SCC online Bom 615] after interpreting the provisions of Section 109A and 109B of Companies Act 2013, a single judge of Bombay High court held that it’s the nominee who becomes the beneficial owner of the shares which was held by deceased shareholder and not the legal heirs of deceased and this case overrides the facts legal heir will not come into play unless and until the deceased shareholder appoint him as a nominee.
The Kokate case caused a lot of confusion and it was overruled by Salgaonkar case, in this case, it was held it is the legal heir who will obtain the ownership rights of share certificates and not the nominees.
The present position under Companies Act,2013 relating to the rights of nominee is:
- Mere trustee for legal heirs of deceased shareholders.
- No ownership rights are created.
- Only fiduciary relationship with the legal heirs to safeguard the shares and membership rights.
Role of Nominee
Black s’ law dictionary said the role of nominee is that he holds the legal rights for the benefit of others or one who receives and distributes funds for the benefit of other. The role of nominee is interpreted under various statutes. Under the provisions of insurance act in Sarabati v. Usha Devi (AIR 1984 SC 346), it was held in this case mere nomination didn’t confer any beneficial interest on the nominee it only conferred the right of to receive the money of which the insurer got a valid discharge of its liability under the policy. The interest in policy belonged to the holder alone and the beneficiary cannot claim the interest as his right. On the death of the policy holder, the amount payable under the policy became part of his estate which was governed by law of succession.
In Shipra Sengupta v. Mirdul Sengupta [(2009) 10 SC 680] it was held that the nominee is entitled to receive the same holdings as were held and so positioned by deceased but the same is to be distributed as per the laws of succession.
The role of nominee can be only that of the trustee. He holds the legal title for the benefit of others or he who receives and distributes funds for the benefit of others.
Position of Nominee under various laws
- Section 72 of Companies Act 2013, on the event of death of the shareholder a nominee who has been appointed by the shareholder gets his securities vested in him.
- Regulation 29A of SEBI ( Mutual Funds Regulation),1996 the unit held by the unit holder would vest in the event of his death in his self-assigned nominee.
- Section 45ZA of the Banking Regulation Act, 1946 it states that the deposits of the deceased is to be returned to the nominee in the event of the death of the former.
Shares held in Demat form
As per the latest amendment of SEBI the shares and other types of which are held in physical form shall be compulsory converted into Demat form. The main reason for this amendment is to curb the fraud, and manipulation risk in physical transfer of securities by unscrupulous persons.
Now, the shareholder and his nominee has to compulsory open a Demat account and along with that he needs to add his residential details, bank account to transfer the dividend.
After a lot of controversies and ambiguities it is said that nomination is the only means and not the end. The provisions regarding nomination are made only to see that the estate or rights of the deceased shareholders are protected till the legal representative of the deceased takes appropriate steps. Nominee is neither the holder of the title, ownership, nor has any personal interest in the property.
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