Case: – Shakti Yezdani & Anr. v/s Jayanand Jayant Salgaonkar & Ors.; Civil Appeal No. 7107 of 2017
The interpretation of the non-obstante clause in Section 109A(3) of the Companies Act, 1956 has been a subject of significant debate and legal scrutiny. Section 109A(3) of the Companies Act, 1956 deals with the vesting of shares in the nominee in the event of the death of the shareholder. It specifies the conditions under which the shares will vest in the nominee and the implications of such vesting in the context of succession and ownership rights.
The Supreme Court of India recently delivered a judgement addressing the issue of whether the nominee of a deceased shareholder is entitled to the beneficial ownership of the shares or securities to the exclusion of the legal heirs.
Key Findings of the Judgement:
The Hon’ble Supreme Court, in its judgement, emphasized that the provisions under Section 109A of the Companies Act, 1956 do not override the law of testamentary or intestate succession. The Apex Court highlighted that the non-obstante clause in Section 109A(3) does not confer absolute ownership of the securities to the nominee to the exclusion of the legal heirs. The presence of the term ‘vest’, the provision excluding others, and the non-obstante clause in Section 109A(3) were carefully analyzed, leading to the conclusion that the nominee does not acquire absolute title over the subject property, and the usual mode of succession is not impacted by such nomination.
Furthermore, the judgement also highlighted that the Companies Act, 1956 is not intended to create a separate mode of succession, and thus, the nominee’s rights do not supersede the rights of the legal heirs in the context of claiming the securities of the deceased shareholder. The Court rejected the argument that the non-obstante clause in Section 109A(3) confers overriding effect to the nomination over any other law and disposition, testamentary or otherwise, and entitles the nominee absolute rights over the shares/securities. Instead, the Apex Court emphasized that the non-obstante clause is to be applied in view of the scheme and object of the enactment in question.
Author of this article:
Adv. Ravish Bhatt,
Partner, R&D Law Chambers,
Dual Qualified Lawyer Solicitor | International Tax Affiliate
Connect with Mr. Bhatt on Linkedin: https://www.linkedin.com/in/adit-ravishbhatt/
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