Wednesday, April 21, 2010

Nominee, not heir, inherits shares: Bombay HC

The nominee of a deceased person, and not the heir, has the right to shares after the original shareholder’s death, the Bombay High Court has ruled. Dismissing the application of a widow who sought permission to sell shares belonging to her late husband, Justice Roshan Dalvi held that she had no right to do so since she was not the nominee. The nominee was her late husband’s nephew.

“The Companies Act sets out that the nomination has to be made during the lifetime of the holder, according to legal procedures. If that procedure is followed, the nominee would become entitled to all the rights in the shares to the exclusion of all other persons (following the death of the shareholder),’’ said the judge. The court said that Harsha Kokate would have no rights over the shares owned by her deceased husband, Nitin Kokate.
Harsha and Nitin wed in December 2004, and Nitin passed away in 2007. A year later, Harsha moved the High Court seeking to sell the shares in Nitin’s demat account with Saraswat Cooperative Bank. It was found that a year before his death, Nitin had nominated his nephew in respect of the shares.
Harsha’s lawyers argued that she was entitled to the shares as she was the heir and legal representative of her late husband. Her lawyers also pointed to the nomination provisions relating to insurance papers and to the shares of a flat in a cooperative housing society. “Since Nitin died intestate (without leaving a will), his widow would be entitled to the shares to the exclusion of the nominee,’’ claimed Harsha’s advocate.
The HC disagreed. “The provisions (relating to insurance and housing societies) are made merely to give a valid discharge to the insurance company or the cooperative society without vesting the ownership rights in the insurance policy or the membership rights in the society upon such nominee,’’ said the judge.

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