Supreme Court: Non-Obstante Clause does not exclude legal heirs from rightfully claiming securities against nominee


LI Network

Published on: December 23, 2023 at 12:05 IST

The Supreme Court has clarified that the non-obstante clause in Section 109A(3) of the Companies Act, 1956, and Bye-law 9.11.7 of the Depositories Act, 1996, does not exclude legal heirs from rightfully claiming securities against the nominee.

The Court held that the purpose of the non-obstante clause is to enable the company to vest shares with the nominee temporarily, excluding other claimants, until the legal heirs settle the affairs of the deceased shareholder.

Justice Hrishikesh Roy and Justice Pankaj Mithal emphasized that the vesting of securities in favor of the nominee serves a limited purpose, allowing the company to manage the securities immediately after the shareholder’s death.

The Court rejected the argument that the non-obstante clause grants absolute rights to the nominee, emphasizing that its intent is to discharge the company’s liability against various claims by legal heirs until due succession law procedures are completed.

The Court upheld the High Court’s order, which stated that the nominee is not entitled to the beneficial ownership of the shares or securities to the exclusion of other individuals entitled to inherit the estates of the deceased shareholder according to succession laws.

The judgment clarified that the nomination process under the Companies Act does not supersede succession laws.

The case involved Mr. Jayant Shivram Salgaonkar, a testator who nominated certain mutual fund investments to his legal heirs. After his death, a legal dispute arose, and the court’s decision reaffirms the rights of legal heirs in such situations.

The Supreme Court’s verdict serves as a precedent for cases involving nominees, legal heirs, and the intricate balance between nominee rights and succession laws.

Case title: Shakti Yezdani & Anr. V Jayanand Jayant Salgaonkar & Ors.

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