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Supreme Court Ruling: Financial Instruments’ Ownership to Pass via Legal Means, Not Nomination

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In a landmark judgment on December 14, the Supreme Court of India delivered a pivotal ruling reshaping the landscape of ownership concerning financial instruments such as shares and debenture certificates. The bench comprising justices Hrishikesh Roy and Sanjay Karol delineated that ownership transfer of these instruments should be directed by legal or testamentary arrangements rather than defaulting to the nominee.

The court’s directive, as reported by Moneycontrol, emphasized that mere nomination in share or debenture certificates does not inherently confer inheritance rights. Instead, the ownership entitlements pertaining to these instruments are contingent upon the testamentary provisions in the deceased individual’s will or the prevailing succession laws in India, which encompass statutes like the Hindu Succession Act or the Indian Succession Act.

The genesis of this judicial pronouncement lay in a familial discord where a father, through his will, bequeathed shares and debentures to one of his sons. However, the other son, named as the nominee in the documents, contested this disposition, asserting his rightful ownership as the beneficial owner predicated on his nomination status.

The Supreme Court, in its ruling, underscored that the determination of ownership concerning shares and debentures hinges on the deceased individual’s will or the applicable succession laws. Notably, the court elucidated that the role of nominees under the Companies Act of 1956 and 2013 primarily involves facilitating the transfer of shares rather than assuming the position of successors.

This landmark verdict marks a significant precedent, elucidating the intricate intersection between nomination, inheritance, and testamentary provisions governing financial instruments, paving the way for a clearer legal framework in such matters.

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