HOW TO NOMINATE THE SHARES IN YOUR NAME

Nomination refers to the act of appointing, in the event of the shareholder's death, an individual in whom the shares will be vested. Notwithstanding anything found in any other statute or any testamentary disposition or otherwise relating to securities, where a nomination has been made under the provisions of the Companies Act of 1956 on the death of the shareholder (or in the case of joint ownership, on the death of all the joint holders), the nominee shall be entitled to the rights relating to those shares owned by the shareholder.

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 from appointing as a nominee. 
• Where a minor is appointed as a nominee, the guardian of minor has to sign on behalf of the 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

Section 72 of Companies act, 2013 gives the right to the shareholder the power to nominate:

• Shareholders 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 are vested in the event of the 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 the 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 a minor, may appoint any other person entitled to securities of the company in the event of the death of the nominee during his minority.

How is the nominee to get the shares in his name? 

The candidate shall be entitled, upon the death of the shareholder, to have the shares transferred in his favour. She/he, along with the share certificate(s) of the deceased shareholders, will have to send a written notice to this effect. The candidate may, alternatively, pass to a third party the shares owned by the deceased shareholder. If a candidate wishes to register shares in his name, he shall be required to show, to the satisfaction of the corporation, proof of identity, e.g. a copy of his passport, driving license, voting identity card or some other proof. The candidate should also show his properly attested specimen signature along with a transfer request. Until the documents submitted by the candidate have been checked, the shares will be forwarded in his favour, and the share certificates returned to him will be properly endorsed.

Rights of a Nominee

In the event of the 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 permit he can exercise membership rights in relation to the meetings.
• However, the ownership rights of the nominee have conflicted with the legal heirs of the deceased. It was in Dayagen Pvt Ltd v. Rajendra Dorian Punji, 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 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 the 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 the 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:

1. Mere trustee for legal heirs of deceased shareholders.
2. No ownership rights are created.
3. Only fiduciary relationship with the legal heirs to safeguard the shares and membership rights.

 Conclusion

The legal position holding ground is that a nomination under the Companies Act does not create a third mode of succession. A nominee is just a trustee for the legal heirs of the deceased shareholder. Nominees shall have a fiduciary relationship with the legal heirs to safeguard the shares and preserve the commercial value of the shares until the will of the shareholder is executed. A nomination is a useful procedure that enables a company to select a single legal representative of a deceased shareholder to transmit his shares and also avoids the need to deal with a host of legal heirs who might be reeling under inheritance disputes. But the nomination alone is not sufficient to create ownership in shares. It is just a device to mitigate complexities in the transmission of shares for the benefit of companies.