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.
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.
Section 72 of Companies act, 2013 gives the right to the shareholder the power to nominate:
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.
In the event of the death of the shareholder, the nominee takes the place of the deceased shareholder immediately.
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.
In the early society in Hindu law, customs were considered as the main source for its legal developments.
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