For over a decade, Indian estate practitioners had operated under uncertainty about whether share nominees under the Companies Act took beneficial ownership of the shares. The Bombay High Court's decision in Harsha Nitin Kokate (2010) said yes; later decisions said no. The Supreme Court in Shakti Yezdani (December 2023) settled the question definitively. A walkthrough.
Direct holdings of company shares — both listed and unlisted — are a significant component of many Indian families' wealth. The succession of shares on the shareholder's death involves the Companies Act's nomination provisions, the Depositories Act, and the rules of personal succession law.
For more than ten years, the law in this specific corner was uncertain. The Bombay High Court in Harsha Nitin Kokate v. Saraswat Co-operative Bank, 2010 had held that the share nominee under Section 109A of the Companies Act, 1956 took 'vested' rights — interpreted to mean absolute beneficial ownership. This created a divergence from the well-established trust doctrine that applied to bank accounts, NSCs, LIC policies, and EPF.
The divergence created uncertainty for legal heirs, share nominees, depositories, and registered share registrars alike. The Supreme Court resolved this uncertainty in Shakti Yezdani v. Jayanand Jayant Salgaonkar, (2023) INSC 1076, decided in December 2023.
Share nomination is currently governed by Section 72 of the Companies Act, 2013, which corresponds to (and substantially replaces) Section 109A of the Companies Act, 1956. The framework was further supplemented by the Depositories Act, 1996 (for shares held in dematerialised form) and the SEBI regulations.
Section 72 provides that every holder of securities of a company may nominate, in the prescribed manner, any person to whom the securities shall vest in the event of the holder's death. The Companies (Share Capital and Debentures) Rules, 2014 prescribe the form (Form SH-13) and the related procedural mechanics.
The operative language — 'shall vest' — was the centrepiece of the dispute. The Kokate position argued that 'vest' meant absolute beneficial transfer. The opposing position argued that 'vest' meant operational transfer for the limited purpose of company-level registration, with the underlying beneficial position governed by general succession law.
Kokate (Bombay High Court Single Judge, 2010) read 'vest' as conferring absolute interest on the share nominee. The court emphasised the apparent legislative choice to use the strong language of 'vesting' and held that the Companies Act effectively created a special succession regime for shares.
This view was challenged in Jayanand Salgaonkar v. Jayashree Salgaonkar, 2015 — a Bombay High Court Division Bench. The Division Bench held that the Kokate reading was inconsistent with the broader line of Supreme Court authority on nominee status (Sarbati Devi, Khanchandani, Talwar) and effectively distinguished Kokate.
The Division Bench's reasoning was that the Companies Act provisions on nomination were administrative — they enabled the company to register the nominee as the holder for record purposes — but did not create a substantive succession regime that displaced the Indian Succession Act, 1925 and other applicable personal law.
The Supreme Court touched the area in Aruna Oswal v. Pankaj Oswal, (2020) 8 SCC 79, a case primarily concerned with NCLT jurisdiction in shareholder disputes. The Court's observation — that the nominee's title would be 'subject to the testamentary or intestate succession, as the case may be' — signalled the Court's inclination to apply the trust doctrine to share nominations.
Aruna Oswal was not, however, a direct ruling on the substantive question. The Court was dealing with a jurisdictional question about NCLT and observed the nomination position in passing. The lower courts continued to apply varying positions until the Supreme Court directly considered the issue in Shakti Yezdani.
Estate practitioners in the period 2020-2023 had to navigate this uncertainty — sometimes treating share nominees as trustees, sometimes acknowledging the residual Kokate position. The 2023 ruling resolved this confusion.
The deceased Mr. Jayant Shivram Salgaonkar held shares and mutual fund units, with designated nominees. After his death, the nominees claimed absolute ownership based on the Kokate-line reasoning. The legal heirs challenged, arguing that the nominees held in trust under the principle of Sarbati Devi and the subsequent line.
The Supreme Court considered the statutory text of Section 109A of the Companies Act, 1956, the relationship with the Indian Succession Act, 1925, the prior line of authority, and the conflicting Bombay High Court views.
The Court held: 'A nominee under Section 109A of the Companies Act, 1956 does not get a beneficial interest in the property held in the company in the form of shares. The vesting in the nominee is for the limited purpose of enabling the company to deal with the securities in the immediate aftermath of the shareholder's death, and to ensure that there is no confusion regarding the legal formalities that are to be undertaken. The nomination process under the Companies Act does not establish a third mode of succession, nor does it provide for absolute ownership rights to the nominee.'
Strand one: harmony with the Indian Succession Act. The Court emphasised that succession to property after death is governed by the Indian Succession Act, 1925 (for non-Muslims) and personal law (for Muslims). Any nomination provision in another statute should be read in harmony with this overarching framework, not as creating a competing succession regime.
Strand two: consistency with prior authority. The Court explicitly aligned its ruling with Sarbati Devi, Khanchandani, Talwar, and Shipra Sengupta. The trust doctrine across LIC, NSC, bank deposits, and EPF was reaffirmed and extended to Companies Act shares.
Strand three: the meaning of 'vesting'. The Court held that 'vesting' in the Companies Act context means custodial vesting for the limited purpose of enabling company-level operations — share register updates, dividend payments, voting rights — and not absolute beneficial transfer.
Post-Shakti Yezdani, the share nominee's role is fully analogous to the bank account nominee's role:
On the shareholder's death, the company (for shares held in physical form) or the DP (for demat-held shares) transfers the shares to the nominee's name on production of the death certificate and required documents. The transfer is in the nominee's name on record.
The nominee is then the registered holder for company-law purposes — receives dividends, holds voting rights, can transfer the shares. The company has discharged its statutory obligation by registering the nominee.
But beneficial ownership of the shares belongs to the legal heirs as identified by the Will or by intestate succession. The nominee holds in trust and must transfer the legal heirs' shares accordingly. If the nominee refuses, the legal heirs can sue in civil court for declaration and recovery.
For shares held in dematerialised form, Section 9 of the Depositories Act, 1996 contains the parallel nomination provision. The Depositories (Operations and Procedures) Regulations supplement the statutory framework.
The Supreme Court's reasoning in Shakti Yezdani applies equally to demat holdings. The DP processes the transmission to the nominee on production of standard documents; the nominee becomes the demat account holder; but beneficial ownership remains with the legal heirs.
Most demat accounts allow up to three nominees (or more in some configurations), with specified percentage allocations. The trust doctrine applies to each nominee in proportion to their allocated share.
Mutual fund units are not strictly 'shares' under the Companies Act, but the nomination framework under SEBI regulations is structured similarly. The mutual fund nominee receives the units (or their redemption proceeds) from the AMC on the unitholder's death.
Shakti Yezdani applies by extension — the trust doctrine governs mutual fund unit nominations. Many estate practitioners had already applied this position pre-2023 (following the Salgaonkar reasoning), but the Supreme Court's clarification gives definitive authority.
The practical mechanics: the AMC transmits units to the nominee on standard documentation; the nominee holds the units (or proceeds) in trust for legal heirs; beneficial distribution flows per the Will or intestate succession.
Employee stock options exercised before death produce share holdings that fall within the same Companies Act / Depositories Act framework. The trust doctrine applies — the nominee receives, the legal heirs own.
Vested-but-unexercised ESOPs at the date of death are a different matter — they are typically contractual rights under the employer's stock option scheme, governed by the scheme's specific provisions. Many schemes provide for automatic exercise or lapse on the employee's death, with the resulting shares (if any) flowing to the nominee under the share nomination framework.
For senior professionals with substantial ESOP holdings, careful drafting of both the Will and the share nomination is important — they typically work together but require explicit thought.
Mrs. Kavita Mehta dies leaving the following share-related holdings: 5,000 shares of Reliance Industries in demat (current value ₹13 lakh) with nominee her husband Vikram; 12,000 shares of HDFC Bank in demat (current value ₹20 lakh) with nominee her son Aditya; vested-and-exercised ESOPs of her employer worth ₹35 lakh with nominee her daughter Maya.
Her Will leaves everything equally to Vikram, Aditya, and Maya.
On her death: the depository transmits Reliance shares to Vikram, HDFC shares to Aditya, and the ESOP shares to Maya as the registered nominees. The transmission is operational — each becomes the recorded holder.
But beneficial distribution under the Will: total share value is ₹68 lakh, so each beneficiary's one-third share is ₹22.67 lakh. Vikram (₹13 lakh) and Aditya (₹20 lakh) are below their entitlement; Maya (₹35 lakh) is above. Either physical reshuffle of shares (selling and redistributing) or compensating cash transfers from Maya to Vikram and Aditya must restore the equal division per the Will.
Recommendation 1: ensure all share holdings (direct and demat) have current nominations aligned with your overall estate intentions.
Recommendation 2: where you intend a specific shareholder to have beneficial ownership (e.g., your spouse), name them as nominee and also address the holding explicitly in your Will to avoid any ambiguity.
Recommendation 3: review nominations after corporate actions (mergers, demergers, splits) that may have changed your share holdings.
Recommendation 4: keep your demat account KYC current and confirm the nomination details visible in your CDSL/NSDL statements.
Shakti Yezdani brings welcome closure to an area of long-standing uncertainty. Estate practitioners can now advise share-holding clients with confidence: the nominee receives, the legal heirs own.
The practical implications for estate planning are clean. Nominations should be maintained for operational ease — they substantially accelerate the transmission process at the death of the shareholder. The Will is the controlling instrument for beneficial distribution. The two layers work together coherently.
If you hold significant directly-held shares or demat-account holdings and have not reviewed your nominations recently, please do so. The post-Shakti Yezdani clarity makes this an ideal moment to update.
Step 1: notify the company / depository / DP of the shareholder's death. For directly-held shares, the company secretary or registrar (KFin / CAMS or company-specific) handles the process. For demat shares, the DP handles it.
Step 2: collect the transmission form. Each company / DP has its own form, typically a few pages of structured fields.
Step 3: submit the claim package — death certificate, original share certificate (for physical shares), demat statement, nominee's KYC, indemnity bond above the prescribed threshold, succession certificate or probate if no nomination exists.
Step 4: company / DP processes the transmission. The shares are credited to the nominee's account or registered in the nominee's name. Typical timeline 30-90 days for physical shares; 15-45 days for demat shares.
Step 5: post-transmission, the nominee is the recorded holder for company-law purposes but holds in trust per Shakti Yezdani for beneficial distribution to legal heirs.
A practical complication arises when corporate actions (dividends, bonus issues, rights issues, mergers, demergers) occur during the period between the shareholder's death and the completion of transmission to the nominee.
The company's practice is generally to hold corporate-action benefits (dividends declared, bonus shares allotted, rights entitlements) for the deceased shareholder's account until transmission is complete. On transmission to the nominee, the accumulated benefits flow to the nominee along with the underlying shares.
For the nominee, tracking these corporate-action accumulations is part of the operational due diligence. The nominee then holds the accumulated benefits in trust per the Will's beneficial distribution.