Nomination

In one line

A holder of securities may nominate the person in whom they are to vest on his death, and s.72(3) says that on the death the nominee becomes entitled to all the rights in the securities to the exclusion of all other persons, notwithstanding any other law and any will, unless the nomination is varied or cancelled.

In exam wording: under section 72(1) every holder of securities of a company may, at any time, nominate, in the prescribed manner, any person to whom his securities shall vest in the event of his death.

Why the law has this at all

When a member dies, his shares must reach somebody. Without nomination the company faces a problem it is badly placed to solve: it must decide, from the outside, who has succeeded to a private estate. It would have to read wills, weigh claims of heirs, and take a view on personal law, all before it can safely register anybody or pay a dividend.

Nomination removes that burden. The member names, in advance and in a prescribed form lodged with the company, the person to whom the securities are to vest. On his death the company has a single, verifiable direction to act on. That is the administrative purpose, and it is the reason nomination provisions appear in insurance law, in banking law, in the law of savings certificates and in provident fund law as well.

The difficulty is that this administrative convenience collides with succession law. Succession decides who is beneficially entitled to a dead person's property, and it does so by rules of personal law and testamentary disposition that a nomination form knows nothing about. In every other statute that difficulty has been resolved in favour of succession: the nominee receives the money and holds it for those entitled under the law of succession.

Section 72 is drafted differently, and the difference is the whole of this chapter. It speaks of the securities vesting in the nominee, and it does so notwithstanding any other law and any disposition whether testamentary or otherwise, and to the exclusion of all other persons. That language is why the Indian position on a company nomination is not simply the insurance position carried across.

Section 72: the four sub-sections

72(1): the power. Every holder of securities of a company may, at any time, nominate, in the prescribed manner, any person to whom his securities shall vest in the event of his death.

Three features. The power belongs to every holder of securities, so it is not confined to shares and reaches debentures. It may be exercised at any time. And it must be exercised in the prescribed manner, that is in the form and by the procedure the Rules lay down; an informal direction is not a nomination.