A Nominee Is Not the Owner: Shakti Yezdani Settles Who Inherits Shares, Mutual Funds and Deposits

The Statutory Question

When a depositor names a nominee on a demat account, a mutual fund folio or a company shareholding, does that nominee become the absolute owner of the asset on death, or does the asset still pass to the legal heirs under a will or succession law? The Supreme Court answered this on 14 December 2023 in Shakti Yezdani v. Jayanand Jayant Salgaonkar, reported as 2023 INSC 1076, decided by a bench of Justices Hrishikesh Roy and Pankaj Mithal. The question turned on the meaning of one word, "vest", in Section 109A of the Companies Act 1956 and the parallel Section 9 of the Depositories Act 1996.

Section 109A of the Companies Act 1956 (the predecessor of Section 72 of the Companies Act 2013) said that on the death of a shareholder, the shares "shall vest" in the nominee, and that the nominee shall be "entitled to all the rights" in those shares "to the exclusion of all other persons". A line of reasoning had treated those words as creating a fresh, third route to ownership, sitting alongside testamentary succession (a will under the Indian Succession Act 1925) and intestate succession (the Hindu Succession Act 1956 or personal law). The 2023 judgement rejected that reading and held there are still only two recognised modes by which property devolves on death.

This distinction is not academic. India had more than 15 crore demat accounts by 2024, and a large share of household financial wealth now sits in shares, mutual funds, bonds and bank deposits rather than land. For every one of those accounts, the law settled in 2023 decides whether a surviving spouse named as nominee keeps the asset outright, or merely holds it for the estate while the children, parents or other heirs claim their lawful share. The rest of this article explains exactly what the court held, why it held so, and what borrowers, investors and NRIs should do about their own nominations.

What the Court Held

The core holding in Shakti Yezdani v. Jayanand Jayant Salgaonkar (2023 INSC 1076) is a single, firm proposition: a nominee under Section 109A of the Companies Act 1956 and Section 9 of the Depositories Act 1996 does not become the absolute owner of the securities. Nomination, the bench of Justices Hrishikesh Roy and Pankaj Mithal held on 14 December 2023, does not create a "third mode of succession" unknown to the general law of inheritance.

Instead, the nominee receives the shares or securities in a fiduciary or custodial capacity. The legal title is transmitted to the nominee for the limited purpose of holding and administering the asset, but beneficial ownership devolves on the deceased's estate. From there, the asset passes either by the deceased's will, if one exists, or by the applicable intestate succession law if there is no will. Critically, the court held that a bequest made in a valid will supersedes the nomination. The person named in the will, not the person named in the nomination form, is entitled to the asset.

The table below captures the holding across the asset classes most affected:

The court was careful to limit its ruling to the question of ownership. It did not disturb the company's or depository's right to act on the nomination for the purpose of giving a valid discharge. In other words, the company can lawfully transmit shares to the nominee and close its books, but that transmission does not extinguish the inheritance rights of the heirs against the nominee.

Reasoning

Nomination is about discharge, not devolution

The first strand of the reasoning is the purpose of a nomination. The Supreme Court read Section 109A of the Companies Act 1956 and Section 9 of the Depositories Act 1996 as machinery provisions. Their object is to give the company or the depository a single, identifiable person to deal with after a shareholder dies, so that the asset does not freeze and dividends, bonus issues and corporate actions can continue. The phrase "to the exclusion of all other persons" operates against the company, telling it whom to recognise; it does not operate against the heirs to strip them of inheritance. The court treated the word "vest" as carrying a limited, context-bound meaning rather than conferring full title, consistent with how "vest" has been read in earlier nomination statutes.

Succession law cannot be displaced by a form

The second strand is that the general law of succession is not so easily overridden. Testamentary succession is governed by the Indian Succession Act 1925, and intestate succession by statutes such as the Hindu Succession Act 1956 or the personal law of the deceased. The court reasoned that these are comprehensive codes enacted by Parliament, and a nomination clause tucked into the Companies Act 1956 could not, by implication, repeal or sit above them. If Parliament had intended nomination to be a third mode of succession that defeats a will, it would have said so in express terms. Section 109A contains no such express displacement, so the established two modes, testamentary and intestate, remain the only routes to ownership.

A will speaks from death and prevails

The third strand addresses the conflict between a will and a nomination. The court held that where a depositor has both nominated a person and bequeathed the same asset by will, the will prevails. A will is the considered expression of how the owner wishes the estate distributed, takes effect on death, and can be revoked or revised until the last moment. A nomination, by contrast, is an administrative convenience that the law does not elevate above a testamentary instrument. The practical consequence is that an investor who updates a will but forgets to update a nomination still passes the asset to the person named in the will, because beneficial ownership follows the will.

The bench also anchored its reading in legislative continuity. Section 109A of the Companies Act 1956 was carried forward, in substance, into Section 72 of the Companies Act 2013, and Parliament repeated the "vest" and "exclusion of all other persons" language without adding any clause that overrides the Indian Succession Act 1925. The court treated that silence as deliberate: had the legislature wished to convert nomination into a fresh mode of ownership in either the 1956 or the 2013 statute, it had two clear opportunities to say so and did not. Reading the two provisions harmoniously with the succession codes was, the judgement reasoned, the only construction that avoids an implied repeal that Parliament never intended.

Practical Takeaways

The ruling changes how every Indian investor, lender and NRI should think about nominations. The action points differ by who you are.

For investors and depositors:

• Treat a nomination as a caretaker arrangement, not a gift. The nominee will receive custody quickly after death, but cannot keep the asset against the heirs named in your will.
• Make a valid will under the Indian Succession Act 1925 if you want certainty about who finally owns your shares, mutual funds and deposits. The will, not the nomination form, decides ownership after 14 December 2023.
• Keep the nomination and the will aligned to avoid disputes. If you intend the nominee to also be the beneficial owner, say so expressly in the will so the two documents point the same way.
• Review nominations after major life events. A nomination made decades ago in favour of a parent does not override a later will leaving the same demat holding to a spouse or child.

For surviving family members and nominees:

• A nominee who receives shares under Section 109A of the Companies Act 1956 holds them in trust for the estate and must account to the heirs. Selling or pocketing the proceeds outright invites a civil claim.
• Legal heirs do not lose their inheritance merely because someone else was the nominee. The 2023 INSC 1076 holding lets heirs assert their share against the nominee even after transmission.

For lenders, companies and depositories:

• A company or depository that transmits securities to a registered nominee under Section 9 of the Depositories Act 1996 still gets a valid discharge. Institutional processes do not need to change; the dispute, if any, is between the nominee and the heirs.

For NRIs:

• Cross-border estates are the highest-risk category. An NRI holding Indian shares or mutual funds should pair the nomination with a will, because foreign heirs cannot rely on a nomination to claim ownership. Model the tax and remittance side with our NRI tax calculator and plan the transfer of sale proceeds abroad using the repatriation calculator.

For resident investors building long-term portfolios, the same logic applies to systematic plans: project your corpus with the SIP calculator, and if part of your estate is a terminal benefit from employment, estimate it with the gratuity calculator. In every case, the nomination only smooths the handover; the will decides the destination.

The contrast between a nominee and a legal heir is worth setting out plainly:

The statutory text of Section 72 of the Companies Act 2013, which carries forward Section 109A of the Companies Act 1956, is available on the Government of India portal at indiacode.nic.in, and the full judgement can be read on Indian Kanoon.

FAQ

Does naming a nominee mean that person inherits my shares?

No. After Shakti Yezdani v. Jayanand Jayant Salgaonkar (2023 INSC 1076), decided on 14 December 2023, a nominee under Section 109A of the Companies Act 1956 or Section 9 of the Depositories Act 1996 receives the shares only in a custodial capacity. The nominee holds the asset for the estate, and final ownership passes to the heirs named in your will or, if there is no will, under the applicable succession law.

If my will and my nomination name different people, which wins?

The will wins. The Supreme Court held on 14 December 2023 that a bequest in a valid will supersedes the nomination. So if your nomination form names your brother but your will leaves the same demat holding to your spouse, your spouse is the beneficial owner, even though the brother may receive initial custody from the depository under Section 9 of the Depositories Act 1996.

Why does a company still transfer shares to the nominee then?

Because nomination is a discharge mechanism. Section 109A of the Companies Act 1956 lets the company recognise one person and close its register cleanly after a death. The 2023 INSC 1076 ruling preserved that institutional discharge. The transmission to the nominee is valid for the company, but it does not decide the dispute between the nominee and the heirs over who ultimately owns the asset.

Do I still need a will if I have nominated everyone?

Yes. After the 14 December 2023 judgement, a nomination cannot by itself transfer ownership. A will under the Indian Succession Act 1925 is the instrument that decides who finally inherits your shares, mutual funds and deposits. Without a will, intestate succession law, such as the Hindu Succession Act 1956, allocates the asset among heirs, regardless of whom you nominated.

Does this ruling apply to bank deposits and mutual funds too?

The judgement directly interpreted Section 109A of the Companies Act 1956 and Section 9 of the Depositories Act 1996, covering shares and demat securities. The same custodial principle, that a nominee is a conduit and not an owner, has long applied to bank deposits and mutual fund folios, and the 2023 INSC 1076 reasoning reinforces it: the nominee holds for the estate and ownership devolves by will or succession law.

I am an NRI with Indian shares. What should I do?

Pair every nomination with a will. After the 14 December 2023 ruling, foreign-resident heirs cannot rely on an Indian nomination to claim ownership of shares or mutual fund units. A will under the Indian Succession Act 1925 gives certainty, and you should model the tax and remittance consequences of any eventual sale using Oquilia's NRI tax and repatriation tools before the transfer.

Can a nominee be forced to hand over the asset to heirs?

Yes. Because the nominee holds in a fiduciary or custodial capacity under the 2023 INSC 1076 holding, the legal heirs can assert their inheritance against the nominee even after the securities have been transmitted. A nominee who refuses to account for or distribute the asset to the rightful heirs under the will exposes themselves to a civil suit for the beneficial owner's share.