Can nomination in demat account be challenged in court

Nirav Gandhi (Querist) 04 April 2023 This query is : Resolved
I have been nominated by my Unrelated friend for his Demat shares held solely by him as I had helped in his difficult times can my nomination be challenged by the legal heirs in court as the depository has already transmitted those share to my name

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While a nomination in a demat account, as per Section 72 of the Companies Act, 2013, grants the nominee the right to securities upon the holder's death, this does not necessarily exclude legal heirs. Legal heirs may still challenge the validity of the nomination in court. The nominee essentially holds the securities in trust, and their entitlement is to the exclusion of others unless the nomination is varied or cancelled, but the ultimate ownership can be contested legally.

Sudhir Kumar, Advocate (Expert) 06 April 2023
As nominee he is merely a trustee of legal heirs. He is bound and can be compelled to transmit proceeds to the legal heirs.

Breach of trust is non-bailable offense.

T. Kalaiselvan, Advocate (Expert) 06 April 2023
Nominee shareholder refers to the holder of shares on behalf of another person or beneficial owner or original holder of shares. The nomination is a mandate given by a shareholder to give the legal title of shares to a described person with whom shares shall vest on the death of a shareholder or original holder.
Legally put, a nominee does not get an interest, title or ownership in assets of the nominators. After the death of a person, all their assets—-including the fund in his various bank accounts, PF account, PPF account, FDs, RDs, etc. —go to their legal heir

Nirav Gandhi (Querist) 07 April 2023
As for FDR Bank Accounts there are different laws on nomination
But as regards to company law Section 72.
Power to nominate.
Effective from 01-04-2014
(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.

(2) Where the securities of a company are held by more than one person jointly, the joint holders may together nominate, in the prescribed manner, any person to whom all the rights in the securities shall vest in the event of death of all the joint holders.

(3) Notwithstanding anything contained in any other law for the time being in force or in any disposition, whether testamentary or otherwise, in respect of the securities of a company, where a nomination made in the prescribed manner purports to confer on any person the right to vest the securities of the company, the nominee shall, on the death of the holder of securities or, as the case may be, on the death of the joint holders, become entitled to all the rights in the securities, of the holder or, as the case may be, of all the joint holders, in relation to such securities, to the exclusion of all other persons, unless the nomination is varied or cancelled in the prescribed manner.

(4) Where the nominee is a minor, it shall be lawful for the holder of the securities, making the nomination to appoint, in the prescribed manner, any person to become entitled to the securities of the company, in the event of the death of the nominee during his minority.

P. Venu (Expert) 14 April 2023
Yes, provisions of Section 72 of the Companies Act, 2013 assigns a different legal status to a nominee in respect of Securities.

However, the legal heirs are not disentitled to test the validity of such nomination in a legal action.

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