Section 72 of Companies Act, 2013: Power to Nominate Securities
Updated legal guide to nomination of shares and other company securities under the Companies Act, 2013.
What is the Power to Nominate under Section 72?
Section 72 of the Companies Act, 2013 deals with nomination in respect of securities of a company. A holder of securities may nominate a person in the prescribed manner so that the company has a recognised person to whom the securities can be transmitted following the death of the holder, subject to the Act, applicable rules and succession law.
Where securities are held jointly, the joint holders may together make a nomination. Section 72 also provides for variation or cancellation of a nomination and makes special provision where the nominee is a minor.
Section 72 of the Companies Act, 2013 - Power to Nominate
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.
Section 72(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.
Section 72(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.
Section 72(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.
Explanation of Section 72
| Provision | Meaning |
|---|---|
| Section 72(1) | An individual holder of company securities may make a nomination. |
| Section 72(2) | Joint holders may jointly nominate a person in respect of the securities. |
| Section 72(3) | Deals with the effect of nomination after the death of the holder or all joint holders and permits variation or cancellation in the prescribed manner. |
| Section 72(4) | Provides for an appointment where the nominee is a minor and dies during minority. |
How is Nomination Made?
The procedure is governed by Section 72 read with the applicable provisions of the Companies (Share Capital and Debentures) Rules, 2014.
Form SH-13 - Nomination Form
A holder wishing to make a nomination in respect of securities may use the prescribed nomination form, Form SH-13, in accordance with the applicable rules.
Form SH-14 - Cancellation or Variation of Nomination
A nomination already made may subsequently be cancelled or varied. Form SH-14 is the prescribed form for cancellation or variation of nomination under the applicable rules.
Does the Nominee Become Owner Instead of the Legal Heirs?
This is an important distinction. Although Section 72 uses strong vesting language, nomination should not be treated as creating an independent third mode of succession.
Accordingly, the role of a nominee for transmission of securities and the ultimate beneficial entitlement to the estate should not be treated as necessarily identical questions. Succession may depend upon a valid will, the applicable personal or succession law, and the facts of the particular case.
What Happens if the Nominee is a Minor?
Section 72(4) specifically deals with a minor nominee. Where the nominee is a minor, the holder making the nomination may appoint, in the prescribed manner, another person to become entitled to the securities if the nominee dies during minority.
Can a Nomination be Changed?
Yes. Section 72 expressly recognises variation or cancellation of a nomination in the prescribed manner. The applicable prescribed form is Form SH-14.
Why is Nomination Important?
A properly recorded nomination can simplify the administrative process following the death of a security holder. It enables the company, depository or other relevant entity to identify the nominated person for transmission purposes without treating nomination itself as a substitute for the law of succession.
Frequently Asked Questions
What is Section 72 of the Companies Act, 2013?
Section 72 is the statutory provision dealing with nomination in respect of securities of a company.
Who can make a nomination?
A holder of securities may make a nomination. Where securities are jointly held, the joint holders may together make the nomination.
Can there be a nominee for shares?
Yes. Shares are securities and a nomination may be made in accordance with Section 72 and the prescribed procedure.
Can a nomination be cancelled?
Yes. A nomination can be varied or cancelled in the prescribed manner. Form SH-14 is prescribed for cancellation or variation of nomination.
Does nomination override a will or succession law?
Nomination does not create a separate mode of succession. The Supreme Court has clarified that nomination provisions do not, by themselves, displace the rights arising under the applicable law of succession.