Urgent need for measures to checkmate prejudice to large sections of general public

 URGENT NEED FOR MEASURES TO CHECKMATE PREJUDICE TO LARGE SECTIONS OF GENERAL PUBLIC DUE TO LEGISLATIVE PROVISONS AND/OR COURT JUDGEMENT (INCURIAM OR STARE DECISIS etc)

To,                                                                       Dt: 13th July 2015

1)     The H’ble Mr. Narendra Modi

Prime Minister of India,

South Block, Raisina Hill,

New Delhi- 110011.

2)     The Hon’ble Mr. Dattu,

Chief Justice of India,

Supreme Court of India,

Tilak Marg, New Delhi 110201.

India.

Email: supremecourt@nic.in

3)     The Hon’ble Mr. M. Shah,

Chief Justice Bombay High Court,

Behind HSBC Bank,

Fort, Mumbai 400 023.

Email: hcbom.mah@nic.in

4)     The H’ble Just. Mr. A.P. Shah (Retd),

Chairperson,

Law Commission of India,

Add: Law Commission of India,

14th Floor, Hindustan Times House,

Kasturba Gandhi Marg,

New Delhi-110001.

Email: lci-dla@nic.in

5)     The Hon’ble Mr. D.V. Sadanand Gowda,

Min. Law and Judiciary,

Govt of India,

Room No. 401, 4th Floor, A-Wing,

Shastri Bhawan,

New Delhi-110 001.

6)     The Hon’ble Mr. Arun Jaitley,

Min. of Finance & Corporate Affairs,

Govt. of India,

North Block,

New Delhi-110 001.

7)      The Advocate General (India)

Mr. Mukul Rohtagi

N-234-A, Greater Kailash-I,

NEW DELHI-110048. 

TEL. 29244466/29243366,

EMAIL: mukul17855@yahoo.com

8)     The Hon’ble Ms. N. Sitaraman,

Min. of Commerce,

Govt of India,

Room No. 138, North Block,

New Delhi 110 001.  

mosfr@nic.in

nsitharaman@gmail.com

9)      The Chairperson/President,

Mr. J.P.Devadhar,

SEBI,

Plot No. C4-A, ‘G’ Block,

Near BOI, Bandra Kurla Complex,

Bandra (E), Mumbai 400051.

Email: sebi@sebi.gov.in, sebinro@sebi.gov.in

Madam /Sir/s,

Re: Suggestion for setting up of THINK TANK/s in the Supreme Court of India, the individual High Courts, the concerned Ministries both at the Centre and individually in the States particularly w.r.t. Law and Judiciary, Urban and Rural Development, Finance, Housing, Corporate Affairs, Commerce, Revenue.

Re: Controversy regarding issue of nomination of Shares etc in Companies  emerging from judgment of Bombay High Court of April 2010 in Harsha Kokate v/s Saraswat Bank  and Reversal thereof recently by judgment of March/June 2015 by Bombay High Court in Jayanand Salgaonkar v/s Jayashree Salgaonkar

This is to submit as under:

I)  One comes across, on several if not innumerable occasions, that judgments of the higher court/s  and/or the Apex Court are either per incuriam and/or stare-decisis and/or against the doctrine of Pith N Substance  and/or Ultra Vires and/or otherwise untenable looking to the ground realities. Such judgments remain unaddressed for considerable periods of time for one two many reasons as the aggrieved party lacks the wherewithal to take the matter in appeal for constrains arising due to heavy legal costs and/or inordinate delays in disposal of litigation and/or sheer disappointment with the system.

II) THE ABOVE IS STARKEDLY SELF EVIDENT FROM THE EVENTS RELATED TO THE KOKATE CASE OF THE BOMBAY HIGH COURT OF APRIL 2010. THE AGGRIEVED LADY (APPARENTLY A HOUSEWIFE OF VERY MODEST MEANS AND OTHERWISE LACKING WHEREWITHAL) MAY NOT HAVE GONE INTO APPEAL FROM THE PRIMA FACIE ERRONEOUS JUDGMENT OF BHC [WHICH WAS IN THE FACE OF SETTLED LAW INCLUDING THE RATIO OF HSCI IN SARBATIDEVI V/S USHADEVI OF 1984]. THE REITERATION OF THE CORRECT EXPOSITION OF LAW BY BHC IN SALGAONKAR CASE now in 2015 MAY BE A CORRECTION BUT  HAPPENING “TOO LATE IN THE DAY” FOR MS. KOKATE AND MAY BE MANY MANY OTHER/S WHO MAY HAVE GIVEN UP WITHOUT GOING TO COURT. BHC MUST CONSIDER  SU-MOTTO RESTORATION OF HER LIS TO ENSURE DUE JUSTICE TO HER.

III)  In our country of late, the Corporate Culture and investments by aam aadmis therein have become the Order of the Day. There are several lacs of Companies in our Country and there are hundred of lacs of investors therein (Reliance group alone has over 20 lakhs share holders). The BHC Kokate case did create much confusion and chaos amongst Aam Aadmis. The undersigned faced much difficulties in advising individual clients (M’htra based) at time of making of Nomination, Will and/or administraton/dealing with of assets (shares) of the deceased amongst a nominee/heirs/ legatee/s, as the case may be. This issue was compounded when the clients were from out of M’htra (where the BHC Order may not be applicable). Now with the Salgaonkar’s case the dust has settled on the “vexed” issue. YOU LADIES/GENTLEMEN NEED TO ENSURE THAT MECHANISMS BE EVOLVED (AS IN UK) TO REMEDY IMMEDIATELY ANY SITUATION /MATTER WHICH HAS PREJUDICIAL EFFECT OR UNINTENDED CONSEQUENCES ON GENERAL PUBLIC.

IV)  a) The Kokate case judgement was of 20th April 2010.

b) I immediately, by my letter dt. 21st April 2010, wrote to the Chairperson SEBI as well as the Minister of Corporate Affairs, Govt of India with copy also to Bombay High Court to immediately take steps for remedying the patent error, by moving, if necessary the HSCI. Reminder/s were sent of the above.  Text of my said letter dt. 29-4-2010 reproduced hereunder for ready reference

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THE JUDGEMENT OF H’BLE JUSTICE MRS. R. DALVI HIGH COURT B’BAY IN N/M NO. 2351/2008 IN SUIT NO 1972 OF 2008 PASSED ON 20TH APRIL 2010, ON THE IMPORT OF NOMINATION IN DeMAT A/C IS PERSE ERRONEOUS AND STARE DECISIS.COPY OF ORDER FORWARDED HEREWITH FOR READY REFERENCE.

The said Order is bound to have far reach adverse implications; stock market in India have developed roots in every  spectrum of citizenry in Villages through to Metro.

It is imperative that in LARGER PUBLIC INTEREST either SEBI and/or Ministry of Corporate Affairs Law and Judiciary suo motto move the Appropriate Court with utmost urgency, lest people start relying upon and  acting/conducting themselves based on such judgement and eventually if the said judgement is set aside, then there will be chaos and confusion and conflicts all around.

It is pertinent to note that a similar scenario had risen under Sec 138 of NI Act (cases of bounced /dishonoured cheque) in 1996 when Honourable Supreme Court of India in Electronics Trade case which too was perse erroneous and the undersigned had, in public domain, highlighted the same and also cautioned about the resultant chaos. The entire business of lease financing etc was thrown in the dizzy due to Electronics Trade case judgement and only after about 19 months did HSCI over ruled in Modi Cements case, (1998) the erroneous ratio of  Electronics Trade case. I hope history will not repeat itself in the present case on hand of nomination of shares.

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c)  I once again wrote a detailed letter dtd. 24th June 2014 to the then Law Minister Mr. Prasad, Mr. A. Jaitley, Ms. Sitaraman, Chairman SEBI.

d)   I once again wrote a detailed letter 22nd Nov 2014 to CJI Mr. Dattu, CJ (BHC) Mr. Shah, Law Minister Mr. Gowda, Mr. A. Jaitley, Ms. Sitaraman, Chairman SEBI.

e)  Having come learn of the scope and ambit of the work undertaken by the Law Commission to address obsolete laws and/or conflicting laws /judgments, I addressed a letter dt. 9th January 2015 to Chairperson Mr. A.P. Shah which (being akin to my letter dt. 22-11-14) is reproduced hereunder for ready reference:

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Re: Imminent need to address the provisions of the Companies Act 2013 and Order of BHC (Roshan Dalvi J) in NM No. 2351/2008 in Suit No. 1972/2008 with particular reference to those relating to NOMINATION and the import thereof.

This is to submit as under:-

1) IN SEVERAL LEGISLATIONS SUCH AS THOSE RELATING TO INSURANCE ACT, BANKING, CO-OPERATIVE SOCIETY ACT ETC., NOMINATION HAS ALWAYS BEEN UNEQUIVOCALLY UNDERSTOOD TO BE AN INSTRUMENT OF CONVENIENCE AND NOT CREATING A THIRD RULE OF INHERITANCE  (other than testacy and intestacy).

2)  FURTHERMORE SUCH NOMINATION PROVISION IS TO COME INTO EFFECT ONLY UPON THE DEMISE OF THE NOMINATOR AND NOT IN HIS/HER LIFE TIME, EXCEPT AS NOW PROVIDED FOR IN SPECIAL SITUATIONS (INCAPACITY OF NOMINATOR) u/COMPANIES ACT 2013.

3)  However the Companies Act 2013 particularly section 3 thereof contemplates nomination to take effect in the event of the nominator’s death or his/her incapacity to contact.

4) Incapacity to contract may include cases of inter alia, insolvency, mental incapacity which in certain cases (such as schizophrenia) could have lucid intervals. In case of mental incapacity there are provisions under the Mental Health Act wherein a family member can be appointed as a guardian of a person suffering mental incapacity. However, there does not appear to be any provision in law where a guardian could be appointed for a person who concurrently is perfectly sane but subsequently goes into coma and which comatose state of affairs could well continue for months and years and further its not uncommon for such comatose person to come out of coma (a topical example being that of the world famous car race driver Michael Schumacher).

5) Section 3 of the Companies Act does not address the cases of  mental incapacities wherein a person to a contract could at times have lucid intervals or comes out of coma.

6)  Pertinently Section 72 of the Act of 2013 which corresponds to Section 109A of the Act of 1956 does not contemplate the Doctrine of incapacity to Contract.

7) Hence it is imperative that the concept of nomination is critically examined with relation to emergence of event of incapacity to contract.

8) Furthermore there is an Order of the Hon’ble Mumbai High Court of Justice Mrs. Roshan Dalvi passed on 20th April 2010 in NM No. 2351 of 2008 in Suit No. 1972 of 2008 passed with relation to the import of Sec. 109A of Act of 1956 as well as Sec. 9.11 of the Depositories Act 1996. It has been a settled position in law that nomination is merely an instrument of convenience and the nominee is only a trustee for the estate of the nominator and the same does not purport to create a third rule of inheritance (other than testatcy and intestatcy) [Refer A.I.R. 1984 SC 346 SMT. SARBATI DEVI VS USHA DEVI AND WHICH RATIO HAS BEEN FOLLOWED IN INNUMERABLE CASES]. PERTINENTLY THE HON’BLE JUDGE HAS HELD TO THE CONTRARY TO  THE EFFECT THAT NOMINATION UNDER THE COMPANIES ACT AND DEPOSITORIES ACT TANTAMOUNTS TO VESTING OF OWNERSHIP IN THE NOMINEE.

9) Even under Sec. 211 of the Indian Succession Act, by a legal fiction, the assets forming part of the estate of the deceased VEST in his executor/administrator but it is settled position that such executor/administrator is only vested with legal title and the beneficial title being that of the legatee/heir/s concerned.  

10)  The H’ble B’bay High Court has, by its ratio, purportedly treated a NOMINATION akin to a WILL which cannot be so for a varied reasons:-

a)  In certain communities (eg Muslims), the capacity to make a WILL is circumscribed by the one-third rule. What happens if such NOMINATION purports to be in violation of such one third rule??

b) Will mandates attestation by two independent witnesses. However prescribed Nomination form of Companies contemplates only one witness.

c) Revocation of a WILL gets effected either:-

i) by express act or

ii) by alterations/mutilations or

iii)  by destruction or

iv) By marriage or

v) By a subsequent WILL.

However revocation of nomination can only be made by express intimation to the Co or by making a registration of new/afresh nomination. Pertinently options under (ii), (iii) and (IV) are excluded. Can such restrictive methodology prevail??.

d) Take the situation that a nomination is filed on 01-01-2014 and a WILL is thereafter made on 01-06-2014  wherein the very shares/DeMat A/c is bequeathed to another person (person other than the nominee). Which is to prevail Nomination or WILL??

e)Take a situate reverse to that under (d) above i.e WILL being prior in point of time. Herein too, which is to prevail, WILL or Nomination??

f) The provision u/Sec 3 of Act 2013 “nominator’s incapacity to contract” implies that nomination can come into effect even in life time of the nominator. Can a nominee in such a case be allowed to contend that he has acquired interest in the shares in the lifetime of the Nominator. This can only be allowed to happen should the nomination be construed as a GIFT. However even this theory of Gift would fail, as in law a Gift has to be signed in presence of two witnesses & being operative in presenti (i.e on date of nomination) as opposed to a WILL which comes into effect only when the eyes close of the testator.

11)   For unfathomable reasons, the above Order has not been carried further into Appeal and apparently holds the field of the day (particularly in Maharashtra) qua a provision of a Central Act. This ratio if it continues to hold the field of the day would continue to cause much confusion and inequities viz a viz a Company registered within Maharashtra and a company registered anywhere outside M’htra and/or a Shareholder thereof who is domiciled in Maharashtra and another who is domiciled outside Maharashtra. Other High Courts are not bound by the ratio laid down by the B.H.C.

12)    Rule 19 of the Companies (Share Capital and Debenture Rule 2014 contemplates two options for the nominee one to register the nominee and the other to transfer the securities as the deceased holder could have done; the above also rendering an incongruous state of affairs on this issue of nomination.

13)  It is settled law that at no point of time can the title to a property be not vested in a person i.e when there is a sale, until the moment of the sale the title vests in the Vendor and simultaneously with the sale, the same vests in the Purchaser.  So also in case of demise, until demise of deceased/estator, the same (title) vests in the deceased and simultaneously with his/her demise the same vests, in the heirs/legatee. Let us analyse the situations emerging from the above.

i)   Nominator dies, nomination comes into effect and “Vesting” takes place in nominee.

ii) Nominator becomes incapacitated, nomination comes into effect, “vesting” takes place in Nominee.Can such vesting in the nominee  (consequent to incapacitation), by any stretch of imagination, LEAD to divesting of title from the Nominator. NEVER!!!! Lets take this situation further ie if such nominee dies in the lifetime of the nominator and subsequently the Nominator dies but without changing the Nomination, then who shall be the owner of the asset,??? the nominator or the nominee of the nominee or heirs of the nominee or the heirs of the Nominator???. It is only the Nominator and failing him/her, his/her heirs who will continue to be the owner and never the nominee/heir of nominee.

i)  If nominee dies in life time of Nominator, Nomination ought to lapse. If BHC Order has to hold the field of the day, then do heirs/legatees of such predeceased Nominee get the shares on date of death of Nominator?? In case of Will, where bequest is absolute, the bequest enures for the benefit of the heirs/legatees of the predeceased beneficiary and does not revert back to the residuary estate of the deceased.

ii) Shares are held in either Physical Format or DeMat Format. In Physical Format, there can be nomination Company wise whereas in case of DeMat Format, the DeMat Holding A/c is, as a whole, made subject matter of nomination and not individual Holding Company wise.

iii) Take the case where nomination made favouring 2 persons A & B. Nominee A dies in lifetime of Nominator, and subsequently Nominator dies. How is devolution to take effect i.e to surviving nominee B alone or to Nominee B and heirs/legatees of predeceased Nominee A??

14)  THE HSCI JUDGMENT HELD THE FIELD OF THE DAY ON THIS ISSUE OF IMPORT OF NOMINATION SINCE 1984AND WHICH IMPORT HAS APPLICATION IN DAY TO DAY LIFE OF EVERY CITIZEN AND HENCE OF VITAL GENERAL PUBLIC IMPORTANCE. MANY A CITIZENS HAVE CONDUCTED THEMSELVES BASED THEREON INCLUDING MADE NOMINATION AND/OR WILLS AND WHICH THEIR INTENDED CONDUCT AND DESIRES WILL BE RENDERED REDUNDANT IF NOT LEAD TO UNINTENDED CONSEQUENCES/END RESULTS DUE TO THE ORDER OF B.H.C. (BOTH IN CASES WHERE WILLS/NOMINATIONS MADE PRIOR TO 2010 HAVE REMAINED UNAMENDED AND/OR WHERE WILL/NOMINATION ARE MADE/AMENDED IN LIGHT OF 2010 ORDER OF BHC).

15)  You will appreciate, that looked at every which way, the issues as above, particularly the import of the Bombay High Court Order, need to be revisited with utmost dispatch.

16)   IT IS IMPERATIVE THAT THE COURTS AND/OR THE GOVERNMENT, IN LARGER PUBLIC INTEREST,  IMMEDIATELY ADDRESS THE FOLLOWING :

a)    CLARIFY THE CONCEPT OF INCAPACITY TO CONTRACT AS PROVIDED FOR IN SEC. 3 OF THE ACT OF 2013 AND MOVE IN NECESSARY AMENDMENTS THERETO.

b)     THE HON’BLE SUPREME COURT OF INDIA SUO MOTTO TAKE UP THE ISSUE OF IMPORT OF NOMINATION UNDER THE COMPANIES ACT AND/OR THE DEPOSITORIES ACT AND FINALLY ADJUDICATE UPON THE SAME WITH PARTICULAR REFERENCE TO THE ORDER OF THE HON’BLE BOMBAY HIGH COURT.

17)  The said Order is bound to have far reach adverse implications; stock market in India have developed roots in every spectrum of citizenry in Villages through to Metro.

18)   It is imperative that in LARGER PUBLIC INTEREST either the Courts, SEBI and/or Ministry of Corporate affairs Law and Judiciary address these issues with utmost urgency, lest people start relying upon and acting/conducting themselves based on B.H.C. Order and eventually if the said B.H.C. Order is set aside, then there will be chaos and confusion and conflicts all around.

19)   It is pertinent to note that a similar scenario has risen under Sec 138 of NI Act (cases of bounced/dishonoured Cheque) in 1996 when Honourable Supreme Court of India in Electronic Trade case which too was perse erroneous and the undersigned had, in public domain, highlighted the same and also cautioned about the resultant chaos. The entire business of lease financing etc was thrown in the dizzy due to Electronics Trade case judgement and only after about 19 months did HSCI, over ruled [in Modi Cements case, (1998)] the erroneous ratio of Electronics Trade case. One hopes that history will not repeat itself in the present case on hand of nomination of shares.

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V) I HAVE, IN THE LAST FEW DECADES, MADE SEVERAL REPRESENTATIONS REGARDING  METHODOLOGIES TO BE DEVISED FOR DOING AWAY WITH ARCHAIC LAWS AND/OR CONFLICTING PROVISIONS WITHIN A STATUTE AND/OR INTERSE BETWEEN STATUTES AND/OR CONFLICTING JUDGMENTS SO AS TO REDUCE JUDICIAL DELAYS, BRING ABOUT CERTAINTY OF LAW, EFFICACIOUS AND EFFECTIVE DISPENSATION OF JUSTICE (EG INVOKING OF PERJURY AS A MATTER OF RULE, IMPOSITION OF COSTS (MAY BE EVEN EXEMPLARY AT TIMES) ON “PROFESSIONAL” LITIGANTS, MANDATE ON DEFENDENTS/RESPONDENTS TO FILE AFFIDAVIT/ WS ect.. IN TIME BOUND MANNER, ETC; FAILING WHICH/LEST THE FUNDAMENTALS OF CIVILIZED SOCIETY INTER ALIA RULE OF LAW,  WORKINGS OF THE TEMPLE OF JUSTICE (COURTS) AND ABOVE ALL THE FAITH, FATE AND CONFIDENCE OF THE COMMON MAN WILL BE LOST AND WE WILL BECOME A SOCIETY OPERATING UNDER AND BY ANARCHY OF LAW RATHER THAN UNDER AND BY RULE OF LAW.

VI)   I AM INFORMED THAT IN UK  THERE IS A SYSTEM WHERE AN EXPERT BODY OF LEGAL ACADEMICIANS  IS SET UP WHICH REGULARLY OVERSEES THE IMPLEMENTATION AND IMPORTS OF LEGISLATIVE PROVISIONS AND/OR COURT JUDGMENTS PARTICULARLY CONFLICTING ONES IF ANY AND IF WARRANTED IN GIVEN CIRCUMSTANCES SOONEST CLARIFIES THE CORRECT IMPORT OR DEFICIENCIES OF LEGISLATIVE PROVISIONS AND/OR WHICH IS THE CORRECT JUDGMENT TO BE RELIED UPON AND WHICH IS THE INCORRECT JUDGMENT/S WHICH NEED TO BE IGNORED AND NOT RELIED UPON. SIMILAR METHODOLOGIES COULD WELL BE SET UP IN INDIA.

Yours faithfully,

A. Kadiani 

KADIANI & ASSOCIATES