Q.What is nomination of shares? Explain its effect under Section 72 of the Companies Act, 2013.

Nomination lets a shareholder plan, in advance, exactly who should receive his shares if he dies, well before any transmission actually becomes necessary. …

Ordinarily, when a shareholder dies, transmission of his shares requires his legal representative to first obtain a succession certificate, probate, or letters of administration — documents that can take real time and legal effort to secure. Section 72 of the Companies Act, 2013 gives shareholders a way to avoid this delay for their own families, through the facility of nomination.

Under Section 72, every holder of securities of a company — whether he holds them alone, or jointly with others — may, at any time, nominate, in the manner and form prescribed (Form SH-13), a person to whom his securities shall vest in the event of his death. Where two or more persons hold securities jointly, they may together make a single nomination, but the nominee's right to claim the securities arises only after all the joint holders have died — not on the death of just one of them, whose share instead passes, under the ordinary rule for joint holdings, to the surviving joint holder(s).

Effect of a valid nomination. Once a shareholder who has validly nominated a person dies, that nominee becomes entitled to all the rights in the securities, to the exclusion of all other persons — including anyone who might otherwise have claimed the shares as an heir under a will or under the law of intestate succession. This is a deliberately strong effect: nomination is designed to override the ordinary succession process for the specific purpose of letting shares (and other securities) pass quickly and without dispute to the person the holder himself chose.

Variation and cancellation. A nomination once made is not permanent — the holder may, at any time during his lifetime, vary or cancel an existing nomination by making a fresh nomination in the prescribed manner (Form SH-14). …

A frequent mistake is treating nomination as merely 'informing the company who the heir is', without recognising its stronger legal effect — a valid nomination vests the securities in the nominee to the exclusion of other clai …