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Understanding the concept of Nomination:

From a layman's perspective, a nominee is the person who receives the benefits of an investment after the death of the account holder. This has led to a popular belief that a nominee enjoys complete ownership over the nominated asset.

Legally, however, a nominee is only viewed as a trustee - a person who receives the asset and holds it for the benefit of those legally entitled to it - rather than a legatee, who is the actual beneficiary or inheritor. Let’s take a look at each law, its treatment of nominations and judicial precedents around them.

Insurance Act, 1938

Section 39 of the Insurance Act, 1938 permits policyholders to nominate a person to receive policy proceeds. Traditionally, courts have treated nominees as mere recipients of the money.

In Sarbati Devi v. Usha Devi (1984), the Supreme Court held that the nominee acts as an authorized recipient and the insurance proceeds form part of the deceased's estate, to be distributed according to applicable succession laws.

Banking Regulation Act, 1949

Section 45ZA of the Banking Regulation Act, 1949 allows a bank to release the deposit amount to the nominee after the depositor's death. The provision primarily protects the bank by ensuring a valid discharge of its liability.

In Ramdas Shivram Sattur v. Rameshchandra Shah (2009), the Bombay High Court held that a nominee receives the amount for administrative convenience of the Bank only. This release by Bank to the nominee does not extinguish or exclude the claims of legal heirs.

Company Shares: The debate

Section 72 of the Companies Act, 2013 provides that, upon a shareholder’s death, nominated securities vest exclusively in the nominee, overriding other testamentary claims unless the nomination is changed. In the Harsha Nitin Kokate v. The Saraswat Co-operative Bank Limited (2010), the Bombay High Court held the nominee as the legal and beneficial owner, thereby allowing the nomination effectively overriding succession. This ruling was owing to the language in section 109A of the Companies Act, 1956 (similar to present section 72 of Companies Act, 2013) on “right to vest” and the overriding effect of the non-obstante clause.

The Kokate Judgment was overruled by another Bombay High Court judgment, Jayanand Jayant Salgaonkar v. Jayshree Jayant Salgaonkar (2015), wherein the Kokate judgment was held per incuriam. The Court held that the legal heirs, and not nominees, would have ownership over the shares. The Court considered the provisions of Section 109A of the Companies Act, 1956 and held that they do not displace the law of succession.

The debate as to whether a nominee is trustee or legatee was conclusively settled recently by the Supreme Court in Shakti Yezdani & Anr. v. Jayanand Jayant Salgaonkar (2023). It was held that a nominee even under the Companies Act, 2013 is merely a trustee and not a legatee on five grounds:

• There was no legislative intent in Companies Act to confer ownership on nominees by creating a third form of succession.
• The purpose of Companies Act is to regulate corporate affairs and not inheritance rights.
• Interpreting a nominee as a trustee would ensure consistency with the interpretation adopted under other statutes.
• The overriding effect of the non-obstante clause operates primarily to protect the company by providing a valid discharging of its liability.
• The term “vest” is context-dependent and does not ipso facto confer beneficial ownership on the nominee.

Conclusion:

The law on nomination in India is now largely settled across various statutes. While nomination facilitates the smooth transfer of funds or securities upon the death of the holder, it does not ordinarily confer beneficial ownership on the nominee. The Apex Court’s decision in Shakti Yezdani has reaffirmed this principle even in the context of company shares, clarifying that nomination does not create a separate mode of inheritance or override succession rights. Accordingly, a nominee’s role is primarily administrative in nature, ensuring an efficient discharge of obligations by insurers, banks, and companies. The ultimate ownership of the asset continues to be governed by testamentary dispositions or succession laws.

2. Related Party Transactions

These are the most common source of distortion in closely held companies. Not improper in themselves, but frequently priced on considerations other than market value. Watch for:

• Rent paid on promoter-owned property above or below market rates
• Management fees charged by a group holding company
• Interest-free or concessional loans between group entities
• Purchases from a supplier owned by a family member
• Salaries paid to relatives who may not be actively involved

For each material item, establish what an arm's length price would have been and adjust accordingly. Transfer pricing documentation and independent market data on rentals and service fees are useful reference points. The related party disclosure note is a starting point, not a conclusion. Some arrangements never make it into the disclosure at all.

3. Promoter Remuneration

Almost always the largest single adjustment in an owner-managed business. Promoters often draw well above or below what a professional would command, usually reflecting a preference for salary over dividend, or reinvestment back into the business.

The adjustment replaces actual remuneration with the market cost of hiring someone to do the same job. That requires an honest look at what the promoter actually does. A founder who generates the revenue, holds the client relationships, and drives product cannot be replaced cheaply. A promoter whose role is oversight can be.

This distinction matters twice over. Heavy promoter dependence is itself a valuation risk that may warrant a discount, separate from the remuneration adjustment.

4. One-Off and Non-Recurring Items

Items that hit reported profit in a period but are not expected to repeat:

• Income side: gains on sale of assets or investments, insurance claims, write-back of old liabilities, unusual foreign exchange gains, discontinued government incentives
• Expense side: litigation settlements, restructuring costs, one-time bad debt provisions, losses from discontinued operations, aborted transaction expenses

The judgement is whether an item is genuinely non-recurring. A business writing off large bad debts every alternate year does not have one-off events. It has a receivables problem, and normalising it away overstates sustainable earnings.

5. Accounting Considerations

Normalisation is for valuation purposes only. It does not alter the financial statements or represent a restatement.

That said, check that accounting policies are applied consistently across the period analysed. Changes in depreciation method, revenue recognition timing, or inventory valuation can create apparent profitability trends that have nothing to do with performance.

6. Key Considerations in Practice

• Cover three to five years, not a single year. Patterns only emerge over time
• Document each adjustment individually with its basis and quantum. These are the entries most likely to be challenged
• Apply adjustments consistently across all years. Normalising remuneration in the current year alone creates an artificial growth trend
• Check peer comparability. If normalised earnings are compared against peer multiples, consider whether peer earnings were similarly adjusted
• Present the summary transparently. A reader who disagrees with an adjustment should be able to see exactly what was done and why

7. Conclusion

Normalisation is where valuation stops being mechanical and starts requiring judgement. Two valuers working from identical financials can reach different normalised earnings, and both may be defensible. What separates credible work from weak work is not the absence of judgement but the transparency and consistency with which it is applied.

B. Structuring the Deal: Tax Efficiency at the Core

• Share Purchase is the fastest route—typically 4–8 weeks—but triggers capital gains tax for selling founders. For unlisted shares held over 24 months, long-term capital gains (LTCG) are taxed at 12.5% without indexation from FY 2024–25 onward. Short-term gains (held under 24 months) are taxed at the seller's slab rate, up to 30% plus surcharge and cess. The acquirer inherits all assets, liabilities, and regulatory approvals, making due diligence critical.
• Asset/Slump Sale allows cherry-picking of assets while avoiding legacy liabilities. Under Section 50B of the Income Tax Act, capital gains are computed on the difference between sale consideration and net book value. Crucially, if structured as a transfer of a "going concern," the transaction is exempt from GST under Notification 12/2017. However, selective asset sales attract GST at 18% on intangibles and goodwill, and stamp duty ranges from 3% to 10% depending on the state.
• NCLT Merger under Sections 230–232 of the Companies Act, 2013 is the most tax-efficient but compliance-intensive route, taking 6–12 months. Share-for-share exchanges are exempt from capital gains under Section 47(vi) and (vii) of the Income Tax Act, deferring tax liability until the eventual sale of new shares. Additionally, Section 72A allows the surviving entity to carry forward the losses of the amalgamating company—a powerful value-creation tool. Stamp duty is typically reduced or exempted, as the transfer occurs by operation of law rather than voluntary conveyance.

The Finance Bill, 2026 introduces further refinements. Buyback taxation has reverted to a capital gains regime for shareholders (net of cost of acquisition), replacing the previous dividend-characterization approach. While this benefits most shareholders through preferential capital gains rates, it imposes an additional income tax levy on "promoters" - now defined to include any person holding over 10% of shares in an unlisted company. This expanded definition captures significant minority shareholders and must be factored into exit planning.

Perhaps more consequential for leveraged roll-ups is the proposed disallowance of interest deductions against dividend income. Under the new regime, interest expenditure incurred to earn passive investment income (including dividends from subsidiaries) will be fully disallowed from 1 April 2026. This directly impacts traditional leveraged buyout (LBO) structures, where acquisition debt is often serviced through dividend distributions from target entities. PE sponsors must re-evaluate leverage models, as the restriction increases effective tax costs and may necessitate alternative financing structures.

C. Regulatory Navigation: The CCI, FEMA, and NCLT Maze

India's regulatory framework for roll-ups is multi-layered and unforgiving of procedural lapses.

• Competition Commission of India (CCI) notification is mandatory when combined assets cross monetary thresholds. The regime is mandatory and suspensory – transactions cannot close, even partially, without prior approval.
• FEMA Compliance is non-negotiable for cross-border elements. Foreign investors must adhere to FEMA (Non-Debt Instruments) Rules, 2019, RBI reporting through FC-GPR/FC-TRS forms, and sectoral FDI caps. DCF-based pricing guidelines for unlisted companies require robust valuation documentation, and restricted sectors (defence, telecom, media) demand prior RBI approval.
• Post-Acquisition Compliance is where many roll-ups falter. ROC filings (Form INC-28, MGT-14, SH-4, DIR-12) must be completed within 30 days. Sector-specific licenses—FSSAI, drug licenses, import-export codes—do not automatically transfer even in NCLT mergers and require fresh applications.

D. Exit Opportunities and the Risks of Excessive Consolidation

The ultimate test of a roll-up is the exit. India's capital markets are maturing, with IPO windows opening for consolidated entities that can demonstrate scale and profitability. Strategic acquirers - both domestic conglomerates and global players - pay premiums for market leaders. Secondary sales to other PE funds are increasingly liquid.

However, the risks of excessive consolidation are real and growing. The CCI's enhanced digital forensics capabilities and dawn-raid powers mean that anti-competitive conduct - price coordination, market allocation, or information sharing between acquired entities - faces unprecedented scrutiny.

From a tax perspective, GAAR provisions under Income Tax Act cast a long shadow over aggressive structuring. The Supreme Court's recent ruling in Tiger Global International reinforced that treaty benefits are not automatic where arrangements lack commercial substance. PE sponsors must ensure that holding company structures, especially those leveraging DTAA jurisdictions like Singapore or Mauritius, can withstand substance tests.

E. Conclusion

Roll-up acquisitions represent one of the most compelling value-creation strategies in India's current PE environment. The opportunity to consolidate fragmented industries, apply operational discipline, and exit at scaled multiples is genuine. But the Indian regulatory and tax framework demands precision. The choice between share purchase, slump sale, and NCLT merger determines tax outcomes measured in crores. CCI compliance is mandatory and enforced. The new interest-deduction restrictions and expanded promoter-tax definitions from Finance Bill, 2026 require fresh structural thinking.

What you can sell, and to whom

For most people, the property in question is a house, flat, or commercial unit. Here FEMA provides: an NRI can freely sell residential or commercial property to a resident Indian, to another NRI, or to an Overseas Citizen of India (OCI).

The picture changes sharply for agricultural land, plantation property, and farmhouses. An NRI cannot buy these at all; they can only end up owning such property if they acquired it while still living in India (i.e., while they were Resident Indian) or inherited it. And when it comes time to sell, this kind of property can be sold only to a resident Indian and not to another NRI or OCI.

Taking the money abroad: the real question

Owning and selling is usually straightforward. The part that trips people up is repatriation, moving the sale proceeds out of India. Here, how you originally acquired the property is decisive.

If you bought the property after becoming an NRI, using foreign money remitted through banking channels or funds from your NRE or FCNR account, the proceeds are generally repatriable subject to conditions and to paying applicable taxes first. For residential property, repatriation is allowed for up to two properties.

If instead the property was bought while you were still a resident of India, or inherited from someone in India, it falls under a special provision (Section 6(5) of FEMA). Proceeds from these cannot be freely sent abroad. The money is credited to your Indian rupee account and taking it out requires working within the annual remittance limit (currently around USD 1 million per financial year), after tax compliance.

Which bank account matters

NRIs typically hold three types of accounts, and the sale proceeds must land in the right one:

• NRO (Non-Resident Ordinary): the default destination especially for inherited or gifted property, or where proceeds are not immediately eligible to go abroad. Money can still be remitted out later, within the annual limit and after taxes.
• NRE (Non-Resident External): fully repatriable, but proceeds can be credited here only when they genuinely qualify for repatriation under FEMA essentially, when the property was bought with eligible foreign funds.
• Foreign bank account: receiving the sale money directly abroad, bypassing Indian banking channels, is not advisable. FEMA expects the transaction to flow through an authorised Indian bank.