How does nomination

affect property
inheritance
While nominations can be given for shares, bank deposits, mutual fund investments, bank
lockers, the rules and implications for immovable properties are different. Here’s how they
operate

The reply to a question raised in the Indian parliament revealed that deposits worth Rs
5,124.98 crores were lying unclaimed for 10 years or more, with scheduled banks. This
is a huge amount, considering the fact that banking facilities are generally availed of by
educated people. These unclaimed deposits could have been significantly lower, if the
depositor had appointed a nominee for his bank account/deposit. Here’s a look at what
nomination is and its effect on succession.

What is nomination?
Nomination is a process, whereby, a person authorises someone to receive the assets
on his/her behalf, after death. It comes into operation, after the death of the owner. The
specified asset is transferred in the name of the nominee.

Rights of nominees and legal heirs

There is a general perception, that the nominee becomes the owner of the asset, once it
is transferred in his name or is handed over to him. However, the rule is subject to a few
exceptions, that the nominee becomes a trustee to hold the property on behalf of the
legal heir.

Under the Insurance Act, an insurance company is discharged of its liability, once it
pays the amount of claim to the nominee. It is the responsibility of the nominee, to hand
over the claim amount to the legal heir/s. The judiciary has made this amply clear. The
Supreme Court, in the case of Sarbati Devi, which was decided in 1983, held that the
nominee is a trustee of the property and is liable to hand it over to the legal heirs. This
applies to deposits in bank accounts, as well.

Those who reside in cities, often have their residential properties in cooperative housing
societies. Such properties are governed by the cooperative society laws that are
applicable in each state. According to Section 30 of the Maharashtra Cooperatives
Societies Act, for instance, the society is legally allowed to transfer the property in the
name of the nominee, in case the owner has submitted the nomination form to the
society, in respect of that property. However, such a nominee, who is registered as the
owner of the property in the records of the housing society, represents the legal heir/s. It
is only the legal heir/s, who have the beneficial ownership rights of the flat, ruled the
Bombay High Court, in the celebrated case of Ramdas Shivram Sattur in 2009, which
dragged on for 25 years.

In the case of provident fund dues, the law provides that the nominee becomes the legal
and beneficial owner of such property. The Bomaby High Court, in the in the case of
Saraswat Bank Limited, had decided that the nominee becomes the absolute owner of
share but the the same has been overruled in the later case of Shakti Yezdani and Anr
vs Jayanand Jayant Salgonkar, decided on December 1, 2016, again by the Bombay
High Court. So, even in case of shares in a compay, the rights of the legal heirs are
better than that of nominees and the nominee is accountable to the legal
heirs/successors.

Importance of nominating
Home owners should make nominations for all their assets, wherever such a facility is
available. As the nominee/s are also the legal heir/s in most of the cases, the making of
such nominations, will help transfer of the asset to the legal heir/s. Even in other cases,
it will ensure that that the property does not remain unclaimed or become subject to
litigation. While making a nomination for shares and provident fund dues, one needs to
remember that the nominee will become the owner of these assets.

Important ruling on the

property rights of
successors versus
nominees
Upon the death of an owner, will the rights in the property be transferred to a nominee or the successor
to the property? We examine what the current legal standing on the issue is, after a landmark
judgement from the Bombay High Court

A legal question that has been put to test time and again before various courts, is
whether the rights of nominees prevail over those of successors, in respect of various
subjects of nomination, such as financial instruments, shares in a cooperative society,
etc.

A division bench (two-judge bench) of the Bombay High Court, comprising of

Justice Oak and Justice Sayed, have upheld the rights of successors over
nominees. The court stated that the nominees are appointed, to ensure that the
subject matter of the nomination is protected, until the legal heirs or legal
representatives of the deceased take appropriate steps, such as obtaining
probate of the will of the deceased or letters of administration of the estate of the
deceased, to claim their rights over it.

Conflicting decisions on the rights of

nominees and successors
There have been some contradictory observations in the past. In one such case
(Harsha Nitin Kokate v The Saraswat Cooperative Bank Limited, also known as the
‘Kokate Case’), a single judge of the Bombay High Court had ruled that the rights of the
nominee prevail over that of the successors, in case of shares held in a company.
Finding this decision per incuriam, another single judge of the Bombay High Court
subsequently upheld the contrary, i.e., in favour of the successors. However, the
competency of a single judge to review the findings of another single judge created a
controversy, which was questioned in this matter before the two-judge bench of the
Bombay High Court.

In another recent judgment in the case of Indrani Wahi v Registrar of Cooperative

Societies and Others (‘Indrani Wahi Case’), the Supreme Court considered the
provisions of nomination under the West Bengal Cooperative Societies Act, 1983 (‘West
Bengal Act’), wherein, the cooperative society is required to transfer the shares and
interest of such member in the name of the nominee. The conclusion drawn by the apex
court, was that a cooperative society under the West Bengal Act, was bound by the
nomination made by the member. Therefore, in case of a nomination, the society has no
option but to transfer the shares in the name of the nominee, after the death of the
member.

The Bombay High Court’s ruling on

nominees’ rights
The two-judge bench of the Bombay High Court took into account the laws governing
the nomination of shares under the Companies Act, 1956, (1956 Act), the succession
laws governing the estate of a deceased in case of intestate (without making a will) or
testate succession (estate bequeathed under a will) as per the Indian Succession Act,
1925 and the byelaws under the Depositories Act, 1996, and concluded that the
provisions relating to nomination do not override the law in relation to testamentary or
intestate succession. Like the 1956 Act, similar provisions are also laid down in the
Companies Act, 2013 (2013 Act) and therefore, this judgment will squarely apply to all
the future cases arising under the 2013 Act.

The judgment also draws references to precedents of the supreme court and
various high courts, relating to the rights of the nominee vis-à-vis the rights of the
successors, in case of shares held in a company, shares held in a cooperative
society, investments made in financial instruments such as Employee Provident
Fund, Government Savings Certificate and the right of nominees with respect to
various accounts held with banks. The Bombay High Court observed that in all
these cases, the provisions relating to nominations have been consistently
interpreted as only giving a temporary controlling right to the nominees, for
interim management of the affairs relating to such instrument.
Even in the Indrani Wahi Case, the court pointed out that the requirement for transfer of
shares in favour of the nominee, is stipulated only for societies registered under the
West Bengal Act and at no point had the supreme court decided that the rights of the
nominees will prevail over that of the successors. In the Indrani Wahi Case, the apex
court had observed that it would be open for other members of the family of the
deceased, to pursue their case of succession or inheritance. Therefore, those who are
claiming their rights under inheritance, will be entitled to claim the title to the shares in
the society on the basis of inheritance.

Laws on nomination and

succession/inheritance
There are no general laws on nomination, unlike in case of succession where
special laws exist, based on religious affinity and bequests under wills of the
deceased. Therefore, the rights of the nominee are determined in accordance
with the laws governing the subject matter of nomination, whereas, succession
rights are determined based on the personal law applicable to the deceased.
Nomination, hence, is only a means and not an end.
It is a temporary arrangement, so that the shares of the deceased do not remain
ownerless, during the period that succession issues are resolved.

FAQ
What are the rights of a nominee?

The rights of the nominee are determined in accordance with the laws governing the
subject matter of nomination. It is a temporary arrangement so that the shares of the
deceased do not remain ownerless, during the period that succession issues are
resolved.

Who is the legal heir after death of a married man?

The legal heir after death of a married man will be Class I heir which includes sons,
widowed-daughter in-law, daughter and widowed wife.

Does nominee become owner of flat?

The rights of the nominees will not prevail over that of the successors. The Bombay
High Court has also observed that in all cases, the provisions relating to nominations
have been consistently interpreted as only giving a temporary controlling right to the
nominees, for interim management of the affairs relating to such instrument.

Is nominee a legal heir?

No, nominee is for interim management only and should be interpreted as to have
temporary controlling rights.
What is the legal definition of nominee?

According to law, a nominee is a trustee or caretaker of the assets. He/she is not the
owner but an individual who will be legally bound to transfer the asset to the legal heirs.

India: Legal Heir Or Nominee? Who Is

The Rightful Owner?
04 February 2020

by Rupin Chopra and Nihit Nagpal

S.S. Rana & Co. Advocates

Legal Heir v. Nominee

The Indian Judiciary has time and again been confronted with the contentious issue whether the
rightful ownership of asset (including shares/securities, properties etc.) rests with the legal heir
or nominee? The obscurity pertaining to this legal aspect has compelled nominees and legal
heirs to knock the doors of justice which has resulted in settling the legal principle that
nominees only hold the assets on behalf of the legal heirs of the deceased and that mere
nomination of shares does not amount to beneficial ownership of an asset.
What does the law say?
The provisions governing the law relating to nomination of shares and the power to nominate
are enumerated under the Companies Act.

Nomination of Shares- Section 109A of the Companies Act, 1956 provides for the nomination
of shares and states that where a nomination made in the prescribed manner purports to confer
on any person the right to vest the shares in, or debentures of, the company, the nominee shall,
on the death of the shareholder become entitled to all the rights in the shares or debentures of
the company to the exclusion of all other persons, unless the nomination is varied or cancelled
in the prescribed manner. Section 109B of the Companies Act provides for transmission of
shares.

The statutory provisions under Section 109A and B were elaborately discussed by the Division
Bench of the High Court of Bombay in the case of Shakti Yezdani v. Jayanand Jayant
Salgaonkar , wherein the Court while interpreting the provisions was of the view that the
nominee of a holder of shares or securities appointed under Section 109A of the Companies
Act, 1956 is not entitled to the beneficial ownership of the shares or securities subject matter of
nomination to the exclusion of all other persons who are entitled to inherit the estate of the
holder as per the law of succession. Thus, the High Court held that nomination does not
override the law in relation to testamentary or intestate succession. The provision regarding
nomination are made with a view to ensure that the estate or the rights of the deceased subject
matter of the nomination are protected till the legal representatives of the deceased take
appropriate steps .

Judiciary's Stance
Recent order by NCLAT- rightful ownership of shares remains with the legal heir and not the
nominees-Oswal Greentech v. Mr Pankaj Oswal and Ors.1

Brief facts: In this case, the deceased namely Mr. Abhay Oswal held majority shares in Oswal
Agro Mills Limited. The deceased had filed nomination in favour of one, Mrs. Aruna Oswal
(nominee). After the death of deceased, the nominee filed request for registration of the
impugned shares in her favour and the Company accordingly transferred the shares in the
name of nominee. Thereafter, Mr. Pankaj Oswal (hereinafter referred to as 'legal heir/
representative'), approached the National Company Law Tribunal ('NCLT') and contended that
the transfer of shares to the nominee was in contravention of the law. The NCLT considering the
above, held that the petition was maintainable. Aggrieved by the decision of the NCLT, the
Company approached the NCLAT.

NCLAT's order: The NCLAT passed an order in favour of the legal heir to hold that the shares of
the deceased ultimately vest with the legal heir. The nominee appointed by the deceased is in
possession of the shares only till the ownership is not transferred to the legal heir.

"The right arising out of an instrument does not vest with nominee automatically on the death of
the original holder of the instrument. Nominee does not mean that the amount or the share
belongs to the nominee. On the death of the holder of the instrument, the amount/ share vests
with the legal heirs, the nominee merely holds the amount/ share herein till the matter of vesting
is decided in favour of the legal heirs."
It was further noted by the Appellate Tribunal that nominees only hold the assets on behalf of
the legal heirs of the deceased and that mere nomination of shares does not amount to
beneficial ownership of an asset.

The Courts have time and again reiterated that the legal heir and not the nominees have the
rightful position to obtain ownership of the assets of the Deceased. In another case of Smt.
Sarbati Devi and Anr. V. Smt. Usha Devi, the Hon'ble Supreme Court has held that a
nomination cannot be given the same position as that of a will. Nomination and will are two
different concepts and nomination could not be given the same legal status as that of a will. A
nominee could not be considered as owner of a property. Mere nomination does not bestow
beneficial ownership of assets to the nominees.

Other similar judgments on the issue are Uma Sehgal and Ors. vs Dwarka Dass Sehgal And
Ors. , wherein the High Court of Delhi remarked that a nominee is nothing but a person who
receives the payment on behalf of the heirs of the assured. Similarly in the case of Shipra
Sengupta vs Mridul Sengupta & Ors. , the Supreme Court held that the amount in any head
can be received by the nominee, but the amount can be claimed by the heirs of the deceased in
accordance with law of succession governing them. In other words, nomination does not confer
any beneficial interest on the nominee.

Exceptions to the Rule

Laws of Insurance– In catena of cases, it has been held by different High Courts that under
Section 39 of the Insurance Act, the nominee is nothing more than an agent to receive the
money due under the life insurance policy and that the money as such received remains the
property of the assured during his life time and on his death forms part of his estate subject to
the law of succession applicable to him .

However, the Legislature enacted the Insurance Law (Amendment) Act, 2015 which while
altering the earlier settled position under the Laws of Insurance states that where a policyholder
dies after the maturity of the policy but the proceeds and benefit of his policy has not been made
to him because of his death, in such a case, his nominee shall be entitled to the proceeds and
benefit of his policy .

RBI Circular- The Reserve Bank of India's Master Circular on Nomination facility for

Relief/Savings bonds provides that a the holder of a Relief/Savings bond, may nominate one or
more persons who in the event of death of the holder would be entitled to the Relief/Savings
bond and to the payment thereon.

Key Take Away

The highly speculated law has been set to rest by the decision of the Courts and Tribunals and
it is now abundantly clear that the legal heir is the rightful owner of property of deceased and
that the nominee only holds the property "in trust" and that the legal heir is free to make a claim
over the property against the nominee.
However, many a times the concept of nomination in matters of inheritance and succession
leads to misunderstanding, on account of which nominees often end up making wrong claims of
ownership of property of the deceased. In order to avoid such conflicts within the family it is
always recommended that a person has a well planned Will in which he/she clearly sets out the
terms of succession and nomination.

Footnote
1 Company Appeal (AT) No 410 of 2018