India: Nomination vs Succession

The apex court in the case of Smt. Sarbati Devi vs. Smt. Usha Devi¹ held that, a mere nomination made under section 39 of the Act does not have the effect of conferring on the nominee any beneficial interest in the amount payable under the life insurance policy on the death of the assured. The nomination only indicates the hand which is authorised to receive the amount, on the payment of which the insurer gets a valid discharge of its liability under the policy. The amount; however, can be claimed by the heirs of the assured in accordance with the law of succession governing them.

Now the situation under the Insurance Laws (Amendment) Act 2015 (hereinafter "Act") has changed, where a holder of a life insurance policy nominates his parents, or his spouse, or his children, or his spouse and children or any of them, the nominee or the nominees shall be beneficially entitled to the amount payable by the insurance company to him or them. Further, where the nominee or nominees so elected above, dies after the person whose life is insured, but before the amount is received, then the legal heirs of the nominee or the nominees (as the case may be) shall be beneficiary entitled to such, to the amount which represents the share of the nominee or nominees so dying.

The Act clearly specifies that, a nominee shall only get such beneficial interest, where the nominee or the nominees so elected are the parents of the person so insured, or his spouse, or his children, or his spouse and children or any of them.

Vide notification dated June 09, 2005, RBI has notified that in case of deposit accounts where the depositor had utilized the nomination facility and made a valid nomination clause, the payment of the balance in the deposit account to the nominee of a deceased deposit account holder represents a valid discharge of the bank's liability provided that nominee would be receiving the payment from the bank as a trustee of the legal heirs of the deceased depositor, i.e., such payment to him shall not affect the right or claim which any person may have against the nominee to whom the payment is made. In case where the deceased depositor had not made any nomination, the repayment is made to the legal heirs.

Employees Provident Fund: Employee provident fund, the nominee inherits the funds, according to EPF rules, one needs to appoint his family member as nominee unless he has no family, then only he can appoint someone else. If he acquires a family his old nomination becomes invalid and he needs to make new nomination.

There is no decision of the Apex court which conclusively answers the question vis-à-vis a nomination of shares per se.

Considering the case of Dayagen Private Limited v Rajendra Dorian Punj and Anr² 2008, the Hon'ble Delhi High Court, giving a strict interpretation to article 109A of the Companies Act, made it abundantly clear that the intendment of the legislature is to override the general law of succession and to carve out an exception in relation to nomination made in respect of shares and debentures. The procedural requirements laid down in the said section, for such overriding effect to be given, have to be strictly adhered to i.e. the nomination should be made in the prescribed manner. In the present case, the nomination was not properly attested by any witness, hence invalid.

Subsequently in the year 2010, in the case of Harsha Nitin Kokate vs. The Saraswat Co-operative Bank Limited & Ors³ the Hon'ble Bombay High court held that, Section 109A of the Companies Act and 9.11 of the Depositories Act makes it abundantly clear that the intent of the nomination is to vest the property in the shares which includes the ownership rights thereunder in the nominee upon nomination validly made as per the procedure prescribed, as has been done in this case. So, the nomination made shall be valid and the legal heirs of the deceased shall have no claim on the deceased.

This has further been abundantly clarified by the provisions of Section 72 of the Companies Act, 2013, that, notwithstanding anything contained in any other law for the time being in force or in any disposition, whether testamentary or otherwise, where a holder of securities of a company or joint holders of the securities (as the case may be) appoints a nominee in a prescribed manner, then in the event of the death of the holder or all such joint holders, the nominee so appointed shall be 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 such nomination is varied or cancelled in the prescribed manner.

Property or Real Estate of the testator can be divided into 4 parts, self-acquired, inherited ancestral property, jointly owned and property under the Society Act.

The Hon'ble Supreme Court, in the case of Smt. Sarbati Devi vs. Smt. Usha Devi⁴, 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. The High Court while following Sarbati Devi case held that it is well settled that mere nomination made in favour of a person does not have the effect of conferring on the nominee any beneficial interest in property after the death of the person concerned. The nomination indicates the hand which is authorized to receive the amount or manage the property.

Following the above case, the Hon'ble High Court of Delhi in the case of Rampali v.State Govt of NCT(Delhi) where appellant was the sister of the deceased who had filed an appeal to revoke the succession certificate granted to the daughter and husband of the deceased on the ground that the deceased had not been residing with the defendant for over 35 years and had named the appellant as the nominee as per official government records.

The Hon'ble Delhi High court held that nomination is not a Will in law and in the absence of any Will, only legal heirs (as per the Hindu Succession Act) shall be entitled to inherit the property of the deceased. Hence, the appeal was dismissed.

Talking about the ancestral property, the Apex court in the case of U.R.Virupakshaiah vs Sarvamma & Anr⁵ held that rights of successors overrides every other mode including the Will. All family members get equal share of ancestral property in accordance with law, thus a nominee cannot exercise his right on ancestral inherited property. But in case of joint ownership of a property, the remaining owner becomes the sole owner. The legal requirement is that the co-owners need to take the title at same time, in the same agreement, with equal interest.

The Hon'ble Supreme court got another twist in March 2016 in the case of Indrani Wahi v. Registrar of Cooperative Societies & Ors, wherein it stated that, "a cooperative society cannot challenge the transfer of property to the nominee, if she is a relative of the deceased. The nominee of a deceased member is entitled to ownership by transfer, if she is a relative of the deceased person, who made the nomination in her name, according to the record of the cooperative society and the co-operative society cannot challenge the right of nominee."