LEGAL HEIRS’ RIGHT OVER THE DECEASED'S ESTATE VIS-À-VIS NOMINEE’S CLAIM OVER THE SUBJECT MATTER OF THE NOMINATION
Author: Utkarsh Srivastava
Advocate-on-Record, Supreme Court of India
In this paper we are going to discuss the entitlements of Successor and Nominee over the estate of the deceased.
This dilemma has to be dealt with by everyone at least once in their lifetime, whether they asked for it or not. From legal/legislative perceptive, the concept of ‘nomination’ was introduced to discharge the company/bank/society from its liability against diverse claims by the legal heirs / successor of the deceased holder. Although, this arrangement is only till the legal heirs have settled the affairs of the testator and are ready to transfer their respective shares by due process of succession law.
However, many times it comes to light that nominee claims to be entitled to the subject matter of the nomination to which he/she was nominated by the deceased holder, be it money deposited in bank accounts, shares held in demat account, mutual funds, life insurance amount, or shares held in a society.
Still at all times the Hon’ble Courts have interpreted the law in favour of the Legal Heirs / Successors not nominee. For example, in the case of Smt. Sarabati Devi & Anr. v. Smt. Usha Devi 1984 SCC (1) 424, where the life insured had died leaving behind his mother, widow and son as legal heirs. However, his wife/widow was the sole nominee in the insurance policy. Widow being the nominee received all the insurance money from the Insurance Company. Challenging the same, the son and mother of the deceased claimed to be entitled to 2/3rd of the insurance amount.
Hon’ble Supreme Court of India while deciding the issue in favour of the son and the mother of the deceased, held that, mere nomination made under Section 39 of the Insurance Act 1939 does not confer beneficial interest in the nominee. It only indicates the hand which is authorised to receive the amount. On death of the policy holder the insurance amount becomes part of the estate governed by the law of succession irrespective of being testamentary or intestate. Section 39 does not create a third mode of succession, and it is in no way a statutory testament.
Similarly, in relation to nomination under Section 45ZA of Banking Regulation Act 1949, Hon’ble Supreme Court of India in Ram Chander Talwar & Anr. v. Devender Kumar Talwar & Ors., 2010 (10) SCC 671 held that nominee is only entitled to the rights of the depositor to receive the money lying in the account. It gives him all the rights of the depositor so far as the depositor’s account is concerned. This by no stretch makes the nominee the owner of the money lying in the account.
However, Hon’ble Single Judge Bench of High Court of Bombay created a conundrum in the space of nomination and succession laws by deciding that the nomination under Section 109A of the Companies Act 1956 r/w Bye Laws 9.11.7 of Depositories Act 1996 is to vest the property in the shares which includes the ownership rights thereunder in the nominee. The case being that of Harsh Nitin Kokate v. The Saraswati Cooperative Bank Ltd. & Ors. 2010(4) ALLMR 51, where the shares were held by the deceased in bank’s demat account, and his nephew was nominated, while Plaintiff / Wife of the deceased claimed to be the owner of the shares being the legal heir. However, the said judgment was overturned by Hon’ble Division Bench of High Court of Bombay and was later upheld by the Hon’ble Supreme Court of India.
Hon’ble Supreme Court of India while upholding the judgment of the Hon’ble Division Bench of High Court of Bombay in Shakti Yezdani & Anr. v. Jayanand Jayant Salgaonkar & Ors. 2023 INSC 1076, held that Section 109A and 109B of the Companies Act 1956 r/w Byelaw 9.11.7 of Depositories Act 1996 only confer right to the company to vest the shares upon the nominees for the discharge of its liability against diverse claims of the legal heirs of the deceased shareholder. This arrangement is until the legal heirs have settled the affairs of the testator and are ready to register transmission of shares by due process of succession law. It cannot be held to exclude the legal heirs from their rightful claim over the securities against the nominee.
Therefore, consistently the Courts have interpreted various legislations contemplating nomination laws vis-à-vis succession laws and they hold that the nominee does not hold absolute title to the subject matter of the nomination. Upon death of the holder the subject matter of the nomination becomes part of the estate of the deceased and, irrespective of being testamentary or intestate, legal heirs have every right to claim their entitlement under the succession laws.
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