Thin line of distinction

Often, people confuse between nominees and legal heirs. A correct understanding of these concepts can help ensure that the financial assets are properly managed and transferred in case of unforeseen events.

The payee or the nominee is nothing more than an agent to receive the money, which remains the property of the assured and at his disposal during his lifetime, and on his death, forms part of the estate. The result is that the payee or the nominee takes no beneficial interest in it. In fact, there is not much difference between the English and American Laws on one hand, and what exists in our country with respect to such concepts on the other.

The Supreme Court, in the judgment of Sarbati Devi v. Usha Devi, 1983, said that a mere nomination made under Section 39 of the Life Insurance Act, 1938, 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. However, the amount can be claimed by the heirs of the assured in accordance with the law of succession governing them.

In the dictum of Ram Chander Talwar 2010, the Apex Court, while discussing the rights of a nominee of a deceased depositor under the Banking Regulation Act, 1949, concluded that the right to receive the money lying in the depositor’s account was to be conferred on the nominee but the nominee would not become the owner of such deposits. The said deposit is a part of the deceased depositor’s estate and is subject to the laws of succession that govern the depositor.

Recently, in December 2023, in the case of Shakti Yezdani & Anr. Vs. Jayanand Jayant Salgaonkar & Ors, the Supreme Court clearly said the nomination process does not override the succession laws. The Court said consistent interpretation given in judgments on the question of nomination is that upon the holder’s death, the nominee would not get an absolute title to the subject matter of nomination, and those principles would apply to the Companies Act, 1956 (material provisions in Companies Act, 2013), and the Depositories Act, 1996 as well. The Hon’ble Court said there is no third mode of succession that the scheme of the Companies Act and Depositories Act, 1996 aims or intends to provide.

In a decision of the Kerala High Court in Sarojini Amma v. Neelakanta Pillai, 1960, it was held that a nominee in respect of a policy of insurance does not become the owner of the money payable to him under the policy; he is only a receiver of the money and not the owner thereof. The decision also laid down that a nomination by itself confers no right on the nominee during the lifetime of the assured; it gives only a bare right to collect the money on the death of the assured. Sub-section (1) of Section 39 of the Insurance Act was considered in the decision.

The Delhi High Court, in Ashok Chand Aggarwala v. Delhi Administration & Others, 1984, held that it is well settled that mere nomination made in favour of a particular 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 authorised to receive the amount. The property or the amount, as the case may be, can be claimed by the heirs of the deceased, in accordance with the law of succession governing them.

Thus, the nominee and legal heir are two distinct parties; the nominee gets enjoyment right over property only if he or she is also a legal heir and not merely a nominee. Nomination simply serves as a legal mechanism for the candidate to claim property only as a "custodian" in the event of unforeseen circumstances. Correct knowledge of some basic principles of law can simplify many disputes as well as reduce the time span of legal proceedings because, after all, life is all about time.

The writer is a practising Advocate in Supreme Court and High Court of Delhi. Views expressed are personal