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In the often complex landscape of finance and law, there’s a crucial question that comes to the mind when someone passes away: Who rightfully inherits their assets? This isn’t just a legal matter; it’s a deeply human one. In this article, we aim to break down this intricate topic,

Nominees and Legal Heirs In the Indian context, two key terms are frequently discussed when it comes to asset inheritance – nominees and legal heirs. Let’s begin by understanding these terms, starting with nominees.

Nominee: The Temporary Guardian A nominee can be likened to a temporary guardian for an individual’s assets[1]. Think of them as a torchbearer lighting the way for the true owners, who are the legal heirs. Nomination is commonly used for assets such as bank accounts, insurance policies, and investments. However, it’s crucial to note that being nominated doesn’t confer full ownership of these assets.

Legal Heir: The Rightful Owner On the other hand, a legal heir is the person who holds the legal entitlement to inherit the assets of someone who has passed away. This concept is firmly rooted in India’s succession laws, which determine how assets are distributed among heirs.

The Essence of Nomination serves a practical purpose – it safeguards assets until the legal heirs step forward to claim them. The Companies Act, particularly in Section 72 of Companies Act 2013, addresses the nomination of shares[2]. It stipulates that a nominee possesses certain rights to shares following the shareholder’s demise, unless these rights are revoked. Section 56, in turn, covers the transmission of shares, underscoring the temporary nature of a nominee’s role in asset transfer.

Breaking Court Rulings Several court decisions in India have consistently emphasized that legal heirs, not nominees, are the rightful owners of a deceased person’s assets. Let’s delve into some noteworthy cases that have shaped these principles.

Smt. Sarbati Devi vs. Smt. Usha Devi[3] This Supreme Court case clarified the distinction between nomination and a will. Nomination doesn’t present ownership of the property; it’s more akin to a temporary arrangement. Mere nomination doesn’t grant beneficial ownership of assets to the nominees[4]. This verdict reaffirms that a nominee’s role is temporary, and assets generally belong to the legal heirs, guided by the law of succession[5].

Delhi High Court’s Standpoint In a case at the Delhi High Court, the role of a nominee was underscored as that of someone who receives payments on behalf of the deceased person’s heirs. Similarly, the Supreme Court case of Shipra Sengupta vs. Mridul Sengupta & Ors[6]. clarified that while a nominee can receive funds, the actual right to claim the money rests with the legal heirs of the deceased,[7] in accordance with the relevant succession laws. In simpler terms, nomination doesn’t grant the nominee any ownership rights; they are more akin to temporary caretakers of the funds on behalf of the rightful heirs.

Asset Inheritance

There is exception in Insurance Laws and Nomination In the sphere of insurance laws, various High Courts, along withSection 39(11) [8] of Insurance Act, 1938, have established that a nominee primarily acts as an agent to receive money from a life insurance policy. The funds received still belong to the policyholder during their lifetime, and upon their passing, these funds become part of their estate, subject to the applicable succession laws.

However, a shift occurred with the Insurance Law (Amendment) Act, 2015, altering this well-established practice. It stated that if a policyholder passes away after their policy matures, but hasn’t received the benefits due to their demise, their nominee is entitled to those policy benefits.[9]

In the world of finance and inheritance, it’s easy to become entangled in legal jargon and technicalities. Yet, at its core, this is a narrative about people and their hard-earned assets. Consider a family grappling with the loss of a loved one. In such moments, it’s crucial to have a clear understanding of how the assets will be transitioned to the heirs.

Nomination offers a practical solution to this issue. It ensures that there’s a guardian who can manage the assets until the legal heirs take their rightful place. This process safeguards the interests of all parties involved. It’s a bridge between the legal complexities and the emotional facets of asset inheritance. Recent court decisions have made it clear that legal heirs are the rightful owners of a deceased person’s property, while nominees merely serve as temporary custodians. However, misunderstandings can arise when it comes to inheritance and succession. To prevent family conflicts and ensure a smoother transition of assets, it’s advisable to have a well-constructed will. In a will, an individual can clearly outline their wishes for succession and nomination, bringing clarity and peace of mind to all involved. A well-drafted will can prevent potential disputes among family members and guarantee that the assets are transferred seamlessly, respecting the wishes of the departed individual, the human aspect, the emotions, and the desire for clarity and peace of mind should remain at the forefront when dealing with the inheritance of assets.

References:

[1] Nominees and heirs are not synonymous? (n.d.). https://www.icicisecurities.com/ican-iwill/whats-the-difference-between-a-nomination-and-an-heir.html

[2] Insurance, C. H. L. (2023, February 2). What Happens if the Nominee Dies in a Term Insurance Plan? Canara HSBC Life Insurance. https://www.canarahsbclife.com/blog/term-insurance/what-happens-if-the-nominee-dies-in-a-term-insurance-plan.

[3] (1984) 1 SCC 424.

[4] Chopra, R., & Nagpal, N. (2020, February 3). Legal heir or Nominee? Who is the rightful owner? Lexology. https://www.lexology.com/library/detail.aspx?g=87a4cb16-18e3-4c73-8ffb-2f3bfaf6f111

[5] T. (2022, June 24). Who is a nominee and what does it mean in property inheritance? Timesproperty. https://timesproperty.com/news/post/nominee-blid2420

[6] (2009) 10 SCC 680

[7] Indulia, B. (2022, June 2). To Nominate or Not : The Effects of Aruna Oswal | SCC Blog. SCC Blog. https://www.scconline.com/blog/post/2022/06/02/to-nominate-or-not-the-effects-of-aruna-oswal/

[8] India Code: Section Details. (n.d.). https://www.indiacode.nic.in/show-data?actid=AC_CEN_2_33_00044_193804_1523351752525&sectionId=18168&sectionno=39&orderno=74

[9] Insurance, C. H. L. (2023, February 2). What Happens if the Nominee Dies in a Term Insurance Plan? Canara HSBC Life Insurance. https://www.canarahsbclife.com/blog/term-insurance/what-happens-if-the-nominee-dies-in-a-term-insurance-plan

*****

Author: HARSH RAJ – 3rd year – Maharashtra National law University, Mumbai

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Author Bio

I am Harsh Raj, a 3rd law student currently pursuing my studies at "Maharashtra National Law University, Mumbai". My journey in the field of law has been driven by a deep passion for the subject and a strong inclination towards research and writing. My commitment to understanding the intricacies of View Full Profile

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