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.
(The author is a tax and investment expert, with 35 years’ experience.)