Who is the legitimate claimant when the bank deposit or insurance amount of a deceased person is claimed simultaneously by both the nominee on the one hand and the legal heir on the other?
The laws have no specific provision to differentiate between the legitimacy of a nominee and that of a legal heir in receiving the deposit or insurance amount of the deceased person.
However, several case laws shed light on the issue. This question, which had led to inconsistent decisions by different courts in earlier years, now appears to be reasonably well settled.
Crux of the Arguments on Both Sides
The nominee ordinarily claims that the name of the nominee was chosen by the deceased himself and declared in the nomination form under his signature, which ought to be considered equivalent to a declaration of his intent.
The legal heir, on the other hand, claims that the law vests the amount in the legal heir by virtue of the law of succession, unless the deceased has executed a legally valid will or a lawfully created gift deed to override that law.
The deposit amount cannot in any way be treated as a gift to the nominee, because the execution of a gift requires certain legal stipulations. A gift cannot be effected by executing a nomination form. A valid gift can be brought into effect only by a registered deed when the property is immovable, or by a registered deed or delivery when the property is movable. It must take place during the lifetime of the donor. Since a nomination takes effect only upon the death of the depositor, it cannot be treated as equivalent to a gift in the legal sense.
Similarly, a nomination cannot be treated as equivalent to a will, as the execution of a will requires other indispensable legal formalities such as attestation by two witnesses.
Banking Regulation Act Creates Some Confusion
The Banking Regulation Act, 1949 led many persons to believe that the nominee of a depositor, after the death of the depositor, acquires all his or her rights to the express exclusion of all other persons, and that, therefore, the legal heir cannot lay any claim to the money in the account or to the articles lying in a bank locker held by the deceased.
The Issue is Now Well Settled
The legal position on this issue, after numerous twists and turns through inconsistent judgments, has now reached a well-settled state. It is established that a nominee — who need not necessarily be a legal heir — is merely a trustee of the property of the deceased. Any person, even one having no beneficial interest in the property, may be appointed as a nominee.
What the Judgments Say
In Saraswathi Amma v. Padmavathy Amma (1992 (2) KLT 276), the Court, in paragraph 12, held that a nominee is only a trustee of the legal heirs, and that the right of the legal heir to the property of the deceased — as bestowed by the law of succession — cannot be extinguished by nomination.
In Anil Kumar K. v. Ajith & Others [2012 (4) KHC 546 (DB)], a Division Bench of the High Court of Kerala held that the status of a nominee to a bank deposit is that of an agent only, and that the amount so received forms part of the estate of the deceased. This means the amount devolves upon the legal heirs and not upon the nominee.
In Smt. Sarabati Devi and Another v. Smt. Usha Devi (AIR 1984 SC 346), the Supreme Court held that a nomination only designates the person authorised to receive the amount, upon payment of which the insurer obtains a valid discharge of its liability under the insurance policy. The amount remains claimable by the legal heirs of the assured in accordance with the applicable law of succession.
In Shiji Roshan v. Bank of India, decided on 11th February 2019, the High Court of Kerala declined to issue any direction to the bank to release the amount to the nominee when the nominee filed a writ petition and the legal heirs raised objections thereto.
Laws Governing Nomination
The Banking Regulation Act, 1949, since its amendment in 1983, provides for payment of the deposit amount of a deceased depositor to a valid nominee under the newly inserted Sections 45ZA to 45ZF. Similarly, the Banking Companies (Nomination) Rules, 1985 prescribe the procedure and form for making a valid nomination.
Several statutes in the financial sector — such as the Companies Act, the Provident Funds Act, 1925, the Insurance Act, 1938, the Mutual Funds (Regulations), and other allied legislation — also contain provisions for nomination.
Section 45ZA(2) of the Banking Regulation Act provides: “Notwithstanding anything contained in any other law for the time being in force or in any disposition, whether testamentary or otherwise, in respect of such deposit, where a nomination made in the prescribed manner purports to confer on any person the right to receive the amount of deposit from the banking company, the nominee shall, on the death of the sole depositor or, as the case may be, on the death of all the depositors, become entitled to all the rights of the sole depositor or, as the case may be, of all the depositors, in relation to such deposit to the exclusion of all other persons, unless the nomination is varied or cancelled in the prescribed manner.”
The Supreme Court in Ram Chander Talwar & Anr. v. Devender Kumar Talwar & Ors., decided on 6th October 2010, held: “Section 45ZA(2) merely puts the nominee in the shoes of the depositor after his death and clothes him with the exclusive right 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. But it by no stretch of imagination makes the nominee the owner of the money lying in the account. It needs to be remembered that the Banking Regulation Act is enacted to consolidate and amend the law relating to banking. It is in no way concerned with the question of succession. All monies receivable by the nominee by virtue of Section 45ZA(2) would, therefore, form part of the estate of the deceased depositor and devolve according to the rules of succession applicable to the depositor.”
The Issue Stands Settled
It is now well settled that the legal heir is the ultimate rightful owner of the property of a deceased person. The nominee is the person who practically receives and holds such property until the succession to the property is finally determined and settled.
This means that the nominee receives and holds the property of the deceased as a trustee, and is legally obliged to transfer it to the legal heir upon determination of succession.
In Conclusion
A nomination, though it derives its existence from statute, cannot override the well-established law of succession in India. The scheme of nomination serves to ensure that the property of the deceased is protected and preserved until the legal heir is in a position to receive and distribute the rightful shares among those entitled.
Post Views: 3,855
