Appointing a nominee to your assets

A nominee is merely a trustee, who must distribute the assets to the legal heirs named in a will, or as per succession laws. However, there may be some situations where this is different. Here's the legal position of the nominee in different cases.

Insurance
As per Section 39 of the Insurance Act, 1939, the insurance company must hand over the amount to the nominee mentioned in the policy. The nominee is expected to distribute it to the legal heirs listed in the policyholder's will. In the absence of a will, individual succession laws come into play. The Supreme Court stated, "A mere nomination made under Section 39 does not confer on the nominee any beneficial interest in the amount payable under the life insurance policies on the death of the insured."
Ref.Supreme Court : Sarbatti Devi Vs Usha Devi : 1983 : Justice E S Venkataramaiah, Justices R B Mishra : In the case of insurance policies, the nominee does not inherit the amount, receiving it only as a trustee for the legal heirs.

Property in cooperative housing society
As with insurance amount, a nominee to a property in a housing society does not automatically inherit it. On the death of the original owner, the housing society has to transfer the shares of the deceased to the nominee, who must, in turn, transfer them to the legal heirs.
Bombay High Court : Ramdas Shivram Sattur Vs Rameshchandra : 2009 : Justice A P Deshpande : In the case of property in a co-operative housing society, the nominee does not inherit the property and the asset must be distributed according to the will. In the absence of one, it is distributed among the legal heirs.

Bank accounts, mutual funds & other investments
The nominees in the case of bank accounts, mutual funds and other investments also need not be the automatic, sole beneficiaries. The RBI guidelines and Section 45ZA of The Banking Regulation Act, 1949 make this amply clear.
Calcutta High Court : Arnab Kumar Sarkar vs Reba Mukherjee & Others : 2006 : a nomination with respect to a bank deposit cannot be elevated to the status of a testamentary disposition merely by reason of the death of the depositor prior to the receipt of the proceeds from the deposits

Employees' Provident Fund
The situation is different in the case of EPF. Here, it is the nominee, not the person stated in the will, who inherits the amount. In fact, according to the rules, you cannot nominate any person other than a family member to your EPF account, unless you do not have a family at all. Moreover, once you acquire a family, you will have to change your nomination in favour of a member. You can also nominate multiple family members and state the proportions in which they will inherit the EPF monies.
Section 61 of the Employee Provident Fund Scheme, 1952.

Company Shares
As per Section 109A of the Companies Act, the nominee legally inherits shares after the death of the original shareholder. In the case referred, Nitin Kokate had made his nephew the nominee for shares held in the demat account of the depository participant cell of the bank, in 2006. When he died a year later, his wife Harsha filed a petition in the court, seeking permission to sell her deceased husband's shares. The court held that she had no right over these under the provisions of the Companies Act.
Bombay High Court : Harsha Nitin Kokate Vs The Saraswat Co-op Bank & Others : 2010 : Justice Roshan Dalvi : The ruling made it clear that in the case of company shares, the provision of the Companies Act prevails over succession laws.

But this judgement was set aside in an appeal to Division Bench.

Only legal heirs not nominees will own deceased’s investments: High Court
The Bombay high court on Tuesday overturned a judgment by a single bench, which had declared that nominees, and not legal heirs, will get the ownership rights of share certificates. Justice Gautam Patel declared the much referred to Kokate judgment per incuriam, which means ‘through lack of care’. This means it has been wrongly decided and does not have to be followed. The order further said Companies and Depositories Act cannot and does not displace the law of succession. 

Read more : Article 1 | Article 2 | Article 3 | Sarabati Devi Case

 
Recent Supreme Court Judgement : The Supreme Court has consistently been in favor of ‘law of succession act’, meaning the Companies and Depositories Act cannot take precedence over the laws of succession. In the recent Indrani Wahi case, though it was regarding a Housing Cooperative Society property succession, it was made clear that the legal heirs have always the right to pursue his case of succession or inheritance.

Read more : Original Judgement | Highlights

 

Thus, it has been clarified that Nominee of Shares is only a Trustee and temporary care-taker of these investments and legal heirs as per the law of succession are the right owners.