The Position Of And Limitation Upon The Rights Of A Nominee Of Bank Deposits, Securities, Insurance Policies, Etc. – CorpLexia

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Dec 31, 2018
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The Hon’ble Bombay High Court in the case of Jayanand Jayant Salgaonkar and Ors. Vs. Jayashree Jayant Salgaonkar and Ors.[1]authoritatively clarified the position of law in relation the position and rights of a nominee of holdings under various statutes and their bearing on the normal process of succession upon the death of the nominator in holding that owing to the fact that these statutes, namely, the Companies Act, 1956; Banking Regulations Act, 1946; Depositories Act, 1996; etc. are purposed to deal with commercial and regulatory aspects of their respective fields and cannot hamper the laws and rules of succession forming the part of personal laws of an individual as the nature of vested holdings in the hands of a nominee is tantamount to a transfer of the holdings of the deceased to a trust which does not have the effect of furnishing on the nominee any absolute rights of ownership as to the holdings vested in such nominee and therefore does not supplant the necessary rules and procedure of succession of the deceased meaning thereby that the holdings so vested in the nominee would devolve in their normal course to the heirs of the deceased or by way of testamentary succession as the case may be. Further, it overruled a decision of its own single bench in the case of Harsha Nitin Kokate Vs. The Saraswat Cooperative Bank Ltd. & Ors.[2]that had erroneously held that absolute right of ownership devolves upon the nominee upon the transfer of holdings to him upon the death of the deceased, settling the law on the matter.

  1. Facts of the case:

The Decision on the matter arises from two Testamentary Petitions for the probate of the estate and the last will and testament of the two deceased persons respectively.

  • In the first case of Jayanand Jayant Salgaonkar and Ors. Vs. Jayashree Jayant Salgaonkar and Ors.[3]there was a dispute regarding the administration of the estate of the deceased whereby respondents no. 5 & 6 are nominees of the deceased’s mutual fund holdings as provided under Regulation 29-A of the SEBI (Mutual Fund) Regulation, 1996 and Respondent 6 is the nominee of a bank account of the deceased under Section 45-ZA of the Banks Regulation Act, 1946 who claim that they are ‘exclusively entitled to succeed to such holdings’.
  • In the second case, namely, Nanak Ghatalia vs. Swati Satichchandra Ghatalia[4]the probate is sought to the will of one Mrs. Urmila S. Ghatalia where the two sons of the deceased are in consensus while theonly daughter of the deceased, who is a nominee of various holdings of the deceased, dissents in reaching a settlement as to the disputed property.
  1. Analysis of the provisions relating to nominees under various laws
    • Under the Companies Act, 1956 & 2013 (S. 109A & 72 respectively) upon the death of the shareholder, his chosen nominee would ‘’ with the shares of the deceased.
    • vested

    • Under Regulation 29A of the SEBI (Mutual Funds Regulations), 1996 the units held by the unit holder would vest in the event of his death in his self-assigned nominee.
    • Under Section 45ZA of the Banking Regulation Act, 1946, the deposit of the deceased is to be ‘returned’ to the nominee in the event of the death of the former. This Section, employs a non-obstinate clause to provide that irrespective of any law in force:
  2. The nominee shall upon the death of the depositor, be vested with the as him qua the deposit, and,
  3. same rights

  4. The nominee shall exercise such right to the .
  5. exclusion of all other persons

  6. Payment by the bank to the nominee shall constitute a full discharge to the banking company in respect of the deposit.
  7. Erroneous holding of this Court in the case of Harsha Nitin Kokate v. The Saraswat Cooperative Bank Ltd. & Ors.[5]
    • In this case the Hon’ble Bombay High Court had erroneously and in ignorance and denial of the settled law on the matter, held that once a nomination is made (under Section 109A of the Companies Act, 1956) the shares in question automatically get transferred in the name of the nominee upon the death of the holder of shares[6].
    • Further, it had held that such nomination carries effect not withstanding anything contained in the testamentary disposition or nominations made under any other law in force and to the exclusion of all other persons[7].
    • It had additionally summarised the term ‘vest’ to be transfer of ownership and the consequent authority.
    • Another erroneous holding was that the nomination of a nominee in itself amounts to creation of a testamentary document and therefore must be regarded as a will of the deceased person. This is view is entirely fallacious, blindly ignoring the necessary safeguards put in place of wills evolved through multiplicity of statutes and case laws, that must be kept in mind in assessing a mode of testamentary succession, which this supposed mode of nomination fails.
  8. Correct Position of law
    • The Hon’ble Supreme Court of India in the case of Sarbati Devi Vs. Smt. Usha Devi[8]firmly held (in relation to Section 39 of the Insurance Act) held that this Section cannot be construed as a third mode of succession so postulated by this Act, where the intent of the act itself leans far from matters relating to personal laws of individuals and as such cannot overshadow or supplant sound provisions of succession of individuals. These provisions cannot guide the manner in which holders of securities choose to conduct their affairs as the legislative intent behind such an alleged action is clearly absent[9].
    • A nomination only serves to discharge the responsibility or liability of the issuing depository as such and in summation the position of the nominee is similar to trust so formed vested with the holdings of the person, subject to the rules and procedures of succession that guide the affairs of the deceased in such a situation.
    • The role of a ‘nominee’ is that of a . ‘Vesting’, vis-à-vis nominees was held in this present case to be limited to devolution of the holdings upon the nominee with the exercise of similar rights to the deceased before the fact but falls short of an absolute right or personal interest as the same is held similar to a trust which shall be put to use and utilised subject to the rules and procedures of the relevant succession laws. The same view was arrived at upon making reference to the decision of the Hon’ble Supreme Court in the case of Vatticherukuru Village Panchayat Vs. nori Venkatarama Deekshithulu & Ors.[11]. The same was exemplified making reference to the instance of Section 56 of the Provincial Insolvency act, 1920 whereby the estate of the insolvent vests in the receiver only for the purpose of its administration and to pay off the debt of the creditors. The receiver acquires no personal interest whatsoever in the property vested thereunder.
    • party that holds bare legal title for the benefit of others or who receives and distributes funds for the benefit of others[10]

    • Further, this Hon’ble Court affirmed the settled position of law enshrined in the case of Shipra Sengupta Vs. Mridul Sengupta & Ors.[12]where the Hon’ble Supreme Court of India held that though the nominee is entitled to receive the same holdings as were held and so positioned by the deceased but the same is to be distributed according to the laws of succession. It is abundantly clear that such a devolution does not confer any benefit upon the nominee and can be claimed in in accordance with the law of succession governing them. This is view was affirmed in the case of Challamma Vs. Tilaga & Ors.[13]by the Hon’ble Supreme Court.The word ‘vests’ takes colour from its context and has different connotations, as was held in the case of Antonio Joao Fernandes Vs. the Assistant provident Fund Commissioner & Ors.[14]by Justice Britto of the Hon’ble High court of Bombay. Therefore, the view in Sarbati Devi Vs. Smt. Usha Devi[15]sets a general principle in relation to nominees.
    • The object of the nomination system is to designate some person to whom the Provident Fund may pay over the amount due to the subscriber, and acquire a valid quittance[16].
    • It is true that the Legislature has used the word “vest” but that word does not necessarily connote title. A person, in whom the property of another vests, has the same rights of dominion over the property as the owner would have had, no more and no less. But no one has the right to deal with his property so as to defeat the legal claims of others[17].


Therefore, the law on the matter is settled. Nominee of certain holdings does not receive a title, ownership, personal interest, etc. in said property and the holdings so devolved are subject to a claim under the relevant succession laws, not in derogation of the same.

[1]AIR 2015 Bom 296.

[2]2010 (112) Bom.

[3]AIR 2015 Bom 296.

[4]Testamentary Petition No. 457 of 2014.

[5]2010 (112) Bom.

[6]Paragraph 6.


[8](1984) 1 SCC 424.

[9]Jayanand Jayant Salgaonkar and Ors. Vs. Jayashree Jayant Salgaonkar and Ors. AIR 2015 Bom 296.

[10]Black’s Law Dictionary, 8thEdition.

[11]1991 Supp (2) SCC 228.

[12](2009) 10 SCC 680.

[13](2009) 9 SCC 299.

[14]2010 (4) Bom C.R. 208.

[15](1984) 1 SCC 424.

[16]Leelawati Singh & Anr. Vs. State of Delhi & Ors. 1998 (75) DLT 694.


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