Introduction
The rights and legal status of a nominee and a legal heir have been a point of discussion for some time now. One of the key legal concerns that has been called into question is whether the rights of a nominee supersede the rights of a legal heir regarding the assets of the deceased person. To understand the legal position, we will first look into the meaning of holding the position of nomination/ legal heir and then look into certain judgments that clarify the same.
What is a nomination?
In the legal context, nomination is only a provision for the claiming of property by the nominee as ‘custodian’, in case of the death/ demise of the owner of the property. However, there are some key aspects to note in this scenario:
- The nominee can only claim the property in case of death of the property owner;
- He/ she will only be the trustee/ custodian for a temporary duration, until the establishment of the legal heir to the property/ estate, as per the Succession Act (or Will);
- Thereafter, the nominee will hand over the property/ estate to the legal heir/ heirs, as per the law;
- The nominee and legal heir are different parties; the nominee may be the legal heir in case he/ she has been nominated for assets/ wealth, while his/ her name is also declared in the will as the clearly stated legal heir; and
- Minor children may have guardian nominees who will hold responsibility for looking after the welfare of these children and safeguarding their share of the wealth of the deceased. A family trust or private trust may also be created for the benefit of children and legal heirs, in many cases.
Who is the legal heir?
The legal heir, as opposed to the nominee, is the individual who has the right and entitlement to succeed to the wealth and property of the deceased individual, under the signed legal will else personal succession law applicable. The legal heir will be mentioned clearly in the will by the person deceased, as the key inheritor. The legal heir can be one person, or multiple persons as well.
A will is an important document that specifies the intentions of the testator to distribute the assets. In case a will is not made, then the Indian Succession Act, 1925 or religious Acts such as the Hindu Law or Muslim Law will apply.
If there is no will or stated legal heir, the property will be equally distributed as per the Hindu Succession Act, under the following tenets:
- Equal distribution amongst all Class 1 heirs;
- In absence of Class 1 heirs, equal distribution amongst Class 2 heirs;
- In case of no Class 2 heirs, distribution amongst Agnates and then Cognates; and
- In case of no one being present, the Government takes the property/ estate of the person deceased.
Therefore to simplify:
| Nominee | Legal heir |
| Nominee is a trustee and not the owner of the asset. | A legal heir is the rightful owner of the properties of a deceased person. |
| Nominee is supposed to hold the proceeds in trust and will be legally bound to transfer it to the legal heir. | A legal heir will be the one mentioned in the will. However, if a will is not made, then the legal heirs of the assets are determined by succession laws, which establish a system for who gets how much. |
As a result, it can be seen that the nominee is only the trustee of the property and has to hand the same over to the legal heir of the property, based on the will made by the person deceased.
Does nomination supersede succession?
A nominee is a person who has been nominated to receive the benefits of a deceased person’s estate, as proved by a document known a ‘nomination form’. The purpose of naming someone as a beneficiary is to make the process of settling the estate of a deceased person’s estate easier and to eliminate any potential conflicts.[1]
Various court judgements have acknowledged the role of a nominee as an ‘agent’ or ‘trustee’. There have been multiple judgements by High Court where the status of a nominee was held only to be a trustee to receive payments as they become due, holding any property until the matter of succession and the rights of a legal heir supersede the rights of a nominee.
Key Judgements
The Supreme Court in Shipra v. Mridul Sengupta,[2] held that the nominee’s position is no longer ‘res integra[3]’. It stated that while the nominee is entitled to receive the benefit, but the amount so received must be allocated according to the laws of succession among the legal heirs. As a result, a nomination does not confer any beneficial right on the nominee.
Another key judgement was in Uma Sehgal and Others. v. Dwarka Dass Sehgal and Others,[4] in which the judge held that a nominee is someone who merely receives payment on behalf of the legal heir.
In a recent judgment, of Oswal Greentech v Mr Pankaj Oswal and Ors[5], the National Company Law Appellate Tribunal, New Delhi (“NCLAT“), on November 14th, 2019 held that nomination does not amount to beneficial ownership to an asset and the nominee holds the asset for and on behalf of the legal heirs of the deceased.
Exceptions to the rule[6]
- Insurance – Under the Insurance Law (Amendment) Act, 2015, the concept of a beneficiary nominee was introduced. Under this law, a policyholder can name his family members separately or together, as the beneficiary nominee. In this case, a nominee will not act as a mere trustee but will be treated as the ultimate beneficiary of the proceeds payable by the insurer.
- Employee Provident Fund (EPF) – While opening an EPF account, a nomination is required. This nominee will inherit the money from the fund. The legal heir will have no right on it. It is mandatory to appoint a family member as a nominee.
Conclusion
The various court judgements have now clearly stated that the legal heir is the ultimate owner of the deceased person’s property, and that a nominee merely holds the property in trust, and the legal heir can bring a claim against the nominee for the estate of the deceased.
While a nomination is a way to safeguard the estate and rights of the deceased, it is important to remember that a will is an ultimate document that expresses the intentions of the testator to protect the estates and rights linked to it. The best approach to avoid any form of legal conflict over inheritance is to clearly mention the distribution of the assets.
The content of this article is intended to provide general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
[1] R Shroff, The rights of a legal heir supersede the rights of a nominee, Mint, available at https://www.livemint.com/money/personal-finance/the-rights-of-a-legal-heir-supersede-the-rights-of-a-nominee-11625602940029.html last seen on 9/07/2021.
[2] Shipra v. Mridul Sengupta, (2009) 10 SCC 680.
[3] The term ‘res integra’ is applied to those points of law which have not been decided, which are untouched by dictum or decision.
[4] Uma Sehgal and Others. v. Dwarka Dass Sehgal and Ors, AIR 1982 Delhi 36.
[5] Oswal Greentech v. Mr Pankaj Oswal and Ors, (Company Appeal (AT) No 410 of 2018).
[6] N Nooreyezdan, A Parekh, S Jain, Rights of Nominee v/s Rights of Legal Heirs- Property In A Housing Society, Mondaq, available at https://www.mondaq.com/india/real-estate/886900/rights-of-nominee-vs-rights-of-legal-heirs-property-in-a-housing-society last seen on 9/07/2021.
