Who is the legitimate claimant when the bank deposit/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 legitimacy of a nominee and a legal heir in receiving the deposit/insurance amount of the deceased person. But a few case laws shed light on the issue. This issue, which led to inconsistent decisions by different courts in the yester years, seems to be reasonably well settled right now.
Crux of the arguments on both sides
The nominee normally claims that the name of the nominee was chosen by the deceased himself and declared it in the nomination form under his signature which in turn would have to be considered equivalent to the declaration of his intent. The legal heir on the other hand claims that the law bestows the amount to the legal heir based on the law of succession, unless the deceased has executed a legally formulated will or lawfully created gift deed to override the law.
The deposit amount in no way can be treated as a gift to the nominee because execution of a gift requires certain legal stipulations. A gift cannot be made by executing a nomination form. A valid gift can be put into effect only by a registered deed when the property is immoveable or by a registered deed/ delivery of it when the property is movable. It should take place when the person is alive. Since the nomination comes into effect only after the death of the deceased it cannot be treated equivalent to a gift in the legal sense. Similarly, the nomination cannot be treated equivalent to a will as execution of a will requires some other indispensable legal formalities like attestation by two attesters etc.
The Banking Regulation Act, 1949 made many of the people to think that that the nominee of the depositor, after the death of the depositor acquires all his/her rights to the express exclusion of all other persons and, therefore, the legal heir cannot lay any claim to the money in the account or in regard to the articles that might be lying in the bank locker held by their deceased mother.
The legal position in this issue, after numerous twists and turns through inconsistent judgments, now reaches a well settled position that a nominee, who need not necessarily be a legal heir, is a trustee of the property of the deceased. Anyone who has no stake in the property even can be made a nominee.
What the court judgments say?
In Saraswathi Amma v Padmavathy Amma (1992(2) KLT 276) the court says that a nominee is only a trustee of the legal heirs and the right of the legal heir on the property of the deceased bestowed by succession laws cannot be taken away 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 status of a nominee to a bank deposit is of an agent only and such amount so received forms part of the estate of the deceased. That means the amount would go to the legal heirs but not to the nominee.
In Smt Sarabati Devi and another v Smt Usha Devi (1984 AIR 346) the Supreme Court (SC) says the nomination only indicates the hand which is authorized to receive the amount, on the payment of which the insurer gets a valid discharge of liability under the insurance policy. The amount can be claimed by the legal heirs of the assured in accordance with the law of succession in force.
In Shiji Roshan v Bank of India decided on 11th February, 2019 the High Court of Kerala declined to give 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 to it.
Laws governing nomination
The Banking Regulation Act, 1949, since its amendment in 1983, provides for making payment of a deceased depositor to a valid nominee in its new section 45 ZA to 45 ZF. Similarly, the Banking Companies (Nomination) Rules, 1985 provide for procedure and form of making valid nomination. Several acts in the financial sector such as the companies act, provident fund act, 1925, insurance Act 1978, Mutual fund Regulations, 1956 etc lay down provisions for nomination.
The Section 45ZA (2) of the Banking Regulation Act says, “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 to 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 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 SC in Ram Chander Talwar & Anr v Devender Kumar Talwar & Ors decided on 6th October 2010 says, the “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 the monies receivable by the nominee by virtue of section 45 ZA (2) would, therefore, form part of the estate of the deceased depositor and devolve according to the rule of succession to which the depositor may be governed”.
The issue remains almost settled
It is almost well settled that the legal heir is the ultimate rightful owner of the property of a deceased person. A nominee is the person who practically receives and holds such property till the succession of the property is finally decided and settled. It means that the nominee will receive and hold the property of the deceased till he is legally bound to transfer it to the legal heir.
A nomination, though it comes into existence through some law, cannot override the well settled law of succession in India. The scheme of nomination ensures the property of the deceased is protected till the legal heir comes to a position of receiving and distributing the rightful shares among them.