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Nominee: sole successor and not trustee?

Recently, the Supreme Court of India (Supreme Court) in Ram Chander Talwar and Anr. v. Devender Kumar Talwar 2010 (9) UJ 4761(SC) held that a nominee to the deposits in a bank account does not get the rights of a successor for those deposits.

The position was examined corresponding to Section 45ZA of the Banking Regulation Act, 1949 (Banking Act) on nomination for payment of depositors' money. This meant that the Banking Act did not affect the right of succession under the Succession Act (a person does not get succession rights by merely being a nominee of a bank account).

In the case of Uma Sehgal v Dwarka Dass Sehgal (AIR 1982 Delhi 36), involving an insurance policy, the Delhi High Court held that a nominee is entitled to the proceeds of the life insurance policy upon the death of the assured to the exclusion of the heirs, successors and creditors. This was on the basis of Section 39 of the Insurance Act, 1938 (nomination by policy-holder).

This decision was overruled in Sarbati Devi v Usha Devi (1984 AIR (SC) 346) (Sarbati Case) where the Supreme Court held that the nominee is merely the holder of the amounts under the insurance policy for the heirs and successors of the assured.

The judgment in the Sarbati Case was reaffirmed by Supreme Court in Vishin N Khanchandani v Vidya Lachmandas Khanchandani & Anr ((2000) 6 SCC 624) where it held that a nominee of a national savings certificate will not be considered a successor. This was on the basis of the Government Savings Certificates Act, 1959 (Certificates Act).

In 2008, the Delhi High Court in Dayagen Private v Rajendra Dorian Punj and Another [2009] 151 Comp Cas 92 (Delhi) decided the position of a nominee to the shares/debentures under Section 109A of the Companies Act, 1956 (Companies Act) in a different manner.

The Court held that the intendment of the Legislature under Section 109A is to override the general law of succession and to carve out an exception in relation to nomination made in respect of shares and debentures and vest in the nominee, who is nominated, upon the death of the share/debenture holder full and exclusive ownership rights in respect of the shares/debentures of which he is the nominee.

In 2010, the Bombay High Court, in Harsha Nitin Kokate v the Saraswat Cooperative Bank and Others [2010] 159 Comp Cas 221 reiterated that the nominee would become entitled to all the rights in the shares to the exclusion of all other persons.

The High Court distinguished Section 109A of the Companies Act and Section 39 of the Insurance Act by stating that Insurance Act requires a nomination merely for the payment of the amount under the life insurance policy without confirming any ownership rights in the nominee.

It is interesting that while the legislature is shirking from drafting a uniform civil code the judiciary has done so as regards shares/debentures or at least the courts seem to think so!

Bharat Budholia and Sreyash Basu Dasgupta

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