Nominee vs Legal Heir: Tracing the Supreme Court's Shifting Position

Why This Doctrine Matters to Private Client Practice

Few areas of Indian private client law generate as much recurring client confusion - and litigation - as the legal status of a "nominee." The doctrine has developed unevenly across statutes (the Insurance Act, 1938; the Companies Act, 1956 and 2013; the Depositories Act, 1996; the Banking Regulation Act, 1949; cooperative societies legislation), was briefly destabilised by a single High Court decision that took the opposite view, and was only conclusively settled for company shares and securities by the Supreme Court in December 2023. For a practice advising HNIs, family offices, and executors, understanding exactly how this doctrine evolved - and where genuine statutory exceptions now exist - is foundational.

The Foundational Position: Sarbati Devi v. Usha Devi (1984)

The starting point is Sarbati Devi v. Usha Devi, decided by the Supreme Court in December 1983 (reported 1984). The facts were straightforward: a man governed by the Hindu Succession Act, 1956 died intestate, survived by his mother, widow, and son. He had nominated only his widow under Section 39 of the Insurance Act, 1938 for two life insurance policies. The widow claimed absolute entitlement to the policy proceeds by virtue of the nomination, to the exclusion of the mother and son.

The Supreme Court held that a nomination under Section 39 does not confer any beneficial interest on the nominee. It exists to tell the insurer whom to pay, thereby giving the insurer a valid discharge of its liability - nothing more. The proceeds remain part of the deceased's estate, distributable according to the succession law applicable to the deceased. This established the general rule that has since been extended, largely by analogy, across other nomination regimes: banking (Section 45ZA, Banking Regulation Act, 1949), cooperative societies, and - eventually - company shares and depository-held securities.

The Anomaly: Harsha Nitin Kokate (2010)

For roughly five years, a contrary current existed. In Harsha Nitin Kokate v. The Saraswat Co-operative Bank Ltd. (2010), a single judge of the Bombay High Court, interpreting Sections 109A and 109B of the Companies Act, 1956, held that a nominee of shares becomes the beneficial owner upon the shareholder's death, and that nomination effectively overrides succession. This created a live conflict specifically in the context of company shares and securities - an outlier from the Sarbati Devi line, and one that practitioners advising on share transmission had to navigate for years.

Resolution at the High Court Level: Salgaonkar (2015)

The conflict was addressed within the Bombay High Court itself in Jayanand Jayant Salgaonkar v. Jayshree Jayant Salgaonkar (2015), where a different single judge held that Kokate had been decided per incuriam - without regard to binding precedent, specifically Sarbati Devi. On appeal, a Division Bench of the Bombay High Court confirmed this position in 2016, holding definitively that nominees under the Companies Act and Depositories Act bye-laws do not acquire absolute ownership to the exclusion of legal heirs, and that the Kokate line of reasoning should not be followed.

Final Settlement: Shakti Yezdani v. Jayanand Jayant Salgaonkar (Supreme Court, 2023)

The matter reached the Supreme Court on appeal, and on 14 December 2023, a bench of Justices Hrishikesh Roy and Pankaj Mithal delivered the conclusive word. The Court:

• Affirmed that the Bombay High Court's 2016 Division Bench decision was correct.

• Held that nomination under Section 109A of the Companies Act, 1956 (and the corresponding provisions/bye-laws under the Depositories Act, 1996) does not constitute an independent or alternative mode of succession that displaces testamentary or intestate succession law.

• Explained that the non-obstante language and the word "vest" used in these nomination provisions must be read in light of the purpose of the provision - facilitating a valid, efficient discharge of the company's or depository's obligations to a specified person - rather than as creating a freestanding property right superior to succession law.

• Confirmed that a nominee holds the relevant shares/securities in a fiduciary capacity, remaining answerable to the rightful claims of legal heirs under succession law.

The practical effect: the Kokate anomaly is now definitively overruled at the highest level, and the law across insurance, banking, and company/depository-held securities is doctrinally aligned around a single principle - nomination is a mechanism of administrative discharge, not a mode of succession.

The Genuine Exception Practitioners Must Not Overlook: Section 39(7), Insurance Act (as amended in 2015)

It would be a drafting and advisory error to treat the Sarbati Devi rule as absolute in all circumstances today. The Insurance Laws (Amendment) Act, 2015 inserted Section 39(7) into the Insurance Act, 1938, which creates a specific, limited exception: where the nominee is the policyholder's parent, spouse, children, or spouse and children (or any of them), that nominee(s) is beneficially entitled to the policy proceeds - not merely a collecting agent for the wider set of heirs. Section 39(7) itself contains its own carve-out: where it can be shown, from the nature of title, that the policyholder could not have conferred a beneficial title on the nominee, that beneficial vesting will not apply.

This means that for life insurance specifically, post-2015, the analysis is now bifurcated:

• Nominee falls within the Section 39(7) beneficiary class (spouse/parent/children) → nominee is presumptively beneficially entitled, subject to the internal carve-out.

• Nominee falls outside that class, or the policy predates the relevant provisions, or the Section 39(7) carve-out is triggered → the Sarbati Devi rule applies in full: the nominee collects, but does not beneficially own, and remains answerable to the actual heirs.

No equivalent statutory carve-out currently exists for company shares, depository-held securities, or most bank deposits - for those asset classes, the Yezdani position (nominee as fiduciary, full application of succession law) applies without the insurance-style exception.

What This Means for Drafting and Advisory Practice

• Nomination forms should never be treated as a substitute for a will, and clients should be told this directly and repeatedly - the case law shows real families litigating this exact confusion, sometimes for years, across multiple court levels.

• Wills should address nominated assets expressly, either confirming that a named nominee is intended to also be the beneficial owner (removing any ambiguity for the exceptions that do exist), or confirming that nominated assets are to be treated as part of the general estate and distributed per the will's dispositive scheme.

• Insurance nomination drafting requires asset-class-specific analysis post- 2015 - an insurance nomination naming a spouse or child carries different legal consequences than a nomination on a demat account or fixed deposit naming the same person, and client-facing advice should not treat "nominee" as a single undifferentiated concept across asset classes.

• Executors and administrators should anticipate this issue proactively when a deceased's estate includes both insurance policies and company shares/securities/deposits with overlapping or differing nominees - the two categories are now governed by different rules, and treating them uniformly risks an incorrect distribution.

The Broader Point

The two-decade arc from Sarbati Devi through the Kokate anomaly to Yezdani illustrates a recurring feature of Indian private client law: doctrines that appear settled in one statutory context (insurance) take years, and sometimes conflicting High Court decisions, to be confirmed in analogous contexts (company law, depositories). A private client practice that tracks this evolution - rather than assuming settled insurance law automatically transfers to securities, or vice versa - is positioned to catch exactly the kind of asset-class-specific exception (Section 39(7)) that a generalist reading of "nomination doesn't override succession" would otherwise miss.