by SAKINA
BABWANI
Find out about the
types of investments that will automatically be passed on to a nominee and
those that can only be claimed by legal heirs.
If you think
appointing nominees for all your investments, from insurance to property, is as
good as drafting a will, you may be wrong.
Mumbai-based Mr.
Nalin Shah found this out recently when he approached his lawyer for drafting a
will. In 2010,he had appointed his wife as a nominee in an insurance policy,
But, his lawyer informed him that his
wife would not automatically receive the sum insured.Instead, the legal heirs
named in his will would inherit it.
Experts say that a
nominee is merely a trustee, who must distribute the assets to the legal heirs
named in a will, or / as per succession
laws. However, there are some investments, such as company shares, where the provisions
of the respective Acts override those of succession laws.
Heres the legal
position of the nominee in different situations.
Insurance
As per Section 39 of
the Insurance Act,1939, the insurance company must hand over the amount to the
nominee mentioned in the policy. The nominee is expected to distribute it to
the legal heirs listed in the policyholders will. In the absence of a will,
individual succession laws come into play.
In 1983, in the Ms.
Sarbati Devi vs Ms. Usha Devi case, the Supreme Court took a clear stand on this matter. Ms. Usha
Devi was appointed the sole nominee in her husbands insurance policy, and upon
his death, she claimed absolute right over the amount. However, her
mother-in-law, Ms. Sarbati Devi, claimed a stake in the insurance amount.
The Supreme Court
stated, A mere nomination made under Section 39 does not confer on the nominee
any beneficial interest in the amount payable under the life insurance policies
on the death of the insured. The
amount,however,can be claimed by the heirs of the assured in accordance with
the law of succession governing them.
Property in
Cooperative Housing Society
As with insurance
amount, a nominee to a property in a housing society does not automatically
inherit it. On the death of the original owner, the housing society has to
transfer the shares of the deceased to the nominee, who must, in turn, transfer
them to the legal heirs.
In 2009, in a case
that had dragged on for 29 years, the Bombay High Court gave a verdict that
reiterated the legal position of a nominee. In the Mr. Ramdas Shivram Sattur vs
Mr. Rameshchandra case,the former had bought a plot in Nav Rajasthan
Co-operative Housing Society in Pune.Sattur had named his wife, Tarabai, as
nominee, and on his death, she tried to sell it. However,she was sued by her
four children, who claimed a share in the property.
As per the Hindu law,
if the deceased doesnt leave a will, the property is shared equally among the
wife & children. The Bombay High Court ruled that since the nominee
represented the legal heirs of the deceased member while dealing with the
cooperative society,he / she was only empowered to act on behalf of the real
owners, that is, only till the court decided the legal heir(s) entitled to the
property.
Bank accounts, mutual
funds & other investments..
The nominees in the
case of bank accounts,mutual funds and other investments also need not be the
automatic, sole beneficiaries. The RBI (Reserve Bank of India) guidelines make
this amply clear, as does the Calcutta High Court, in the Mr. Arnab Kumar
Sarkar vs Mr. Reba Mukherjee &
Others case of 2006.
It ruled that a
nomination with respect to a bank deposit can not be elevated to the status of
a testamentary disposition merely by reason of the death of the depositor prior
to the receipt of the proceeds from the deposits.In such a situation, refer to
Section 45ZA of The Banking Regulation Act,1949.
Employees Provident
Fund..
The situation is
different in the case of EPF. Here, it is the nominee,not the person stated in
the will, who inherits the amount. In fact, according to the rules, you can not
nominate any person other than a family member to your EPF account, unless you
do not have a family at all.
Moreover, once you
acquire a family, you will have to change your nomination in favour of a
member. You can also nominate multiple family members & state the proportions in which they will
inherit the EPF monies.
For further
clarification,refer to Section 61 of the Employee Provident Fund Scheme,1952.
Company Shares..
As per Section 109A
of the Companies Act, the nominee legally inherits shares after the death of
the original shareholder, even if the latter has named someone else in the
will.
A Bombay High Court
judgement in 2010, in the Mr. Harsha Nitin Kokate vs The Saraswat Coop Bank
& Others case, made this clear.In this case, mr. Nitin Kokate had made his
nephew the nominee for shares held in the demat account of the depository
participant cell of the bank, in 2006.When he died a year later, his wife Ms.
Harsha filed a petition in the court, seeking permission to sell her deceased
husbands shares. The court held that she had no right over these under the
provisions of the Companies Act.
Why nominate at all..
Irrespective of the
fact that the nominee inherits the asset or / not, you must nominate someone to
take charge of the asset after your
death. You should also have a will in place so that your assets can be distributed
as per your wish.In some cases, the nominee inherits the asset.
Hence, it is
advisable to consult a lawyer to guide you about the legal status of the
nominee & heir, says Mr. Ravi
Goenka, Advocate, Goenka Law Associates.
ET
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