Failure cases, family disputes and official sources
Nominee vs legal heir in India: what the Supreme Court has decided, asset by asset
Does a nominee own the money? Supreme Court rulings from Sarbati Devi to Shakti Yezdani, RBI's trustee rule and the insurance exception.
In most cases a nominee is not the owner. The nomination tells a bank, depository, company, fund house or society whom to pay so that it gets a valid discharge; the money or asset then belongs to the legal heirs under personal law, or to the beneficiaries under a will. The Supreme Court has said this for bank deposits, insurance policies (before 2015), co-operative housing society flats and, in Shakti Yezdani v. Jayanand Jayant Salgaonkar (14 December 2023), for shares and securities under the Companies Act and the Depositories Act. RBI's rules in force from 2026 require banks to tell nominees in writing that they receive payment as trustees of the legal heirs. The main exception is life insurance: since the 2015 amendment to section 39 of the Insurance Act, a parent, spouse or child nominee is a beneficial nominee who takes the policy money for themselves.
This guide is part of the mistakes and disputes section.
Asset-by-asset summary
| Asset | Who the nominee is in law | Key authority |
|---|---|---|
| Bank deposits | Receives as trustee for legal heirs | Banking Regulation Act ss. 45ZA–45ZG; Ram Chander Talwar v. Devender Kumar Talwar (SC, 2010); RBI directions 2025 |
| Bank lockers | Gets access and contents; heirs' rights unaffected | Same Act and directions |
| Shares, demat, securities | Receives; legal heirs are entitled | Shakti Yezdani (SC, 2023) |
| Mutual fund units | Receives; legal heirs are entitled (by the same reasoning) | SEBI rules; Shakti Yezdani reasoning |
| Life insurance | Beneficial nominee (parent, spouse, child) takes for self; others hold for heirs | Insurance Act s. 39 as amended in 2015; earlier Sarbati Devi v. Usha Devi (SC, 1984) |
| MWPA policy | Trust for wife and children; not part of the estate | Married Women's Property Act, 1874, s. 6 |
| EPF | Nominations restricted to family; courts have differed on beneficial ownership | EPF Scheme, 1952 |
| Co-operative housing society flat | Society transfers the share to the nominee; ownership follows succession | Indrani Wahi v. Registrar of Co-operative Societies (SC, 2016) and state co-operative laws |
The main judgments in plain words
Sarbati Devi v. Usha Devi (1984). A life insurance nominee only receives the money. The heirs of the policyholder are entitled to it. This was the rule until 2015, when Parliament changed section 39 to protect beneficial nominees.
Ram Chander Talwar v. Devender Kumar Talwar (2010). Under the Banking Regulation Act, the bank pays the nominee, but the nominee does not become owner. The heirs' rights continue.
Indrani Wahi (2016). A co-operative society must transfer the deceased member's share to the nominee, but the nominee's rights are subject to the claims of the legal heirs, which are decided under succession law.
Shakti Yezdani (2023). Some High Court decisions had read section 109A of the Companies Act, 1956 (now s. 72 of the 2013 Act) as making the nominee of shares the owner, overriding the will or heirs. The Supreme Court disagreed: the nomination provisions do not create a third mode of succession, and nominees are not intended to be the beneficial owners. Succession law decides ownership.
A worked dispute (illustrative)
Gopal died without a will. His FD of ₹10,00,000 named his elder son as nominee; his shares worth ₹6,00,000 named his wife. His mother had died before him, so his Class I heirs are his wife, his elder son, his younger son and his daughter.
| Asset | Paid to | Ownership under the Hindu Succession Act |
|---|---|---|
| FD ₹10 lakh | Elder son as nominee | ₹2.5 lakh each to the four Class I heirs |
| Shares ₹6 lakh | Wife as nominee | ₹1.5 lakh worth each to the four heirs |
| Term policy ₹50 lakh, nominee wife | Wife | Wife alone, as beneficial nominee |
The elder son must account to his mother, brother and sister for ₹7.5 lakh. If he refuses, they can negotiate, use mediation or sue for their share. The insurance money stays with the wife.
How to resolve a nominee dispute
- Talk first. Show the nominee the RBI letter or the legal position. Many nominees do not know they hold the money for others.
- Write down any agreement, for example a memorandum of family settlement listing who gets what.
- Mediation. Court-annexed mediation centres and Legal Services Authorities offer free mediation. See free legal aid.
- Legal notice through an advocate.
- Civil suit for recovery or partition, or a petition in the succession proceedings. Act within the limitation period.
- Stop payment early. If a dispute exists before the institution pays, heirs can ask the court for an order restraining payment. Under RBI's rules, a bank will not pay while a restraining order is in force.
How to prevent the dispute
- If you want the nominee to own the asset, say so in your will. A will is what decides ownership.
- For insurance, choose a beneficial nominee or an MWPA policy deliberately.
- Make nominations and the will consistent, and explain your choices to the family.
- Review nominations after every major family event. See bank nominations and demat and MF nominations.
Frequently asked questions
Can a nominee refuse to share with legal heirs?
They can refuse informally, but the heirs can then sue. Courts generally hold the nominee accountable to the heirs for bank, demat and similar assets.
If my will gives the FD to my daughter but the nominee is my son, who gets it?
The bank pays the son as nominee. Your daughter, as the beneficiary under your will, is entitled to claim it from him.
Is a spouse nominee in life insurance protected from my other heirs?
Yes, if the policy names the spouse (or a parent or child) and the nomination is valid, the spouse is a beneficial nominee under section 39.
Do these rulings apply to Muslims and Christians too?
Yes. The nominee rules come from the banking, company and insurance laws, which apply to everyone. Ownership then follows each community's succession law. To read the judgments and Acts yourself, see official sources.
Sources
- Supreme Court of India — Shakti Yezdani v. Jayanand Jayant Salgaonkar (2023) and earlier judgments
- Reserve Bank of India — directions on nomination and deceased depositors
- India Code — Banking Regulation Act, Companies Act, Insurance Act
- Securities and Exchange Board of India — nomination and transmission rules
