Family LawNomination vs Succession: Power to Inherit Property

January 16, 20230


The tug of war between nominees and legal heirs has resulted in numerous legal battles before the Indian judiciary pertaining to the ownership of the assets: the legal heir or the nominee? In Indian Law, a nominee is a person who is nominated to receive an asset or investment in the event of the death of the asset holder.

A nominee does not need to be a legal heir or a relative. In the absence of a will, the ownership of a deceased person’s property is divided in view of the succession rules. Different succession rules have different classes of heirs. The asset is held by the nominee until family members or dependents establish a claim to it. However, if a Nomination indicates otherwise, all testamentary declarations will be dismissed.

Who is a nominee?

A nominee as defined in the Black’s Law dictionary, is a trustee who holds an asset on behalf of the asset owner. The connection between the asset owner and the nominee is that of a principal and an agent. In a principal-agent relationship, the agent acts on behalf of the principal to carry out his obligations on trust, for the benefit of the principal. The parties have a fiduciary relationship in which the agent works on behalf of the principal in the best interests of the principal.

Who is a legal heir?

According to Section 3(f) of the Hindu Succession Act ,1956 (hereinafter referred to as “Succession Act”) a legal heir is defined as an individual selected by law to succeed the estate of the deceased in the absence of a will. It is typically used to designate a person who inherits the deceased’s property, either by will or without a will.


Nomination is primarily meant to keep property from becoming uninhabited until succession issues are handled. Nomination is merely a means to an end. Legal heirs may have difficulty establishing their claim if no nomination is made. Until then, all assets and investments, such as mutual funds and insurance, will stay with the respective companies. The purpose for having a nominee, on the other hand, is to have someone who, in the case of death, will become a guardian of the assets and distribute them to the legal heirs.

A nomination reduces several difficulties and procedures when, for example, payments due in a deceased person’s closed bank account has to be settled. If the account has a nomination, the bank receives a completely legitimate discharge of responsibility if the payment is made to the nominee. Under succession laws, the other heirs do not have any legal recourse against the bank and can get their share in property, through the nominee, if any. People are advised to make nominations in financial assets, and they are increasingly doing so, in order to avoid issues and legal challenges that might arise when there are several claimants to a financial asset i.e., securities.



Legal heir
The nominee is a trustee, not the asset’s owner.A legal heir is the legal owner of the deceased person’s property.
The nominee and the asset’s owner have a fiduciary relationship.As per succession laws, a legal heir has a precise legal right to possession of the assets.
In general, a nominee is selected for assets/facilities such as bank accounts, insurance policies, investments in stocks and other securities.It is a natural right envisaged by law.
A nominee is a person who has been authorized by another person to receive the money or financial assets such as securities, upon the demise of that person.

Whereas the legal heir is the one who receives ownership of the wealth and property of the deceased person.


A nominee is a beneficiary who has been nominated to receive the benefits of the estate of the deceased person as proved by a document commonly known as a ‘nomination form’. The purpose of appointing someone as a beneficiary is to make the process of resolving a deceased person’s estate smoother and to avoid conflicts.

The position of a nominee has been recognised as an ‘agent’ or a ‘trustee’ by numerous enactments and court judgements and is not regarded as a mechanism of testamentary succession or as a substitute for a ‘will’. Multiple High Courts in their decisions have concluded that the position of a nominee is simply as an agent to collect amounts as due from time to time, and it continues as the principal’s estate and is subject to the applicable law of succession following the death of the owner/principal.


Shares of a company are freely transferable assets under law.  A shareholder is allowed to transfer shares in a public company held by him throughout his lifetime, subject to reasonable limits set by the Articles of Association (hereinafter referred to as “AOA”), if any. Furthermore, nomination allows a shareholder to offer adequate instructions to a corporation regarding the disposition or transmission of shares owned by him in the case of his death. According to Section 72 of the Companies Act each holder of a company’s stocks may name any person to whom his securities may vest in the case of his death.

Shares of a company are included in the definition of securities. If the shares are owned jointly, the joint holders will nominate a single person as the nominee. The Act sets no restrictions on who may be selected as a nominee. A shareholder can even nominate a minor. If the nominee is a minor, the shareholder may appoint anybody to become entitled to the shares in the case of the nominee’s death while he is still a minor. A nomination can be filed at any time throughout the shareholder’s lifetime. It has to be reported to the company in writing using the nomination form i.e. Form SH-13. Once a nomination has been filed, it can be cancelled or changed by submitting Form SH-14. The cancellation or variation will take effect on the day the company receives notice of such variation or cancellation.

In case of death of Joint Shareholder

In some instances, such as the death of a Joint Shareholder, the surviving Joint Holders will be entitled to the shares under Joint Shareholdings rather than the legal representatives of the deceased Joint Shareholders. In the event of Joint Shareholding, the surviving Joint Shareholders enjoys exclusive legal and equitable ownership of the shares held in Joint Shareholding, not the legal representatives of the deceased Joint Shareholder.  A Legal Representative will acquire rights and interest in the shares of the company only if the deceased holder was a sole holder.


In the case of Dayagen Private Limited v. Rajendra Dorian Punj and Anr. 2008 [Co. A. (SB) No.14 of 2007], the Hon’ble Delhi High Court made it abundantly clear that the legislature’s intention is to override the general law of succession and carve out an exception in relation to nominations made in respect of shares and debentures. The procedural conditions outlined in the abovementioned clause must be properly followed in order for such overriding effect to be granted, i.e. the nomination must be made in the prescribed manner. In this case, the nomination was not properly validated by any witness so it was invalid.

Subsequently, in the case of Harsha Nitin Kokate v. The Saraswat Co-operative Bank Limited & Ors [2010(112) BomLR2014] the Hon’ble Bombay High Court held, that Section 109A of the Companies Act, 1956 (hereinafter referred to as “1956 Act”) and Section 9.11 of the Depositories Act, 1996 make it abundantly clear that the intent of the nomination is to vest the property in the shares, including the ownership rights thereunder, in the nominee upon nomination validly made as per the procedure prescribed in law. As a result, the nomination is genuine, and the deceased lawful heirs have no claim on the deceased.

This has been amply clarified by the provisions of Section 72 of the Act, which states that, Notwithstanding anything contained in any other law currently in force or in any disposition, whether testamentary or otherwise, where a holder of securities of a company or joint holders of the securities (as the case may be) appoints a nominee in a prescribed manner, then in the event of the death of the holder or all such joint holders, the nominee so appointed shall succeed to the securities unless such nomination is varied or cancelled in prescribed manner”

The Division Bench of the High Court of Bombay in Shakti Yezdani v. Jayanand Jayant Salgaonkar [Appeal No. 313 of 2015], observed that the legal heirs and not the nominees will obtain the ownership rights of share certificates, effectively circumscribing the scope of the nomination of shares under the provisions of the 1956 Act. The Court clarified that the nomination does not supersede the law of testamentary or intestate succession.  The goal of nomination is to safeguard the deceased’s rights and benefits until the legal representatives can intervene and take the necessary action to defend them. The Supreme Court has ruled in Oswal Greentech v. Mr. Pankaj Oswal and Ors. [Civil Appeal No. 9340 of 2019], that expectation of inheritance of property does not override Nominee’s Rights over the same property.

In case of joint holders, the Company Law Board in Smt. Jayalakshmi Acharya v. Kal Electronics and Consultants [1997 (90) Comp Cas 200 (CLB)], held that in the absence of any specific provision relating to the status of a surviving joint shareholder in the 1956 Act,  we have to be guided by the spirit of Article 25 of Table A of the 1956 Act, according to which in the case of joint holdings, it is only the surviving joint holder(s) who would be entitled to the shares and not any legal heir or representatives of the deceased joint holder.


It has long been disputed whether the laws of succession would take precedence over the nomination of shares of a company. The issue was finally resolved, when a Division Bench of the Bombay High Court issued a judgment in Shakti Yezdani v. Jayanand Jayant Salgaonkar [supra], wherein the Court observed that legal heirs are entitled to such shares and that a nomination made under the Act would not supersede the law of testamentary or intestate succession. It is important to note that an appeal has been filed before the Supreme Court in this case and the same is pending. However, the Bombay High Court’s ruling is well-supported and appears to espouse a sound position of law. In the case where the shareholders are Joint Shareholders, the Nomination or the Succession will not prevail. The Surviving Shareholder will be the sole owner of the entire shareholding. The Nominee or the Legal Heir cannot take the place of a deceased shareholder, he can only claim the right when all the shareholders have died.

Although the Supreme Court has not yet delivered any verdict over the debate of Nomination v. Succession, but, in Oswal Greentech v. Mr. Pankaj Oswal and Ors [supra] it has been observed that a nominee is vested with company shares and that such a nomination would supersede all the other laws, including the law of inheritance.

Team AMLEGALS assisted by Mr. Vinay Sachdev (Intern)

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