Introduction
In India's complex inheritance landscape, the law and jurisprudence concerning life insurance nominations have become increasingly dissonant. A nominee is someone appointed to receive the proceeds of a policy, account, or asset after the holder's death. Nomination ensures a legally recognized recipient, but not always the rightful owner. At the heart of the issue lies a fundamental question:
Does naming someone as a nominee on a life insurance policy give them absolute ownership of the proceeds, or are such nominees merely trustees holding the amount for the benefit of the legal heirs?
Legal Status of Nominees in India – Trustee or Beneficial Owner?
- Life Insurance (Insurance Act, 1938 – Amended in
2015):
- Before 2015: Nominee was only a trustee, not the owner (Sarbati Devi v. Usha Devi).
- After 2015: If the nominee is a spouse, child, or parent, they become the beneficial owner unless a Will says otherwise.
- Shares & Securities (Companies Act,
2013):
- Nominee is a trustee; legal heirs retain ownership rights (Shakti Yezdani v. Salgaonkar).
- Bank Deposits (Banking Regulation Act):
- Nominee can receive the amount but must distribute it to legal heirs as per succession laws.
While the laws governing nominations for other asset classes (such as shares, bank deposits, or cooperative society units) have been clarified by the Supreme Court, a key 2015 amendment to the Insurance Act sought to carve out a special category of "beneficial nominees" specified family members who may be entitled to retain the proceeds. Despite this legislative shift, judicial interpretation remains fragmented, resulting in substantial legal uncertainty and inconsistency in outcomes across the High Courts. The absence of a definitive Supreme Court ruling on the amended Section 39 of the Insurance Act has left families and insurers operating in a state of legal limbo.
Demystifying Nominee Rights in India: Succession Law, Fiduciary Roles, and the Legal Position of Heirs
- Legal Status and Role of a Nominee vs. a Legal Heir in
Inheritance and Estate Planning
The distinction between a nominee and a legal heir is foundational to understanding asset succession in India. A nominee is merely an administrative recipient, not a successor in law. Legal heirs derive their rights through personal succession laws or a testamentary instrument, such as a Will. Courts have repeatedly clarified that nominees hold assets in trust and are required to transfer them to their rightful heirs. In estate planning, therefore, nominations cannot replace Wills. Relying solely on nominations without executing a Will creates a fragmented succession structure vulnerable to litigation and familial discord. - Nominees in Corporate Shareholding and Their
Implications under Company Law
Under Section 72 of the Companies Act, 2013, shareholders can nominate an individual for the transmission of securities upon death. However, the landmark judgment in Shakti Yezdani v. Jayanand Salgaonkar (2023) emphasized that nominees do not acquire beneficial ownership. While companies may transfer shares for administrative ease, legal heirs can challenge such transfers if succession law or testamentary instruments dictate otherwise. Thus, in corporate practice, nomination serves as a mechanism of interim custody, not inheritance, and legal compliance must account for potential succession claims. - Rights of Nominees in Insurance and Banking
Accounts
In insurance and banking, nominees are entitled to receive proceeds as per the contract or institutional rules. The 2015 amendment to Section 39 of the Insurance Act introduced "beneficial nominees," yet courts have held that even they do not automatically supersede the claims of legal heirs. Similarly, under RBI guidelines, banks are permitted to release deposits to nominees without verifying the legal title. Nevertheless, such disbursement does not extinguish the rights of heirs under personal succession laws. Hence, nomination ensures immediate access, but ownership is ultimately governed by succession or testamentary law. - Judicial Interpretations of Nominee Rights vs.
Beneficial Ownership
Indian courts have developed a consistent jurisprudential thread distinguishing the role of a nominee from that of a beneficial owner. From Sarbati Devi to Ranjit Rai v. Rotiwala and beyond, the Supreme Court has held that nomination does not confer ownership rights. Even where statutes attempt to grant extended nominee rights, as in the Insurance Act, courts have required strict construction to prevent undermining the principles of succession law. This reflects judicial caution against permitting nomination to act as a de facto alternative to testamentary disposition or statutory inheritance. - Rights and Liabilities of Nominees
Nominees, while empowered to receive assets, are simultaneously burdened with fiduciary responsibilities. They are legally bound to preserve the asset and facilitate its eventual transfer to lawful heirs if required. Retention beyond such a point could expose them to civil suits for breach of trust, unjust enrichment, or wrongful withholding. Courts have, in several cases, directed nominees to deposit funds in escrow or fixed deposits pending adjudication. Their liability, therefore, is not only moral but also legal, and failure to comply with succession orders can result in significant legal consequences.
Nominee vs. Legal Heir: Core Concepts
A "nominee" is appointed under contract or statute, such as the Insurance Act, 1938, or the Companies Act, 2013, to collect sums upon the asset-holder's death. Courts have long held that this role is fiduciary and not proprietary. In contrast, a legal heir derives title under statutory succession laws, such as the Hindu Succession Act, 1956, or the Indian Succession Act, 1925.
The Supreme Court in Sarbati Devi v. Usha Devi (1984) 1 SCC 424 held that nomination under Section 39 does not override succession rights, and that nominees merely have the funds in trust for the heirs. This was reaffirmed by the apex court in Ranjit Rai v. Rotiwala, 2024 SCC OnLine SC 1123, which emphasized that "nomination cannot override succession law."
Insurance Policies: Beneficial Title vs. Ownership
The 2015 amendment to Section 39 of the Insurance Act introduced the concept of "beneficial nominees," specifically, the policyholder's spouse, parents, or children. As per Section 39(7)– (8), insurers can discharge their liability by paying these class-I nominees, who are presumed to receive the proceeds.
Yet, courts have not consistently accepted this as conclusive ownership, in Smt. Kusum v. Anand Kumar & Ors., 2025 SCC OnLine All 24631, the Allahabad High Court directed that the insurance proceeds be placed in a fixed deposit until the succession issues were resolved. This reaffirmed the long-standing principle that nominees act as custodians, not owners, unless succession law or testamentary documents state otherwise.
Judicial Divergence and Case Law Analysis
Recent judicial developments reflect a growing judicial awareness of the limitations on nomination rights, but the legal position remains fragmented, particularly in the context of life insurance policies. In Shakti Yezdani v. Jayanand Salgaonkar (2023), the Supreme Court clarified that nominees under company and depository law do not acquire ownership; they merely act as custodians until the legal heirs assert their claims. Although this case did not specifically address insurance, it has begun to influence how High Courts interpret the rights of nominees in life insurance matters.
High Courts, however, remain divided. The Andhra Pradesh High Court, in Mallela Manimala v. Mallela Lakshmi Padmavathi (2023), ruled in favour of the nominee, treating the wife as the rightful recipient of the insurance proceeds under Section 39(7) of the Insurance Act. Conversely, the Allahabad High Court, in Smt. Kusum v. Anand Kumar (2025) maintained that even a "beneficial nominee" cannot defeat the inheritance rights of legal heirs under succession laws, reinforcing that nomination does not create a third mode of succession.
The continued absence of a definitive Supreme Court ruling on the amended Section 39 of the Insurance Act, 1938, especially post the 2015 amendment, has left significant interpretive gaps. Courts are often compelled to rely on various principles of statutory construction and judicial precedent, resulting in conflicting decisions. Legal practitioners, policyholders, and insurers now await authoritative clarification from either the legislature or the Supreme Court to ensure uniform application of nomination laws across jurisdictions and to prevent ongoing succession disputes stemming from legal ambiguity.
Other Asset Classes: Comparative Legal Treatment
In banking and fixed deposits, RBI guidelines (DPSS.CO.OD No. 2628/06.08.005/2015-16) permit nomination but do not confer title. In Central Bank of India v. Naresh (Madras HC, 2024) and EPFO v. Rajesh (Delhi HC, 2025), the courts emphasized that nominees must produce succession certificates to establish ownership. The Employees' Provident Funds Act, 1952, allows nomination, but courts have maintained that it does not replace succession procedures.
Regarding corporate securities, Sections 72 and 109A of the Companies Act, 2013 permit the nomination of shares and debentures. However, Shakti Yezdani reaffirmed that the nominee acts in trust for legal heirs. The Bombay High Court, following Sabarmati Devi, took a different view and allowed full rights to the nominee. Yet, in Kavita v. State of NCT Delhi (2025), the Delhi HC insisted on share transmission procedures aligned with succession laws.
For immovable property, nomination is not recognized under the Transfer of Property Act, 1882, resulting in recurring legal disputes, particularly when legal heirs are absent or unclear. The Supreme Court in Sarbati Devi v. Usha Devi (1984) held that nomination does not confer ownership, only a right to receive assets as a trustee for legal heirs.
This was reinforced in Shakti Yezdani & Anr. v. Jayanand Jayant Salgaonkar & Ors. (2023), which clarified that nomination is a mere facilitatory mechanism, not a substitute for testamentary or statutory succession.
Most recently, Dr. Jairam & Anr. v. State (NCT of Delhi) (2025) reaffirmed that nominees even under statutory schemes like EPF or Insurance hold no beneficial title and cannot override succession laws. Accordingly, nominees act only as fiduciaries, not owners; they cannot sell, mortgage, or transfer the property without court-sanctioned legitimacy such as a succession certificate or probate.
Any existing encumbrances like loans or liens remain binding on the estate and must be addressed by the legal representative not the nominee. Sellers must verify valid succession rights before executing transactions, while financial institutions must proceed through legal heirs or estate administrators rather than relying on nominations. A nominee may approach the court for appropriate legal authority but cannot act unilaterally. Considering these judicial positions, commentators (May 2024) have called for harmonized succession laws across all asset classes, including immovable property, to resolve ongoing uncertainty about the nominee's limited legal status.
Insurers' Duties & Discharge of Liability
Insurance companies fulfill their legal obligation by paying nominees and are not required to investigate succession claims at the time of payment. In Sushil Kumar v. LIC of India (Bombay HC, 2024), the court held that payment to the nominee suffices for discharging the insurer's duty.
Similarly, in the Madras High Court (December 10, 2024), it was held that insurers are absolved once they have paid the nominee. Whether the nominee ultimately retains the funds or hands them over to the heirs is a matter of private dispute, not insurer liability (LiveLaw).
Insurers are thus not expected to inquire into the deceased's familial or testamentary arrangements. They are mandated to act based on the policyholder's last recorded nomination, treating it as the conclusive basis for disbursement. This approach, though administratively efficient, sometimes results in payments being made to nominees who are not the rightful heirs under succession laws.
Moreover, insurers face potential reputational and legal risk when nominees clash with legal heirs. While technically shielded from liability after payment, insurers may still be drawn into litigation as parties or respondents. In such cases, the courts have reiterated that insurers' role ends at payment, reinforcing the principle that they are not arbiters of succession disputes and should not delay claims on that ground.
Litigation Rights of Nominees vs. Heirs
Nominees may file petitions under Order XXXII of the Civil Procedure Code to deposit funds or claim interim relief. However, their legal right to ownership must be determined by a succession certificate or will.
Courts may permit nominees to hold funds temporarily, but the final disbursement is contingent upon adjudication. In several recent cases, courts granted interim relief to nominees while directing legal heirs to pursue succession proceedings before civil courts.
In some instances, nominees have been instructed to open fixed deposit accounts or establish escrow arrangements pending the final resolution of the dispute. This protects the interests of both nominees and potential heirs while ensuring the asset does not get dissipated. The court thus exercises a balancing jurisdiction, preserving the estate while maintaining interim possession with the nominee.
Notably, legal heirs may initiate declaratory suits under the Specific Relief Act or Succession Act, seeking orders against nominees. At the same time, nominees, especially those in the immediate family, have sought equitable relief, arguing moral and familial entitlement. However, courts have been cautious not to bypass statutory succession principles, reiterating that emotional closeness cannot override legal heirship.
Recommendations for Policyholders
Policyholders should ensure that nominations are regularly updated, especially after life events such as marriage, childbirth, or divorce. They should align nominations with wills and other estate documents to avoid contradictions.
It is advisable to nominate class-I heirs (spouse, children, parents) where possible and avoid naming distant relatives unless a Will explicitly supports the intent. Legal consultation can help individuals structure their estate to reflect true intent and reduce disputes.
Additionally, maintaining a consolidated estate plan including nomination forms, Wills, and trust deeds can help ensure clarity. Digital lockers (like Digilocker) and centralized KYC systems can be used to store and share these documents with executors or family members, avoiding the chaos that often follows an unexpected death.
Clear communication with family members is also critical. Often, litigation arises not from legal flaws but from misunderstandings and a lack of awareness. Policyholders should inform their intended beneficiaries about their estate plans and the role of nominees, thereby reducing the risk of intra-family disputes after their death.
Role of Financial Institutions
Insurers, banks, and advisors must do more than just facilitate the completion of nomination forms. They should educate clients about the difference between nominees and legal heirs and highlight the importance of succession documentation.
Institutions should periodically prompt clients to review nominations and explain the legal limitations of nominee rights, particularly in light of conflicting judgments and legislative inconsistencies.
Financial intermediaries can also include nominee-related FAQs and warnings in onboarding documents and policy kits. By explaining the limited role of nominees, they can proactively reduce future litigation. Regular SMS/email reminders urging review of nominations can be integrated into customer service cycles.
Additionally, industry associations like IRDAI, RBI, and SEBI could collaborate on a unified nominee framework or awareness campaign. Just as "mutual fund investments are subject to market risks" became a household disclaimer, nominee limitations, too, deserve consistent regulatory messaging.
Conclusion
The 2015 amendment to the Insurance Act aimed to clarify nominee rights but instead created overlapping systems of succession that courts have struggled to reconcile. Judicial inconsistency, along with Parliament's failure to adopt the Law Commission's recommendation to distinguish between "collector" and "beneficial" nominees, has further muddled the legal framework.
Until the Supreme Court definitively interprets Section 39(7) or Parliament clarifies the law, policyholders must act prudently. Nominations should be viewed as a mechanism for receiving, rather than owning, assets. Proper estate planning, including wills, trusts, and legal advice, remains the best safeguard against prolonged litigation and familial disputes.
Legal ambiguity in nominee cases has led to emotionally and financially exhausting litigation for families. Institutions may fulfil their duties swiftly, but the fallout often burdens heirs who must then resort to civil courts for resolution. In a country where most individuals do not make Wills, this lack of clarity exacerbates an already problematic situation.
Hence, a harmonized succession framework that reconciles nomination procedures with inheritance laws is urgently required. Until that happens, every individual, regardless of wealth, must treat nominations as only one step in a comprehensive estate planning strategy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
