For more than four decades, the Supreme Court of India has consistently held that nominees in most financial and statutory contexts are not beneficial owners but trustees who hold for the legal heirs. The doctrine is well-settled. The line of cases that establishes it is worth understanding in detail.
The legal proposition established by the Indian Supreme Court — across LIC policies, bank accounts, NSCs, EPF, mutual funds, demat-held shares, and most cooperative society contexts — is that the nominee specified under the relevant statute is entitled to receive the relevant payment from the institution, but holds it as a trustee for the legal heirs of the deceased.
The legal heirs — as identified by the deceased's Will, or by the rules of intestate succession applicable to the deceased's religious community — retain beneficial ownership and can claim from the nominee.
This single principle, with very specific statutory exceptions discussed below, governs most of the nomination regime in India. Understanding it correctly is the foundation for any meaningful nomination-related estate planning.
The doctrine was first articulated in Sarbati Devi v. Usha Devi, (1984) 1 SCC 424. The case involved nomination under Section 39 of the Insurance Act, 1938 — at that time, before any amendment. The deceased had nominated his son for the LIC policy proceeds. The legal heirs (wife and other children) claimed the proceeds.
The Supreme Court held that the nomination did not confer any beneficial interest in the proceeds on the nominee. The nomination merely identified the person authorised to receive payment from the LIC. The proceeds, on receipt, formed part of the deceased's estate and passed to the legal heirs per applicable succession law.
Sarbati Devi's reasoning was anchored in the statutory text of Section 39 itself — which spoke of the nominee as the person 'to whom the money secured by the policy shall be paid in the event of his death' — and in the purposive principle that the LIC was being given a mechanism for prompt payment, not a power to override succession law.
The principle of Sarbati Devi was extended to National Savings Certificates in Vishin N. Khanchandani v. Vidya Lachmandas Khanchandani, (2000) 6 SCC 724. The deceased held NSCs with a nominee designated under the Government Savings Banks Act, 1873 (since renamed the Government Savings Promotion Act).
The Supreme Court held that the NSC nominee, like the LIC nominee, did not take beneficial interest in the certificates. The nominee was authorised to receive the proceeds from the post office (or other issuing authority) but held them in trust for the legal heirs of the deceased.
Khanchandani consolidated the doctrine — by the year 2000, the trust principle was clearly established as the default rule across multiple statutory nomination regimes.
The doctrine reached bank account deposits in Smt. Ram Chander Talwar v. Devender Kumar Talwar, (2010) 10 SCC 671. The case involved Section 45ZA of the Banking Regulation Act, 1949 — the bank deposit nomination provision.
The Supreme Court held — consistent with Sarbati Devi and Khanchandani — that the bank account nominee did not become the owner of the deposit. The nominee received the deposit from the bank, giving the bank a valid discharge under Section 45ZA(3). But the beneficial ownership of the deposit was governed by the Will or intestate succession.
Talwar remains the definitive Supreme Court authority on bank account nominations. It is cited routinely in banking-related disputes across India.
The trust doctrine was also applied to provident fund nominees in Shipra Sengupta v. Mridul Sengupta, (2009) 10 SCC 680. The case dealt with nomination under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 and related government provident fund rules.
The Supreme Court held that the PF nominee received the accumulated balance from the relevant authority but held it as a trustee for the legal heirs. The deceased's Will (or, where absent, intestate succession) governed the beneficial distribution.
Shipra Sengupta is particularly important for working professionals — most of whom have substantial EPF balances and have made nominations decades ago that may no longer reflect their current intentions.
The trust doctrine has one significant exception, established by Indrani Wahi v. Registrar of Cooperative Societies, (2016) 6 SCC 440. The case involved a nomination under Section 79 of the West Bengal Cooperative Societies Act, 1983 — the deceased had nominated his daughter for his cooperative housing society membership.
The Supreme Court held that the cooperative society was bound to transfer the membership to the nominee — the society 'has no option whatsoever except to transfer the membership in the name of the nominee.' The transfer of society membership to the nominee is absolute as far as the society is concerned.
But — and this is the crucial qualification — the Court added that 'such transfer would have no relevance to the issue of title between the inheritors or successors to the property of the deceased.' Legal heirs can pursue separate civil claims to establish beneficial ownership. The society's transfer is operational; the title question is for the civil court.
The most contested area was nomination under the Companies Act for directly-held shares. The Bombay High Court in Harsha Nitin Kokate v. Saraswat Co-operative Bank, 2010 had taken a view that share nominations conferred absolute interest on the nominee, departing from Sarbati Devi. This view was disputed and effectively repudiated by a Bombay High Court Division Bench in Jayanand Salgaonkar v. Jayashree Salgaonkar, 2015 — restoring the trust doctrine.
The Supreme Court touched the area in Aruna Oswal v. Pankaj Oswal, (2020) 8 SCC 79, in the context of NCLT jurisdiction — observing that the nominee's status would be 'subject to the testamentary or intestate succession' as the case may be.
The definitive ruling came in Shakti Yezdani v. Jayanand Jayant Salgaonkar, (2023) INSC 1076, where the Supreme Court held conclusively that Section 109A of the Companies Act, 1956 (and the corresponding Section 72 of the Companies Act, 2013) does not create a third mode of succession. The share nominee holds in a fiduciary capacity; the legal heirs retain superior rights.
The single major statutory exception to the trust doctrine is the Insurance Laws (Amendment) Act, 2015, which inserted Section 39(7) into the Insurance Act, 1938.
Section 39(7) provides that where the nominee under a life insurance policy is a 'beneficial nominee' — specifically defined as the policyholder's parent, spouse, child, or any of them — the nominee receives the policy proceeds beneficially, not as a trustee. The beneficial nominee takes the proceeds to the exclusion of legal heirs.
For all other life insurance nominees (siblings, friends, distant relatives), the pre-2015 position continues — they receive as authorised payees and hold as trustees for legal heirs. The 2015 amendment is therefore a narrow legislative carve-out, not a general repeal of the trust doctrine.
Mr. Verma dies leaving: an SBI savings account with balance ₹35 lakh (nominee: his second son Rohit); an LIC policy with sum assured ₹50 lakh (nominee: his wife Sunita); NSC holdings of ₹8 lakh (nominee: Rohit); EPF balance of ₹40 lakh (nominee: his eldest daughter Anjali); demat-held shares worth ₹25 lakh (nominee: Sunita).
His Will leaves everything equally to his three children — Rohit, Anjali, and Shilpa.
On payment by each institution: SBI pays ₹35 lakh to Rohit (trustee for legal heirs under Talwar); LIC pays ₹50 lakh to Sunita who is the beneficial nominee under Section 39(7) (beneficial owner); the post office pays ₹8 lakh to Rohit (trustee under Khanchandani); EPF authority pays ₹40 lakh to Anjali (trustee under Shipra Sengupta); the DP credits ₹25 lakh of shares to Sunita (trustee under Shakti Yezdani).
Beneficial distribution under the Will: each child receives one-third of ₹108 lakh (the LIC proceeds being excluded as Sunita's beneficial entitlement). Each child's share is ₹36 lakh. Rohit, Anjali, and Sunita must transfer the held-in-trust amounts accordingly. Shilpa, who was not named as nominee anywhere, receives her ₹36 lakh entirely from her siblings' redistribution.
Understanding the trust doctrine correctly is foundational for estate planning. Two main consequences:
First, the Will is the operative instrument for beneficial distribution — not the collection of nominations. The Will should be drafted comprehensively to cover all assets, including those for which nominations exist. Relying on nominations alone leaves gaps that a Will must close.
Second, alignment of nominations with the Will reduces friction. Where the nominee and the beneficial heir are the same person (or naturally cooperative), the trust doctrine produces a clean outcome. Where they diverge — for example, a nominated child who is not the intended sole beneficiary — the nominee faces the trust obligation and must distribute accordingly.
We strongly recommend that NRI and resident clients alike treat nominations as the operational layer (who gets the immediate payment from the institution) and the Will as the beneficial layer (who ultimately owns).
A nominee who has received funds in trust and refuses to distribute them to the legal heirs is in breach of fiduciary duty. The legal heirs can sue the nominee for recovery in a civil court — typically for declaration that the nominee holds in trust, and for the consequential transfer of the held amounts.
The nominee's defence that 'the bank paid me, so the money is mine' has been consistently rejected by Indian courts since Sarbati Devi. The bank's discharge under the statutory provision operates only as between the bank and the nominee; it does not insulate the nominee from the trust obligation.
In some cases, courts have ordered the nominee to pay not just the principal share but also interest from the date of receipt — particularly where the nominee's refusal was clearly unjustified. Misappropriation of trust funds can also attract criminal liability under Section 405-409 of the Indian Penal Code (criminal breach of trust) in extreme cases.
Our consistent advice to clients: treat the nomination layer and the Will layer as complementary, not alternative.
Nominations: ensure every financial instrument (bank account, FD, locker, LIC policy, EPF, NPS, mutual fund, demat) has a current nomination. Align them with the Will where possible to minimise the trust obligation.
Will: drafted comprehensively to cover all assets, with explicit treatment of insurance proceeds (especially beneficial-nominee-eligible policies), with attention to the trust obligation that nominees will bear for non-beneficial-nominee cases.
Coordination: where the nominee and the beneficial heir are the same person, the planning is clean. Where they diverge, the Will should explicitly address the situation — directing the nominee to hold for specified beneficiaries with clarity.
The trust doctrine in Indian nomination law is settled and well-reasoned. Across four decades of Supreme Court authority — from Sarbati Devi in 1984 to Shakti Yezdani in 2023 — the principle has been consistently applied: the nominee receives; the legal heirs own.
The single statutory exception (Section 39(7) Insurance Act for beneficial nominees) is narrow and applies only to specific close relatives nominated under life insurance policies.
Effective estate planning treats both layers — nomination and Will — as part of a coordinated whole. The Will is the controlling instrument; nominations are the operational mechanism. Understanding this correctly is the foundation for clean post-death administration.
A specific situation arises when the nominee is a minor (under 18 years). The institution holding the funds typically cannot disburse to a minor directly — the law requires payment through a guardian.
Under Section 6 of the Hindu Minority and Guardianship Act, 1956 (for Hindus) and similar provisions for other communities, the natural guardian (typically the surviving parent) holds the minor's property in trust. The institution releases the funds to the guardian, who holds them for the minor's benefit until majority.
This is not a departure from the trust doctrine — it is a parallel mechanism. The minor remains the nominee; the guardian operates on the minor's behalf; ultimate beneficial ownership remains governed by the Will or intestate succession alongside the minor's nominee status.
Where the testator anticipates that nominees and intended beneficiaries may diverge, the Will should include explicit drafting to make the trust position clear.
A standard clause we use reads: 'I have designated nominees on various financial instruments to facilitate the prompt release of funds by the relevant institution. Such nominations are not intended to confer beneficial ownership, except where the nominee qualifies as a beneficial nominee under Section 39(7) of the Insurance Act, 1938 or any other express statutory provision. The nominees shall hold the proceeds received from such institutions in trust for the beneficial heirs identified in this Will.'
This clause does several useful things: it explicitly acknowledges the trust doctrine, it identifies the limited exception (Section 39(7)), and it directs the nominees to act per the Will's distribution. Probate courts find such clauses helpful in resolving any post-death dispute.