Nominee vs Legal Heir in India: Who Actually Inherits Bank Deposits, Shares and Property

The difference between a nominee and a legal heir is one of the most misunderstood points in Indian law, and it causes real disputes when a family member dies. Many people assume that the person named as nominee on a bank account, a mutual fund or a set of shares becomes the owner of that asset. In most cases, that assumption is wrong. A nominee is, as a rule, only a custodian who receives the asset to hold it for those legally entitled to inherit.

Knowing the distinction helps families avoid bitter litigation and helps account holders plan properly, by realising that a nomination is not a substitute for a will.

The Core Principle: A Nominee Is a Trustee, Not an Owner

The Supreme Court settled the debate in Shakti Yezdani v Jayanand Jayant Salgaonkar in 2023. The Court held that a nominee of shares and securities is merely a trustee or custodian of the asset and does not acquire beneficial ownership. Nomination, it held, is not a third mode of succession and does not override the law of inheritance.

In practical terms, a nominee can receive the asset from the institution, but must then hold it for, and hand it over to, the legal heirs determined under the will or the applicable succession law. The nominee's role is to give the bank or company a valid discharge, not to pocket the asset.

Bank Deposits and Lockers

For bank deposits, lockers and safe custody articles, the nomination facility is provided by Sections 45ZA to 45ZF of the Banking Regulation Act 1949. These provisions allow a bank to pay the amount of a deceased depositor to the nominee and obtain a valid discharge.

The crucial point is that this discharge protects the bank, not the nominee's claim to ownership. The nominee receives the money so that the bank is freed from liability, but the nominee does not thereby become the owner to the exclusion of the legal heirs. If the heirs and the nominee are different people, the heirs retain their right to claim their shares. Banks therefore often ask for a succession document where the nominee and the heirs are not the same persons.

Shares, Demat Accounts and Mutual Funds

For shares and securities, the nomination provisions of the Companies Act work alongside the depository and SEBI framework. After Shakti Yezdani, it is settled that a nominee to shares holds them for the legal heirs and does not gain absolute ownership.

Regulators have tightened the nomination process to ease transmission while preserving these rights. Investors should keep nominations current, as explained in our note on the SEBI nomination rules for mutual funds and demat accounts. A clear nomination speeds up transmission, but it does not decide who finally inherits.

Insurance Is a Partial Exception

Life insurance is treated somewhat differently. The insurance law was amended in 2015 to recognise certain close relatives, such as a spouse, children or parents, as beneficial nominees who are entitled to the policy proceeds in their own right, rather than merely as collectors for the estate.

Even here, the position depends on who is named and the nature of the policy, so it should not be assumed that every insurance nominee takes beneficially. Where the nominee is not a close relative of this kind, the older rule that the nominee holds for the heirs continues to apply. The safest approach is to align nominations with a will, so that the person who collects an asset is also the person meant to keep it.

How Legal Heirs Should Claim

Where the nominee and the heirs differ, the heirs establish their entitlement through the ordinary inheritance route. For movable assets such as bank balances and securities of a person who died intestate, a succession certificate from the civil court is usually required. For many other claims, a legal heir certificate is used.

The cleanest way to ensure assets reach the intended persons is to make a will, because the will, and not the nomination, governs who inherits. Our guide on what happens if you die without a will shows why leaving the question to nominations alone is risky.

Related Reading

To put your wishes beyond doubt, read How to Make a Valid Will in India: Execution, Witnesses, Registration and Probate Explained.

For a practical money matter involving banks, see How to Recover Money Sent to a Wrong UPI ID or Bank Account in India.

Key Takeaways

A nominee is generally a trustee who holds the asset for the legal heirs, not the owner. The Supreme Court confirmed this in Shakti Yezdani v Jayanand Jayant Salgaonkar (2023) for shares and securities.

Bank nomination under Sections 45ZA onwards of the Banking Regulation Act protects the bank's discharge, not the nominee's ownership. Insurance is a partial exception for certain close relatives. To control who inherits, make a will rather than relying on nominations alone.