Nomination is legally accepted under law. Various Acts have framed Rules relating to nomination. It is significant to note that all acts recognize the importance of nomination, but some Acts provide for nomination expressly overriding succession laws. The advantage of nomination is that it provides an easy mechanism by which the nominee gets the benefits without having to undergo the ordeal of succession laws.
Legal position
The Supreme Court of India(SC) in Sarabati Devi Vs Usha Devi (AIR 1984 SC 346) after reviewing many authorities on the subject, held in the context of Section 39 of the Insurance Act, the nomination only indicated the hand which is authorised to receive the amount. The insurer is discharged of his liability under the policy on making payment to the nominee. This does not however preclude other legal heirs to claim the insured amount in accordance with the India Succession Act.
SC has further held that the language of Section 39 is not capable of altering the course of succession under law. If a statute has provided for a nomination expressly overriding the Succession laws, only then the nominee would acquire the rights of a person who nominates and such nomination would not be subject to the claims of legal heirs under the Succession laws.
In the case of “Vishin N. Khanchandani Vs. Vidya Lachmandas Khanchandani (AIR 2000 SC 2747) Supreme court examined the implication of non obstinate clause in Section 6 of the Governments savings certificate Act and held that the nominee specified in the National Savings Certificate, on the death of its holder does not become entitled to the sum due under the certificate to the exclusion of all other legal heirs.
In this particular case, it is found by the court that provisions of Section 6 and section 8 are contrary to each other. Section 8 (1) provides that such payment shall be a full discharge from all further liabilities in respect of the sum so paid. However, sub-section (2) of Section 8 specifies that the payment made to the nominee under sub-section (1) shall not preclude any executor or administrator or the legal representative of the deceased-holder of a savings certificate from recovering from the nominee.
Let us now examine the provisions relating to nomination under various Acts and relevant Rules.
The Employees Provident Fund and Miscellaneous Provisions Act,1952
Section 61 of the Employees Provident Fund and Miscellaneous Provisions Act,1952 deals with nomination. The following are the provisions of Section 61.
1. Each member shall make a declaration in Form No.2 nominating a person to receive amount standing to his credit in the event of his death or where the amount has become payable.
2. A member may in his nomination distribute the amount amongst his nominees at his own discretion.
3. If the member has a family at the time of making nomination, the nomination shall be in favour of one or more persons belonging to his family. In other words he can not ignore family persons and nominate any outsider for receiving his amount standing to his credit.
4. If a member has no family at the time of making nomination the nomination may be made in favour of any person but once he acquires a family such nomination shall be deemed invalid. The member shall make a fresh nomination in favour of one or more persons belonging to his family.
5. Nomination can be modified at any time by a member by giving a notice of intention in Form No.2. If the nominee predeceased the member, the interest of the nominee shall revert back to the member who can make a fresh nomination.
6. Section - 70 of the P F Act deals with the payment of accumulations of the deceased member. The payment is to be made in accordance with the valid nomination. If no nominations subsist, the amount is to be paid to the members of his family in equal shares. In case where no nominations subsists and there is no member of the family, the whole amount is to be paid to the person legally entitled.
From the above it is clear that::
1. Nomination has to be made in favour of family members i.e. Spouse / minor sons / Unmarried daughters/ legally adopted children.
2. Nomination can be made in the name of any other person if there is no family member.
3. The member can decide how much share of his entitlement to be distributed in the nomination Form itself according to his choice. If no share is mentioned, the legal heirs will be entitled to equal shares.
4. The question of legal heir certificate will arise only when nomination is not made in favour of the family members.
5. Every Employer shall on the death of the member and on receipt of application for receiving the amount standing to the credit of such member forward forthwith the said application to the Commissioner.
The Payment of Gratuity Act,1972
Section 6 of the Payment of Gratuity Act,1972 provides for nomination. The provisions relating to nomination are similar to that of PF Act. The prescribed Form for nomination is Form -F to be submitted in duplicate to the Employer
In both the PF Act and Gratuity Act there is no exclusion clause in respect of nomination and as such the other legal heirs can claim their right as per succession laws in the event of any dispute as to the claim.
The Companies Act,1956
Under the companies Act,1956,nomination facility is available as per the provisions of Section 109A and 109B read with Section 58A(11) of the Companies Act,1956 to the holders of Shares, Debentures and Fixed deposits. The Prescribed Form No.2B has to be submitted by the Fixed Deposit holder/ Debenture holder/Shareholder. Rule 5D prohibits that nominee can not be a Trust, Society, body corporate, Firm, Karta of HUF, power of attorney holder. In other words Nominee has to be an individual only. In case of joint holdings both the joint holders have to sign the nomination form. If the nomination is made by the Fixed Deposit holder/ Debenture holder/Shareholder, the nominee becomes entitled to all rights in shares and debentures as the case may be to the exclusion of all other persons. Nomination becomes effective on the death of the Fixed Deposit holder/ Debenture holder/shareholder. It may be noted that nomination in case of joint holdings will not be effective unless death of both join holders takes place. Articles of almost all companies provide that in case of death of first holder, joint holder is the only person recognized as having title and interest in the shares.
Section 109B gives an option to the nominee either to get registered as holder of Shares or Debentures or directly to transfer/sell the shares or debentures as the deceased could have made.
The Public Debt Act:1944
Section 9B of the Public Debt Act permits nomination in respect of government securities held by the holders. The section starts with non obstante clause but that does not preclude the legal heirs to stake their claim from nominees. Section 9B(3) provides that Transfer of securities shall automatically cancel the nomination made earlier
The Banking Regulation Act,1949
In the case of Bank deposits the provisions of Section 45 ZA of the Banking Regulation act are applicable. The deposit would be refunded to the person nominated by the Deposit holder. Once nomination is made in respect of one deposit the same will hold good for other deposits with the same branch of the Bank.
In the case of Non-banking Financial Companies(NBFC) Section 58A of the Companies Act,1956 is not applicable, nomination by a Depositor in NBFC is governed by Section 45QB of RBI Act and 45ZA of Banking Regulation Act. Even in the Banking Regulation Act the exclusion clause is provided which discharges the Banks from the liability on making payment to the nominee.
The Co operative Societies Act,,1912
Section 22 of the Co-operative Societies Act provides for the nomination in accordance with the rules made. On the death of a member, a registered society may transfer his share or interest of the deceased member to the person nominated in accordance with the Rules made in this behalf. There is no provision, which overrides the laws relating to Succession like 45ZA of the Banking Regulation Act or Section 109A of the Companies Act.
Conclusion:
Nomination is an important facility and many investors are ignorant of its benefits. Every investor must make nomination without fail as it obviates the necessity of obtaining succession certificate /letters of administration/ probate of will which are time consuming, expensive and cumbersome. Nominees should preferably be the legal heirs or a person in whom trust is reposed to ensure the fair distribution to the real heirs. Nomination makes it easier to lay claim on the PF amount/ Fixed deposits/shares/debentures/insurance claims etc.
G. S. Rao
OCL
CAclubindia
