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nism-series-xb-nominee-vs-legal-heir-supreme-court-rulings[ INVESTMENT ADVISER (LEVEL 2) ]

Under established Supreme Court jurisprudence (Sarbati Devi, Vishin Khanchandani, and Shakti Yezdani rulings), what is the legal position of a 'Nominee' relative to a 'Legal Heir'?

[ A ]The Nominee becomes the absolute, exclusive owner of the assets to the total exclusion of all legal heirs and Will beneficiaries.

[ B ]The Nominee must surrender the assets to the municipal police.

[ C ]Nomination is illegal in India.

[ D ]A Nominee is merely a fiduciary trustee / custodian authorized to receive the asset from financial institutions to give a valid discharge, holding the assets in trust for the ultimate lawful Legal Heirs entitled under the Will or Succession Act.[ CORRECT ]

Takeaway

The correct answer is D: per Sarbati Devi, Vishin Khanchandani and Shakti Yezdani, a nominee is only a fiduciary custodian who can validly receive and discharge the asset from the institution, while beneficial ownership still vests in the legal heirs under the Will or succession law.

Derivation

Nomination exists as an administrative convenience -- it tells a bank, insurer or AMC whom to pay to obtain a valid discharge quickly after death, avoiding the need to wait for probate or a succession certificate before releasing funds. Sarbati Devi (1984) held this for insurance, Vishin Khanchandani extended the logic, and Shakti Yezdani (2021, Bombay HC, on Depositories Act securities) confirmed that even a 'first-holder' nominee does not become the absolute owner overriding a Will. The nominee therefore must eventually distribute the asset to whoever is legally entitled under the Will or applicable succession act -- a distinction that trips up advisers who conflate 'who gets paid first' with 'who legally owns the money.'

Why the others fail

A — The Nominee becomes the absolute, exclusive owner of the assets to the total exclusion of all legal heirs and Will beneficiaries.

Contradicts the settled Supreme Court position; nomination facilitates payout, it never confers absolute ownership overriding Wills or succession law.

B — The Nominee must surrender the assets to the municipal police.

Nonsensical and legally baseless; police have no jurisdiction over private nomination disputes, which are civil succession matters.

C — Nomination is illegal in India.

False; nomination is a lawful, widely used facility under the Insurance Act, Companies Act, Depositories Act and banking regulations.