The ₹1.84 Lakh Crore Myth: 'I Already Added a Bank Nominee'
Across India, millions of depositors, equity investors, and NRI account holders skip drafting a Will because they believe clicking 'Add Nominee' on their net-banking portal, Zerodha/Groww Demat account, or mutual fund folio settles who inherits that wealth.
In Indian law, nomination and inheritance are two completely distinct legal concepts. A nomination exists solely to give the bank, insurance company, or depository participant a valid discharge of liability so the institution knows whose hands to place the funds into immediately after the account holder's passing.
“A nominee is a mere stop-gap custodian or receiving hand. Legal ownership of the asset vests strictly in the beneficiaries named in a valid Will—or, if there is no Will, in all statutory legal heirs equally.”
Supreme Court Rulings: Sarbati Devi & Shakti Yezdani (2023)
In Smt. Sarbati Devi v. Smt. Usha Devi (1984), the Supreme Court held that a nominee under Section 39 of the Insurance Act does not acquire beneficial ownership of life insurance proceeds; the money forms part of the deceased's estate and is governed by the law of succession.
For years, financial intermediaries argued that Demat share accounts and company shares were an exception under Section 109A of the Companies Act, 1956 (now Section 72 of the Companies Act, 2013) and Section 9.11 of the Depositories Act bylaws. On December 14, 2023, a division bench of the Supreme Court in Shakti Yezdani & Anr. v. Jayanand Jayant Salgaonkar permanently settled this debate: the Court ruled that the Companies Act and Depositories Act do not create a 'third mode of succession' and a nominee of shares or Demat securities holds them purely in fiduciary trust for the legal heirs or legatees under a Will.
What Happens When Your Nomination and Your Will Conflict?
Suppose a father nominates his elder son on a ₹50 Lakh Fixed Deposit for convenience, assuming the elder son knows to split it equally with his sister, or suppose the father leaves a Will bequeathing his financial portfolio to his wife while an old bank account still lists a brother as nominee.
Upon death, the bank will transfer the ₹50 Lakh to the nominee's account. However, the legal beneficiaries under the Will (or Class I heirs if intestate) have an enforceable right to demand their share from the nominee. Without a clear Will aligning nominations with intended bequests, families are dragged into civil recovery suits and freezing injunctions.
The Statutory Exception: EPF and Gratuity Nominations
While bank accounts (Section 45ZA Banking Regulation Act), mutual funds, PPF, real estate society shares, and Demat accounts treat the nominee as a trustee, Employees' Provident Fund (EPF) and Payment of Gratuity Act schemes restrict valid nominations to defined 'family members' and confer direct statutory rights on eligible family nominees. Even there, explicitly referencing your EPF, NPS, and superannuation accounts inside your Will prevents ambiguity among surviving dependents.
What to do next
List every bank account (Savings, NRE, NRO, FD), Demat account, Mutual Fund folio, PPF, and insurance policy along with who is currently recorded as the nominee
Draft a legally valid Will that explicitly names both the ultimate beneficiary and the percentage share for each financial account
Update your bank and Demat nominations so the nominee matches the primary beneficiary named in your Will
Frequently Asked Statutory Questions
Does a Demat account or mutual fund nominee become the owner of the shares?
No. In Shakti Yezdani v. Jayanand Jayant Salgaonkar (2023), the Supreme Court held that a Demat or share nominee is merely a fiduciary trustee and must transfer the securities to the beneficiaries named in the deceased's Will or statutory legal heirs.
Which prevails in India if a bank nomination and a Will name different people?
The Will always prevails for legal ownership. While the bank gets a valid discharge by releasing funds to the nominee, the beneficiary named in the Will has the legal right to recover the funds from the nominee.
