Nomination in a Flat

Introduction

Nomination is increasingly used
in co-operative housing societies, depository/demat accounts, mutual funds,
Government bonds/securities, shares, bank accounts, etc. a nomination means
that the owner of the asset has designated another person in his place after
his death.

Once a person dies, his interest
stands transmitted to the person nominated by him. Thus,  a nomination is a facility to provide the
society, company, depository, etc., with a face with whom it can deal with on
the death of a person. On the death of the person and up to the execution of
the estate, a legal vacuum is created. Nomination aims to plug this legal
vacuum. A nomination is only a legal relationship created between the society,
company, depository, bank, etc. and the nominee.

A nomination seeks to avoid any
confusion in cases where the will has not been executed or where there are
disputes between the heirs. It is only an interregnum between the death and the
full administration of the estate of the deceased.

While there have been several
Supreme Court decisions on the question of the role of a nomination, recently,
the Supreme Court had an occasion to consider the issue in the context of a
flat in a co-operative society.

Which is superior?

A nomination continues only up to
and until such time as the will is executed. No sooner the will is executed, it
takes precedence over the nomination. A nomination does not confer any
permanent right upon the nominee nor does it create any legal right in his
favour. Nomination transfers no beneficial interest to the nominee. A nominee
is for all purposes a trustee of the property. He cannot claim precedence over
the legatees mentioned in the will and take the bequests which the legatees are
entitled to under the will.

The  Supreme Court’s in the case of Sarbati Devi vs. Usha Devi, 55 Comp. Cases
214 (SC), in the context of a nomination under a life insurance policy
under the insurance act, 1938 has held that it does not have an effect of
conferring on the nominee any beneficial interest in the amount payable under
the life insurance policy on the death of the assured. It only indicates the
hand which is authorised to receive the amount on the death of the insured.

Again in Vishin Khanchandani vs. Vidya Khanchandani, 246  ITR 
306  (SC),the  Supreme 
Court  examined  the effect of a nomination in respect of a
national  Savings Certificates and held
that nominee is only an administrative holder. any amount paid to the nominee
is part of the estate of the deceased which devolves upon all persons as per
the succession law and the nominee must return the payment to those in whose
favour the law creates a beneficial interest.

Flat In A Co-Operative Housing Society

Let us now consider the position
in the context of a flat in a co-operative society. Section 30 of the
maharashtra Co-operative Societies act, 
1960 (‘the act”)  provides as
follows:

“Section 30 – Transfer of interest on death of member

(1) On the death of  a 
member  of  a 
society,  the society shall
transfer the share or interest of the deceased member to a person or persons
nominated in accordance with the rules, or, if no person has been so nominated
to such person as may appear to the committee to be the heir or legal
representative of the deceased member.

Provided that, such nominee, heir
or legal representative, as the case may be, is duly admitted as a member of
the society:

Provided further that, nothing in
this sub-section or in section 22 shall prevent a minor or a person of unsound
mind from acquiring by inheritance or otherwise, any share or interest of a
deceased member in a society.

(2) Notwithstanding anything
contained in sub-section (1), any such nominee, heir or legal representative,
as the case may be, may require the society to pay to him the value of the
share or interest of the deceased members, ascertained in accordance with the
rules.

(3)  A society may pay all other moneys due to the
deceased member from the society to such nominee, heir or legal representative,
as the case may be.

(4)   All transfers and payments duly made by a
society in accordance with the provisions of this section shall be valid and
effectual against any demand made upon the society by any other person.”

Thus, in the event of the death
of a member of a Society, the Society is required to transfer the member’s
interest to such person as may appear to the Committee to be the heir or legal
representative of the deceased member. The Act does not define the term “heir”.
The Supreme Court in the case of N. Krishnammal vs. R. Ekambaram, 1979 AIR SC
1298, has defined the term as follows:

“…The word “heirs”, as
pointed out by this Court in Angurbala Mullick v. Debabrata Mullick (1) cannot
normally be limited to “issues” only. It must mean all persons who
are entitled to the property of another under the law of inheritance.”

The Act also does not define who
is a “Legal representative”. Hence, one may refer to the Civil Procedure Code.
Section 2(11) of the Code of Civil Procedure, 1908defines a “Legal
Representative” as follows:

“(11) ” legal representative
” means a person who in law represents the estate of a deceased person,
and includes any person who intermeddles with the estate of the deceased and
where a party sues or is sued in a representative character the person on whom
the estate devolves on the death of the party so suing or sued;”

High Court Rulings

The Bombay high Court in another case of Om Siddharaj Co-operative
Housing Society Limited vs. The State of Maharashtra & Others, 1998 (4)
Bombay Cases, 506, has observed as follows in the context of a nomination
made in respect of a flat in a co-operative housing society:

“…….If a person is nominated in
accordance with rules, the Society is obliged to transfer ‘the share and
interest of the deceased member to such nominee. It is no part of the business
of the Society in that case to find out the relation of the nominee with the
deceased member or to ascertain and find out the heir or legal representatives
of the deceased member. It is only if there is no nomination in favour of any
person, that the share and interest of the deceased member has to be transferred
to such person as may appear to the committee or the Society to be the heir or
legal representative of the deceased member….”

Again in  the Gopal
Vishnu Ghatnekar vs. Madhukar Vishnu Ghatnekar, 1981 BCR, 1010 case, the
Bombay high Court has observed, in the context of a nomination made in respect
of a flat in a co-operative housing society, as follows:

“………It  is 
very  clear  on 
the  plain  reading 
of the Section that the intention of the Section is to provide for who
has to deal with the Society on the death of a member and not to create a new
rule of succession. the  purpose of the
nomination is to make certain the person with whom the Society has to deal and
not to create interest in the nominee to the exclusion of those who in law will
be entitled to the estate. The purpose is to avoid confusion in case there are
disputes between the heirs and legal representatives and to obviate the
necessity of obtaining legal representation and to avoid uncertainties as to
with whom the Society should deal to get proper discharge. though,  in law, the Society has no power to determine
as to who are the heirs or legal representatives, with a view to obviate
similar difficulty and confusion, the Section confers on the Society the right
to determine who is the heir or legal representative of a deceased member and
provides for transfer of the shares and interest of the deceased member’s
property to such heir or legal representative. Nevertheless, the persons
entitled to the estate of the deceased do not lose their right to the same. …….
once a person is nominated and the Society transfers the share or interest of
the deceased to him, he becomes the owner. If that is to be accepted it will
follow that if a Society accepts a person as the heir or legal representative
and transfers the share or interest to him, that person will become the owner. That
obviously, cannot he the intention of the legislature. Society has no power,
except provisionally and for a limited purpose to determine the disputes about
who is the heir or legal representative, therefore, follows that the provision
for transferring a share and interest to a nominee or to the heir or legal
representative as will be decided by the Society is only meant to provide for
interregnum between the death and the full administration of the estate and not
for the purpose of conferring any permanent right on such a person to a
property forming part of the estate of the deceased. The idea of having this
section is to provide for a proper discharge to the Society without involving
the Society into unnecessary litigation which may take place as a result of
dispute between the heirs’ uncertainty as to who are the heirs or legal
representatives. ….. it is only as between the Society and the nominee or heir
or legal representative that the relationship of the Society and its member are
created and this relationship continues and subsists only till the estate is
administered either by the person entitled to administer the same or by the
Court or the rights of the heirs or persons entitled to the estate are decided
in the Court of law. Thereafter the Society will be bound to follow such
decision.

……………. To repeat, a Society has a
right to admit a nominee of a deceased member or an heir or legal
representative of a deceased member as chosen by the Society as the member.”

A Single judge in Ramdas Shivram Sattur vs. Rameshchandra
Popatlal Shah 2009(4)Mh LJ 551 has held that a nominee has no right of
disposition of property since he is not an absolute owner. It held that section
30 does not provide for a special rule of Succession altering the rule of
Succession laid down under the personal law.

Supreme Court’s Decision

The position of a nominee in a
flat in a co-operative housing society was recently analysed by the Supreme
Court in Indrani Wahi vs. Registrar of
Co-operative Societies, CA NO. 4646 of 2006(SC). This decision was rendered
under the context of the West Bengal Co­ operative Societies act, 1983. In the
impugned case, a father died leaving a nomination in favour of his married
daughter. His widow and son challenged the same on various grounds. The matter
traveled from the deputy registrar of Cooperative Societies up to the high
Court and ultimately to the Supreme Court.

The Supreme Court held that there
can be no doubt that the holding of a valid nomination does not ipso facto
result in the transfer of title in the flat in favour of the nominee. However,
consequent upon a valid nomination having been made, the nominee would be
entitled to possession of the flat. Further, the issue of title had to be left
open to be adjudicated upon between the contesting parties.it further held that
there can be no doubt, that where a member of a cooperative society nominates a
person, the cooperative society is mandated to transfer all the share or
interest of such member in the name of the nominee. It is also essential to
notice, that the rights of others on account of an inheritance or succession is
a subservient right. Only if a member had not exercised the right of
nomination, then and then alone, the existing share or interest of the member
would devolve by way of  succession  or 
inheritance.  It  clarified 
that  transfer of share or interest,
based on a nomination in favour of the nominee, was with reference to the
concerned cooperative society, and was binding on the said society. The
cooperative society had no option whatsoever, except to transfer the membership
in the name of the nominee but that, would have no relevance to the issue of
title between the inheritors or successors to the property of the deceased. The
Court finally concluded, that it was open to the other members of the family of
the deceased, to pursue their case of succession or inheritance, in consonance
with the law.

Conclusion

Thus, the legal position in this respect is very
clear. A nomination is only a legal relationship and not a permanent transfer
of interest in favour of the nominee. If the nominee claims ownership of an
asset, the beneficiary under the will can bring a suit against him and reclaim
his rightful ownership. However,  the
possession of the flat must be handed over by the society immediately to the
nominee till such time as the succession issue is legally settled.