Smt. Neelavva @ Neelamma W/O Neelappa ... vs Smt. Chandravva @ Chandrakala @ Hema W/O ...
2025 Latest Caselaw 4195 Kant

Karnataka High Court

Smt. Neelavva @ Neelamma W/O Neelappa ... vs Smt. Chandravva @ Chandrakala @ Hema W/O ... on 20 February, 2025

                                                     R
        IN THE HIGH COURT OF KARNATAKA AT

                 DHARWAD BENCH

     DATED THIS THE 20TH DAY OF FEBRUARY, 2025

                      BEFORE

THE HON'BLE MR JUSTICE ANANT RAMANATH HEGDE

              RFA NO.100471 OF 2023
BETWEEN:

1 . SMT. NEELAVVA @ NEELAMMA
    W/O NEELAPPA SOMANAKATTI,
    AGED ABOUT 61 YEARS,
    OCC: HOUSEHOLD,
    R/O YALLAPUR, TQ. LAXMESHWAR,
    DIST. GADAG - 582116.

                                      ...APPELLANT
(BY SRI N M PATIL, ADVOCATE)

AND:
1.    SMT. CHANDRAVVA @ CHANDRAKALA @ HEMA
      W/O RAVI SOMANAKATTI,
      AGE 35 YEARS, OCC. HOUSEHOLD
      R/O YELLAPUR, TQ. LAXMESHWAR,
      DIST. GADAG
      NOW AT MAILAR, TQ. HOOVINHADAGALI,
      DIST. VIJAYANAGAR - 583219.

2.    CHAYAN S/O RAVI SOMANAKATTI
      AGE 2 YEARS, OCC. NIL
      R/O YALLAPUR, TQ. LAXMESHWAR,
      DIST. GADAG,
      NOW AT MAILAR, TQ. HOOVINHADAGALI
      DIST. VIJAYANAGAR,
      SINCE MINOR
      REP. BY HIS MOTHER M/G
      SMT. CHANDRAVVA W/O RAVI SOMANAKATTI,
      AGE 35 YEARS, OCC. HOUSEHOLD,
      R/O YALLAPUR, TQ. LAXMESHWAR,
                           -2-




     DIST. GADAG, NOW AT MAILAR,
     TQ. HOOVINHADAGALI, DIST.
     VIJAYANAGAR - 583219.

3.   THE BRANCH MANAGER,
     LIFE INSURNACE CORPORATION OF INDIA,
     BRANCH NO.1, GADAG S.O. OFFICE,
     MUNDARAGI ROAD, GADAG 582101.

4.   LIFE INSURANCE CORPORATION OF INDIA,
     REPRESENTED BY BRANCH MANAGER,
     VIJAYANAGAR, TQ AND DIST.
     VIJAYANAGAR - 583201.
                                     ...RESPONDENTS
(BY SRI CHANDRASHEKAR M HOSMANI, ADV.FOR R1& R2,
 SRI MRUTYUNJAYA TATA BANGI, ADV. FOR R3 & R4(VC))

     THIS RFA IS FILED UNDER SECTION 96 OF CPC.,
AGAINST THE JUDGMENT AND DECREE DTD 01.08.2023
PASSED IN O.S.NO.1/2022 ON THE FILE OF THE PRINCIPAL
SENIOR CIVIL JUDGE AND CHIEF JUDICIAL MAGISTRATE,
GADAG, DECREEING THE SUIT FILED FOR DECLARATION.

     THIS APPEAL HAVING BEEN HEARD AND RESERVED
FOR JUDGMENT ON 17TH JANUARY, 2025 AND COMING ON
FOR   PRONOUNCEMENT     THIS   DAY,  THE   COURT
PRONOUNCED THE FOLLOWING:

CORAM: HON'BLE MR JUSTICE ANANT RAMANATH HEGDE

                   CAV JUDGMENT

This case is about the conflicting claims of a

nominee and an heir under personal law, over the

benefits flowing from a life insurance policy. Almost

similar claims over the estate covered by nomination

under different provisions of law, have been the subject

matter of discussion in multiple Courts. On innumerable

occasions, the Courts have held that nomination cannot

override the provisions relating to succession.

2. The amendment to Section 39 of the

Insurance Act, 1938 (for short, 'the Act of 1938') as

effected by Act No.5 of 2015 has raised the following

question:

Whether "certain nominee/s" named in sub- Section (7) and (8) of Section 39 of the Act of 1938 who is/are conferred "beneficial interest" over the benefits under an insurance policy, exclude/s the heir/s from succeeding to the benefits flowing from the insurance policy?

Facts:

3. Sri. Ravi Somanakatti who had subscribed to

two Life Insurance Policies died on 20.12.2019. Insured

was a bachelor when the policies were issued. Insured

had nominated his mother as the nominee to the benefits

(Rs.19,00,000/- and Rs.2,00,000/-) flowing from the

policies, in the event of his death. By the time, the

insured died, he had married and had a son from the

marriage. However, the insured had not effected any

changes in the nomination to the policies referred to

above.

4. The plaintiffs, (widow and minor son of late

Ravi Somanakatti) filed the suit against the mother of

late Ravi Somanakatti, claiming share in the benefits

flowing from the insurance policies.

5. The suit is decreed. The Trial Court rejected

the nominee's claim for entire benefit under the policies.

The Court held that each of the plaintiffs and 1st

defendant is entitled to 1/3rd share despite nomination.

6. Aggrieved by the aforementioned judgment

and decree, the defendant is in appeal.

Contentions:

7. Learned counsel Sri. J.S. Shetty, appearing for

appellant/defendant No.1 urged that the impugned

judgment and decree overlooks Section 39 of the Act of

1938, as amended by the Insurance Laws (Amendment)

Act, 2015. Amended Section 39 to the Act of 1938

confers absolute right in favour of a certain class of

nominees, who are termed as 'beneficiary nominee' and

the mother falling under the category of beneficiary

nominee excludes all other heirs under the personal law

governing the parties from claiming any right over the

benefits payable to the nominee under the insurance

policy.

8. Learned counsel appearing for respondent

No.1 would contend that the mother/defendant No.1 who

is the nominee under the policies is only a custodian

entitled to receive the benefits under the policy, on behalf

of all the heirs, and the nominee owes a duty to disburse

the amount to the legal heirs as per the personal law

governing the succession.

9. Since the "Objects and Reasons" did not

reveal the intention behind the amendment to Section 39

of the Act of 1938, this Court also requested the Central

Government Standing Counsel to provide materials

throwing light on the reasons behind the amendment.

10. Sri Mrutyunjaya Tata Bangi, the learned

Counsel for respondents No.3 and 4 submits that the

reasons for amendment to Section 39 of the Act of 1938,

are not specifically mentioned in the Objects and Reasons

for the amendment. However, submits that the

amendment is based on the recommendations in 190th

Report of the Law Commission of India.

Discussions:

11. Relevant portions of Section 39 of the Act of

1938, read as under:

39. Nomination by policy-holder.-

(1)The holder of a policy of life insurance on his own life may, when effecting the policy or at any time before the policy matures for payment, nominate the person or persons to whom the money secured by the policy shall be paid in the event of his death:

xxx.

(2) xxx.

(3) xxx.

(4) xxx

(5) Where the policy matures for payment during the lifetime of the person whose life is insured or where the nominee or, if there are more nominees than one, all the nominees die before the policy matures for payment, the amount secured by the policy shall be payable to the policyholder or his heirs or legal representatives or the holder of a succession certificate, as the case may be.

(6) Where the nominee or if there are more nominees than one, a nominee or nominees survive the person whose life is insured, the

amount secured by the policy shall be payable to such survivor or survivors.

(7) Subject to the other provisions of this section, where the holder of a policy of insurance on his own life nominates his parents, or his spouse, or his children, or his spouse and children, or any of them, the nominee or nominees shall be beneficially entitled to the amount payable by the insurer to him or them under sub-section (6) unless it is proved that the holder of the policy, having regard to the nature of his title to the policy, could not have conferred any such beneficial title on the nominee.

(8) Subject as aforesaid, where the nominee, or if there are more nominees than one, a nominee or nominees, to whom sub-section (7) applies, die after the person whose life is insured but before the amount secured by the policy is paid, the amount secured by the policy, or so much of the amount secured by the policy as represents the share of the nominee or nominees so dying (as the case may be), shall be payable to the heirs or legal representatives of the nominee or nominees or the holder of a succession certificate, as the case may be, and they shall be beneficially entitled to such amount.

(9) xxx.

(10) The provisions of sub-section (7) and (8) shall apply to all policies of life insurance maturing for payment after the commencement of the Insurance Laws (Amendment) Act, 2015.

(11) Where a policyholder dies after the maturity of the policy but the proceeds and benefit of his policy has not been made to him

because of his death, in such a case, his nominee shall be entitled to the proceeds and benefit of his policy.

(Emphasis supplied)

12. Sub-Sections (7), (8) and (11) of Section 39

of the Act of 1938, are newly introduced by way of

amendment and relevant for discussion in this case.

13. The right of a nominee under Section 39 of

the Act of 1938, vis-à-vis the right of an heir under the

personal law, was considered in Smt. Sarbati Devi &

Anr vs Smt. Usha Devi,1 wherein the Apex Court has

held that there is nothing in Section 39 of the Act of 1938

(before amendment) to hold that the provision overrides

the law relating to succession.

14. The ratio in Smt. Sarbati Devi's case supra,

is followed in various other cases where the provisions

relating to nomination are interpreted to hold that such

provisions do not override the law relating to succession.

15. The Apex Court in Shakti Yezdani and

another v. Jayanand Jayant Salgaonkar and others2

(1984) 1 SCC 424

(2024) 4 SCC 642

has catalogued the cases which considered the conflicting

interest of a nominee under various Acts and an heir

under the law relating to succession. Paragraphs No. 40

to 44 of the said judgment are extracted as under.

Nomination under various legislations

40. In an illuminating list of precedents, this Court as well as several High Courts have dealt with the concept of "nomination" under legislations like the Government Savings Certificates Act, 1959, the Banking Regulation Act, 1949, the Life Insurance Act, 1939 (quaere Insurance Act, 1938) and the Employees' Provident Fund and Miscellaneous Provisions Act, 1952. It would be apposite to refer to what the Court said on nomination, in reference to these legislations:

           Case                              Held
     Law/Precedent
Sarbati Devi v. Usha           Nomination under Section 39 of
Devi [Sarbati Devi v. Usha     the Insurance Act, 1938 is
Devi, (1984) 1 SCC 424]        subject to the claim of heirs of
                               the assured under the law of
                               succession.

Nozer Gustad                   Nomination under Section 10(2)

Commissariat v. Central Bank of the EPF & Miscellaneous of India [Nozer Gustad Provisions Act, 1952 cannot be Commissariat v. Central Bank made in favour of a non-family of India, 1992 SCC OnLine person. Relied upon Sarbati Bom 481 : (1993) 1 Mah LJ Devi [Sarbati Devi v. Usha Devi, 228] (1984) 1 SCC 424] to state that the principles therein applied to the Employees Provident Funds Act as well and not merely restricted to the Insurance Act.

Vishin N. Nominee entitled to receive the Khanchandani v. Vidya sum due on the savings Lachmandas certificate under Section 6(1) of Khanchandani [Vishin N. the Govt. Savings Certificates

- 10 -

Khanchandani v. Vidya Act, 1959, but cannot utilise it. Lachmandas Khanchandani, The nominee may retain the (2000) 6 SCC 724] same for those entitled to it under the relevant law of succession.

Ram Chander Nomination made under the Talwar v. Devender Kumar provisions of Section 45-ZA of Talwar [Ram Chander the Banking Regulation Act, Talwar v. Devender Kumar 1949 entitled the nominee to Talwar, (2010) 10 SCC 671 : receive the deposit amount on (2010) 4 SCC (Civ) 313] the death of the depositor.

41. A consistent view appears to have been taken by the courts while interpreting the related provisions of nomination under different statutes. It is clear from the referred judgments that the nomination so made would not lead to the nominee attaining absolute title over the subject property for which such nomination was made. In other words, the usual mode of succession is not to be impacted by such nomination. The legal heirs therefore have not been excluded by nomination.

42. The presence of the three elements i.e. the term "vest", the provision excluding others as well as a the clause under Section 109-A of the Companies Act, 1956 have not persuaded us in the interpretation to be accorded vis-à-vis nomination, in any different manner. Different legislations with provisions pertaining to nomination that have been a subject of adjudication earlier before courts have little or no similarity with respect to the language used or the provisions contained therein. While the Government Savings Certificates Act, of 1959, the Banking Regulation Act, of 1949 and the Public Debts Act, of 1944 contain a non-obstante clause, the Insurance Act, of 1939 and the Cooperative Societies Act, of 1912 do not.

43. Similarly, there are variations with respect to the word "vest" being present in

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some legislations (the Employees' Provident Funds and Miscellaneous Provisions Act, 1952) and absent in others (the Insurance Act, 1939, the Cooperative Societies Act, 1912). Looking at the dissimilarities and the fact that a uniform definition is not available relating to the rights of "nominee" and/or whether such "nomination" bestows absolute ownership over nominees, it is only appropriate that the terms are considered as ordinarily understood by a reasonable person making nominations, with respect to their movable or immovable properties. A reasonable individual arranging for the disposition of his property is expected to undertake any such nomination, bearing in mind the interpretation of the effect of nomination, as given by courts consistently, for several years. The concept of nomination if interpreted by departing from the well- established manner would, in our view, cause major ramifications and create a significant impact on the disposition of properties left behind by deceased nominators.

44. The legislative intent of creating a scheme of nomination under the Companies Act, 1956 in our opinion is not intended to grant absolute rights of ownership in favour of the nominee merely because the provision contains three elements i.e., the term "vest", a non obstante clause and the phrase "to the exclusion of others" which are absent in other legislation, that also provide for nomination".

(Emphasis supplied)

16. Thus, the Apex Court dealing with the

provisions of nomination under various enactments has

held that the nomination cannot override the law relating

to succession. However, in any of the cases referred to

- 12 -

above, the amended Section 39 of the Act of 1938 came

up for discussion.

17. Before interpreting Section 39 as amended by

Act 5 of 2015, it is necessary to examine the Objects and

Reasons that necessitated the amendment of Section 39

in its present form. The amending Act commences as

under:

"An Act further to amend the Insurance Act, 1938, and the General Insurance Business (Nationalisation) Act, 1972, and to amend the Insurance Regulatory and Development Authority Act, 1999."

18. As can be readily noticed, the objects and

reasons for amendment are not spelt out at all.

19. Sri J.S. Shetty, the learned counsel appearing

for the appellant, has invited the attention of this Court

to chapter VII of 190th Report of the Law Commission of

India which dealt with nomination. The Law Commission

of India, after deliberating on the subject has

recommended to amend Section 39. The relevant portion

of the discussion in 190th Report of the Law Commission

of India (In Chapter VII, NOMINATIONS) reads as under:

- 13 -

NOMINATION

7.1.1. XXX

7.1.2. Another area, which required clarification, was that of a beneficial nominee as distinguished from a collector nominee. Under S.38 (6) where a nominee survives the insured person, the policy money would be payable to such nominee survivor. The question then arises whether this payment to the nominee is to the exclusion of the legal representatives and heirs or even creditors who may have a legitimate claim against the estate of the deceased of which the money payable on maturity of the life insurance policy forms part.

(emphasis supplied)

XXXXXXXX

The Law Commission's views

7.1.12. There appears to be a consensus of sorts on the need for drawing a clear distinction between a beneficial nominee and a collector nominee. It is not possible to agree to the suggestion made by some of the insurers that in all cases the payment to the nominee would be tantamount to a full discharge of the insurer's liability under the policy and that unless the contrary is expressed, the nominee would be the beneficial nominee. Although this is indeed the law in the USA, Canada and South Africa, the social realities of our country where the death of a sole breadwinner of the family immediately throws the remaining family into hardship cannot be lost sight of. To deny, in such an instance, the right of the legal representatives to the policy amount on the basis that the nominee is a different person seems harsh. On the other hand, what appears reasonable is to give an option to the policyholder to clearly express whether the nominee will collect the money on behalf of the legal

- 14 -

representatives (in other words such nominee will be the collector nominee) or whether the nominee will be the absolute owner of the monies in which case such nominee will be the beneficial nominee Public interest and the peculiar social realities in India cannot permit the adoption of the procedures followed in Canada, USA or South Africa. The Commission is not agreeable to the suggestion that a provision similar to S.45ZA as in the Banking Regulation Act, 1949 should be adopted.

7.1.13. The suggestion that a proviso be added to make the nomination effectual for the nominee to receive the policy money in case the policyholder dies after the maturity of the policy but before it can be encashed has also been welcomed by the responses and is hereby recommended.

Final recommendations of the Law Commission in regard to S.39

7.1.14. After considering all the responses and reexamining the entire issue, the final recommendations of the Law Commission regard to S.39 may be summarised as under:

(a) A clear distinction be made in the provision itself between a beneficial nominee and a collector nominee.

(b) It is not possible to agree to the suggestion made by some of the insurers that in all cases the payment to the nominee would tantamount to a full discharge of the insurer's liability under the policy and that unless the contrary is expressed, the nominee would be the beneficial nominee.

- 15 -

(c) An option be given to the policyholder to clearly express whether the nominee will collect the money on behalf of the legal representatives (in other words such nominee will be the collector nominee) or whether the nominee will be the absolute owner of the monies in which case such nominee will be the beneficial nominee.

(d) A proviso be added to make the nomination effectual for the nominee receive the policy money in case the policyholder dies after the maturity of the policy but before it can be encashed.

(Emphasis supplied)

Suggested amendment of S. 39 (Section 39 (1) to (6) not extracted as not relevant for discussion)

7.1.15. To give effect to the above recommendations, the Law Commission is of the view that S.39 be recast as follows:

39(1) xxxxxx (6)xxxxx

(7) Subject to the other provisions of this section, where the holder of a policy of insurance on his own life nominates his parents, or his spouse, or his children, or his spouse and children, or any of them, the nominee or nominees shall be beneficially entitled to the amount payable by the insurer to him or them under sub-section (6) unless it is proved that the holder of the policy, having regard to the nature of his title to the policy, could not have conferred any such beneficial title on the nominee.

(8) Subject as aforesaid, where the nominee, or if there are more nominees than one, a nominee or nominees, to whom sub-

section(7) applies, die after the person whose life is insured but before the amount secured

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by the policy is paid, the amount secured by the policy, or so much of the amount secured by the policy as represents the share of the nominee or nominees so dying (as the case may be), shall be payable to the heirs or legal representatives of the nominee or nominees or the holder of a succession certificate, as the case may be, and they shall be beneficially entitled to such amount.

(9) Nothing in sub-section (7) and (8) shall operate to destroy or impede the right of any creditor to be paid out of the proceeds of any policy of life insurance.

(10) The provisions of sub-sections (7), (8) and (9) shall apply to all policies of life insurance maturing for payment after the commencement of this Act.

(11) Every policyholder shall have an option to indicate in clear terms whether the person or persons being nominated by the policyholder is/are a beneficiary nominee(s) or a collector nominee(s).

Provided where the policyholder fails to indicate whether the person being nominated is a beneficiary nominee or a collector nominee it will be deemed that the person nominated is a beneficiary nominee.

Explanation: For the purposes of this sub- section the expression 'beneficiary nominee' means a nominee who is entitled to receive the entire proceeds payable under a policy of insurance subject to other provisions of this Act and the expression 'collector nominee' means a nominee other than a beneficiary nominee.

(12) The collector nominee shall make payment the benefits arising out of policy to the beneficiary nominee or his legal heirs or representative in accordance with the regulations made by the Authority.

- 17 -

(13) xxxx.

(14)xxx.

20. As can be noticed, the Law Commission

recommended a clear distinction between the

"beneficiary nominee" and the "collector nominee"

by explaining the expressions "beneficiary nominee" and

the "collector nominee".

21. Though there was a suggestion from insurance

companies to give full benefit to the nominee to the

exclusion of all, the Law Commission did not accept the

suggestion citing socio-economic conditions in India as

not suitable to incorporate such practices, found in

countries like Canada, USA, or South Africa. The Law

Commission noted that in many instances in India, family

members are dependent on the sole breadwinner/the

policyholder. Therefore, the suggestion to exclude the

legal representatives from succession in the event of

nomination is not accepted by the Law Commission.

22. However, in the recommendation, (Section

39(11) suggested by the Law Commission) the Law

Commission suggested that an option should be given to

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the policyholder to clearly express whether the nominee

will collect the money on behalf of the legal

representatives or whether the nominee would be the

beneficiary nominee.

23. However, the suggestion for providing an

option to declare the nature of the nomination,

(beneficiary nominee or collector nominee) and in the

absence of such declaration, treating the nominee as a

beneficiary nominee, is not accepted by the Parliament as

the amended provision provides no such option.

24. The amended provision does not incorporate

the clause to declare the nature of the nominee

(beneficiary or collector) as suggested by the Law

Commission. The clause to treat the nominee as the

beneficiary nominee in the absence of any declaration by

the policy holder as to the nature of nomination,

suggested by the Law Commission is also not found in

the amended provision.

25. As already noticed, there are multiple

instances of various High Courts taking different views

on the effect of nomination on the right of an heir under

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the personal law governing succession. Finally the Apex

Court, interpreting different provisions of different Acts

(not amended Section 39 of the Act of 1938) relating to

nomination has held that such provisions do not override

the personal law relating to succession.

26. It is required to be emphasised that the Apex

Court and various Courts, despite the use of the

expression "vest absolutely" or "Notwithstanding

anything contained in any law for the time being in

force" and "to the exclusion of all" in various

provisions of law governing nominations have held that

such provisions have to be understood in the background

of the scheme of the Act in which the provisions relating

to nomination are found. The contentions suggesting

nomination overriding the provisions of law have been

rejected, in various decisions.

27. It is necessary to consider the fields of

legislation of the law relating to Insurance and

Succession in the Constitutional Scheme. The

"Insurance" as a subject is found in Entry No.47 in List-I

of Seventh Schedule of the Constitution of India.

- 20 -

"Succession" is found in Entry No.5 in List-III of Seventh

schedule. Though, the Union has legislative competence

over both the subjects namely, Insurance and

Succession, both subjects find place in different Entries.

Accordingly, there are different enactments relating to

Succession and Insurance which do not overlap the other.

28. It hardly needs to be emphasized that the Act

of 1938, was not conceived to provide law relating to

Succession over the benefits flowing from the insurance

policy. Insurance Act does not deal with issues relating to

Succession. The whole object of providing insurance is to

cover the risk of the "family of the insured". Treating

certain class of nominee/s as exclusive successors to the

benefit flowing from the policy, to the exclusion of heirs

who are not named in the nomination form will defeat the

very purpose of the Act of 1938 which seeks to cover the

risk of the family/dependants of the policy holder.

29. There are few more circumstances which

suggest that the Parliament did not intend to override the

law relating to succession by amending Section 39 of the

Act of 1938. Certain recommendations of the Law

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Commission noted below are not part of the amended

Section 39. Those recommendations which the

Parliament did not include are;

a. Section 39 (11) suggested by the Law Commission of India, which provided for a declaration as to whether the nominee is a collector nominee or a beneficiary nominee.

b. Proviso to Section 39 (11) suggested by the Law Commission of India, which provided that in the absence of a declaration as to whether the nominee is a collector nominee or a beneficiary nominee, the nominee is deemed to be a beneficiary nominee.

c. The explanation of the term "Beneficiary Nominee" as provided in the explanation to Section 39(11) suggested by the Law Commission of India.

30. The above noted suggestions of Law

Commission of India (which are not found in the

amended provision) would indicate that the Law

Commission wanted certain class of nominee/s to exclude

the heirs under law from claiming rights. And for these

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reasons, it wanted a marked distinction to be spelt out in

the category of nominees and also a declaration to be

made by the policy holder as to whether the nominee is a

collector nominee or beneficiary nominee. The Law

Commission also suggested an explanation of the term

"beneficiary nominee". However the Parliament has not

chosen to incorporate the same. These circumstances

suggest that the parliament did not want the provision

relating to nomination to override the law relating to

nomination.

31. Indeed, it is true that the Apex Court in

Smt. Sarbati Devi supra, has noted that there is no

amendment to Section 39 of the Act of 1938 suggesting a

"third mode of succession" and later in 2015, there is an

amendment. Going by the tenor of the judgment in

Smt. Sarbati Devi supra and the language used in

amended Section 39 of the Act of 2015, it is difficult to

hold that the 2015 amendment is good enough to

recognize a "third mode of succession" other than non-

testamentary and testamentary succession provided

under the law relating to succession.

- 23 -

32. It is also relevant to note that Section 39(7)

includes "parents" as a "nominees" entitled to "beneficial

interest". In other words "father" of a policyholder who is

otherwise a Class-II heir is grouped with Class-I heirs

like, wife, mother, and children. To put it differently,

Section 39(7) and (8) of the Act of 1938, seem to

suggest a different category of succession not provided in

personal law, (Hindu Succession Act) but running

contrary to personal law. The provision meddling with the

law of succession does not fit in the Scheme of the Act of

1938 which occupies a different field in the Seventh

Schedule as compared to "Succession'' which is found in

a different List and Entry. In the light of the discussions

made above, it is difficult to hold that the Parliament has

enacted a parallel law relating to succession in so far as

benefits flowing from the policy of insurance.

33. However, the case cannot be concluded

without discussing Sections 39(7) and (8) of the Act of

1938. These two sub-Sections recognize parents, children

and spouses of the policyholder as a special category of

nominee. Section 39 (7) provides that the above-named

- 24 -

relatives if nominated individually or collectively or in

some combination among them, would be entitled to

"beneficial interest". What is "beneficial interest" is not

defined in the Act.

34. Section 39(8) provides for conferring benefits

to the legal representatives of such beneficiary nominee

in case the beneficiary nominee dies before the benefits

are paid to such nominee. By way of interpretation, it is

indeed permissible to take a view that the "beneficiary

nominee" excludes all heirs under the law relating to

succession. The Andhra Pradesh High Court in Karanam

Sirisha vs IRDA and others3 and Mallela Manimala

vs Mallela Lakshmi Padmavathi and others4 has

taken a view that amended Section 39(7) and (8)

override provisions of the law relating to non-

testamentary succession. Though the ratio in the above-

said judgment appears to be correct on a plain reading of

Section 39 of the Act of 1938, as amended, on

consideration of various aspects discussed above, more

2022 SCC Online AP 2772

2023 SCC Online AP 459

- 25 -

particularly the view of the Apex Court in Shakti

Yezdani's case supra, where the provisions of law

providing for nominations, which expressly provided to

override the law relating to succession, this Court is of

the view that Section 39 does not override the provisions

of law relating to succession.

35. It is also relevant to note that Section 39(10)

of the Act of 1938 provides that the amended provision

would apply to all insurance policies maturing after the

commencement of the Act of 5 of 2015. In other words, it

applies to all policies obtained even before the concept of

beneficiary nominee is introduced in the Act. Though, it is

possible to change the nomination, given the low

awareness of law among the public, the mischief would

be, law relating to succession becomes inoperative to

certain extent in certain situation if it is held that

provision overrides law relating to succession. Such

mischief is to be avoided. Heydon's Rule is well accepted

tool that is applied to suppress the mischief and to

advance the remedy when the law is capable of dual

interpretation.

- 26 -

36. Keeping in mind, the ratio laid down in

Shakti Yezdani's case supra, and the recommendations

made by the Law Commission of India, and partial

acceptance and partial (implied) rejection of the

recommendations by the Parliament, and the application

of Heydon's Rule for the reasons assigned above, this

Court has to conclude that amended Section 39 is not

intended to override the provisions of law relating to

succession.

37. However, Sections 39(7) and (8) should carry

some meaning and cannot be rendered otiose. By taking

into consideration the recommendations of the Law

Commission, the effect of ratio in Shakti Yezdani's case

supra, which has held that the nominee will not acquire a

better right than the natural heir, this Court is of the view

that the expression "beneficial interest" appearing in

Section 39(7) and "beneficial title" appearing in Section

39(8) should be interpreted to say, that such nominee/s

or their legal representatives recognised in Sections

39(7) and 39 (8) will get beneficial title over the benefits

flowing from the insurance policy, if the testamentary and

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non-testamentary heirs do not claim the benefits flowing

from the insurance policy. To put it differently, under the

unamended provision, the nominee had an obligation to

distribute the benefits flowing from the policy to the legal

heirs. Under Section 39(7), there is no such obligation as

long as there is no claim by the legal heirs. In the

absence of any claim by legal heirs, the title vests in

beneficiary nominee. However, if there is a claim by the

legal heir/s, then the nominee's claim has to yield to the

personal law governing succession.

38. As already discussed, in two judgments the

Andhra Pradesh High Court, and in one judgment the

Rajasthan High Court have taken a view that the

provision will override the law relating to succession. Said

interpretation also appears to be a plausible

interpretation. However, unlike in those cases, this Court

had the benefit of the ratio in Shakti Yezdani's case

supra. This Court is also aware that in Shakti Yezdani's

case supra, amended Section 39 of the Act was not under

discussion but law relating to nomination under the

Companies Act was under consideration.

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39. In addition to the reasons assigned, this Court

has also noticed the following things to arrive at a

different view than the view taken by Andhra Pradesh

and Rajasthan High Courts:

(a) The Objects and Reasons are silent as to why the amendment was introduced. The mischief in the old provision is not discussed and so also no discussion as to what is sought to be remedied by way of an amendment.

(b) The provision does not define the expression "beneficial interest". Does it mean "beneficial title" or not is not clarified.

(c) The provision does not provide for an option to declare the nominee named in Section 39 (7) as a "collector nominee" and by default he becomes "beneficiary nominee" though the policy holder may not carry such intention.

(d) The provision does not say as to whether it overrides the personal law relating to succession. The personal law, passed by the Parliament, providing a particular mode of succession, which at times run contrary to nomination is not amended and still

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operates. Two conflicting legislations (relating to succession ) are not envisaged in the scheme of the Constitution.

(e) The nominees grouped as the "beneficiary nominee" include the 'father' of the policyholder who is a Class II heir and other nominees are Class-I heirs namely spouse, mother and children. At the same time, Class-I heirs namely the children of a predeceased son or daughter or widow of a predeceased son who are Class-I heirs are left out from the category of "beneficiary nominees" which tend to run contrary to the object of insurance which is aimed at covering the risk of the family of the policyholder.

40. One comes across many situations where

various Courts express different views interpreting the

same law. This happens because of ambiguity or lack of

clarity in the language of law. The provision relating to

nomination vis-à-vis law relating to succession is one

such instance. Conflicting views by various Courts create

confusion, lead to multiplicity of litigation, and cause

delays in the disposal of cases.

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41. Being conscious of the fact that Courts do not

have legislative power, a few things are discussed below

to invite the attention of the stakeholders to

debate/deliberate and to come out with better practices

when it comes to enacting or amending a law.

(i) The Objects and Reasons for enacting a or

amending a law must contain a clear

unambiguous statements as to why the

law is introduced, what is the mischief

sought to be remedied by way of

amendment.

(ii) Whenever the law is amended, the law

must in clear specific terms state as to

whether the amendment is prospective or

retrospective in its operation. Whether the

amendment is prospective or retrospective

should not be left to speculation or

interpretation by resorting to tools/rules of

interpretation by interpreting the terms

like "inserted" "amended" "substituted"

and the like which are used to amend the

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law. Rules of interpretation cannot have a

universal application and it will have its

own limitation in ascertaining the intention

of the legislator.

(iii) Acts like the Indian Contract Act, Transfer

of Property Act, Indian Evidence Act etc

have plenty of illustrations which explain

the law with clarity and precision.

Wherever needed, the law should be

explained with illustrations which provide

clarity to the provision of law. The practice

appears to have been completely

forgotten, and it is high time that such

good practice is revived to bring in much

needed clarity in law.

(iv) Whenever different High Courts take a

different view in interpreting the law, the

law maker should spring into action and

clarify the position by way of an

amendment and should not wait for the

issue to be resolved by the Apex Court as

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the process may take a considerably long

time. To cite an example, the controversy,

whether Section 6 of the Hindu Succession

Act, 1956 as amended in 2005, is

prospective or retrospective is finally

resolved in 2019, 14 years after the

amendment. As soon as different High

Courts took a different view, an amendment

clarifying the position would ensure the

timely resolution of many cases.

(v) There should be a conscious endeavor to

frame/structure the law in simplest and

easy to follow short sentences. The wholly

undesirable practice of framing law, with

long and complicated sentences is to be

discarded at any cost. After all, the law is

meant for a common man to understand

and follow. The law should never be a riddle

or puzzle to be solved by a trained legal

mind.

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42. Coming to the facts of the case, the appellant

who is the mother of late Ravi Somanakatti, the insured,

is one of the Class-I heirs, along with widow and minor

son of the insured. Since this Court has taken a view that

the Section 39 of the Act of 1938 does not override the

provisions of Hindu Succession Act, 1956, the appellant

who is the a nominee described in Section 39 (7) of the

Act of 1938 cannot claim absolute ownership over the

benefits flowing from the insurance policy as other Class-I

heirs of the deceased have also laid a claim over the

benefits flowing from the policy.

43. Though the Trial Court has not noticed the

amended Section 39 and decreed the suit for partition by

referring to un-amended Section 39, this Court is

confirming the judgment and decree for the reasons

already recorded.

44. Hence, the following:

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                             ORDER


    (i)     Appeal is dismissed.


    (ii)    Respondents No.3 and 4 shall deposit the

benefits flowing from the insurance policies

which are the subject matter of the suit,

before the Trial Court, along with interest if

any, payable.

(iii) On such deposit being made, the Trial Court

shall disburse 1/3rd of the said amount in

favour of each of the plaintiffs and 1/3rd in

favour of the defendant.

(iii) Since, plaintiff No.2 is a minor, the amount

payable to plaintiff No.2 shall be kept in fixed

deposit in any nationalised bank till plaintiff

No.2 attains majority. Plaintiff No.1-mother is

appointed as the natural guardian of plaintiff

No.2 during his minority.

Sd/-

(ANANT RAMANATH HEGDE) JUDGE GVP/GAB/BRN