Madras High Court
K.R.Sakthi Murugeswari vs The Divisional Manager on 16 October, 2023
2023/MHC/4812
W.P.(MD)No.11044 of 2021
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
DATED : 16.10.2023
CORAM
THE HONOURABLE MR.JUSTICE N.ANAND VENKATESH
W.P.(MD)No.11044 of 2021
and
W.M.P.(MD).No.8674 of 2021
K.R.Sakthi Murugeswari ... Petitioner
Vs.
1.The Divisional Manager
Divisional Office,
Life Insurance Corporation of India,
Tiruvandrum Road,
Palayamkottai, Tirunelveli- 627 002.
2.The Branch Manager,
Life Insurance Corporation of India,
Unit-I, Trivandrum Road,
Palayamkottai, Tirunelveli- 627 002.
3.S.Muthuvel Raj ...Respondents
PRAYER: Writ Petition filed under Article 226 of the Constitution of
India for issuance of Writ of Certiorarified Mandamus, calling for the
records pertaining to the 2nd Respondent herein in his proceedings dated
24.06.2021 and quash the same and consequently direct the 1st and 2nd
Respondents to disburse the assured claim amount arising from LIC policy
1/35
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No. 321878120 to the Petitioner and her son as legal heirs of deceased
S.Arul.
For Petitioner : Mr.P.Karthick
For Respondents : Mr.C.Karthick
(R-1 & R-2)
: Mr.Mahoob Athiff
(For R-3)
ORDER
This Writ Petition has been filed challenging the impugned
communication dated 24.06.2021 of the second respondent informing the
petitioner that the insurance claim amount will be paid only in favour of
the nominee and for a consequential direction to the first and second
respondents to disburse the assured claim amount to the petitioner and her
son, who are the legal heirs of the deceased S.Arul.
2. The case of the petitioner is that she got married to late
S.Arul in the year 2016 and through this marriage, they had a son named
Aswath. The husband of the petitioner was infected with Covid-19 and
unfortunately, he died on 13.05.2021. The husband of the petitioner had
subscribed a LIC policy with the second respondent for the sum assured at
Rs.3,00,000/- (Rupees Three Lakhs only). After the demise of the
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husband, the petitioner made a claim for the sum assured. On receipt of
the communication from the petitioner, the second respondent through
impugned letter dated 24.06.2021 informed the petitioner that the deceased
had nominated his brother, viz., the third respondent / S.Muthuvel Raj as
the nominee and therefore, the claim will be paid only in favour of the
nominee. Aggrieved by the same, the present Writ Petition has been filed
before this Court. The first and second respondents have filed a counter
affidavit. For proper appreciation, the relevant portions in the counter
affidavit are extracted hereunder:
“4) I submit that as the policy is in force on
the date of death of the assured Mr.S.Arul, Rs.
3,00,000/- + the bonus of Rs.2,02,500/- totally Rs.
5,02,500/- is payable under the policy if the claim
is admitted after receipt of all requirements. Since
the nominee has applied for the policy amount by
producing the original policy and the claim
papers, our Insurance Company was not
considered the claim of the Writ petitioner and to
that effect we have sent a letter dated 16.06.2021
to the writ petitioner by stating that "as a valid
nominee exists under the given policy, we are in
order to consider the claim in favour of the
nominee only. This is for your kind information."
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In the meantime the 3rd Respondent has received
back the original policy along with the other
papers submitted for the claim from our Branch
office as referred above.
5) I submit that since there are two claims
for this policy amount i.c. one by the 3rd
Respondent and the other by the writ petitioner as
referred above, we are not in a position to take a
decision in respect of the policy amount payable to
whom. In any way we are ready to abide by the
order of this Hon'ble Court in paying the policy
amount with the Bonus to the person/persons as
ordered by this Hon'ble Court, If the claim is in
order and admitted on our side.”
3. Heard the learned counsel appearing for the petitioner as
well as the learned counsel appearing for respondent Nos.1 and 2 and the
learned counsel appearing for the third respondent.
4. The short issue that arises for consideration in this Writ
Petition is as to whether the impugned communication of the second
respondent requires the interference of this Court and this Court has to
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issue a consequential direction to the first and second respondents to pay
the assured claim amount to the petitioner and her son.
5. There is no serious dispute on the facts of the case and
therefore, the facts does not require any reiteration. The law as it stood
before the coming into force of the Amendment Act, 2015, was that the
nominee merely receives the assured sum from the Insurance Company in
his or her capacity as a collector nominee and insofar as the claim over the
sum assured, the parties are relegated back to the personal law which
governs them. Therefore, in many cases, the collector nominee merely
retains the amount in trust, subject to working out the final claim between
the parties before the competent Court. An amendment was brought to the
Insurance Act, 1938 in the year 2015. By virtue of this amendment, the
line that was drawn between a beneficiary nominee and collector nominee
stood almost obliterated. The nominee about whom Section 39 of the
Insurance Act, 1938, talks about is considered to be a beneficiary nominee
and the concept of collector nominee has been done away with. To
properly understand the position of law, it will be appropriate to extract
Sub Sections 7 to 10 of Section 39 of the Insurance Act, 1938, hereunder:
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“39.Nomination by Policy holder:-
(1)...
(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
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holder of a succession certificate, as the case may
be, and they shall be beneficially entitled to such
amount.
(9) Nothing in sub-sections (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) and
(8) shall apply to all policies of life insurance
maturing for payment after the commencement of
the Insurance Laws (Amendment) Act, 2015.
.....”
6. The above change that was brought in through the 2015
Amendment Act was dealt with by the Delhi High Court in the case of
Shweta Singh Huria and others Vs. Santhosh Huria and another
reported in AIR 2021 Delhi 121. The relevant portions in the Judgment
are extracted hereunder:
“18. It was submitted that amendment to
Section 39 was made pursuant to 190th Report of
the Law Commission, wherein the judgment in
Sarbati Devi vs. Usha Devi (1984) 1 SCC 424 was
also considered. In the said decision, the Supreme
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Court held that nomination would not confer any
beneficial interest on the nominee and it is a mere
authorization to receive the insurance amount,
which can be claimed by the legal heirs of the
assured in accordance with law of succession,
governing the parties. The judgment has been
followed successively by various High Courts in a
long line of cases, holding that mere nomination
effected under Section 39 shall not deprive the
legal heirs to the amount under the Insurance
Policies. However, as per Ms. Gambhir, the said
judgments would be of no avail to Respondent No.
1 as the said decisions are based on the
unamended Section 39, while the present case
relates to policies which have matured in 2018,
post the 2015 Amendment.
19. Learned counsel for the Appellants
relied upon the judgement of Rajasthan High
Court in Ramgopal & Ors. vs. General Public &
Ors., S.B. Civil Misc. Appeal No. 27/2018 decided
on 05.04.2019, wherein according to her,
judgement in Sarbati Devi (supra) was
distinguished in view of the 2015 Amendment and
Court held that wherever the provisions of
amended section 39 will be applicable, beneficial
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nominee shall be entitled to the benefits under the
insurance policies, to the exclusion of any other
legal heir, who is not a nominee.
20. Per contra, Mr. Rakesh Wadhwa
learned counsel for Respondent No. 1 opposed the
appeal and submitted that the partial decree has
been rightly passed by the Trial Court on an
application under Order XII Rule 6 CPC.
Drawing the attention of the Court to the said
provision, learned counsel argued that based on
admission of facts in the pleadings or otherwise,
orally or in writing, it is open to the Court, at any
stage of the suit, without waiting for
determination of any other question between the
parties, to make such order or give a judgment,
having regard to the admissions. Appellant No.1
admitted in the written statement that she had
received a sum of Rs. 2,48,53,000/- as well as
money under two policies as a nominee of the
deceased. Being the mother, Respondent No. 1 is
a Class-I legal heir and entitled to 1/4th share
and there is no infirmity in the order of the Trial
Court, as the admissions were clear and
unambiguous.
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21. It is argued that reliance of the
Appellants on the Insurance Act, 1938 as
amended by Insurance Laws (Amendment) Act,
2015 is misplaced in view of the settled law that a
nominee does not have an absolute right over the
estate of the deceased, as nomination is not a
'Will'. Several Courts have held from time to time
that a nominee in an insurance policy only acts as
a receiver on behalf of the legal heirs of the
deceased policy holder and once the money is
received by the nominee, disbursement under the
policy, has to follow the testamentary disposition
under the law of succession, which cannot be
overridden by the Insurance Act, 1938, even after
the said amendment. No judgment has been cited
by the counsel for the Appellants which denies a
legal heir the right to claim the amounts payable
under the Insurance Policy and on the contrary it
has been held that a policy holder continues to
hold interest in the policy during his lifetime and
the nominee acquires no interest during the
lifetime of a policy holder. On the death of a
policy holder, the amount payable under the
policy becomes a part of his estate and will be
disbursed in accordance with the law of
succession, either testamentary or intestate.
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Nomination is only for the benefit of the insurer
so that he gets a valid discharge of its liability
under the policy and is not embroiled in the
litigations inter-se the legal heirs of the insured.
Reliance was placed by Mr. Wadhwa on the
following judgments to support his contentions.
i. Smt. Sarbati Devi & Anr. Vs. Smt. Usha
Devi (1984) 1 SCC ii. Shipra Sengupta Vs. Mridul
Sen Gupta & Ors. (2009) 10 SCC 680.
ii. Shipra Sengupta Vs. Mridul Sen Gupta
and others(2009) 10 SCC 680:(AIROnline 2009
SC 408).
iii. Shakti Yezdani & Anr. Vs. Jayanand
Jayant Salgaonkar & Ors. Appeal No. 313 of
2015 decided by Bombay High Court on
01.12.2016.
iv. Smt. Rampali Vs. The State Govt. of NCT
of Delhi & Ors.FOA No. 184/2017 decided by
Hon'ble High Court of Delhi on 24.04.2017.
v. Khushboo Gupta Vs. The Life Insurance
Corporation of India & Ors. CWJC No. 12012 of
2018 : (AIROnline 2019 PAT 1526) decided on
25.09.2019.
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vi. Oswal Greentech Ltd. Vs. Mr. Pankaj
Oswal & Ors. CA No.410 of 2018 decided by
National Company Law Appellate Tribunal, Delhi
on 14.11.2019.
vii. S. Shafeek & Ors. Vs. State of Kerala
2020 SCC Online Ker 636.
viii.Smt.Ramayee Vs. the Principal
Comptroller of Defence and others. W.P.
(MD).No.18544 of 2016 decided on 17.02.2020.”
27. The proposition of law laid down by the
Supreme Court in Sarbati Devi (supra) and relied
upon by counsel for the Respondent cannot be
disputed and is a binding dictum. The Supreme
Court held that nomination would not confer any
beneficial interest on the nominee under an
insurance policy and a nominee is only an
authorized hand to receive the insurance amount,
which is subject to be disbursement amongst the
legal heirs under the law of succession, governing
the parties. In fact, the said judgment has been
followed subsequently in a long line of judgments
not only by this Court but different High Courts
from time to time. Relevant paras of Sarbati Devi
(supra) are as under:-
"5. We shall now proceed to analyse the
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provisions of Section 39 of the Act. The said
section provides that a 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. If the nominee is a minor,
the policy- holder may appoint any person to
receive the money in the event of his death during
the minority of the nominee. That means that if the
policy-holder is alive when the policy matures for
payment he alone will receive payment of the
money due under the policy and not the nominee.
Any such nomination may at any time before the
policy matures for payment be cancelled or
changed, but before such cancellation or change
is notified to the insurer if he makes the payment
bona fide to the nominee already registered with
him, the Patna High Court CWJC No.12012 of
2018 dated 25-09-2019 insurer gets a valid
discharge. Such power of cancellation of or
effecting a change in the nomination implies that
the nominee has no right to the amount during the
lifetime of the assured. If the policy is transferred
or assigned under Section 38 of the Act, the
nomination automatically lapses. If the nominee
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or where there are nominees more than one all
the nominees die before the policy matures for
payment the money due under the policy is
payable to the heirs or legal representatives or
the holder of a succession certificate. It is not
necessary to refer to sub-section (7) of Section 39
of the Act here. But the summary of the relevant
provisions of Section 39 given above establishes
clearly that the policy-holder continues to hold
interest in the policy during his lifetime and the
nominee acquires no sort of interest in the policy
during the lifetime of the policy-holder. If that is
so, on the death of the policy-holder the amount
payable under the policy becomes part of his
estate which is governed by the law of succession
applicable to him. Such succession may be
testamentary or intestate. There is no warrant for
the position that Section 39 of the Act operates as
a third kind of succession which is styled as a
'statutory testament' in para 16 of the decision of
the Delhi High Court in Uma Sehgal case [AIR
1982 Del 36 : ILR (1981) 2 Del 315] . If Section
39 of the Act is contrasted with Section 38 of the
Act which provides for transfer or assignment of
the rights under a policy, the tenuous character of
the right of a nominee would become more
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pronounced. It is difficult to hold that Section 39
of the Act was intended to act as a third mode of
succession provided by the statute. The provision
in sub-section (6) of Section 39 which says that
the amount shall be payable to the nominee or
nominees does not mean that the amount shall
belong to the nominee or nominees. We have to
bear in mind here the special care which law and
judicial precedents take in the matter of execution
and proof of wills which have the effect of
diverting the estate from the ordinary course of
intestate succession and that the rigour of the
rules Patna High Court CWJC No.12012 of 2018:
(AIR Online 2019 pat 1526) dated 25-09-2019
governing the testamentary succession is not
relaxed even where wills are registered.
xxx xxx xxx
8. We have carefully gone through the
judgment of the Delhi High Court in Uma Sehgal
case [AIR 1982 Del 36 : ILR (1981) 2 Del 315] .
In this case the High Court of Delhi clearly came
to the conclusion that the nominee had no right in
the lifetime of the assured to the amount payable
under the policy and that his rights would spring
up only on the death of the assured. The Delhi
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High Court having reached that conclusion did
not proceed to examine the possibility of an
existence of a conflict between the law of
succession and the right of the nominee under
Section 39 of the Act arising on the death of the
assured and in that event which would prevail. We
are of the view that the language of Section 39 of
the Act is not capable of altering the course of
succession under law. The second error
committed by the Delhi High Court in this case is
the reliance placed by it on the effect of the
amendment of Section 60(1)(kb) of the Code of
Civil Procedure, 1908 providing that all moneys
payable under a policy of insurance on the life of
the judgment debtor shall be exempt from
attachment by his creditors. The High Court
equated a nominee to the heirs and legatees of the
assured and proceeded to hold that the nominee
succeeded to the estate with all 'plus and minus
points'. We find it difficult to treat a nominee as
being equivalent to an heir or legatee having
regard to the clear provisions of Section 39 of the
Act. The exemption of the moneys payable under a
life insurance policy under the amended Section
60 of the Code of Civil Procedure instead of
'devaluing' the earlier decisions which upheld the
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right of a creditor of the estate of the assured to
attach Patna High Court CWJC No.12012 of
2018 dated 25-09-2019 the amount payable under
the life insurance policy recognises such a right
in such creditor which he could have exercised
but for the amendment. It is because it was
attached the Code of Civil Procedure exempted it
from attachment in furtherance of the policy of
Parliament in making the amendment. The Delhi
High Court has committed another error in
appreciating the two decisions of the Madras
High Court in Karuppa Gounder v. Palaniamma
[AIR 1963 Mad 245 at para 13 : (1963) 1 MLJ
86 : ILR (1963) Mad 434] and in B.M. Mundkur
v. Life Insurance Corporation of India [AIR 1977
Mad 72 : 47 Com Cas 19 : (1977) 1 MLJ 59 : ILR
(1975) 3 Mad 336] . The relevant part of the
decision of the Delhi High Court in Uma Sehgal
case [AIR 1982 Del 36 : ILR (1981) 2 Del 315]
reads thus: (AIR p. 40, paras 10, 11) "10. In
Karuppa Gounder v. Palaniamma [AIR 1963 Mad
245 at para 13 : (1963) 1 MLJ 86 : ILR (1963)
Mad 434] , K had nominated his wife in the
insurance policy. K died. It was held that in
virtue of the nomination, the mother of K was not
entitled to any portion of the insurance amount.
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xxx xxx xxx
12. Moreover there is one other strong
circumstance in this case which dissuades us from
taking a view contrary to the decisions of all other
High Courts and accepting the view expressed by
the Delhi High Court in the two recent judgments
delivered in the year 1978 and in the year 1982.
The Act has been in force from the year 1938 and
all along almost all the High Courts in India have
taken the view that a mere nomination effected
under Section 39 does not deprive the heirs of
their rights in the amount payable under a life
insurance policy. Yet Parliament has not chosen
to make any amendment to the Act. In such a
situation unless there are strong and compelling
reasons to hold that all these decisions are wholly
erroneous, the Court should be slow to take a
different view. The reasons given by the Delhi
High Court are unconvincing. We, therefore, hold
that the judgments of the Delhi High Court in
Fauza Singh case [AIR 1978 Del 276] and in
Uma Sehgal case [AIR 1982 Del 36 : ILR (1981)
2 Del 315] do not lay down the law correctly.
They are, therefore, overruled. We approve the
views expressed by the other High Courts on the
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meaning of Section 39 of the Act and hold that a
mere nomination made under Section 39 of the
Act does not have the effect of conferring on the
nominee any beneficial interest in the amount
payable under the life insurance policy on the
death of the assured. The nomination only
indicates the hand which is authorised to receive
the amount, on the payment of which the Patna
High Court CWJC No.12012 of 2018 dated
25-09-2019 insurer gets a valid discharge of its
liability under the policy. The amount, however,
can be claimed by the heirs of the assured in
accordance with the law of succession governing
them."
28. However, the contention of the
Appellant is that Section 39 of the Insurance Act,
1938 was amended by The Insurance Laws
(Amendment) Act, 2015 which has come into force
w.e.f 26.12.2014 and by virtue of amended sub-
section (7) of Section 39, nominee has a beneficial
interest in the amount payable under the Life
Insurance Policy, on the death of the assured and
no longer remains a mere receiver nominee,
whose rights under the unamended Section were
subject to rights and claims of the legal heirs
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under the law of succession.
29. In order to appreciate the legal nodus
that arises, it is imperative to compare and
contrast relevant provisions of the unamended
and amended Sections 39, respectively, which are
extracted hereunder for ready reference:-
Unamended Section 39:-
"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.
(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) The provisions of this section shall not
apply to any policy of life insurance to which
Section 6 of the Married Women's Property Act,
1874 applies or has at any time applied:
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Amended Section 39:
39. (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.
(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.
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(10) The provisions of sub-sections (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.
30. Section 39 was amended by the
amending Act No. 5 of 2015 and was pursuant to
the recommendations of 190th Report of the Law
Commission of India, relevant passages from
which are as under:-
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
tantamount to a full discharge of the insurer"s
liability under the policy and that unless the
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contrary is expressed, the nominee would be the
beneficial nominee. Although it is true that this is
the law in 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 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 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.45 ZA as in the Banking Regulation
Act, 1949 should be adopted.
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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 Section 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.
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(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 to receive the policy
money in case the policyholder dies after the
maturity of the policy but before it can be
encashed.
Suggested Amendment of Section 39:-
"7.1.15 To give effect to the above
recommendations, the Law Commission is of the
view that s.39 be recast as follows:
xxx xxx xxx
(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
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W.P.(MD)No.11044 of 2021
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.
xxx xxx xxx
(10) The provisions of sub-sections (7), (8) and
(9) shall apply to all policies of life insurance
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W.P.(MD)No.11044 of 2021
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."
31. As is evident from a reading of the
recommendations of the Law Commission, a
distinction was carved out between 'beneficiary
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W.P.(MD)No.11044 of 2021
nominee' and 'collector nominee' and Section 39
of the Insurance Act, 1938 was amended
accordingly, adding sub-Section (7). Beneficiary
nominee means a nominee who was entitled to
receive the entire proceeds under an insurance
policy and a collector nominee means a nominee
other than a beneficiary nominee. Keeping this
distinction in mind, sub-section (7) of Section 39
was carefully and cautiously drafted and the
words used by the legislature are 'beneficial
interest'.”
7. A careful reading of the above Judgment brings to light the
fact that the dictum of the Hon’ble Apex Court in Sarbati Devi case to the
effect that a mere nomination would not confer any beneficial interest on
the nominee under an insurance policy, has undergone a change by virtue
of the amendment that was brought in by the Parliament to Section 39 of
the Insurance Act, 1938. Before this amendment was brought in, the Law
Commission had also submitted its views and the Law Commission wanted
to specifically carve out the distinction between the beneficiary nominee
and the collector nominee. However, when the legislature amended
Section 39 of the Insurance Act, 1938 and brought in Sub Sections 7 and
8, the very concept of collector nominee has been done away with. This
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W.P.(MD)No.11044 of 2021
was taken into consideration by the Delhi High Court and considering the
facts and circumstances of that case, the nominee, who was appointed
under the Policy was held to be a beneficiary nominee and was hence,
entitled to appropriate the entire sum assured.
8. There is yet another reason as to why this Court has to hold
that the nominee takes the sum assured absolutely. For this purpose, Sub
Section 8 to Section 39 of the Insurance Act, 1938, becomes relevant. This
provision states that even if in case the nominee dies, the legal heirs / legal
representatives of the nominee will be entitled to the sum assured
absolutely. This gives a clear indication that the nominee, who is
nominated by the policy holder takes the sum assured absolutely and for all
purposes, he is treated as a beneficiary nominee.
9. The facts of the case before the Delhi High Court did not
pose any difficulty for the Court to arrive at a conclusion, since it was a
dispute between the wife and the mother-in-law and both of them are
entitled to be treated as beneficiary nominees under Sub Section 7 to
Section 39 of the Insurance Act, 1938. In the instant case, the third
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W.P.(MD)No.11044 of 2021
respondent is the brother of the deceased and the petitioner is the wife of
the deceased. Therefore, the question is whether the brother / the third
respondent can be fit in as a beneficiary nominee by disregarding the right
of the wife, by virtue of Section 39 (7) of the Insurance Act, 1938.
10. The learned counsel for the petitioner submitted that the
nominees who have been dealt with under Section 39(7) of the Insurance
Act, 1938, have been specifically identified and hence, in order to be a
beneficiary nominee, the party has to necessarily fall within the scope of
Section 39(7) of the Act.
11. Per contra, the learned counsel appearing for the third
respondent submitted that the provision does not specifically deal with the
concept of collector nominee and this concept has been done away with
and therefore, any person, who has been nominated will have to be
necessarily considered only as a beneficiary nominee and the so-called
restriction under Section 39 (7) of the Act will not in any way deprive the
third respondent from receiving the sum assured from the Insurance
Company.
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W.P.(MD)No.11044 of 2021
12. A beneficiary nominee means a nominee who is entitled to
receive the entire sum assured under the insurance policy absolutely. On
the other hand, a collector nominee means a nominee other than a
beneficiary nominee It is true that on a plain reading of Section 39(7) of
the Act, this distinction has been done away with. However, the legislature
was careful enough to identity who all will fall within the category of
nominees who in law will be considered as a beneficiary nominee. While
categorizing those persons, the legislature was careful enough to bring in
the parents, spouse, children, spouse and children or any of them. If the
legislature had thought it fit to make everyone as a beneficiary nominee,
there was no need for the legislature to specifically prescribe those persons
who will fall within the ambit of Section 39 (7) of the Insurance Act, 1938.
The fact that such a conscious description of persons, who fall under
Section 39(7) of the Act has been prescribed by the legislature, shows that
the legislature only wanted those persons who are closely related to the
deceased policy holder alone to be treated as beneficiary nominees. In the
instant case, the third respondent is admittedly the brother of the deceased
policy holder and the third respondent cannot be brought within the scope
of Section 39(7) of the Act. If the third respondent cannot be brought
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W.P.(MD)No.11044 of 2021
within the scope of Section 39(7) of the Act, it would only mean that he
will be treated as a collector nominee. The Insurance Company cannot
deal with the inter-se rights and the claim between the petitioner and the
third respondent and the company has to entrust the sum assured to
someone who has been nominated under the policy. By handing over the
sum assured to the nominee, the job of the Insurance Company comes to an
end. Thereafter, it is not the concern of the Insurance company to see as to
who has the rightful claim over the sum assured and whether it actually
goes into their hands as per the personal law governing the parties.
Therefore, the concept of nomination is only to ensure that the Insurance
Company does not get into the area of dispute and the Company washes of
its hands by handing over the sum assured to the nominee. If the nominee
falls within the scope of Section 39(7) of the Act, those persons described
therein automatically takes it as a beneficiary nominee. If the person does
not fall within the scope of Section 39(7) of the Act, he can only be treated
as a collector nominee and he has to hold the money in trust subject to the
claims made by the legal representatives who are entitled to a share in the
sum assured. This position continues even after the amendment made to
the Insurance Act in the year 2015. If every nominee is brought within the
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W.P.(MD)No.11044 of 2021
scope of Section 39(7) of the Act, this Court will be doing violence to the
plain language used in the said provision and it will be certainly beyond
the scope of the said provision.
13. In the light of the above discussion, this Court holds that
the third respondent as a nominee can only collect the sum assured from
the Insurance Company and hold it in trust and it will be subject to the
claims made by the legal heirs of the deceased under the personal law
governing them. This Court cannot find fault with the impugned
communication issued by the second respondent dated 24.06.2021, in this
regard.
14. The last issue to be taken up is as to whether the petitioner
and her son will have to once again go through the process of initiating
recovery proceedings against the third respondent, if in case, the third
respondent does not hand over the sum assured to them. In the instant
case, as between the petitioner and the third respondent, it is the petitioner
and her son who are entitled to receive the sum assured as Class-I legal
heirs. The Hindu Succession Act that governs the parties makes it very
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W.P.(MD)No.11044 of 2021
clear that the Class I legal heirs will be entitled to take the share absolutely
to the exclusion of the other heirs. The third respondent, who is the
brother of the deceased falls under the category Class-II legal heir and
therefore, he is excluded from succeeding to the sum assured. Hence, in
the absence of any dispute on the status of the parties, this Court in order to
render substantial justice, directs the second respondent to hand over the
entire sum assured to the petitioner. It is brought to the notice of this Court
that the original policy is with the third respondent. The third respondent
shall resubmit the original policy to the second respondent within a period
of two (2) weeks from the date of receipt of a copy of this order. On
receipt of the same, the second respondent shall hand over the sum assured
to the petitioner and her son within a period of two (2) weeks thereafter
subject to the petitioner fulfilling all the other formalities.
15. This Writ Petition is disposed of with the above directions.
No costs.
16.10.2023
NCC:yes
Index:yes
Internet:yes
tsg
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W.P.(MD)No.11044 of 2021
N.ANAND VENKATESH, J
tsg
W.P.(MD)No.11044 of 2021
16.10.2023
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