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TMI Blog1977 (2) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed by the learned judge presiding over the City Civil Court, 3rd court at Ahmedabad, in Civil Suit No. 1137 of 1972. 2. The facts are not in dispute. One Surendra Atmaram Panchal took a life insurance policy on his life on October 20, 1970. The policy was issued by the Life Insurance Corporation of India (original defendant No. 3-respondent No. 4 herein). The said Surendra was a major at the time when the insurance policy was taken out. He was unmarried at that point of time. In the insurance policy, exhibit 30, it was stipulated that the sum assured was payable to the proposer or his assigns or nominees under section 39 of the Insurance Act or proving executors or administrators or other legal representatives who should take out representation to his estate or limited to the moneys payable under this policy from any court of any State or Territory of the Union of India . Some two months after he had taken the aforesaid policy, Surendra married Gunvantiben (plaintiff No. 1-respondent No. 1). He had a male child by her who has been impleaded as plaintiff No. 2 - respondent No. 2. About 1 1/2 years after his marriage, Surendra died on September 29, 1971, intestate without makin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assignment, in consideration of a loan granted by that insurer on the security of the policy within its surrender value, or its reassignment on repayment of the loan shall not cancel a nomination, but shall affect the rights of the nominee only to the extent of the insurer's interest in the policy. (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 policy-holder or his heirs or legal representatives or the holder of 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. 5. The scheme of section 39 is to the following effect : During the lifetime of a policy-holder he has a right to assign the policy or transfer the policy in accordance with section 38 notwithstanding the fact that a person has been named as a nominee under sub-section (1) of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that sub-section (6) of section 39 employs the expression the amount secured by the policy shall be payable to such survivor or survivors . The next question that arises is what would happen if the policy-holder dies before the maturity of the claim. We have already discussed the aspect relating to the right acquired during the lifetime of the policy-holder and have recorded a firm conclusion to the effect that the nominee acquires no right, title or interest in the said amount. What then happens on the death of the policy-holder; does the nominee become entitled to the amount in his own right on the death of the policy-holder ? It cannot be contended and it had not been contended that the contract of insurance operates as a will or a testamentary disposition. If it does not operate so, it is difficult to comprehend what legal right can be created in favour of a person who has been named in the policy of insurance as a person entitled to collect the amount. Since beneficial right s under the contract of insurance remained with the policy-holder during his lifetime and he could have transferred or assigned the policy or raised a loan on the policy, the benefits accruing under the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not form part of the estate of the policy-holder. If the benefit arising under the contract of insurance formed a part of the estate of the policy-holder during his lifetime for the reasons discussed earlier, namely, that he could have transferred it, assigned it or raised a loan on it, how does it cease to be a part of his estate on his death and become a part of an estate of the nominee ? By virtue of operation of which principle of law and by what process of ratiocination ? The Allahabad High Court has also placed reliance on paragraph 1157 of 46, Corpus Juris Secundum, for buttressing the conclusion reached by them. Now the passage in question reads as under : 1157. Policy payable to third person. - The proceeds of a policy naming a third person as beneficiary generally belong to him as an individual and do not constitute part or an asset of the insured's estate. The proceeds of a life insurance policy in which a third person is named as beneficiary belong exclusively to such beneficiary as an individual; they are not the property of the heirs or next of kin of insured, are not subject to administration or the laws of decent governing the distribution of insures p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bare right to collect the policy money on his death. 10. A similar view has been taken by the Calcutta High Court in Life Insurance Corporation of India v. United Bank of India Ltd. [1971] 41 Comp Cas 603; AIR 1970 Cal 513. The view reflected in Kesari Devi v. Dharma Devi [1963] 33 Comp Cas 93; AIR 1962 All 355 has in terms been disapproved by the Calcutta High Court and it has been held that a nominee gets a mere right to collect the moneys. The following passage from paragraph 12 of the judgment unfolds the reasoning which prevailed with the Calcutta High Court - See [1971] 41 Comp Cas 603, 607, 608 (Cal) : Sub-section (1) of section 39 provides that the holder of a policy of life insurance on his own life may nominate the person to whom the money secured by the policy shall be paid in the event of his death. It is not without significance that the sub-section speaks of the transaction of payment and not of any right, title or interest in the money with is payable. In saying that the money shall be paid to the nominee, the sub-section underlines the obligation of the insurer to pay to the nominee and not the right of the nominee to receive payment, through the obligation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efit secured by the policy forms part of the estate of the deceased policy-holder. As it is part of his estate, his creditors can realise their loans from the money paid to the nominee. He will be the legal representative of the deceased policy-holder. 12. It is no doubt true that the earlier decision in Kesari Devi's case [1963] 33 Comp Cas 93 (All) has not in terms been overruled inasmuch as the question which arose in Kesari Devi's case [1963] 33 Comp Cas 93 (All) did not directly arise in the Full Bench case. The corollary of the holding of the Full Bench in Raja Ram's case [1973] 43 Comp Cas 53 (All) [FB], all the same would be that the benefit of the contract would continue to be the estate of the policy-holder during his lifetime and it would also form a part of his estate on his death. There is another decision to which we may advert in that behalf. The decision we have in mind is the one rendered in Seethalakshmi Ammal v. Controller of Estate Duty [1966] 61 ITR 317 (Mad). That was a case arising under the Estate Duty Act. And the Division Bench of the Madras High Court was concerned with the question from the standpoint of the Estate Duty Act and the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nee' must be such as he may also be a donee. That means the nomination for the purpose of section 14 must be such as will constitute the nominee, a donee entitled to the benefit of the policy money. 13. We, therefore, regret our inability to concur with the view taken by the Division Bench of the Allahabad High Court in Kesari's Devi's case [1963] 33 Comp Cas 93 (All). In our opinion, the view taken by the Madras High Court in D. Mohanavelu Mudaliar v. Indian Insurance and Banking Corporation Ltd. [1957] 27 Comp Cas (Ins) 47 (Mad), represents the true legal position. In the result, there is no escape from the conclusion that the rightful claimants to the sum assured under the policy of insurance are the legal heirs of the deceased policy-holder and not the person named as the nominee in the insurance policy. The view taken by the learned trial judge, therefore, reflects the true position of law. The finding recorded by the learned judge must, therefore, be confirmed. 14. We may observe that there is no doubt as regards the legal position that in view of the policy of insurance and the legal effect of section 39 of the Insurance Act only the person named in the po ..... X X X X Extracts X X X X X X X X Extracts X X X X
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