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TMI Blog2025 (3) TMI 370X X X X Extracts X X X X X X X X Extracts X X X X ..... -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 de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. (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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the law of succession. Nozer Gustad Commissariat v. Central Bank of India [Nozer Gustad Commissariat v. Central Bank of India, 1992 SCC OnLine Bom 481 : (1993) 1 Mah LJ 228] Nomination under Section 10(2) of the EPF & Miscellaneous Provisions Act, 1952 cannot be made in favour of a non-family person. Relied upon Sarbati Devi [Sarbati Devi v. Usha Devi, (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. Khanchandani v. Vidya Lachmandas Khanchandani [Vishin N. Nominee entitled to receive the sum due on the savings certificate under Section 6(1) of the Govt. Savings Certificates Khanchandani v. Vidya Lachmandas Khanchandani, (2000) 6 SCC 724] Act, 1959, but cannot utilise it. The nominee may retain the same for those entitled to it under the relevant law of succession. Ram Chander Talwar v. Devender Kumar Talwar [Ram Chander Talwar v. Devender Kumar Talwar, (2010) 10 SCC 671 : (2010) 4 SCC (Civ) 313] Nomination made under the provisions of Section 45-ZA of the Banking Regulation Act, 1949 entitled the nominee to receive the deposit amount on the death of the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 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 ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee 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. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct is found in Entry No.47 in List-I of Seventh Schedule of the Constitution of India. "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egory 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 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 interpr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delays in the disposal of cases. 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 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 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 l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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