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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 ..... g to nomination are interpreted to hold that such provisions do not override the law relating to succession. 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Law/Precedent Held Sarbati Devi v. Usha Devi [Sarbati Devi v. Usha Devi, (1984) 1 SCC 424] Nomination under Section 39 of the Insurance Act, 1938 is subject to the claim of heirs of the assured under 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 Lac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der 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.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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. (13) xxxx. (14) xxx. 20. As can be noticed, the Law Commission recommended a clear distinction between the "benefic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions 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. "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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccession" other than non- testamentary and testamentary succession provided under the law relating to succession. 32. It is also relevant to note that Section 39(7) includes "parents" as "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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endations 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsurance 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. 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 specu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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