CIVIL APPELLATE JURISDICTION: Civil Appeal No. 96 of 1972.
From the Judgment and Order dated 23rd December, 1971 of the High Court of Judicature at Allahabad in Second Appeal No. 3082 of 1971.
Yogeshwar Prasad, Mrs. Rani Chhabra and S. K. Bagga for the Appellants.
B. R. Agarwala, R. H. Pancholi and Ms. Vijayalakshmi Menon for the Respondent.
The Judgment of the Court was delivered by
VENKATRAMIAH, J. The short question which arises for consideration in this appeal by special leave is whether a nominee of a life insurance policy under section 39 of the Insurance Act, 1938 (Act No. IV of 1938) (hereinafter referred to as ’the Act’) on the assured dying intestate would become entitled to the beneficial interest in the amount received under the policy to the exclusion of the heirs of the assured.
The facts leading to this appeal are these: One Jag Mohan Swarup who was governed by the Hindu Succession Act, 1956 died intestate on June 15, 1967 leaving behind his son, Alok Kumar (plaintiff No. 2), his widow Usha Devi (defendant) and his mother Sarbati Devi (plaintiff No. 1) as his heirs. He had during his lifetime taken out two insurance policies for Rs. 10,000 each and had nominated under section 39 of the Act his wife Usha Devi as the person to whom the amount was payable after his death. On the basis of the said nomination, she claimed absolute right to the amounts payable under the two policies to the exclusion of her son and her mother-in-law. Thereupon Sarabati Devi and Alok Kumar (minor) represented by his next friend Atma Ram who was the father of Jag Mohan Swarup filed a suit in Civil Suit No. 122 of 1970 on the file of the Ist Additional Civil Judge. Dehradun for a declaration to the effect that they were together entitled to 2/3rd share of the amount due and payable under the insurance policies referred to above. Usha Devi, the defendant resisted the suit. Her contention was that on the death of the assured, she as his nominee became absolutely entitled to the amounts due under the insurance policies by virtue of section 39 of the Act The trial court dismissed the suit. The first appeal filed by the plaintiffs against the decree of the trial court was dismissed by the District Judge, Dehradun. The second appeal filed by them against the judgment of the District Judge before the High Court of Allahabad was dismissed in limine under Rule 11, Order 41 of the Civil Procedure Code. The plaintiffs have filed this appeal after obtaining special leave under Article 136 of the Constitution.
The only question which requires to be decided in this case is whether a nominee under section 39 of the Act gets an absolute right to the amount due under a life insurance policy on the death of the assured. Section 39 of the Act reads:
"39. Domination 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:
Provided that where any nominee is a minor, it
shall be lawful for the policy-holder to appoint in the
prescri-
bed manner any person to receive the money secured by
the policy in the event of his death during the
minority of the nominee.
(2) Any such nomination in order to be effectual shall
unless it is incorporated in the text of the
policy itself, be made by an endorsement on the
policy communicated to the insurer and registered
by him in the records relating to the policy and
any such nomination may at any time before the
policy matures for payment be cancelled or changed
by an endorsement, or a further endorsement or a
will, as the case may be, but unless notice in
writing of any such cancellation or change has
been delivered to the insurer, the insurer shall
not be liable for any payment under the policy
made bona fide by him to a nominee mentioned in
the text of the policy or registered in records of
the insurer.
(3) The insurer shall furnish to the policy-holder a
written acknowledgement of having registered a
nomination or a cancellation or change thereof,
and may charge a fee not exceeding one rupee for
registering such cancellation or change.
(4) A transfer or assignment of a policy made in
accordance with section 38 shall automatically
cancel a nomination:
Provided that the assignment of a policy to the
insurer who bears the risk on the policy at the time of
the 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 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) 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 :
Provided that where a nomination made whether
before or after the commencement of the Insurance
(Amendment) Act, 1946, in favour of the wife of the
person who has insured his life or of his wife and
children or any of them is expressed, whether or not on
the face of the policy, as being made under this
section the said section 6 shall be deemed not to apply
or not to have applied to the policy."
At the out set it should be mentioned that except the decision of the Allahabad High Court in Kesari Devi v. Dharma Devi on which reliance was placed by the High Court in dismissing the appeal before it and the two decisions of the Delhi High Court in S. Fauza Singh v. Kuldip Singh & Ors. and Mrs. Uma Sehgal & Anr. v. Dwarka Dass Sehgal & Ors in all other decisions cited before us the view taken is that the nominee under section 39 of the Act is nothing more than an agent to receive the money due under a life insurance policy in the circumstances similar to those in the present case and that the money remains the property of the assured during his lifetime and on his death forms part of his estate subject to the law of succession applicable to him. The cases which have taken the above view are Ramballav DhanJhania v. Gangadhar Nathmall. Life Insurance Corporation of India v. United Bank of India Ltd. & Anr., D. Mohanaeelu Muldaliar & Anr. v. Indian Insurance and Banking Corporation Ltd. Salem & Anr., Sarojini Amma v. Neelakanta Pillai Atmaram Mohanlal Panchal v. Gunavantiben & Ors., Malli Dei and Lakshmi Amma Anr. v. Sagnna Bhagath & Ors., Since there is a conflict of judicial opinion on the question involved in this case it is necessary to examine the above cases at some length. The law in force in England on the above question is summarised in Halsbury’s Laws of England (Fourth Edition), Vol. 25, Para 579 thus :
"579. Position of third party, The policy money
payable on the death of the assured may be expressed to
be payable to a third party and the third party is then
prima facie merely the agent for the time being of the
legal owner and has his authority to receive the policy
money and to give a good discharge; but he generally
has no right to sue the insurers in his own name. The
question has been raised whether the third party’s
authority to receive the policy money is terminated by
the death of the assured; it seems, however, that
unless and until they are otherwise directed by the
assured’s personal representatives the insurers may pay
the money to the third party and get a good discharge
from him."
We shall now proceed to analyse the 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 bon fide to the nominee already registered with him, the 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 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 paragraph 16 of the decision of the Delhi High Court in Mrs. Uma Sehgal’s case (supra). 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 tenous character of the right of a nominee would become more 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 governing the testamentary succession is not relaxed even where wills are registered.
As observed in the Full Bench decision of the Allahabad High Court in Raja Ram v. Mata Prasad & Anr. which has interpreted section 39 of the Act correctly, the judgment of that High Court in Kesari Devi’s case (supra) related to a different set of facts. In Kesari Devi’s case (supra) the dispute arose regarding the person who was entitled to the succession certificate in respect of the amount payable under a life insurance policy which had been taken out by the assured between the widow of the assured and the widow of the nominee under section 39 of the Act. On going through the judgment in Kesari Devi’s case (supra) we feel that the Court in that case paid little heed to the earlier judicial precedents of its own Court. The decision of the Full Bench in Raja Ram’s case (supra) set at rest all doubts which might have been created by Kesari Devi’s case (supra) about the true import of section 39 of the Act in so far as the High Court of Allahabad was concerned.
In Fauja Singh’s case (supra) there is reference only two three cases-Life Insurance Corporation of India v. United Bank of India Ltd. (supra), Matin v. Mahomed Matin and Kesari Devi’s case (supra). The Court expressed its dissent from the Calcutta decision on the ground that decision had not considered sub-section (6) of section 39 of the Act. The Lahore case was one decided before the Act came into force. The distinguishing features of Kesari Devi’s case (supra) are already mentioned. Otherwise there is not much discussion in this case about the effect of section 39 of the Act.
We have carefully gone through the judgment of the Delhi High Court in Mrs. Uma Sehgal’s (case) supra. In this case of 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 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 right of a creditor of the estate of the assured to attach 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 attachable 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 & Ors. v. Palaniammal & Ors. and in B.M. Mundkur v. Life Insurance Corporation of India & Ors. The relevant part of the decision of the Delhi High Court in Mrs. Uma Sehgal’s case (supra) reads thus:
10. "In Karuppa Gounder v. Palaniammal, AIR 1963 Mad.
245 (para 13), 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.
11. I am in respectful agreement with these views,
because they accord with the law and reason. They
are supported by S. 44 (2) of the Act. It provides
that the commission payable to an insurance agent
shall after his death, continue to be payable to
his heirs, but if the agent has nominated any
person the commission shall be paid to the person
so nominated. It cannot be contended that the
nominee u/s 44 will receive the money not as owner
but as an agent on behalf of someone else vide
B.M. Mundkur v. Life Insurance Corporation, AIR
1977 Mad. 72. Thus, the nominee excludes the legal
heirs."
Two mistakes committed by the Delhi High Court in the above passage are these. In Karuppa Gounder’s case (supra), the question was whether the amount payable under the insurance policy in question was joint family property or separate property of the assured. In that connection, the High Court of Madras observed thus:
"But where a coparcener has effected insurance
upon his own life, though he might have received the
premia from out of the funds which he might have
received from the joint family, it does not follow that
the joint family insured the life of the member or paid
the premia in relation thereto. It is undeniable that a
member of a coparcenary may with the moneys which he
might receive from the coparcenary effect an insurance
upon his own life for the benefit of the members of his
immediate family. His intention to do so and to keep
the property as his separate property would be
manifested if he makes a nomination in favour of his
wife or children as the case may be. It would therefore
appear that no general proposition can be advanced in
the matter of the insurance policy of a member of a
coparcenary and that each case must be dealt with in
accordance with the circumstances surrounding it."
It is obvious from the above passage that the above case has no bearing on the meaning of section 39 of the Act. The fact of nomination was treated in that case as a piece of evidence in support of the finding that the policy was not a joint family asset but the separate property of the coparcener concerned. No right based on the ground that one party was entitled to succeed to the estate of the deceased in preference to the other or along with the other under the provisions of the Hindu Succession Act was asserted in that case. The next error committed by the Delhi High Court is in drawing an analogy between section 39 and section 44(2) of the Act thinking that the Madras High Court had done so in B. M. Mundkur’s case (supra). In B.M. Mundkur’s case (supra), the High Court of Madras instead of drawing an analogy between section 39 and section 44(2) of the Act actually contrasts them as can be seen from the following passage:
"There are vital differences between the
nomination contemplated under Section 39 of the Act and
the nomination contemplated under the proviso to
Section 44(2) of the Act. In the first place, the sum
assured, with which alone Sec. 39 was concerned, was to
be paid in the event of the death of the assured under
the terms of the contract entered into between the
insurer and the assured and consequently it was the
contractual right which remained vested in the insured
with reference to which the nomination happened to be
made. It should be pointed out that the nomination as
well as the liability on the part of the insurer to pay
the sum assured become effective simultaneously,
namely, at the moment of the death of the assured. So
long as he was alive, the money was not payable to him,
in the case of a whole life policy, and equally, having
regard to the language of Section 39(1) of the Act, the
nominee’s right to receive the money arose only on the
death of the assured, Section 39 itself did not deal
with the title to the money assured, which was to be
paid by the insurer to the nominee who was bound to
give discharge to the insurer. It was in this context
that the Court took the view that the title remained
with the estate of the deceased, and therefore, with
the heirs of the deceased, that the nomination did not
in any way affect the title and that it merely clothed
the nominee with the right to receive the amount from
the insurer.
12. On the other hand, the provisions and purport
of Section 44 of the Act are different. In the first
place under Section 44(1) it was a statutory right
conferred on the agent to receive the commission on the
renewal premium notwithstanding the termination of the
agreement between the agent and the insurer, which
provided for the payment of such commission on the
renewal premium. The statute also prescribed the
qualification which rendered the agent eligible to
receive commission on such renewal premium. Section
44(1) provides for the payment of the commission to the
agent during his lifetime only and does not contemplate
the contingency of his death and the commission being
paid to anybody even after his death. It is S. 44(2)
which deals with the
payment of commission to the heirs of deceased for so
long as such insurance agent been alive. Thus it was
not the general law of inheritance which conferred
title on the heirs of the deceased insurance agent to
receive the commission on the renewal premium, but it
was only the particular statutory provision, namely,
Section 44(2) which conferred the right on the heirs of
the deceased agent to receive the commission on the
renewal premium. In other words, the right of the heirs
to receive the commission on renewal premium does not
arise under any law of succession and it is a right
directly conferred on the heirs by Section 44(2) of the
Act, even though who the heirs of the deceased
insurance agent are will have to be ascertained under
the law of succession applicable to him. Thus the
statute which conferred such a right on the heirs is
certainly competent to provide for an exception in
certain cases and take away such a right from the
heirs; and the proviso which has been introduced by the
Government of India notification 1962 has done exactly
this in taking away the right of the heirs conferred
under the main part of Section 44(2), in the event of
the agent, during his lifetime, making a nomination in
favour of a particular person and not cancelling or
altering that nomination subsequently. If the statute
itself was competent to donfer such a right for the
first time on the heirs of the deceased agent it is
indisputable that the statute could take away that
right under stated circumstances."
The reasons given by the Delhi High Court in this case in support of its view are not tenable.
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 Fauja Singh’s case (supra) and in Mrs. Uma Sehgal’s case (supra) do not lay down the law correctly. They are, therefore, overruled. We approve the views expressed by the other High Courts on the 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 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.
In view of the above conclusion, the judgments and decrees of the High Court, the first appellate court and the trial court are liable to be set aside. They are accordingly set aside. Since it is not disputed that the plaintiffs are under the law of succession governing them each entitled to 1/3 share in the estate of the deceased, it is hereby declared that each of the plaintiffs is entitled to 1/3rd share in the amount received under the insurance policies in question and the interest which may have been earned by its investment. The suit stands decreed accordingly.
Parties shall, however, bear their own costs throughout. S.R. Appeal allowed.