AI Drafter 
TaxTMI 
TaxTMI 
2025 (3) TMI 370
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.... 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. 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. ....
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....e 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) 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 r....
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....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 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 ....
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....m 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 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 Insur....
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....e) 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 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 n....
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....olicies 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 "beneficiary nomine....
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....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. 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....
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....to recognize a "third mode of succession" 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 an....
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.... partial (implied) rejection of the recommendations 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....
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....he category of "beneficiary nominees" which tend to run contrary to the object of insurance 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 retrospectiv....