The Allahabad High Court recently held that a ‘beneficial nominee’ of an insurance policy does not have ownership over the policy's proceeds [Smt Kusum v Anand Kumar And 3 Others]..Justice Pankaj Bhatia said holding the beneficiary to be a ‘beneficial nominee’ - to the exclusion of the legal heirs - would lead to absurdity which was never intended when Section 39(7) of Insurance Act was amended in 2015.Section 39(7) provides that a nominee shall beneficially be entitled to the amount payable by the insurer. Prior to the amendment, the nominee of a policy was entitled to hold the amount for the benefit of the successor..The Court found Section 39(7) to be pari materia with Section 45-ZA of the Banking Regulation Act – a provision regarding which the Supreme Court in Ram Chander Talwar & Anr. v. Devender Kumar Talwar & Ors has ruled that a nominee is not the owner of the money lying in a bank account. Thus, it opined that these pari materia provisions cannot be interpreted in contradiction to each other.“On harmonious interpretation of the two provisions i.e. Insurance Act and Hindu Succession Act, the rights conferred by Hindu Succession Act will prevail over the rights claimed by the nominee under Section 39(7) of the Insurance Act, the succession act being specific to succession in contradiction to the Insurance Act which is general,” the Court thus held. .It disagreed with the decisions of Delhi, Madras and Andhra Pradesh High Courts which had held otherwise. However, it noted that the Karnataka and Madhya Pradesh High Courts have taken a different view.“The conflicting judgments as recorded above by the Delhi High Court, Andhra Pradesh High Court and Madras High Court on the one hand and by the Karnataka High Court and Madhya Pradesh High Court on the other hand, clearly establishes that there is no common opinion with regard to the effect of change in Insurance Act, particularly Section 39(7), on the rights of the successors. In fact, the Delhi High Court, Andhra Pradesh High Court and the Madras High Court have not gone into the effect of Amendment in Section 39 of the Insurance Act vis-a-vis the rights flowing in favour of heirs under the Succession Act,” it said..Further, the Court took note of the apex court’s decision in Shakti Yezdani in which the rights of the nominee in the ownership of the shares in a company came up for consideration and it was held that the nomination process would not override the succession laws.Observing that the Insurance Act was never enacted by the parliament to govern the rights of succession in respect of the persons who are governed by their individual succession laws, the Court said,“Clearly the issue of succession would be governed by a specific statute being The Hindu Succession Act and to that extent, the general law as flows from Section 39(7) under the Insurance Act has to give way.”.The Court thus ruled the following,1. Section 39(7) of the Insurance Act which is pari materia to Section 45-ZA(2) and was incorporated to achieve similar objective having been interpreted in Ram Chander Talwar (supra) to hold that the nominee cannot be held to be the owner of the money lying in the account. Section 39(7) also has to be interpreted to hold that the beneficial nominee cannot be said to be the owner of the money out of the proceeds of policy.2. In view of the similar provision being interpreted in the case of Shakti Yezdani (supra), it has to be held that the nominee would not unsettle the rights of the legal heirs by virtue of the respective succession act..The judgment was passed in the case of one Kusum who was caught up in a dispute with her son-in-law and daughter-in-law over the ownership of her daughter Ranjeeta’s insurance policies. Kusum had taken out 15 life insurance policies in Ranjeeta’s name when she was unmarried.Ranjeeta married later and a daughter was born to her. However, Ranjeeta died in 2011 when her daughter was 11 months old. Since Kusum was a nominee of the insurance policies, she claimed ownership of the proceeds. This was challenged by her son-in-law and granddaughter who moved the civil court and got a favourable decision.In revision, District Judge, Unnao, in 2022 asked Kusum to deposit the amount of these insurance policies in the form of Fixed Deposit Receipt (FDRs) in the name of her granddaughter till she attains age of 18 years. .Kusum then moved the High Court to contend that she is entitled to the amounts under the policies as a beneficial nominee. However, she also agreed that apart from the amounts under the policies, her granddaughter would be entitled to her estate as per succession laws.Considering its findings on the prevalence of succession law over the Insurance Act, the High Court dismissed the petition. Due to the contradictory judgments of High Courts on the subject, the Court also said it would be fit to take the matter to the Supreme Court.“As the issue is of seminal importance and affecting the public at large coupled with the fact that different High Courts have taken different views, I deem it appropriate to grant certificate of appeal under Section 134-A of Constitution of India to the Hon’ble Supreme Court,” the Single Judge ordered. .Advocates Deepak Kumar, Vindeshwri Pandey represented the petitioner.Advocates Vivek Kumar Pandey, Mahendra Pratap Singh and Vivek Shukla represented the respondents. [Read Judgment]
