Report No. 82
2.7. Allahabad view.-
It may, however, be stated that according to the Allahabad High Court1 (judgment of 1962), the money belongs to the nominee and he is not to be treated as a trustee for the heirs of the insured or as a mere agent on their behalf. In reaching this conclusion, the High Court considered the clause in the policy, the statutory provisions, the English and Indian case law and other relevant aspects.
In the first place, as to the clause in the policy, the High Court pointed out that the moneys were payable to the insured or (on his prior death) to "his nominee, executors, administrators, assigns or other representatives, as the case may be", subject to proof being given of the title of the claimants under the policy. It was not, therefore, open to the insurance company to say that it could not pay the money to the nominee's heirs. (In that case, the nominee had died before actually receiving the money). Since a nominee had been nominated, the company must pay the money to him or (if he had died in the meanwhile) to his estate.
Secondly, as to the statutory provisions, the High Court pointed out that section 39(1) of the Insurance Act, 1938 empowers2 the insured to make a nomination and section 39(6) lays down that if the nominee survives the insured, the nominee is entitled to receive the money. The High Court also pointed out that section 39(5), which deals with the situation where the nominee dies before maturity, evidently makes a distinction between-(i) death of the nominee before maturity, and (ii) death after maturity but before receiving payment. In the former case, the money is payable to the insured or his heirs or legal representatives, and it irnpliedly follows that in the latter case, the money would be payable to the estate of the nominee.
1. Kesri Devi v. Dharma Devi, AIR 1962 All 355 (356), para. 4 (Desai, C.J. & Ramabhadran, J.).
2. Para. 2.1, supra.
2.8. As regards English cases and those Indian cases which followed the English judicial decisions, the Allahabad High Court observed:
"We do not think it is the universal rule or rule of justice, equity and good conscience1 which must be said to be binding upon this court that the policy-money that is paid to a nominee under section 39(6) of the Insurance Act is held by him as a trustee for the legal representative of the assured."
The principal reason in the Allahabad judgment is found is the following passage:
"There is nothing in section 389 to suggest that he receives the money merely as a trustee or agent of the assured's legal representatives. Section 39 does not lay down that he is under any liability to account for the money received to any person. The obvious meaning of the language used in sub¬sections (1) and (6) is that the insurance company must pay the money to him and he is left free to deal with it in any manner he likes."2
Commenting on this, the Gujarat High Court,3 in its judgment already referred to,4 has observed:
"With respect, there is no warrant for the conclusion that the nominee is left free to deal with it in any manner he likes. It does not follow from any provision of law or from first principles. It is mere ipse dixit of the learned judges. It does not take into account the reasoning unfolded in the discussion hereinbefore."
The Allahabad judgment in the following passage extracted from para. 6 gave another reason-
"When the money becomes payable on the death of the assured and on account of the death, we do not understand how it can be paid to form part of his estates."
Commenting on this the Gujarat High Court observed:
"The Division Bench has assumed that the amount does not form an estate of the policy holder. If the benefit arising under the contract of insurance formed a part of the estate of the policy holder during his life time for the reasons discussed earlier, namely, that he could have transferred it, assigned it or raised a loan on it, how does it cease to be a part of his estate on his death and become a part of an estate of nominee? By virtue of separation of which principle of law and by what process of ratiocination?"
Further, the Allahabad High Court had also placed reliance on paragraph 1157 of 46 Corpus Juris Secundum for buttressing the conclusion reached by them. The passage in question reads as under:1
1. Emphasis supplied.
2. Kesri Devi v. Dharma Devi, AIR 1962 All 355.
3. Atmaram v. Gunwantiben, AIR 1977 Guj 134 (137, 138).
4. Para. 2.4, supra.
1157. Policy payable to third person.- The proceeds of a policy pending a third person as beneficiary belong exclusively to such beneficiary as an individual, they are not the property of the heirs or next of kind of insured, are not subject to administration or the laws of descent governing the distribution of insured's personal property, and generally do not constitute any part, or an asset of his estate.
"If the proceeds are collected by the administrator, he holds them in trust for the beneficiary".
Commenting on this, the Gujarat High Court observed:
"On a bare perusal of the aforesaid passage it looks to the eye that the aforesaid proposition of law has been stated in the context of a life insurance policy in which a third person is named as a 'beneficiary'. We are concerned with a policy where a person has been named as a 'nominee' under section 39 of the Insurance Act. A proposition of law stated in the context of the foreign law and in the light of a different insurance policy wherein the person was named as beneficiary (and not nominee) cannot buttress the view which found favour with the Allahabad High Court."
1. Vol. 44, Corpus Juris Secundum, para. 1157.