Report No. 137
Problem Regarding Legal Implication of 'Nominations' Under the Employees Provident Funds and Miscellaneous Provisions Act, 1952-Suggested Solution
5.1. In respect of nominations made under the life insurance policies.-
There was a difference of opinion between different High Courts as to whether the nominee was entitled to the amount payable under the policy as a beneficiary in his own right to the exclusion of the heirs of the deceased assured or whether the nominee was merely a person authorised to make collection on behalf of the legal heirs of the deceased assured. The issue has been settled by the decision of the Supreme Court in Sarbati Devi's case [AIR 1984 SC 346], which upholds the latter view, namely, that the nominee is merely empowered to collect the amount for the benefit of the legal heirs.
Before the Supreme Court rendered its decision and settled the legal position in the context of the interpretation of the relevant provisions of the Life Insurance law should be clarified by virtue of an amendment so that a nominee became entitled to the amount payable under the life insurance policy on the death of the assured as a beneficiary in his or her own right. The Government has neither accepted the recommendation nor rejected the recommendation. Thus, the law, as at present is as per the declaration made by the Supreme Court is Sarbati Devi's case.
5.2. A similar question has arisen in the context of the Employees' Provident Funds and Miscellaneous Provisions Act [Act for short]. The Scheme of the said Act is altogether different. A crucial provision in the said Scheme is contained in section 10(2), which in terms provides that the amount payable under the Act and the Scheme would vest upto the nominee. The question that has arisen is this:-
When a nomination is made by a member under the Employees' Provident Funds Act and the Scheme in respect of the amount standing to his credit in the Fund (which nomination is intended to be effective on the death of the member before receiving that amount), does the nomination-
(i) merely confer on the nominee the right to collect the amount, or
(ii) does its effect go beyond that, and the nominee can claim that he is the beneficial owner of the amount received by him?
In the former case, the nomination has the effect merely of discharging the Employees Provident Fund authorities, etc., but it does not confer a beneficial title on the nominee so as to exclude the beneficiaries as specified in the Scheme. In the latter case, the nomination has a more positive effect and makes the nominee the absolute owner of the amount paid to him or her in his or her own right.