L.I.C & ANR v SMT. SOMWATI & ORS

In the Court of District Judge, Nainital.
Present : U.C.Dhyani, H.J.S.
Civil Appeal No.20/2006
1. Senior Divisional Manager, L.I.C. of India, Divisional
Office,
Jeevan Prakash, Haldwani, District Nainital.
2. Branch Manager, L.I.C. of India, Branch Ramnagar,
District Nainital.
…………. Appellants.
Versus
1. Smt. Somwati w/o Late Sri Jiwan Lal.
2. Sri Anil Kumar s/o Late Sri Jiwal Lal.
3. Sri Satish s/o Late Sri
Jiwan Lal.
4. Km. Anita d/o Late Sri Jiwal Lal.
All residents of Kanjarparao Bhawaniganj, Ramnagar,
District
Nainital.
5. Sri Mahipal s/o Sri Buddhi Lal r/o Bhawaniganj, Jataw
Basti, Ramngar, District Nainital.

………… Respondents.
JUDGMENT
This civil appeal has been preferred under Section 96
of the Code of Civil Procedure and directed against the judgment
and decree dated 20.05.2006 and 27.05.2006 respectively
passed by learned Civil Judge (Jr.Div.), Ramnagar in Civil Suit
No.132 of
2003 Smt. Somwati and others v. Sri Mahipal and
others whereby recovery suit of the plaintiffs/respondents no.1
to 4 was decreed
by the learned court below.
The facts in the backdrop of this appeal are that the
plaintiffs/respondents no.1 to 4
filed a suit for recovery of
Rs.51,014/- before the learned court below. By this suit, the
plaintiffs sought a relief for recovery
of death claim amount of
Rs.51,014/- under insurance policy bearing No.240556175
whereby a sum of Rs.50,000/- was assured
on the policyholder
Sri Jiwanlal, who died on 31.3.2003 before the maturity of
policy. On the information of death received by
them, the
appellants issued the claim form to the nominee i.e. respondent
no.5 for consideration of death claim. After fulfilling
the
mandatory and necessary requirements, the amount under
policy had been released by the appellants in favour of nominee
Sri Mahipal.
As per Section 39 of Insurance Act, the Corporation
is legally bound to release the claim amount in favour of the
nominee unless
the corporation is restrained by any court of law
to make payment under the policy. Learned lower court without
evaluating the facts
and evidence adduced by the appellants,
decreed the suit of the respondents no.1 to 4 against the
appellants.
The main grounds of the appeal are that the
judgment and decree under appeal is against the facts on record
and contrary
to law and has been passed on conjectures and
surmises, assumptions and presumptions and against the
material
on record. Learned lower court ignored the fact that the
appellants had already paid the death claim amount under the
policy of deceased
late Sri Jiwanlal to the nominee as per the
rules, regulations and provisions of the Insurance Act. Learned
lower court has
passed an erroneous order against the
appellants. Learned lower court ought to have considered the
fact that the
appellants are bound under the provisions of the
Insurance Act to pay the death claim amount under the policy to
the nominee, in
case the nomination had been made by the
policyholder in the proposal form. Appellants have proved their
case by oral and
documentary evidence, whereas the
respondents could not prove their pleadings. Respondents have
admitted that the
appellants are legally bound to pay the policy
amount after the death of policyholder to the nominee and in
this process there is
no irregularity committed by the appellants.
Learned lower court had wrongly relied upon the case laws
submitted by the respondents
and misinterpreted the case laws
and gave perverse finding, though all the case laws submitted
before the learned court below supported
the pleadings of the
appellants. Learned lower court ignored the fact that the policy
amount had already been paid to the nominee
under policy
which could not be paid again to any other claimant as the Life
Insurance Corporation of India is a financial Institution
of
Government of India and is a trustee of public money, thus it has
to ensure that its money is not misused and wasted and if the
Corporation files suits for the recovery of the legally paid
amount, a huge portion of public money will be lost which will be
against
the interest of its policyholders.
According to respondent no.1 to 4, they are legal
heirs of assured late Sri Jiwanlal
and after the death of Sri
Jawanlal they become automatically entitled to receive the
insured amount. Sri Mahipal is a clever man
and that is why he
got himself nominated by Sri Jiwanlal. He is nowhere in the line
of succession, as the widow, sons and daughter
of late Sri
Jiwanlal are alive. There was collusion between appellants and
respondent no.5 Sri Mahipal and that is why the payment
was
made in his favour.
Learned counsel for the respondent no.5 has argued
that Sri Mahipal is the real brother of assured late Sri Jiwanlal
and
since Sri Jiwanlal was not having cordial terms with his
family members and they did not look after him, Sri Jiwanlal
nominated him
for rendering his services under the policy. He
used to reside with Jiwanlal and looked after him. L.I.C. was
legally bound
to pay policy amount to him after the death of
policyholder therefore L.I.C. had not committed any error in
paying the entire amount
to him.
The short question which arises for consideration in
this civil appeal is whether a nominee of a life insurance policy
under Section 39 of the Insurance Act, 1938 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 have
already enumerated in Para-2 and 3 of this judgment above.

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. Nomination by policyholder. —
(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 policyholder to appoint
in the prescribed 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 furnish to the policyholder 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 Sec.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
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) 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 very outset, it is made clear that the
controversy in
hand is squarely covered by the judgment
of the Hon’ble Supreme Court in Smt. Sarbati Devi and
another v. Smt. Usha Devi[1983] INSC 194; , AIR 1984 SC 346.
The Hon’ble Supreme Court in Sarbati Devi’s case
has referred to various judgments including the decision of
Hon’ble
Allahabad High Court in Kesari Devi v. Dharma Devi, AIR
1962 All. 355 and two decisions of the Hon’ble Delhi High Court
in S.Fauza
Singh v. Kuldip Singh, AIR 1978 Delhi 276 and Mrs.
Uma Sehgal v. Dwarka Dass Sehgal, AIR 1982 Delhi 36. The
Hon’ble Apex Court has
held that except for the above decisions
the view taken in other decisions 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 views
are Ram Ballav Dhandhania v. Gangadhar Nathmall,
AIR 1956
Cal. 274; Life Insurance Corporation of India v. United Bank of
India Ltd., AIR 1970 Cal. 513; D.Mohanavelu Mudaliar v.
Indian
Insurance and Banking Corporation Ltd. Salem, AIR 1957 Mad.
115; Sarojini Amma v. Neelakanta Pillai, AIR 1961 Ker. 126
(FB); Atmaram Mohanlal Panchal v. Gunavantiben, AIR 1977
Guj. 134; Malli
Dei v. Kanchan Prava Dei, AIR 1973 Orissa 83
and Lakshmi Amma v. Saguna Bhagath, ILR 1973 Kant.827. The
Hon’ble Supreme Court has
discussed the position of third party
as summarised in Halsbury’s Law of England (Fourth Edition),
Vol. 25, Para 579 and has also
analysed the provisions of Section
39 of the Insurance Act, 1938. The Hon’ble Apex Court has
opined that Section 39 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 nominates 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 policyholder 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 policyholder 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 bona fide to the nominee
already registered with him, the insurer gets a valid discharge.
Such
power or 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. But the summary
of the relevant provisions of Section
39 given above establishes clearly that the policyholder
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
policyholder. If that is so, on the death of the
policyholder 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
Hon’ble Delhi High Court in Mrs. Uma Sehgal’s case (AIR 1982
Delhi 36). If Section 39 of the Act is contrasted
with Section 38
of the Act which provided for transfer or assignment of the rights
under a policy, the tenuous 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. The court 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.
It is made clear by the highest court of the land that
the language of Section 39 of the Act is not capable of altering
the course of succession under law. It is very 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 nominee’s
right to receive the money arises only on the death of the
assured.
Section 39 itself does 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. The
title remains with the estate of the deceased and therefore with
the heirs of the deceased.
Nomination does not in anyway affect
the title and it merely clothes the nominee with the right to
receive the amount from the insurer.
The Hon’ble Supreme Court went on to observe that
the Insurance Act has been enforced 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 Hon’ble Apex Court therefore overruled
the
judgments of the Delhi High Court in Fauja Singh’s case and Mrs.
Uma Sehgal’s case, approved the views expressed by the other
High Courts on the meaning of Section 39 of the Act and held
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.
The facts of Smt. Sarbati Devi’s case were that one
Jag Mohan Swarup who was governed by the Hindu Succession
Act, 1956 died intestate on June 15, 1967 leaving behind him 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 Sarbati 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 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. But in the
instant
case the nominee respondent no.5 Sri Mahipal has received the
money from L.I.C. If we look into the written statement filed
by
him, he has admitted the death of Sri Jiwanlal and has also
admitted receiving the entire amount. He has asserted that late
Sri
Jiwanlal was his real brother and they used to live together.
In the written statement respondent no.5/defendant no.1 Sri
Mahipal
has also pleaded that Sri Jiwanlal was not having cordial
terms with his family members, he was annoyed with them as
the family members
did not look after Sri Jiwanlal. Since Mahipal
used to reside with Jiwanlal and looked after him therefore, he
was nominated under
the policy. He has nowhere asserted or
claimed absolute right to the amount payable under the policy to
the exclusion of respondents
no.1 to 4/plaintiffs. In fact
respondent no.5 Sri Mahipal is out of the line of succession, as
the wife, sons and daughter of late
Sri Jeewanlal are alive.
The appellants/defendants no.2 and 3 have stated in
the written statement that the deceased
life assured had
nominated his real brother Mahipal in his life time although Smt.
Somwati had given death information of Sri Jiwanlal
and
demanded the policy amount of deceased policyholder though
she was not authorize to receive money under the policy. Only
nominee
Mahipal was authorized to receive money under the
policy. L.I.C. was legally bound to pay policy amount to the
nominee after the
death of policyholder and consequently the
policy amount has already been paid to the nominee on
10.07.2003. Sri Jiwanlal died on
31.03.2003 and although L.I.C.
received information from Somwati wife of deceased, who also
staked her claim but since the fact of
Mahipal’s nomination came
to the notice of L.I.C., they immediately issued the claim form to
Sri Mahipal for receiving the policy
amount and L.I.C. paid the
entire amount to him because they were duty bound to do so.
The factum of Sri Mahipal’s being late Jeewanlal’s
real brother is
not disputed. Receiving the money by nominee Sri Mahipal is
also not disputed. The line of succession has also not
been
confronted to by the parties. The learned court below has also
referred to the ruling handed over by the Hon’ble Apex Court,
but has been swayed away by the sentiments in Para-44 of the
judgment. Deserving sympathy has been expressed in favour of
Smt. Somwati,
her sons and daughter. It is not a case of
misplaced sympathy but the direction of the stream of justice
has been changed. There
is no doubt that the respondents no.1
to 4/plaintiffs are the legal heirs of the deceased and they are
entitled to claim the amount
under policy but since the L.I.C. has
paid the entire amount to respondent no.5 Sri Mahipal, the
insurer gets a valid discharge of
its liability under the policy. The
amount can be claimed by the heirs Smt. Somwati and others
from the estate of assured Jiwanlal in accordance with the Hindu
Law of
Succession. In fact, they are entitled to get the entire
amount which has been received by Sri Mahipal. It is made clear
that respondent
no.5 Sri Mahipal is not entitled to any share in
the estate of the deceased.
In view of the above conclusion the judgement and
decree of learned court below dated 20.05.2006 and 27.05.2006
respectively
are liable to be set-aside.
Since the line of succession is not disputed and Smt.
Somwati, her sons and daughter alone
are entitled to get the
estate of the deceased, the amount thus received under the
insurance policy along with interest, if
any, can be claimed by
the heirs of the assured in accordance with Hindu Law of
Succession.
The parties shall however, bear their own costs.
Order accordingly.
ORDER
Appeal is allowed. The impugned judgment dated
20.05.2006 as well as its decree dated 27.05.2006 passed by
learned Civil
Judge (Jr.Div.), Ramnagar in Civil Suit No.132 of
2003 Smt. Somwati and other v. Sri Mahipal, is herby set-aside.
The heirs of the
assured late Sri Jiwanlal, viz., Smt. Somwati,
Anil Kumar, Satish and Km. Anita are entitled to claim the entire
amount received
by respondent no.5 Sri Mahipal under the
insurance policy along with interest, if any, in accordance with
Hindu Law of Succession.
The parties shall bear their own costs.
(U.C.Dhyani)
Dated: 05-02-2007
District Judge,
Nainital.
Judgment
signed, dated and pronounced in the open
Court today.
(U.C.Dhyani)
Dated: 05-02-2007 District Judge,

Nainital.
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