Civil Appeal No 96 of 1972
From the Judgment and Order dated 23rd December 1971 of the High Court of Judicature at Allahabad in Second Appeal No 3082 of 1971
Yogeshwar Prasad Mrs Rani Chhabra and section K Bagga for the Appellants
B R Agarwala R H Pancholi and Ms Vijayalakshmi Menon for the Respondent
The Judgment of the Court was delivered by VENKATRAMIAH J
The short question which arises for consideration in this appeal by special leave is whether a nominee of a life insurance policy under section 39 of the Act No IV of 1938 hereinafter referred to as the Act  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
994 The facts leading to this appeal are these One Jag Mohan Swarup who was governed by the died intestate on June 15 1967 leaving behind 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 10000 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 Sarabati 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 to the effect that they were together entitled to 23rd 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 The trial court dismissed the suit
The first appeal filed by the plaintiffs against the decree of the trial court was dismissed by the District Judge Dehradun
The second appeal filed by them against the judgment of the District Judge before the High Court of Allahabad was dismissed in limine under Rule 11 Order 41 of the Civil Procedure Code
The plaintiffs have filed this appeal after obtaining special leave under Article 136 of the Constitution
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
Domination by policy holder 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 policy holder to appoint in the prescri 995 bed 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 shall furnish to the policy holder 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 section 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 996 payable to the policy holder 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 out set it should be mentioned that except the decision of the Allahabad High Court in Kesari Devi vs Dharma Devi on which reliance was placed by the High Court in dismissing the appeal before it and the two decisions of the Delhi High Court in section Fauza Singh vs Kuldip Singh  Ors
and Mrs Uma Sehgal  Anr
vs Dwarka Dass Sehgal  Ors in all other decisions cited before us the view taken 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 view are Ramballav DhanJhania vs Gangadhar Nathmall
Life Insurance Corporation of India vs United Bank of India Ltd  997 Anr D Mohanaeelu Muldaliar  Anr
vs Indian Insurance and Banking Corporation Ltd Salem  Anr Sarojini Amma vs Neelakanta Pillai Atmaram Mohanlal Panchal vs Gunavantiben  Ors Malli Dei and Lakshmi Amma Anr
vs Sagnna Bhagath  Ors
 Since there is a conflict of judicial opinion on the question involved in this case it is necessary to examine the above cases at some length
The law in force in England on the above question is summarised in Halsbury s Laws of England Fourth Edition Vol 25 Para 579 thus  579
Position of third party The policy money payable on the death of the assured may be expressed to be payable to a third party and the third party is then prima facie merely the agent for the time being of the legal owner and has his authority to receive the policy money and to give a good discharge but he generally has no right to sue the insurers in his own name
The question has been raised whether the third party s authority to receive the policy money is terminated by the death of the assured it seems however that unless and until they are otherwise directed by the assured s personal representatives the insurers may pay the money to the third party and get a good discharge from him
 We shall now proceed to analyse the provisions of section 39 of the Act
The said section 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 nominate 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 policy holder 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 policy holder is alive when the policy matures for payment he alone will receive payment of the money due under the policy and 998 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 bon fide to the nominee already registered with him the insurer gets a valid discharge
Such power of 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
It is not necessary to refer to sub section 7 of section 39 of the Act here
But the summary of the relevant provisions of section 39 given above establishes clearly that the policy holder 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 policy holder
If that is so on the death of the policy holder 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 Delhi High Court in Mrs Uma Sehgal s case supra
If section 39 of the Act is contrasted with section 38 of the Act which provides for transfer or assignment of the rights under a policy the tenous 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
We 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
As observed in the Full Bench decision of the Allahabad High Court in Raja Ram vs Mata Prasad  Anr
which has interpreted 999 section 39 of the Act correctly the judgment of that High Court in Kesari Devi s case supra related to a different set of facts
In Kesari Devi s case supra the dispute arose regarding the person who was entitled to the succession certificate in respect of the amount payable under a life insurance policy which had been taken out by the assured between the widow of the assured and the widow of the nominee under section 39 of the Act
On going through the judgment in Kesari Devi s case supra we feel that the Court in that case paid little heed to the earlier judicial precedents of its own Court
The decision of the Full Bench in Raja Ram s case supra set at rest all doubts which might have been created by Kesari Devi s case supra about the true import of section 39 of the Act in so far as the High Court of Allahabad was concerned
In Fauja Singh s case supra there is reference only two three cases Life Insurance Corporation of India vs United Bank of India Ltd supra Matin vs Mahomed Matin and Kesari Devi s case supra
The Court expressed its dissent from the Calcutta decision on the ground that decision had not considered sub section 6 of section 39 of the Act
The Lahore case was one decided before the Act came into force
The distinguishing features of Kesari Devi s case supra are already mentioned
Otherwise there is not much discussion in this case about the effect of section 39 of the Act
We have carefully gone through the judgment of the Delhi High Court in Mrs Uma Sehgal s case supra
In this case of the High Court of Delhi clearly came to the conclusion that the nominee had no right in the lifetime of the assured to the amount payable under the policy and that his rights would spring up only on the death of the assured
The Delhi High Court having reached that conclusion did not proceed to examine the possibility of an existence of a conflict between the law of succession and the right of the nominee under section 39 of the Act arising on the death of the assured and in that event which would prevail
We are of the view that the language of section 39 of the Act is not capable of altering the course of succession under law
The second error committed by the Delhi High Court in this case is the reliance placed by it on the effect of the amendment of section 601 kb of the Code of Civil Procedure 1908 providing that all moneys payable under a 1000 policy of insurance on the life of the judgment debtor shall be exempt from attachment by his creditors
The High Court equated a nominee to the heirs and legatees of the assured and proceeded to hold that the nominee succeeded to the estate with all plus and minus points 
We find it 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 exemption of the moneys payable under a life insurance policy under the amended section 60 of the Code of Civil Procedure instead of devaluing  the earlier decisions which upheld the right of a creditor of the estate of the assured to attach the amount payable under the life insurance policy recognises such a right in such creditor which he could have exercised but for the amendment
It is because it was attachable the Code of Civil Procedure exempted it from attachment in furtherance of the policy of Parliament in making the amendment
The Delhi High Court has committed another error in appreciating the two decisions of the Madras High Court in Karuppa Gounder  Ors
vs Palaniammal  Ors
and in BM Mundkur vs Life Insurance Corporation of India  Ors
The relevant part of the decision of the Delhi High Court in Mrs Uma Sehgal s case supra reads thus 10 In Karuppa Gounder vs Palaniammal AIR 1963 Mad 245 para 13 K had nominated his wife in the insurance policy
K died
It was held that in virtue of the nomination the mother of K was not entitled to any portion of the insurance amount
I am in respectful agreement with these views because they accord with the law and reason
They are supported by section 44 2 of the Act
It provides that the commission payable to an insurance agent shall after his death continue to be payable to his heirs but if the agent has nominated any person the commission shall be paid to the person so nominated
It cannot be contended that the nominee us 44 will receive the money not as owner but as an agent on behalf of someone else vide BM Mundkur vs Life Insurance Corporation AIR 1977 Mad 72
Thus the nominee excludes the legal heirs
 1001 Two mistakes committed by the Delhi High Court in the above passage are these
In Karuppa Gounder s case supra the question was whether the amount payable under the insurance policy in question was joint family property or separate property of the assured
In that connection the High Court of Madras observed thus But where a coparcener has effected insurance upon his own life though he might have received the premia from out of the funds which he might have received from the joint family it does not follow that the joint family insured the life of the member or paid the premia in relation thereto
It is undeniable that a member of a coparcenary may with the moneys which he might receive from the coparcenary effect an insurance upon his own life for the benefit of the members of his immediate family
His intention to do so and to keep the property as his separate property would be manifested if he makes a nomination in favour of his wife or children as the case may be
It would therefore appear that no general proposition can be advanced in the matter of the insurance policy of a member of a coparcenary and that each case must be dealt with in accordance with the circumstances surrounding it
 It is obvious from the above passage that the above case has no bearing on the meaning of section 39 of the Act
The fact of nomination was treated in that case as a piece of evidence in support of the finding that the policy was not a joint family asset but the separate property of the coparcener concerned
No right based on the ground that one party was entitled to succeed to the estate of the deceased in preference to the other or along with the other under the provisions of the was asserted in that case
The next error committed by the Delhi High Court is in drawing an analogy between section 39 and section 442 of the Act thinking that the Madras High Court had done so in B M Mundkur s case supra
In BM Mundkur s case supra the High Court of Madras instead of drawing an analogy between section 39 and section 442 of the Act actually contrasts them as can be seen from the following passage 1002 There are vital differences between the nomination contemplated under Section 39 of the Act and the nomination contemplated under the proviso to Section 442 of the Act
In the first place the sum assured with which alone Sec
39 was concerned was to be paid in the event of the death of the assured under the terms of the contract entered into between the insurer and the assured and consequently it was the contractual right which remained vested in the insured with reference to which the nomination happened to be made
It should be pointed out that the nomination as well as the liability on the part of the insurer to pay the sum assured become effective simultaneously namely at the moment of the death of the assured
So long as he was alive the money was not payable to him in the case of a whole life policy and equally having regard to the language of Section 391 of the Act the nominee s right to receive the money arose only on the death of the assured Section 39 itself did 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
It was in this context that the Court took the view that the title remained with the estate of the deceased and therefore with the heirs of the deceased that the nomination did not in any way affect the title and that it merely clothed the nominee with the right to receive the amount from the insurer
On the other hand the provisions and purport of Section 44 of the Act are different
In the first place under Section 441 it was a statutory right conferred on the agent to receive the commission on the renewal premium notwithstanding the termination of the agreement between the agent and the insurer which provided for the payment of such commission on the renewal premium
The statute also prescribed the qualification which rendered the agent eligible to receive commission on such renewal premium
Section 441 provides for the payment of the commission to the agent during his lifetime only and does not contemplate the contingency of his death and the commission being paid to anybody even after his death
It is section 442 which deals with the 1003 payment of commission to the heirs of deceased for so long as such insurance agent been alive
Thus it was not the general law of inheritance which conferred title on the heirs of the deceased insurance agent to receive the commission on the renewal premium but it was only the particular statutory provision namely Section 442 which conferred the right on the heirs of the deceased agent to receive the commission on the renewal premium
In other words the right of the heirs to receive the commission on renewal premium does not arise under any law of succession and it is a right directly conferred on the heirs by Section 442 of the Act even though who the heirs of the deceased insurance agent are will have to be ascertained under the law of succession applicable to him
Thus the statute which conferred such a right on the heirs is certainly competent to provide for an exception in certain cases and take away such a right from the heirs and the proviso which has been introduced by the Government of India notification 1962 has done exactly this in taking away the right of the heirs conferred under the main part of Section 442 in the event of the agent during his lifetime making a nomination in favour of a particular person and not cancelling or altering that nomination subsequently
If the statute itself was competent to donfer such a right for the first time on the heirs of the deceased agent it is indisputable that the statute could take away that right under stated circumstances
 The reasons given by the Delhi High Court in this case in support of its view are not tenable
Moreover there is one other strong circumstance in this case which dissuades us from taking a view contrary to the decisions of all other High Courts and accepting the view expressed by the Delhi High Court in the two recent judgments delivered in the year 1978 and in the year 1982
The Act has been in force 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 1004 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 reasons given by the Delhi High Court are unconvincing
We therefore hold that the judgments of the Delhi High Court in Fauja Singh s case supra and in Mrs Uma Sehgal s case supra do not lay down the law correctly
They are therefore overruled
We approve the views expressed by the other High Courts on the meaning of section 39 of the Act and hold 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
In view of the above conclusion the judgments and decrees of the High Court the first appellate court and the trial court are liable to be set aside
They are accordingly set aside
Since it is not disputed that the plaintiffs are under the law of succession governing them each entitled to 13 share in the estate of the deceased it is hereby declared that each of the plaintiffs is entitled to 13rd share in the amount received under the insurance policies in question and the interest which may have been earned by its investment
The suit stands decreed accordingly
Parties shall however bear their own costs throughout
SR Appeal allowed


Summary:
The appellants being mother and son of one Jagmohan Swarup who was governed by the and who died intestate on June 15 1967 filed Civil Suit No 122 of 1970 on the file of the first Additional Civil Judge Dehradun for a declaration to the effect that they were together entitled to 23rd share of the amount due and payable under the insurance policies though the deceased assured has nominated the respondent his widow as the person to whom the amounts were payable
The respondent contested the suit claiming that she has the absolute right to the amounts to the exclusion of her son and her mother in law
The suit was dismissed
The First Appeal before the Dt
Judge Dehradun and the Second Appeal before the High Court were dismissed
Hence the appeal after obtaining special leave of the Court
Allowing the appeal the Court  HELD 11 A mere nomination made under Section 39 of the 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 accused
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
1009G 1004 B D 12 An analysis of the provisions of Section 39 of the Act clearly established that the policy holder continues to hold interest in the policy during his life time and the nominee acquires no sort of interest in the policy during the life time of the holder
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
The tenuous character of the right of a nominee becomes more pronounced when one contrasts the provisions of Section 39 with that of 993 Section 38
Section 39 of the Act was not intended to act as a third mode of succession provided by the stature and incorrectly styled as statutory testament by the Delhi High Court
998 C E 13 The language of Section 39 of the Act is neither capable of altering the course of succession under law nor can be said to have equated a nominee to an heir or legatee
999F section Fauza Singh vs Kuldip Singh  Ors
AIR 1978 Delhi 276 Mrs Uma Sehgal  Anr
vs Dwarka Dass Sehgal and Ors
AIR 1982 Delhi 36 overruled
Rama Bhallav Dhandhania vs Gangadhar Nathmall AIR 1966 Cal
275 D Mohananardu Mudaliar and Anr
vs Indian Insurance and Banking Corporation Ltd Salem and Anr  Sarojini Amma vs Neelakanta Pillai AIR 1961 Kerala 126 Life Insurance Corporation of India vs United Bank of India Ltd  Anr  Raja Ram vs Mata Prasad and Anr
AIR 1972 All 167 Mallidei and Anr
vs Kanchan Prana Dei AIR 1973 Orissa 83 Lakshmi Amma and Anr
vs Saguna Bhagathi  Ors
ILR 1973 Karnataka 827 Atmaram Mohanlal Panchal vs Gunavantiben and Ors
AIR 1977 Gujarat 134 approved
Karuppa Gounder  Ors
vs Palaniammal  Ors
AIR 1963 Madras 245 B M Mundkur vs Life Insurance Corporation of India and Ors
AIR 1977 Mad 72 discussed and distinguished