BENEFICIAL NOMINEE v. COLLECTOR NOMINEE

[Mr. M. GOVINDARAJAN]

Nomination

It is used to nominate a person in respect of financial transactions especially in making deposits with banks, insurance policies etc.  An acknowledgment will be issued by banker /LIC on receipt of the nomination from the account holder or policy holder.  In the death of the policy holder the bank or LIC may make payment to the nominee as nominated by the subscriber/policy holder. 

In SHWETA SINGH HURIA AND ORS. VERSUS SANTOSH HURIA AND ORS. - 2021 (5) TMI 1075 - DELHI HIGH COURT, the Supreme Court held that the nomination would not confer any beneficial interest on the nominee and it is mere authorization to receive the insurance amount which can be claimed by the legal heirs of the assured in accordance with law of succession, governing the parties.  Mere nomination effected under Section 39(8) shall not deprive the legal heirs to the amount under the insurance policies.

Law Commission Report

The 190^th Report of Law Commission recommended the following in regard section 39 of the Act-

• A clear distinction is to be made in the provision itself between a beneficial nominee and a collector nominee.
• It is not possible to the suggestion made by some of the insurers that in all cases the payment to the nominee would tantamount to a full discharge of the insurer’s liability under the policy and that unless the contrary is expressed, the nominee would be the beneficial nominee.
• An option to be given to the policy holder to clearly express whether the nominee will collect the money on behalf of the legal representatives (in other words such nominee will be the collector nominee) or whether the nominee will be absolute owner of the monies in which case such nominee will be the beneficial nominee.
• A proviso be added to make the nomination effectual for the nominee to receive the policy money in case the policy holder dies after the maturity of the policy but before it can be encashed.

Accordingly Section 39 was amended.

Amended Section 39(8)

Section 39(8) of the Insurance Act, 1938 (‘Act’ for short) as amended provides where the nominee or if there are more than one, a nominee or nominees, to whom sub-section (7) applies, die after the person whose life is insured but before the amount secured by the policy is paid, the amount secured by the policy, or so much of the amount secured by the policy as represents the share of the nominee or nominees so dying(as the case may be), shall be payable to the heirs or legal representatives of the nominee or nominees or the holder of a succession certificate, as the case may be, and they shall  be beneficially entitled to such amount.

In K.R. SAKTHI MURUGESWARI VERSUS DIVISIONAL MANAGER DIVISIONAL OFFICE, LIFE INSURANCE CORPORATION OF INDIA, TIRUNELVELI AND OTHERS - 2023 (12) TMI 364 - MADRAS HIGH COURT , the petitioner’s husband expired due to  the COVID -19 period on 13.05.2021.  The husband of the petitioner had subscribed a LIC policy for Rs.3 lakhs.  After the demise of the husband the petitioner filed a claim before the Insurance.  The second respondent, the LIC authority, sent a communication to the petitioner on 24.06.2021 informing the petitioner that the deceased has nominated his brother as nominee.  Therefore the claim amount would be paid to the nominee only and not to them.  Being aggrieved against the said communication the petitioner filed the present writ  petition before the High Court.

The LIC filed counter affidavit before the High Court.  In the Counter affidavit the LIC submitted the following before the High Court-

• The assured amount of policy is Rs.3 lakhs and the bonus Rs.2.02 lakhs is payable under the policy if the claim is admitted after the receipt of all requirements.
• The nominee of the policy holder applied for the claim submitting the original policy and also the writ petitioner filed the claim to LIC as the wife of the deceased.
• Since there are two claims for this policy amount one by the nominee and the other the wife of deceased, LIC was not in a position to take a decision in respect of policy amount with the Bonus.

LIC submitted that it is ready to pay the claim to the person as ordered by the High Court.

The High Court heard the submissions of the parties and it framed the issue for taking decision by it is as to whether the impugned communication of the LIC requires interference and to issue consequential direction to the LIC to pay the assured amount to the petitioner and her son. 

The High Court analyzed the position before the amendment effected in the Act.  The nominee will mere receives the assured amount from the Insurance Company in his or her capacity as a Collector Nominee and insofar the claim over the sum assured.  The Collector nominee will retain the amount in trust subject to the working out the final claim between the parties before the competent court.

A beneficiary nominee means a nominee who is entitled to receive the entire sum assured under the insurance policy absolutely.  A collector nominee means a nominee other than a beneficiary nominee.  The amendment in the Act this distinction has been done away with.  The legislature was careful enough to identify who all will fall within the category of nominees who in law will be considered as a beneficiary nominee.  The legislature brings parents, spouse, children, spouse and children or  any of  them.  If the legislature had thought it fit to make everyoneas a beneficiary nominee, there was no need for the legislature to specifically prescribe those persons who will fall within the ambit of section 39(7) of the Act. 

In the instant case the third respondent is the brother of deceased policy holder and he cannot be brought within the scope of section 39(7) of the Act.  Therefore the respondent is a collector nominee.   He has to hold the money in trust subject to the claims made by the legal representatives who are entitled to a share in the sum assured. 

The High Court held that the third respondent, brother of the deceased as a nominee can only collect the sum assured from the Insurance Company and hold it in trust and it will be subject to the claims made by the legal heirs of the deceased under the personal law governing them.  The High Court further held that the third respondent falls under the Class-II legal heir and therefore excluded from succeeding the sum assured. 

The High Court directed the third respondent to submit the original policy to the LIC Company within a period of 2 weeks from the date of receipt of the copy of the order and the LIC company shall hand over the sum to the petitioner and her son within a period of two weeks thereafter.