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Report No. 190 Law Commission's earlier recommendation 7.1.3 The Consultation Paper referred extensively to the earlier recommendations made by the Law Commission in its 82nd Report on Effect of nomination under section 39, Insurance Act, 1938 (1980). The Law Commission had in the said Report noted that a policyholder cannot confer on any nominee any right higher than what he himself has. The Commission recommended the insertion of certain provisions in section 39 to the effect that "where the holder of a policy of life insurance on his own life nominates his parents, or his spouse, or his children, or his spouse and children, or any of them, the nominee or nominees shall be beneficially entitled to the amount payable by the insurer to him or them under sub-section (6) unless it is proved that the holder of the policy, having regard to the nature of his title to the policy, could not have conferred any such beneficial title on the nominee". The other recommendation was that where the nominee survives the policyholder but dies before the amount is paid, such amount "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". 7.1.4 The Government did not act upon the aforementioned recommendation. Meanwhile, in 1984, the Supreme Court in Sarbati Devi v. Usha Devi, AIR 1984 SC 346 held that the provisions of section 39 could not alter the position of succession under the law. It was clarified that a mere nomination made under section 39 does not have the effect of conferring on the nominee any beneficial interest in the amount payable under the policy on the death of the assured. The court further observed that the nominee acquires no interest in the policy during the life time of the policy holder, therefore, after the death of the policy holder, the amount under the policy becomes payable to his legal heirs, the nominee is only the authorized person to collect the payment so that insurer gets a valid discharge of its liability under the policy. 7.1.5 The decision in Sarbati Devi prompted the Law Commission to modify its earlier view while dealing with nomination in regard to Provident Fund. In its 137th Report on the "Need for creating office of Ombudsman and for evolving legislative administrative measures inter alia to relieve hardships caused by inordinate delays in settling Provident Fund claims of beneficiaries" (1990), the Commission recommended that a statutory provision be made to the effect that the amount payable will vest in the nominee who will be called the 'beneficiary nominee' unless the policyholder names some person as a 'collector nominee' for the purpose of collecting the amount on behalf of the legal representatives of the deceased policyholder. In other words, an option would be available to the policyholder to express in clear terms whether the nominee concerned is a beneficial nominee or a collector nominee. 7.1.6 In the Consultation Paper, the above recommendation made in the 137th Report was reiterated. An alternative was to confer the absolute ownership of the policy money on the nominee to bring it on par with the status of a nominee under section 45ZA of the Banking Regulation Act, 1949. It was further suggested in the Consultation Paper that a proviso may be added that where a policyholder dies after the maturity of the policy but before he can be paid the proceeds thereunder the nomination made would continue to be effectual for receiving the maturity amount on the policy.    |
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