Introduction
In life insurance, nomination serves a procedural function as it identifies the person to whom the Life Insurance Company is to discharge its liability upon the death of the life assured. However, the legal status of a nominee has been the subject of considerable debate and judicial scrutiny in India. Over the years, the question regarding the legal status of a nominee ie, whether they become the rightful owner of the insurance benefits (to the exclusion of legal heirs under Indian succession laws) or merely act as a trustee for the legal heirs, has remained a consistent subject of concern amongst Insurers and debate within Indian courts.
Before 2015, Indian courts consistently held that a nominee merely acted as a collector or trustee of the policy benefits and not as the owner. However, in 2015, Parliament amended the Insurance Act 1938 ("Insurance Act") and introduced sub-sections (7) to (11) in §39 of the Insurance Act, which governs nomination with respect to proceeds from a life insurance policy. This amendment has led to differing interpretations by various courts and has led to some uncertainty in the industry.
While some High Courts have taken the view that a nominee under §39(7), if falling within the prescribed class, acquires beneficial ownership, other decisions have rejected this interpretation, reaffirming that nomination does not override succession laws. In this context, the recent decision of the Allahabad High Court, in the case of Kusum v Anand Kumar and Others1 revisits the scope of nomination under the amended provision and affirms a more conservative view that the rights conferred by the applicable succession laws prevail over the rights of a nominee under the Insurance Act. This article examines the Court's reasoning and places it in the wider jurisprudential context.
Recent decision in the case of Kusum v Anand Kumar
Factual Background
The dispute arose from the intestate death of the Insured (Ranjeeta), who had nominated her mother (the petitioner) as the beneficiary under 15 life insurance policies. Following the Insured's death, her husband and minor daughter (the respondents), initiated succession proceedings at the Unnao District Court under §372 of the Indian Succession Act 1925 and obtained a succession certificate, without notifying the petitioner. The petitioner challenged this decision, after which the Unnao District Court excluded the policy proceeds from the respondent's estate but directed them to be held in fixed deposits for the minor daughter. Aggrieved, the petitioner approached the Allahabad High Court ("Court"), arguing that the rights of a beneficial nominee under the Insurance Act override those of legal heirs under the applicable succession law, ie, the Hindu Succession Act 1956 ("Hindu Succession Act").
The Court's Reasoning
The Allahabad High Court rejected the nominee's claim to absolute ownership and held as follows:
- Interpretation of Pari Materia Provision:The Court drew a parallel between §39(7) of the Insurance Act and §45-ZA(2) of the Banking Regulation Act 1949, considering them pari materia provisions ie, provisions dealing with the same subject matter. The Court relied on the Supreme Court's interpretation of §45-ZA(2) in the case of Ram Chander Talwar & Anr v Devender Kumar Talwar & Ors2, where it was held that a nominee merely has the exclusive right to receive the money in the account but does not become the owner of the money. The money remains part of the deceased's estate and devolves according to the applicable succession laws. Applying this reasoning, the Court held that a 'beneficial nominee' under §39(7) of the Insurance Act similarly receives the insurance proceeds but does not acquire absolute ownership, holding the funds in trust for the legal heirs.
- Reliance on Supreme Court Precedent: The Court relied on the decision of Supreme Court in the case of Shakti Yezdani and Anr v Jayanand Jayant Salgaonkar and Ors3, which held that nomination concerning shares (under the Companies Act 2013) does not override the laws of succession. The Supreme Court in Shakti Yezdani clarified that the object of nomination is primarily to facilitate the smooth transmission of ownership and provide a discharge to the company, and not to create a third mode of succession.
- Doctrine of Harmonious Construction: The Court relied on the 'Doctrine of Harmonious Construction' and noted that when two statutes operating in distinct domains intersect, they must be interpreted harmoniously to give effect to both. To hold otherwise would allow a nominee to override the rights of legal heirs, defeating the very purpose of succession laws and effectively creating a parallel inheritance regime not intended by the legislature.
- Special vs General Law: The Court relied on the case of LIC v DJ Bahadur4 and reaffirmed that when two statutes operate in different fields, the special law prevails over the general law. The Court observed that the Hindu Succession Act is a special law enacted to codify the rules of succession for Hindus dying intestate, whereas the Insurance Act primarily regulates the business of insurance. Since the dispute in the present case pertains to intestate succession, the rights conferred under the Hindu Succession Act must prevail over the nominee's claim under §39(7) of the Insurance Act.
- Conflicting Interpretations: The Court also acknowledged the conflicting interpretations by various High Courts on the effect of the amended §39 (citing judgments from Delhi, Andhra Pradesh, Madras, Karnataka, and Madhya Pradesh High Courts), however, the Court chose to adopt an interpretation that harmonised the provisions of the Insurance Act and the Hindu Succession Act. The Court noted that interpreting 'beneficial nominee' to exclude heirs would lead to an absurdity not intended by the legislature when amending §39(7) of the Insurance Act.
Based on the foregoing, the Court held that the §39(7) of the Insurance Act does not override the rights of legal heirs under the Hindu Succession Act. The policy proceeds, while payable to the nominee for receipt purposes, form part of the deceased's estate and devolve according to the applicable laws of succession. Consequently, the Court dismissed the petitioner's challenge and upheld the order of the District Court.
Concluding Remarks
Notably, while the Court adopted a harmonised construction approach, other High Courts have taken a divergent view. In Shweta Singh Huria & Ors v Santosh Huria & Ors5, the Delhi High Court held that a nominee falling within the class specified in §39(7) was entitled to receive the proceeds to the exclusion of other heirs. The Andhra Pradesh High Court, in Mallela Manimala v Mallela Lakshmi Padmavathi & Ors6, similarly upheld the rights of a "beneficial nominee" as absolute. The Madras High Court in KR Sakthi Murugeswari v LIC & Ors7 reinforced this interpretation, emphasising the legislative choice to limit beneficial entitlement to close family members.
In contrast, High Courts in Karnataka8 and Madhya Pradesh9, and now the Allahabad High Court have adopted a more restrained view.
The Court's judgment does contribute meaningfully to the ongoing judicial discourse where it chooses to interpret the provision in harmony with personal succession laws (and not as a parallel system of inheritance). For policyholders, the decision of the Allahabad High Court highlights the importance of intentional estate planning, such that they supplement nomination with a clear will if they intend for the nominee to receive the proceeds absolutely.
For Insurers, good practice remains to continue treating nominees as recipients for discharge purposes but refrain from making determinations on ownership in succession disputes. The judgment also signals the need for some clarity from the legislature and the IRDAI, to the extent necessary. Until such reforms are in place, in our view, nomination ensures priority in payment, not necessarily priority in ownership.
Footnotes
1 Kusum v Anand Kumar and Others [2025:AHC-LKO:24631].
2 Ram Chander Talwar & Anr v Devender Kumar Talwar & Ors [(2010) 10 SCC 671].
3 Shakti Yezdani and Anr v Jayanand Jayant Salgaonkar and Ors [(2024) 4 SCC 642].
4 LIC v DJ Bahadur [(1981) 1 SCC 315].
5 Shweta Singh Huria & Ors v Santosh Huria & Ors [AIR 2021 Delhi 121].
6 Mallela Manimala v Mallela Lakshmi Padmavathi & Ors [2023 SCC OnLine AP 459].
7 KR Sakthi Murugeswari v LIC & Ors [WP (MD) No 11044 of 2021].
8 Smt Neelavva @ Neelamma v. Smt Chandravva @ Chandrakala @ Hema & Ors [RFA No.100471 of 2023].
9 Arun Kumar Singh v Jaya w/o Chetan Singh Chouhan and Ors [2022 SCC OnLine MP 5948].
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