Allahabad, May 2025 — In a judgment concerning the rights of insurance policy nominees, the Allahabad High Court has held that a ‘beneficial nominee’ under Section 39(7) of the Insurance Act, 1938, is not the rightful owner of the insurance proceeds to the exclusion of legal heirs.
The ruling was delivered by Justice Pankaj Bhatia in the case of Smt. Kusum v. Anand Kumar & Others, where the petitioner, Kusum, claimed full entitlement to the proceeds of 15 life insurance policies taken out in the name of her late daughter, Ranjeeta. Kusum was designated as the nominee in these policies. Following Ranjeeta’s death in 2011, a legal dispute arose between Kusum and Ranjeeta’s husband and daughter over the ownership of the insurance amount.
The Court observed that interpreting Section 39(7) to confer absolute ownership rights on the nominee would contradict established principles of succession and lead to “absurdity”, which the 2015 amendment to the Insurance Act never intended.
Section 39(7), introduced in 2015, provides that a nominee “shall be beneficially entitled” to the sum payable by the insurer. Prior to this, nominees acted merely as custodians for the legal heirs. Justice Bhatia held that this amendment cannot override succession laws like the Hindu Succession Act.
In reaching this conclusion, the Court noted the similarity between Section 39(7) of the Insurance Act and Section 45-ZA(2) of the Banking Regulation Act. Referring to the Supreme Court’s decision in Ram Chander Talwar v. Devender Kumar Talwar, which held that a bank nominee is not the owner of funds, the Court applied the same principle to insurance claims.
Further strengthening its reasoning, the Court relied on the landmark judgment of the apex court in Shakti Yezdani v. Jayanand Jayant Salgaonkar, where it was held that nomination under the Companies Act does not override succession laws.
“The Insurance Act was never enacted to govern the rights of succession,” the Court noted, emphasizing that a harmonious interpretation must give precedence to the specific provisions of succession laws over the general provisions of the Insurance Act.
The Court ruled:
- A nominee under Section 39(7) cannot be considered the owner of the insurance proceeds, in line with the Supreme Court’s interpretation of similar provisions.
- Succession laws, particularly the Hindu Succession Act, would prevail over any rights claimed by a nominee under the Insurance Act.
In the present case, the District Judge, Unnao, had earlier directed Kusum to deposit the insurance proceeds in Fixed Deposits in the name of her granddaughter until she attained the age of 18. Kusum challenged this order, claiming rights as a beneficial nominee, but also conceded that her granddaughter would inherit Ranjeeta’s estate under succession law.
The High Court, however, dismissed Kusum’s plea, concluding that the rights of legal heirs cannot be displaced by mere nomination. Given the conflicting views among various High Courts—Delhi, Andhra Pradesh, and Madras holding nominees as beneficiaries, while Karnataka and Madhya Pradesh held otherwise—the Court granted a certificate of appeal to the Supreme Court under Article 134-A of the Constitution.
“This issue is of seminal importance and affects the public at large,” Justice Bhatia observed while granting the certificate.
