1. The plaintiffs are the appellants in this appeal. The suit is laid for a declaration that the plaintiffs along with the 1st defendant are entitled to a share in the provident fund amount of late Srinivasa Rao, the husband of the 1st plaintiff and father of plaintiffs 2 to 4, in five equal shares and for the consequential relief to direct the 2nd respondent to pay the 4/5th share of the plaintiffs towards the provident fund amount and for costs. The 1st defendant is the mother of late Srinivasa Rao. Late Srinivasa Rao was an employee under Railway Authorities the 2nd defendant and even before his marriage he joined the service and at that time he nominated the 1st defendant his mother as the person to receive the provident fund in the event of his death. After the marriage he did not change the nomination and allowed to continue the original nomination unaltered. He died on 25th March, 1980. When the 1st defendant wanted to withdraw the amount on the strength of the nomination the present suit is filed for a declaration and injunction as stated above.
2. The defence was that the mother being the nominee is entitled to exclude all other heirs and the provident fund is liable to be paid to her exclusively. The trial Court framed issues on this controversy and held that the plaintiffs are not entitled to any share in view of the nomination and the nomination did not become invalid by virtue of the subsequent marriage and the provident fund vested in the 1st defendant by virtue of the nomination and by the subsequent death of the subscriber Srinivasa Rao, and consequently dismissed the suit. Hence, the present appeal by the plaintiffs.
3. The learned counsel for the appellants contends that the judgment of this Court in Talupulu v. Narasamma (AIR 1967 A.P. 10) holding that the provident fund amount is the property of the nominee and cannot be treated as an asset of the deceased in the hands of the nominee, is not correct and the learned Judge who decided that case did not consider the conflict of judicial opinion, and in particular, in view of the judgment of the Supreme Court in Sarbati Devi v. Usha Devi : 1SCR992 though arises under the Insurance Act supports the conclusion that the nominee though entitled to receive the amount has no beneficial interest to the fund and must hold it for the benefit of other heirs of the deceased. It is admitted the provident fund in question is governed by Provident Fund Act 19 of 1925 (hereinafter called the Act).
4. It is true that there is conflict of judicial opinions on interpretation of S. 5 of the Act and most of the cases are decided before the Amending Act 11 of 1946. Section 5 of the Act was amended in 1946 substituting the new section. The object of the amendment may be noted in this regard as disclosed in statement of objects and reasons.
'Certain judicial decisions have cast doubts on the status of nominees under certain Provident Fund Rules, and this Bill is designed to make clear :
(1) that the right of a person duly nominated under the Rules to receive a subscriber's Provident Fund deposits accrues only if the subscriber dies before the sum has been paid to him;
(2) that the right of a nominee is also subject to the nomination, becoming invalid through the happening of some specified contingency, or due to a subsequent amendment made in the Rules; and
(3) that if a nominee does not survive the subscriber, the nomination shall cease to subsist so far as it concerns him unless it appears from the nomination that, in that event, the sum in question should go to some other specified person.'
(Vide Gazette of India Part V, January 26, 1946 page 20)
It is also necessary to compare the old section with new section to see the effect of the amendment. The old S. 5 is in the following terms :
'5. (1) Subject to the provisions of this Act, but otherwise notwithstanding anything contained in any law for the time being in force or any disposition, whether testamentary or otherwise, by a subscriber to, or depositor in a Government or Railway Provident Fund of the sum standing to his credit in the Fund, or of any, part thereof, any nomination, duly made in accordance with the rules of the Fund, which purports to confer upon any person the right to receive the whole or any part of such sum on the death of the subscriber or depositor, shall be deemed to confer such right absolutely until such nomination is varied by another nomination made in like manner or is expressly cancelled by the subscriber or depositor by notice given in such manner and to such authority as is prescribed by those rules.
(2) Notwithstanding anything contained in the Succession Certificate Act, 1889, or the Bombay Regulation VIII of 1827, any such person shall, on the death of the subscriber or depositor, be entitled to the grant of a certificate under that Act, or that Regulation, as the case may be, entitling him to receive payment of such sum or part, and such certificate shall not be deemed to be invalidated or superseded by any grant to any other person of probate or letters of administration to the estate of the deceased.'
Two important changes for the purpose of our discussion may be noted : (1) The word 'absolutely' occurring in the previous section was omitted; and (2) If the nominee predeceases the subscriber or depositor the right conferred upon the nominee shall become void and of no effect. Hence the following decisions which took the view that even though the nominee predeceases the subscriber his heirs will get interest are no longer good law. Vide Non Singh v. Mothi Bai (AIR 1936 Madras 477); Nayagam v. Krishnaswami (AIR 1944 Madras 370); Dharma Rao v. Venkata Mahalakshmamma (AIR 1947 Madras 96); and Somayajulu v. Somi Devi : AIR1950Mad210 . The first part of the section 'notwithstanding anything contained in any law for the time being in force or any disposition, whether testamentary or otherwise', along with the expression 'confers such right absolutely' were construed by some High Courts as not to confer beneficial interest upon the nominee but only a right to receive the fund and the nominee who receives the estate shall hold for the benefit of the estate of the deceased-subscriber and the fund continues to be the estate of the deceased. According to that view the non obstante clause referred above is intended to take away the impediment in personal law of the parties to nominate one person to receive the fund as a legatee if the nomination was treated as a testamentary disposition, but no beneficial interest is vested in the nominee except a bare right to receive the fund exclusively and the said fund continues to be the estate of the subscriber. This view was taken in Noor Mahomed v. Sardar Khatun (AIR 1946 Sindh 38); Mt. Amna Khatoon v. Abdul Karim (AIR 1947 Allahabad 562); Hardial Devi Ditta v. Janki Das (AIR 1928 Lahore 773) and Union of Bharat v. Asha Bi : AIR1957MP79 . On the other hand the Bombay, Calcutta, Oudh, Orissa and Madras High Courts took the contrary view. Vide Komal Singh v. Krishna Bai (AIR 1946 Bombay 304); Keshab Lal v. Ivarani Rudra (AIR 1947 Calcutta 176); Md. Nain v. Mt. Munimunnisa (AIR 1936 Oudh 32); Malati v. Dharma Rao : (1968)ILLJ59Ori ; and Lakshmamma v. Subrahmanyam (AIR 1939 Madras 489). As already noticed the above decisions are decisions rendered prior to the amendment. It is also necessary to keep in mind that the Provident Funds Act may not apply to all provident Funds schemes unless they are specifically made applicable and some of the cases decided without reference to the Provident Funds Act are not relevant for our discussion. But in this case the Provident funds Act is applicable to the Railway Provident Funds as envisaged by S. 2 (f) and (g) of the Act and the said position is not disputed before me.
5. Taking into account the Amending Act 11 of 1946 the Punjab High Court took the view when the nomination is invalid under the relevant rules, the subscriber can dispose of the provident fund under a will. Vide Talupulu v. Narsamma, (supra). The learned Judge who decided did not notice the cleavage of judicial decisions but proceeded on the basis that the nominee gets an absolute right by virtue of nomination under S. 5. Further in view of the recent pronouncements by the Supreme Court referred above the position is not free from difficulty to hold whether the nomination gives an absolute interest to the nominee. It is no doubt true the language of S. 39 of the Insurance Act 4 of 1938 and the present S. 5 of Act 19 of 1925 are different. However there is much force in the contention of the appellants that in view of the principle laid down by the Supreme Court in Sarbati Devi v. Usha Devi (supra) the view taken by those decisions that the nominee has no beneficial interest gains a clear support and the view to the contrary cannot be accepted.
6. However, I do not want to embark on the examination of those decisions which depend on the construction of S. 5 of the Act. I would like to rest my conclusion on a limited question of the right of the nominee who is dependent on construction of S. 3(2) of the Act read with Ss. 4 and 5.
7. It is admitted in this case both as per the statutory rules of State Railway Provident Fund Rules and also as per S. 2(c) of Act 19 of 1925 the mother of the subscriber is a dependent and the fund is payable to the nominee dependent and hence as per S. 3(2) read with S. 4 the fund vests in the dependent except to the extent of any exception made in the Railway Provident Fund Rules. I will advert to the exception later. Hence, it is necessary to notice S. 3(2) and S. 4(1) of the Act :
'Any sum standing to the credit of any subscriber to, or depositor, in, any such Fund at the time of his decease and payable under the rules of the Fund to any dependent of the subscriber or depositor, or to such person as may be authorized by law to receive payment on his behalf, shall, subject to any deduction authorized by this Act and, save where the dependent is the widow or child of the subscriber or depositor, subject also to the rights of an assignee under an assignment made before the commencement of this Act, vest in the dependent, and shall, subject as aforesaid, be free from any debt or other liability incurred by the deceased or incurred by the dependent before the death of the subscriber or depositor.'
'Section 4 :- (1) When under the Rules of any Government or Railway Fund the sum standing to the credit of any subscriber or depositor, or the balance thereof after the making of any deduction authorised by this Act, has become payable the officer whose duty it is to make the payment shall pay the sum or balance, as the case may be, to the subscriber or depositor, or, if he is dead shall :-
(a) If the sum or balance, or any part thereof, vests in dependent under the provisions of S. 3, Pay the same to the dependent or to such person as may be authorised by law to receive payment on his behalf; or
(b) if the whole sum or balance, as the case may be does not exceed five thousand rupees, pay the same, or any part thereof, which is not payable under the clause (a) to any person nominated to receive under the Rules of the Fund, or, if no person is nominated, to any person appearing to him to be otherwise entitled to receive it; or
(c) in the case of any sum or balance or any part thereof, which is not payable to any person under clause (a) or clause (b) pay the same;
(i) to any person nominated to receive it under the Rules of the Fund, on production by such person of probate or letters to administration evidencing the grant to him of administration to the estate of the deceased or a certificate granted under the Indian Succession Act, 1925, or under the Bombay Regulation, VIII of 1927, entitling the holder thereof to receive payment of sum, balance or part, or
(ii) where no person is so nominated, to any person who produces such probate, letters or certificate :
Provided that, where the whole or any part of any sum standing to the credit of the subscriber or depositor has been assigned to any other person before the commencement of this Act, and notice in writing of the assignment has been received by officer from the assignee, the office shall after making any deduction authorised by this Act and any payment due under clause (a) to or on behalf of the widow or children of the subscriber or depositor.
(i) if the subscriber or depositor or, if he is dead the person to whom in the absence of any valid assignment the sum or balance would be payable under this sub-section gives his consent in writing, pay the sum or part of the balance thereof, as the case may be, to the assignee, or
(ii) if such consent is not forthcoming, without payment of the sum, part or balance, as the case may be, pending a decision of a competent civil court as to the person entitled to receive it'.
8. A reading of these two provisions along with S. 5(1) would show that the fund would vest in the nominee when the nominee is a dependent and the fund is payable absolutely to the exclusion of others. S. 2(c) merely defines who is the dependent and does not purport to confer any right upon the dependent. S. 3(2) provides that if under the rules the fund is payable to the dependent then it vests in him and shall be free from any debt or other liability incurred by the deceased-subscriber S. 4(i) contains instructions for payment. Thus we see when the nominee is a dependent by virtue of the operation of S. 3(2) read with S. 4(1)(a) and S. 5(1) of the Act, the fund vests in the nominee and is payable absolutely to the nominee to the exclusion of others. It is difficult to hold that the said vesting is for a limited purpose of receiving the amount but not carrying the beneficial interest with it. When a special provision is made under S. 3(2) vesting the fund in the nominee-dependent and the rules provide for payment to such nominee we must give effect to that provision irrespective of the effect of the nomination in general under S. 5(1).
9. In Thaj Mohammed v. Balaji Singh (A.I.R. 1934 Madras 172) a Division Bench had an occasion to consider the effect of S. 3(2) read with S. 4(1)(a) of the Act. The question for consideration in that case was whether the amount paid to the son of the deceased-judgment-debtor is liable to be attached as the asset of the deceased in the hands of his son. The Court proceeded to examine on the construction of S. 3(2) and held :
'What we have to consider is the effect of the statutory vesting of the fund in the dependent under S. 3(2). It is by reason of such vesting that the money has to be paid to the dependent, on the death of the subscriber or depositor. In the present case the dependent is the minor son to whom the money was so paid. This statute has vested that fund in the son and consequently it has become the property of the son. This fund cannot therefore be deemed to have devolved on the son by right of inheritance. That being so, how can it be regarded as the assets of the deceased depositor in the hands of his son A son is not liable, under Hindu law, to pay his father's debt except from out of his share in the ancestral or joint family properties. The fund in question which belonged to the son (as dependent specified in the Act) by reason of the statutory vesting, which is a special mode of acquisition by him, cannot be proceeded against, even after it was paid over to him, by a creditor, for the realization of a decree-debt due by the father.'
It is no doubt true as held in Lakshmamma v. Subramanyam (supra) that nomination of a person who is not a dependent is not invalid unless there is a prohibition under the relevant Provident Fund Rules and a mere dependent has no right unless he is nominated. Accordingly I hold that the fund vests in the dependent-nominee under S. 3(2) of the Act and payable to the nominee under S. 4(1) he or she is entitled to receive the same and the said fund would not become the estate of the subscriber on his death.
10. However, this is subject to the special rules of the Provident Fund Scheme.
11. In the present case the State Railway Provident Fund Rules which are applicable may be noticed. Rule 1302 gives definitions. Rule 1338 speaks of nomination which is in the following term :
'1338. Nomination :- (1) The Accounts Officer shall, as soon as the account is opened, invite every subscriber to make a nomination conferring the right to receive the whole or part of the amount, excluding amount of special contribution admissible under Rule 1314 that may stand to his credit in the fund in the event of his death before the amount standing to his credit in the fund has become payable, or where the amount has become payable, before payment has been made :-
Rule 1338(2) R.I. No. 121 R.I.
Provided that a nomination made by a subscriber in respect of any other provident fund to which has was subscribing before joining the Fund shall, amount to be a nomination made under this rule until he makes a nomination in accordance with this rule.'
(Railway Board's letter No. XF(P) 62 PF1/1, dated 28th May, 63).
(No. 212 R.I., dated 23rd January, 1964).
2. A subscriber making a nomination shall send it, if a gazetted railway servant to the Accounts Officer otherwise, to this immediate superior.
3. A subscriber may in his nomination distribute the amount that may stand to his credit in the fund amongst his nominees at his own discretion.
4. A nomination made under sub-rule. (2) or a declaration made before these rules came into force may be cancelled by a subscriber by sending a notice in writing if a gazetted railway servant to the Accounts Officer, otherwise, to his immediate superior.
5. On the marriage or re-marriage of a subscriber who is not a Hindu, Muslim, Buddhist or any other person exempted from the operation of the Indian Succession Act, 1925 (XXXIX of 1925) any nomination already made by him shall forthwith become null and void.
6. A subscriber may provide in a nomination :-
a) in respect of any specified nominee, and in the event of his pre-deceasing the subscriber the right conferred upon that nominee shall pass to such other persons as may be specified in the nomination;
b) that the nomination shall become invalid in the event of happening of contigency specified therein.
7. Immediately on the death of a nominee in respect of whom no special provision has been made in the nomination under clause (a) of sub-rule. (6) the nomination being thereon rendered partially or which the nomination becomes invalid in pursuance of sub-rule. (5) or of clause (b) of sub-rule. (6) the subscriber may send to the Account Officer an intimation of this occurrence and may also, send a fresh nomination made in accordance with the provisions of this rule.
8. A nomination or its cancellation shall take effect to the extent that it is valid, on the date on which it is received by the Accounts Officer or in the case of a non-gazetted, railway servant on the date on which it is received by his immediate superior.
9. Nothing in these rules shall be deemed to invalidate a nomination duly made before these rules came into force but their validity will be subject to the provisions of sub-s. (1) of S. 5 of the Provident Funds Act, 1925.'
12. Rule 1340 is in the following terms :-
'Persons to whom accumulations are payable :-
1. Subject to the provisions of rule 1341 on the death of a subscriber before the amount standing to his credit has become payable, or where the amount has become payable, before payment has been made :-
i. the amount of the special contribution credited to the subscriber's account under rule 1314 shall become payable to the widow or widows or/and dependent children of the deceased subscriber in such shares the controlling officer may determine. Correction No. 45, Rule 1340 (1) ....'. If there is no widow or/and no dependent child of the deceased subscriber the amount of special contribution to provident fund account shall be treated as an amount in respect of which no mination subsists;
(Railway Board's Letter No. F(E) 58/LG-2/1, dated 15th September, 1959).
ii. If a nomination made by the subscriber in accordance with rule 1338 subsists the amount standing to his credit in the fund, excluding any amount which becomes payable under clause (i), or that part thereof to which the nomination relates, shall become payable to his nominee or nominees in accordance with such nomination; provided that if the amount exceeds rupees five thousand and the nominee is not a dependent it shall be payable only on production by the nominee of probate or letter of administration evidencing the grant to him of administration of the estate of the deceased or a succession certificate entitling him to receive payment of the amount and;
iii. If no nomination subsists, or if the nomination relates only to a part of the amount standing to his credit in the fund, the whole amount or the part thereof to which the nomination does not relate, as the case may be, shall, subject to the provisions of clause (i) become payable to the members of his family in equal shares, and if there are no such members shall become payable :-
a. If the amount does not exceed rupees five thousand, to any person appearing to the Accounts Officer to be entitled to receive it;
b. If the amount exceeds rupees five thousand, to any person who produces probate or letter of administration evidencing the grant to him of administration to the estate of the deceased or a succession certificate entitling him to the payment of the amount :
Provided that no share shall be payable to :-
1. Sons who have attained legal majority;
2. Sons of deceased son who have attained legal majority :
3. Married daughters whose husbands are alive;
4. Married daughter of a deceased son whose husbands are alive.
If there is any member of the family other than those specified in clauses (1), (2), (3) and (4) :
Provided further that the widow or widows and the child or children of a deceased son shall receive between them in equal parts only the share which that son would have received if he had survived the subscriber and had not attained the age of legal majority at the time of the subscriber's death.
2. The General Manager may delegate powers under sub-rule (1)(i) of this rule to a department or a Divisional Superintendent, as the case may be, or in respect of non-gazetted subscribers, to a District Officers.
Government of India's decisions : (1) for the purpose of this rule a subscriber's posthumous child, if born alive, shall be treated in the same way as a surviving child born before the subscriber's death.
3. A divorced daughter who is dependent on the subscribe is not excluded from receiving a share from the provident fund dues of the subscriber provided the divorce was effected by a 'decree absolute'. This is, however, subject to the personal law of the community to which the subscriber belongs.
(Railway Board's Letter No. F(E), 54/PF-6/1, dated the 29th May, 1954).
4. The share payable to a widow in terms of sub-rule (1) (iii) above, who re-marries before payment of the Provident Fund dues of the deceased subscriber, shall be paid to her irrespective of the re-marriage. Similarly, the share of special contribution to Provident Fund that has been sanctioned by the controlling officer in her favour under sub-rule (1)(i), has also to be paid to her irrespective of her re-marriage.'
13. A close reading of these two rules discloses that the special contribution credited to the subscriber's account under Rule 1314 shall become payable to the widow or widows and the dependent children of the deceased-subscriber in such share the Controlling Officer may determine. So Ss. 4 and 3 must be read subject to these rules and the special contribution is exclusively payable on determination by the Controlling Officer to the widow and children only, and other dependents are excluded. This view is supported by a Full Bench judgment of the Allahabad High Court in Bhagwan Singh v. Ganga Bai (1972 Labour & Industrial Cases 1155). Accordingly I hold that the plaintiffs are entitled to special contribution out of the provident fund now available with the 2nd defendant authority on determination by the Controlling Officer. The rest of the Provident Fund, which vests in the mother of the subscriber the dependent nominee is payable to her.
14. In the result, the appeal is allowed in part and the suit is decreed for a declaration that the plaintiffs are entitled to the special contribution in such share as the Controlling Officer may determine and plaintiff's suit for declaration in respect of rest of the amount of the provident fund is dismissed. I make no order as to costs throughout.