1. This is an appeal filed by the Life Insurance Corporation of India (LIC) represented by the Divisional Manager, L.I.C. of India, Hyderabad, against the judgment and decree passed by the learned Subordinate Judge, Cuddapah, in O.S. No.106 of 1978. O.S. No. 106 of 1978 has been filed by one Nirmala Adi Reddi, wife of the late Adireddi Rangarao, and by her two minor daughters and one minor son represented by here as guardian-ad litem against the L.I.C. of India as the first defendant and against one Adireddi Achayamma, the mother of the late Rangarao and mother-in-law of the said Nirmala Adireddi. The late Rangarao took a life insurance policy with the 1st defendant, L.I.C. of India, before he was married, bearing No.3975 1967 for a sum of Rs.25,000/-. He took this policy on 3rd August , 1971 and nominated his mother, the 2nd defendant. Subsequently , he was married to the 1st plaintiff and took two other insurance policies for Rs.10,000 each nominating his wife under these policies. As this litigation is not concerned with the last two policies, nothing more need be said of them. Rangarao died on 23rd December, 1977. On his death, disputes arose about the payments to be made under the first policy. Under the law of Hindu Succession Act, the plaintiffs and the 2nd defendant are entitled for equal shares in the first policy. Thus, the four plaintiffs are entitled to four shares in the first policy and the 2nddefendant, the mother of Rangarao, is entitled to one share. But the mother of Rangarao, the nominee under the first policy did not concede to the sharing of the policy money with the plaintiffs. The first plaintiff therefore, sent a legal notice dated 2-3-1978 to the L.I.C. of India demanding it to pay the four shares under the first policy to herself and her children. The L.I.C. of India in its reply dated 23-3-1978 stated that the mother of the late Rangarao, Achayamma, (the 2nd defendant herein) was nominated by the late Ranga Rao and that, therefore, if the plaintiffs have title or right to the amount payable by the L.I.C. of India under the first policy, they can get their claim established in a Court of law. The plaintiffs have, therefore, filed the above suit claiming a declaration of 4/5the share in the above sum of Rs.27,367.40 payable by the L.I.C. of India under the first policy. To that suit, the mother-in-law , who was added as the 2nd defendant, remained ex parte and the L.I.C. of India has filed a written statement, contending that the suit raised merely questions of inter se claims between the plaintiffs on the one hand and the 2nd defendant on the other and that the L.I.C. of India, the first defendant has nothing to do with these disputes between the plaintiffs on the one hand and the 2nd defendant on the other hand; that, therefore, the suit should be dismissed as against the (Ist?) defendant.
2. Three issues have been framed by the lower Court and they are:
1. Whether the plaintiffs are entitled to the suit amount.
2. Whether the 1st defendant is not liable to costs?
3. To what relief?
The first issue was answered in favour of the plaintiffs holding that the 1st plaintiff being the wife and the other three plaintiffs being the children of the late Rangarao would be entitled to four shares in the first policy and that the 2nd defendant being mother of the late Rangarao would be entitled to one share under the first policy.
3. The second issue was answered against the L.I.C. of India, the first defendant in favour of the plaintiffs. The lower Court held that the plaintiffs were entitled to recover half of the suit costs from the L.I.C. of India, the first defendant and the other half of the suit costs from the 2nd defendant mother-in-law. The lower Court also directed that half of the Court fee should be paid to the Government by the L.I.C. of India the first defendant and the other half of the Court fee should be paid to the Government by the second defendant, the mother-in-law.
4. It is against that judgment and decree of the lower Court the L.I.C. had presented this appeal to this Court. Although the L.I.C. of India did not, in this Court, dispute the correctness of the judgment of the Court below regarding the directions it had given touching upon the sharing of the insurance amount between the plaintiffs on the one hand and the second defendant on the other , the L.I.C. of India had greatly disputed the correctness of the trial Court's directions to the L.I.C. of India regarding the payment of the suit costs and the payment of the Court-fee. The argument of the L.I.C. of India in this case is that no costs against it ought to have been awarded and it ought not to have been made liable to pay any Court fee. Sri Sivarama Sastri the learned counsel for the appellant Corporation argued that the suit arose out of a dispute between the plaintiffs and the second defendant with which the L.I.C. of India had only been connected remotely. He said that when the first plaintiff had issued a lawyer's notice to the L.I.C. of India asking the Corporation not to pay Achayamma or anybody else the amount due under the policies, what all the Corporation had done was to ask the first plaintiff to establish her claim in a Court of law against her mother-in-law, the 2nd defendant and to obtain a prohibitory order in the meantime within fifteen days from 23-3-1978 forbidding the L.I.C. paying the amount of the policy to the nominee. For doing so, the argument runs the Corporation cannot be made liable to pay the costs or the Court fee or both.
5. It must be admitted that this case raises a question of great concern to the policy-holders transcending the surface issues of suit costs and Court-fee.
6. The legality and propriety of the lower Court's direction to the L.I.C. of India to pay half the suit costs and half the suit costs and half the Court-fee clearly turn upon the question whether the L.I.C. of India is justified in not heeding to the demands of the plaintiffs not to pay the policy amount to the 2nd defendant, who was the nominee under the Insurance Policy. Although the L.I.C. of India camouflaged its legal stand. I take its reply to the plaintiffs clearly to amount to saying that the L.I.C. of India is bound under law to pay the totality of the policy amount to the 2nd defendant mother in her capacity as a nominee. It is that , that drove the plaintiffs to a Court. The question is whether the L.I.C. of India is justified in law in holding the view that in the absence of a contrary direction from Court, it can pay only to a nominee under the policy ignoring the legal heirs of the deceased policy-holders.
7. Section 39 of the Insurance Act (in parts) which has sustained many contrary legal arguments may be read first. It reads:-
'S. 39(1): The holder of a policy of life insurance may when effecting the policy or at any time before the policy matures for payment nominate the person or persons to whom the money secured by the policy shall be paid in the event of his death.
Provided that, where any nominee is a minor, it shall be lawful for the policy holder to appoint in the prescribed manner any person to receive the money secured by the policy in the event of his death during the minority of the nominee.
(6) Where the nominee, or, if there are more nominees than one, a nominee or nominees survive the person whose life is insured, the amount secured by the policy shall be payable to such survivor or survivors.'
Basing on the bare language of S. 39 of the Insurance Act, it was held earlier in some jurisdictions of our High Courts that a nominee under S. 39 of the Insurance Act acquires beneficial interest in the policy amount and would therefore be the person and the only person who can legally received the policy amount and grant valid discharge to the L.I.C. It is this view of S. 39 of the Act which has been adopted by the L.I.C. of India in this case. Under that view, the legal heirs are left with no say in the matter of the payment of the policy amount that becomes payable on the death of the deceased insured. Such a view has been taken by a judgment of the Allahabad High Court in an appeal arising out of Civil Suit No.122/70 on the file of the 1st Addl. Civil Judge, Dehra Dun. In that case , one Jag Mohan Swarup died intestate on 15-6-1967 leaving behind him his son Alok Kumar and his widow, Usha Devi and his mother Sarbati Devi, as his heirs. During his life time the said Jag Mohan Swarup,took out two insurance policies for Rs.10,000/- each and had nominated under S. 39 of the Insurance Act, his wife Usha Devi as the person to whom the amount should be payable on his death. On the intestate death of the said Jag Mohan Swarup, Usha Devi his wife, claimed absolute rights to the payment of the amounts under the two policies to the exclusion of her son Alok Kumar and her mother-in-law Sarbati Devi. This led to the filing of the above Civil Suit No.122/70 on the file of the 1st Addl. Civil Judge, Dehra Dun by the mother Sarbati Devi and her grand-son the minor Alok Kumar for a declaration to the effect that they together were entitled to be paid 2/3rd share of the amount due and payable under the above mentioned two insurance policies. The widow, Usha Devi resisted the suit claiming to be absolutely entitled to the payment of the amounts due under the two insurance policies by the sole reason of the nomination made by her deceased husband under S. 39 of the Insurance Act. First the trail Court, next the first appellate Court and finally the High Court of Allahabad, have all accepted the contention of the widow and non-suited the mother and the minor son, In doing so, those Courts followed an earlier decision of the Allahabad High Court reported in Kesari Devi v. Dharma Devi : AIR1962All355 , Challenging the correctness of the view of the Allahabad High Court, the minor son and the mother had filed Civil Appeal No.96/72 (Reported in : 1SCR992 ) to the Supreme Court. The Supreme Court accepted the appeal of the minor son and the mother and declared that each of the plaintiffs is entitled to 1/3rd share of the amount payable under the insurance policies in question and also the interest that might have been earned by its investment and decreed the suit accordingly. Thereby, the Supreme Court held that the nomination made by the assured under S. 39 of the Insurance Act does not vest the beneficial interest in the nominee and the nomination is subject to the law of succession. The Supreme Court ruled that the insurance policy forms part of the estate of the deceased which is governed by the law of succession applicable to the assured and devolves according to that law on the legal heirs unless validly excluded by a testament. The Supreme Court had rejected the contention that the nomination under S. 39 of the Insurance Act should be regarded as a statutory testament as has been held by the Delhi High Court in Uma v. Dwarka Dass : AIR1982Delhi36 . The Supreme Court ruled that S. 39 of the Insurance Act cannot be construed as providing for a third mode of succession in addition to the two modes of testamentary and intestate succession. The Supreme Court accorded to the nomination made under S. 39 of the Insurance Act only the legal effect of indicating 'the hand which is authorised to receive the amount on the payment of which the insurer gets a valid discharge of its liability under the policy.' But the Supreme Court categorically held that 'the amount however, can be claimed by the heirs of the assured in accordance with the law of succession governing them'. These observations would clearly show that the rights of the heirs under the general law to succeed to the estate of the assured were in no way capable of being stalled or stopped by the nomination made under S. 39 of the Insurance Act and that the nomination would only help the insurer to earn valid discharge when he pays the amounts due to the nominee before the amounts were claimed by the heir or heirs. In other words, the judgment of the Supreme Court is an authority for the proposition that a succession cannot be stopped or stalled by the nomination made under S. 39 of the Insurance Act and that the insurance company cannot act contrary to the lawful claims made by the heirs of the deceased assured.
8. Once it is accepted that the policy amount payable on the death of the assured forms part of his estate and devolves according to the general law of succession and it cannot be divested by reason of the nomination made under S. 39 of the Insurance Act, it should follow that the claims of the legal heirs to the payment of the policy money forming part of the deceased's estate take upper hand over the claims of the nominee to receive the amount from the L.I.C. of India. This title to the deceased's estate which cannot remain in abeyance vests only in the legal heirs the moment the issued dies unless the devolution of the estate is divested by valid testamentary disposition. It follows that the L.I.C. of India cannot ignore this legal position and ignore the claims of the legal heirs for payment and still pay the amount to the nominee. This would be the inescapable result of reading S. 39 of the Insurance Act as subject to the general law of succession. The above quoted two observations of the Supreme Court from the Civil Appeal No.96/72 dated 6-12-1983 (Reported in : 1SCR992 ) in Smt. Sarbati Devi v. Smt. Usha Devi make no other conclusion possible.
9. The reply given by the L.I.C. of India under Ex.A-2 would in effect, amount to refusing to recognise the rights of the heirs of the late Rangarao Adireddy who insured with the L.I.C. of India . When the wife of the said Rangarao made claim as a legal heir, for the payment of her share of the monies due under the policies and also not to pay the amount to the second defendant mother-in-law, merely on the basis of the latter's nomination, the L.I.C. of India pleaded in substance its inability to stop paying the 2nd defendant, because the second defendant was the nominee under the policy. Why did the insurance company ask the first plaintiff to obtain a prohibitory under forbidding the insurance company from paying to the second defendant if it is not for the reason that in law it felt bound to pay to the nominee? It also warned the 1st plaintiff to the effect that if no prohibitory order is received, the policy amount would be paid to the nominee without reference to the claims of the first plaintiff. Al this is done clearly on the basis that the nomination made under S. 39 of the Insurance Act, should be honoured by the L.I.C. of India and can only be interdicted by a Court of law. The above mentioned judgment of the Supreme Court is clearly contrary to this understanding of the law by the L.I.C. of India. In view of this legal position taken by the L.I.C. of India it has become imperative for the first plaintiff and her children to sue the L.I.C. of India along with the 2nd defendant for a declaration of their entitlement to succeed to the policy amount under the Hindu Succession Act to receive their share from the L.I.C. of India. In such case, I find justification for the Court awarding costs against the L.I.C. of India. In my opinion, the reply given by the L.I.C. of India under Ex.A-2 gave rise to the present dispute forcing the plaintiffs to seek the aid of the Court without which the L.I.C. of India under Ex.A-2 gave rise to the present dispute forcing the plaintiffs to seek the aid of the Court without which the L.I.C. was not prepared to pay the plaintiffs. It is not a case where the L.I.C. of India had disclaimed knowledge of the status of the first plaintiff and her children as the heirs of the assured. It is really a case of misconception regarding the scope of nomination and its legal significance. Having driven the plaintiffs to seek the shelter of the Court, the L.I.C. of India cannot refuse to bear the costs of the litigation. I am therefore unable to hold that the lower Court erred in directing the L.I.C. of India, the first defendant to pay half of the suit costs and half of the Court-fee. For the reasons mentioned above, I dismiss this first appeal, but without costs here in this Court.
10. Appeal dismissed.