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Thiagarajan Minor by Mother and Next Friend Ananthalakshmi Ammal, Alias Seethalakshmi Ammal and anr. Vs. K. Venkatarama Ayyar - Court Judgment

LegalCrystal Citation
SubjectCivil;Company
CourtChennai
Decided On
Reported in(1936)70MLJ581
AppellantThiagarajan Minor by Mother and Next Friend Ananthalakshmi Ammal, Alias Seethalakshmi Ammal and anr.
RespondentK. Venkatarama Ayyar
Cases ReferredDavies v. Davies
Excerpt:
.....ground that the said sum did not form part of the estate of rama ayyar and it was payable to his legal heirs. 3. before examining the several contentions it will be necessary to refer to the various rules and regulations of the fund and define precisely the rights and privileges conferred upon a member or his nominee or his heirs. he had made a contract -which, i think, was perfectly legal -that the proceeds should go to his surviving children if he did not divert the same from them in a mode which he might have adopted but which he did not adopt. in an action by the executor of the testatrix against the trustees for an-order that the amount of the benefit should be paid to him it was held that although the nomination was root in accordance with the rules yet the money was not the..........9th july, 1931. under the rules of the fund certain sums of money became payable to his nominee or legal heirs in the event of his death. during his lifetime rama ayyar became indebted to the plaintiff who after his deatkjfiled small cause suit no. 564-of 1931 against the son and the widow of rama ayyar and obtained a decree for a sum of rs. 268-3-3 payable from the assets of the late rama ayyar in their hands. he attached a sum of rs. 800 as due and payable by the fund as the assets of the said rama ayyar. both the defendants, his son and widow, as well as the fund, resisted the claim on the ground that the said sum did not form part of the estate of rama ayyar and it was payable to his legal heirs. the learned district munsiff of negapatam rejected the claim holding that the said sum.....
Judgment:

Venkataramana Rao, J.

1. This Civil Revision Petition raises a question of some importance. One Rama Ayyar was a member of the Non-Gazetted Government Officers' Association, Madras, Mutual Benefit Fund Limited. He became a member of it on 19th March 1925 and died on 9th July, 1931. Under the rules of the Fund certain sums of money became payable to his nominee or legal heirs In the event of his death. During his lifetime Rama Ayyar became indebted to the Plaintiff who after his deatkjfiled Small Cause Suit No. 564-of 1931 against the son and the widow of Rama Ayyar and obtained a decree for a sum of Rs. 268-3-3 payable from the assets of the late Rama Ayyar in their hands. He attached a sum of Rs. 800 as due and payable by the Fund as the assets of the said Rama Ayyar. Both the defendants, his son and widow, as well as the Fund, resisted the claim on the ground that the said sum did not form part of the estate of Rama Ayyar and it was payable to his legal heirs. The learned District Munsiff of Negapatam rejected the claim holding that the said sum did form part of the estate of the late Rama Ayyar and the moneys were therefore liable to be attached for the decree debt of the plaintiff-Against this order the present Civil Revision Petition is filed.

2. It is contended on behalf of the defendants that Rama Ayyar had no disposing power over the said sum and therefore it is not property capable of being attached under Section 60 of the Civil Procedure Code, that there was a trust created by Rama Ayyar in favour of his nominee or legal heirs or at any rate, there was a contract entered into by the Fund in and by which the said sum became payable only to the legal heirs and therefore the defendants are entitled to the said sum in preference to the plaintiff. It is contended on behalf of the plaintiff that the Fund did form part of the property of the deceased, that any nomination made by him during his lifetime is more in the nature of a testamentary disposition and further the said nominee also died and there was no nomination by him and the legal heirs can only get the money as his property subject to the liability to pay his debts, that no question of trust arises nor any question of contract. Even assuming that there is such a contract entered into by the Fund with the said Rama Ayyar, the defendants being strangers to the contract are not entitled to enforce their claim.

3. Before examining the several contentions it will be necessary to refer to the various rules and regulations of the Fund and define precisely the rights and privileges conferred upon a member or his nominee or his heirs. The Non-Gazetted Government Officers' Association, Madras, Mutual Benefit Fund Limited is a company registered under the Indian Companies Act. The object of the Fund is to secure a suitable pecuniary benefit on co-operative basis to every member thereof on his retirement from service or his nominee or nominees. The liability of the members is limited and the capital is Rs. 20,000 divided into 20,000 shares of Re. 1 each. Any application for admission should be in the prescribed form and accompanied by a sum of Rs. 4 made up of the share capital of Re. 1, the annual contribution of Rs. 2 for working expenses and the advance call of Re. 1 and each member shall pay in advance in January of each year the annual contribution of Rs. 2 for meeting the working expenses of the Fund. The way in which moneys received by the Fund are to be disposed of according to the rules of the Association is given in Rule 8:

Classification of Finance :The Finances of Fund shall be distributed and accounted for as follows:

(1) The amount collected as share capital shall be kept as a separate account and the interest accruing therefrom shall be transferred to the Reserve Fund. The Share capital of a member who ceases to be such consequent on his death, or withdrawal or removal from the rolls of the Fund shall lapse to the Association.

(2) The sums paid as calls, ordinary and emergency, shall be utilised for making benefit payments to withdrawing members or to the nominees or legal heirs of deceased members in accordance with these Articles, the balance being transferred to the Reserve Fund in each case according to these Articles.

(3) The amount collected as annual contribution for meeting the working expenses of the Fund shall be kept as a separate account and utilised for meeting all expenditure in connection with the working of the Fund

(4) The Reserve Fund which shall be made up of the transfers made after paying the death or retirement benefits and such of the sums as may be specifically transferredby the General Body, shall be utilised for paying the bonus referred to in Article 12 and for safeguarding the claims of members in the case of an abnormal fall in the membership or an abnormal increase in the number of calls in any one year.

4. It will thus be seen that, so far as the share capital is concerned, the member loses all property therein at the moment of death. The amount collected as annual contribution is utilised for meeting all expenses in connection with the working of the Fund. Therefore the only fund which is set apart for payment to the members or their nominees or legal heirs is the call money. 'Call' is defined in Art, 9 as the contribution which is required to be paid to the Fund on the death or withdrawal of a member and Art, 9 provides when calls shall be made.

Calls. Calls shall be made on the members of the Fund in the following; cases:

(a) death of a member of the Fund;

(b) withdrawal from the Fund of a retired official after completing 15 years' membership in it; and

(c)withdrawal of a member of the Fund after completing 30 years, membership in it.

In the first and third cases, the other members shall be required to pay to the Fund contribution of Re. 1 per head. In the second case, the remaining members of the Fund shall pay a contribution of half a rupee each. These sums shall be paid to the Fund on receipt of the notice of the member's death or withdrawal, in any case, within a month from the date of receipt of such notice. Not more than three calls shall be ordinarily made in any one [month and in the event of there being more than three calls in a month, the excess number of calls shall be spread over the succeeding months. The Central Committee shall, however, be competent to levy in case of an abnormal increase in the number of calls, emergency calls not exceeding twelve in a year.

5. Therefore on the date of the death of a member there is no money which he can call his own except the advance call of Re. 1 which he paid and the right of disposal of the money which is collected as calls, ordinary and emergency, is vested in the Fund and, so far as this money is concerned no portion of the amount is contributed by him save perhaps when in case of deficiency in the proportion to be paid according to Rule 12 the Reserve Fund is resorted to which may contain the balance of the call moneys previously disbursed to which the member might have contributed. Of course, this right of disposal vested in the Fund is subject to certain regulations, namely (1) where the member withdraws from the Fund after thirty years of membership or (2) where he retires from service, he is entitled to a certain percentage of the call-money, but if either of these events does not happen the amount which is again a certain percentage of the call money is payable to his nominees or legal heirs under rules 13 and 14 which provide as follows:

13 Nominees : Every member shall appoint in writing in his own hand a nominee or nominees who are entitled to receive the benefits of the fund. Such appointment should invariably be made on admission or immediately atter...it. A register shall be kept of the nominees of every member and of all guardians of minor nominees so appointed as aforesaid. Members may substitute other nominees in the place of those previously appointed by giving due once in writing to the General Secretary. All such notices shall De attested by two witnesses other than the person or persons nominated.

14 Payment to Nominees and members, (a) On proof to the satisfaction of the central Committee of the death of a member of the Fund the sum payable to his nominee or nominees under these Articles shall be paid to such nominee or nominees or in the event of such nominee or nominees or any of them being minors to the guardian of such minors or to his legal heirs.

6. The control of the entire fund is vested in the Central Committee of the Non-Gazetted Government Officers' Association Madras, and the members of that committee are the directors of this Fund.

7. Rama Ayyar aforesaid made the application to be a member and paid the usual share capital and other moneys as required by the rules of the Fund, and he made a declaration in and by which he engaged himself to submit to and abide by the rules of the Fund then existing and to such amendments, advantages or alterations as may from time to time be introduced. In the application form under column 8--the name of the nominee - he mentioned the name of his son Sridharan, but the said Sridharan predeceased him and he did not appoint any other nominee as required by Rule 13 of the Fund. Therefore the question now arises, the nominee mentioned by Rama Ayyar having died, what is the interest possessed by Rama Ayyar in the fund to be paid from and out of the call money as provided in Rule 8? Did it form part of his property in the sense that he had a disposing power over it, which he may exercise for his benefit? If not, the property is not liable to be attached. Questions similar to this have arisen in connection with unregistered friendly societies in England. In Ashby v. Costin (1888) 21 Q.B.D. 401 under the rules of an unregistered friendly society called the London and North-Western Railway Insurance Society, a member agreed to the deduction from his wages of the sum specified in the rules for securing to himself or to his representatives in case of his death the benefits of the Society. The rules provided for payment of certain allowance in the case of death to any person to whom he has bequeathed it and in the absence of any bequest to his widow or children or to his parents or to any of them to such proportions as the Committee of the Society may determine. Upon the death of the member intestate the society paid the amount of the death allowance to the defendant, his sister. The plaintiff as the administrator of the deceased's estate brought the action to recover the money. Cave, J., held that the Fund payable was not assets for the payment of the debts of the deceased member and that the sister was entitled to the amount as against.the administrator. The learned Judge observed:

The money was not the money of the deceased, although it was payable out of a fund to which he and others contributed. It was to be paid according to the bargain made by the deceased with the other members.... He has no right to it but such as the rules give him. If he chooses to bequeath it by his will it will be assets; but if he does not choose to exercise this power, the committee and not the member will determine which of his relatives will get the allowance and in what proportions.

8. This was followed by North, J., in In re Davies, Davies v. Davies (1892) 3 Ch. 63 where a clerk in Holy Orders effected an insurance upon his life for the sum of 500 with the Clergy Mutual Assurance Society and the policy provided that if he should duly pay to the Society the stipulated premium, the funds of the Society should, conformably to the rules and regulations of the Society be subject and liable to pay, within three calendar months after his decease to the person or persons entitled thereto under the rules and regulations of the Society, the sum of 500 and the rules provided that any member can nominate a person or persons to receive the sum assured or any part thereof and that if no nominee should have been appointed or, having been appointed, such nominee should have died during the life time of the assured and no new nomination should have been made the amount should be paid to the widow, if not, to the children, or to the next of kin if there should be no children. The member did make a will, but he did not dispose of this fund, whereupon the question arose whether the three daughters of the testator were entitled to this sum as the children referred to in the rules. Held, they were. The learned Judge observed:

He had made a contract - which, I think, was perfectly legal - that the proceeds should go to his surviving children if he did not divert the same from them in a mode which he might have adopted but which he did not adopt.

9. Then referring to Ashby v. Costing (1888) 21 Q.B.D. 401 he observed:

I do not entirely assent to the language used by Mr. Justice Cave, in Ashby v. Costin (1888) 21 Q.B.D. 401 that the money was 'not the property' of the assured. He had a contingent interest which would have become absolute on the happening of a certain event, which however did not happen. In the events which did happen, the testator's three daughters are entitled to the policy money by virtue of the special contract between him and the insurance company.

10. Again in In re William Phillips' Insurance, Lindley, L.J., observed:

Prima facie, the money payable under a policy of insurance which a man effects on his own life is his own, and prima facie he can therefore dispose of it by will. But the rules of the Society in which the insurance is effected may negative this probability...It appears to me on looking carefully at the rules that the testator has not any property in the fund, but has only a limited power of appointment.

11. The principle of the above decisions was followed in Bennett v. Slater (1899) 1 Q.B. 45 though no doubt it was a decision under the Friendly Societies' Act. The result of these decisions is that the fund did not form part of the assets of the deceased but is money available for payment to and liable to be disbursed in favour of nominees or legal heirs of the deceased according to the rules of the Society by which the member agreed to be bound when he became a member and entered into a contract with the fund. In my opinion, Srinivasa Ayyangar, J., accurately sums up the principle underlying these cases in Florina Marties v. Pinto : AIR1918Mad461 . The learned Judge says:

In all these cases the principle adopted was that if under the contract between the member and the Society, the Society undertakes to pay a particular person, that person is entitled to the money, though the member may have the power to select any person he chooses and though the nomination may be ambulatory in character so as to enable the member at his entire discretion to change the nomination or even to make the Fund his own by merely observing the formalities prescribed by the rules.

12. In Nana Tawker v. Bhawani Boyee : (1920)39MLJ476 which was a case of a deposit of moneys in a Nidhi or Fund by a person, his nominee was held not entitled to receive the deposit. The case of Ashby v. Costin (1888) 21 Q.B.D. 401 and the case of In re Davies, Davies v. Davies (1892) 3 Ch. 63 were referred to and distinguished on the ground that those cases proceeded on the footing that under the contract the insurance money was not the absolute property of the subscriber. Krishnan, J., observes in that case referring to Ashby v. Costin : AIR1921Mad199 that:

The case is entirely distinguishable from the case before us, inasmuch, as here the money belonged to Tawker and continued to be his till his death, and there was no payment by the Fund to any one.

13. I may in this connection refer to the latest case in England, Hannay v. Horner (1915) 32 T.L.R. 240 where a testatrix had been a member of an unregistered friendly society and had become insured under the rules for a benefit payable on her death to the person nominated in a nomination form. She nominated her mother and on the latter's death nominated her cousin Mrs. Downie, but it was subsequently found that the nomination was not in, accordance with the rules and therefore invalid. In an action by the executor of the testatrix against the trustees for an-order that the amount of the benefit should be paid to him it was held that although the nomination was root in accordance with the rules yet the money was not the property of the testatrix but could be disposed of by the governing body of the society in accordance with the rules in the absence of the exercise by the testatrix of her power of disposition over it and therefore the action failed. Younger, J., observed:

Under the rules of the society, this money was not the property of the testatrix; she had a special power of disposition over it, and if she did not so dispose of it, then it was for the central Committee to dispose of it in such manner as they thought fit. The only right which a member had was to appoint in a particular way the fund assured by the subscription and in default of such appointment the fund was to be disposed of by the governing body of the society in accordance with the rules. The decision of the committee to pay this fund to Mrs. Downie was a right one, and the action must be dismissed, with costs.

14. I am therefore of opinion that according to the rules of this Fund the deceased Rama Ayyar had no property in the amount payable after his death and it did not form part of his estate and he had no disposing power over the same and therefore it is not liable to be attached in the hands of the defendants.

15. Mr. A.V. Viswanatha Sastri relied upon a number of cases, Oriental Government Security Life Assurance Co. Limited v. Ammiraja I.L.R.(1911) 35 Mad. 162, Krishnalal Sadhu v. Pramila Bala Dasi I.L.R.(1928) 55 Cal. 1315 Shankar Visvanath v. Umabai I.L.R.(1915) 37 Bom. 471 Subbu Chetti v. Arunachalam Chetti (1929) 58 M.L.J. 420 : I.L.R. 53 Mad. 270 (F.B.) and Suryanarayana Rao v. Basivi Reddi (1931) 62 M.L.J. 553 : I.L.R. 55 Mad. 436 for the position that under a policy of insurance executed by A for the benefit of B, B, being a stranger to the contract, would not be entitled to enforce the contract and the policy money forms part of the assets of the assured and is always capable of being attached by his creditors. In my opinion the cases relating to life insurance policies are distinguishable from the case in question. As explained by Baron Parke in Dalby v. India and London Life Assurance Co. (1854) 15 C.B. 365 : 139 E.R. 465:

A contract commonly called life insurance, when properly construed is a mere contract to pay a certain sum of money on the death of the person, in consideration of the due payment of a certain annuity for his life, calculated in the first instance, according to the probable duration of his life : and, when once fixed, it is constant and invariable. The stipulated amount of annuity is to be uniformly paid on one side and the sum to be paid in the event of death is always (except when bonuses are paid by prosperous offices) the same on the other.

16. The amount payable under a life insurance policy, unless rights are vested in third parties either by statutes as under the provisions of the Married Women's property Act or by assignment, continue to be the property of the deceased. In this case till the calls are made under Rule 9, and the money got, it will not be possible to say what will be the amount payable. As stated by Romer, J., in In re Tibbets v. Engelbach (1924) 2 Ch. 348 the mere fact that the policy moneys are expressed to be paid to somebody other than the assured does not make the assured a trustee of the policy or of the policy moneys for the person so nominated and the latter does not acquire any interest at law or in equity merely by reason of that fact. In the present case at no time had Rama Ayyar any property in the moneys payable. The contingency provided for in the rules - the retirement from service or the withdrawal of membership - which would have enabled him to make the moneys his property did not happen and in the words of Younger, J., they remained to be disposed of according to the rules of the Fund. The rules of the Fund do not contemplate a disposition of the benefit by the member otherwise than by nomination.

17. Again as pointed out by Cave, J., in Ashby v. Costin (1888) 21 Q.B.D. 401 and by North, J., in In re Davies, Davies v. Davies (1893) 3 Ch. 63 rules constituted a contract in and by which the company agreed to pay to the legal heirs the money payable thereunder and such a contract was held to be perfectly legal.

18. The question then arises whether such a contract is enforceable by the nominee or the legal heirs. Again whether the contract is enforceable or not has, in my opinion, nothing to do with the question whether the beneficial interest in the moneys vests in the legal heirs or not. It may be the contract is not enforceable. From this it does not follow that the moneys form part of the estate of the deceased. In Hannay v. Horner (1915) 32 T.L.R. 240 the nomination was invalid and the nominee may not as of right demand the money but as Younger, J., pointed out it did not form part of the estate of the deceased and it was for the Central Committee to dispose of according to the rules and they chose to give it to the nominee. Further as observed by Srinivasa Aiyangar, J., in Fiorina Marties v. Pinto : AIR1918Mad461 :

There is no inconsistency between a right of action being under the complete control of a litigant and the fruits of the action being held by him for the benefit of a third party.

19. It may in some cases be that the person entitled to collect the moneys from the Fund and able to give a discharge may be the legal representatives of a man but the person entitled to it may be another. It may even be said that it is the duty of the legal representatives of the deceased member to see that the Fund fulfils their obligation to the deceased by enforcing the contract and seeing to its payment to the legal heirs or collecting the moneys and paying them over to the legal heirs but where the legal heirs happen to be his legal representatives no difficulty arises. In this case I am inclined to think that the contract can be enforced by the legal heirs on another ground. The legal heirs will be in the position of cestui que trust, a recognised exception to the rule that a person not a party to the contract cannot sue upon it. Under the rules of the society there is a trust constituted. The beneficiary under the trust will be the member or nominee or his legal heirs. The trustees will be the directors of the Fund in whom the control of the Fund is vested. The Fund will be such moneys as represent the call-moneys out of which the amounts are payable to which will be added the call-moneys payable on the death of a member. A trust was inferred under similar circumstances in the case decided by the Bombay High Court in Nadirshaw v. Times of India Employees Death Benefit A.I.R. 1931 Bom. 300. There is no question of any disability of the legal heirs getting moneys in this case by virtue of any rule of Hindu Law relating to unborn persons. I think it is by virtue of the application of a similar principle North, J., in In re Davies, Davies v. Davies (1893) 3 Ch. 63, observed that in the event which' happened the testat r's three daughters were entitled to the policy money by virtue of the special contract between him and the insurance company apparently treating the three daughters as persons analogous to the position of cesti que trust under a trust.

20. The Civil Revision Petition therefore in my opinion, should be allowed. I therefore set aside the order of the learned District Munsif and allow the petition with costs.


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