Calcutta High Court Seeks Centre's Response On Plea Challenging Concept of 'Beneficial Nominees' Under Section 39(7) Insurance Act

The Calcutta High Court on Thursday issued notice on a plea challenging the constitutional validity of Section 39(7) of the Insurance Act, 1938 which was brought into force on December 26, 2014 vide the Insurance Laws (Amendment) Act, 2015. Thus, the Centre's response was sought in this regard by issuing notice to the Additional Solicitor General Y.J Dastoor.

Subsequent to the amendment, the concept of 'beneficial nominee' was inserted into the provision whereby in the event that the holder of an insurance policy in his lifetime nominates his parents or spouse or children or any other family member, the concerned nominees shall be beneficially entitled to the amount payable by the insurer, unless it is proved that the holder of the policy could not have conferred any such beneficial title on the nominee.

In the instant case, the petitioner has been aggrieved by the 2015 Amendment Act insofar as it makes family members of the insured, who were named as nominees to be raised to the status of 'beneficial owners'. The petitioner also sought the Court's leave to restrain the concerned Insurance Company from disbursing any sum of money to her mother-in-law under two life insurance policies taken out by her deceased husband.

Justice Rajasekhar Mantha however opined that given the settled position of law in this regard, the petitioner's mother-in-law must be entitled to the proceeds of the concerned insurance policy.

"This Court is of the prima facie view that given the law as it stands laid down in the following decisions Indrani Wahi v. Registrar of Cooperative Society & Ors. reported in (2016) 6 SCC 440 and Sarbati Devi v. Usha Devi reported in AIR 1984 SC 346 a nominee even otherwise remains a trustee holding the proceeds of the insurance policy for and on behalf of the legal heirs of the deceased"

Accordingly, the Court directed the insurance company to extend the proceeds of the insurance policy in favour of the petitioner's mother-in-law 'as expeditiously as possible preferably within a period of 10 days from the date of receipt of a copy of this order'.

However, the Court clarified that in the event that the petitioner is able to demonstrate her rights over her mother-in-law in regards to the concerned insurance policy, such an order of disbursal of funds shall be be amenable to change. 

Accordingly, the Court directed the affidavit in opposition to be filed by the Centre within a period of 6 weeks. Reply, if any was ordered to be filed within 4 weeks thereafter.

Case Title: Malabika Ghosh v. Union of India and others

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