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CASE NO.:

Special Leave Petition (civil) 12766 of 1999

PETITIONER:

SHRI VISHIN N. KHANCHANDANI & ANR.

Vs.

RESPONDENT:

VIDYA LACHMANDAS KHANCHANDANI & ANR.

DATE OF JUDGMENT: 16/08/2000

BENCH:

K.T. Thomas & R.P. Sethi.

JUDGMENT:

SETHI, J.

Leave granted.

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Whether the nominee specified in the National Savings

Certificate, on the death of its holder, becomes entitled to

the sum due under the certificate to the exclusion of all

other persons?, or whether the amount of the certificate can

be retained by him for the benefit of the legal heirs of the

deceased- is the sole question required to be adjudicated by

us in this appeal by special leave.

The present dispute is with respect to the savings

certificates, the holder of which was Lachmandas Naraindas

Khanchandani. Appellant No.1 is the brother, appellant No.2

the step brother, the respondent No.1 is the widow and

respondent No.2 is the daughter of the deceased- holder.

The deceased was serving in the Income Tax Department and

has left behind debts consisting of National Savings

Certificates, amounts in Compulsory Deposit Schemes, Post

Office Cumulative Time Deposit Scheme and Pass Book Post

Office Savings Bank. The respondent No.1 filed a petition

under Section 370 of the Indian Succession Act, 1925 for the

grant of succession certificate in respect of debts and

securities left by the aforesaid deceased in the Court of

Civil Judge, Senior Division, Thane. The appellants

contested the claim with respect to such national savings

certificates in which they had been mentioned as nominees of

the deceased. The court of Civil Judge, Senior Division,

Thane held that the respondents-plaintiffs were entitled to

the grant of succession certificate in respect of the debts

mentioned in Schedules A and B to the application excluding

the National Savings Certificates enumerated at Sl.Nos.17 to

21 in Schedule A and Compulsory Deposit Scheme mentioned at

Sl.Nos.1 to 4 in Schedule B. It was further held that the

appellants herein were not entitled to the delivery from the

respondents of the National Savings Certificates and

Passbook Post Office Savings Bank in respect of which they

had been nominated by the deceased. The Civil Judge while

issuing the succession certificate in favour of the

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respondents-plaintiffs to the extent indicated hereinabove

held them entitled to get the amount of the said debts with

accrued interest thereon subject to their furnishing

necessary court-fee stamp, Estate Duty Certificate and the

security to the extent of the assets. Not satisfied with

the orders of the Civil Judge, the respondents herein filed

First Appeal No.849 of 1982 in the High Court of Bombay

praying for setting aside that portion of the order of the

Civil Judge by which their claim with regard to the National

Savings Certificates, in respect of which the appellants

were the nominees, had been disallowed. The High Court

allowed the appeal and directed the issuance of succession

certificate in favour of the respondents in respect of debts

not only mentioned in Sl.Nos.1 to 16 in Annexure A and

Sl.Nos.2,3,5 and 6 in Annexure B but also in respect of the

debts mentioned at Sl.Nos.17 to 26 in Annexure A and

Sl.Nos.1 and 4 in Annexure B. It was further directed that

the respondents shall be entitled to equal share in the

amounts which were due on securities listed in Annexures A

and B to the application/plaint on payment of necessary

court fees stamps and furnishing estate duty certificate.

As there was no other claimant, the court held that there

was no necessity to furnish any security.

Feeling aggreived, the appellants- the nominees of the

National Savings Certificates have filed this appeal

contending that under Section 6 of the Government Savings

Certificates Act, 1959, after the death of the holder they

had become entitled to the payment of such Saving

Certificates in which they were nominees, to the exclusion

of all other persons including the respondents and entitled

to utilise the aforesaid amounts in the manner they like.

It is contended that by their nomination, the holder of the

National Savings Certificates, namely, Shri Lachmandas

Naraindas Khanchandani has diverted the normal course of

succession. According to them Section 6 provides another

mode of succession, to the exclusion of testamentary and

non- testamentary successions. Alternatively, it was urged

that nomination itself amounted to testamentary succession.

The Government Savings Certificate Act, 1959 (being Act

No.46 of 1959) (hereinafter referred to as "the Act") was

enacted to make certain provisions in respect of the

Government Savings Certificates. The Act applies to such

class of savings certificates as the Central Government may,

by notification, in the official gazette, specify in that

behalf. The Act was applied to the National Savings

Certificates by notifications issued with respect to various

issues of such certificates. It is not disputed that the

National Savings Certificates in dispute are governed by the

provisions of the Act.

To appreciate the rival contentions urged at the Bar, it

is necessary to examine the provisions of the Act

particularly Sections 6, 7 and 8 which provide as under:

"6. Nomination by holders of savings certificates.--

(1) Notwithstanding anything contained in any law for the

time being in force, or in any disposing, testamentary or

otherwise in respect of any savings certificate, where a

nomination made in the prescribed manner purports to confer

on any person the right to receive payment of the sum for

the time being due on the savings certificate on the death

of the holder thereof and before the maturity of the

certificate, or before the certificate having reached

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maturity has been discharged, the nominee shall, on the

death of the holder of the savings certificate, become

entitled to the savings certificate and to be paid the sum

due thereon to the exclusion of all other persons, unless

the nomination is varied or cancelled in the prescribed

manner.

(2) Any nomination referred to in sub-section (1) shall

become void if the nominee predeceases, or where there are

two or more nominees all the nominees predecease, the holder

of the savings certificate making the nomination.

(3) Where the nominee is a minor, it shall be lawful for

the holder of the savings certificate making the nomination

to appoint in the prescribed manner any person to receive

the sum due thereon in the event of his death during the

minority of the nominee.

(4) A transfer of a savings certificate is held by or on

behalf of any person as a pledgee or by way of security for

any purpose, such holding shall not have the effect of

cancelling a nomination but the right of the nominee shall

be subject to the right of the person so holding it.

7. Payment on death of holder: (1) if the holder of

savings certificate dies and there is in force at the time

of his death a nomination in favour of any person, payment

of the sum due thereon shall be made to the nominee.

(2) Where the nominee is a minor, payment of the sum due

thereon shall be made--

(a) in any case where a person has been appointed to

receive it under sub-section (3) of Section 6, to that

person, and

(b) where there is no such person, to any guardian of

the property of the minor appointed by a competent court or

where on such guardian has been so appointed, to either

parent of the minor, or where neither parent is alive, to

any other guardian of the minor.

(3) Where the sum due on a savings certificate is

payable to two or more nominees, and either or any of them

dies, the sum shall be paid to the surviving nominee or

nominees.

(4) If a person dies and is at the time of his death the

holder of a savings certificate and there is no nomination

in force at the time of his death and probate of his will or

letters of administration of his estate or a succession

certificate granted under the Indian Succession Act, 1925,

is not within three months of the death of the holder

produced to the prescribed authority, then, if the sum due

on the savings certificates does not exceed such limit as

may be prescribed, the prescribed authority may pay the same

to any person appearing to it to be entitled to receive the

sum or to administer the estate of the deceased.

(5) Nothing contained in this section shall be deemed to

require any person to receive payment of the sum due on a

savings certificate before it has reached maturity or

otherwise than in accordance with the terms of the savings

certificate.

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8. Payment to be a full dishcarge--(1) Any payment made

in accordance with the foregoing provisions of this Act to a

minor or to his parent or guardian or to a nominee or to any

other person shall be a full discharge from all further

liability in respect of the sum so paid.

(2) Nothing in sub-section (1) shall be deemed to

preclude any executor or administrator or other

representative of a deceased holder of a savings certificate

from recovering from the person receiving the same under

section 7 the amount remaining in his hands after deducting

the amount of all debts or other demands lawfully paid or

discharged by him in due course of administration.

(3) Any creditor or claimant against the estate of a

holder of a savings certificate may recover his debt or

claim out of the sum paid under this Act to any person and

remaining in his hands unadministered in the same manner and

to the same extent as if the latter had obtained letters of

administration to the estate of the deceased."

Mr.Sanjay K. Kaul, Sr.Advocate appearing for the

appellants submitted that Section 6 of the Act very

unambiguously provides that notwithstanding anything

contained in any law for the time being in force or in any

disposition testamentary or otherwise in respect of any

savings certificate where a nomination is made, the nominee

shall, on the death of the holder of the savings

certificate, become entitled to the savings certificate and

to be paid the sum due thereon to the exclusion of all other

persons. Referring to sub-section (3) of Section 6, the

learned counsel submitted that in case where the nominee is

a minor, the holder of the savings certificate has a right

to make the nomination to appoint in the prescribed manner

any person to receive the sum due thereon in the event of

his death during the minority of the nominee. It is

contended that if the intention was not to entitle the

nominee to be paid and to retain the sum due on such

national savings certificates, there was no necessity of

making a provision as has been incorporated in sub-section

(3) of Section 6. Section 7 was also relied upon to urge

that after the death of the holder, the nominee becomes

entitled to the payment of the sum due without there being

any further obligation upon him. In support of such an

argument further reliance was placed upon sub-sections (3)

and (4) OF Section 7. He also tried to distinguish the

verdict of this Court in Smt.Sarbati Devi & Anr. vs.

Smt.Usha Devi [1984 (1) SCC 424] by pointing out the

difference of the language and phraseology in Section 6 of

the Act and Section 39 of the Insurance Act. According to

him the words, "on the death of the holder of the savings

certificate, become entitled to the savings certificate and

to be paid the sum due thereon to the exclusion of all other

persons", appearing in Section 6 of the Act have not been

incorporated in Section 39 of the insurance Act suggesting

that the legislature had intended to make the nominee

absolute owner of the value of the certificates.

The law in force in England on the position of a nominee

who has been treated to be a third party in relation to a@@

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claim regarding insurance policy, is summarised in@@

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Halsbury's Laws of England (Fourth Edition), Vol.25, para

579 as under:

"Position of third party. --The policy money payable on

the death of the assured may be expressed to be payable to a

third party and the third party is then prima facie merely

the agent for the time being of the legal owner and has his

authority to receive the policy money and to give a good

discharge; but he generally has no right to sue the

insurers in his own name. The question has been raised

whether the third party's authority to receive the policy

money is terminated by the death of the assured; it seems,

however, that unless and until they are otherwise directed

by the assured's personal representatives the insurers may

pay the money to the third party and get a good discharge

from him."

Various High Court in India in different cases, namely,

Ramballav Dhandhania v. Gangadhar Nathmall [AIR 1956 Cal.

275], Life Insurance Corporation of India v. United Bank of

India Ltd.[AIR 1970 Cal 213], D. Mohanavelu Mudaliar v.

Indian Insurance and Banking Corporation Ltd., Salem [AIR

1957 Mad 115], Sarojini Amma v. Neelakanta Pillai [AIR 1961

Kerala 126], Atmaram Mohanlal Panchal v. Gunvantiben [AIR

1977 Guj. 134], Malli Dei v. Kanchan Prava Dei [AIR 1973

Orissa 83], Lakshmi Amma v. Saguna Bhagath [ILR 1973 Kant

827] have taken a view that the nominee under Section 39 of

the Insurance Act is nothing more than an agent to receive

the money due under the life insurance policy. The money as

such received remains the property of the assured during his

life time and on his death forms part of his estate subject

to the law of succession applicable to him. Allahabad High

Court in Kesari Devi v. Dharma Devi [AIR 1962 All 355] and

Delhi High Court in S.Fauza Singh v. Kuldip Singh [AIR 1978

Delhi 276] and Uma Sehgal v. Dwarka Dass Sehgal [AIR 1982

Delhi 36] had, however, taken a different view. While

dealing with the view taken by Allahabad and Delhi High

Courts, this Court in Sarbati Devi's case (supra) has held:

"As observed in the Full Benchdecision of the allahabad

High Court in Raja Ram v. Mata Prasad [AIR 1972 All

167]which has interpreted Section 39 of the Act correctly,

the judgment of that High Court in Kesari Devi case related

to a different set of facts. In Kesari Devi case the

dispute arose regarding the person who was entitled to the

succession certificate in respect of the amount payable

under a life insurance policy which had been taken out by

the assured between the widow of the assured and the widow

of the nominee under Section 39 of the Act. On going

through the judgment in Kesari Devi case we feel that the

court in that case paid little heed to the earlier judicial

precedents of its own court. The decision of the Full Bench

in Raja Ram case set at rest all doubts which might have

been created by Kesari Devi case about the true import of

Section 39 of the Act in so far as the High Court of

Allahabad was concerned.

In Fauza Singh case there is reference only to three

cases - - Life Insurance Corporation of India v. United

Bank of India, Matin v. Mahomed Matin [AIR 1922 Lah. 145]

and Kesari Devi case. The Court expressed its dissent from

the Calcutta decision on the ground that that decision had

not considered sub-section (6) of Section 39 of the Act.

The Lahore case was one decided before the Act came into

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force. The distinguishing features of Kesari Devi case are

already mentioned. Otherwise there is not much discussion

in this case about the effect of Section 39 of the Act.

We have carefully gone through the judgment of the Delhi

High Court in Uma Sehgal case. In this case the High Court

of Delhi clearly came to the conclusion that the nominee had

no right in the lifetime of the assured to the amount

payable under the policy and that his rights would spring up

only on the death of the assured. The Delhi High Court

having reached that conclusion did not proceed to examine

the possibility of an existence of a conflict between the

law of succession and the right of the nominee under Section

39 of the Act arising on the death of the assured and in

that event which would prevail. We are of the view that the

language of Section 39 of the Act is not capable of altering

the course of succession under law. The second error

committed by the Delhi High Court in this case is the

reliance placed by it on the effect of the amendment of

Section 60(1)(kb) of the Code of Civil Procedure, 1908

providing that all moneys payable under a policy of

insurance on the life of the judgment debtor shall be exempt

from attachment by his creditors. The High Court equated a

nominee to the heirs and legatees of the assured and

proceeded to hold that the nominee succeeded to the estate

with all 'plus and minus points'. We find it difficult to

treat a nominee as being equivalent to an heir or legatee

having regard to the clear provisions of Section 39 of the

Act. The exemption of the moneys payable under a life

insurance policy under the amended Section 60 of the Code of

Civil Procedure instead of 'devaluing' the earlier decisions

which upheld the right of a creditor of the estate of the

assured to attach the amount payable under the life

insurance policy recognises such a right in such creditor

which he could have exercised but for the amendment. It is

because it was attached the Code of Civil Procedure exempted

it from attachment in furtherance of the policy of

Parliament in making the amendment. The Delhi High Court

has committed another error in appreciating the two

decisions of the Madras High Court in Karuppa Gounder v.

Palaniammal [AIR 1963 Mad 245 at para 13] and in B.M.

Mundkur v. Life Insurance Corporation of India [AIR 1977

Mad 72]. The relevant part of the decisions of the Delhi

High Court in Uma Sehgal case reads thus: (AIR P.40, paras

10, 11)

"10. In Karuppa Gounder v. Palaniamma, K had nominated

his wife in the insurance policy. K died. It was held that

in virtue of the nomination, the mother of K was not

entitled to any portion of the insurance amount.

11. I am in respectful agreement with these views,

because they accord with the law and reason. They are

supported by Section 44(2) of the Act. It provides that the

commission payable to an insurance agent shall after his

death, continue to be payable to his heirs, but if the agent

had nominated any person the commission shall be paid to the

person so nominated. It cannot be contended that the

nominee under Section 44 will receive the money not as owner

but as an agent on behalf of someone else, vide B.M.

Mundkur v. Life Insruance Corporation. Thus, the nominee

excludes the legal heirs."

The Court further held that Delhi High Court committed

mistake in not properly appreciating the judgment in B.M.

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Mundkur v. Life Insurance Corporation of India [AIR 1977

Mad. 72]. The Court found that the reasons given by the

Delhi High Court were not tenable. It was held that a mere

nomination made under Section 39 of the Insurance Act did

not have the effect of conferring on the nominee any

beneficial interest in the amount payable under the

insurance policy on the death of the assured. The

nomination only indicated the hand which was authorised to

receive the amount on the payment of which the insurer got a

valid discharge of its liability under the policy. The

policy holder continued to have interest in the policy

during his lifetime and the nominee acquired no sort of

interest in the policy during the lifetime of the policy

holder. On the death of the policy holder, the amount

payable under the policy became part of his estate which was

governed by the law of succession applicable to him. Such

succession may be testamentary or intestate. Section 39 did

not operate as a third kind of succession which could be

styled as a statutory testament. A nominee could not be

treated as being equivalent to an heir or legatee. The

amount of interest under the policy could, therefore, be

claimed by the heirs of the assured in accordance with law

of succession governing them. It is contended on behalf of

the appellants that the non obstante clause in Section 6@@

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excludes all other persons, including the legal heirs of the@@

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deceased holder, to claim any right over the sum paid on

account of the national savings certificates, to the

nominee. There is no doubt that by non-obstante clause the

Legislature devices means which are usually applied to give

overriding effect to certain provisions over some contrary

provisions that may be found either in the same enactment or

some other statute. In other words such a clause is used to

avoid the operation and effect of all contrary provisions.

The phrase is equivalent to showing that the Act shall be no

impediment to measure intended. To attract the

applicability of the phrase, the whole of the section, the

scheme of the Act and the objects and reasons for which such

an enactment is made has to be kept in mind. The submission

made on behalf of the appellants has no substance in view of

sub-section (2) of Section 8 and the Statement of Objects

and Reasons necessitating the passing of the Act.

Sub-section (1) of Section 8 provides that if any payment is

made in accordance with the provisions of the Act to a

nominee, the same shall be a full discharge from all further

liabilities in respect of the sum so paid. Section 7 of the

Act provides that after the death of the holder of the

savings certificates payment of the sum shall be made to the

nominee, if any, and sub-section (1) of Section 8 declares

that such payment shall be a full discharge from all further

liabilities in respect of the sum so paid. However,

sub-section (2) of Section 8 specifies that the payment made

to the nominee under sub-section (1) shall not preclude any

executor or administrator or the legal representative of the

deceased holder of a savings certificate from recovering

from the person receiving the same under Section 7; the

amount remaining in nominee's hand after deducting the

amount of all debts or other demands lawfully paid or

discharged by him in due course of administration. In other

words though the nominee of the national savings

certificates has a right to be paid the sum due on such

savings certificates after the death of the holder, yet he

retains the said amount for the benefit of the persons who

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are entitled to it under the law of succession applicable in

the case, however, subject to the exception of deductions

mentioned in the sub-section. In the Statement of Objects

and Reasons of the Act it is stated: "The Post Office

National Savings Certificate Ordinance, 1944 (42 of 1944),

issued under Section 72 of the Ninth Schedule to the

Government of India Act, 1935, as originally enacted and

continued in force by virtue of the provisions of the India

and Burma (Emergency Provgisions) Act, 1940 (3 and 4 Geo.

6, Ch. 33) regulates the sale and discharge of National

Savings Certificates issued through the Post Office.

Suggestions have been made from time to time that as the

production of legal proof of succession involves

considerable delay and expense, the holders of savings

certificates may be allowed the right to nominate one or

more persons to receive the amounts due in respect of such

certificates in the event of their death without the

production of succession certificate or other proof of

title. In seeking to amend that Ordinance for the above

purpose, opportunity is taken to replace it by an Act of

Parliament." (emphasis supplied)

In the light of what has been noticed hereinabove, it is

apparent that though language and phraseology of Section 6@@

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of the Act is different than the one used in Section 39 of@@

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the Insurance Act, yet, the effect of both the provisions is

the same. The Act only makes the provisions regarding

avoiding delay and expense in making the payment of the

amount of the national savings certificates, to the nominee

of holder, which has been considered to be beneficial both

for the holder as also for the post office. Any amount paid

to the nominee after valid deductions or becomes the estate

of the deceased. Such an estate devolves upon all persons

who are entitled to succession under law, custom or

testament of the deceased holder. In other words, the law

laid down by this Court in Sarbati Devi's case holds field

and is equally applicable to the nominee becoming entitled

to the payment of the amount on account of national savings

certificates received by him under Section 6 read with

Section 7 of the Act who in turn is liable to return the

amount to those, in whose favour law creates beneficial

interest, subject to the provisions of sub-section (2) of

Section 8 of the Act.

Under the circumstances this appeal is allowed with a

direction that the succession certificates shall be issued@@

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in favour of the respondents in respect of debts detailed in@@

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Annexures A and B to the application filed in the Court of

Civil Judge, Senior Division, Thane subject to their payment

of necessary court fees and estate duty certificate. The

respondents would, however, not be entitled to directly

receive the amounts payable on account of debts payable

under National Savings Certificates at Sl.Nos.17 to 26 in

Annexure A and Sl.Nos.1 to 4 in Annexure B. The appellants

are held entitled to receive the sum due on the aforesaid

national savings certificates in which they are the nominees

upon furnishing the undertaking in terms of sub-section (2)

of Section 8 of the Act in the court of Civil Judge, Senior

Division, Thane. The amount received by the appellants on

account of the national savings certificates in which they

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are nominees shall be payable to the respondents after

deduction of the amounts of debts or other demands lawfully

paid or discharged, if any. Costs made easy.