K. Sasikala vs Life Insurance Corporation of India, Bellampalli, Adilabad District and another

This writ petition is filed for writ of Mandamus declaring the action of the respondents in not releasing the LIC Policy amount in favour of the petitioner who was a nominee to the Policy Nos.680110588 and 680455246, as arbitrary, illegal and unconstitutional and for a consequential direction to the respondents to release the policy amount in favour of the petitioner.

It is the case of the petitioner that she is the nominee under the above insurance policies and that she is entitled for an amount of Rs.50,000/- under the policies on the death of her husband-policy holder due to accident on 28-11-1997. As the policies are for double claim due to accidental death, the petitioner claims an amount of Rs.2.57 lakhs.

Learned Counsel for the 1st respondent Corporation, however, submits that the policies were assigned in favour of the 2nd respondent-Bank, in discharge of the surety amount due to the Bank by the policy-holder. It is urged that as per sub-section (6) of Section 38 of the Insurance Act, 1938, (for short, ''the Act''), the insurance Corporation will recognise the transferee/assignee as the only person entitled to the benefit under the policy. It is further contended that when once the policy was assigned and transferred in favour of the Bank, the nomination stands cancelled by virtue of sub-section (4) of Section 39 of the Act. The Corporation is not, therefore, liable to pay any amount to the petitioner, who ceased to be the nominee. It is only the Bank that has to pay the amount to the LRs of the deceased in accordance with law. A counter affidavit is filed on behalf of the 2nd respondent-Bank Sri Subbaiah, learned Standing Counsel for the Bank submits that the petitioner''s husband signed as a surety and assigned his LIC policies in favour of the Bank. The 1st respondent-Corporation requested the Bank to issue endorsement of discharge and on compliance, the Corporation sent two cheques for two amounts and the Bank encashed one cheque and appropriated the loan amount of Rs.30,094/- payable to the Bank and the balance has got to be paid either to the nominee or to the LRs of the deceased. The Bank returned the cheque and DD to the Corporation. But the Corporation again returned the cheque and the draft stating that when once the policy was assigned, the nomination stands cancelled and the Bank has to deal with the policy amount. The Bank cannot, therefore, rely upon the nomination in favour of the petitioner and pay the amount to her. It has to only pay the amount to the LRs. of the deceased.

It is not in dispute that the petitioner is the widow of the policy-holder and that she was the nominee under both the insurance policies. It is also not in dispute about the validity of the policies and about their assignment in favour of the 2nd respondent-Bank for the discharge of a surety amount. The Bank discharged the amount due to it and returned the balance of the amount due under the policy to the Insurance Corporation, which, however, returned it to the Bank stating that the nomination in favour of the petitioner stood cancelled and the Bank, as asignee, is the lawful holder of the amount. The Bank is too willing to disburse the amount to the LRs of the deceased or to persons as ordered by this Court or to the petitioner and her major sons with sufficient safeguards.

In the light of the above admitted facts, let us now look into the effect of transfer of policy. Sections 38 and 39 of the Act are the relevant provisions. Section 38 deals with assignment and transfer of insurance policies. We are not concerned with sub-sections (1) to (4) as in the present case the factum of assignment of policies is admitted. Subsection (5) reads thus:

"38. Assignment and Transfer of Insurance Policies:

(5) Subject to the terms and conditions of the transfer or assignment the insurer shall, from the date of the receipt of the notice referred to in sub-section (2), recognise the transferee or assignee named in the notice as the only person entitled to benefit under the policy, and such person shall be subject to all liabilities and equities to which the transferor or assignor was subject at the date of the transfer or assignment and may institute any proceedings in relation to the policy without obtaining the consent of the transferor or assignor or making him a party to such proceedings.''''

Section 39 should also be seen at this stage. Sub-section (4) of Section 39 reads thus:

"39. Nomination by Policy-Holder:

(4) A transfer or assignment of a policy made in accordance with Section 38 shall automatically cancel a nomination:

Provided that the assignment of a policy to the insurer who bears the risk on the policy at the time of the assignment, in consideration of a loan granted by that insurer on the security of the policy within its surrender value, or its reassignment on repayment of the loan shall not cancel a nomination, but shall affect the rights of the nominee only to the extent of the insurer''s interest in the policy."

It is therefore clear, from a combined reading of both the above provisions that from the date of transfer of a policy, the nomination stands cancelled and thereafter the Corporation will recognise only the transferee as entitled for any benefit under the policy. It also makes the transferee liable for any claim by the claimant and not the insurer. Thus the claimant or the nominee, could proceed against the assignee and the Corporation need not be made a party to such proceedings, as its liability stood transferred to the transferee. In view of the clear position of law, the stand of the Corporation is perfectly legal and the writ petition is liable to be dismissed as against it. The 2nd respondent Bank is, however, liable to pay the amount to the LRs of the deceased. The petitioner has no right to claim the amount on the basis of the nomination which stood cancelled.

In the circumstances, the Writ Petition fails and it is accordingly dismissed. However, it is made clear that if the petitioner produces the Succession Certificate from a Competent Court, the Bank is liable to pay the amount to the legal representatives.