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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. L...I...T.......T.......T.......T.......T.......T.......T..J

   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@@           JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ claim   regarding  insurance  policy,   is   summarised   in@@ JJJJJJJJJJJJJJJJJ

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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@@                                        JJJJJJJJJJJJJJJJJJJJJ excludes all other persons, including the legal heirs of the@@ JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ 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@@           JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ of  the Act is different than the one used in Section 39  of@@ JJJJJJJJJJJJJJ 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@@            JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ in favour of the respondents in respect of debts detailed in@@ JJJJJJJJJJJJJJJJ 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.