An insurance nominee holds policy proceeds in trust for the deceased’s legal heirs.

The appellant, Kirty Agarwal, was the wife of the deceased policyholder. The deceased had taken a life insurance policy and, at the time of his death, the appellant’s father-in-law was recorded as the nominee. The High Court directed the insurer to disburse the policy proceeds to the nominee, applying the principle that a nominee receives the money in trust for the persons legally entitled to the deceased’s estate.

The appellant and the deceased’s mother had instituted separate succession proceedings before the jurisdictional court. The appellant subsequently conceded that the deceased’s mother was entitled to 50% of the policy proceeds and abandoned her claim to the entire amount, including her contention that she had paid the premiums.

The deceased and the appellant had been estranged, and divorce proceedings were pending when the deceased died on 1 October 2024. The wife and mother were identified as the only Class I heirs of the deceased.

Whether the nominee of a life insurance policy is entitled to retain the policy proceeds as owner, or holds them in trust for the legal heirs of the deceased policyholder

Whether the appellant and the deceased’s mother were each entitled to one-half of the policy proceeds as the deceased’s only Class I heirs

Whether consequential directions could be issued concerning the pending succession proceedings and the criminal proceedings initiated by the appellant

The Court applied the settled principle that a nominee is a recipient or trustee of the proceeds and does not thereby become the beneficial owner where succession rights arise in favour of the deceased’s legal heirs.

It further proceeded on the basis that the deceased’s wife and mother were his only Class I heirs entitled to succeed to his estate.

The Court also exercised its power to issue consequential directions for payment of the appellant’s share, including interest for delayed payment, and to facilitate closure of the pending succession and criminal proceedings upon compliance with the settlement-like arrangement.

Although the father-in-law was the recorded nominee and the High Court had directed payment to him, the nomination did not displace the succession rights of the deceased’s legal heirs. The Court treated the nominee as holding the policy proceeds in trust for the persons entitled to inherit the deceased’s estate.

Since the appellant accepted that the deceased’s mother was entitled to half the proceeds and withdrew her claim to the entire amount, and since the wife and mother were the only Class I heirs, the Court directed an equal division of the policy proceeds.

The Court declined to permit further delay caused by the attempted recusal of appointed counsel and issued consequential directions regarding the succession cases and the FIR in view of the appellant’s concession not to pursue the criminal proceedings.

Failure to pay within that period would attract interest at 12% per annum from the date on which the insurer disbursed the amount to the sixth respondent until payment.

The parties were directed to place the order before the competent court in the pending succession cases; if no other assets remained to be partitioned, those proceedings were to be closed.

Further proceedings in FIR No. 288/2024 were stayed for two months, and upon proof of payment, the sixth respondent could seek closure of the investigation and filing of a closure report.