Article (November-2021)

Articles

Nominee & Nomination under Social Security Laws

H.L. Kumar

Designation : -   Advocate, Supreme Court

Organization : -  New Delhi

Other Writers : -  G.M. Saini - Advocate, Employment Laws, New Delhi

01-Nov-2021

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Making of a nominee and nomination is very important in one's life, whether one is employed or owns property or has bank deposits etc. Making nominee/nomination or writing a 'will' helps to decide as to who will receive the benefits from the assets of the person making it, after his demise. It is optional for a person to make or not a 'will', or to register or not his 'will'. But in the case of employees under the social security laws, it is compulsory and mandatory to make his/her nominee/nomination as to who all, from the prescribed list of family members, will be beneficiaries of his/her social security benefits after his/her demise. It has become more relevant in the background of Covid-19 pandemic. In the context of employees in the industry, nominee/nomination is required to be made under the provisions of, viz., The Employees Provident Fund and Miscellaneous Provisions Act, 1952, The Employees State Insurance Act, 1948, The Payment of Gratuity Act, 1972 as well as under voluntary Insurance Policy obtained by the employer for his employees. The Employees Compensation Act, 1923 also requires a dependent from the prescribed list of family members to receive amount of compensation. Forms and procedures are provided in respective statutes to declare nominee in the nomination form.

It is believed that nominee alone, as mentioned in the nomination form by the deceased employee, is the rightful beneficiary to receive all the money under the said Acts. In fact nominee is like a Trustee and he/she cannot take away the legal rights of other legitimate heirs of their rightful/nominated shares.

Nomination can be in favour of one or more members from the list of prescribed family members under the EPF Act and the Payment of Gratuity Act with pre-defined share per cent. However, in case of any dispute by the family members over the sharing of deceased employee's EPF and Gratuity amounts, or under any other Act or voluntary scheme of the employer, one may ask for the succession certificate to avoid any dispute or litigation at the door of the employer. It has been held by Hon'ble Supreme Court in the case of Sarbati Devi vs Usha Devi, AIR 1984 SC 346, that a mere nomination does not confer on the nominee any beneficial interest in the amount payable under the life insurance policies on the death of the insured. The nomination only indicates the hand, which is authorized to receive the amount. The amount, however, can be claimed by the heirs of the assured in accordance with the law of succession governing them. It would mean that nomination may be in the name of any person or persons, and legal heirs will still have right to claim their share.

In case of an employee having no family can make nomination in favour of any person or persons. But this right of nomination is restricted. The moment the employee acquires his own family, all nominations made earlier in favour of any other person or persons become void and the employee will make fresh nomination in favour of the souse. HR Deptt should take this compliance seriously.

In brief, under the social security statutory schemes, normally the primary beneficiaries in case of the death of the employee are his/her spouse, children and dependent parents. Some other beneficiaries in some circumstances, as provided under the said statutes and some more details about nomination and other procedures are given below in detail. 

The Employees Provident Fund Scheme, 1952:

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Para 2(g) of the Employees' Provident Fund Scheme, 1952 defines family as -"in the case of a male member will include his wife, his children, whether married or unmarried, his dependent parents and his deceased son's widow and children,

"Provided that if a member proves that his wife has ceased, under the personal law governing him or the customary law of the community to which the spouse belongs, to be entitled to maintenance she shall no longer be deemed to be a part of the member's family for the purpose of this Scheme, unless the member subsequently intimates by express notice in writing to the Commissioner that she shall continue to be so regarded."

Para 61 (1) defines - "Each member shall make in his declaration in Form - 2, a nomination conferring the right to receive the amount that may stand to his credit in the Funding the event of his death before the amount standing to his credit has become payable, or where the amount has become payable before payment has been made.

"(2) A member may in his nomination distribute the amount that may stand to his credit in the Fund amongst his nominees at his own discretion.

"(3) If a member has a family at the time of making a nomination, the nomination shall be in favour of one or more persons belonging to his family. Any nomination made by such member in favour of a person not belonging to the family shall be invalid:

"Provided that a fresh nomination shall be made by the member on his marriage and any nomination made before such marriage shall be deemed to be invalid.

"(4) If at the time of making a nomination the member has no family, the nomination may be in favour of any person or persons but if the member subsequently acquires a family, such nomination shall forthwith be deemed to be invalid and the member shall make a fresh nomination in favour of one or more persons belonging to his family."

Para 70 defines - "Accumulation of a deceased member - to whom payable:- On the death of a member before the amount standing to his credit has become payable, or where the amount has become payable before payment has been made -

"(i) if a nomination made by the member in accordance with paragraph 61 subsists, the amount standing to his credit in the Fund or that part thereof to which the nomination relates, shall become payable to his nominee or nominees in accordance with such nomination; or

"(ii) if no nomination subsists or if the nomination relates only to a part of the amount standing to his credit in the Fund, the whole amount or the part thereof to which the nomination does not relate, as the case may be, shall become payable to the members of his family in equal shares;

"Provided that no share shall be payable to -

(a) Sons who have attained majority

(b) Sons of a deceased son who has attained majority

(c) Married daughters whose husbands are alive

(d) Married daughters of a deceased son whose husbands are alive

"Provided further that the widow or widows, and the child or children of a deceased son shall receive between them in equal parts only the share which that son would have received if he had survived the member and had not attained the age of majority at the time of the member's death.

"(iii) In any case to which the provisions of clauses (i) and (ii) do not apply the whole amount would be payable to the person legally entitled to it.

"Explanation - For the purpose of this paragraph a member's posthumous child, if born alive, shall be treated in the same way as a surviving child born before the member's death."

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H.L. Kumar is Advocate, Supreme Court of India, New Delhi & G.M. Saini is Advocate, Employment Laws, New Delhi