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Rules State Bank of India Cannot Recover Loan From Widow's Insurance Payout
Insurance money belongs to the beneficiary, not the deceased's estate, says
The has held, , that a bank cannot recover a deceased borrower's loan dues from life insurance proceeds received by his widow. Issuing an , the Court directed the to refund ₹17,29,999 that it had deducted from a widow's savings account towards her husband's outstanding personal loan.
A of Justice J.J. Munir and Justice Indrajeet Shukla passed the order on a writ petition filed by Priti Singh, whose husband Ambesh Kumar Singh died in a road accident on , while serving as a Headmaster at a primary school in Kaushambi district. After his death, a life insurance cover of ₹50 lakh was credited to her account with SBI's Colonelganj Branch in Prayagraj. The bank then deducted ₹17,29,999 from that account to recover the husband's unpaid personal loan.
Widow's Plea: Not a Borrower or Guarantor
Ms. Singh challenged the deduction, arguing that she was neither a borrower nor a guarantor for the loan taken by her husband. She contended that the recovery was .
Bank's Reliance on Clause 18(iii)
The bank, through its Branch Manager and counsel, relied on Clause 18(iii) of the loan agreement signed by the deceased borrower on
. The clause conferred on the bank a
"
"
and a
on all monies, accounts, securities, deposits, goods and other assets belonging to the borrower or standing to his credit, whether singly or jointly, in the possession or control of any branch of the bank. The bank argued that this clause allowed it to appropriate the insurance proceeds lying in the widow's account.
Court's View: Insurance Proceeds Not Deceased's Property
The Court examined the clause and accepted that it was "very widely worded." However, it held that the clause did not extend to insurance proceeds received by the widow. The Court reasoned that life insurance proceeds fall due only upon the death of the assured and can never be owned by him.
"They are not his monies or property, but the property of the beneficiary, whom he leaves behind. It is not an estate, which the deceased passes on to his heirs, but a social security measure or a benefit, which the deceased acquires in his/her own right, after the assured is no more."
The Court observed that the clause spoke of assets owned by the deceased while alive, but said nothing about benefits of a life insurance policy going to the nominee or beneficiary. Therefore, the bank was not entitled to recover its dues from the insurance proceeds.
for Refund
Admitting the writ petition, the Court issued an directing the Senior Manager of SBI's Regional Office, Johnstonganj, Prayagraj, and the Branch Manager of the Colonelganj Branch to ensure refund of ₹17,29,999 to Ms. Singh's account, or to by filing personal affidavits within two weeks as to why the direction should not be made absolute. The order was directed to be communicated through the Chief Judicial Magistrate within 24 hours.
The matter has been listed for , for further hearing.
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