It is not clear in your post whether the deceased employee had registered his second Marriage.
To the best of my knowledge, when divorce decree is not obtained for the first Marriage, second Marriage is illegal as per Indian Laws. Even though nomination have been made in favour of 2nd wife, 1st wife and 2 children are supposed to be the legal heir of the deceased employee. Employer is supposed to release all the benefits to the first wife and family only. Even if the employer want to release some benefits to second wife and Kid, they need to get NOC from 1st wife.
In the absence of proper registered documents both 1st and 2nd wife may be advised to sit for a discussion and to arrive at some compromise regarding sharing of benefits the issue can be resolved. It is not advisable on Employer part to release the benefits without mutual understanding between both the wives. Also all payment to be made to first wife which in turn can be shared with second wife, if the first wife desire so.
From India, Madras
In continuation of the response of our learned friend Mr.V.M.L, I would like to state the following:
Since you yourself have clearly stated that the second marriage of the deceased employee is void, I don't want to raise any questions about the Personal Law applicable in this case.
As regards the process of settlement of terminal benefits of an employee dying in harness, particularly when there are disputed claims, the employer should not decide the claims solely based on nominations. It is better to direct the claimants to obtain succession certificate from the Court.
Coming to your queries:
a) Yes the second marriage would be void if the deceased was not a Muslim. But the children born out of that marriage would certainly be legitimate.
b) Yes, the son or daughter born through the second wife can stake their claims for compassionate ground appointment subject to their fulfillment of the norms of eligibility prescribed under the scheme.
c) She could, at the most, be a dependent of the deceased.
d) To avoid interest liability later, the employer can deposit the Statutory benefits like gratuity with the concerned Authorities appointed under the respective Acts and ask the claimants to approach them.
From India, Salem