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1997(3) Supreme 587
SUPREME COURT OF INDIA
S.C. Agrawal and G.B. Pattanaik, JJ.
Harshad J. Shah & Anr. -Appellants
versus
L.I.C. of India & Ors. -Respondents
Civil Appeal Nos. 7202-7203 of 1996
Decided on 4-4-1997
Counsel for the Parties :
For the Appellants : Naresh S. Mathur and Gopal Singh, Advocates.
For the Respondents : Harish N. Salve, Sr. Advocate, K.K. Sharma, C.K. Sasi and Kailash Vasdev, Advocates.
Held : In the instant case, it cannot be said that respondent No. 3 had the express authority to receive the premium on behalf of the LIC because in the letter of appointment dated December 5, 1962 there was a condition expressly prohibiting him from collecting the premium on behalf of the LIC. Nor can it be said that respondent No. 3 had an implied authority to collect the premium on behalf of the LIC because in 1972 the LIC has made a regulation [Regulation 8(4), which in 1981 became a rule, prohibiting the agents from collecting premium on behalf of the LIC. This shows that collection of premium was not necessary for or ordinarily incidental to the effective execution of his express authority by an agent. In view of this express prohibition in the Regulations/Rules which were published in the Gazette it is not possible to infer an implied authority by the LIC authorising its agents to collect premium on behalf of the LIC. (Para 17)
Further held : From the mere fact that respondent No. 3 had obtained bearer cheque for Rs. 2,730/- from the insured on June 4, 1987 and after encashing the same from the Bank on June 5, 1987, had deposited the said amount with the LIC on August 10, 1987, it cannot be said that the LIC induced the insured to believe that respondent No. 3 had been authorised by the LIC to receive premium on behalf of the LIC. We are, therefore, unable to hold that the doctrine of apparent authority underlying Section 237 of the Indian Contract Act can be invoked in the facts of this case especially when the LIC has been careful in making an express provision in the Regulations/Rules, which are statutory in nature, indicating that the agents are not authorised to collect any moneys or accept any risk on behalf of the LIC and they can collect so only if they are expressly authorised to do so. (Para 18)
Material Fact: The key material fact in this case is whether the payment of insurance premiums made by the insured to the general agent of the LIC, respondent No. 3, can be regarded as a valid payment to the LIC that discharges the insured’s liability, especially when the premium was paid via a bearer cheque and the agent was not authorized to collect premiums according to the regulations.
Issue Raised: The central issue is whether the payment made to the agent constituted a valid payment to the insurer, thereby preventing the lapse of the policy, or whether such payment was not legally sufficient to discharge the insured’s obligation.
Legal Provision (Section): The relevant legal provisions include the regulations governing the authority of insurance agents, particularly the provisions that specify agents are not authorized to collect premiums unless expressly authorized. Specifically, regulations and rules that prohibit agents from collecting or passing receipts for premiums without explicit authorization are pertinent. Additionally, the provisions related to agency law, especially the doctrine of apparent authority, are applicable to determine whether the insurer can be held liable for acts beyond the agent’s actual authority.
Argument (with help of section): The argument against considering the payment as valid hinges on the statutory regulations that explicitly prohibit agents from collecting premiums unless expressly authorized (!) (!) . Since the appointment letter and regulations clearly restrict the agent’s authority, the receipt of the cheque by the agent cannot be deemed an act within his scope of authority. Under the law of agency, unless there is actual or apparent authority, the principal (LIC) is not bound by the acts of the agent in collecting premiums. The doctrine of apparent authority cannot be invoked here because the LIC’s regulations explicitly prohibit agents from collecting premiums, and there is no conduct by the LIC that would induce a policyholder to believe the agent had such authority (!) (!) .
Judgement: The court held that the agent did not have the actual or implied authority to collect premiums on behalf of the LIC, given the statutory regulations and the specific conditions of appointment. The mere act of depositing the cheque after encashment does not establish that the LIC was aware or had authorized the collection. Consequently, the payment made to the agent was not regarded as a valid discharge of the insured’s liability, and the policy lapsed due to non-payment within the grace period.
Ratio Decidendi: The ratio decidendi is that statutory regulations explicitly restrict agents from collecting premiums unless expressly authorized, and the absence of such authorization means that payments made to agents cannot be considered as payments to the insurer. The doctrine of apparent authority cannot override these statutory provisions, and the insurer cannot be held liable for acts outside the scope of the agent’s actual authority.
Conclusion (My Opinion): Based on the legal principles and the facts, I concur that the payment made to the agent did not constitute a valid payment to the LIC, and therefore, the policy lapsed. The regulations aim to protect the insurer from unauthorized collections and potential fraud. It is important for insured persons to ensure that payments are made directly to the authorized channels of the insurer. The decision underscores the significance of adhering to the prescribed authority limits of agents and the importance of clear communication regarding authorized acts.
JUDGMENT
S.C. Agrawal, J.-The question that falls for consideration in these appeals by special leave is whether payment of premium in respect of a life insurance policy by the insured to the general agent of the Life Insurance Corporation of India [for short LIC ] can be regarded as payment to the insurer so as to constitute a discharge of liability of the insured. This question arises on the following facts :
Jaswantrai G. Shah, the husband of appellant No. 2, (hereinafter referred to as the insured ) took out four insurance policies for Rs. 25,000/- each with double accidental benefits on March 6, 1986 through Shri Chaturbhuj H. Shah (respondent No. 3) who was a general agent of the LIC [respondent No.1]. Premium under the said policies was payable on half yearly basis. The insured deposited the first half yearly premium on March 6, 1986 and the second half yearly premium was deposited on September 6, 1986. The third half yearly premium fell due on March 6, 1987 but it was not deposited within the prescribed period. On June 4, 1987 respondent No. 3 met the insured and obtained from him a bearer cheque dated June 4, 1987 for Rs, 2,730/- drawn on Union Bank of India, Malad, Bombay, towards the half yearly premium on all the four policies. The cheque was encashed by the son of respondent No. 3 on June 5, 1987. The said amount of premium was deposited by respondent No. 3 with the LIC on August 10, 1987. In the meanwhile on August 9, 1987 the insured met with a fatal accident and he died on the same day. Appellant No. 2, the widow of the insured, as the nominee under the policies, submitted a claim to the LIC on the basis of the said four policies but the claim was repudiated by the LIC on the ground that the policies had lapsed on account of non-payment of the half yearly premium which fell due on March 6, 1987 within the period of grace. Appellant No. 2 along with the Consumer Education & Research Society [appellant No.1], a society registered under the Societies Registration Act and mainly devoted to the promotion and protection of consumer interest, submitted a complaint before the Gujarat State Consumer Disputes Redressal Commission at Ahmedabad wherein a claim was made for payment of Rs. 4,32,000/- to appellant No. 2. The said claim comprised Rs. 1,00,000/- payable under the four policies of Rs. 25,000/- each, Rs. 1,00,000/- payable towards double accidental benefit, Rs, 1,32,000/- payable by way of interest @ 18% per annum on the aforementioned amount of Rs. 2,00,000/- from June 6, 1987 to March 31, 1991 and Rs, 1,00,000/- as compensation for annoyance, agony, hardship and humiliation caused to the dependents of the insured. The said complaint was transferred by the Gujarat State Consumer Disputes Redressal Commission to the Maharashtra State Consumer Disputes Redressal Commission at Bombay, (hereinafter referred to as the State Commission ).
2. Before the State Commission the case of the appellants was that the amount of premium collected by respondent No.3 from the insured was collected by him on behalf of the LIC. LIC, on the other hand, pleaded that the amount of premium collected by the General Agent cannot be said to have been received by the LIC. It was stated that the agents are not authorised to collect the premium amount. The State Commission, by its judgment dated June 5, 1992, directed the LIC to settle the claim in respect of the four policies within 30 days from the receipt of the order and to pay the amount of the claim to appellant No. 2 after deducting the amount of interest, if any, necessary to treat the policies as surviving. The State Commission held that in order to collect more business the agents of the LIC collect the premiums from the policy holders either in cash or by cheque and then deposit the money so collected in the office of the LIC and that this practice had been going on directly within the knowledge of the LIC administration despite the departmental instructions that the agents are not
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