Important Point
Where life insurance policy contained automatic non-forfeiture clause and as on date of death of assured surrender value of policy was more than sufficient to cover defaulted premium, merely because assured had availed a loan against the policy the LIC could not adjust the loan against surrender value and say policy lapsed before death of assured, when LIC did not invoke clause in loan bond calling upon assured, while he was alive, of pay back the loan amount.

Headnote:Life Insurance-Policy having automatic non-forfeiture clause-Policy holder (assured) availing loan against policy-Loan bond stipulating capital be repaid when demanded on being given three months notice-Default in payment of premium-Death of assured-On date of death surrender value of policy more than sufficient to cover defaulted premium but not sufficient enough to cover loan-LIC adjusting loan first against surrender value and saying policy lapsed before death of assured as surrender value of policy was not sufficient to cover total due amount from assured-Not correct -LIC entitled, as per terms of policy and loan bond, either to invoke clause in loan bond calling assured to pay back principal or to recover principal while settling amount due under policy-Option under loan bond not exercised-Excluding loan amount due, surrender value of policy sufficient to cover premium dues of assured-Policy did not lapse-LIC liable to pay sum assured under policy.
       Held : It is the common case of the parties that surrender value of the policy as calculated under the terms of the policy on the relevant date was Rs. 15,875.50 and the amount due from the assured on the suit date without adding the principal amount of loan was Rs. 12,676.29. The bone of contention between the parties, therefore, is whether on the relevant date the principal amount of loan had become due and payable. (Para 13)
       The loan in question was advanced to the assured under the terms and conditions of the insurance policy read with the terms of the loan bond Neither the insurance policy nor the loan bond specifically fixed a period of repayment of the loan in question. On the contrary, the second term of the loan bond specifically says: “the said advance shall not be repaid within a period of six months from the date on which the loan is settled.” While clause 3 thereof obligates the borrower to pay interest to the Corporation @ 6 per annum compounding half yearly on the said advance, it also stipulates that the first payment of interest should be made on the date specified in the said Schedule. Therefore, it can be said that so far as the interest on loan is concerned, the due date is as specified in the Schedule while in regard to the repayment of the principal amount of loan, clause 4 of the loan bond specifies that the same shall be paid when called upon to make repayment at the said office of the said advance with all interest which may be due thereon on being given 3 months’ notice to that effect. It is not the case of the defendant that they had invoked the right under this clause giving the time stipulated therein, and thereby the loan amount with interest had become due and payable on the relevant date. On the contrary, the defendant relies solely on the automatic non-forfeiture clause in the insurance policy to establish its right to adjust the principal amount of loan also. Therefore, the contention of the defendant is that in view of the words used in the insurance policy “all moneys due to the Company” it has the right to adjust the principal amount of the loan also whenever a situation arises for invoking automatic non-forfeiture clause. The defendant also contends that it being a public authority, a liberal and wider meaning should be attributed to the expression “moneys due” as found in the automatic non-forfeiture clause of the insurance policy. Reliance was placed also on the meaning of the words “amount due” and “amount payable” as found in various dictionaries. But, we are of the opinion that it is not always possible to be guided by the meaning of the words as found in the dictionary while resorting to interpret the actual meaning of a word found in an agreement between the parties. In our opinion, while construing the meaning of a particular word found in an agreement between the parties the intention of the parties to the document in question will have to be given necessary weightage and it is not possible to give a wider and liberal meaning merely because one of the parties to the said agreement is a public authority. As stated above, the defendant advanced the loan amount under an authority given to it in terms of the insurance policy. Since the loan in question is in the nature of an advance of the security of the policy, under the terms of the policy as well as the loan bond, the defendant is only authorised to recover the principal amount of loan either while settling the amount due under the policy or if it so desires, by invoking its right under clause 4 of the loan bond. In the instant case, since the defendant had not invoked its right under clause 4 of the loan bond, in our opinion, it must be construed that the loan amount became payable only when the defendant’s obligation to pay the assured amount had occurred which in the instant case, was on the death of the assured. This view of ours is further supported by the fact that even though according to the defendant the policy lapsed on 1.6.1969 (the relevant date) a date much prior to the death of the assured the defendant did not take any steps to recover the loan amount by invoking clause 4 of the loan bond. This only shows that even the defendant did not understand that the loan amount had become due and payable on the relevant date. At this stage, it is also to be noted that as per Clause 4 of loan bond the borrower was to be given three months’ time to discharge the loan if the Company wanted the loan to be discharged. This clause being in the nature of an agreement between the parties until such notice period is given to the plaintiffs, it cannot be said that the principal amount of loan had become due and payable. Therefore, the words “all moneys due” found in the automatic non-forfeiture clause will have to be construed to mean such amounts which have become not only due but also payable under the terms of the agreement. If so construed, then in our opinion so far as the principal amount of loan is concerned, same had not become due and payable on the relevant date and defendant is not entitled to deduct the same from the surrender value. (Para 14)
       If it is so held then it is an admitted fact that on the relevant date as well as on the date when the original assured died, the surrender value available on the policy of the assured was more than sufficient to adjust the premium due, the interest on the belated payment of premium and also the interest that had become payable on the loan amount. Therefore, there was no question of the insurance policy in question having automatically lapsed even prior to the death of the assured. (Para 16)

Judgment

Santosh Hegde, J.-C.A. No. 3781/ 82 :

In this appeal challenge is to the judgment of the Calcutta High Court made in C.A. No. 256/78 dated 7th July, 1982 wherein the appellate Bench of the High Court reversed the judgment of the High Court delivered in the trial side in Suit No. 356/73 and decreed the suit of the plaintiff.

2. For convenience in this appeal, we will refer to the parties by their original status in the trial Court.

3. Plaintiffs in the suit are the assigns of the insurance policy issued by a General Insurance Company which is now merged with defendant viz. Life Insurance Corporation of India.

4. On 7th April, 1955, one Smt. Bhagwandei Rajgarhia submitted a proposal and declaration for insurance of her life with one Ruby General Insurance Company for a sum of Rs. 1,27,000/- which proposal was accepted by the Insurance Company. On 5.5.1955, the Insurance Co. in consideration of the premium paid and to be paid, granted to the assured a policy bearing No. 97403 commencing from 1.3.1955 and agreeing to pay to her assigns, executors, administrators, nominees or other representatives-in-interest, the said sum on her death. The said assured, Smt. Bhagwandei Rajgarhia on 11.5.1967 applied for a loan/ advance against the said policy to the tune of Rs. 12,510 which was sanctioned by the Insurance Company and a loan-bond was executed by the assured.

5. On 11.3.1968, the assured duly assigned the said policy absolutely in favour of the plaintiffs and a notice of the said assignment was given to the defendant-appellant by a letter dated 11.3.1968 which was duly registered by the defendant-appellant in its books.

6. By virtue of the provisions of the Life Insurance Corporation Act, 1956, the assets and liabilities of the Ruby Insurance Co. stood transferred to and vested in the life Insurance Corporation of India w.e.f. 1.9.1956. By a letter dated 27.5.1965, the said assured Smt. Bhagwandei Rajgarhia sought confirmation from the defendant regarding the position of the said policy when the surrender value so proposed to be utilised was exhausted, so that she could keep the policy in force. By a letter dated 23/28th June, 1965, the defendant intimated the assured that at the time of the said reply the said policy was protected under the automatic non-forfeiture clause found in the insurance policy until May 23, 1969. In the meantime, it is to be noted that the assured had paid premium up to 1967. It was contended by the plaintiffs in the suit that the plaintiffs kept on assuring the assured that the policy was sufficiently protected under the said automatic non-forfeiture clause. On 25.5.1970, the said assured Smt. Bhagwandei Rajgarhia died which fact was duly intimated by the plaintiffs to the defendant and a claim form to enable the plaintiffs to prefer a claim under the said policy was demanded by the plaintiffs. By a letter dated 4.7.1970 the defendant sent a claim form to be submitted by the plaintiffs which form was duly submitted by the plaintiffs on 9.7.1970. It was also averred in the plaint that by a letter dated 29.7.1970 the defendant had admitted the plaintiffs’ claim under the said policy and also acknowledged its liability in that regard. Along with the letter dated 29.7.1970, the defendant had also enclosed a claim discharge voucher and requested the plaintiffs to submit the same properly signed, dated and witnessed. The plaintiffs duly submitted to the defendant the claim discharge voucher and sought for the payment due under the policy. But by a letter dated 21.8.70 the defendant, for the first time, repudiated its liability for the said sum of Rs. 1,02,813.71 which was the sum, according to the plaintiffs, payable after deducting the unpaid premium, interest thereon and also the interest and principal amount payable under the loan bond. The defendant informed the plaintiffs that the policy in question was not in force on the date of death of the assured since the assured had not paid the premium

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1999 Supreme(SC) 239

Cases Referred (1)