Important point
Where in “Salary Savings Scheme” of life insurance policy employer had taken upon itself the responsibility to deduct premium and transmit it to Corporation, it acted as agent of Corporation and LIC could not avoid its liability under the policy on a plea that due to non-receipt of premium policy had lapsed.

Headnote:Consumer Protection Act, 1986—Section 12—Claim under life insurance policy—Appellant floated a “Salary Savings Scheme” which envisaged insurance policy for salaried class employees—Responsibility for collection of premium by deducting same from salary of employee and making over to Corporation was of employer and employer accepted the responsibility—It was for employer to inform the Corporation about changes in the staff including factum of cessation of employment—Failure of employer for one or other reason to deduct premium from salary of concerned employee—Consumer Forums in all cases allowed the claims—Appeal—Contention that employer acted only as agent of employees and not that of Corporation and policies lapsed for non-payment of premium and claimants could not be held entitled to sum assured—No form of individual premium due notice or receipt was to be issued by Corporation —Agency could be created expressly or by necessary implication—Employees were not to approach insurer directly and thus for all intent and purport were to treat employer as “agents” of Corporation—Order holding Corporation liable to pay amounts under policy called for no interference.
       Held : The employers in terms of this tripartite arrangement accepted the responsibility of deducting the premium from the salaries of the same and send the same to the Corporation by one cheque. As noticed hereinbefore, the concerned employees would have no knowledge about the contents of correspondence passed between the Corporation and their employers. Paragraph 3 of the employer’s letter to the Corporation indicates that no form of individual premium due notice or receipt would be issued by the Corporation which clearly shows that the entire responsibility was thrust upon the employer by the Corporation. An agency can be created expressly or by necessary implication. It may be true that the employers in response’ to the proposal made by the Corporation stated that they would act as agents of their employees and not that of the Corporation. But, the expression “agent” in such circumstances may not mean to be one within the meaning of the Life Insurance Corporation of India (Agents) Regulation, 1972 made in terms of Section 49 of the Act; but would mean an agent in ordinary sense of the term. An employer would not be an agent in terms of the said Regulation on the premise that it was not appointed by the Corporation to solicit or procure life insurance business. The employers had no duty to discharge to the Corporation either under the Act or the rules and regulations framed thereunder but keeping in view the fact that the Corporation did not make any offer to the employees nor would directly make any communication with them regarding payment or non-payment of the premium or any other matter in relation thereto or connected therewith including the lapse of the policy, if any, it cannot be said that the employer had no role to play on behalf of the Corporation. In a plain and simple contract of insurance either the Corporation or the agent, on the one hand, and the insured, on the other, is liable to comply with their respective obligations thereunder. In other words, when a contract of insurance is entered into by and between the insurer and the insured no third party would have any role to play, but the said principle would not apply in a case of this nature. In a scheme of this nature, the employers were to make all endeavours to improve the service conditions of the employees and discharge its social obligations towards them. So far as the employees are concerned, they could not approach the insurer directly, and, thus, for all intent and purport they were to treat their employers as ‘agents’ of the Corporation. The Scheme clearly and unequivocally demonstrates that not only the contract of insurance was entered into by and between the employee and the insurer through the employer but even the terms and conditions of the policy were to be performed only through the employer. (Paras 20 to 23)
       Agency as is well-settled, is a legal concept which is employed by the Court when it becomes necessary to explain and resolve the problems created by certain fact situation. In other words, when the existence of an agency relationship would help to decide an individual problem, and the facts permits a court to conclude that such a relationship existed at a material time, then whether or not any express or implied consent to the creation of an agency may have been given by one party to another, the court is entitled to conclude that such relationship was in existence at the time, and for the purpose in question. [See “Establishing Agency” by GHL Fridman - 1968 (84) Law Quarterly Review 224 at p. 231]. For the reasons aforementioned, the appeals preferred by the Corporation including the cross objections filed by it in Civil Appeal No. 2357 of 2003 are dismissed and Civil Appeal No. 2357 of 2003 is allowed. (Paras 38 and 39)

Judgment

S.B. Sinha, J.—Leave granted in S.L.Ps.

2. These appeals involving common questions of fact and law were taken up for hearing together and are being disposed of by this common judgment.

3. The basic fact of the matter is as under:

The Life Insurance Corporation (for short “the Corporation”) was created under the Life Insurance Corporation Act, 1956 (for short “the Act”). It floated a “Salary Savings Scheme” which envisaged a life insurance policy for the salaried class employees a proposal wherefor was made to the concerned employers. Although the Scheme as such is not on records of the case, the same has been referred to at some detail in the judgment of this Court in Delhi Electric Supply Undertaking Vs. Basanti Devi and Another [(1999) 8 SCC 229] and we intend to refer thereto in extenso as it throws considerable light on the issue which falls for our determination.

4. The Corporation issued a brochure in relation to the said Scheme wherein it was stated:

“It is a simple, economical plan whereby your employees may obtain life insurance protection for their families and retirement income for themselves under advantageous conditions which might not be available to them otherwise. This it accomplishes by savings automatically deducted from their pay and remitted to us once a month.

This is not a group insurance. Each employee owns his policy individually, is entitled to all its benefits and can continue the policy in the event of any change in employment.

Under this plan, you as an employer give facilities to the representatives of LIC to contact your employees to offer life insurance cover to them. Premium amounts, if an employee agrees to insure under this plan, are to be deducted every month from the employee’s salary, in the same manner as the employee’s provident fund. All the amounts so collected are paid to the Corporation by one cheque by the employer. This ensures for the employee regular payment, monthly, of his premiums at concessional rates. Deduction of premium from the salary or wages of an employee and its remittance to the Life Insurance Corporation is so beneficial that the recently amended Payment of Wages Act and the Minimum Wages Act make it legally permissible for an employer to do so. On you part, all that the plan involves is a little extra accounting which you will surely consider worthwhile because of the ....”

5. The employer concerned in terms of the said scheme was addressed a letter by a Corporation which is as under:

“Dear Mr Employer,

The Salary Savings Scheme of Life Insurance Corporation has proved of considerable value to many organisations and which we believe will be of keen interest to you and your employees.

The general need on the part of the average employee for more adequate protection of his dependants is recognised as well as the desirability of his adequate provision for his own retirement.

The Scheme is very simple. All that we need is the cooperation by your Payroll Department. They have to make the deductions of the premium on the employee policy-holder’s authorisation and remit them regularly to LIC along with a reconciliation statement.

Your employee will, I am confident, appreciate the benefits of your Salary Savings Scheme. It will be a practical demonstration of your personal interest in the welfare of those who help to make your company successful. Moreover, it is in tune with the present social trend.

May I discuss the matter with you with a view to working out details?

Yours very truly,

sd/-

(Branch Manager)”

[Emphasis supplied]

6. In the event, the employer and the employee agreed to the said offer made by the Corporation, the former would express its agreement thereto in the following terms:

“Dear Sir,

Re: Salary Savings Scheme

PA Code No. ...

In order to make the benefits of your Salary Savings Scheme available to our employees, we agree to make the payroll

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2005 Supreme(SC) 954

Cases Referred (1)