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SUPREME COURT OF INDIA
S.C. Agrawal & G.B. Pattanaik, JJ.
HARSHAD J. SHAH & ANR. —Appellants
versus
L.I.C. OF INDIA & ORS.—Respondents
C.A. Nos. 7202, 7203 of 1996—Decided on 4.4.1997
LIFE INSURANCE - PAYMENT OF PREMIUM - AUTHORITY OF AGENT - APPARENT AUTHORITY - DOCTRINE OF APPARENT AUTHORITY - SECTION 237 OF THE INDIAN CONTRACT ACT, 1872 - LIFE INSURANCE CORPORATION (AGENTS) REGULATIONS, 1972 - LIFE INSURANCE CORPORATION (AGENTS) RULES, 1981 - WHETHER PAYMENT OF PREMIUM TO AN AGENT CAN BE REGARDED AS PAYMENT TO THE INSURER - WHETHER THE DOCTRINE OF APPARENT AUTHORITY CAN BE INVOKED IN THE FACTS OF THE CASE.
Fact of the Case:
The insured took out four insurance policies with the LIC through its general agent, respondent No. 3. 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 for Rs. 2,730/- towards the half-yearly premium on all 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 died on the same day. The widow of the insured, as the nominee under the policies, submitted a claim to the LIC, which was repudiated on the ground that the policies had lapsed on account of non-payment of the half-yearly premium.
Finding of the Court:
The court held that the payment of premium to respondent No. 3, the general agent of the LIC, cannot be regarded as payment to the LIC. The court found that respondent No. 3 was not authorized by the LIC to collect the premium on its behalf. The court also held that the doctrine of apparent authority cannot be invoked in the facts of the case, as the LIC had not induced the insured to believe that respondent No. 3 was authorized to receive the premium on its behalf.
Issues: 1. Whether payment of premium to an agent can be regarded as payment to the insurer? 2. Whether the doctrine of apparent authority can be invoked in the facts of the case?
Ratio Decidendi: 1. The court held that payment of premium to an agent cannot be regarded as payment to the insurer unless the agent is authorized by the insurer to collect the premium. In the present case, respondent No. 3 was not authorized by the LIC to collect the premium, as evidenced by the Life Insurance Corporation (Agents) Regulations, 1972, and the Life Insurance Corporation (Agents) Rules, 1981. 2. The court held that the doctrine of apparent authority cannot be invoked in the facts of the case, as the LIC had not induced the insured to believe that respondent No. 3 was authorized to receive the premium on its behalf. The court noted that there was no express or implied authority granted to respondent No. 3 to collect the premium, and that the LIC had not made any representations to the insured that respondent No. 3 was authorized to do so.
Final Decision: The court dismissed the appeals filed by the appellants and allowed the appeal filed by the respondents. The court directed the LIC to refund the entire amount of premium paid to the LIC on the four insurance policies to appellant No. 2 along with interest @ 15% per annum from the date of receipt of the amounts of premium. The court also directed respondent No. 1 to pay to appellants a sum of Rs. 10,000/- (Rupees ten thousand only) as costs.
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.
2. 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 Mr. 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 re spondent 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 & Re search 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/- pay able 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 afore mentioned amount of Rs. 2,00,000/- from June 6,1987 to March 31,1991 and Rs. 1,00,000/ as compensation for annoyance, agony, hard ship 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').
3. 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, 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 authorise
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