The main legal point established in the judgment is that for a binding contract of insurance to be concluded, there must be mutual agreement, offer and acceptance, and communication of acceptance. The mere receipt of the premium does not signify consent, and the acceptance of the proposal must be communicated to the proposer.

Patnaik,J.

This appeal has been preferred by the defendant-Life Insurance Corporation of India-challenging the judgment of the learned Principal Sub Judge, Ernakulam dated 28-2-1987 in O.S. No. 139 of 1986, by which the defendant has been made liable to pay an assured sum of Rs. 2,00,000/- with interest and costs to the plaintiff as the nominee of her deceased husband, under an alleged contract of insurance.

2. The plaintiff averred that her husband late T.N. Devaraj filled up the form of proposal for insurance on his life for a sum of Rs. 2,00,000/- (rupees two lakhs) - Ext. B1 (a) on 5-3-1982 and sent the same along with a cheque for Rs. 2,625/- as the first premium to the Divisional Office of the Life Insurance Corporation of India, Trivandrum after getting himself medically examined by the doctors. The appellant accepted the proposal and encashed the cheque and acknowledged the same by granting the receipt dated 9-3-1982 (Ext. Al ), (the office copy of which is marked as Ext. B1 (c). Shri Davis Thomas, the agent of the appellant informed late Devaraj that issuance of the policy is only an office formality and would come in due course. But, Devaraj expired on 19-3-1982 on account of sudden renal failure. According to the plaintiff, grant of receipt Ext. A1 would indicate that there was an unconditional acceptance of a tender made in payment of the premium due under the contract, the offer of which was contained in the receipt; it constituted the first premium and consequently a contract of insurance came into existence; it is binding on the defendant-Corporation. But, when the plaintiff put forth her claim by the letter dated 16-6-1982 (Ext. A3 ), a reply dated 22-6-1982 (Ext. A4 ) was received from the Divisional Manager, LIC of India, Trivandrum stating that the proposal by her husband was not accepted by the Corporation and hence the contract was not complete. The appellant, therefore, declined to pay the amount as claimed.

3. The defendant-appellant resisted the claim on the ground that the said proposal of the deceased husband of the plaintiff received on 9-3-1982 had not been accepted by the time of his death and as such there was no concluded contract between the deceased and the defendant-Corporation so as to make it liable to pay the amount as stated in the proposal. Since the proposal was sent for assurance of a sum of rupees two lakhs, the ultimate authority to consider its acceptance was the central Office of the Corporation at Bombay. It takes time to complete (his process. The proposer, however, died before it was considered by the authority competent to accept the proposal. The agent is appointed to procure insurance business only and he is not empowered to make statements on behalf of the defendant-Corporation. Hence the defendant-Corporation is not bound by it. The cheque sent by the deceased which was encashed was held in deposit in the "suspense Account" and not adjusted towards the premium. The acceptance of proposal and grant of first premium receipt are essential to create a binding legal obligation on the defendant-Corporation. The receipt (Ext. Al ) being not a receipt towards payment of premium and the defendant-Corporation having not signified about the acceptance of the proposal, there was no completed contract.

4. The learned Sub Judge, by relying on the decision of this Court in LIC of India v. Kamalamma (1986 KLT 347), decreed the suit and held that the very encashment of the cheque sent by Devaraj (deceased) on 9-3-1982 amounts to acceptance of the proposal since the initial payment made by Devaraj as shown in the receipt (Ext. A1) should be taken as the payment of his first premium. She distinguished the decision of the Supreme Court in L.I.C. of India v. Vasireddi. ( A.I.R 1984 SC 1014) by stating that the facts in that case were resting on an offer never acted upon and it was a case of total absence of a contract. Accordingly, she decreed the suit and held that the defendant (Appell