1. Housing loan — Insurer received premium but rejected proposal — Borrower died — Claim for loan waiver disputed. (Para 5 , 6 , 23 )
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2026 Supreme(Telangana) 345
HIGH COURT FOR THE STATE OF TELANGANAAT HYDERABAD
Moushumi Bhattacharya, Gadi Praveen Kumar, JJ.
Mrs.B.Madhavi - Petitioner
Versus
SBI Life Insurance Company Limited, represented by its Manager, Hyderabad and Others - Respondents
W.P.Nos.8760 of 2019 and 13176 of 2020
Decided On : 01-04-2026
Advocates:
Advocate Appeared:
Petitioner Counsel: E. Phani Kumar
Respondent Counsel: Srinivas Karra rep. K. Jaya Raj (Ombudsman) and Mettu Srinivas Reddy (SC)
Advocate Appeared:
Petitioner Counsel: E. Phani Kumar
Respondent Counsel: Srinivas Karra rep. K. Jaya Raj (Ombudsman) and Mettu Srinivas Reddy (SC)
Retention of an insurance premium without communicating the rejection of a proposal creates a presumption of a concluded contract. If such insurance discharges a housing loan upon the borrower's death, the bank's classification of the account as a Non-Performing Asset (NPA) is legally unsustainable.
Headnote:(A) Insurance Law - Concluded contract - Receipt and retention of premium - Presumption of acceptance - Communication of rejection - Where an insurer receives and retains a premium amount without providing convincing material to establish that the requirement for further documentation was communicated or that the proposal was effectively cancelled, a presumption arises in favour of a concluded contract of insurance (Paras 24, 25). Prolonged and unexplained retention of premium, particularly when the refund remains in an unencashed account for an inordinate period, reflects gross negligence and deficiency in service, and such technical pleas cannot defeat the legitimate expectation of a borrower in housing loan insurance schemes (Paras 24, 26).
(B) Banking Law - Non-Performing Asset (NPA) - Loan liability - If a borrower is entitled to insurance coverage that discharges the outstanding loan liability from the date of death, the foundation for treating the account as defaulted ceases to exist, rendering the classification of the loan account as a Non-Performing Asset legally untenable (Para 28).
Facts of the case:
Petitioners obtained a housing loan and paid the required insurance premium. Following the death of the primary borrower, the petitioner sought a waiver of the loan liability based on the insurance coverage. The insurer contended that the policy was never issued because the borrower failed to submit income proof and that the premium had been refunded via a cheque that remained unencashed for ten years. The Insurance Ombudsman dismissed the claim for death benefits but directed a refund of the premium with interest. Subsequently, the bank classified the loan account as a Non-Performing Asset (NPA) due to defaults in payment.
Findings of Court:
The court found that the insurer failed to prove that the request for income proof or the cancellation of the proposal was communicated to the petitioner. The retention of the premium in an unencashed account for a decade indicated gross negligence. Once the presumption of a concluded contract was established, the insurer could not evade its liability to discharge the loan.
Issues: Whether the retention of a premium amount without communicating the rejection of a proposal constitutes a concluded contract of insurance and whether the classification of a loan account as NPA is sustainable if the loan is covered by such insurance.
Ratio Decidendi: The receipt and prolonged retention of a premium without communication of rejection leads to a presumption of acceptance of the insurance proposal. In the context of housing loans, where insurance is intended to secure the liability, the insurer cannot disclaim liability on technical grounds attributable to its own negligence. Consequently, the loan liability is discharged from the date of the borrower's death, making the NPA classification invalid.
Result: Writ Petitions allowed; the order of the Insurance Ombudsman is set aside.
Legal Category Hierarchy
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insurance law
- life insurance
- premium
- banking law
Table of Contents
2. Petitioner argued premium retention creates contract; insurer countered no acceptance without communication of rejection. (Para 8 , 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 )
3. Insurer retained premium for ten years without communicating rejection — Gross negligence and deficiency in service. (Para 22 , 24 , 25 )
4. Retention of premium without communicating rejection raises presumption of concluded insurance contract. (Para 25 , 26 )
5. Writ petitions allowed; Ombudsman award set aside; loan liability to be discharged under insurance cover. (Para 30 )
6. Does retention of premium without communicating rejection create a presumption of acceptance of an insurance proposal?
Yes — prolonged retention of premium without communicating rejection raises a presumption of a concluded contract, and the insurer cannot subsequently disclaim liability. (Para 25 , 26 )
7. Is an insurer liable for deficiency in service when it fails to deliver a refund cheque for premium and lets the amount lie in an unencashed account for years?
Yes — failure to deliver the refund cheque and allowing premium to remain in an unencashed account for a decade amounts to gross negligence and deficiency in service. (Para 24 , 25 )
8. Can a loan account be classified as a Non-Performing Asset when the borrower is entitled to insurance coverage discharging the liability?
No — once the borrower is entitled to the benefit of insurance coverage, the foundation for treating the account as defaulted ceases, making NPA classification legally untenable. (Para 28 )
9. Does the principle that silence does not denote acceptance in insurance contracts apply when the insurer retains the premium?
No — that principle does not apply where the case involves prolonged and unexplained retention of premium coupled with failure to communicate rejection. (Para 26 )
ORDER :
Gadi Praveen Kumar, J.
Since these Writ Petitions arise out of common set of facts and the parties are also common, they are being disposed of by this common order.
2. Heard Sri E.Phani Kumar, learned counsel for the petitioner, Sri Srinivas Karra, learned counsel representing Sri K.Jaya Raj, learned counsel for the respondent No.2-Insurance Ombudsman in W.P.No.8760 of 2019 and Sri Mettu Srinivas Reddy, learned Standing Counsel appearing for the State Bank of India (SBI).
3. W.P.No.8760 of 2019 is filed assailing the award dated 17.12.2018 passed by the learned Insurance Ombudsman, for the States of Andhra Pradesh, Telangana and Yanam City, the 2ndrespondent herein, whereby the complaint of the petitioner seeking waiver of the loan liability on account of the death of her husband was dismissed, while directing refund of the premium amount of Rs,87,802/- along with interest at 8% per annum, as illegal and arbitrary and consequently, sought a direction against the 1st respondent to give effect to the waiver of the loan instalments payable by the petitioner in respect of the loan Account No.62055694550 with SBI RACPC, Abids, from the date of death of the petitioner’s husband on 04.08.2017.
4. W.P.No.13176 of 2020 is filed to declare the action of the respondents in classifying the loan account No.62055694550 of the petitioner as Non-Performing Asset (NPA), as illegal and arbitrary.
5. The facts leading to file the present Writ Petitions are that the petitioner and her husband availed a housing loan from the respondent-SBI on 15.03.2008 for a sum of Rs.23.00 lakhs for the purpose of construction of a residential house repayable in equated monthly instalments at the rate of Rs.24,976/-. It is further stated that on the insistence of the Bank, an insurance coverage was obtained by paying an amount of Rs.87,802/- on 10.05.2008 with a bona fide belief that the policy would cover the loan liability in the event of death of either borrower. It is admitted that subsequently, the petitioner’s husband availed a top up loan of Rs.10.00 lakhs on 01.03.2017 payable in 119 equated monthly installments at Rs.12,800/- commencing one month after disbursement. It is further averred that they were regular in remitting the installments, but unfortunately, the petitioner’s husband was diagnosed with cancer and after series of hospitalizations, passed away on 04.08.2017.
6. It is stated that pursuant to the demise of the petitioner’s husband, she approached the Bank for waiver of balance EMIs considering the insurance coverage, but when the installments were getting debited from her account, she addressed a letter dated 06.10.2017 and reminders on 26.02.2018 and 02.07.2018 to the SBI enclosing the death certificate of her husband and requested for closure of the loan account duly discharging the same. However, the Bank failed to respond to the representations submitted by the petitioner. Therefore, the petitioner knocked the doors of the 2nd respondent, who by award dated 17.12.2018 dismissed the complaint of the petitioner. Aggrieved by the said award, the petitioner filed W.P.No.8760 of 2019.
7. While issuing notice before admission on 20.08.2020, this Court granted interim stay of recovery of the instalments and despite the said interim order, the 2nd respondent transferred the petitioner’s home loan account to the 1st respondent on 31.10.2019 by classifying it as NPA. Aggrieved thereby, she filed W.P.No.13176 of 2020.
8. The 1strespondent filed a counter-affidavit contending that the crux of the compliant filed by the petitioner before the 2nd respondent - Ombudsman is regarding non-settlement of death claim of the husband of the petitioner under SBI Life-Super Suraksha Master Policy. It is submitted that the SBI Life Insurance Company (for short, ‘the Company’) has not received any membership form in the name of the deceased for grant of insurance coverage under the Loan Account No.62055694550 and the deceased was not insured with the Company and
