2006 Supreme(SC) 447

2006(4) Supreme 141
SUPREME COURT OF INDIA
(From National Consumer Disputes Redressal Commission, New Delhi)
B.N. Srikrishna and R.V. Raveendran, JJ.
Life Insurance Corporation of India & Anr.—Appellants
versus
Smt. S. Sindhu—Respondent
Civil Appeal No. 4492 of 2000
Decided on 4-5-2006
Counsel for the Parties :
For the Appellants : T.R. Andhyarujina, Sr. Advocate, A. Ranganadhan, Buddy A. Ranganadhan, A.V. Rangam, A. Raghunath, Advocates.
For the Respondent : A. Raghunath Advocate (N.P.).

IMPORTANT POINT
In the case of a lapsed life insurance policy, the Life Insurance Corporation of India while paying the reduced sum payable by treating it as a paid-up policy, is not liable to pay interest in regard to premium paid from the respective dates of payment of premiums to date of settlement.

Headnote:Interest Act, 1978—Sections 2, 3(1), 4—Lapsed insurance policy—Liability to pay interest in regard to premiums paid—Non-forfeiture Regulations in the policy—A policy of insurance dated 11-3-1994 for an assured sum of Rs. 5 lakhs was issued under the ‘money back policy’ scheme for a period of 20 years—Premium payable was Rs. 8,306/- every quarter—Conditions of the policy made it clear that the policy will be in force only if the premiums were paid regularly, every quarter—Insured paid the premiums till 4-6-1994 and did not pay the premiums thereafter—In August, 1996, he opted for revival of the policy by paying arrears of premium from 4-9-1994 to 4-6-1996 with interest—Policy was revived and he paid the premium till 4-12-1996—Policy again lapsed from 4-3-1997 as premium was not paid—Insured died on 5-12-1997—‘Paid up value’ of the policy was arrived at Rs. 1,13,750/- as per condition (4) of the policy and was paid to respondent on 26-3-1998, on her executing a full and final settlement discharge—Respondent filed consumer complaint claiming the entire sum assured under the policy with interest—Rejecting respondent’s claim for assured sum, District Forum directed LIC to pay interest at 15% p.a. on the sum of Rs. 1,13,750/- from respective dates of receipt of amounts of premium to date of settlement—Whether in case of a lapsed insurance policy, the LIC while paying the reduced sum payable, is liable to pay interest in regard to premiums paid from respective dates of payment of premiums to date of settlement—(No).

       Held : It is now well-settled that interest prior to the date of suit/claim (as contrasted to pendente-lite interest and future interest) can be awarded in the following circumstances :

       (a)Where the contract provides for payment of interest; or

       (b)Where a statute applicable to the transaction/liability, provides for payment of interest; or

       (c)Where interest is payable as per the provisions of the Interest Act, 1978.

       In this case, the contract, that is the insurance policy, provides that if the premium is not paid (after regularly paying premiums for a period of three full years), the policy shall subsist only as a paid up policy for a reduced sum (calculated as per Table given in Condition No. (4) of the policy) payable on the date of maturity or at the prior death of the life assured. It does not provide for payment of interest on the premiums paid. In fact, the operative portion of the policy specifically provides that no interest will be paid. (Paras 9 & 10)

       At the outset, what should be noticed, is that the amount that is paid by LIC in regard to a lapsed policy, is not “refund of the premiums paid on various date”, but a reduced lump sum (calculated as per condition no. 4 of the policy) instead of the assured sum. When what is paid by LIC is not refund of premiums, the question of treating the amount paid by LIC as refund of premiums paid and then directing payment of interest thereon from the respective dates of payment of premium does not arise. That would amount to treating the premiums paid in respect of a policy which lapsed by default, as fixed deposits repayable with a hefty rate of interest. Surely, the intention is not to reward defaulting policy holders. Moreover, the courts and Tribunals cannot rewrite contracts and direct payment contrary to the terms of the contract, that too to the defaulting party. Be that as it may.(Para 8)

       Payment of interest on the premium amounts, from the respective dates of remittance of premiums, is alien to the concept of life insurance. In this case, the assured died on 5.12.1997 prior to the date of maturity. Therefore the reduced sum as a paid up policy became due and payable without any interest on 5.12.1997. The claim was settled by payment of Rs. 113,750/- on 26.3.1998, within three months from the date of intimation of death. Therefore, under the contract, no interest is payable by LIC. Where a statute provides for payment of interest, such interest will have to be paid in accordance with the provisions of such statute. Admittedly there is no enactment, or rules made under any enactment, either relating to contracts in general or insurance in particular, which provides for payment of interest in regard to amount payable under such a policy.(Paras 10 & 11)

       In this case, we have already noticed that the reduced sum calculated as per the Table in Condition No. (4) of the Policy, became due only on the death of the assured. No interest is payable either under the contract of insurance, or under any statute, or under the Interest Act, 1978 from the respective dates of payment of premium to date of settlement of claim. Therefore the District Forum, the State Commission and the National Commission committed a serious error in awarding such interest.(Para 14)