Insurance Contract Obtained by Fraud is Voidable; Free-Look Period No Bar to Refund: State Consumer Commission - 2025-08-20

Insurance Policy Sold Through Misrepresentation is Voidable, Free-Look Period Not a Shield, Rules State Consumer Commission

Jaipur, Rajasthan - The State Consumer Disputes Redressal Commission, in a significant ruling, has held that an insurance contract procured through fraudulent inducement is voidable and the insurer cannot deny a premium refund by citing the expiry of the 15-day "free-look period". The Commission found Reliance Nippon Life Insurance Co. Ltd. guilty of deficiency in service for mis-selling a policy to a farmer with false promises.

The bench, comprising Members Sh. Mukesh and Sh. Ramniwas Sarswat, dismissed the appeal filed by the insurance company and partially allowed the consumer's appeal, enhancing the relief by awarding interest and litigation costs.

Case Background

The case originated from a complaint filed by Shanti Lal Dhakad, a farmer from Chittorgarh district, against Reliance Nippon Life Insurance Co. Ltd. Dhakad alleged that the company's agent sold him a "Guaranteed Money Back Plan" under false pretenses. He was promised that the entire annual premium of ₹1,81,232 would be refunded to his bank account within two months and that he would also be granted a ₹5 lakh loan for ten years.

Trusting the agent, Dhakad paid the premium for the policy, which was issued on December 16, 2015. When the promised refund and loan did not materialize after several months, he requested the surrender of the policy on June 23, 2016. The company rejected his request and refused to refund the premium.

The District Consumer Commission of Chittorgarh had initially ordered Reliance to refund ₹1,30,000, after deducting 25% of the premium amount for expenses. Both parties appealed this decision to the State Commission—the insurance company seeking to overturn the refund order, and Dhakad seeking a full refund plus compensation.

Arguments Presented

• Reliance Nippon Life Insurance's Arguments: The insurance company's counsel argued that Dhakad had accepted the policy's terms and conditions by not surrendering it within the statutory 15-day free-look period. They contended that since the policy was in force for over six months, the risk was covered, and the contract became binding. Therefore, the premium was rightfully forfeited when the surrender request was made after the free-look period.

• Complainant Shanti Lal Dhakad's Arguments: Dhakad's counsel argued that his client, a farmer with limited financial literacy, was a victim of mis-selling. The decision to buy the policy was based entirely on the fraudulent promises made by the agent. He sought a full refund of the premium paid (₹1,81,232) and compensation for the mental distress caused.

Commission's Findings on Fraud and Misrepresentation

The State Commission critically examined the circumstances under which the policy was sold. It observed a significant mismatch between the farmer's financial capacity and the policy's demands.

"A person whose maximum annual income from agriculture is only ₹4,00,000, it seems unnatural that he would be in a position to pay an insurance premium of ₹1,80,000 for 20 years," the Commission noted. "In these circumstances, the facts stated by the complainant regarding the fraudulent inducement given to him cannot be denied."

The Commission concluded that the agent had made false promises to secure the sale, thereby vitiating the contract. It invoked principles from the Indian Contract Act, stating:

"It is well-established law that an insurance contract is also governed by the provisions of the Contract Act and is a general contract. A contract obtained through fraud is voidable... As per the provisions of Sections 64 and 65 of the Contract Act, the person who has received such a sum through such a contract is liable to return it."

The Commission held that the technical defense of the free-look period could not be used to uphold a contract founded on deception, especially when dealing with a vulnerable consumer.

Final Judgment and Order

The State Commission dismissed the appeal filed by Reliance Nippon Life Insurance. It partially allowed Shanti Lal Dhakad's appeal, modifying the District Commission's order to provide more comprehensive relief.

The final order directs the insurance company to:

1. Pay ₹1,30,000 to the complainant.

2. Pay interest on this amount at 6% per annum from the date of filing the complaint until the date of the District Commission's order (24-08-2018).

3. Pay interest at 9% per annum from the date of the District Commission's order until the date of actual payment.

4. Pay ₹10,000 as litigation costs to the complainant within 45 days.

This judgment reinforces the principle that insurance companies and their agents are duty-bound to ensure transparency and cannot escape liability for mis-selling by relying on procedural technicalities like the free-look period.