Delhi High Court
Unicorn Insurance Brokers Pvt. Ltd. vs Oriental Insurance Co. Ltd. on 6 February, 2017
Equivalent citations: AIR 2017 DELHI 142
Author: Rajiv Sahai Endlaw
Bench: Rajiv Sahai Endlaw
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 6th February, 2017.
+ CS(OS) 1085/2007
UNICORN INSURANCE BROKERS PVT. LTD. ..... Plaintiff
Through: Mr. Kirti Uppal, Sr. Adv. with Mohd.
Amanullah and Mr. Sidharth Chopra,
Advs.
Versus
ORIENTAL INSURANCE CO. LTD. ..... Defendant
Through: Mr. Vishnu Mehra, Adv.
CORAM:
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
1. The plaintiff has sued the defendant for recovery of Rs.1,26,99,578/-
with interest and costs.
2. It is the case of the plaintiff in the plaint:
(i) that the plaintiff is an insurance broker duly licensed by the
Insurance Regulatory & Development Authority (IRDA) and the
defendant is a company carrying on business of insurance;
(ii) that in anticipation of Uttar Pradesh State Road Transport
Corporation (UPSRTC) requiring insurance for its buses, the plaintiff
introduced itself as an insurance broker for handling UPSRTC‟s
business and UPSRTC vide its letter dated 3 rd January, 2004
authorised the plaintiff to negotiate premium rate with terms and
conditions for Third Party plus Passenger Liability cover for their
business;
CS(OS) No.1085/2007 Page 1 of 24
(iii) that however subsequently UPSRTC floated tenders inviting
bids for insurance premium rates for about 4000 buses;
(iv) that the plaintiff had detailed meetings with Mr. Yogesh Lohiya,
General Manager (Technical) and Mr. I.S. Phukela, Assistant General
Manger (RO-1) at the Head Office of the defendant wherein inter alia
the loading of tariff premium was discussed;
(v) that Mr. Yogesh Lohiya, General Manager (Technical) of the
defendant confirmed to the plaintiff and agreed that if the defendant
gets the said business from UPSRTC, the defendant shall pay 10% of
the premium amount received by the defendant from UPSRTC as
brokerage to the plaintiff;
(vi) that brokerage at 10% was consistent with the customary
brokerage and IRDA Rules which also permit payment of 10% as
brokerage to brokers;
(vii) that on assurance of the defendant that plaintiff would be paid
10% brokerage, the plaintiff made efforts for securing the business of
UPSRTC;
(viii) that the defendant vide its letters dated 27th February, 2004 and
19th March, 2004 confirmed that the rates quoted by the plaintiff to
UPSRTC had their approval;
(ix) that the plaintiff submitted its bid dated 19th March, 2004 to the
tender of UPSRTC;
(x) that the bid of the plaintiff was accepted by UPSRTC vide letter
dated 8th April, 2004 and the plaintiff immediately informed the
CS(OS) No.1085/2007 Page 2 of 24
defendant of the same;
(xi) that pursuant to the spade work done by the plaintiff, UPSRTC
issued cheque for Rs.56,99,683/- in favour of the defendant towards
premium of the first batch of 500 buses with effect from 10 th May,
2004 and which cheque was forwarded by the plaintiff to the
defendant, accepted by the defendant and in pursuance whereto the
defendant issued the Cover Note dated 10th May, 2004 for the period
till 9th May, 2005;
(xii) that the said Cover Note also indicated that it was through the
plaintiff;
(xiii) that the plaintiff vide its letter dated 3rd June, 2004 called upon
the defendant to pay 10% brokerage;
(xiv) that the defendant vide its letter dated 6th July, 2004 advised the
plaintiff that the defendant had authorised Mr. K.L. Gupta, Senior
Divisional Manager to coordinate with the plaintiff;
(xv) that due to efforts of the plaintiff, the defendant got insurance
premium to the total tune of Rs.4,00,30,781/- from UPSRTC and the
defendant became liable to pay 10% thereof i.e. Rs.40,03,078.10 paise
to the plaintiff;
(xvi) that the policies were renewed and the defendant received
further premium of Rs.5,95,60,267/- on which the plaintiff became
entitled to brokerage of Rs.59,56,026.70 paise;
(xvii) that thus the plaintiff is entitled to Rs.99,59,104.80 paise;
(xviii) that the plaintiff is entitled to interest @ 15% per annum for the
CS(OS) No.1085/2007 Page 3 of 24
delay in payment.
Hence the suit for recovery of Rs.1,26,99,578/- with future
interest and costs.
3. The suit was entertained. The defendant contested the same, pleading:
(a) that the plaintiff had earlier filed petition for winding up of the
defendant being CP No.321/2005 and which was dismissed as
withdrawn as the plaintiff had failed to prove any agreement or
admission of liability on behalf of the defendant;
(b) that the plaintiff in its letter dated 4th August, 2004 to the
defendant has categorically admitted that in the very first meeting of
the plaintiff with the General Manager of the defendant it was made
clear that no brokerage is payable for this type of the business;
(c) that there was thus no occasion for the defendant to enter into
any agreement with the plaintiff to pay any brokerage as alleged in the
plaint;
(d) that the defendant had taken a policy decision way back in the
year 2002 that it would not pay any commission / brokerage to agents
/ brokers for insuring any type of commercial vehicle; in early 2003
another decision was taken that no commission / brokerage would be
paid for insuring any type of motor vehicle for act of theft / fire;
(e) that the said policy decisions were duly communicated to all the
operating offices across the country;
(f) that the process of the subject insurance according to the
plaintiff also commenced on 7th March, 2004 and there was no
CS(OS) No.1085/2007 Page 4 of 24
question of any official of the defendant, after the aforesaid policy
decision, entering into any agreement in contravention thereof;
(g) that no commission/brokerage was assured to be paid to the
plaintiff and the plaintiff has raked up the issue of brokerage as an
afterthought;
(h) that in the brokerage business in the insurance industry, on
many occasions, the brokers render services and even procure
insurance business even without any payment of brokerage because
they have business relationship with the insurer or in the hope that in
other businesses they will be considered favourably;
(i) that the plaintiff knew it fully well that the defendant would not
be able to pay any brokerage on motor third party insurance;
(j) that the plaintiff was not and could not be in a position to
influence the decision of UPSRTC which was in terms of the tender;
(k) that motor third party business is a tariff business where
premium chargeable is determined by the Tariff Advisory Committee,
an autonomous body created by law and in tariff business, it is not
open to any insurer to reduce the rate of premium or indulge in any
other activity so as to reduce the rates chargeable;
(l) that in fact the defendant was not at all interested in obtaining
the motor third party business but the plaintiff persuaded the defendant
to allow it to quote in response to the tender and the defendant had
made it clear that no brokerage would be paid to the plaintiff;
(m) that while in the petition for winding up, the claim of the
CS(OS) No.1085/2007 Page 5 of 24
plaintiff was in the sum of Rs.40,03,078.10 paise but in the suit it has
been inflated to Rs.99,59,104.80 paise;
(n) denying that the suit has been instituted and the plaint signed
and verified by a duly authorised person;
(o) denying that Mr. Yogesh Lohiya or Mr. I.S. Phukela of the
defendant had assured the plaintiff for payment of commission /
brokerage @ 10%; pleading that there was no occasion even for the
said officials to meet the plaintiff as the subject did not pertain to their
department.
4. No replication is stated to have been filed to the written statement
aforesaid.
5. On the pleadings of the parties, the following issues were framed in
the suit on 18th November, 2008:
―1. Whether the suit has been instituted and the plaint signed
and verified by a duly authorized person on behalf of the
plaintiff? OPP
2. Whether the claim in suit is within time? OPP
3. Whether there was any agreement between the parties of
payment of commission/brokerage by the defendant to the
plaintiff or is the plaintiff otherwise entitled to recover any
commission/brokerage? OPP
4. If the issue no.3 is decided in favour of the plaintiff,
whether the plaintiff is entitled to any interest, if so, on what
amount, at what rate and for what period? OPP
5. Relief.‖
6. The plaintiff examined only one witness namely its Director Mr.
CS(OS) No.1085/2007 Page 6 of 24
Ashok Kumar Sharma. The defendant has also similarly examined one
witness only namely its Regional Manager Mr. Birpal Singh.
7. When, after recording of evidence in the suit, it came up before this
Court on 2nd February, 2017, it was the contention of the senior counsel for
the plaintiff that the adjudication of the suit entailed only the interpretation
of Clauses 2(d), 2(i) and 19 of the Insurance Regulatory and Development
Authority (Insurance Brokers) Regulations, 2002 (hereinafter called
„Regulations‟) and thus the disposal of the suit would not take much time
and on the said contention, the suit, instead of being listed in the category of
„Finals‟, was taken up for hearing on 2nd February, 2017 itself.
8. However, on perusal of the Clauses aforesaid of the Regulations, it
was prima facie felt that they do not make the defendant liable as an
insurance company to pay brokerage / commission to the plaintiff, even if
insurance business was brought by the plaintiff to the defendant. It was thus
enquired on 2nd February, 2017 from the senior counsel for the plaintiff, as to
how reliance on the Regulations could be placed without establishing a
liability of the defendant to pay brokerage / commission, whether by way of
a contract or otherwise. The mater was as such posted for further arguments
for today.
9. The senior counsel for the plaintiff has been heard further and the
counsel for the defendant has also been heard.
10. Admittedly, there is no agreement in writing whereunder the
defendant has agreed to pay brokerage @ 10% or at any other rate to the
plaintiff.
11. The senior counsel for the plaintiff has during the hearing not
CS(OS) No.1085/2007 Page 7 of 24
addressed arguments on the basis of any agreement by the defendant to pay
brokerage to the plaintiff. At the time of dictation also, the counsel for the
plaintiff, on specific query, admits that the claim of the plaintiff for
brokerage is not on the basis of any oral agreement which may have been
arrived at between the plaintiff and the defendant.
12. The counsel for the defendant also invites attention to the first
question put by the counsel for the defendant to the sole witness of the
plaintiff during the cross-examination recorded on 30th August, 2013 where
the witness of the plaintiff has admitted that there was no agreement between
the plaintiff and the defendant to pay any brokerage.
13. The claim of the plaintiff for brokerage against the defendant is thus to
be adjudicated only on the interpretation of the Regulations aforesaid.
14. The senior counsel for the plaintiff has however drawn attention to an
answer to a question recorded during the cross-examination on 30th August,
2013 of the sole witness of the plaintiff, where the witness has deposed that
for other business brought by the plaintiff to the defendant, the defendant has
been paying brokerage to the plaintiff as per the said Regulations and
without any written agreement.
15. The senior counsel for the plaintiff has today also handed over
photocopy of the licence issued by IRDA in exercise of powers under
Section 42D(1) of the Insurance Act, 1938, to the plaintiff, to act as
„Insurance Broker-Direct‟ under the Act. Though the said document is not
on record and has not been proved but the counsel for the defendant fairly
states that it is not in dispute that the plaintiff is an Insurance Broker-Direct
licensed by IRDA.
CS(OS) No.1085/2007 Page 8 of 24
16. I will now proceed to decide Issue No.3 first before going into the
Issues No.1&2 which are technical in nature.
17. The Regulations aforesaid have been framed by IRDA in exercise of
powers conferred by Section 114A of the Insurance Act read with Sections
14 & 26 of the Insurance Regulatory and Development Authority Act, 1999.
The Regulations to which attention has been invited are as under:
―2. Definitions--(1) Unless the context otherwise requires--
(a) .....
(b) .....
(c) ―Authority‖ means the Insurance Regulatory and
Development Authority established under sub-section (1)
of section 3 of Insurance Regulatory and Development
Authority Act, 1999 (41 of 1999)';
(d) ―composite broker‖ means an insurance broker who
for the time-being licensed by the Authority to act as
such, for a remuneration, arranges insurance for his
clients with insurance companies and/or reinsurance for
his client/s;
(e) ―direct broker‖ means an insurance broker who for
the time-being licensed by the Authority to act as such,
for a remuneration carries out the functions as specified
under regulation 3 either in the field of life insurance or
general insurance or both on behalf of his clients;
(f) ....
(g) ....
(h) .....
(i) ―insurance broker‖ means a person for the time-being
licensed by the Authority under regulation 11, who for a
remuneration arranges insurance contracts with
insurance companies and/or reinsurance companies on
behalf of his clients.
CS(OS) No.1085/2007 Page 9 of 24
Explanation: The term ―insurance broker‖ wherever it
appears in these regulations shall be deemed to mean a
direct broker, a reinsurance broker or a composite
broker, as the case may be, unless expressly stated to the
contrary.
3. Functions of a direct broker-- The functions of a direct
broker shall include any one or more of the following:--
(a) obtaining detailed information of the client's business
and risk management philosophy;
(b) familiarising himself with the client's business and
underwriting information so that this can be explained to
an insurer and others;
(c) rendering advice on appropriate insurance cover and
terms;
(d) maintaining detailed knowledge of available
insurance markets, as may be applicable;
(e) submitting quotation received from insurer/s for
consideration of a client;
(f) providing requisite underwriting information as
required by an insurer in assessing the risk to decide
pricing terms and conditions for cover;
(g) acting promptly on instructions from a client and
providing him written acknowledgements and progress
reports;
(h) assisting clients in paying premium under section
64VB of Insurance Act, 1938 (4 of 1938);
(i) providing services related to insurance consultancy
and risk management;
(j) assisting in the negotiation of the claims; and
(k) maintaining proper records of claims;
19. Remuneration-- (1) No insurance broker shall be paid
or contract to be paid by way of remuneration (including
royalty or licence fees or administration charges or such
other compensation), an amount exceeding:
CS(OS) No.1085/2007 Page 10 of 24
(A) on direct general insurance business--
(i) on tariff products:
(a) 10 percent of the premium on that part of the
business which is compulsory under any
statute or any law in force;
(b) 12½ percent of the premium on others.
(ii) on non-tariff products:
17½ percent of the premium on direct business;
(B) on direct life insurance business -
(i) individual insurance
(a) 30 percent of first year's premium
(b) 5 percent of each renewal premium
(ii) annuity
(a) Immediate annuity or a deferred annuity in
consideration of a single premium, or where only one
premium is payable on the policy:
2 percent of premium
(b) deferred annuity in consideration of more than one
premium:
(i) 7½ percent of first year's premium
(ii) 2 percent of each renewal premium
(iii) group insurance and pension schemes:
(a) one year renewable group term insurance, gratuity,
superannuation, group savings linked insurance -
7½ percent of risk premium
Note:- Under group insurance schemes there will be
no remuneration for the savings component.
(b) single premium -
2 percent of risk premium
(c) annual contributions, at new business procurement
CS(OS) No.1085/2007 Page 11 of 24
stage -
5 percent of non risk premium with a ceiling of Rupees
three lakhs per scheme.
(d) single premium new business procurement stage -
0.5 percent with a ceiling of Rupees five lakhs per
scheme.
(e) remuneration for subsequent servicing -
(i) one year renewable group term assurance -
2 percent of risk premium with a ceiling of rupees
50,000/- per scheme.
(C) on reinsurance business--
(i) as per market practices prevalent from time to time.
Explanation:- For purposes of the procurement of
business, an insurer shall not pay an agency commission, allow
a special discount, and pay a remuneration to brokers for the
same insurance contract.
(2) The settlement of accounts by insurers in respect of
remuneration of brokers shall be done on a monthly basis and it
must be ensured that there is no cross settlement of outstanding
balances.
24. Professional indemnity insurance-- (1) Every insurance
broker shall take out and maintain and continue to maintain a
professional indemnity insurance cover throughout the validity
of the period of the licence granted to him by the Authority.
Provided that the Authority shall in suitable cases allow
a newly licensed insurance broker to produce such a guarantee
within fifteen months from the date of issue of original licence.
(2) The insurance cover must indemnify an insurance broker
against
(a) any error or omission or negligence on his part or on
the part of his employees and directors;
(b) any loss of money or other property for which the
broker is legally liable in consequence of any financial or
CS(OS) No.1085/2007 Page 12 of 24
fraudulent act or omission;
(c) any loss of documents and costs and expenses
incurred in replacing or restoring such documents;
(d) dishonest or fraudulent acts or omissions by broker's
employees or former employees.
(3) The indemnity cover --
(a) shall be on a yearly basis for the entire period of
licence;
(b) shall not contain any terms to the effect that payments
of claims depend upon the insurance broker having first
met the liability;
(c) shall indemnify in respect of all claims made during
the period of the insurance regardless of the time at
which the event giving rise to the claim may have
occurred.
Provided that an indemnity insurance cover not fully
conforming to the above requirements shall be permitted
by the Authority in special cases for reasons to be
recorded by it in writing.
(4) Limit of indemnity for any one claim and in the aggregate
for the year in the case of insurance brokers shall be as
follows :
Category of Limit of indemnity
Insurance broker
(a) Direct broker three times remuneration
received at the end of every
financial year subject to a
minimum limit of rupees fifty
lakhs.
(b) Reinsurance broker three times remuneration
received at the end of every
financial year subject to a
minimum limit of rupees two
CS(OS) No.1085/2007 Page 13 of 24
crores and fifty lakhs.
(c) Composite broker three times remuneration
received at the end of every
financial year subject to a
minimum limit of rupees five
crores.
(5) The un-insured excess in respect of each claim shall not
exceed five percent of the capital employed by the
insurance broker in the business.
(6) ....
(7) ....‖
18. The senior counsel for the plaintiff has argued (i) that as per
Regulation 2(e) supra, the plaintiff as a direct broker "acts as such, for a
remuneration"; (ii) that the plaintiff as an insurance broker within the
meaning of Regulation 2(i) supra is licensed to "for a remuneration, arrange
insurance contract with insurance companies and/or reinsurance companies
on behalf of his clients"; (iii) that the plaintiff, as per Regulation
19(1)(A)(i)(a) supra, is entitled to be paid on direct general insurance
business, brokerage @ 10% of the premium; (iv) that it is the plaintiff who
as a direct broker becomes liable to the client i.e. UPSRTC and it is for this
reason only that the plaintiff vide Regulation 24 is required to obtain
indemnity insurance.
19. I have considered the aforesaid contentions and am unable to interpret
the provisions cited as statutorily creating a liability of the insurance
company in favour of a broker licensed by IRDA.
20. All that the Regulations do is (a) to control and limit the persons
entitled to practice as insurance broker, by requiring them to be licensed by
CS(OS) No.1085/2007 Page 14 of 24
IRDA; (b) to enable the insurance broker to charge remuneration therefor;
and, (c) to put a cap on the remuneration of the insurance broker. The same
cannot be read as creating a liability of the insurance company to pay any
remuneration to the broker for the insurance business, even if brought by the
insurance broker to the insurance company.
21. Insurance, for long (till it was opened to the private sector) was
considered as a welfare measure for the citizens of the country and to ensure
that citizens reaped benefit thereof, was nationalised vide the General
Insurance Business (Nationalisation) Act, 1972 confined to the public sector.
Even after the same was opened to the private sector, it is a regulated
business. The rates, advantages, terms and conditions that may be offered by
insurers are controlled by the Tariff Advisory Committee constituted under
Section 64U of the Insurance Act. Though middlemen as brokers have been
permitted to function for remuneration but since their remuneration is to
ultimately flow from the insurance premium charged, need for putting a cap
thereon was felt to ensure that the insured is not prejudiced. The use of the
words "for remuneration" in Regulation 2(e)&(i) is only an enabling
provision permitting the insurance brokers to earn remuneration and in the
absence whereof they would not be entitled to as Sections 31A & 40 of the
Insurance Act prohibited the same. Even now Section 31B prohibits the
insurer from, in respect of insurance business transacted, paying any
remuneration in excess of that specified in the Regulations. Neither
Regulation 2(e) & (i) providing the definitions nor Regulation 3 providing
for the functions of a direct broker are concerned with remuneration if any
payable by the insurance company to the insurance broker. Similarly, merely
because the insurance broker is made liable to perform the prescribed
CS(OS) No.1085/2007 Page 15 of 24
functions for his / her clients and is made liable for the claims if any of the
clients qua the functions performed by the insurance broker, cannot lead to
any inference in law that the insurance company is liable to the insurance
broker for any remuneration.
22. During the hearing, the counsel for the plaintiff, on specific query,
whether in the event of the client / insured suffering a loss insured against,
the claim of the client/insured would be against the insurance broker or
against the insurance company states that the claim would be against the
insurance company but if the claim is denied for any reason attributable to
the insurance broker, the client / insured would be entitled to maintain a
claim against the insurance broker in terms of Regulation 24 aforesaid.
23. Similarly, merely because Regulation 19 provides for the maximum
rates of remuneration, does not, in my opinion, make the insurance company
ipso facto liable to pay brokerage at the rate prescribed therein to the
insurance broker. The same becomes evident from the prohibition therein
from the insurance broker being "paid or contracted with to be paid"
remuneration exceeding the rates provided therein. The purport of
Regulation 19 is to cap the remuneration which the insurance broker can
earn and not to make the insurance companies as the defendant statutorily
liable to pay to the insurance broker.
24. The very fact that Regulation 19 provides a cap is indicative of the fact
that the remuneration can be less than the maximum provided therein. The
remuneration thus necessarily has to be a matter of contract between the
broker and the insurance company and unless the broker establishes such
contract and which plea though taken in the plaint has been given up by the
CS(OS) No.1085/2007 Page 16 of 24
plaintiff, the insurance broker cannot maintain a claim against an insurance
company for remuneration.
25. Faced therewith, the senior counsel for the plaintiff contends that
Regulation 19, besides using the expression "contracted to be paid" also uses
the word "paid". The senior counsel contends that the use of the word
"paid" creates a liability.
26. I am unable to agree. Merely because there is a bar of payment in
excess of the rates provided cannot be read as mandating a payment.
27. The Supreme Court in Vishwanath Sood Vs. Union of India (1989) 1
SCC 657 was concerned with a clause in a contract providing for
compensation not exceeding 10% of the estimated cost of work being
recoverable. It was held that use of such language conferred the deciding
authority with a wide margin of discretion, who may not only reduce the
percentage but who can even reduce it to nil if the circumstances so warrant.
Similarly, in High Court of Judicature For Rajasthan Vs. Veena
Verma (2009) 14 SCC 734 where the Service Rule provided a maximum
limit for direct recruits, it was held that there is no minimum quota and it is
entirely in the discretion of authorities concerned to decide how much
percent of the total vacancies will be allotted to direct recruits, provided that
the maximum prescribed is not exceeded. The provision in the Stamp Act,
1899 empowering the Collector to levy penalty not more than ten times the
duty payable, was also in Peteti Subba Rao Vs. Anumala S.
Narendra (2002) 10 SCC 427 held to be not obliging the Collector of
Stamps to impose the maximum duty; it was held that the Collector has the
discretion, depending upon the facts of the case to impose less than ten times
CS(OS) No.1085/2007 Page 17 of 24
penalty.
The aforesaid judgments were followed by me in Essar Steel Ltd. Vs.
Union of India (2011) 184 DLT 700 to hold that the words "a maximum
quantity of 5 mmscmd" in the decision of allocation of natural gas could not
be read as creating an entitlement to the said quantity. Reference in addition
may also be made to S.C. Magavi, Haveri Vs. Commissioner of Income
Tax, Mysore 1966 SCC OnLine Kar 228 (DB) holding that the provision for
imposing maximum penalty does not prevent imposition of less than
maximum and to M/s Fertilizer Corporation of India Ltd. Vs. The State of
Bihar 1974 SCC OnLine Pat 72 (FB) holding that the words "extend to" in a
provision empowering imposition of penalty did not prevent the authority
concerned from choosing to not impose any penalty.
28. As far as the plea of the senior counsel for the plaintiff, of the
defendant having paid remuneration to the plaintiff qua other insurance
business brought by the plaintiff to the defendant and at the rate of 10% of
the premium and without any contract in writing is concerned, the counsel
for the defendant has argued (a) that the defendant as a matter of policy does
not pay brokerage on the kind of insurance subject matter of this suit i.e.
insurance of public vehicles against third party claims and that too
government vehicles; (b) that with respect to the insurance business qua
which there is no such policy decision against payment of brokerage, the
defendant pays brokerage as per its policy decision from time to time.
29. The senior counsel for the plaintiff has in this regard also drawn
attention to Ex.DW-1/P-2 being the internal Circular dated 26th March, 2003
of the defendant enclosing a copy of the Regulations together with the
CS(OS) No.1085/2007 Page 18 of 24
Administrative Instructions and has in particular drawn attention to the
Administrative Instruction 3 providing the code under which remuneration
would be paid to the brokers and to Administrative Instruction 4(ii)(B)
providing the manner in which the brokerage / commission would be worked
out.
30. I am afraid, the administrative instructions are being misread. The
relevant administrative instruction is Administrative Instruction 4, relevant
part whereof is as under:
―4. The maximum remuneration as brokerage fee payable to
the brokers as per IRDA is as under:-
(i) In respect of fire and engineering classes of
business of Govt. and Public Sector undertakings,
no brokerage is to be paid. The business from
these classes of customers will be placed directly
by them with the insurance companies. This
category of customers will continue to get a 5%
discount on the basic tariff applicable. Public
sector undertakings will be those companies or
organisations as are covered by Section 617 of
Companies Act, 1956.
(ii) In respect of other insures (sic. insured)(excluding
Govt. and PSUs), the brokerage will be...‖
31. The aforesaid Administrative Instruction clearly spells out the policy
decision pleaded by the defendant in its written statement, of no brokerage
being payable in respect of fire and engineering classes of business of
Government and Public Sector Undertakings (PSUs) and, while providing
the rates of brokerage payable in other cases, excluding Government and
PSUs. It is not in dispute that UPSRTC, if not Government, is a PSU.
CS(OS) No.1085/2007 Page 19 of 24
32. The aforesaid document has been produced by the plaintiff and was
put by the counsel for the plaintiff to the witness of the defendant. The
plaintiff was thus well aware of the said policy decision of the defendant and
has notwithstanding the same, first pursued the winding up petition and now
this suit.
33. Even otherwise, merely because the defendant may, even without a
written agreement, pay brokerage to the plaintiff qua other businesses
brought by the plaintiff, would not entitle the plaintiff to brokerage qua the
subject business. Merely because the defendant, even without a written
agreement, pays brokerage to the plaintiff for other businesses qua which it
has policy decision to pay brokerage and at the rates determined
administratively, cannot make the defendant liable for payment of brokerage
for other businesses qua which it has policy decision not to pay any
brokerage. It cannot be lost sight of that the defendant is a PSU and is to
abide by the principles of Article 14 of the Constitution of India and cannot
contract arbitrarily and cannot discriminate between brokers. Payment of
brokerage without any written contract, by the defendant to the plaintiff, in
accordance with the policy decision of the defendant cannot in the absence
of contract make the defendant liable for brokerage qua other business where
it has policy decision not to pay any brokerage.
34. The counsel for the defendant in this regard also draws attention to
answer to a question put by the counsel for the defendant to the witness of
the plaintiff during the cross-examination recorded on 22nd October, 2013
where the Director of the plaintiff admitted that there is no bar / prohibition
on the insurance company deciding not to pay brokerage on a particular
CS(OS) No.1085/2007 Page 20 of 24
business.
35. It is also the contention of the counsel for the defendant that the
Regulations nowhere provide for a contract.
36. In my opinion, for it to be held that a contract of payment of brokerage
is required, there is no need for looking into the Regulations. The licence
issued by IRDA only entitles the plaintiff to act as a broker and without
which licence, none can act as a broker. No provision has been shown which
makes the plaintiff ipso facto entitled to any brokerage on any insurance
business brought by it to an insurance company. Mere provision for ceiling
on the rates of brokerage which may be paid to the broker does not make
payment of brokerage mandatory. If the Regulations were to be read so, it
would make the insurance companies liable for claims of brokers of having
procured the insurance business which the insurance companies may have
procured themselves. The relationship between the insurance company and a
broker essentially has to be contractual. For insurance covers for which the
administrative instructions / policy of the insurance company do not provide
for any standard rates of brokerage, they will still have to be negotiated
between the broker and the insurance company.
37. Since during the course of arguments, the senior counsel for the
plaintiff had referred to certain other portions of the oral evidence also but
which in the light of the findings aforesaid are now no longer relevant. I
have before closing the finding on this issue, enquired from the counsel for
the plaintiff, whether he desires any other part of the record to be dealt with.
38. The counsel for the plaintiff has only stated that the insurance business
is a business of good faith and the plaintiff as an insurance broker had acted
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in a good faith.
39. The principle of uberrima fides applicable to insurance is between the
insured and the insurer and not between the broker and the insurer. No merit
is thus found in the said contention.
40. Accordingly, I answer Issue No.3 by holding that the plaintiff has
given up the claim of any agreement with the defendant for payment of
brokerage by the defendant to the plaintiff and the defendant is otherwise not
found liable under the provisions of the Regulations or by way of custom or
practice to pay any brokerage / commission to the plaintiff. The Issue No.3
is thus decided in favour of the defendant and against the plaintiff.
41. The Issue No.3 having been decided against the plaintiff, Issue No.4
has to be axiomatically decided against the plaintiff.
42. That leaves the technical Issues No.1&2 which though in view of
finding aforesaid are not required to be decided but in accordance with Order
XIV Rule 2 of the Code of Civil Procedure, 1908 (CPC) requiring this Court
as the Suit Court to return finding on all the issues, have also to be decided.
43. The counsel for the defendant has argued that the plaintiff has not
proved the resolution of its Board of Directors authorising institution of the
suit or the power of the signatory of the plaint to sign and verify the plaint.
44. The counsel for the plaintiff states that the extract of the resolution of
the Board of Directors has been proved as Ex.PW1/1.
45. The counsel for the plaintiff, on enquiry, whether the original minutes
book was brought on the date when exhibit mark was put on the extract of
the resolution or when the affidavit by way of examination-in-chief was
CS(OS) No.1085/2007 Page 22 of 24
tendered, fairly states that it was not brought. He further points out that on
the date when the sole witness of the plaintiff was cross-examined by the
counsel for the defendant including on the said aspect, the witness had not
carried the original minutes. He however states that the witness was never
asked to produce the same.
46. Though it was for the plaintiff itself to have, while tendering the said
document into evidence, produced the original minutes book before the
Court and which in this case has not been produced but I am otherwise of the
view that it being not in dispute that the registration as a licensed broker by
IRDA is of the plaintiff and the plaintiff was a broker in the subject
insurance effected by the defendant and the fact that the money if any in the
event of the plaintiff succeeding in the suit would have been paid by the
defendant in the name of the plaintiff, the aforesaid technicalities should not
be allowed to come in the way of the plaintiff. Even otherwise, during the
hearing it has transpired that though the parties after leaving the jurisdiction
of the winding up Court chose the jurisdiction of the Civil Court but have not
proved most of the documents by satisfying the technicalities of the CPC and
the Evidence Act, 1872. It has been the experience that if these technicalities
are to be observed, a large number of suits would be decreed or defeated on
such grounds alone. I therefore do not deem it appropriate to defeat the
claim of the plaintiff, found to be otherwise not tenable, on this account.
Accordingly, Issue No.1 is decided in favour of the plaintiff and against the
defendant.
47. The counsel for the defendant states that in view of the aforesaid, he is
not pressing Issue No.2 qua limitation, reserving his right to press the same if
CS(OS) No.1085/2007 Page 23 of 24
the plaintiff goes in appeal and if the need arises.
48. Thus, no finding is retuned on Issue No.2.
49. The suit is accordingly dismissed.
50. No costs.
Decree sheet be prepared.
RAJIV SAHAI ENDLAW, J.
FEBRUARY 06, 2017 bs (corrected & released on 22nd February, 2017) CS(OS) No.1085/2007 Page 24 of 24