Madhya Pradesh High Court
Naseem Bano And Ors. vs L.I.C. Of India And Ors. on 16 April, 2004
Equivalent citations: III(2004)BC472, 2004(3)MPHT358
Author: S.K. Seth
Bench: S.K. Seth
JUDGMENT S.K. Seth, J.
1. This appeal by the plaintiff is against the judgment and decree dated 29-10-1993 passed by the Vth Additional District Judge, Indore in Civil Suit No. 142-B/86. By the impugned judgment and decree, the suit preferred by the plaintiffs was dismissed and it was held that the plaintiffs are not entitled to recover any amount either from respondent No. 1 or from respondent Nos. 2 and 3.
2. Facts necessary for the disposal of this appeal lie in a narrow compass. One Abdul Gaffar, an employee of respondent Nos. 2 and 3, took out an insurance policy on 28-3-1984 under the "Salary Saving Scheme" floated by the LIC, respondent No. 1. He was allotted policy No. S/57622245 and the monthly premium was fixed at Rs. 59.10. The first two premiums were paid by Abdul Gaffar. Under the insurance policy, the amount of premium was to be deducted by the MPSRTC from the monthly salary of Abdul Gaffar and remitted by it to the LIC under the authorisation issued by Abdul Gaffar in favour of the Depot Manager of the MPSRTC. Abdul Gaffar died on 2-8-1984. Appellant No. 1, Naseem Bano, the widow of Abdul Gaffar and the nominee under the policy, informed the LIC of the death of her husband and requested for the payment of amount due under the policy. LIC disclaimed any liability for payment under the policy as the instalments of the premium from May, 1984 were not received by it. LIC, therefore, repudiated the claim of Naseem Bano. LIC claimed that since the default has been committed for payment of premium, the policy taken out by Abdul Gaffar lapsed. Similarly respondent Nos. 2 and 3 disowned any liability, which compelled the plaintiffs who are the legal representatives of deceased Abdul Gaffar to institute the suit for recovery of the sum assured under the policy together with interests as mentioned hereinabove.
3. Plaintiffs' claim was resisted by the respondents herein. LIC, respondent No. 1 in its written statement admitted that Abdul Gaffar had taken out a life insurance policy on 28-3-1984 under the 'Salary Saving Scheme'. It was also not disputed by the LIC that Abdul Gaffar paid the initial premium amount and also had issued the authorization in favour of Depot Manager to deduct the monthly instalment of premium from his monthly salary. Nomination of appellant No. 1 to receive the sum assured under the policy was also not disputed. It was further not disputed that Abdul Gaffar died on 2-8-1984 and intimation in writing in this regard was given to by appellant No. 1 on 7-8-1984 while demanding the payment of the sum assured. LIC repudiated the claim on the ground that as respondent Nos. 2 and 3 failed to deduct and remit to it the monthly instalments from the salary of May to June, 1984, therefore, policy had lapsed. It was alleged that no efforts were made by the late Abdul Gaffar to ensure the remittance of premium by his employer therefore he alone was responsible for the consequences ensuing from such default. It was obligatory on the part of Abdul Gaffar to pay the instalments therefore also the LIC is discharged from its liability to make any payment. Respondent Nos. 2 and 3 in their written statement denied any liability to pay the amount inasmuch as they specifically denied that Abdul Gaffar had taken out any insurance policy. They also denied that any authorisation was given by Abdul Gaffar to the Depot Manager for deducting the monthly premium from the salary. With these pleadings parties went to the trial. The following issues were struck by the Trial Court :--
(i) Whether deceased Abdul Gaffar during his life time had taken out a life insurance policy for a sum of Rs. 15,000/-on 28-3-1984 under the Salary Saving Scheme floated by respondent No. 1 ?
(ii) Whether Abdul Gaffar had agreed for the deduction of the monthly premium of Rs. 59.10 from the monthly salary by respondent No. 3 for remittance to respondent No. 1 ?
(iii) Whether Abdul Gaffar died on 2nd of August, 1984 ?
(iv) Whether the plaintiffs are entitled to recover Rs. 15,000/- a sum assured together with interest @ Rs. 1.50% per month from 2-8-1984 to 31-7-1984 amounting to Rs. 8,100/- and notice costs Rs. 100/- ?
(v) Whether Abdul Gaffar had suppressed material information with regard to his previous ailment while obtaining the life insurance policy and if so whether this disentitles the plaintiffs to claim the sum assured from respondents ?
(vi) Whether the policy had lapsed on account of failure of the life assured to pay the monthly premium ?
4. In support of the claim, Naseem Bano appellant No. 1 examined herself as P.W. 1. On behalf of respondent No. 1 Shantakumar was examined as D.W. 1. No evidence was led by respondent Nos. 2 and 3. After scanning the evidence both oral as well as documentary led on behalf of appellants and respondent No. 1, learned Trial Court answered issue Nos. 1 to 3 in the affirmative, i.e., in favour of the plaintiffs and against the respondents. As regards issue No. 5, it was found by the Trial Court that respondent No. 1 could not prove that Abdul Gaffar had suppressed any material fact/information at the time of taking out the insurance policy. As a result, it was held that on this ground the plaintiffs could not be denied of their claim. As regards issue Nos. 4 and 6, learned Trial Court found that deceased had paid first two instalments of the premium. Deceased had also given authorisation to the Depot Manager for deduction of the future monthly instalments of premium from his salary. It was also found that the monthly instalment was not deducted from the monthly salary of Abdul Gaffar for the month of May, June and July by respondent Nos. 2 and 3. Thus, learned Trial Court found that on account of non-payment of premium, either by the life assured or by respondent Nos. 2 and 3, the policy had lapsed and as such respondent No. 1 was not liable to pay any amount. It was also held by the Trial Court that since the policy had lapsed on account of non-payment of premium by the life assured during his life time, therefore, respondent Nos. 2 and 3 can not be saddled with liability and as such they can not be held liable for the damages or asked to compensate the plaintiffs. Thus, the entire suit was dismissed with cost.
5. Learned Counsel appearing for the appellants submitted that Trial Court erred both in law and facts in holding that respondents were not liable to pay to the appellants' sum assured under the policy together with interests as claimed in the suit. He contended that after making payment of the initial premiums, Abdul Gaffar had duly issued the authorization letter in favour of the Depot Manager to deduct the monthly instalment of premium from his monthly salary and deposit the authorization, if amount was not deducted and remitted by respondent Nos. 2 and 3, the plaintiffs could not be deprived of the benefits of the policy. It was further contended that under the Scheme floated by the respondent No. 1, the employer had agreed to remit monthly instalments after deduction without any charges, and then in such a situation respondent Nos. 2 and 3 were acting as an agent of the respondent No. 1, and the condition that if the employer fails to deduct the monthly instalment of premium it was for the assured to intimate the insurer is not practicable. He, thus assailed the judgment and decree and submitted that impugned judgment and decree is unsustainable in law and deserves to be set aside and suit must be decreed with costs throughout. Per Contra, learned Counsel appearing for respective respondents supported the impugned judgment and decree and prayed for dismissal of the appeal.
6. After having heard learned Counsel for the parties, and going through the material available on the record, in the considered opinion of this Court, there is merit and force in the contentions of learned Counsel for the appellant and as such this appeal deserves to be allowed.
7. The point for consideration in this appeal is whether the respondent No. 1 was justified in repudiating the policy and its liability to pay the sum assured on the ground of non-payment of monthly instalments by the respondent Nos. 2 and 3 ?
8. Before adverting to the point of consideration, it would be relevant to notice that Insurance Policy is Ex. P-1; Receipt of payment of premium is Ex. P-2; Notice sent on behalf of plaintiff is Ex. P-3 and reply of respondent No. 1 to the said notice is Ex. P-4. Ex. D-5 is the authorization letter given by late Abdul Gaffar to the Depot Manager to make monthly deductions from salary for payment of premium instalments; Ex. D-6 is letter sent by respondent No. 1 to the Depot Manager together with name and the demand list in respect of those employees whose proposals were accepted by the respondent No. 1 under the "Salary Saving Scheme" applicable to the respondent Nos. 2 and 3 requesting regular deductions from the salary of those employees. In this, name of late Abdul Gaffar is mentioned at Sl. No. 2. These facts are no longer in dispute between the appellants and the respondent No. 1. In the back drop of these undisputed facts, in the considered opinion of this Court, Trial Court rightly held in favour of plaintiffs on the issue Nos. 1 to 3 supra. Similarly, in view of the evidence of Shantakumar (D.W. 1), it was rightly held by the Trial Court that no material fact/information was withheld or suppressed by the deceased at the time of submission of proposal so as to enable the respondent No. 1 to repudiate its liability under Section 45 of Insurance Act. Scope of Section 45 was considered by the Supreme Court in LIC of India v. Asha Goel, AIR 2001 SC 549, wherein it was held that looking to restrictive nature of the section, burden of proof is on the insurer to establish three conditions as mentioned in the second part of the section and unless the insurer is able to do so, there is no question of policy being avoided on the ground of misstatement of facts. In the case in hand, from the evidence of D.W. 1 it is clear that Abdul Gaffar was medically examined by Dr. A.K. Jhaveri before proposal was accepted. In the medical examination no ailment was detected. Thus, it is clear that there was no concealment or misrepresentation of facts on the part of late Abdul Gaffar when he submitted the proposal and the respondent No. 1 could not avoid the policy on that count.
9. The ground which swayed the Trial Court to non suit appellants as mentioned hereinabove was the default committed by the employer regarding non-payment of monthly instalments of premium and in that eventuality was Abdul Gaffar responsible for payment of premiums to keep alive the policy ?
10. A similar 'Endorsement' annexed to Insurance Policy issued by the respondent No. 1 under "Salary Saving Scheme" came up for consideration of Supreme Court in Delhi Electric Supply Undertaking v. Basanti Devi, reported in (1999) 8 SCC 229. After the threadbare examination of the Scheme and the Endorsement, Supreme Court held as under in Paragraph 6 :
"6. The endorsement shows that the premium deducted by DESU from the salaries of the employees and remitted to LIC is without any charge. When the employee leaves the employment of the said employer or his premium is ceased to be collected and/or remitted to LIC this fact is to be intimated by the employee to LIC. When the Scheme (Salary Saving Scheme) is withdrawn it is LIC which intimates that fact to the employee whose life has been insured. Then premium is payable with an extra charge. This endorsement is in conflict with the terms of the Scheme as spelled out in the brochure. Considering the conditions as to how premium is to be deducted from the salaries of the employees and remitted to LIC by DESU by one cheque for all the employees with the reconciliation statement it is not possible for any employee to know if the amount of the premium deducted from his salary has been remitted or not. An employee is not being given any separate premium notice nor is he given any receipt for the premium received. If a condition is now placed on the employee that it is he who is to intimate LIC if there is no remittance of the premium deducted by DESU it will be too onerous a condition to be of any validity. Considering the Scheme such a condition can not be imposed on an employee. It is impracticable. A purposive interpretation has to be given to the endorsement and it has to be held that since payment of premium after deducting from the salary of the employees is between DESU and LIC, it will not be for the employee to intimate LIC about non-remittance of the premium."
11. In the aforesaid case, Supreme Court held that under the Scheme it was the sole responsibility of the employer to collect premium and remit the same to LIC. After distinguishing earlier two decisions reported in (1997) 5 SCC 64 and (1996) 8 SCC 655, Court held that DESU was not acting as an insurance agent of the LIC under the Insurance Act or Regulations made thereunder, but only as an agent as defined under Section 182 of the Contract Act under the general principle of law of agency. After coming to this conclusion, it was further held by the Supreme Court that so far employee is concerned, after having authorised the employer to make the deductions from the monthly salary, the employer is an agent of the LIC to collect premium on its behalf and nothing more is required from him, as would be clear from the following extract of the judgment :--
"12. Agent in Section 182 means a person employed to do any act for another, or to represent another in dealings with third persons and the person for whom such act is done, or who is so represented, is called the principal. Under Section 185 no consideration is necessary to create an agency. As far as Bhim Singh is concerned, there was no obligation cast on him to pay premium direct to LIC. Under the agreement between LIC and DESU, premium was payable to DESU who was to deduct every month from the salary of Bhim Singh and to transmit the same to LIC, DESU had, therefore, implied authority to collect premium from Bhim Singh on behalf of LIC. There was, thus, valid payment of premium by Bhim Singh. The authority of DESU to collect premium on behalf of LIC is implied. In any case, DESU had ostensible authority to collect premium from Bhim Singh on behalf of LIC. So far as Bhim Singh is concerned DESU was an agent of LIC to collect premium on its behalf."
It was further held as under :--
"14. We do not think the decision of this Court in Harshad J. Shah v. LIC of India, (1997) 5 SCC 64, has any application in the present case before us. Formation of the contract of insurance is between LIC and the employee of DESU. Scheme has been introduced by LIC purely on business considerations and not for any particular benefit of insurance conferred on the employee working in an organisation. Though in the pro forma letter written by DESU to LIC it is mentioned that DESU would be an agent of its employee and not that of LIC but this understanding between LIC and DESU was not communicated or made known to the employee. As far as the employee is concerned he is told that premium will be deducted from his salary every month and remitted by DESU to LIC under an agreement between LIC and DESU. For the employee of DESU, therefore, DESU had implied authority as an agent of LIC to collect premium on its behalf and then pay to LIC. There is nothing on the record to show that Bhim Singh was ever made aware of the fact that DESU was not acting as an agent of LIC. Rather in the nature of the Scheme, the employee was made to believe that it is the duty of the employer though gratuitously cast on him by LIC to collect premium by deducting from the salary of each employee covered under the Scheme every month and to remit the same to LIC by means of one consolidated cheque. Now it could be said that DESU would not be liable as an agent of its principal, i.e., LIC and also it was rendering service of collecting the premium and remitting the same to LIC free of any cost to the employee. As to what is the arrangement between LIC and DESU the employee is not concerned. In these circumstances DESU can not perhaps be held liable under the Act. But then the question arises if the widow of Bhim Singh can be left high and dry in this legal rigmarole when it is clear that as far as Bhim Singh was concerned he did pay the premium and it was the fault of the agent of LIC, i.e., DESU in not remitting the premium in time. In these circumstances LIC was wrongly discharged of its liability under the insurance policy taken out by Bhim Singh ......................"
12. The law laid in the aforesaid decision of the Supreme Court squarely applies to facts of the case in hand therefore conclusion is inevitable . that respondent Nos. 2 and 3 under the general principle of agency, were acting as agent of the respondent No. 1 to collect the premium from the salary of the deceased for remittance to LIC. In the case in hand it stands established that Abdul Gaffar had taken out a Policy under the Salary Saving Scheme. He had issued authority letter duly authorising the Depot Manager to deduct the monthly instalments of premium of the monthly salary. His name was also shown in the demand note Ex. P-6. So far as Abdul Gaffar was concerned, he had no reason to disbelieve that respondent Nos. 2 and 3 would not act as an agent of respondent No. 1 and jeopardize the policy. He was not concerned with what arrangements were internally made between the LIC and the MPSRTC. When the MPSRTC had the authority to deduct and remit the monthly instalment under the general principle of agency, then in such situation, it is not open for the respondent No. 1 to repudiate the policy or to avoid it on technical ground that the policy has lapsed specially when admittedly no steps or actions were taken to intimate Abdul Gaffar with regard to the alleged non remittance of monthly instalment of premium by the respondent Nos. 2 and 3. The respondent No. 1 can not escape from the consequences ensuing from the acts of commission or omission of the respondent Nos. 2 and 3 who were acting as its agent under the general principle of agency, as has been held by the Supreme Court (supra). Thus, in the considered opinion of this Court, Trial Court committed an illegality in discharging the respondent No. 1 from its liability to pay the sum assured as per Ex. P-1 to nominee of the deceased Abdul Gaffar.
13. In view of the foregoing discussion, the appeal preferred by the appellants succeeds and is hereby allowed and the impugned judgment and decree of the Trial Court is hereby set aside. The suit filed by the appellants/ plaintiffs is hereby decreed with costs throughout. Counsel fee Rs. 2500/-, if certified.