State Consumer Disputes Redressal Commission
Mst. Ahan Luc Menezes Pinto vs Mr. Rahul Bajaj on 16 April, 2013
BEFORE THE GOA STATE CONSUMER DISPUTES REDRESSAL COMMISSION PANAJI GOA C.C. No. 11/2007 Mst. Ahan Luc Menezes Pinto represented by its guardian Mrs. Rashmi Menezes represented in this act through its power of attorney holder Mr. Cesar Menezes, Wallace Pharmaceuticals Pvt. Ltd., 3rd floor, DTC Building Patto Plaza, EDC Complex Panaji-Goa. .Complainant V/s. 1. Mr. Rahul Bajaj Chairman Bajaj Allianz Life Insurance Co. Ltd., GE Plaza, Airport Road, Yerawada, Pune 411006. 2. Regional Manager Bajaj Allianz Life Insurance Co. Ltd., 4th & 5th floor, Ashoka Plaza, Corporate Software Park Survey No. 32/3, Nagar Road Viman Nagar Pune 411 014. 3. Manager Bajaj Allianz Life Insurance Co. Ltd., 2nd Floor, Akshaya Commercial Complex # 26 Victoria Road Bangalore-47 Ph 080-51126070. 4. Mr. Prakash D.M. No. 8, 5th Cross, Eswara Layout Indira Nagar Bangalore 560 038. 5. Bajaj Allianz Life Insurance Co. Ltd., Magnum Centre 2nd floor, Behind S.B.I. (Main Branch) M.G. Road, Panaji Goa 403001. .Opposite Parties C.C. No. 12/2007 Mrs. Rashmi Menezes represented in this act through its power of attorney holder Mr. Cesar Menezes, Wallace Pharmaceuticals Pvt. Ltd., 3rd floor, DTC Building Patto Plaza, EDC Complex Panaji-Goa. .Complainant V/s. 1. Mr. Rahul Bajaj Chairman Bajaj Allianz Life Insurance Co. Ltd., GE Plaza, Airport Road, Yerawada, Pune 411006. 2. Regional Manager Bajaj Allianz Life Insurance Co. Ltd., 4th & 5th floor, Ashoka Plaza, Corporate Software Park Survey No. 32/3, Nagar Road Viman Nagar Pune 411 014. 3. Manager Bajaj Allianz Life Insurance Co. Ltd., 2nd Floor, Akshaya Commercial Complex # 26 Victoria Road Bangalore-47 Ph 080-51126070. 4. Mr. Prakash D.M. No. 8, 5th Cross, Eswara Layout Indira Nagar Bangalore 560 038. 5. Bajaj Allianz Life Insurance Co. Ltd., Magnum Centre 2nd floor, Behind S.B.I. (Main Branch) M.G. Road, Panaji Goa 403001. .Opposite Parties Complainants are represented by Adv. Shri. S. M. Singbal. O.P Nos. 1,2,3 and 5 are represented by Adv. Shri. U.R. Timble. O.P. No. 4 exparte. Coram: Shri Justice N.A. Britto, President Smt. Vidhya R. Gurav, Member Dated: 16/04/2013 ORDER
[Per Shri. Justice N. A. Britto, President] These complaints can conveniently be disposed off by this common order as facts are similar and the law applicable thereto is the same.
2. The complainant Master Ahan Luc Menezes Pinto was about two years of age while complainant Mrs. Rashmi Menezes was about 30 years of age. The complainant Master Ahan Luc Menezes Pinto is represented by his guardian Mrs. Rashmi Menezes while the latter is represented by her attorney Mrs. Cesar Menezes. We assume that complainant Mrs. Rashmi Menezes is the Director of Wallace Pharmaceuticals Pvt. Ltd., while the said Mr. Cesar Menezes is its Managing Director.
3. The complainants obtained from O.P. No. 3Bajaj Allianz Life Insurance Company Ltd., through their agent O.P. No. 4 Mr. Prakash D.M., unit linked Life Insurance Policies known as Allianz Bajaj unit gain policies for a sum of Rs. 50 lacs each and paid annual premium of Rs. 10 lacs each for the first three years on 17/05/04, 29/06/05 and 13/03/07, respectively.
4. The complainants got a statement of their account on or about 17/07/07 which showed an amount of Rs. 25,65,810.03 when the complainants had paid a sum of Rs. 30 lacs each. The complainants, therefore, sent a letter dated 31/07/07 to the grievance redressal officer of O.P. No. 3 asking as to how the amount was reduced to Rs. 25,65,810.03, but, the complainants received no response. The complainants then sent a notice dated 17/09/07 to O.P. No. 3 to refund the sum of Rs. 30 lacs with interest at the rate of 12% and the complainants got a reply dated 24/09/07 stating that the policies were issued on the basis of the proposal form filled and signed by them. The complainants were informed that they could surrender the policies as they had completed three years.
5. The complainants on or about 17/09/09 surrendered the policies and the complainants received a sum of Rs. 26,29,700/- out of Rs. 30 lacs invested by them. The O.Ps have tried to claim that in case the complainants had surrendered their policies earlier on 01/01/2008 they could have got Rs. 33,24,250/- as per the prevailing rate of units or in case they had surrendered a little later on 01/01/11 they could have got Rs. 31,99,291/-, as per the prevailing rate of units, on those dates. The complainants therefore seek to recover from the O.Ps the loss suffered by them of Rs. 3,70,300/- (on each policy) with interest at the rate of 12% from the date of payment.
6. Each of the policies of Rs. 50 lacs taken on behalf of each of the complainants declared, vide clause 2, that the policies are on whole life regular premium paying unit linked life Insurance policies. Clause 3.1 declared that death benefit was payable. The policy being open ended has no fixed maturity date. (Cl. 3.2) Clause 6.2 of the policy document dealt with premium allocation and stated that the nominal value of the units is Rs. 10/- each.
Units are allocated to the policy depending on the amount of premium paid, the allocation rate as set out in table 1 and the prevailing offer price of each unit. Such allocations may be made up to 1/10,000th of unit or such other fraction as the Company may decide from time to time.
Table 1:
Policy year 1 2 3 4th year onwards Allocation Rate (Regular Premium) 30% 98% 99% 100% All Top Ups are allocated at 100% 6.1. Clause 14 of the policies provided for free look in period; and it stipulated that the policy may be cancelled by written request and by returning the policy to the Company within fifteen days from the date of receipt of the policy by the policyholder.
The amount be refunded shall be premium paid less the cost of Insurance, stamp fee charges and any expenses incurred for medical examination. The policies also provided an option to surrender. Surrender penalties were to be levied 100% for the first three years in as much as no partial withdrawal was also allowed in the first three years.
7. The complainants filed the complaints with the allegation that O.P. No. 4 Mr. Prakash, the agent of O.P. No. 3 Bajaj Allianz Life Insurance Company Ltd., approached the complainants at their residence in Donapaula, Goa, and convinced the complainants into buying the said policies stating that there would be minimum of 30% of returns annually and that on the basis of the said representation that the complainant purchased the said policies and also based on the higher reputation of the Company.
The complainants, initially suspected, that O.P. No. 4 Mr. Prakash collected commission of Rs. 10 lacs but now it is come on record that the agent Mr. Prakash, O.P. No. 4, was paid commission of Rs. 40% i.e Rs. 4 lacs out of the first premium of Rs. 10 lacs.
7.1. The case of the O.Ps was that O.P. Nos. 1, 2 &3 could not be made personally liable and that the policies were issued by the Bangalore office of O.P. No. 5.
According to them, O.P. No. 4, Mr. Prakash, was an independent person and was duly approved to act as an agent by IRDA and he was himself responsible for any misrepresentation or misconduct made by him and other O.Ps had no connection with the same.
7.2. The said O.Ps admitted that they had received the proposal from the complainants through the said O.P. No. 4, Mr. Prakash, but they were not aware as to what had transpired between the complainant and O.P. No. 4. According to them, a customer normally opts for any products after reading and knowing the full details of such products from the relevant printed materials. The said O.Ps further stated that the very nature of the policies indicated that the gains were directly related to the prevalent unit price at the relevant time and the policies also provided for Life Insurance cover to the extent of Rs. 50 lacs.
According to the said O.Ps, out of the premium amount paid during the first year, unit of 30% value are allocated to the insured and the insured is free to opt either for units in equity fund, debt fund, cash fund and balanced fund. Out of the premium paid during the second year, units of 98% value, out of the premium paid during the third year units of 99% value and from 4th year onwards units of 100% value are allocated to the insured and these amounts are invested in the respective type of investment as opted for by the insured and if the unit value increases, the benefit goes to the insured, and if the same reduces then the corresponding loss is also to the account of the insured and after the period of three years, the insured is free to encash partially or wholly the units allocated to the insured.
7.3. According to the said O.Ps, the complainant had initially opted investment in cash fund, debt fund and balanced fund and therefore the complainant became entitled to the unit values as per the investment returns in these funds and later on 11/04/08, the complainants submitted an application to O.P. No. 5 requesting shifting of the entire investments from cash fund, debt fund and balanced fund to equity fund where at times the unit gain upsurge is very high depending on the equity market. According to them, the agents are paid commissions only as per the structure approved by Insurance Regulatory and Development Authority (IRDA).
7.4. The said O.Ps initially in their written statements failed to mention what was the commission paid. According to them, in case the complainants were not satisfied with the products, the complainants were entitled for free look cancellation of the policy within 15 days of the receipt of the policy and since the complainant failed to exercise this option, it could be safely presumed that the complainant was fully satisfied with the policy at the time when it was issued and the present complaint was by way of an afterthought.
7.5. The O.Ps stated that the fund value from Rs. 22,70,000/- had increased to Rs. 25,65,810.03. The said O.Ps stated that there was no question of returning Rs. 30 lacs with interest.
8. We have perused the records and heard the arguments of the lr. advocates on behalf of the parties. The said Shri. Cesar Menezes, who filed affidavits on behalf of complainants, was cross examined pursuant to application dated 21/11/08 and order passed thereon on 19/06/09. The affidavit dated 27/07/09 in answer to the questionnaire, in our view, is quite evasive.
The complainants also filed an application for the cross examination of the authorised Officer of the O.Ps on 19/05/09 but withdrew the same on 07/07/09 and again filed another application dated 15/03/10 which came to be dismissed by order dated 18/04/11.
Incidentally, it may be mentioned that one of the questions asked for, on behalf of the complainants, in application dated 15/03/10 was regarding the quantum of commission paid to Respondent No. 4.
Subsequently, it is come on record that the commission paid to Respondent No. 4 is 40% i.e. Rs. 4 lacs out of the first premium of Rs. 10 lacs. It may also be noted that at one stage, on behalf of the complainants, reference was made to certain proposal made by IRDA - Insurance Regulatory and Development Authority - for enhancement of agent commission but now that has been given up and reference is made to Section 40-A of the Insurance Act, 1938, which limits the expenditure on commissions to be paid to insurance agents and although there are also provisions in the Insurance Act, 1938 which limit the expenses to be paid towards management charges, etc., no reference has been made by either of the lr. advocates to such provisions.
9. Section 40-A Insurance Act, 1938 reads as follows:
40A. (1) No person shall pay or contract to pay to an insurance agent, and no insurance agent shall receive or contract to receive by way of commission or remuneration in any form in respect of any policy of life insurance issued in India by an insurer after the 31st day of December, 1950, and effected through an insurance agent, an amount exceeding-
(a) where the policy grants an immediate annuity or a deferred annuity in consideration of a single premium, or where only one premium is payable on the policy, two percent of that premium,
(b) where the policy grants a deferred annuity in consideration or more than one premium, seven and a half percent of the first years premium, and two percent of each renewal premium payable on the policy, and
(c) in any other case, thirty-five percent of the first years premium, seven and a half percent of the second and third years renewal premium, and thereafter five percent of each renewal premium payable on the policy:
Provided that in a case referred to in clause (c), an insurer, during the first ten years of his business may pay to an insurance agent and an insurance agent may receive from such an insurer, forty per cent of the first years premium payable on the policy:
Provided further that in case referred to in clause (c) where the rate of commission payable on the first years premium is equal to or less than twenty-one per cent thereof, and the rate on the fourth and fifth years premiums does not exceed six percent thereof, the Life Insurance Corporation of India may pay to an insurance agent, and the insurance agent may receive from it, commission on the sixth and subsequent years renewal premiums payable on the policy at a rate not exceeding six per cent of each renewal premium.
(2) No person shall pay or contract to pay to a special agent, and no special agent, shall receive or contract to receive, by way of commission or as remuneration in any form, in respect of any policy of life insurance issued in India by an insurer after the 31st day of December, 1950, and effected through a special agent, an amount exceeding-
(a) in a case referred to in clause(a) of sub-section(1), one-half per cent of the premium,
(b) in a case referred to in clause (b) of sub-section(1), two per cent of the first years premium payable on the policy and
(c) in a case referred to in clause (c) of sub-section (1), fifteen per cent of the first years premium payable on the policy:
Provided that in a case referred to in clause (c), an insurer, during the first ten years of his business, may pay to a special agent, and a special agent may receive from such an insurer, seventeen and a half per cent of the first years premium payable on the policy:
Provided further that in a case referred to in clause (c), where the rate of commission payable on the first years premium is equal to or less than twenty-one per cent thereof, and the rate on the fourth and fifty years premiums does not exceed six per cent thereof, the Life Insurance Corporation of India may pay to an insurance agent, and the insurance agent may receive from it, commission on the sixth and subsequent years renewal premiums payable on the policy at a rate not exceeding six per cent of each renewal premium.(3) (4)
(a)
(b) Provided (5) Without prejudice to the provisions of section 102 in respect of a contravention of any of the provisions of the preceding sub-sections by an insurer, any insurance agent who contravenes the provisions of sub-section (1) or sub-section(3) shall be punishable with fine which may extend to one hundred rupees.
10. Shri. S. M. Singbal, the lr. advocate of the complainants would submit that the complainants purchased the policies in question based on the representation made by the agent, O.P. No. 4, that the complainants would get returns of minimum 30% annually on the investments made by them and the said agent who is dully served has not contested the complaints and as such the insurer, O.P. No. 3 is vicariously liable for the said representations made by their agent. Lr.
Adv. Shri. Singbal further submits that although the policy document reflected that 30% of the first years premium would be invested in units, neither the brochure nor the policy documents disclosed as to how the insurer would deal with the balance amount of 70% or for that matter 2% in the 2nd year and non disclosure of such information would amount to unfair trade practice as defined under Section 2 (1)(r)(vi) and (ix) of the C.P. Act, 1986. Lr. advocate further submits that it is now brought on record that the insurer paid 40% of the first years premium as commission to the said agent and the same could not have been more than 15% as contemplated by Section 40A (2) of the Insurance Act, 1938. Lr. Adv. Shri. Singbal submits that the complainants ought to be compensated by making the insurer pay the balance each of the complainants lost in the sum of Rs. 3,73,300/- with interest at the rate of 9%. Lr. Adv. Shri. Singbal has placed reliance on Om Prakash vs. Assistant Engineer, Haryana Agro.
11. On the other hand, Shri. U.R. Timble, the lr. advocate of the O.Ps (except O.P. No. 4) would submit that the representation made by the agent, O.P. No. 4, is not binding on the insurer as the said agent was a duly approved agent by IRDA. Shri. Timble would then submit that the complainants had an option in terms of clause 14 of the policy documents to have a free look and cancel the policies within 15 days from the date of receipt of the policies and the complainants chose not to return or cancel the policy which would only show that the complainants were satisfied with the policies purchased by them. Regarding the investment of 70% from the first years premium and 2% from the 2nd years premium and 1% from the 3rd years premium, lr. advocate would submit that it is their internal matter and that they were required to allot the said sums towards risk/mortality charges; administration charges of the policies; and fixed fund management charges of the policy. Lr. advocate further submits that the policies purchased by the complainants are very much life insurance policies covered by Section 40A of the Act and the allocation of 40% towards the commission paid to the agent is very much in tune with the said provision of Section 40A of the Insurance Act, 1938.
12. The case of Om Prakash vs. Assistant Engineer, Haryana Agro, 1994 81 CompCas 371 SC, would show that the said Om Prakash had booked a tractor with the Respondent on 12/12/1990 and his name was at Sr. No. 1 of the delivery list but the Respondent went on supplying the tractors to others who were below the said Om Prakash in the said list and in the mean time there was a rise in the price of tractors by Rs. 40,690/- when the tractor came to be delivered to the said Om Prakash on 21/09/1991, and the Honble Supreme Court came to the conclusion that the action of the Respondent, to intentionally delay the supply of the tractor, amounted to deficiency in service within the meaning of Section 2(1)(g) and (o) of the C.P. Act and accordingly upheld the decision of the District Forum for refund of Rs. 40,690/- with interest at the rate of 18% from 21/09/1991 and compensation of Rs. 2000/-
13. Section 2(1)(r) defines unfair trade practice to mean a trade practice which, for the purpose of promoting the sale, use or supply of any goods or for the provision of any service, adopts any unfair method or unfair or deceptive practice including any of the following practices, namely:-
(1) the practice of making any statement, whether orally or in writing or by visible representation which,-
(i) falsely represents that the goods are of a particular standard, quality, quantity, grade, composition, style or model;
(ii) falsely represents that the services are of a particular standard, quality or grade;
(iii) falsely represents any re-built, second-hand, renovated, reconditioned or old goods as new goods;
(iv) represents that the goods or services have sponsorship, approval, performance, characteristics, accessories, uses or benefits which such goods or services do not have;
(v) represents that the seller or the supplier has a sponsorship or approval or affiliation which such seller or supplier does not have;
(vi) makes a false or misleading representation concerning the need for, or the usefulness of, any goods or services;
(vii) gives to the public any warranty or guarantee of the performance, efficacy or length of life of a product or of any goods that is not based on an adequate or proper test thereof:
Provided that where a defence is raised to the effect that such warranty or guarantee is based on adequate or proper test, the burden of proof of such defence shall lie on the person raising such defence;
(viii) makes to the public a representation in a form that purports to be-
(i) a warranty or guarantee of a product or of any goods or services; or
(ii) a promise to replace, maintain or repair an article or any part thereof or to repeat or continue a service until it has achieved a specified result, if such purported warranty or guarantee or promise is materially misleading or if there is no reasonable prospect that such warranty, guarantee or promise will be carried out;
(ix) materially misleads the public concerning the price at which a product or like products or goods or services, have been or are, ordinarily sold or provided, and, for this purpose, a representation as to price shall be deemed to refer to the price at which the product or goods or service has or have been sold by sellers or provided by suppliers generally in the relevant market unless it is clearly specified to be the price at which the product has been sold or services have been provided by the person by whom or on whose behalf the representation is made. (emphasis supplied)
14. O.P. No. 4, Mr. Prakash DM, the agent of O.P. No. 3, the Insurer, can be considered to have been duly served in view of Section 28A(4) of C.P. Act 86 and the decision of the Apex Court in Madan and Co. vs. Wazy Jaivir Chandra followed by us in FA No. 40/10.
15. We are inclined to partly accept the submissions made by Lr. Adv. Shri. S. M. Singbal. However, we are of the view that the commission paid to the agent by the insurer would be governed by Section 40A(1)
(c) of the Insurance Act, 1938 and not under sub-section 2 (c) of Section 40A of the same Act. Sub-section 2 of Section 40A refers to special agents. Special agent in terms of Section 2 (17) of I. Act is a person who procures life insurance business for the insurer by employing or causing to be employed insurance agents on behalf of the insurer.
It is nobodys case that the O.P. No. 4, Shri. Prakash, was a special agent. Since the commission paid was 40% of the first years premium the same has got to be considered as contrary to Section 40A (1) (c) of Insurance Act, 1938 and as it is not the case of the insurer, O.P. No. 4, that the insurer is governed by the first proviso to Section 40A of the I. Act. The O.Ps have also not shown that the payment of 40% is as per guidelines approved by IRDA by producing such guidelines. The agent has pocketed Rs. 4 lacs out of Rs. 10 lacs of the first premium paid and has probably disappeared from the scene. The averments in the complaints or for that matter the statements on oath made by the complainants that the agent had represented to the complainants that their investments would bring a minimum return of 30% annually can be accepted.
In other words, averments made in the complaint which have gone unrebutted can be deemed to have been admitted as held in UTI vs. Babulal, 2013(1) CPR 172. The insurer, O.P. No. 4, would certainly be bound by the said representations made by their agent, in terms of Section 237/238 of the Indian Contract Act. It is therefore obvious that the complainants have proved that they subscribed to the policies in question because of misrepresentation of facts assuring that they would get a minimum return of 30% on their investments. Moreover, although Clause 14 of the policies gives an impression, at first flush, that the complainants were free to walk out from the policies by cancelling and returning the same, in fact, the said Clause keeps the consumers like the complainants, tied with one leg, if we may used that expression, as there is no full refund guaranteed and the refund stipulated would be subject to deduction of cost of insurance, stamp fee charges and any expenses incurred for medical examination and which were not at all specified and which would certainly dissuade the consumers from walking out of the policies by returning the same to the insurer. In case, the insurer had specified what would be the deduction which would be taken in case a consumer returns a policy, then it would have been a different matter. Clause 14 by no stretch of imagination can be considered as an option to the consumers to get out of the policy in case they were dissatisfied with its terms and conditions. Moreover, if the insurer, O.P. No. 3, could specify in Clause 6.2, Table I of the policies that 30% of the premia would be invested in units, we fail to understand as to why the insurer could not inform the subscribers of policies as to how they would deal with or invest the balance of 70% of the first years premium. We do no think that any sensible subscriber or consumer would have subscribed to the policies in question in case he or she was informed that out of Rs. 10 lacs of the first years premium, Rs. 4 lacs would be paid to the agent as his commission and Rs. 3 lacs would be pocketed by the insurer towards mortality, administration and fund management charges. What the insurer O.P. No. 3 has done by appropriating 70% of the first years premium is that it has secured the interests of its agent so that policies, as many as possible, are sold, and their own interest in insuring the life of the policyholders as well as the future administration and fund management charges, are secured. If these facts were made to known to the prospective subscribers or consumers, we do not think that any sensible or prudent consumer would have subscribed to the policies of the insurer and in that there is certainly an unfair and deceptive trade practice adopted by the insurer. In other words, if the subscribers were told, that out of first years premium of Rs. 10 lacs only, Rs. 3 lacs would be invested in units and the rest of Rs. 7 lacs would be pocketed by the insurer and their agent, no subscriber would have come forward to purchase the policies. Keeping silence on investment of 70% from 1st years premium of Rs. 10 lacs is but a deceptive and unfair trade practice. The complainants therefore have succeeded in proving that the policies were sold to them by unfair trade practices within the meaning of Section 2 (r) (1) (ii), (vi) & (ix) of the C.P. Act, 1986.
16. In our opinion, therefore, the complainants deserve to succeed. Each of the complainants, therefore, shall be paid a sum of Rs. 3,70,300/- in terms of para 20(a) with pending and future interest at the rate of 9% from 17/09/09, untill payment. Likewise, each of the complainants shall be paid a sum of Rs. 1 lac towards mental agony, injustice caused, etc., in terms of para 21(a). Costs of the complaints are fixed at Rs. 5000/- each. The liability to make the aforesaid payments will be that of the insurer, O.P. No. 3, and the agent, O.P. No. 4, jointly and severally.
(Smt. Vidhya R. Gurav) (Justice Shri. N. A. Britto) MEMBER PRESIDENT