Kerala High Court
Robinson vs Life Insurance Corporation Of India on 17 August, 2001
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT:
THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE
TUESDAY, THE 14TH DAY OF AUGUST 2012/23RD SRAVANA 1934
WP(C).No. 18367 of 2007 (J)
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PETITIONER:
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ROBINSON, AGED 47,
S/O.JNANAPRAKASHAN,
ADVOCATE,T.C,NO. 2/982
VANCHIYOOR, THIRUVANANTHAPURAM.
BY ADVS.SRI.R.T.PRADEEP
SRI.V.VIJULAL
RESPONDENTS:
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1. LIFE INSURANCE CORPORATION OF INDIA,
UNIT II,THIRUVANANTHAPURAM
REP.BY ITS MANAGER
LEGAL & HPF DEPARTMENT, LIC OF INDIA
DIVISIONAL OFFICE , THIRUVANANTHAPURAM.
2. THE PERMANENT LOK ADALAT,
AT THIRUVANANTHAPURAM,
FOR PUBLIC UTILITY SERVICES
REP.BY ITS REGISTRAR, PERMANENT LOK ADALAT
THIRUVANANTHAPURAM.
BY ADV. SRI.P.B.SAHASRANAMAN
BY ADV. SRI.K.JAGADEESH
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON
14-08-2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
DCS
WP(C).No. 18367 of 2007 (J)
APPENDIX
PETITIONER'S EXHIBITS:-
EXHIBIT-P1- COPY OF POLICY DATED 17.08.2001
EXHIBIT-P2- COPY OF LETTER DATED 24.11.2006 OF BRANCH MANAGER TO THE
PETITIONER
EXHIBIT-P3- COPY OF COMPLAINT O.P. NO. 17/07 FILED BY PETITIONER BEFORE
THE 2ND RESPONDENT
EXHIBIT-P4- COPY OF STATEMENT OF OBJECTION FILED BY MANAGER (LEGAL
& HPF) IN O.P. 17/07
EXHIBIT-P5- COPY OF REPLY FLED BY OPPOSITE PARTY IN O.P. 17/07 DATED
10.04.2007
EXHIBIT-P6- COPY OF AWARD IN O.P. 17/2007 DATED 12.05.2007 OF 2ND
RESPONDENT
RESPONDENT'S EXHIBITS:-
EXHIBIT-R1(a)- COPY OF THE NOTE OF EXPLANATION IN PAGE 53 OF THE
MANUAL FOR POLICY SERVICING (SURRENDERS) OF THE
RESPONDENT CORPORATION.
/TRUE COPY/
P.A. TO JUDGE
DCS
A.M. SHAFFIQUE, J
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W.P. (C) NO. 18367 OF 2007
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Dated this the 14th day of August, 2012
JUDGMENT
The writ petition is filed for a declaration that Clause 7 of Ext. P1 pertaining to Guaranteed Surrender Value is unconscionable and unconstitutional. The petitioner further seeks the relief of challenging the Ext. P6 order passed by the Lok Adalat and also seeks a direction to the first respondent to pay the petitioner an amount of Rs. 3,54,167/- with interest and other consequential reliefs.
2. The facts involved in the case discloses that the petitioner took Ext. P1 policy of insurance from the first respondent commencing from 10.07.2001 with maturity date on 10.07.2026. As per the terms of the policy, the premium is to be paid for a period of 12 years. The petitioner remitted a total amount of Rs. 3,54,167/- as premium upto September 2005. Thereafter he surrendered the policy. By Ext. P2 intimation the first respondent informed the petitioner that the surrender value is Rs. 1,59,952/-. They relied upon condition No. 7 of the policy to calculate the surrender value. It is stated that the paid up W.P. (C) NO. 18367 OF 2007 2 value is Rs. 3,54,167/- and the vested bonus is Rs. 3,18,750/- and the surrender value including cash value bonus will come to Rs. 1,59,952/-.
3. The petitioner contends that the provision contained in condition No. 7 of the policy relating to guaranteed surrender value at 30% of the total amount of premiums paid excluding the premiums for the first year is illegal. He filed a complaint before the Lok Adalat which was dismissed by Ext.P6 order.
4. The first respondent has filed a counter affidavit inter alia contending that the Guaranteed Surrender Value under a life insurance policy at the close of each year or the method or formula of calculation shall be shown in the policy document in terms of Section 113 of the Insurance Act, 1938. Clause 7 of the conditions of policy has been inserted taking into account the statutory provision. However, according to the first respondent the insurer is free to offer the better terms of the surrender value and it should not fall below the Guaranteed Surrender Value. The first respondent had also indicated the manner in which the surrender value is computed.
W.P. (C) NO. 18367 OF 2007 3
5. It is stated that the monthly premium payable under the policy is Rs. 6,198/- which includes extra premium of Rs. 275/-. After deducting the extra premium the monthly premium is Rs. 5,923/-. Therefore the total amount of premium paid under the policy is taken as Rs. 3,02,073/- and if 15% of this amount is to be taken since policy is for a period of 25 years the amount payable is only Rs. 45,311/-.
6. If 30% of the amount is worked out in respect of the total premium paid after excluding one years premium it will come to Rs. 69,299.10.
7. If another method is adopted as per the Special Provision 1 of the policy a Guaranteed Addition of Rs. 75/- per thousand sum assured will be added to the policy at the end of each policy anniversary and will be payable when the Sum assured becomes payable which works out to Rs. 3,18,750/- as follows:-
GA = No. of years for which premium is paid x 75 x Sum assured 1000 = 4.25 x 75 x 10,00,000/-1000
= Rs. 3,18,750/-
W.P. (C) NO. 18367 OF 2007 4 The Guaranteed Addition is paid only on the maturity of the policy or on the earlier death of the policy holder. While surrendering the policy the present value of the sum is to be paid as per condition No. 7 of the document. The cash value or the present value is arrived at applying the Surrender Value factor on the Guaranteed Addition. The Surrender Value factor increases with the duration of the policy. The surrender value factor as on the date of quotation as per the statutory tables of the Corporation is 0.2377 and when it is applied to the Guaranteed Surrender Value it works out to only Rs. 75,766.90/-. Adding the said Guaranteed Surrender Value to the 30% of the premium the total amount come to Rs. 1,45,066/-.
8. It is therefore the contention of the first respondent that for giving a better amount to the petitioner another method is adopted. According to them, if the premiums under the policy have been paid for at least 3 years and subsequently premiums are not paid the policy shall not be wholly void, but the sum assured will be reduced to such a sum as shall bear the same W.P. (C) NO. 18367 OF 2007 5 ratio to the full sum assured as the number of premiums actually paid shall bear to the total number originally stipulated under the policy which is termed as the paid up value of the policy. Paid up value = No. of years for which premium is paid X Sum assured No. of years for which premium is payable = 4.25 X 10,00,000/-
12= Rs. 3,54,167/-
The sum total of paid up value and guaranteed addition will come to Rs.6,72,917/- The surrender value factor as on the date of quotation is 0.2377 applied to the above amount and a special surrender value is offered to the petitioner.
9. They also denied the fact that this condition No. 7 is unconscionable. According to the first respondent the Lok Adalat had rightly concluded that the terms of contract cannot be deviated.
10. Heard the learned counsel appearing for either side. It is contended by the learned counsel for petitioner relying the judgment of the Supreme Court in Central Inland Water Transport Corporation Ltd. and another vs. Brojo Nath W.P. (C) NO. 18367 OF 2007 6 Ganguly and another [AIR 1986 Supreme Court 1571] that the condition No. 7 of the policy is opposed to public policy and therefore void u/s. 23 of the Contract Act. It is also contended that the insured has no option other than to sign the policy conditions which cannot be treated as valid and since it amounts to an unfair bargaining power between Insurance Co. and the insured the said clause is liable to be declared as unconscionable and void. He also referred to the judgment in Tarun Bhargava vs. State of Haryana and another [AIR 2003 Punjab and Haryana 98] to contend for the position that an unconscionable clause in a contract is void u/s. 23 of the Contract Act. On the other hand learned counsel for the respondent relied upon the judgment of Patna High Court in Tirhut Dugdh Utpadak Sahkari Sangh Ltd. and another vs. Oriental Insurance Co. Ltd. and another [AIR 2008 Patna High Court 89] to indicate that the terms of a policy of insurance does not oppose to public policy.
11. The short question to be decided in this writ petition is whether the clause 7 in the policy condition is unconscionable or W.P. (C) NO. 18367 OF 2007 7 opposed to public policy rendering it void.
12. The learned counsel for the respondent had explained in detail with reference to the counter affidavit the manner in which the surrender value is computed in terms of condition No.
7. It is not in doubt that if a policy which has to remain in force for 25 years on payment of premium for about 12 years is taken by a person, the insured expects the said amount to remain with the Insurance Co. for a period of 25 years or until the life of the insured. Therefore, if that policy is surrendered within a short period definitely there has to be a surrender value which has to be computed in terms of the condition No. 7. The petitioner does not have a case that the computation if made on the basis of condition No. 7, the amount offered is anyway less. His contention is that whatever amount he has paid along with the bonus as on the said date requires to be paid back and according to him Section 113 of the Insurance Act provides for such an interpretation. I don't think so. Paragraphs 7, 8 and 9 of the counter affidavit clearly explains the manner in which the surrender value is to be computed. The eventuality of obtaining a W.P. (C) NO. 18367 OF 2007 8 lesser amount happens when one of the parties to the contract withdraws from the said contract. When the contract itself provides for such an eventuality, it cannot be considered as opposed to public policy as provided u/s. 23 of the Contract Act.
13. The argument that condition No. 7 is contrary to the law laid down by Supreme Court in Central Inland Water Transport Corporation Ltd. (supra) case, is also not sustainable in view of the fact that the facts of the said case has nothing to do with the contentions raised in the present writ petition. That was a case in which the Supreme Court was dealing with a contract of employment entered into by a Government Company with the employee concerned which contained provisions which are contrary to the public policy. In such a situation, the Supreme Court had occasion to consider the fact that the employer stands in a dominant position with that of the employee and therefore merely because the employee had signed and given such agreements, if it is against the public policy, the said conditions become void u/s. 23 of the Contract Act. W.P. (C) NO. 18367 OF 2007 9
14. I do not find any any contradiction in clause 7 of the conditions of policy with reference to Section 113 of the Insurance Act. Sub-Section (1) of Section 113 of the Insurance Act reads as under:-
S.113. "Acquisition of surrender values by policy.- (1) A policy of life insurance under which the whole of the benefits become payable either on the occurrence, or at a fixed interval or fixed intervals after the occurrence, of a contingency which is bound to happen, shall, if all premiums have been paid for at least three consecutive years in the case of a policy issued by an insurer, or five years in the case of a policy issued by a provident society as defined in Part III, acquire a guaranteed surrender value, to which shall be added the surrender value of any subsisting bonus already attached to the policy, and every such policy issued by an insurer shall show the guaranteed surrender value of the policy at the close of each year after the second year of its currency or at the close of each period of three years throughout the currency of the policy:
Provided that the requirements of this sub-section as to the addition of the surrender value of the bonus attaching to a policy at surrender shall be deemed to have been complied with where the method of calculation of the guaranteed surrender value of the policy makes provisions for the surrender value of the bonus attaching to the policy:
Provided further that the requirements of this sub-section as to the showing of the guaranteed surrender value on a policy shall be deemed to have been complied with where the insurer shows on the policy the guaranteed surrender value of the policy by means of a formula accepted in this behalf by the Authority as satisfying the said requirements:
Provided further that the provisions of this sub-section as to the showing of the guaranteed surrender value on a policy shall not take effect until after the expiry of six months from such date as the Authority may, by notification in the Official Gazette appointed in this behalf.
W.P. (C) NO. 18367 OF 2007 10 In the present case, provision is made in the insurance policy as per 3rd proviso to section 113(1) of the Insurance Act and therefore when a statute permits such a provision to be incorporated, it cannot be termed as against the public policy.
15. The next question to be considered is whether Ext. P6 is liable to be interfered. Having taken a view, that condition No. 7 of the policy is not illegal in any manner, the Lok Adalat was justified in holding that the petitioner is only entitled for getting the surrender value calculated by the first respondent.
In that view of the matter, this writ petition is dismissed.
A.M. SHAFFIQUE JUDGE DCS