Karnataka High Court
Life Insurance Corporation Of India vs K. Rama Iyer And Anr. on 5 August, 2003
Equivalent citations: III(2004)ACC380, 2004ACJ591, ILR2004KAR249, 2004(1)KARLJ216
Bench: P. Vishwanatha Shetty, Ajit J. Gunjal
JUDGMENT
1. The appellant in this appeal is the Life Insurance Corporation of India. In this appeal the appellant has called in question the correctness of the order dated 25th July, 2000 made in Writ Petition No. 19596 of 1999 by the learned Single Judge.
2. The facts in brief are as follows:
The second respondent is an institution registered under the Karnataka Societies Registration Act. The object of the second respondent-institution is to promote Kannada literature and culture. The wife of the first respondent-Smt. Uma Iyer, expired on 29th June, 1998 (hereinafter referred to as 'the deceased employee'), while she was in the employment of the second respondent as a Stenographer. The appellant and the second respondent had entered into a scheme known as "Group Savings Linked Insurance Scheme" (hereinafter referred to as 'the GSLI Scheme'), with effect from 20th September, 1989. The deceased was also admitted for the benefit of the GSLI Scheme. As per the terms of the GSLI Scheme, the second respondent was required to pay the premium to the appellant in respect of its members who are admitted for the benefit of the GSLI Scheme out of the monthly salary payable to them. The members of the GSLI Scheme, on reaching terminal date or on earlier cessation of service other than by way of death, would be entitled for payment of total amount to the credit of the member in the running account as shall be determined by the Corporation having regard to the entry date, the amounts credited to the running account from time to time, the rate of interest and the date of exit.
3. It is the case of the appellant that since the premium payable on account of the membership of the deceased for the period from February to June 1998, was not paid to the appellant by the second respondent, the claim made by the 1st respondent for payment of the sum insured i.e., Rs. 50,000/- (Rupees fifty thousand only) was negatived by the appellant. The first respondent, aggrieved by the action of the appellant is not settling the sum due to him, filed Writ Petition No. 19596 of 1999 before this Court. The learned Single Judge in the impugned order has allowed the writ petition filed by the first respondent and directed the appellant to settle the sum insured in favour of the first respondent. Aggrieved by the said order, this appeal is filed.
4. Sri Rajagopalan, learned Counsel appearing for the appellant strongly urged that since, admittedly, there was default on the part of the second respondent is not paying the premium amount to the appellant in terms of the contract of insurance entered into between the appellant and the 2nd respondent; and the 2nd respondent having thus committed default, the first respondent was not entitled to seek for a direction to the appellant to settle the sum insured in favour of the 1st respondent. Elaborating his submission, he pointed out that since the materials on record disclose that as the deceased was on medical leave and there was no salary payable to her; and under those circumstances the deceased having taken up the responsibility of paying the premium directly to the appellant and committed default in paying the premium, there is no justification for this Court to direct the appellant to pay the insured amount to the first respondent. He submitted that the entire approach made by the learned Single Judge on this aspect of the matter is erroneous in law and the principle laid down by the Hon'ble Supreme Court in the case of Delhi Electric Supply Undertaking v. Basanti Devi and Anr., has no application to the facts of the present case.
5. However, Smt. T.N. Asha, learned Counsel appearing for the first respondent while strongly supporting the order passed by the learned Single Judge pointed out that since there was no cessation of the membership of the deceased and the GSLI Scheme having not been revoked by the appellant on the ground that there was default in payment of the premium either by the second respondent or by the deceased, it is not permissible for the appellant to deny the claim of the first respondent for settlement of the insured amount. She pointed out that the appellant being an instrumentality of the State and the claim having been introduced to ensure the family the financial assistance on account of untimely death of the member, it is not permissible for the appellant to deny the claim of the first respondent on the ground that there was default in payment of the premium to the appellant It is her submission that the GSLI Scheme as a whole is required to be understood in the backdrop of the object of the GSLI Scheme; and the default in making the payment of the premium amount by some of the members of the GSLI Scheme cannot be made as a ground to refuse to settle the claim for payment of insured amount so long as the GSLI Scheme has not been revoked or the membership of such member is not cancelled or ceased to be in existence.
6. Sri H. Billappa, learned Counsel for the second respondent, while supporting the submission of the learned Counsel for the first respondent relying upon the decision of the Supreme Court in the case of Basanti Devi, supra, submitted that the stand taken by the appellant is totally unjustified and the order passed by the learned Single Judge does not call for interference in this appeal. It is his submission that the deceased was not entitled to claim any salary as she was on leave and therefore, the second respondent was not under an obligation to deduct the amount payable towards the premium out of the salary payable and make the payment to the appellant. He further submitted that the deceased also had made a request to the second respondent that she would directly pay the premium to the appellant and therefore it cannot be held that the second respondent had committed default,
7. Having elaborately heard the learned Counsels appearing for the parties, we are of the considered view that the order passed by the learned Single Judge impugned in this appeal is not liable to be interfered with by us. It is not in dispute that the appellant had introduced a Scheme known as GSLI Scheme. In terms of the Rules governing the GSLI Scheme, the appellant had issued a policy dated 23rd August, 1989. It may be useful to refer to some of the terms of the policy.
8. Clause (15) of the General Conditions of the policy provides that if the grantees fail to observe or comply with any of the terms and conditions of the policy, the appellant may decline to accept further premiums thereunder, and thereupon the 2nd respondent shall be deemed to have discontinued the payment of premiums under the policy, The schedule given to the policy also provides that an employee of the 2nd respondent who has been admitted as an eligible member will not be permitted to withdraw his/her membership, so long as he/she is an eligible employee. Clause (3) of Part II of the Schedule to the policy provides that no grace period will be allowed in respect of the GSLI Scheme for remittance of monthly contribution. If the monthly contribution of all the members covered is not received in one lump sum before 20th of every month, interest will be charged at 12 per cent per annum for the number of days of delay after 20th of every month. The same clause further provides that if there is a delay of more than two months or if there are repeatedinstances of delay, the claim would be discontinued. Clause (4) of the policy provides that the premiums received from the 2nd respondent would be utilised to provide to members the life insurance benefit under the 'one year renewable term assurance plan' and also other benefits as described in Part III of the Schedule. Part III of the Schedule provides for the settlement of benefits. It consists of two parts. First part relates to the benefits payable on death before terminal date. The second part relates to the payment of benefits to the members on terminal date or cessation of membership other than death before terminal date. The Rule governing GSLI Scheme also sets out several conditions governing the Scheme. The said Rule also provides for payment of contribution by every member who is admitted to the GSLI Scheme. It further, provides that the contribution would commence on the entry date and continue until terminal date, or otherwise as specified in the Rules. Rule 7(ii) of the said Rules imposes obligation on the employer to recover the contribution in respect of the members from their salary and remit the same in full to the appellant for providing benefits in accordance with the Rules. Rule 8 of the Rules provide for settlement of benefits. It comprises of two parts. First part relates to settlement of benefits on death of the member before the terminal date; and the second part relates to settlement of benefit on member reaching the terminal date or on earlier cessation of services other than death. Rule 9 of the Rules provides for termination of membership. It provides that on two circumstances the membership of the scheme, in respect of a member, shall stand terminated. They are -- (a) Member ceasing to be in the service of the employer; and (b) Member reaching the terminal date. Rule 9 further provides that on termination of membership, the appellant should settle the claim of such a member. The terms provided in the policy of insurance issued by the appellant to the 2nd respondent are similar to the terms provided under the Rules and it appears to us that the terms and conditions set out in the Rules are incorporated in the policy itself.
9. It is not in dispute that the appellant had received sum of Rs. 2,375/-(Rupees two thousand three hundred seventy-five only) from the 2nd respondent towards the premium in respect of 51 members along with the statement of particulars of the members; and the deceased is one of the members. Further, the policy also indicates that the 2nd respondent had agreed to pay the premium as provided in the policy whenever it falls due. As per the terms set out in the policy, the policy had commenced from 20th September, 1989 and 20th September of every year was fixed as the annual renewal date of the policy. The terminal date of the policy in relation to a member is fixed on the date on which he/she attains the age of 55 years. The sum assured in the policy is stated to mean as the life insurance benefits for each member together with the amount of premium credited to the running account from time to time. The running account has been stated as an account to be maintained by the appellant in respect of the policy to which the premium remaining in respect of the members after utilization of such part as is required to provide life insurance benefit.
10. Now, the question is, on account of the default in paying the premium of the deceased, whether it is permissible for the appellant to refuse to settle the sum assured in the policy on account of the death of the wife of the 1st respondent in terms of the GSLI Scheme introduced by the appellant and accepted by the 2nd respondent; and also pursuant to which the insurance policy was issued?
11. The appellant, as noticed by us earlier, is a Life Insurance Corporation of India, which came to be established under the Life Insurance Corporation Act, 1956 (hereinafter referred to as 'the Act'). The object of the Act, as it could be seen from the statement of objects and reasons, was to ensure absolute security to the policy-holder in the matter of life insurance protection; to spread insurance much more widely and in particular to the rural areas. It has been set up with the share capital provided entirely by the Central Government which has undertaken life insurance as its business. It cannot be, and it is not in dispute that the appellant is an instrumentality of the State. Therefore, it is needless to state that the appellant, in all its actions and decisions, is required to act in a fair and reasonable manner keeping in mind the object of its establishment and continued existence. The stipulation in the GSLI Scheme and the Rules has to be understood and interpreted in consonance with the object and purpose for which the appellant came to be established. The policy of insurance is obtained to protect the family of the insured keeping two things in mind. Firstly, to protect the family on account on untimely death of the insured by securing certain payment, so that, the family may be in a position to face the financial crisis; and secondly, as a measure of compulsory savings of the insured and to realize the amount credited by way of premium, with a reasonable interest credited to the premium, when the policy matures. This generally happens when the insured is of advanced age and his/her family's commitments are more. In the instant case the Member has not attained the age of 55 years, i.e., the terminal date fixed in the policy and also in the Rules. The deceased belongs to Group II category of the Scheme and as such on her death before the terminal date, her nominee or the legal heir is entitled for payment of a sum of Rs. 50,000/-(Rupees fifty thousand only) which is the sum assured. It is not in dispute that the amount payable to the 1st respondent on the ground that the membership of the deceased came to be terminated, was settled by the appellant in terms of Clause (2) of Part III of the policy read with Clause (9) of the Rules. The dispute in this proceedings is only with regard to the claim made by the 1st respondent for payment of amount assured in terms of the GSLI Scheme on account of the death of his wife. The learned Single Judge in the impugned order has taken the view that the default in payment of premium cannot be made as a ground to settle the amount payable to the 1st respondent on account of the death of his wife, who was admittedly, a member of the GSLI Scheme. In support of his conclusion, he has relied upon the earlier decision of this Court in the case of Smt. Rahamat Be v Office of the Regional Provident Fund Commissioner, Bangalore and Anr., and also the decision of the Hon'ble Supreme Court in the case of Basanti Devi, supra. The Hon'ble Supreme Court in the case of Basanti Devi, supra, at paragraph 11, has observed as follows:
"11. In the present case we are not concerned with the insurance agent. It is not the case of LIC that DESU could be permitted as an insurance agent within the meaning of Insurance Act and the Regulations. DESU is not procuring or soliciting any business for LIC. DESU is certainly not an insurance agent within the meaning of the aforesaid Insurance Act and the Regulations but DESU is certainly an agent as defined in Section 182 of the Contract Act. The mode of collection of premium has been indicated in the Scheme itself and the employer has been assigned the role of collecting premium and remitting the same to LIC. As far as employee as such is concerned, the employer will be an agent of LIC. It is a matter of common knowledge that Insurance Companies employ agents. When there is no insurance agent as defined in the Regulations and the Insurance Act, general principles of the law of agency as contained in the Contract Act are to be applied".
(emphasis supplied)
12. From the observation made by the Hon'ble Supreme Court referred to above, it is clear that the relationship between the appellant and the 2nd respondent would be that of a principal and an agent and the 2nd respondent acts as an agent for collecting the premia of its employees. In the instant case, it is the case of the 2nd respondent that since the deceased was on leave on account of her ill-health, the 2nd respondent was not required to pay salary to the deceased and under those circumstances it did not credit the premium payable on behalf of the deceased to the appellant. No doubt, it is the further case of the 2nd respondent that the deceased had also undertaken to pay the premium herself directly to the appellant The undisputed facts disclose that the deceased had expired on 29th June, 1998 and there was default in paying the premium from February to May 1998. We are of the view that the default in paying the premium amount by the 2nd respondent cannot exonerate the liability of the appellant from settling the claim of the 1st respondent in terms of the policy, on account of death of his wife. It is necessary to point out that it is not the case of the appellant that on account of default in payment of premium payable on behalf of the deceased, the appellant had either revoked or cancelled the GSLI Scheme or the GSLI Scheme as a whole came to an end or the GSLI Scheme became inapplicable so far as the deceased is concerned, at any time before her death. In the terms provided in the policy as well as in the Rules governing the GSLI Scheme no where it is prescribed that if there is any default in payment of premium on behalf of any individual member, the GSLI Scheme would lapse or automatically ceases to operate as against such an individual member. On the other hand, the terms provided in the policy and the Rules clearly indicate that the GSLI Scheme continues to govern the rights of all the parties; and all the members who have been admitted to the GSLI Scheme irrespective of the fact whether there was any default in payment of premium or not, the members of the GSLI Scheme are entitled for the benefit of the GSLI Scheme. Further, Clause (3) of the policy referred to by us earlier, provides for payment of interest at the rate of 12 per cent per annum for number of days of delay in paying the premium. It is useful to extract Clause (3) of the policy, which reads as hereunder:
"(3) No grace period will be allowed in respect of this Scheme for remittance of monthly contribution monthly contribution for all the Members covered is not received in one lump sum before 20th of the month, interest will be charged at the rate of 12% per annum for the number of days lapsed after 20th of the month. If there is delay of more than two months or if there are repeated instances of delay, the Scheme will be discontinued".
13. The said clause only enables the appellant to discontinue the GSLI Scheme if there is a delay of more than two months or if there are repeated instances of delay. The provision provided under Clause (3) of the GSLI Scheme is an enabling provision where the right is reserved to the appellant to discontinue the GSLI Scheme. The Counsel for the appellant is unable to dispute that on account of the default in payment of premium, the appellant had not taken recourse to discontinue the GSLI Scheme. In all fairness he admitted before us that the GSLI Scheme continued to be in operation. Under these circumstances, in our considered view, so long as the GSLI Scheme continued to be in operation, it is not permissible for the appellant to refuse to settle the amount payable to the 1st respondent on account of the death of his wife before the terminal date. While considering this question, we cannot ignore the fact that it is the GSLI Scheme, intended to benefit a group of employees and the policy of insurance was obtained by the 2nd respondent as a welfare measure to protect the interest of its employees. I n our view, merely because, the 2nd respondent was not under an obligation to pay the salary during the relevant period to the deceased as she was on leave on loss of pay, would not absolve it of its liability to pay the premium in terms of the policy of insurance to the appellant. Clause (ii) of Rule 7, on which strong reliance is placed by Sri Billappa, is of no assistance to the 2nd respondent. It is useful to extract the said rule, which reads as hereunder:
"7. CONTRIBUTIONS:
(i) xxx xxx
(ii) The employer shall recover the contribution in respect of all the members from their salaries and remit the same in full to the Corporation for providing benefits in accordance with the Rules".
From the reading of the Rule, it is clear that it is made mandatory on the part of the employer to recover the contribution in respect of premium from all the members from the salary payable to its employees. Therefore, so long as the deceased continues to be in the employment of the 2nd respondent, merely because, there was no salary payable to the deceased on the ground that she was on leave on loss of pay, in our considered view, it would not absolve the 2nd respondent of his obligation of paying premium to the appellant. The said Rule must be understood as imposing an obligation on the part of the 2nd respondent to recover the contribution in respect of all the members from their salaries and in the absence of salary payable from any other sum payable to its employees. The amount payable, per month, so far as the deceased is concerned was only Rs. 50/- as she belonged to Category III. For the 2nd respondent it is a very small amount. There are other benefits, which the deceased was entitled to collect from the 2nd respondent on her attaining the age of superannuation. Under these circumstances, it was not permissible for the 2nd respondent not to pay the premium due on behalf of the deceased. Further, the GSLI Scheme itself provides for settlement of the benefits under Rule 9 of the Rules to its members in respect of the amount credited by way of premium along with interest on termination of membership. Therefore, the appellant had the funds, which was required to be paid to the deceased on termination of her membership in terms of Rule 9 of the Rules. When the appellant had the funds of the deceased, which it is required to settle on termination of membership either on account of deceased ceasing to be in the service of the 2nd respondent or the deceased reaching the terminal date, the default in payment of the premium, in our view, would not prejudice the appellant in any manner. As noticed by us earlier, the appellant was entitled to collect arrears of premium amount at 12 per cent interest from the 2nd respondent. The stipulation made providing for payment of premium has to be considered keeping in mind the object for which the GSLI Scheme was introduced and conceived by the parties. The GSLI Scheme as conceived, there cannot be any doubt, intended to relieve the legal heirs of the employee of the financial hardship on account of untimely death of the employee of the 2nd respondent. Clause (4)(c) of the Rules makes it compulsory that every employee of the 2nd respondent should join the GSLI Scheme. Therefore, the joining of the GSLI Scheme is made as part of the service conditions of the employees of the 2nd respondent. Therefore, if the object of the GSLI Scheme is properly understood and viewed, there is no escape for the appellant from settling the amount payable to the 1st respondent on account of the death of his wife before the terminal date in terms of the policy of insurance. We are also unable to accede to the submission of Sri Rajagopal, that the GSLI Scheme having been entered into between the appellant and the 2nd respondent, the 1st respondent is not entitled to seek for any direction before this Court on the ground that neither he nor his deceased wife was a party to the contract. No doubt, it is true that the, policy of the GSLI Scheme adopted by the appellant and the 2nd respondent is a contract between the appellant and 2nd respondent. However, it is necessary to point out that the said contract is meant to protect the interest of the members of the GSLI Scheme and they are the beneficiaries of the Scheme. Therefore, in our view, the members of the Scheme or their legal heirs are entitled to enforce their rights. The appellant, being an instrumentality of the State, cannot be permitted to wriggle out of the contract entered into with the 2nd respondent, which is intended to benefit the employees of the Scheme. Therefore, the principle that a third party to a contract cannot enforce the contract, has no application in a matter like this. Further, as noticed by us earlier the Hon'ble Supreme Court in the case of Basanti Devi, supra, has taken the view that the employer acts only as an agent to collect the premium from its employees. Therefore, the default in payment of premium cannot be attributed to the deceased and it cannot affect the rights of the 1st respondent.
14. In the light of the discussions made above, this writ appeal is liable to be rejected. Accordingly, it is rejected. However, no order is made as to costs. The appellant is given four weeks' time, from the date of receipt of the copy of this order, to settle the claim of the first respondent in terms of the order made by the learned Single Judge.