Gujarat High Court
Jitendrakumar Jayantilal Sheth vs Life Insurance Corporation on 5 August, 2013
Author: Rajesh H.Shukla
Bench: Rajesh H.Shukla
JITENDRAKUMAR JAYANTILAL SHETH....Petitioner(s)V/SLIFE INSURANCE CORPORATION OF INDIA C/SCA/10784/2002 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 10784 of 2002 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE RAJESH H.SHUKLA ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ JITENDRAKUMAR JAYANTILAL SHETH....Petitioner(s) Versus LIFE INSURANCE CORPORATION OF INDIA & 3....Respondent(s) ================================================================ Appearance: MR YM THAKKAR, ADVOCATE for the Petitioner(s) No. 1 MR AK CLERK with MR CG GOVINDAN, ADVOCATE for the Respondent(s) No. 1 - 3 SERVED BY RPAD - (R) for the Respondent(s) No. 4 ================================================================ CORAM: HONOURABLE MR.JUSTICE RAJESH H.SHUKLA Date : 05/08/2013 ORAL JUDGMENT
The present petition has been filed by the petitioner under Arts. 14, 16, 19(1)(g) and 226 of the Constitution of India as well as under the Life Insurance Corporation of India (Agents) Regulations, 1972 for the prayers, (A) Your Lordships may be pleased to issue appropriate writ, order or direction, quashing and setting aside the order dated 11.7.2001 passed by the Respondent No.4, confirming the order dated 26.5.2000 passed by the Appellate Authority and Competent Authority dated 30.9.1999, as the same is arbitrary, illegal, null and void and against the principles of natural justice and be further pleased to direct the respondents to reinstate the petitioner as an agent of the respondent Corporation with all consequential benefits and agents renewal commission with 18% interest.
(B) Your Lordships may be pleased to stay the further implementation, execution, and operation of the order dated 11.7.2001 passed by the respondent No. 4 confirming the order dated 26.5.2000 passed by the Appellate Authority and the Competent Authority dated 30.9.1999 terminating the petitioner as an agent of the respondent Corporation and forfeiture of agents renewal commission, pending admission, hearing and final disposal of the present petition.
( C) Your Lordships may be pleased to grant any such other and further relief as per the nature and circumstances of the case may require.
2. The facts of the case, briefly summarized, are that the petitioner had been working as an agent with the respondent Life Insurance Corporation for more than 10 years. The petitioner as an agent would contribute towards the business of growth and development of business of the respondent Corporation for which remuneration is paid to the agent. During the course of his agency, the petitioner had forwarded the proposal for insurance of a few persons including one Smt. Lilavantiben and after she was examined by the panel doctor of the respondent Corporation, the risk was insured with the LIC policy. Similarly, other proposals were also made including the proposal of one Shri JF Kamwani, who had also undergone the usual procedure of medical examination by the panel doctor and thereafter the proposal was accepted by the respondent Corporation.
3. However, a show-cause notice came to be issued under purported exercise of power under sec. 8(b) as well as the sec. 16(1)(a), (b) & (d) of the Life Insurance Corporation of India (Agents) Regulations, 1972 (hereinafter referred to as Agent s Regulations ) on the ground that the proposal was made by the petitioner and on the basis thereof the policy was accepted. However, both the persons passed away within a short period resulting in claims. Therefore, it is alleged that though both the persons were suffering from blood pressure, diabetes or kidney problem. The facts were not mentioned by the petitioner in confidential data in the Morale Hazard Report and therefore misled the Corporation and committed cheating with the respondent Corporation. The show-cause notice was duly replied with the details about the proposal contending that the petitioner had inquired and it was found that both the persons were having good health and it did not reveal any negative aspects and therefore the proposal was recommended after receipt of favourable report of the medical examination. However, the respondent Corporation has terminated the agency with forfeiture of renewal commission which has led to filing of the present petition on the grounds stated in the petition.
4. Heard learned advocate Shri YM Thakkar for the petitioner. He has referred to the papers and submitted that the grounds for termination of the agency are that the proposals in respect of the two persons were made by the petitioner and they have expired. He submitted that Lilavantiben Ashwani expired after two years of taking the policy. However, it is stated that she was shown younger by 10-12 years. He also referred to p. 24, 25 which are the proposals for Shri JF Kamwani. Similarly, he has referred to other proposals and the show-cause notice produced at Annexure-C. He pointedly referred to the show-cause notice and submitted that Shri JF Kamwani was having blood pressure and kidney disease and had also taken treatment which was not disclosed in the proposal form. It is also stated that he expired due to pneumonia within four months due to such illness. Therefore, it has been stated that material facts have not been disclosed and withheld and thereby misled the respondent Corporation resulting in cheating as per the Agent s Regulations. Therefore, in purported exercise of power under regulations 8(b) as well as 16 (a) (b) & (d) the agency was sought to be terminated.
5. Learned advocate Shri Thakkar also referred to the reply produced at Annexure-D and submitted that as explained, the inference with regard to involvement of the petitioner for alleged cheating the respondent Corporation are without any basis. He submitted that it was obligatory for the insured to make full and correct disclosure and when the party concerned (insured) has not made proper disclosure, the petitioner as agent would not know and cannot be held liable. He has merely made the recommendation based on such information given by the insured. Learned advocate Shri Thakkar submitted that, however, as per the procedure, before the proposal is accepted, the insured is examined medically by the panel doctor and if the doctor could not detect or find out any such ailment or deficiency in health, a person like the petitioner would not know and could not have disclosed any such health hazard. He therefore submitted that in response to a query and the question in the form the insured had disclosed that he has not taken any treatment in any hospital and therefore the petitioner had no occasion to make any further query.
6. Further, when the insured is examined by the panel doctor, normally, ECG and other reports are made which would be scrutinized by the respondent Corporation before acceptance of the proposal. Learned advocate Shri Thakkar therefore submitted that it is only a proposal mooted by the petitioner which will be subject to the procedure of medical examination and other material which is placed before the concerned officer of the respondent Corporation and thereafter on scrutiny of the material and papers, the proposal is accepted insuring the risk. Therefore, it cannot be said that he had not exercised due diligence or care and the allegations of cheating are without any basis. He submitted that if there was any hidden disease which cannot be detected by the panel doctor of the respondent Corporation during the medical examination, then the petitioner could not have known if it is not disclosed by the insured.
7. Learned advocate Shri Thakkar, therefore, submitted that the show-cause notice and the subsequent action of termination of agency pursuant thereto is arbitrary and illegal. He submitted that in respect of Lilavantiben as there was no proof or evidence with regard to her age, the horoscope was produced and thereafter the affidavit before the Executive Magistrate was produced and therefore the petitioner cannot be held liable for any false statement. Again, learned advocate Shri Thakkar submitted that as per the procedure of LIC, the risk is covered on the basis of the proposal after following the procedure of medical examination by the panel doctor of LIC and thereafter on scrutiny and examination of such reports on the basis of principles of underwriting the risk is covered and thereafter the policy is issued.
8. Learned advocate Shri Thakkar referred to Annexure-F which is an appeal before the appellate authority and submitted that no opportunity of hearing has been afforded before termination of the agency. Had an opportunity been given, it could have been explained and what material has been considered, nothing has been stated. He therefore submitted that since such termination of agency and forfeiture of renewal commission will have adverse civil consequences, the opportunity of hearing ought to have been given and therefore it is also in violation of the rules of natural justice.
9. Learned advocate Shri Thakkar has also referred to the Agent s Regulations and pointedly referred to regulations 19, 15 & 16 and submitted that from the facts it cannot be said that there is any fraud which would justify such termination. He submitted that the word fraudulently has been defined in sec. 25 of the Indian Penal Code and as it cannot be said that the proposal was made fraudulently with an intention to defraud, the termination of agency is illegal and deserves to be set aside.
10. Learned advocate Shri Thakkar has referred to and relied upon the judgment of the Hon ble Apex Court in the case of Union of India v. Ibrahim Uddin and anr., reported in 2013 AIR SCW 2752 as well as the order passed by the Division Bench of this High Court in Letters Patent Appeal No. 257 of 2002 in Special Civil Application No. 541 of 2001. He has also referred to and relied upon the judgment of the Kerala High Court reported in AIR 2008 Kerala 24 referring to the interpretation of regulation 19. Similarly, he has referred to the judgment reported in AIR 2006 Allahabad 160 and also the judgment reported in AIR 2004 Madras 288 with regard to the rules of natural justice.
11. Per contra, learned counsel Shri AK Clerk referred to the Agent s Regulations and particularly regulation 16(1) (a) and (b) and submitted that regulation 16 provides that if the agent acts in a manner prejudicial to the interests of the Corporation, the agency could be terminated. He also referred to regulation 19 referring to forfeiture of renewal commission on the grounds stated therein with regard to fraud and concealment of facts. Learned counsel Shri Clerk, therefore, submitted that LIC policy is a contract of indemnity and, therefore, as provided in sec. 17 of the Indian Contract Act, when one of the parties to the contract has failed to make proper disclosure of relevant and material facts and has concealed the facts, the other party is defrauded which provides a ground for termination of the agency. He submitted that the words cheating and fraud have to be considered as referred to in sec. 17 of the Indian Contract Act and if the agent who has represented the respondent Corporation and the respondent Corporation having placed faith and trust on such agent, it is obligatory for the gent to scrutinize the relevant facts and disclose in the form at the time of sending the proposal. He submitted that in the facts of the present case as relevant and material facts were concealed or withheld at the time of sending the proposal which ultimately led to acceptance of the proposal in the form of policy covering the risks or the indemnity, the agent would also be liable having failed in his judgment.
12. Learned counsel Shri Clerk, therefore, submitted that as the respondent Corporation has put faith and trust and when the agent does not disclose relevant and material facts or indulge in concealment of facts in connivance with the party, sec. 17(2) of the Indian Contract Act would be attracted. Therefore, he referred to the Agent s Regulations and submitted that it lays down broad guidelines which empower the respondent Corporation to terminate an agency. He submitted that it is a matter of confidence and faith and if the respondent Corporation does not have any faith and trust, then it can terminate the agency because it is the mutual trust and faith which is the very basis for such agency. Learned counsel Shri Clerk submitted that the very basis or foundation of such agency is the faith and trust and when there are lapses, then a person like the petitioner cannot be foisted or the respondent Corporation cannot be compelled to continue him as an agent even though it has no faith and trust.
13. Learned counsel Shri Clerk has referred to and relied upon the judgment of the Karnataka High Court in the case of S.P. Habbu v. LIC of India & ors., reported in Legal Digest, Jan. 96 p. 57. He has also referred to the order of this High Court in Special Civil Application No. 5431 of 2001 (Coram: Ravi R. Tripathi, J.) dated 21.9.2001 in support of his submissions. He has also referred to and relied upon the judgment of the High Court in Special Civil Application No. 12258 of 2002 (Coram:
R.M. Doshit, J.) dated 10.3.2004 and also other judgments including the judgment of the Division Bench in LPA No. 257 of 2002 in Special Civil Application No. 541 of 2001.
14. In view of these rival submissions, it is required to be considered whether the present petition can be entertained and allowed or not.
15. From perusal of the facts and having regard to the rival submissions, the moot question which is required to be considered is whether the respondent Corporation is justified in terminating the agency and also forfeiting the renewal commission in respect of the business procured by the agent on behalf of the respondent Corporation.
16. As it appears from the Agent s Regulations, the business of insurance is based on mutual trust and utmost good faith. The regulations are made for regulating mutual relationship between the agent and the respondent Corporation. Therefore, the foundation of relationship of the agent and the respondent Corporation is based on mutual faith and trust. There is a set procedure provided in the form of manual as well as such regulations which is required to be followed. The agent is merely soliciting the business for and on behalf of the respondent Corporation and he makes the proposal which is subject to further procedures like medical examination, filling up of forms with proper disclosure by the insured which in turn would be scrutinized by the officers of the respondent Corporation before acceptance of such proposal.
17. Thus, though it is claimed by the respondent corporation that it is based on the proposal made by the agent they undertake the risk in the form of policy and therefore when there is concealment of relevant and material particulars of the insured it means such an act or lapse or negligence is causing prejudice to the respondent Corporation. Therefore, though the reference is made to regulation 19 as well as regulation 15, a close look at such regulations would make it clear that it refers to fraud pursuant to a criminal complaint resulting in some kind of irregularity and therefore it has a reference to fraud as provided in the Indian Penal Code. Assuming for the sake of argument that since the contract of indemnity is a matter of mutual contract between the parties and when there is concealment of facts or non-disclosure of relevant and material particulars, it would attract sec. 17(2) of the Indian Contract Act. Therefore, assuming that it is a matter of contract between the parties like the insured and the respondent Corporation and when the facts are concealed or withheld, the word fraudulently referred to in sec. 17 of the Contract Act could be attracted once such prima facie concealment of material facts is made out by the respondent Corporation.
18. Therefore, assuming that it does not require a proof or a strict proof of fraud, but mere concealment of relevant and material facts attracting provisions of sec. 17 of the Indian Contact Act which in turn would fulfill necessary criteria laid down in the Agent s Regulations for termination of agency, it has to be considered with relevant material. In the facts of the case, as discussed above, the relevant material which are required to be disclosed by the insured and they are not disclosed and when the facts with regard to health of the insured are not properly disclosed by the insured himself resulting in a claim, the agent could not be made responsible or liable for any non-disclosure of material facts.
19. As could be seen from the record including the proposals, the agent is required to fill in such forms on the basis of information given by the insured. In other words, if the insured does not make proper and full disclosure of the health condition, there is no occasion for the agent like the petitioner to make any further inquiry. Further, the disclosure or particulars stated by the insured at the time of proposal could be verified by the panel doctor at the time of medical examination and if there is any doubt or if there is any justification to doubt on the basis of medical examination, it could reflect in the report made by the panel doctor. Admittedly, there is no such report by the panel doctor of the respondent Corporation at the time of medical examination. Therefore, when the panel doctor of the respondent Corporation during medical examination could not find out anything with regard to the aspect of health or material facts regarding health of the insured which has been withheld, the agent could not be blamed.
20. Further, without any basis an inference could not be made about the connivance with the insured. In fact, the agent is an agent of the respondent Corporation in whom the Corporation has faith and trust for the purpose of securing business. Therefore, at the time of appointment of an agent, the respondent Corporation may be more careful and may have their own mechanisms for assessment of the integrity of an individual who is appointed as an agent. However, subsequent to such appointment when it has placed utmost faith and trust which in turn would guide the agent to solicit business for the respondent Corporation, it will not be open for the respondent Corporation to raise any doubt merely because some claims are made in respect of the proposal made by the agent. There can be variety of reasons or factors which may lead to such claims, but it does not necessarily provide a ground for any inference about connivance or fraud.
21. Therefore, there has to be some material or basis which could perhaps be relied upon by the respondent Corporation for the purpose of invoking the regulations for termination of an agency on the ground of such concealment and fraud. The fact that the claim is made is not the only criteria. One is required to consider that when the procedure of medical examination by the panel doctor is also required to be followed which in turn along with other material and proposal form is scrutinized by the officers of the respondent Corporation before acceptance of the policy or the proposal, the agent alone could not be blamed. If such things with regard to health or any negative aspects about the health of the insured which could be detected at the medical examination, the panel doctor would make a note at the time of the report of the medical examination or may suggest further investigation. Therefore, when the panel doctor of the respondent Corporation has not been able to trace anything adverse, the agent cannot be said to have concealed the relevant and material facts and cannot beheld liable.
22. Further, the show-cause notice for termination of agency will have civil consequences and an opportunity of hearing is required to be afforded. If such an opportunity is given, it may provide an opportunity for clarification on the aspect of concealment of facts or fraud and it could be thrashed out. However, no such opportunity is given and the respondent Corporation on the basis of material has proceeded on the basis of inference drawn with regard to fraud or connivance without any basis. A useful reference can be made to the judgment of the Division Bench of this High Court in Letters Patent Appeal No. 2662 of 2010 in Special Civil Application No. 705 of 2006.
23. Therefore, having regard to the aforesaid observations as well as the rival submissions, the impugned order cannot be sustained and the present petition deserves to be allowed. The impugned order terminating the agency and forfeiture of the renewal commission is hereby quashed and set aside. Further, it is directed that the renewal commission may be paid to the petitioner till the order of termination. However, it is clarified that it will be open for the respondent Corporation to proceed to terminate the agency when there is a loss of faith and trust in exercise of power under the Agent s Regulations after giving show-cause notice and providing an opportunity of hearing in accordance with law.
24. The present petition accordingly stands allowed. Rule is made absolute. No order as to costs.
(RAJESH H.SHUKLA, J.) (hn) Page 12 of 12