National Consumer Disputes Redressal
Neetaben Mukund Shah & Anr. vs Birla Sun Life Insurance Company ... on 20 May, 2015
NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION NEW DELHI CONSUMER CASE NO. 148 OF 2008 1. NEETABEN MUKUND SHAH & ANR. W/o. Mukund Natvrlal Shah Resident of B.No.2. Green Avenue Complex Behind Union Park Ghod Dod Road Surat -395001 Gujarat ...........Complainant(s) Versus 1. BIRLA SUN LIFE INSURANCE COMPANY LIMITED Office At 6th Floor, Vaman Center Mkhwana Road Office Andheri Kurla Road Near Moral Naka Adheri (E) Mumbai -400059 Maharastra 2. Saumil Mukund Shah S/o. Mukund Natvarlal Shah, Minor Through Her Motjer and Natural Guardian R/o. B. No. 2, Green Avenue Complex, Behind Union Partk, Ghod Dod Road, Surat - 395 001. Gujarat. ...........Opp.Party(s)
BEFORE: HON'BLE MR. JUSTICE V.K. JAIN, PRESIDING MEMBER HON'BLE MR. DR. B.C. GUPTA, MEMBER
For the Complainant : Mr. Devesh Mohta, Advocate
Ms. Sadhana Sandhu, Advocate For the Opp.Party : Ms. Meenakshi Midha, Advocate with
Ms. Jyoti Nagpal, Advocate for
Mr. Niraj Singh, Advocate
Dated : 20 May 2015 ORDER
JUSTICE V.K. JAIN, PRESIDING MEMBER
1.Late Shri Mukund Natvarlal Shah obtained an insurance policy from the opposite party for a sum of Rs.1,00,00,000/- paying the first premium of Rs.47,900/- to the opposite party-company. In the proposal form the deceased claimed to be engaged in business and he declared a total income of Rs.4,99,393/- in the year 2001-2002. His assets and liabilities were disclosed by the insured at Rs.2.60 crore and Rs.30 lakh respectively. On his death, a claim was preferred by his widow and son with the insurance company. The claim, however, was repudiated by the opposite party, company on the ground that the income stated by the insured in the proposal was false to his knowledge, since he had declared income of only Rs.1,45,913/- for the year 2001-2002, in the Income Tax Return filed by him. It was further stated in the said letter that the income declared by the insured in the immediately preceding years also was more or less in the same range. It was further stated in the repudiation letter that net worth of the insured as stated in the proposal was highly exaggerated since most of the assets mentioned therein had been hypothecated/mortgaged to the banks. The insurance company also claimed, in the aforesaid letter, that it had issued the policy believing that the insured had the net worth presented and the total income declared in the financial statement and, therefore, was financially viable to maintain the above policy, along with the policy which he was proposing to take from Om Kotak Mahindra Life Insurance Company for Rs.1,00,00,000/- and the existing and proposed insurance policy from Life Insurance Corporation of India for Rs.20,00,000/- and Rs.21,00,000/- respectively.
Being aggrieved from the rejection of their claim the complainants are before this Commission seeking quashing of the repudiation letter and direction to the opposite party to pay compensation as well as interest on the sum assured.
2. The complaint has been resisted by the insurance company primarily on the same grounds on which it has rejected the claim.
3. A perusal of the proposal submitted by the insured Mukund Natvarlal Shah would show that at the time of submitting the said proposal he had separately applied to Om Kotak Mahindra Life Insurance Company for a policy of Rs.1,00,00,000/- and to Life Insurance Corporation of India for a policy of Rs.20,00,000/-. He already held a policy for Rs.21,00,000/- from the Life Insurance Corporation.
In the financial statement which formed part of the proposal submitted by him, the insured declared his income before tax in the year 2001-2002 to be of Rs.4,99,393/-. He declared the value of his assets at Rs.1,36,00,000/-, whereas the liabilities were quantified at Rs.30,00,000/-.
4. A perusal of the Income Tax Return of the insured for the assessment year 2001-02 (previous year 2000-2001) would show that he had income before tax of Rs.1,49,513/- in the aforesaid year. A perusal of form No.2D filed by the complainants would show that the taxable income of the insured in the assessment year 2002-03 (accounting year 2001-02) was Rs.1,81,875/-. Even in the assessment year 2003-04(accounting year 2002-03) his income before tax was Rs.1,64,128/-. In the assessment year 2000-2001 he had declared taxable income of Rs.1,49,730/-. It is, thus, evident that the insured had made a false statement as regards his income, in the proposal submitted by him. He inflated his income by more than 200%, while submitting the proposal. Though the insured was also the Karta of an HUF known as Mukund Bhai Natvarlal Shah HUF and the aforesaid HUF had declared a taxable income of Rs.2,44,573/- for the assessment year 2002-03 (accounting year 2001-02), the said income cannot be considered to be the income of the insured, an HUF being a separate legal entity. It was submitted during the course of arguments that the aforesaid HUF had three members. If the income declared by the HUF for the assessment year 2002-03 is divided by three the share of the insured would be about Rs.81,500/- and even if the said amount is added to the income declared by the insured for the assessment year 2001-02 or 2002-03, the resultant figure would be much much below the income of Rs.4,99,393/- declared in the proposal. Therefore, there is no escape from the conclusion that the insured had made a false statement, as regards his income, in the proposal submitted by him.
4. Section 45 of the Insurance Act, to the extent it is relevant for our purpose provides that no policy of life insurance shall, after expiry of two years from the date on which it was effected, be called in question by an insurer on the ground that a statement made in the proposal for insurance in any document leading to the issue of the policy was inaccurate or false, unless the insurer shows that such statement was on a material matter or suppressed facts which it was material to disclose and that it was fraudulently made by the policy holder who knew, at the time of making it, that the said statement was false or that it suppressed facts which it was material to disclose. In the case before us, more than two years form the date of policy had lapsed by the time the insured expired. Therefore, the claim can be denied by the insured only if it is shown that (i) the statement made by the complainant was inaccurate or false (ii) the said statement was on a material matter (iii) the statement was fraudulently made by the insured and (iv) he knew, at the time of making the statement, that it was false.
5. The Income Tax Return of the insured clearly shows that the statement made by him as regards his income in the year 2001-2002 was false. The income of the insured being a matter within his knowledge it cannot be disputed that at the time he declared income of Rs.4,99,393/- in the year 2001-02 he knew that the said statement was false. Therefore, the only question which need to be answered are as to whether the statement regarding income in the year 2001-02 was of a material matter and whether it was fraudulently made by the deceased.
6. It is clearly stated in the letter dated 04-04-2006 that the insurance policy was given by the opposite party based on the statement and declaration made in the proposal and believing that the insured had the net worth presented and the total income declared in the financial statement and it was financially viable for him to maintain the above policy, along with the proposed policy of insurance to be issued by Om Kotak Mahindra Life Insurance Company for Rs.1,00,00,000/- and the existing and the proposed insurance policy from Life Insurance Corporation of India for Rs.21,00,000/- and Rs.20,00,000/- respectively. The very fact that the proposal form required the insured to declare not only his income and assets but also the insurance policies which he had already taken as well as the other insurance policies applied by him clearly show that the income of the insured was a material matter since based upon the income and assets of the insured the insurance company would decide whether the insured would be able to service the premium of the policy applied by him, along with the premium of the other policies already taken and applied by him, during the tenure of the said policies. If the insurance company finds that the income of the proposer is not sufficient to service the premium of the policy applied by him along with the premium of the other policies already taken or applied by him it would be entitled, as a prudent insurer, to reject the proposal. The concern of the insurance company that the proposer should be financially sound to service the premium of all the insurance policies taken by him is well founded and cannot be brushed aside as an irrelevant consideration. In fact, in a given case, even life of the insured may be in risk if he takes insurance cover for an amount which is wholly disproportionate to his income, since someone who is likely to receive the sum assured on his death may become instrumental in liquidating him so as to obtain an unjust enrichment at the cost of the life of the insured.
7. A somewhat similar issue was came up for consideration of this Bench in ICICI Prudential Life Insurance Company Vs. Lalita Jain in FA No.246 of 2010 decided on 10-02-2015. In the aforesaid case, the insured obtained a life insurance policy for Rs.25,00,000/-, concealing the fact that he had applied for several other life insurance policies. On his death the claim lodged by his mother was repudiated by the insurance company on the ground that the other policies applied by the insured had not been disclosed in the proposal. The State Commission having ruled in favour of the complainant the matter was brought by the insurance company to this Commission by way of an appeal. Noticing the financial underwriting guidelines of the insurance company, it was noticed by this Commission that the insurance company had to take into consideration a number of factors including the income of the insured, while considering a proposal so that the risk cover provided to a person is not disproportionate to his income and it is for this purpose that the insurance company had set a limit based upon the age and income of the insured for granting life cover to a proposer. It was held that the proposer was, therefore, required to disclose not only the life insurance policy already taken but also the applications which he had submitted for taking such policies either from same company or from other insurance companies. It was further held that such information was a material information since the decision of the insurance company whether to accept the proposal or not, was dependent inter alia on the amount of insurance cover already taken or applied by the proposer. On account of concealing of the aforesaid material information by the proposer, the insurance company was deprived of an opportunity to consider the proposal in the light of all the relevant facts including the extent to which the insured had already been covered by way of other policies. This Commission also rejected the contention of the complainant that the financial guidelines of the insurance company having not been declared on its website could not be held against the complainants. It was held that the information with respect to the other policies had a material bearing on the underwriting decision of the insurance company and it was clearly and specifically agreed by the insured himself, by way of a declaration contained in the proposal form, that in case of any misstatement or suppression of material information the company had the right to repudiate the claim.
A similar declaration was made by the insured in the case before us. He clearly understood and agreed as under in the declaration submitted by him:
"1. The answers and statements made on this application including any medical examination and any other document of this application herein collectively called 'this application' are full, complete and true in every particular and will be the basis of any contract which may arise.
2. all material facts, being facts which may influence the assessment of this application have been disclosed on this application being understood that failure to make such disclosure renders the contract voidable."
In view of the aforesaid declaration it cannot be said that the statement made by him with respect to his income was not on a material fact or that it did not influence the decision of the insurance company on acceptance or otherwise of the proposal submitted by him.
8. In Asha Garg & Ors. Vs. United India Insurance Co. Ltd. & Ors. 2006(2) UC 869, the insured while taking a policy of Rs.5,00,00,000/- from National Insurance Company Ltd., did not disclose that he had submitted two proposals for personal accident insurance with the United India Insurance Co. Ltd. for a sum of Rs.5,00,00,000/- and Rs.10,00,00,000/- respectively. It was held by this Commission that since both the companies were different it was not possible for the National Insurance Company to verify whether the two proposals given by the assured were accepted or not accepted. It was further held that had the said fact been disclosed, National Insurance Company would have verified form the office of the United India Insurance Company and might have taken a decision of not granting insurance policy for the sum of Rs.5,00,00,000/- or would have charged increased premium. It was held that there was no reason for the assured not to disclose the said fact. This Commission rejected the contention that the aforesaid information was not a material fact and held that the insured was entitled not to abide by the contract.
9. In the case before us had the correct income of the insured been disclosed to the opposite party, it is quite probable that considering the insurance policy already taken by him as well as the insurance policies which he had already applied with Om Kotak Mahindra Insurance Co. and Life Insurance Corporation of India, the opposite party would not have granted another policy of Rs.1,00,00,000/- to him. The false information given by the insurer in the proposal form, therefore, certainly influenced the decision of the insurance company on the proposal submitted by him. Obviously, the purpose behind submitting a false information as regards the income of the insured was to induce the insurance company to issue a policy for Rs.1,00,00,000/- on the assumption that the proposer had an annual income of Rs.4,99,393/- The aforesaid false submission, therefore, constitutes fraud within the meaning of Section 17 of the Indian Contract Act. The income, as declared in the proposal could not have been verified by the insurer since income tax returns are not shared by the Income Tax Department with the outsiders. Accordingly, there is no escape from the conclusion that not only the false information as regards the income of the insured was a material information, it was given fraudulently so as to induce the insurance company to give a policy of Rs.1,00,00,000/- which the said company might not have given had it known the correct income of the deceased. The insurance company, therefore, was very well entitled in law to repudiate the claim.
10. The learned counsel for the complainant has placed reliance on the judgments of Madras High Court in All India General Insurance Co. Ltd. & Anr. Vs. S.P. Maheshwari, AIR 1960 Madras 484 and Life Insurance Corporation of India Vs. Parvathavardhini Ammal, AIR 1965 Madras 357. However, neither of the aforesaid decisions would apply to the facts prevailing in the case before us and, therefore, are of no help to the complainants.
11. For the reasons stated hereinabove, we find no merit in the complaint and the same is accordingly dismissed.
......................J V.K. JAIN PRESIDING MEMBER ...................... DR. B.C. GUPTA MEMBER