Allahabad High Court
Hdfc Standard Life Insurance Company ... vs Permanent Lok Adalat Moradabad And ... on 10 November, 2022
Author: Prakash Padia
Bench: Prakash Padia
HIGH COURT OF JUDICATURE AT ALLAHABAD A.F.R. Court No. - 9 Case :- WRIT - C No. - 27289 of 2022 Petitioner :- HDFC Standard Life Insurance Company Ltd Respondent :- Permanent Lok Adalat Moradabad And Another Counsel for Petitioner :- Aditya Bhardwaj Hon'ble Prakash Padia,J.
1. The petitioner has preferred present writ petition inter-alia with the prayer to quash the award dated 08.12.2021 passed by respondent no.1 namely Permanent Lok Adalat, Moradabad, U.P.
2. The facts in brief as contained in the writ petition are that petitioner namely H.D.F.C. Standard Life Insurance Company Ltd. is a company registered under Companies Act, 1956 and as per Section 3 of the Insurance Act, 1938 carrying on life insurance business. The life assured namely late Ravi Kiran has approached the petitioner- insurance company for issuance of insurance policy in the year 2018 and has submitted the proposal form and other required documents to obtain the insurance policy. Upon his instructions and the declaration made thereunder, the petitioner considering the same to be true and correct in all aspect issued the policy. The salient features of the policy are as under :-
Policy no 20043201 Date of proposal received 01.02.2018 Date of RCD 02.02.2018 Date of death 27.03.2018 Policy duration 1 month 25 days Plan HDFC Life ProGrowth Plus Life Assured Late Ravi Karan
3. On 04.08.2018 petitioner received the claim intimation form, from the respondent No.2 informing that the life assured died on 27.03.2018. Since the death of the life assured occurred within two months from the risk commencement date of the subject policy, the petitioner has conducted a statutory investigation as per Clause 8 (3) of the Insurance Regulatory and Development Authority of India (Protection of Policy Holder's Interest) Regulations, 2002. During investigation it was revealed that life assured has submitted incorrect income and occupation in the proposal form.
4. It is argued that life assured has no permanent job and was absconding from home since past two months and he died due to unknown accident on 27.03.2018. According to panchanama death was due to falling from a vehicle & sustaining injury, leading to death. No FIR was registered and only a general diary bearing number GD No.017, dated 27.03.2018 was recorded on the basis of statements of Sunil Kumar, son-in-law of respondent, along-with respondent three sons and complainant went to police station and gave a statement that insured is a habitual chronic alcoholic & is always intoxicated and insured never listened to family member's advice of giving up alcohol. In the post-mortem report cause of death was recorded as hemorrhage & shock. The immediate cause was mentioned as shock due to anti-mortem injury. It has been mentioned in the post-mortem report that stomach contents smell of alcohol. It is argued that life assured had taken policy by concealing the material information from the petitioner. Due to non disclosure of material facts and untrue statement contained in the proposal form petitioner repudiated the claim of the respondent and refunded the fund value of Rs.56,521.55/- and intimated the said facts to the respondent No.2 vide letter dated 30.11.2018.
5. Being aggrieved by the repudiation of the claim, respondent No.2 filed a complaint on 9.7.2019 before the respondent no.1. After receiving the summons petitioner company assigned the matter to the local counsel. The insurance company was under the impression that local counsel is attending the matter regularly and written arguments were filed by him. However, on receipt of the impugned order it was revealed that the local counsel did not appear in the said matter, therefore, complaint was decided ex-parte.
6. A contract of insurance is one of utmost good faith. A proposer who seeks to obtain a policy of life insurance is duty bound to disclose all material facts bearing upon the issue as to whether the insurer would consider it appropriate to assume the risk which is proposed. It is with this principle in view that the proposal form requires a specific disclosure of pre-existing ailments, so as to enable the insurer to arrive at a considered decision based on the actuarial risk.
7. In the present case as indicated above, the proposer failed to disclose the fact that he is habitual chronic alcoholic & is always intoxicated and insured never listened to family member's advice of giving up alcohol. In the post-mortem report cause of death was recorded as hemorrhage & shock. The immediate cause was mentioned as shock due to anti-mortem injury. It has been mentioned in the post-mortem report that stomach contents smelled alcoholic.
8. This brings the ground for repudiation squarely within the principles which have been formulated by the Hon'ble Apex Court in series of decisions. In the case of Life Insurance Corporation of India Vs Asha Goel reported in (2001) 2 SCC 160, it was held by the Hon'ble Apex Court that :-
"12...The contracts of insurance including the contract of life assurance are contracts uberrima fides and every fact of material (sic material fact) must be disclosed, otherwise, there is good ground for rescission of the contract. The duty to disclose material facts continues right up to the conclusion of the contract and also implies any material alteration in the character of risk which may take place between the proposal and its acceptance. If there is any misstatements or suppression of material facts, the policy can be called into question. For determination of the question whether there has been suppression of any material facts it may be necessary to also examine whether the suppression relates to a fact which is in the exclusive knowledge of the person intending to take the policy and it could not be ascertained by reasonable enquiry by a prudent person."
9. This has been reiterated by the Hon'ble Apex Court in the case of P. C. Chacko & another Vs. Chairman, Life Insurance Corporation of India and others reported in (2008) 1 SCC 321. It has been held by the Hon'ble Apex Court that proposal can be repudiated if a fraudulent act is discovered. The relevant paragraph namely paragraph 17 is reproduced hereinbelow :-
"17. The purpose for taking a policy of insurance is not, in our opinion, very material. It may serve the purpose of social security but then the same should not be obtained with a fraudulent act by the insured. Proposal can be repudiated if a fraudulent act is discovered. The proposer must show that his intention was bona fide. It must appear from the face of the record. In a case of this nature it was not necessary for the insurer to establish that the suppression was fraudulently made by the policy-holder or that he must have been aware at the time of making the statement that the same was false or that the fact was suppressed which was material to disclose. A deliberate wrong answer which has a great bearing on the contract of insurance, if discovered may lead to the police being vitiated in law."
10. In the case of Satwant Kaur Sandhu Vs. New India Assurance Company Ltd., reported in (2009) 8 SCC 316 at the time of obtaining the Mediclaim policy, the insured suffered from chronic diabetes and renal failure, but failed to disclose the details of these illnesses in the policy proposal form. Upholding the repudiation of liability by the insurance company, Hon'ble Apex Court held that :-
"25. The upshot of the entire discussion is that in a contract of insurance, any fact which would influence the mind of a prudent insurer in deciding whether to accept or not to accept the risk is a "material fact". If the proposer has knowledge of such fact, he is obliged to disclose it particularly while answering questions in the proposal form.
Needless to emphasise that any inaccurate answer will entitle the insurer to repudiate his liability because there is clear presumption that any information sought for in the proposal form is material for the purpose of entering into a contract of insurance."
11. Recently, Hon'ble Apex Court in the case of Reliance Life Insurance Co. Ltd. Vs. Rekhaben Nareshbhai Rathod reported in (2019) 6 SCC 175, has set aside the judgement of the NCDRC, whereby the NCDRC had held that the failure of the insured to disclose a previous insurance policy as required under the policy proposal form would not influence the decision of a prudent insurer to issue the policy in question and therefore the insurer was disentitled from repudiating its liability. Hon'ble Apex Court, while allowing the repudiation of the insurance claim, held that :-
"30. It is standard practice for the insurer to set out in the application a series of specific questions regarding the applicant's health history and other matters relevant to insurability. The object of the proposal form is to gather information about a potential client, allowing the insurer to get all information which is material to the insurer to know in order to assess the risk and fix the premium for each potential client. Proposal forms are a significant part of the disclosure procedure and warrant accuracy of statements. Utmost care must be exercised in filling the proposal form. In a proposal form the applicant declares that she/he warrants truth. The contractual duty so imposed is such that any suppression, untruth or inaccuracy in the statement in the proposal form will be considered as a breach of the duty of good faith and will render the policy voidable by the insurer. The system of adequate disclosure helps buyers and sellers of insurance policies to meet at a common point and narrow down the gap of information asymmetries. This allows the parties to serve their interests better and understand the true extent of the contractual agreement.
31. The finding of a material misrepresentation or concealment in insurance has a significant effect upon both the insured and the insurer in the event of a dispute. The fact it would influence the decision of a prudent insurer in deciding as to whether or not to accept a risk is a material fact. As this Court held in Satwant Kaur (supra) "there is a clear presumption that any information sought for in the proposal form is material for the purpose of entering into a contract of insurance". Each representation or statement may be material to the risk. The insurance company may still offer insurance protection on altered terms."
12. The same view was again taken by the Hon'ble Apex Court in the case of Branch Manager, Bajaj Allianz Life Insurance Company Ltd. and others Vs. Dalbir Kau reported in AIR 2020 SC 5210.
13. The Division Bench of Madras High Court in All India General Insurance Co., Ltd. V. S. P. Maheshwari reported in AIR 1960 Mad 484 after taking into consideration the history of insurance laws in United States of America, in England and in India stated in paragraph 10, which reads as follows :-
"(10) One great principle of insurance law is that a contract of insurance is based upon utmost good faith Uberrima fides; in fact it is the fundamental basis upon which all contracts of insurance are made. In this respect there is no difference between one contract of insurance and another. Whether it be life or fire or marine the understanding is that the contract is uberrima fides and though there may be certain circumstances from the peculiar nature of marine insurance which require to be disclosed, and which do not apply to other contracts of insurance, that is rather an illustration of the application of the principle than a distinction in principle. From the very fact that the contract involves a risk and that it purports to shift the risk from one party to the other, each one is required to be absolutely innocent of every circumstance which goes to influence the judgment of the other while entering into the transaction."
14. A Single Judge Bench of this Court in the case of Life Insurance Corporation of India, Kanpur Nagar Vs. Syed Zaigham Ali and another reported in 2016 (3) AllLJ289 was pleased to held that the provisions contained under Section 22 (C) of the Act, 1987 are mandatory and it was incumbent upon the PLA to have conducted conciliation proceeding to settle the dispute. In paragraph 27 of the aforesaid judgement it was held that the Court is constrained to observe that PLAs in the state are not functioning within the parameter of the 1987 Act, erratic orders are being passed even on matters which do not fall within their domain. In paragraph 27 certain guidelines were framed in the aforesaid judgement, which reads as follows :-
"(27) This Court is constrained to observe that the PLAs in the State are not functioning within the parameter of the 1987 Act, erratic orders are being passed even on matters which do not fall within their domain, it is, therefore, expected that the PLA while exercising power under 1987 Act would observe the following points and must at the outset formulate the questions before proceeding to adjudicate. The guidelines are not exhaustive but merely illustrative.
(1) Whether PLA has jurisdiction on the subject matter;
(2) Primary role of PLA is that of conciliation upon failure of the parties to reach an agreement, PLA mutates into an adjudicatory body;
(3) PLA should not give an impression to the disputants that it from the beginning has an adjudicatory role;
(4) PLA being a Tribunal lacks the inherent power of a Court, therefore, cannot grant injunction/interim orders;
(5) The role assigned to PLA is to settle/adjudicate "most of the petty cases which ought not to go in the regular courts would be settled in the pre-litigation stage itself";
(6) Matters where genuineness of the claim itself is in dispute, parties have taken extreme positions, the same, prima facie, may not be the subject matter of conciliation/adjudication, (7) Whether or not an offence, which is non compoundable or compoundable in nature, has indeed been committed would fall outside the jurisdiction of PLA;"
15. Apart from the same, from perusal of the order passed by the Permanent Lok Adalat, Moradabad, it appears that the same has been passed without providing opportunity of hearing to the petitioner. Further after going through the aforesaid order, the Court is of the firm opinion that no reasons whatsoever has been given while allowing the petition filed by the claimant-respondent.
16. A complete procedure has been prescribed under Section 22(C) of the Legal Services Authorities Act, 1987 (In short "Act, 1987") to decide the dispute by the Permanent Lok Adalat and Section 22 (C) of the Act, 1987 provides that conciliation proceedings are mandatory, thereafter the Permanent Lok Adalat have adjudicatary function under Legal Services Authorities Act, 1987. Section 22 outlines the powers of the Lok Adalats and Permanent Lok Adalats. Section 22 is extracted below:
"Section 22. Powers of Lok Adalats.-
(1) The Lok Adalat or Permanent Lok Adalat shall, for the purposes of holding any determination under this Act, have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908) while trying a suit in respect of the following matters, namely:-
(a) the summoning and enforcing the attendance of any witness and examining him on oath;
(b) the discovery and production of any document;
(c) the reception of evidence on affidavits;
(d) the requisitioning of any public record or document or copy of such record or document from any court or office; and
(e) such other matters as may be prescribed.
(2) Without prejudice to the generality of the powers contained in sub-section (1), every Lok Adalat or Permanent Lok Adalat shall have the requisite powers to specify its own procedure for the determination of any dispute coming before it.
(3) All proceedings before the Lok Adalat or Permanent Lok Adalat shall be deemed to be judicial proceedings within the meaning of Sections, 193, 219 and 228 of the Indian Penal Code (45 of 1860) and every Lok Adalat shall be deemed to be a civil court for the purpose of Section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973 (2 of 1974)."
17. Section 22-C of the Legal Services Authorities Act, 1987 stipulates the instances in which Permanent Lok Adalats can take cognizance of cases. Section 22-C provides as follows:
"22-C. Cognizance of cases by Permanent Lok Adalat.- (1) Any party to a dispute may, before the dispute is brought before any court, make an application to the Permanent Lok Adalat for the settlement of dispute:
Provided that the Permanent Lok Adalat shall not have jurisdiction in respect of any matter relating to an offence not compoundable under any law:
Provided further that the Permanent Lok Adalat shall also not have jurisdiction in the matter where the value of the property in dispute exceeds ten lakh rupees:
Provided also that the Central Government, may, by notification, increase the limit of ten lakh rupees specified in the second proviso in consultation with the Central Authority.
(2) After an application is made under sub-section (1) to the Permanent Lok Adalat, no party to that application shall invoke jurisdiction of any court in the same dispute.
(3) Where an application is made to a Permanent Lok Adalat under sub-section (1), it-
(a) shall direct each party to the application to file before it a written statement, stating therein the facts and nature of dispute under the application, points or issues in such dispute and grounds relied in support of, or in opposition to, such points or issues, as the case may be, and such party may supplement such statement with any document and other evidence which such party deems appropriate in proof of such facts and grounds and shall send a copy of such statement together with a copy of such document and other evidence, if any, to each of the parties to the application;
(b) may require any party to the application to file additional statement before it at any stage of the conciliation proceedings;
(c) shall communicate any document or statement received by it from any party to the application to the other party, to enable such other party to present reply thereto.
(4) When statement, additional statement and reply, if any,have been filed under sub-section (3), to the satisfaction of the Permanent Lok Adalat, it shall conduct conciliation proceedings between the parties to the application in such manner as it thinks appropriate taking into account the circumstances of the dispute.
(5) The Permanent Lok Adalat shall, during conduct of conciliation proceedings under sub-section (4), assist the parties in their attempt to reach an amicable settlement of the dispute in an independent and impartial manner.
(6) It shall be the duty of every party to the application to cooperate in good faith with the Permanent Lok Adalat in conciliation of the dispute relating to the application and to comply with the direction of the Permanent Lok Adalat to produce evidence and other related documents before it.
(7) When a Permanent Lok Adalat, in the aforesaid conciliation proceedings, is of opinion that there exist elements of settlement in such proceedings which may be acceptable to the parties, it may formulate the terms of a possible settlement of the dispute and give to the parties concerned for their observations and in case the parties reach at an agreement on the settlement of the dispute, they shall sign the settlement agreement and the Permanent Lok Adalat shall pass an award in terms thereof and furnish a copy of the same to each of the parties concerned.
(8) Where the parties fail to reach at an agreement under sub-section (7), the Permanent Lok Adalat shall, if the dispute does not relate to any offence, decide the dispute."
18. Taking into consideration the aforesaid aspect of the matter, very recently the Hon'ble Supreme Court in the case of Canara Bank Vs. G.S. Jayarama (2022) 7 SCC 776, it was held that Section 22-C(8) is amply clear that it only comes into effect once an agreement under Section 22-C(7) has failed. The corollary of this is that the proposed terms of settlement under Section 22-C(7), and the conciliation proceedings preceding it, are mandatory. If Permanent Lok Adalats are allowed to bypass this step just because a party is absent, it would be tantamount to deciding disputes on their merit ex parte and issuing awards which will be final, binding and will be deemed to be decrees of civil courts. This was simply not the intention of the Parliament when it introduced the Legal Services Authorities Amendment Act. Its main goal was still the conciliation and settlement of disputes in relation to public utilities, and a decision on merits always being the last resort. In this view of the matter, it was held that conciliation proceedings under Section 22-C of the Legal Services Authorities Amendment Act are mandatory in nature. Paragraph 37 of the aforesaid judgement is reproduced below:-
"37. Section 22-C(8) is amply clear that it only comes into effect once an agreement under Section 22-C(7) has failed. The corollary of this is that the proposed terms of settlement under Section 22-C(7), and the conciliation proceedings preceding it, are mandatory. If Permanent Lok Adalats are allowed to bypass this step just because a party is absent, it would be tantamount to deciding disputes on their merit ex parte and issuing awards which will be final, binding and will be deemed to be decrees of civil courts. This was simply not the intention of the Parliament when it introduced the Legal Services Authorities Amendment Act. Its main goal was still the conciliation and settlement of disputes in relation to public utilities, with a decision on merits always being the last resort. Therefore, we hold that conciliation proceedings under Section 22-C of the LSA Act are mandatory in nature."
19. From perusal of the aforesaid, this Court is of the opinion that the law is now well settled that in the absence of following the prescribed procedure as specially provided under Section 22(C)(7) of the Legal Services Authorities Amendment Act by the Permanent Lok Adalat, the order/award is vitiated.
20. In the present case, Permanent Lok Adalat Moradabad does not follow the aforesaid procedure as provided under the Legal Services Authorities Amendment Act, therefore, the award is vitiated and illegal in the eyes of law, the same is liable to be set aside and is hereby set aside.
21. Since no reply has been filed by the petitioner before the Permanent Lok Adalat, Moradabad, he is directed to file reply in the aforesaid case along-with copy of this order expeditiously.
22. Permanent Lok Adalat Moradabad is directed to pass fresh order after following the complete procedure under the law as well as the law laid down by the Hon'ble Apex Court in the case of Canara Bank (supra) most expeditiously and preferably within a period of four months from the date reply filed by the petitioner.
23. In view of the facts as narrated above, writ petition is liable to be allowed and the same is hereby allowed.
24. No order as to costs.
25. Registrar (Compliance) is directed to communicate this order to the Permanent Lok Adalat, Moradabad immediately.
Order Date :- 10.11.2022 Pramod Tripathi