In Patna High Court
Life Insurance Corporation of India (L.I.C.)
Rajiv Kumar Bhaskar
Date of Judgement
12 October 2001
Sachchidanand Jha, J & Chandramauli Kumar Prasad, J
In the case the appeal raised from the earlier judgment and order of a learned single Judge of the same Court allowing the writ petition of the sole respondent i.e. Rajiv Kumar Bhaskar with a direction to Life Insurance Corporation of India (L.I.C.), to pay the sum under the insurance policy with interest at the rate of 12 per cent per annum from the date of death of employee and costs of Rs. 5,000.
The case under which writ was filed earlier who is the respondent here, stated, was that respondent’s father late Upendra Sharma was a Lecturer in Ram Lakhan Singh Yadav College, Aurangabad. In the year of 1992 he insured his life under under the ‘Salary Savings Scheme’ for Rs. 1,00,000. According to the scheme the amount of premium was to be deducted from his monthly salary by the college and deposited with the Aurangabad branch of L.I.C. Upendra Sharma died due to heart attack on 9.7.1996. On 10.9.1996 the respondent i.e. his son claimed for the payment of the amount and submitted the required papers in the branch office. As the college authorities had not deposited the premiums of December, 1995 to July, 1996, respondent deposited the amount due, summing Rs. 6,040, with the college on 5.11.1996 which was forwarded to L.I.C. on the same day. Further, no action was taken on the claim, on 20.12.1999 the respondent functioned legal notice & on 24.1.2000 he functioned another notice. By letter dated 2.2.2000 he was intimated by the Additional Executive Director of the L.I.C. that the matter had been taken up with the Aurangabad Divisional office and the claim will be decided soon. When no decision was given to the respondent moved towards the District Forum constituted under the Consumer Protection Act with a complaint but the said complaint too was not proceeded further due to non-fulfilment of quorum as the President of the Meeting had not been appointed. When no direction was founded out the respondent moved into the Court in the connected writ petition, looking for direction upon L.I.C. to settle the death claim and pay the amount of insurance with suitable interest.
L.I.C. in the counter-affidavit submitted didn’t denied that Upendra Sharma had taken life insurance policy for an amount of Rs. 1,00,000 beginning from 20.3.1992 under the Salary Savings Scheme. Agreeing to it, however, the employer was responsible for deducting the premium amount every month from the salary and submitting the same to it, it was the duty of the guaranteed person to ensure payment of premium under the policy. The amounts of premium outstanding for the period December, 1995 to July, 1996 were deposited only on 6.11.1996 which further proved that no premium was paid for the aforesaid months and it was only after the death of the assured that the payment was made by the respondent from his own cause. The policy did lapsed, the respondent was not entitled to the sum assured, excluding the paid up value of the deposits, i.e., Rs. 31,800 which L.I.C.was ready to pay with interest at the rate of 9 per cent per annum, moreover, refund of the amount deposited on 6.11.96 i.e., Rs. 6,040.
As per L.I.C salary saving scheme the employer was to deduct the premium from the salary of the employee and deposit with L.I.C. All the related procedures were the accountability of the employer. Upon death of the concerned employee, the successors found the employer had defaulted in payment causing policy to lapse. L.I.C relied on a clause in the acceptance letter by the employer which said he would act not as the agent of L.I.C but as an agent of his employees.
1. Whether the employer to be treated as an agent of the L.I.C even though the express agreement to the contrary?
2. Whether the employer is at fault or the employee for non-payment of premium resulting in lapse of policy?
Arguments from the Appellant Side
The appellant contended that it was briefly stated in the policy and was conveyed to the employer that in the event of non-payment of premium either by employee or employer that would result in lapse of the policy and only the amount which have been submitted by the way of premium would be returned back to the assured at the decided percentage of interest.
- The Court held that, the method of collection of premium was indicated in the Scheme and the employer was already assigned the duty of collecting premium and forwarding the same to L.I.C. As far as the employee as such is concerned, the employer will act as an agent of L.I.C. It is a matter of common facts that insurance companies employ agents. When there is no definition of insurance agents in the regulations and the Insurance Act, the universal principles of the law of agency as contained in the Contract Actare applied.
- The submission made by the Counsel for the appellants, referring to the famous case of Basanti Devi, 1999 CCJ 1465 (SC), under which the employer failed to deposit the premium without information to the employee. In the present case as salary was not paid to Upendra Sharma from December, 1995, it was to be presumed that he knew about the non-deposit of the premium, for the premium could be deposited only after deducting the amount from the salary and where salary itself is not paid there is no question of deduction and, as such, the question of deposit does not arise. This was the only difference in the fact-situation between Basanti Devi’s case and the present case. The question was whether in this situation L.I.C. can be permitted to deny its liability? The Court opined that this does not substantially change in the legal nature of the employer, college in the present case, as an agent of L.I.C. merely because the salary is not paid on time to the employer. The scheme didn’t expected that in such a situation the employee could hurry to the needed Branch and pay the premium to discharge the liability of the consequence of the nonpayment.
- The Court by considering that the Corporation did not make any express offer to the employees neither did make any communication with them regarding payment or non-payment of the premium or any other matter in relation to the policy and the incapability of the employee to approach the Corporation directly, show that they treated their employers as ‘agents’ of the Corporation and the employer had a important role to play in this whole matter. Additionally, even the terms and conditions of the policy were to be completed only through the employer. This only points to the fact that the employers would be the agents of the Corporation.
- Furthermore, The Court held that when the existence of an agency bond would help to resolve an individual problem and the fact authorizes a court to settle that such a bond existed at a measureable time, then whether or not any express or implied consent to the formation of an agency may have been given by single party to another, the Court is authorized to conclude that such bond was in existence at that time for the matter in question.
- Thereafter, it was seen that the college failed to pay the premium caused by the failure to pay the salary was common and applicable to all the employees who had enrolled to the scheme, the respondent’s father only was not supposed to inform L.I.C. that the salary was not being paid, therefore, as a result he thought that the deductions were not being made and the premiums were not being deposited. The Court proceeded with the lines that “it is a usual phenomenon in the State of Bihar that the salary is not being paid regularly to the employees in various organizations including public undertakings and Universities, but on that ground the scheme has not been withdrawn by L.I.C. so far.”
- Thereafter, the Court concluded that “according to the terms and conditions of the policy, like any insurance policy, premiums were supposed to be paid on time. But it was outward that in the case of college and all such other organizations, which have subscribed in to the Salary Savings Scheme, L.I.C. had been accepting delayed payment for several months. This simply amounts to waiver. In the present case, the problem raised due to the death of the respondent’s father, if he had not died, the situation would not have risen. The consequences could had been be different only because in the meantime one of the employees died giving rise to the claim. In the opinion of the Court, till the scheme is taken back or the employee quits the employment and concludes to be in employment of the employer, the employer be going to remain responsible for making deductions from the salary as and when the salary is paid to the employees and for the defaults done by him, the L.I.C. can’t flew away from the liability under the Scheme. The Court accordingly held that the case was fully covered by the relation of the decision in Basanti Devi’s case, 1999 CCJ 1465 (SC) and L.I.C. became liable to pay the sum assured under the insurance policy”.
Edited by Chiranjeeb Prateek Mohanty
Approved & Published – Sakshi Raje