HARSHAD J. SHAH AND ANR. versus L.I.C. OF INDIA AND ORS.

Citation: [1997] 3 S.C.R. 617 · Decided: 04-04-1997 · Supreme Court of India · Bench: S.C. AGRAWAL · Disposal: Disposed off

Judgment (excerpt)

HARSHAD J. SHAH AND ANR. 
A 
v. 
L.1.C. OF INDIA AND ORS. 
APRIL 4, 1997 
B 
[S.C. AGRAWAL AND G.B. PATIANAIK, JJ.] 
Contract Ac~ 1872 : Sectio11s 186 to 188 and 237. 
Ge11eral age11t of UC-Authority of-To receive premium 011 behalf of C 
LIC-Actual or appare11t authority to bi11d LIC-Age11t received bearer che-
que from insured 011 accou11t of premium-After encashi11g the cheque the 
said age11t deposited the amount with UC after the death of the in-
sured-Meanwhile, the policy lapsed-Letter of appoi11tme11t of agent as well 
as Regulation 8( 4) expressly prohibited the agent to collect premium 011 behalf D 
of UC-UC by its co11duct did 1101 i11duce the policyholders to believe that 
agents were authorised to receive premium 011 behalf of LIC-Held : Agent 
had neither actual 11or appare11t authority to receive premium 011 behalf of 
UC-17wugh UC was 'State' withi11 the meaning of Ari. 12 but while maki11g 
a provision i11 the Regulations prohibiti11g the agents from collecting premium 
011 behalf of the UC, it ca11not be said that UC had not acted fairly or in E 
co11so11ance with Pait Ill of the Co11stitutio11-Lif e I11surance Corporation 
Act, 1956, S. 49--Life Insura11ce Corporation of India (Agents) Regulations, 
1972, Regn. 8--Life Insurance Corporation (Agents) Rules, 1981. 
Ge11eral Agent of UC-Authority of-To receive premium 011 behalf of F 
LIC-Agent received bearer cheque from insured and deposited the amou11t 
with UC after death of insured-Meanwhile the policy lapsed-Age11t had 
neither express nor implied authority to collect premium on behalf of 
UC-LIC also by its conduct did not i11duce the insured to believe that the 
agent was autho1ised to receive premium 011 behalf of UC-Held : ll1 the G 
circumstances of the case, the agent in receiving the bearer cheque from the 
insured was not acting as an agent of the LIC-T11e policy having lapsed for 
default in payment of prem~um, the legal heirs of the deceased insured could 
11ot make any claim from LIC-However, LIC directed to refund the entire 
amount of premium paid to the LIC along with interest @ 15% per annum. H 
617 
618 
SUPREME COURT REPORTS 
[1997) 3 S.C.R. 
A 
Practice and Procedure : 
Costs-Award of-Question of sufficient imp01ta11ce requiring decision 
of Supreme Cowt raised by appellant-Appellant's claim allowed by Stale 
Consumer Displlles Redressal Commission though rejected by National Com-
B mission-Held: In the circumstances of the case, while dismissing the appeal, 
UC directed to pay Rs. IO, 000 as costs to the appellant. 
The husband of Appellant No. 2 took out four insurance policies 
each with double accidental benefits through respondent No. 3 who was a 
general agent of the Life Insurance Corporation of India (LIC). Premium 
C under the said policies was payable on half-yearly basis. The insured 
deposited the first and second premium and did not deposit the third 
half-yearly premium within the prescribed period. Subsequently, respon-
dent No. 3 rcceiYed a bearer cheque towards half-yearly premium on all 
the four policies. The cheque was encashed by the son of respondent No. 
D 3 and the amount of premium was deposited a day after the death of the 
Insured in a fatal accident Appellant No. 2, t11e widow of the insured, as 
the nominee under the policies, submitted a claim to the LIC on the ground 
that the policies had lapsed on account of non-payment of the half yearly 
premium even within the period of grace. Appellant No. 2 submitted a 
claim before the State Consumer Disputes Redressal Commission. The 
E State Commission held that in order to collect more business the agents 
of LIC collect the premiums from the policyholders either in cash or by 
cheque and then deposit the money so collected in the office or the LIC 
and that this practice had been going on directly within the knowledge of 
the LIC administration despite the departmental instruction that the 
F agents are not authorised to collect the premium. The State Commission 
was of the view that when the practice of accepting money by the LIC Agent 
from policyholders is in existence and the money is collected by the agent 
in his capacity and authority the reasonable inference was that the LIC 
was negligent in its service towards the policyholder. The National Con-
sumer Disputes Redressal Commission dismissal the appeal filed hy the 
G appellants. Hence this appeal. 
The Question before this Court was whether payment of premium in 
respect of a life insurance p

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