LIFE INSURANCE CORPORATION OF INDIA AND ANR. versus SMT. S. SINDHU

Citation: [2006] SUPP. 1 S.C.R. 854 · Decided: 04-05-2006 · Supreme Court of India · Bench: B.N. SRIKRISHNA · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
LIFE INSURANCE CORPORATION OF INDIA AND ANR. 
v. 
SMT. S. SINDHU 
MAY 4, 2006 
B 
[B.N. SRIKRISHNA AND R.V. RA VEENDRAN, JJ.] 
Insurance law. 
Life insurance policy-20 years policy-Premium paid for three years 
C only-Premium not paid thereafter-Policy lapsed-Death of policy holder 
before maturity-UC paying reduced sum by treating it as paid-up policy--
Whether l/C liable to pay interest in regard tu premium paid form the 
respective dates of payment of premiums to date of settlement-Held, payment 
of interest on the premium amounts, from the re~pective dates of remittance 
D of premiums, is alien to the concept of life insurance-Nu interest is payable 
either under the contract of insurance. or under any statue, ur under the 
interest Act, 1978 from the respective dates uf payment of premium to date 
of settlement of claim-Interest Act, 1978. 
Appellant-LIC issued policy dated I 1.3.1994 for an assured sum of Rs. 
E 5 lakhs with risk commencing from 4.12.1993 in regard to life of K for which 
premium was required to he paid every quarter. K paid premium till 4.12.1996 
but failed to pay premium thereafter and the policy lapsed from 4.3.I 997. K 
died on 5.12.1997. Appellant-Lie paid Rs. 1,13,750/- to the respondent-widow/ 
nominee of K towards 'paid up value' of the policy as per Condition (4) of the 
F policy as the policy was found to be ineligible for bonus. 
Respondent approached Consumer Disputes Redressal Forum against 
appellant-UC for deficiency of service claiming entire sum of Rs. 5 lakhs 
assured under the policy with accrued bonus and interest@ 12% per annum. 
District Forum rejected the case of the respondent but directed LIC to pay 
G interest @ 15% per annum on the amount of Rs. 1,13,750/- from the 
respective dates ofreceipt of the amount of premium to date of settlement of 
claim on the basis of the decision in the case of Harshad J. Shah v. l.l.C. uf 
India (1997( 5 SCC 64. In appeal filed by LIC, State Commission upheld the 
direction to pay interest but reduced interest from 15% to 12% per annum. 
Revision filed by LIC against Order of the State Commission was rejected by 
fI 
854 
-
LIFE INSURANCE CORPORATION OF INDIA v. SMT. S. SINDHU 
855 
the National Commission. Hence this appeal. 
A 
Allowing the appeal, the Court 
HELD: 1. The amount that is paid by LIC in regard to a lapsed policy, 
is not "refund of the premium paid on various dates", but a reduced lump 
sum (calculated as per condition no. 4 of the policy) instead of the assured B 
sum. When what is paid by LIC is not refund of premiums, the question of 
treating the amount paid by LIC as refund of premiums paid and then directing 
payment of interest thereon from the respective dates of payment of premium 
does not arise. That would amount to treating the premiums paid in respect 
of a policy which lapsed by default, as fixed deposits repayable with a hefty 
rate of interest. Surely, the intention is not to reward defaulting policy holders. C 
Moreover, the courts and Tribunals cannot rewrite contracts and direct 
payment contrary to the terms of the contract, that too to the defaulting party. 
[859-B, C, DJ 
2. It is now well-settled that interest prior to the date of suiUclaim (as D 
contrasted to pendente-lite interest and future interest) Can be awarded in 
the following circumstances : 
(a) Where the contract provides for payment of interest; or 
(b) Where a statue applicable to the transaction/ liability, provides for E 
payment of interest; or 
(c) Where interest is payable as per the provisions of the Interest Act, 
1978. [859-D, E, Fl 
3. The contract, that is the insurance policy, provides that if the premium 
is not paid (after regularly paying premiums for a period of three full years), F 
the policy shall subsist only as a paid up policy for a reduced sum (calculated 
as per Table given in Condition No. ( 4) of the policy) payable on the date of 
maturity or at the prior death of the life assured. It does not provide for payment 
of interest on the premiums paid. In fact, the operative portion of the policy 
specifically provides that no interest will be paid. Payment of interest on the G 
premium amounts, from the respective dates of remittance of premiums, is 
alien to the concept of life insurance. Therefore, under the contract, no 
interest is payable by LIC. [859-F, G; 860-C, DI 
4. Where a statute provide for payment of interest, such interest will 
have to be paid in accordance with the provisions of such statut

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