Poonam Khattar vs Life Insurance Corporation Of ...
2009 Latest Caselaw 2769 Del

W.P. (C) No. 3572/2008                  1


                                                            REPORTABLE

*              IN THE HIGH COURT OF DELHI AT NEW DELHI

+                WRIT PETITION (CIVIL) NO. 3572 OF 2008


                                   Reserved on:      19th May, 2009
%                                  Date of Decision : 22nd July, 2009.

      POONAM KHATTAR                                       .... Petitioner.
                               Through Mr. Rajiv Bansal & Mr. Manu Beri,
                               Advocates.

                                VERSUS

    LIFE INSURANCE CORPORATION OF INDIA & ORS. .... Respondents.
                        Through Mr. Ravinder Sethi, Sr. Advocate
                        with Mr. Kamal Mehta, Advocate for
                        respondent No. 1.
                        Ms. Isha Khanna, Advocate for respondent
                        No. 6.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA

1. Whether Reporters of local papers may be
allowed to see the judgment?
2. To be referred to the Reporter or not ?
3. Whether the judgment should be reported
in the Digest ?

SANJIV KHANNA, J:


1.    Ms. Poonam Khattar, the petitioner and Ms. Swati Chopra, the

respondent No. 6 are agents of Life Insurance Corporation of India, the

respondent No. 1. The petitioner by way of the present writ petition has

challenged order dated 18th February, 2008 passed by the Executive

Director (Marketing) of the respondent No. 1 directing withdrawal of credit

of business in respect of policy Nos. 113781187, 113781188 and

113781819 from the petitioner and granting the same to the respondent

No. 6. The aforesaid policies are keyman policies, which were obtained by
 W.P. (C) No. 3572/2008                        2


M/s Addi Industries Limited, the respondent No. 7 in favour of Mr. C.L.

Jain, Mr. Hari B. Bansal and Mr. Abhishek Bansal (beneficiaries for short)

on     payment       of   premium     of   Rs.19,03,370/-,     Rs.9,22,805/-   and

Rs.9,15,530/- respectively.

2.         Respondent No. 1 has raised a preliminary objection about

maintainability of the writ petition relying upon Regulation 20 of the Life

Insurance Corporation of India (Agents) Regulations, 1972.               The said

regulation reads as under:-

                 "20. Appeals:
                 (1) Every agent shall have a right of appeal to
                 the relevant appellate authority set out in
                 Schedule VII against an order terminating the
                 appointment which has been passed under
                 regulation 15 or regulation 16 or sub-regulation
                 (1) of regulation 17 or regulation 18."


3.         The aforesaid contention is liable to be rejected as in the present

case no order terminating the agency of the petitioner has been passed

under Regulations 15, 16, 17(1) and 18.

4.         Facts

in brief, relevant for the present decision are as under:-

(a) Respondent No. 6 had submitted proposals dated 18th January,

2003 of respondent No. 7 for issue of three keyman policies. The

said proposals were signed by respondent No. 7 and were

registered with the respondent No. 1 on 29th January, 2003 after

medical tests had been performed on the three insured persons,

i.e. the beneficiaries, on 28th January, 2003.

(b) Respondent No. 7 vide letter dated 30th January, 2003 requested

for withdrawal of all the three proposals and thereafter submitted

another letter dated 7th February, 2003 written by the

beneficiaries confirming the said withdrawal.

(c) On 31st January, 2003, respondent No. 1 received a new proposal

form from the respondent no. 7 for three keymen policies but

through the petitioner as an agent. Beneficiaries were the same

as in the first proposal.

(d) On 13th February, 2003, the respondent No. 1 refunded the

amounts deposited by respondent No. 7 in respect of the first

proposal, which was submitted through respondent No. 6 by

cheques of the same date after deducting medical fee and

processing fee. The first proposal was allowed to be withdrawn.

Hence it was no longer pending.

(e) The proposals submitted by respondent No. 7 through petitioner

were accepted and three insurance policies were issued.

(f) The petitioner was given credit as an agent, who had introduced

the said policies and the commission was released to her.

(g) Respondent No. 6 subsequently filed a complaint dated 25 th April,

2003 to the Executive Director (Marketing) alleging interference

by the petitioner.

(h) The Manager (Sales), Meerut Division, issued instructions

directing release of commission to respondent No. 6 in respect of

the three policies instead of the petitioner.

5. Two orders passed in this regard dated 30th May, 2006 and 18th July,

2006 withdrawing credit from the petitioner and granting credit to

respondent No. 6 were quashed by this Court in the judgment dated 25th

September, 2007 in W.P. (C) No. 14693/2006, titled Poonam Khattar

versus LIC of India and Others. Learned single judge observed that

that the two orders had been passed without the petitioner being served

with notice, informed about the allegations and without granting suitable

and reasonable opportunity of being heard. The two orders were also not

reasoned. By the said judgment, the respondent No. 1 was given liberty to

pass a fresh order after giving reasonable opportunity to the petitioner to

represent against the allegations leveled after issue of show cause notice

outlining the allegations. The respondent No.1 was required to pass a

reasoned order dealing with the contentions of the petitioner. The

impugned order dated 18th February, 2008 in the present writ petition has

been passed after directions given by this Court in the order dated 25 th

September, 2007.

6. The impugned order dated 18th February, 2008 does not set out the

aforesaid facts or the facts as found. It does not accept or reject the facts

as pleaded by the petitioner. The order reproduces the stand of the

petitioner in various paragraphs and rejects the same substantially on the

ground that the contention and the facts pointed out by the petitioner

were irrelevant or having no nexus or connection to the issue under

consideration. This is apparent from the reasoning given in the impugned

order. The gist of the contentions raised by the petitioner and reasons for

rejection are reproduced below:-

(1) The petitioner had alleged that she was a regular agent of the

family members or promoters of respondent No. 7 in PPF and

other investment schemes. The aforesaid fact is not disputed in

the impugned order but was considered to be irrelevant for the

issue under consideration.

(2) Respondent No. 7, it was submitted, had contacted the petitioner

for procurement of insurance policies and formalities were

completed and insurance policies were issued in February-March,

2003. It was alleged that the petitioner had no knowledge that

respondent No. 7 had earlier made a proposal for the same

policies through another agent, i.e., respondent No. 6 and the

said agent belongs to another division. The aforesaid

contentions were rejected as irrelevant and they cannot alter the

outcome of the case. In the impugned order it is stated that

whether a party discloses his previous pending proposal or not to

the second agent, the first agent is entitled to credit of the

proposal in view of the administrative instructions unless the

proposal has become stale and is cancelled and a period of one

year has expired from the date of the proposal or from the date

of medical examination in cases where medical examination is

mandated.

(3) The petitioner had stated that it was open to a client to change

their agent and the petitioner cannot be penalized for the same.

The order in this regard records that the client has the

prerogative and right to change their agent and route his

business but states that this cannot change the outcome of the

decision.

(4) In the second proposal, the respondent No. 7 had not mentioned

about any previous proposal or withdrawal thereof and the

petitioner had no knowledge about any previous proposal.

Without disputing the aforesaid facts, the contention has been

rejected in the impugned order stating, inter alia, that it was

irrelevant that the party had not mentioned about the first

proposal in the second proposal form and the plea was of no

avail.

(5) Respondent No. 7 had made allegations against respondent No.

6, contending misrepresentation about the benefits and that she

had never visited or met the three insured or any of the officers

of respondent No. 7 company and in fact the first proposal was

submitted through one benami agent, a Chartered Accountant by

profession, who was acting as a representative of respondent No.

6. The petitioner wanted the aforesaid facts to be verified. In the

impugned order dated 18th February, 2008 it has been held that

there was no need for verification as the stand of the parties was

clear in their submissions. The allegations made against the

respondent No. 6 have not been rejected or accepted in the

impugned order.

7. One of the contentions raised by the petitioner in her written reply

was that she should be furnished full details and nature of charges,

allegations leveled against her along with supporting documents furnished

by the respondent No. 6, copy of the complaint and details of violations of

the code of conduct. In the impugned order, the aforesaid contention and

request of the petitioner is rejected on two grounds. Firstly, breach of a

rule framed to avoid friction between two agents is automatic or pre-

determined, irrespective of the fact that the breach was made

unknowingly. Secondly, along with the impugned order, the petitioner was

being supplied relevant material in the form of evidence of the earlier

proposal submitted by the respondent No. 7 through respondent No. 6 and

a copy of the relevant rule.

8. The second reason mentioned in the impugned order is contrary to

the letter and spirit of the decision dated 25th September, 2007 in W.P. (C)

No. 14693/2006, titled Poonam Khattar versus LIC of India and

Others, by which the earlier impugned orders passed by respondent No.

1 withdrawing credit from the petitioner and issuing suitable credit to

respondent No. 6 were set aside with the specific direction that the

petitioner should be put to notice outlining the allegations made, so as to

give her reasonable opportunity of hearing and a speaking order should be

passed.

9. I have highlighted the relevant contentions and facts pointed out by

the petitioner and the way and the manner in which they have been

considered and examined in the impugned order to show that the

impugned order suffers from infirmities and illegalities relating to the

decision making process and not the decision itself. The impugned order

has rejected various contentions raised by the petitioner holding them to

be irrelevant, when the allegations and the contentions made are material

and proximate. Whether or not the second agent was aware of the earlier

proposal by another agent, whether this fact was mentioned in the second

proposal form is an important and a relevant factor. Similarly, whether the

first agent had misguided or made false representations is a relevant

factor before any credit for business can be given to the said agent. In

the impugned order, the aforesaid contention has not been verified on the

ground that they cannot change the outcome of the case. Conduct of an

agent and allegations of a client, who avers misrepresentation have to be

given due weightage and should not be ignored. Most importantly the

impugned order completely discounts and fails to consider the factual

aspects including the sequence of events and the conduct of respondent

No. 1 corporation. The first proposal submitted by respondent No. 7 with

respondent No. 6 as an agent was withdrawn by respondent No. 7 on 30th

January 2003, one day after it was registered on 29th January, 2003.

Confirmation letter was also submitted by the beneficiaries on 7th

February, 2003 and the proposal was cancelled by the respondent No. 1

and refund cheque issued on 13th February, 2003. Respondent No. 7

submitted a fresh proposal through the petitioner as an agent on 31st

January, 2003 on the same terms and for the same policies. Respondent

No. 1 was, therefore, aware that the second proposal was submitted with

the petitioner as an agent before the cancellation of the first proposal was

accepted on 13th February, 2003 and the premium amounts were refunded

after some deductions. Respondent No. 1 Corporation should not have

accepted withdrawal of the first proposal and refunded the premium paid

in case there was violation of any rule or administrative instructions.

Further, the first proposal was allowed to be withdrawn by the Respondent

No.1 Corporation. Approval permitting the withdrawal cannot be ignored

and regarded as inconsequential. Effect of withdrawal has to be

considered.

10. The respondent No.1 has failed to notice matters and averments

which called for attention and these were excluded from consideration and

some allegations like misrepresentation, were not even subjected to

verification. The statements of the purchaser of the policy i.e. respondent

No.7 has been sidelined and his allegation and wishes ignored. Law

requires application of mind to proximate and pertinent issues. Decision

should be based and guided by reasons. Individuals should receive fair

treatment. Judicial scrutiny while exercising power of judicial review

depends upon factors like nature of rights, subject matter involved and

consequences. Respondent No.1 while deciding the controversy is

adjudicating rights and contesting claims of two agents and deciding which

agent is entitled to get commission on the three policies. The respondent

No. 1‟s role is that of a person who adjudicates disputes to the two

contesting parties. Power of judicial review can be exercised when there is

(i) illegality (ii) irrationality (iii) procedural impropriety and on some other

grounds. In Rameshwar Prasad Vs. Union of India, (2006) 2 SCC 1,

Arijit Pasayat J. has observed;

"240. A person entrusted with discretion must, so to speak, direct himself properly in law. He must call his attention to matters which he is bound to consider. He must exclude from his consideration matters which are irrelevant to what he has to consider. If he does not obey those rules he may truly be said to be acting unreasonably. Similarly, there may be something so absurd that no sensible person could ever dream that it lay within the powers of the authority.

241. It is an unwritten rule of law, constitutional and administrative, that whenever a decision-making function is entrusted to the subjective satisfaction of a statutory functionary, there is an implicit obligation to apply his mind to pertinent and proximate matters only, eschewing the irrelevant and the remote."

11. After quoting the above passage, in Jayrajbhai Jayantibhai Patel

Vs. Anil Bhai Nathubhai Patel, (2006) 8 SCC 200, the Supreme Court

quoted with approval the following passage from Greater Boston

Television Corpn. Vs. FCC, 444 F 2d 841;

"...the reviewing court must intervene if it „becomes aware... that the agency has not really taken a "hard look" at the salient problems, and has not genuinely engaged in reasoned decision-making...."

12. The impugned order refers to LIC of India (Agent) Rules, 1972 and

states that as per clause 8(d), there should not be any interference with a

proposal introduced by another agent. The impugned order also refers to

the so-called administrative instructions without quoting and reproducing

the same in the impugned order. Reference is also made to the Code of

Conduct prescribed in IRDA Regulations, 2000 that no agent will interfere

with any proposal introduced by any other insurance agent. However, the

impugned order fails to notice and consider the effect of the respondent

No. 1 acting upon the second proposal and permitting the first proposal to

be withdrawn and refunding the cheque amounts after deductions in

respect of the first proposal. Conduct of respondent No. 1 was a relevant

fact which merited consideration and weightage. The effect of withdrawal

letter dated 13th February, 2003 by which the premium paid under the

first proposal was refunded after deducting processing charges and

medical expenses has been ignored. The Rules, Code of Conduct etc. have

not be interpreted and held that they will apply even where the first

proposal is allowed to be withdrawn.

13. During the course of arguments, learned counsel appearing for

respondent Nos. 1 and 6 had drawn my attention to administrative

instructions mentioned to in the impugned order. The impugned order

does not quote the said instructions or interpret them. It does not

specifically examine the said instructions in detail except holding that the

same are mandatory, legally abiding and apply automatically irrespective

of the fact that whether an agent has acted bona fidely and without

knowledge. The said administrative instructions have been issued under

the heading "HINTS to Agent" and read as under:-

"HINTS TO AGENTS

(1) xxxxx

(2) xxxxx

(3) From interfering in any way with proposers from whom other agents have already secured proposals which may be pending completion.

If an agent has already introduced a proposal and another agent interferes with the case and diverts the business to his agency by securing another proposal, it is the first agent who will be allowed the credit of the business even if the second proposal secured by the other agent results into a policy while the first proposal remains incomplete. The other agent can only get credit of the proposal introduced by him provided it results into a policy after the first proposal has become stale and is cancelled on the expiry of a period of one year from the date of completion of the proposal if under non-medical scheme or from the date of medical examination thereunder in other cases, or in the event of date of expiry of the period of postponement. The first agent should however, see that every effort is made to steer the first proposal to completion, without delay so as to leave no room for another agent to interfere with the proposal.

Note: For the purpose of these rules, an agent will be deemed to have introduced a proposal under his agency provided the proposal is registered in the Corporation‟s books on receipt of the basic requirements necessary for consideration thereof. "

14. A careful reading of the said administrative instructions shows that

the first agent is entitled to the credit of business even if another proposal

is submitted by the second agent, unless the first proposal has become

stale and is cancelled on expiry period of one year from the date of

completion. However, the said administrative instructions do not

specifically deal with the case where a first proposal is withdrawn and the

respondent No.1 Corporation accepts the withdrawal and even refunds the

premium deposited. In the present case, respondent No. 7 had withdrawn

the first proposal and the withdrawal was accepted by the respondent

No.1. The first proposal was in fact cancelled by the respondent No. 1 and

the amounts paid by the respondent No. 7 were refunded after deducting

administrative charges and medical fee. If the contentions of the

respondent Nos. 1 and 6 are accepted as correct, then possibly no new

proposal form can be accepted for a period of one year even if the client

wants to change his agent. Such an interpretation is not in favour of

respondent No. 1. The last portion of the said instruction stipulates that

the first agent should, without delay make efforts to steer his proposal.

Once a proposal is withdrawn, nothing remains to be executed or steered.

Whether the said instruction will apply even in cases where a proposal

after registration is allowed to be withdrawn and a new proposal is made

through another agent within one year, has to be carefully deliberated in

light of the language, implications and consequences in other cases. These

aspects have not been considered and examined in the impugned order.

As these aspects have been discounted and ignored, the matter should be

examined afresh without being influenced by the earlier orders. It is

clarified that the administrative instructions quoted above and its

interpretation and applicability has to be considered by the respondent

No.1. Observations made in this judgment are for the limited purpose of

deciding this writ petition and the respondent No.1 will independently

apply their mind to the facts, allegations and respective pleas of the

parties.

15. The impugned order dated 18th February, 2008 is quashed and set

aside and the respondent No.1 is directed to decide afresh, the complaint

made by the respondent No.6. In the facts of the present case there will

be no order as to costs.

(SANJIV KHANNA) JUDGE JULY 22, 2009.

VKR/P