Delhi High Court
P.K. Singh vs Life Insurance Corporation Of ... on 21 April, 2010
Author: S. Muralidhar
IN THE HIGH COURT OF DELHI AT NEW DELHI
W.P. (C) 10426/2006
Reserved on: 11th March 2010
Decision on: 21st April 2010
P.K. SINGH ..... Petitioner
Through: Mr. R.K. Saini, Advocate
versus
LIFE INSURANCE CORPORATION OF INDIA ..... Respondent
Through Mr. Ravinder Sethi, Senior Advocate
with Mr. Kamal Mehta and
Mr. Puneet Sharma, Advocates
WITH
W.P. (C) 10442/2006
NANDINI SUNDRIYAL ..... Petitioner
Through: Mr. R.K. Saini, Advocate
versus
LIFE INSURANCE CORPORATION OF INDIA ..... Respondent
Through Mr. Ravinder Sethi, Senior Advocate
with Mr. Kamal Mehta and
Mr. Puneet Sharma, Advocates
WITH
W.P. (C) 10443/2006
MR. MAN SINGH KUSHWAHA ..... Petitioner
Through: Mr. R.K. Saini, Advocate
versus
LIFE INSURANCE CORPORATION OF INDIA ..... Respondent
Through Mr. Ravinder Sethi, Senior Advocate
with Mr. Kamal Mehta and
Mr. Puneet Sharma, Advocates
AND
W.P. (C) 3277/2007
R.K. MAHAJAN ..... Petitioner
Through Mr. J.P. Sengh, Senior Advocate with
Mr. N.K. Katyal and Mr. Sumeet Batra,
WP (C) Nos. 10426, 10442, 10443 of 2006& 3277 of 2007 Page 1 of 41
Advocates
versus
LIFE INSURANCE CORPORATION OF INDIA ..... Respondent
Through Mr. Ravinder Sethi, Senior Advocate
with Mr. Kamal Mehta and
Mr. Puneet Sharma, Advocates
CORAM: JUSTICE S. MURALIDHAR
1. Whether Reporters of local papers may be
allowed to see the order? No
2. To be referred to the Reporter or not? Yes
3. Whether the order should be reported Yes
in Digest?
JUDGMENT
21.04.2010
1. The facts in these four writ petitions are more or less similar and are
accordingly disposed of by this common judgment.
2. Each of these Petitioners was an agent with the Life Insurance
Corporation of India (LIC), the Respondent herein. By separate orders
dated 24th November 2005, the agency of each of the Petitioners was
terminated and forfeiture of renewal commission was also ordered in terms
of the Life Insurance Corporation of India (Agents) Rules, 1972
[hereinafter the "Agents Rules"].
3. Each of the Petitioners preferred an appeal to the Zonal Manager against
the terminations and each of the appeals was rejected by separate orders
dated 30th May 2006. The orders dated 24th November 2005, terminating
the agency and the orders dated 30th May 2006 dismissing the appeal have
been challenged by each of them by way of the present writ petitions. They
were agents attached to Branch Unit 11-C.
4. The Petitioner in W.P. (C) No. 10426 of 2006, Mr. P.K. Singh, was
appointed as an LIC agent in 1990. Since then, he has been conferred with
several awards for his work in generating business for the LIC for several
years. A long list of such achievements is set out in para 3(B) of the writ
petition. He was awarded membership of the Chairman‟s Club for 2000-01
and 2001-02. Ms. Nandini Sundriyal the Petitioner in W.P(C) No. 10442 of
2006 became an LIC agent in the year 1990 and has had an unblemished
record. Mr. Man Singh Kushwaha the Petitioner in W.P. (C) No.10443 of
2006 became an agent way back in the 1970s and has also been awarded
merit certificates and honours. Similarly, Mr. R.K. Mahajan, the Petitioner
in W.P. (C) No. 3277 of 2007 became an LIC agent on 22nd October 1990.
He achieved top rankings in agent‟s listings and was awarded membership
of the Chairman‟s Club for 1997-98. On 19th September 2003 Mr. R.K.
Mahajan made certain complaints to the Senior Divisional Manager, LIC
regarding malfunctioning of the SSS.
5. It is stated that on 15th July 2004, a notice was issued by the LIC to each
of the petitioners stating that irregularities had been observed in various
policies under the Salary Savings Scheme (hereinafter the "SSS") under
the Petitioners‟ agencies at Branch Unit-11-C and that the said
irregularities "were resorted to with a view to defraud the corporation". It
was stated that the "entire matter is under investigation and disciplinary
action was contemplated" pending investigation and action in accordance
with the Agents Rules. The Petitioners were directed "not to procure or
solicit any new LIC insurance business unless permitted to do so". By a
separate order dated 15th July 2004, the Senior Divisional Manager
directed each of them "not to enter any office under the jurisdiction of the
LIC without taking his prior permission".
6. On 17th July 2004, Mr. P.K.Singh and Ms. Nandini Sundriyal wrote to
the Senior Divisional Manager expressing surprise at the aforementioned
letters denying having committed any irregularity. Mr. Man Singh
Kushwaha wrote letters to the Senior Divisional Manager, LIC to the same
effect on 22nd July, 21st August and 6th September 2004. Mr. R. K.
Mahajan wrote a similar letter on 20th July 2004.
7. By a common order dated 30th September 2004, the Branch Manager of
Branch Unit No. 11-C stated that consequent upon the conclusion of
investigation, the order dated 15th July 2004 prohibiting the agents from
entering any office under the jurisdiction of the LIC of India, Delhi, stood
withdrawn. The order dated 30th September 2004 was applicable to the
three Petitioners other than Mr. R.K.Mahajan.
8. Mr. P.K. Singh, wrote a letter dated 6th December 2004 requesting LIC
to take a decision in the matter and permit him to resume business as an
LIC agent in view of conclusion of the investigation by LIC and the
consequent order of 30th September 2004. This was followed by a common
letter by three of them (other than Mr. R. K. Mahajan) delivered to the
Respondent LIC on 13th December 2004 to the same effect. By a letter
dated 20th January 2005, the Branch Manager informed the said three
Petitioners that the competent authority had decided to revoke the order
dated 15th July 2004, and lifted the ban on procuring new life insurance
business. As the two withdrawal orders dated 30th September 2004 and 20th
January 2005 excluded Mr. R. K. Mahajan, he sent representations to the
LIC regarding the same on 15th February 2005, 10th March 2005 and 8th
April 2005.
9. After receiving the two orders of the Senior Divisional Manager, LIC
dated 15th July 2004 Mr. R. K. Mahajan filed a writ petition, CWP No.
12754 of 2005 in this Court when no show cause notice was issued to him
while he was prohibited from procuring any new business as well as
entering premises under the jurisdiction of the LIC. This Court disposed of
the said writ petition on 20th October 2005 directing the LIC to issue him a
show cause notice. Thereafter, on 27th September 2005 a show cause notice
was issued to each of the Petitioners by the Senior Divisional Manager
under Rules 16 and 19 of the Agents Rules.
10. In the case of Mr. P.K. Singh the details of seven policies which were
processed on the basis of Mr. P.K.Singh‟s Agents Confidential Reports
(ACRs) were set out. It was stated that the premia for the said policy
proposals were deposited through the Branch Office Collections (BOCs)
including those created in the name of the Paying Authority (employer)
[hereinafter the "PA"] namely, Delhi Jal Board (DJB)/Municipal
Corporation of Delhi (MCD) in gross violation of the Agents Rules. Thus,
the remittances of the PA, i.e., the employer remitting SSS renewal premia
were deposited as proposal deposits against the above proposals. The
precise allegation was that Mr. P.K.Singh had "misled the Corporation to
adjust the above amount towards first premium under fresh proposals
under ordinary mode", and therefore he was "a direct beneficiary in the
above said fraudulent act", since he had given the Agent‟s Confidential
Report (ACR) for the completion of the above proposal "leading to
payment of enhanced commission to you by way of the above referred
misappropriation to defraud the policyholders as well as the Corporation".
The show cause notice further stated that the above adjustments have led to
misappropriation of the renewal of premia "and creation of gaps in policies
causing monetary loss to the Corporation and the Policy holders". Mr. P.
K. Singh was accused of having defrauded the LIC and its policyholders
resulting in the tarnishing of its image. In para 2 of the show cause notice it
was specifically alleged that "you collected cheques towards PAs
remittances and submitted the same along with the lists containing details
of premium deduction and misled the Corporation to adjust the remittances
towards first/renewal premium under the proposal/policies other than those
in respect of which the deductions were made by the PAs, thereby putting
policyholders and the Corporation to financial loss". It was stated that by
the aforesaid acts, Mr. P. K. Singh had "acted in a manner prejudicial to
the interests of the Corporation as also that of policyholders & failed to
maintain absolute integrity in discharging the functions as an agent and
committed breach of Rule 16(1)(a)&(b) of the LIC of India(Agents) Rules,
1972." In the penultimate paragraph of the show cause notice, the Senior
Divisional Manager (Disciplinary Authority) stated that the LIC
"......provisionally propose to impose the penalty of termination under Rule
16(1) of LIC of India (Agents) Rules, 1972 with forfeiture of renewal
commission in terms of Rule 19(1) read with Rule 10(6) of LIC of India
(Agents) Rules, 1972." Mr. P. K. Singh was asked to show cause within
15 days why he should not be held guilty of the aforesaid charges and why
the penalty of termination of agency under Rule 16(1) with "forfeiture of
renewal commission" under Rule 19(1) to be read with Rule 10(6) of the
Agents Rules, should not be imposed.
11. Similar allegations were communicated to the other Petitioners in the
show cause notices issued to them. In case of Ms. Nandini Sundriyal,
sixty-two proposals were mentioned in which the premia had been so
adjusted. In case of Mr. Man Singh Kushwaha the allegation of adjustment
of premia was with regard to two proposals. Mr. R.K. Mahajan‟s notice
mentioned some fourteen proposals in which, the allegation was that, a
total amount of Rs. 18,254/- was adjusted against PA‟s money for renewal
premia and diverted towards new proposals. Another charge against Mr.
R.K. Mahajan was that six proposals given by him, which were converted
into policies by the LIC, later had to be repudiated when the said six policy
holders all died within three years of subscribing to their respective
policies. This according to the show cause notice was in violation of Rule
8(2) (b) of the Agents Rules.
12. On various dates in October 2005, the four Petitioners submitted their
replies to the show cause notices. Apart from denying the allegations, it
was stated that they were being blamed for "what is basically a system
failure and for which even very remotely the applicant cannot be held
responsible" and that "only those responsible for the management and
administration of LIC should be put into task." It was maintained that it
was practically not possible for the Petitioners to change or alter the system
of LIC since the agents had "no control over the system and administration
of LIC". The Petitioners also pointed out to the inherent defects in the
manner in which the SSS was being administered where the first premium
as well as the renewal premium were remitted to LIC in a single cheque
from the employer which then used to be bifurcated into two parts, for one
of which a Block Branch Office Collection (BOC) would be issued and for
the other an SSS MR. Mr. P.K. Singh gave an example where the actual
cheque amount was Rs. 10,000/- which was split into two parts of Rs.
5,000/- each and a block BOC as well as an SSS MR were issued giving
the same cheque number for both. This resulted in multiple BOCs being
issued against a single cheque. While adjusting the amount, if the premium
was short, it was adjusted from another Block BOC and the case used to
get passed. It was pointed out that all these discrepancies were not on
account of the Petitioners but on account of the LIC officials themselves.
The above practice was followed not only for the MCD but for DJB, DDA
etc. as well. It is stated that such practice was prevalent from earlier times
when the Petitioners first became LIC agents. It was pointed out that when
Mr. P. K. Singh had given a life insurance business of over 6000 policies,
it was not possible for him to compromise on the deposit of any amount.
The other three Petitioners had also provided more or less a similar
quantum of business. It was stated in the reply as under:
"For the list of premium, as indicted in the show cause notice, it
is further clarified that such list were prepared in consultation
with the employer and used to be duly signed by their
authorized DDO. As such, no direct and independent role was
ever played which could be prejudicious (sic `prejudicial‟) to
the interest of LIC."
13. On 24th November 2005 separate orders were passed by the
Disciplinary Authority in respect of all four petitioners terminating the
agency under Rule 16(1) (a), (b) and the renewal commission in terms of
Rule 19(1) read with Rule 10(6) of the Agents Rules. In the case of Mr. P.
K. Singh, the order set in five paragraphs the contents of the show cause
notice and thereafter stated: "after consideration of investigation reports,
reply of Mr. P.K. Singh and the documentary evidence available, I
conclude that Mr. P.K. Singh, Agency Code 49721-111 is guilty of the
charges enumerated against him vide Show Cause Notice........." Similar
orders were passed in respect of the other Petitioners. Mr. R.K. Mahajan
was, in addition, found to have violated Rule 8(2) (b). His agency was
terminated under Rule 16(1) (d) in addition to Rule 16(1) (a) and (b) of the
Agents Rules
14. Mr. R.K. Mahajan, on 2nd December 2005 and 21st December 2005,
sought permission for inspection of certain records. The LIC on 7th January
2006 denied this request.
15. The orders passed by the Appellate Authority on 30th May 2006
dismissing the petitioners‟ appeals were identical. After setting out the
contents of the show cause notice, Mr. P.K. Singh‟s order stated that "the
remittance of Paying Authority (Employer) remitting SSS renewal
premiums were deposited as proposal deposit against the seven mentioned
proposals and Ex-Agent misled the Corporation to adjust the above amount
towards 1st Premium under fresh proposals under Ordinary as well as SSS
Mode." The orders stated that the Petitioners did not raise any new fact for
consideration.
16. Thereafter, on 13th July 2006, Mr. R.K. Mahajan filed a memorial as
provided for in terms of Rule 24 Agents Rule to the Chairman of LIC and
sent a reminder of the same on 12th October 2006. Between September
2006 and December 2006, he also filed a number of applications under the
Right to Information Act 2005 (RTI Act) seeking information regarding
utilization of the sum of Rs. 37,000/- credited to the LIC‟s account.
However, the LIC refused access on the ground that the information sought
related to a matter under investigation by the Central Bureau of
Investigation (CBI). An appeal was preferred to the Central Information
Commission (CIC), which, in its order dated 12th February 2007, directed
LIC to furnish the information sought inasmuch as it did not relate to the
CBI investigations. LIC did not furnish any information on the ground that
the details with regard to the said cheque were under investigation.
Writ Petitions and Replies
17. The principal ground in each of the writ petitions is that the impugned
orders terminating the agency of the petitioners are in violation of the
principles of natural justice. It is stated that even the Appellate Authority
did not follow Rule 23(1) of the Agents Rules which contemplates giving
the appellant "a reasonable opportunity of representing his case". A
reference is made to the judgment of the Madras High Court in K.
Chellathangam v. The Chairman, Life Insurance Corporation of India
AIR 2004 Madras 288.
18. The Petitioners submit that the case had already been investigated in
2004 and nothing had been found against any of the Petitioners to justify
the subsequent orders dated 30th September 2004 and 20th January 2005.
The impugned orders had been passed without any further enquiry. It was
further pointed out that the Petitioners have been made a scapegoat for the
fault of the LIC officials and that in terms of LIC‟s circulars and orders,
the Petitioners had been depositing amounts to cover the shortfall in the
premium. In some of the cases, this shortfall was only to the extent of Rs.
20/- to Rs. 200/- which could have been due to a bonafide calculation
mistake. It is also pointed out that the CBI had raided the Petitioners‟
premises and found nothing incriminating. The Petitioners had been
working with the LIC for a long time and had a legitimate expectation that
their agency would continue. In any event, there was absolutely no
justification for forfeiting the entire renewal commission for all the policies
which had been brought to the LIC by the Petitioners.
19. In the counter affidavit, it is contended by the LIC that the principles of
natural justice were fully complied with "both in its letter and spirit". It
was stated that the charges stood proved against the Petitioners. They were
of quite a grave nature amounting to fraud and misappropriation and that
the "said misconduct is totally and completely prejudicial to the interest of
the corporation". It is stated in the counter affidavit that "the only
punishment which could have been awarded to the Petitioners is the
termination of their services which is what was precisely done." Further
the fraudulent nature and the element of misappropriation "was of such a
grave nature having criminal culpability that the matter had to be entrusted
to the Central Bureau of Investigation". The circular/instruction dated 10th
March 2006 relating to closing of books and acceptance of cash deposits
was limited to the period between 23rd March and 31st March 2006. In no
event, could the said amounts be utilized towards introduction of fresh
proposals.
LIC's response to the Petitioners' RTI applications
20. During the pendency of this writ petition, Mr. P.K. Singh filed an
application under the RTI Act on 5th September 2006. Ms. Nandini
Sundriyal also filed a similar application. The reply given by the LIC to the
questions raised by the Petitioners on the working of the SSS were
summarized by them as under:
"1. Monthly premium in Salary Saving Scheme (SSS) are
deposited/dispatched by the employer directly to LIC servicing
branch.
2. Employees of the respective branch scrutinize the list of the
policy Nos. submitted by the Employees along with the
Premium Cheques.
3. Officials of the particular servicing branch create the
miscellaneous Receipt (MR) of the Renewal Premium cheques.
4. Officials at the servicing branch make the adjustment of
MRs/BOCs created in the name of Paying Authority
(Employer).
5. There is no role of the Agent in said adjustments of
BOCs/MRs.
6. Renewal Premium received from the Employer by crossed
cheque in the name of LIC of India cannot be adjusted in fresh
proposals.
7. Officials/employees of the branch office are responsible for
underwriting/scrutiny of the fresh insurance proposal forms.
They fill the proposal No. BOC No. Date of BOC and amount
of BOC on the proposal forms and after scrutiny of the proposal
form."
21. In addition to the Petitioners‟ forfeiture of agency commission, LIC
issued show cause notices on 14th November 2006 to 18 officers of the
Khan Market branch office to seek their explanation. Instructions were
issued on 11th March 2000 itself by the Divisional Office pointing out that
the deduction of new insurance premium amount from the salary of the
proposer was contrary to the instructions whereby the recovery of the
salary commenced only from the 3rd month of the entry. The said circular
stated that the branches themselves would be responsible if the said
instructions were violated.
22. An additional affidavit was filed by Mr. P.K. Singh on 20th February
2009 stating that against the order dated 30 th May 2006 of the Appellate
Authority, he had filed a memorial under Rule 24 of Agents Rules to the
Chairman, LIC which had been rejected by an order dated 22nd November
2007. A copy of the said order has also been placed on record.
Orders of this Court
23. When these cases were heard together by this Court, it was found that
none of the relevant documents had been produced by LIC. On 14th
January 2010, the following order was passed by this Court:
"1. In each of these cases the allegation is that money deposited
by the paying authority („PA‟) pursuant to the Salary Saving
Scheme, for renewal of premia of LIC policies in the names of
the employees of the PA, have been, at the instance of the
Petitioners, misappropriated towards payment of premium for
new/fresh policies of private individuals unconnected with the
PA.
2. Learned counsel for the LIC states that he will, on the next
date of hearing, produce before this Court the complete details
of each of the policies mentioned including the premia paid
against these policies and the manner of payment of such
premia.
3. At his request, list on 28th January 2010."
24. Thereafter, on the adjourned date a further time was sought by the LIC
and the case was listed for 8th February 2010. Mr. Ravinder Sethi, the
learned Senior Counsel for LIC again sought further time to produce the
records which were ultimately produced on 17th February 2010.
25. During the hearing on 17th February 2010, LIC informed this Court that
the voluminous documents submitted before the Court on that date were
not furnished earlier to any of the Petitioners, much less enclosed with the
show cause notices seeking their explanation. The court enquired of the
learned Senior counsel appearing for the LIC whether the LIC would be
willing to consider giving a fresh opportunity of hearing to each of the
Petitioners by furnishing them with the complete material which was used
by the LIC to form an opinion about their alleged misconduct resulting in
the termination of their agency. Learned Senior counsel for LIC sought
time to obtain instructions. On 17th February 2010 the following order was
passed:
"1. The Respondent has produced the documents which
included the charts giving the particulars that are available in
the records of the LIC vis-à-vis each of the Petitioners. After
going through the materials and making submissions Mr. Sethi,
learned Senior counsel for the Respondent states that these
cases may be adjourned by ten days to enable him to seek
instructions in light of what has transpired before this Court.
2. It is made clear that if the LIC is not able to take a decision
by the next date, the case will be heard further on merits.
3. Adjourned to 4th March 2010."
26. At the subsequent hearing on 4th March 2010, the learned Senior
counsel for the LIC stated on instructions that the LIC was not prepared to
give any further hearing to any of the Petitioners and that his instructions
were to defend the impugned orders on the basis of the existing pleadings.
Submissions of Counsel
27. This court has heard the detailed submissions of Mr. J.P. Sengh, the
learned Senior counsel and Mr. R.K. Saini, learned counsel appearing for
the Petitioners. Mr. Ravinder Sethi, the learned Senior counsel and Mr.
Kamal Mehta, learned counsel made detailed submissions for the LIC.
28. It is submitted on behalf of the Petitioners that there are no documents
enclosed with the show cause notices to show that any of the Petitioners
was responsible for the adjustment of the premia remitted by way of the
cheques of the PAs under the SSS against either the first or any of the
subsequent premia payable towards the proposals recommended by them.
It is pointed out that even the documents handed over by the LIC in the
court, copies of which were furnished to the counsel for the Petitioners, do
not demonstrate this. Apart from a bald allegation that the Petitioners had
misled the staff of the LIC into adjusting these amounts, the show cause
notices do not indicate how and in what manner this was done. In any
event it could not have been done without the connivance of the employees
of the LIC. No such details were provided. It is pointed out that the
proposals for some of these policies were submitted several years earlier
and unless the full details were furnished, the Petitioners would not be in a
position to effectively present their cases. There was no role assigned to
any of them in the actual adjustment of the amounts or the issuance of the
BOCs. It was the LIC employees who themselves brought out the lists
showing the adjustments of the premia amount against the cheques
remitted by the PAs. It was not known on what basis it has been alleged
that any of the Petitioners played a role in this exercise. It is pointed out
that the chargesheet submitted by the CBI was a subsequent development
and did not form the basis for the impugned orders terminating the agency.
In any event the chargesheet did not advance the case of the LIC since it
does not throw any fresh light on the manner in which the Petitioners are
supposed to have misled the LIC into adjusting the premia. The statement
in the chargesheet that these Petitioners prepared their own lists at the time
of adjustment of the cheques collected from the MCD, was belied by the
CBI‟s own observation that such lists were not available either with the
LIC or the agents.
29. Finally, it is submitted that fraud had to be proved by producing
credible and cogent evidence, which was lacking in the instant cases. It is
submitted that absent such proof of fraud the entire commission amount
could not be forfeited under Rule 19(1) of the Agents Rules. Reliance is
also placed on the judgment in Union of India v. Lt. Gen. M.S. Sandhu
2001 V AD (Delhi) 441. In addition, the judgment in Delhi Electric
Supply Undertaking v. Basanti Devi AIR 2000 SC 43 is referred to
emphasize that the agents do not have any role to play in this entire
exercise of adjusting premia remitted under the SSS.
30. Mr. Saini, the learned counsel appearing for Mr. Kushwaha, in whose
case it is mentioned that in four of the policies, medical certificates were
found to be incorrect leading to forfeiture of the amounts, submits that the
agent merely witnesses a proposal and therefore ought not be made liable
for any false declaration made by the policy holder. It is also pointed out
that in none of the cases of alleged wrongful adjustment of SSS premia,
has the policy in question been cancelled. No adverse consequences have
been suffered by any of the policy subscribers who were the probable
beneficiaries of the alleged fraud in the manner described by the LIC.
31. Replying to the above submissions, Mr. Ravinder Sethi, the learned
Senior counsel appearing for the LIC, first submits that these Petitioners
are agents of the LIC and not its employees. He submits that the legal
requirement of compliance with the principles of natural justice as might
apply in the case of the termination of the services of an employee would
not apply to a case of termination of agency of the LIC. In support of this,
he relies upon a large number of judgments, including Harshad J. Shah v.
L.I.C. of India AIR 1997 SC 2459; Kamlesh Aggarwal v. Union of India
AIR 2003 Delhi 88; Chandra Prabha Dogra v. LIC of India [decision
dated 17th May 2005 in LPA No. 698 of 2004]; Chandra Prabha Dogra v.
LIC of India 112 (2004) DLT 168; S.P. Habbu v. LIC of India (decision
dated 2nd February 1996 of the Karnataka High Court in Writ Appeal
No. 2413 of 1992) and Wasti Ram Bhasin v. LIC of India (decision dated
10th December 1996 of the Allahabad High Court in Civil Misc. Writ
Petition No. 12796 of 1985).
32. Referring to the voluminous bunch of documents separately compiled
for each of the cases (purportedly from the records available with the LIC)
Mr. Sethi pointed out that the proposals for each of these policies were
signed by the Petitioners as agents. It was their ACRs which were relied
upon by the LIC. Mr. Sethi produced computer printouts generated by the
LIC itself titled "adjusted policies against block BOC pertaining to: period
1.4.1991 to 31.3.2004 - Branch Unit - 11C‟. Pages 23, 24, 68, 74 and 87
of the said printout were produced. Certain other computer generated
printouts of the LIC showed, inter alia, the BOCs with their numbers. He
also referred to the chargesheet filed by the CBI. According to him, these
documents, although not furnished earlier to the Petitioners, were sufficient
to fully substantiate each of the allegations in the show cause notices. Mr.
Sethi reiterated that the show cause notice had set out all the relevant
details. According to him, since the Petitioners in their replies did not ask
for the documents, there was no need for the LIC to furnish those
documents. Moreover, since this was a termination of agency on account
of the loss of confidence of the LIC in the agent, there was no question of
offering any personal hearing. There was also no statutory requirement of
giving detailed reasons for terminating the agency. He referred to the
pleadings in which according to him the Petitioners had admitted to having
collected cheques from the PAs and depositing them with the branch which
was impermissible under the Agent Rules. He characterized this as a gross
misconduct. He further submitted that the forfeiture of renewal
commission was the inevitable consequence given the gravity of the
misconduct committed by each of these Petitioners. The penalty was
therefore proportionate to the misconduct and did not call for interference.
On various dates of hearing Mr. Mehta, the other learned counsel
appearing for the LIC supplemented and reiterated the above submissions.
Violations of principles of natural justice
33. This Court is first called upon to examine if the principles of natural
justice were complied with in the instant cases. According to the LIC, since
the Petitioners were not its employees, it was not required to comply with
the principles of natural justice in the same manner as in the case of
termination of the services of its employee.
34. The show cause notice in each of these cases has been referred to
hereinbefore. In each of the show cause notices, the proposal numbers, the
amount of premium, the BOC numbers have been set out. These proposals
were dated several years before the show cause notices. It is not denied that
these Petitioners have been agents for several years with the LIC and had
given business of crores of rupees against several thousands of policies. To
expect the Petitioners to immediately have all the records to answer the
allegations of the irregularities allegedly committed by each of them in
relation to the particular policies mentioned in the show cause notice,
without furnishing them with the copies of the relevant documents, was not
being either practical or reasonable.
35. The contention that since the Petitioners did not seek copies of the
documents there was no need for the LIC to furnish the same is not
acceptable to this Court. It also is not entirely factually correct. As pointed
out by Mr. J.P. Sengh, that at least in two of the cases (Ms. Nandini
Sundriyal and Mr. Kushwaha), a request was made for copies of the
documents. It was only after several adjournments at its instance before
this Court that the LIC was able to collate the relevant documents in
respect of each of these cases and produce them before the Court. The
question therefore is whether the inquiry purportedly carried out by the
LIC, prior to issuance of the impugned orders, involved an examination of
these documents. If there had been such inquiry on a case by case basis,
then it should have been a simple exercise for the LIC to produce these
documents.
36. The response of the learned Senior counsel for the LIC was that the
CBI had taken away the relevant documents during its investigation and
they were therefore not available. This Court finds it difficult to appreciate
that LIC had not kept copies of the relevant documents, even if the original
files were taken away by the CBI. In any event, the CBI had already
submitted its chargesheet sometime in January 2008 in the criminal court.
The upshot of the above discussion is that none of them was ever furnished
with any of the documents which were being relied upon by the LIC to
conclude that they were guilty of misconduct contemplated under the
Agents Rules.
37. It is also not possible to accept the contention of learned Senior counsel
for the LIC that the show cause notice was itself a detailed one. None of
the documents referred to therein were enclosed to the sow cause notice. If
the evidence on the basis of which the averments were made was not
furnished to the Petitioners then it mattered little that the show cause notice
was a detailed one. It could have only elicited a bare denial from the
notice. The question is whether on receiving such show cause notice, the
recipient would be able to know what the materials were on the basis of
which the allegations were made. In the considered view of this court, in
the instant cases, the answer to that question has to be in the negative. If
there was an inquiry undertaken by the LIC prior to issuance of such show
cause notice, then it was incumbent, in order to give the noticee an
effective opportunity of defending herself or himself, a copy of such
report. No such report of the inquiry was furnished to the Petitioners.
38. It is in the background of the above facts, that the case law relied upon
by the LIC requires to be examined. The facts in LIC v. Lalitha Devi 1991
Supp (2) SCC 154 were that a single Judge of the Andhra Pradesh High
Court had quashed the order of the LIC terminating the Respondent‟s
agency under Regulation 17(1) of the Agent‟s Regulations, 1972.
Regulation 17(1) states that "the appointment of an agent may be
terminated by the competent authority at any time by giving him one
month‟s notice thereof in writing". The Respondent therein had been
absorbed as an agent of the LIC overlooking the fact that her husband was
already in service with LIC. In the circumstances, it was held that as long
as a notice had been served on the Respondent before terminating the
agency, no illegality had been committed.
39. This Court fails to appreciate how the above decision helps the LIC in
the present case where it is not Regulation 17(1) but Regulation 16(1) (b)
that has been invoked. The said provision enables the LIC to terminate the
agency if the agent "acts in a manner prejudicial to the interests of the
Corporation or to the interests of its policy holders". Further, the proviso to
Rule 16(1) mandates that "the agent shall be given a reasonable
opportunity to show cause against such termination". Given that a decision
that the agent is acting in a manner prejudicial to the interests of the LIC is
likely to have adverse civil consequences for such agent, the proviso of the
Rule itself recognizes the need to give such an agent a "reasonable"
opportunity to show cause against such termination. No comparison,
therefore, can be drawn with the situation under Rule 17(1). A mere
issuance of a show cause notice without furnishing the material in support
of the allegations contained therein cannot be said to satisfy the
requirement of providing a "reasonable" opportunity.
40. In Harshad J. Shah v. L.I.C. of India, the Supreme Court was
interpreting the correctness of a decision of the National Consumer
Disputes Redressal Commission (NCDRC) which held that an insurance
agent, upon receiving a premium cheque from the insured towards
payment of the insurance premium, was not acting as the agent of the LIC
and his receiving a cheque would not mean that the LIC had received the
premium. Consequently, it was held that the deposit, by the agent, of the
cheque for premium after the death of the insured, would not make LIC
liable. While upholding the decision of the NCDRC, it was held that the
agent did not have the express authority to receive the premium on behalf
of the LIC because in his letter of appointment there was an express
condition prohibiting him from collecting premium on behalf of the LIC. A
reference was made to Regulation 8(4) which prohibited agents from
collecting premium. It was held that the said provision was intended to
protect LIC from any fraud on the part of the agent.
41. It must be observed that the above decision in Harshad J. Shah v.
L.I.C. of India was not about the compliance with the principles of natural
justice. It concerned the status of an LIC agent in regard to the collection
of the premia. Rule 8 (4) states that the agent has no authority to collect the
moneys or to accept any risk for or on behalf of the LIC. The proviso to
Rule 8(4) nevertheless states that "an agent may be authorized by the
Corporation to collect and remit renewal premiums under policies on such
conditions as may be specified". The facts in the present case are
something different.
42. Clause 4.2 of the "Manual for Policy Servicing Department (No. 14)"
sets out the requirement for introduction of proposals under the SSS:
"4.2 Requirements for introducing proposal under S.S.S.
1. Prescribed authorization letters should be obtained in
triplicate with full details of Dept., token No., badge No., or PF
No. if any from PA under which the employee is working. This
forms the basis for deduction of premiums by the employer.
2. 2 monthly premiums are to be collected along with the
proposal. If the proposer desires to backdate the policy the
arrears of premia should also be collected. Recovery from
their salary commences only from the 3rd month of entry.
3. Age proof should be submitted along with the proposal.
4. By reference to SSS PA code book, it should be ensured that
correct code number of P.A. has been mentioned in the
Authorisation letters, proposal forms and Review slips."
(emphasis supplied)
43. Therefore there was some role envisaged in regard to collection of
premia at the time of the submission of the proposal. From the replies
given to the RTI applications made by the Petitioners during the pendency
of these writ petitions, it is obvious that there was no role of an agent in the
adjustment of BOCs/MRS. In fact, the instructions dated 10th March 2000
further prohibited any adjustment of premium from the salary before the
third month. The responsibility for violation of these instructions was
stated to be entirely that of the branch and the LIC officials. Consequently,
what appears to have happened in the instant cases is that the Petitioners
were acting as agents by collecting the lists and remittances of the cheques
from the PAs and depositing them in the LIC branch. Beyond this, they
had no role to play. Mere preparation of a list of employees whose renewal
premia is supposed to be covered by the cheque of the PA, cannot amount
to collection of the premium amount itself. This is plain from the judgment
of the Supreme Court in Harshad Shah. If, in fact, the agent had no role to
play in terms of making adjustments of premia collected under the SSS, the
burden lay on the LIC to show exactly how the Petitioners played any role
in such adjustment.
44. As already noticed hereinbefore, this causal connection between the
transactions in question and each of the Petitioners has been failed to be
shown by the LIC. Apart from a bald statement in the show cause notice
that these agents misled the LIC to make the adjustments, there is no
material to substantiate it. Consequently, the judgment of Harshad J. Shah
v. L.I.C. of India does not advance the case of the LIC that it was not
required to furnish any of the Petitioners with the documents relevant to
their cases to seek their explanation before taking a decision to terminate
their agencies.
45. Considerable reliance was placed by Mr. Sethi on the decision of the
Division Bench of the Karnataka High Court in S.P. Habbu v. LIC of
India since that was a case of termination of an agency under Rule16. In
particular, the following passage was relied upon:
"Before adverting to the submissions urged by the learned
counsel, it is necessary to bear in mind that the appellant was
not an employee of the Corporation but the relationship was
that of principal and agent. The terms and conditions of agency
are regulated by statutory regulations framed by the
Corporation. It is not in dispute that it is permissible for the
principal i.e., the Corporation, to terminate the agency in
accordance with Regulations 13 to 17. The agency has been
terminated in the present case under Regulation 16(1)(a), (b)
and (d). The charge against the appellant was that he had failed
to discharge his functions to the satisfaction of the competent
authority, he had acted in a manner prejudicial to the interest of
the Corporation and it was found that the contents of the
proposal made in respect of Pandurang were not true."
46. However, what is significant are the lines immediately following the
above passage which read as under:
"The material relied upon by the authority leaves no manner of
doubt that Pandurang was in hospital as indoor patient from
October 21, 1984 to November 4, 1985 and was treated for liver
serosis. In case Pandurang was in Manipal Hospital, he could
not have been present at karwar where the proposal form is
alleged to have been signed by Pandurang and at which place
Pandurang is claimed to have been medically examined by Dr.
Alur. The record from the Manipal Hospital conclusively
established that Pandurang was not at Karwar at the relevant
time."
47. It is plain, therefore, that in the above case, the complete details were
made available to the agent in the course of enquiry proceedings. Para 6 of
the judgment in S.P. Habbu v. LIC of India also shows that the
proceedings had been remanded by the High Court to the Appellate
Authority on more than two occasions and the Appellant there had been
directed to present oral arguments which he did. Further, the facts of that
case had unmistakably established that the appellant there had "actively
connived in preparing a forged proposal form" and in the circumstances,
the termination of the agency and the forfeiture of the commission were
upheld. In the considered view of this Court, the decision in S.P. Habbu v.
LIC of India entirely turned on the facts of that case. In the present case,
the details of the investigation made by the LIC are not available even to
this Court as on date. It is not known in what manner the LIC was able to
conclusively hold that it was the Petitioners who were responsible for the
adjustment of the remittances made under the SSS against the premium
payable against fresh policies. The said decision in S.P. Habbu v. LIC of
India therefore does not help the case of the LIC.
48. In Wasti Ram Bhasin v. LIC of India, it was held that the term
`reasonable opportunity‟ did not mean giving a hearing. Again in the said
decision it was noted by the High Court that the show cause notice "has
specified in detail the allegations and particulars thereof". On that basis, it
was held that there was no need for a further personal hearing. In the
present case, however, the show cause notice does not give complete
details as to how the Petitioners played a part in the adjustment of the
renewal premia under the SSS against the proposals submitted by the
Petitioners.
49. In Kamlesh Aggarwal v. Union of India, the Petitioner there had been
given an agency for the National Savings Organisation and was also an
agent for the Public Provident Fund Scheme (PPF Scheme). The
termination of the agency was challenged for non-compliance of the
principles of natural justice. It was noticed that in terms of the contract, all
that was required, was to give a one month‟s notice for termination. In para
11 the following observations were made:-
"11. I find considerable merit in the submission of Mr. Jayant
Bhushan. The petitioner who was arrested on 14.7.2000 and
after being in custody was released on bail on 16.1.2001. In my
view since the work of the agency is required to be carried out
personally or under personal supervision, the absence and no
availability of petitioner for such a long period, itself was a
sufficient reason to terminate. Besides specific complaints had
been made by depositors, alleging cheating and diversion of
funds to the two private concerns culminating in the registration
of FIR and framing of charge sheet under Section 406/420 IPC.
The respondents had also conducted an enquiry through the Dy.
Regional Director and other concerned officials which revealed
diversion of investment and other breaches in the operation of
agencies as recorded in the termination orders. In these facts
and circumstances the decision of the respondents to terminate
the agencies cannot be assailed as arbitrary, mala fide or
unconscionable. Besides it was an exercise of contractual rights
under the agency agreements.
In judicial review, the Court is not concerned with the
correctness or merit of the decision taken but with the decision
making process. The respondents cannot be faulted with, if in
the background of these facts and especially the detention of the
petitioner for a period of nearly 5 to 6 months, they reached a
conclusion that continuation of the petitioner as an agent would
be detrimental to the working of the schemes and image of the
Government and maintaining public confidence in the
schemes."
50. It must be noticed that the above decision did not concern Rule 16 of
the LIC Agents Rules which mandates a reasonable opportunity to be
given to the agent. The agency here is therefore not purely contractual as
was sought to be contended by the LIC. It is governed by the LIC Agents
Rules. The above decision also, therefore, does not help the LIC.
51. In Chandra Prabha Dogra v. LIC of India, the show cause notice
detailed the manner in which the misconduct had been committed by the
LIC Agent under the LIC Agents Rules. It was noticed that the allegation
was that "she used to receive moneys in advance from the prospective
persons seeking insurance and then at her convenience issue her own
cheques which in a number of cases got dishonoured". In reply to the show
cause notice, she admitted her fault by stating: "While I once again, in an
unqualified manner, make a submission that there was a mistake on my
part in the use of discretion....." It was in the above circumstances that it
was held that there was no violation of the principles of natural justice and
that "a fraudulent act outside judicial proceedings would also be actionable
under Section 16(b)".... After the above decision in Chandra Prabha
Dogra v. LIC of India was upheld by the Division Bench on 17th May
2005, where it was noticed that the cheques issued by the agent had
bounced and the policies were returned whereas the amount had been
collected in cash from prospective policy holders, the facts of the present
case do not bear any comparison with the facts of Chandra Prabha Dogra
v. LIC of India. That case proceeded on an „admission‟ by the agent of her
misconduct. This Court is, therefore, unable to agree with the submission
of the learned Senior Counsel for the LIC that the above case justifies
dispensation with the compliance of the minimum requirements of natural
justice.
52. In V.P. Subrahmanian v. LIC of India 1998 INDLAW KER 523, the
Petitioner was alleged to have suppressed the information relating to his
previous agency while applying for a fresh agency. The facts, again, of the
said case do not bear any comparison with the facts in hand. In B.K.
Vadiraja v. Managing Director, LIC of India AIR 2002 Karnataka 113, it
was held, following S.P. Habbu v. LIC of India, that under Rule 17(2) an
agency can be terminated by giving a one month notice and therefore, the
effect of Rule 17(1) in the said case was not indicated. As already pointed
out, the present case is not relatable to Rule 17(1) at all but to an action
taken under Rule 16(2)(b) which stands on a different footing.
53. The facts in the decision of the Division Bench of the Kerala High
Court in LIC of India v. C. Mohanan Pillai bear comparison with the
decision in Chandra Prabha Dogra v. LIC of India. Two policy holders
had lodged complaints that even though the agent had collected cash,
payment had been made through a cheque from an account which did not
belong to him and which payment stood dishonoured. The Division Bench,
in its judgment dated 20th February 2006 in Writ Appeal No. 1396 of 2004,
examined the proportionality of the punishment since it was convinced that
the allegations substantiated the commission of fraud. Importantly in a
question put to the agent, whether the money was received from the policy
holder, he conceded that it was received and not deposited with the LIC. A
reference was made to the decision in Chandra Prabha Dogra. As already
pointed out hereinbefore, the said facts do not bear comparison with the
facts on hand. Likewise, in O.A. Seshadri v. Chairman, LIC, the Madras
High Court (in its decision dated 23rd February 2004 in Writ Appeal No.
239 of 2003) was dealing with a case where the agent had taken money for
paying the premium but had paid it only after seven years. The said case
again is of no help to the LIC in the present case. In V.A.S. Rama Raju v.
The Senior Divisional Manager, LIC of India (decision of the Andhra
Pradesh High Court dated 16th November 2007 in Writ Petition No. 20457
of 2003), the learned Single Judge was dealing with a case where the
allegation was that the Petitioner submitted a proposal for insurance of Rs.
2 lakhs in the name of a dead person. This court fails to appreciate how this
case can have any relevance to the facts on hand.
54. A reference was made to the charge sheet of the CBI in the present case
where on the basis of these very documents prima facie conclusions have
been arrived at by the CBI. In the first place, the chargesheet is not a
document that was relied upon by the LIC in passing the impugned orders.
It could also not have since it was prepared later by the CBI. Secondly, the
acceptability of such chargesheet has to be decided by the criminal court.
Thirdly, the findings of the criminal court where the standard of proof is
beyond all reasonable doubt need not bind the present proceedings where
the standard of proof is preponderance of probabilities. The highlighted
portions of the charge sheet, a copy of which has been handed over by the
learned counsel for the LIC, are in the considered view of this Court the
tentative conclusions of the CBI. They are yet to be tested in the criminal
court. In exercise of it powers under Article 226 this Court is only
required to examine whether, in arriving at the conclusion that the
Petitioners were guilty of grave misconduct, the LIC acted on the basis of
relevant materials and in a just, fair and reasonable manner. The CBI‟s
charge sheet was not before the LIC and did not form the basis of the
impugned orders. This Court is, therefore, not required to examine the said
chargesheet for the purposes of examining, if in the present case the
decision of the LIC could be justified.
55. The result of the above discussion is that in the considered view of this
court there is a failure on the part of the LIC to comply with the principles
of natural justice in the present cases in not furnishing to each of the
Petitioners the detailed documentation on the basis of which it conducted
inquiries and came to the conclusion that they had committed grave
misconduct. Each of the Petitioners were therefore denied a reasonable
opportunity of defending themselves in response to the show cause notices
issued to them. There has been a violation of the mandatory requirement of
the proviso to Rule 16 (1) of the Agents Rules which is fatal to the
impugned orders of termination.
Is there material available on record to justify the termination of agency?
56. In a case involving violation of the principles of natural justice, a court
might decide to give the party affected a post-decisional hearing or by
setting aside the impugned orders permit the authority which passed the
impugned order to give a fresh hearing. As already noticed hereinbefore,
LIC has taken a categorical stand in these cases that it would not be willing
to give the Petitioners any fresh hearing and that it wishes to defend the
impugned orders on the basis of the material brought on record in these
petitions. That apart, this Court cannot be unmindful of the fact that the
impugned orders were passed nearly five years ago and the Petitioners
might be prejudiced if they were relegated at this stage to a fresh hearing
before the LIC. Also, if there was going to be no further material which
was to be disclosed as the basis of the impugned orders by the LIC, little
purpose would be served in sending the Petitioners for a hearing which
might turn out to be an empty formality. For the above reasons, this court,
at the insistence of learned senior counsel for the LIC, proceeded to
examine the materials to determine if they justified the termination orders.
57. On a detailed examination of the documents produced by the LIC, it
appears to this Court is that they do not per se show the involvement of
any of the Petitioners. For instance, the print out titled "Adjusted Policies
against Block BOC pertaining to Paying Authorities: Period 1/4/1999 to
31/5/2004 = Branch Unit - 11C", contains some of the details of the
relevant BOCs. However, the figures simply do not tally.
58. In the first place, it must be noticed that the relevant cheques are all
dated in the month of March 2000 and admittedly when there is a shortfall
in the collection of the premia for the period of one week in the month of
March, the LIC permits adjustments to be made from the amounts
deposited by the agents themselves. This is plain from the instructions
dated 10th March 2006. Paras 8(a) and 8(b) of the instructions read as
under:
"8(a) An amount of Rs.50,000/- only in cash may be accepted
as Lump-sum-Deposit from an Agent/Broker/Corporate
Agent/Banks (per outlet) for covering calculation errors,
shortfalls in premium due to modified terms, etc. for the
proposals submitted to the lives under his/her agency only.
Similarly a sum of Rs.50,000/- may also be accepted in cash as
Lump-sum-Deposit from a Development Officer towards
shortages of premium in respect of proposals submitted from
his/her organization.
8(b) The cash deposits as above can be accepted only during the
period 23rd March to 31st March 2006. The utilization of this
amount must be for the purpose of meeting shortfalls as above.
In no case this amount should be utilized towards introduction
of fresh proposals. For the purpose, the branch must maintain a
control book where each such deposit is entered and the
utilization thereof is clearly shown."
59. As a sample one may refer to the case of Mr. R.K. Mahajan. The BOC
numbers 5596-97 dated 31st March 2000 in the proposal submitted by him
refer to the same cheque no. 49725111 giving two different policy
numbers: one titled `ORD‟ (which means `ordinary`) against which the
adjustment of premium is Rs. 1785/- and the name is `Kumar‟. As regards
the SSS policy, the adjusted premium is Rs. 11/- and the name is
`Mukesh‟. According to Mr. Sethi, the word ` Kumar‟ refers to Dalip
Kumar whose proposal was submitted by Mr. R.K. Mahajan. However, the
endorsement in the column "BOC number" shows the figure `Rs. 1799‟
and reads as under:
"5596 dt 31/3/ 1047
5597 dt 31/3/ 752
-------
-------
60. What is also interesting is that the writing of the proposal number and
the BOC number are not in the same handwriting and are therefore not by
the person who filled up this form. The signature of the agent is only as a
witness to the declaration. We then have a computer printout of the
relevant BOCs which read as under:
"BOC-1 BOC DATE AMOUNT-1 BOC-2 BOC DATE AMOUNT-2
5596 31/3/2000 1047.00 5597 31/03/2000 752.00"
61. There is, therefore, no correlation of the BOC number as mentioned in
the proposal and the related computer printout when compared with the
printout titled "Adjusted Policies against Block BOC pertaining to Paying
Authorities: Period 1/4/1999 to 31/5/2004 = Branch Unit - 11C" which is a
document created by the LIC. Likewise the documents in the case of the
others are no better. If even at this stage, i.e., after five years of so-called
detailed investigation of the LIC, the LIC is unable to explain the
discrepancies, then it throws considerable doubt on whether any detailed
inquiry was carried out on the basis of which it could be conclusively
established that Mr. Mahajan or any of the others was guilty of serious
misconduct.
62. Further, Mr. Saini was able to point out on the basis of the replies
received in the RTI application that the BOCs generated at the time of the
deposit of the cheques completely tally with the premia cheque deposited
by the agents along with the proposal. These documents were made
available to him pursuant to the application made under the RTI Act by the
LIC itself. Clearly, these documents support the explanations offered by
the Petitioners. However, for reasons best known to it, the LIC did not
include them in the voluminous bunch of documents produced by it before
this Court. The inescapable inference is that these documents favouring the
Petitioners did not form part of LIC‟s enquiries preceding the issuance of
the show cause notices. This Court is satisfied that the so-called
investigations or inquiries by the LIC on the above basis could not have
unmistakably pointed out to the misconduct of each of the Petitioners in
the manner detailed in the show cause notice.
Adverse consequences for the Petitioners
63. The Court is also not satisfied that the procedure adopted in the present
case was sufficient for the purposes of the proviso to Rule 16(1) of the
Agents Rules which requires a reasonable opportunity to be given to an
agent who is charged with misconduct. Being an LIC agent for 15 years
means that such person has earned goodwill and a reputation. Although it
might technically be correct that an agent is not an employee of the LIC,
from the point of view of the public, an LIC agent is seen as representing
LIC. The adverse consequence of an agent being held to have committed
fraud is, therefore, even more severe than perhaps that suffered by its
employee. The more grievous the charge, the more strictly must the words
`reasonable opportunity‟ be interpreted. The materials that constituted the
basis for forming an opinion that the agent committed an act prejudicial to
the interests of the LIC, must be furnished to such an agent to elicit such
agent‟s response. Further, if such material has been investigated and a
conclusion arrived at then the report of such investigation must be
furnished to the agent so that a response can be elicited before proceeding
against such agent. Such a procedure, which comports with the mandatory
requirement of providing a „reasonable opportunity‟ in terms of the proviso
to Rule 16 (1) of the Agents Rules has not been adopted in the present
case.
64. In the cases involving insurance proposals where the medical
certificates submitted were not found to be authentic, this Court is of the
view that by merely signing as a witness to the declaration, the agent
cannot be fastened with the liability arising out of such misdeclaration. A
witness does not incur a liability co-terminus with that of the maker of the
declaration. It must be shown that when the agent co-signed the proposal
he was aware that the medical status of the policy holder was being
misdeclared, and despite such knowledge co-signed the proposal. No such
case is made out against Mr. Mahajan by the LIC. Therefore, it is not
possible to accept the contention of the learned Senior Counsel that in view
of the subsequent discovery of the medical status of the policy holders, the
agency of Mr. Mahajan who submitted the ACR should be terminated. In
this connection reference may be made to Rule 8.2 of the Agents Rules
which reads as under:
"8.2 In procuring new life insurance business, an agent
shall:
....
(b) make all reasonable inquiries in regard to the lives to be
insured before recommending proposals for acceptance, and
bring to the notice of the Corporation any circumstances which
may adversely affect the risk to be underwritten."
65. The phrase "all reasonable enquiries" contemplates knowledge on the
part of the agent not to the extent of a medical practitioner. It must be
remembered that policy proposals are accompanied by `Medical
Examiner‟s Confidential Report‟ signed by a qualified medical
practitioner. The name, address, qualifications, the code number and the
limit allotted to the medical practitioner are also mentioned. It would be
the medical practitioner who issued such certificate who would be
primarily answerable in the event of the medical status declared being
found to be wrong at a later point in time. If no action is taken against him
and only against the agent who is no better aware of the medical status than
a lay person, then it would not be a fair or reasonable action on the part of
the LIC.
66. Interestingly, none of the policies in the instant case in which according
to the LIC premia amounts were wrongly adjusted, have been terminated
or revoked. The LIC throughout has proceeded on the footing that the only
beneficiaries of the so called fraud were the LIC agents. However, it is
plain that the principal beneficiary of the so called fraud would be the
policy holder himself or herself. Even in the criminal case, they have not
been named as accused. With no action having been taken against such
policy holders, the LIC is not consistent in its conclusion that a fraud had
been committed. Otherwise, it is totally inexplicable why such a policy
which itself stands vitiated, would not be cancelled. No satisfactory
explanation is forthcoming for this anomaly. Since the termination orders
are held to be legally unsustainable, the consequential penalty orders of
forfeiture of commission are also bad in law and are liable to be set aside.
67. Before concluding, this Court would like to observe that it is a matter
of concern that the Appellate Authority in the instant case, did not bother
to deal with any of the contentions of each of the Petitioners and passed
identical orders parroting what the Senior Divisional Manager stated in the
orders terminating the agencies. The least that the Appellate Authority
should have done was to have called for the records, and examined the
materials available therein to bring out the allegations. In the event of
concurring with the orders under appeal, the Appellate Authority should
have considered the question of proportionate and appropriate penalty in
each of the cases. It is disappointing to note that the Appellate Authority
failed to exercise this solemn and statutory function with the degree of
seriousness it deserved. It has had the effect of rendering the internal
mechanism of appeal a futile exercise.
Conclusion
68. For all of the above reasons, this court is satisfied that the termination
of the agencies of the Petitioners by the LIC cannot be justified in law. The
impugned orders dated 24th November 2005 and 30th May 2006 passed by
the LIC in the cases of each of the petitioners are hereby set aside. In the
case of Mr. P.K. Singh, the order of Chairman, LIC dated 22nd November
2007 is also set aside. The agency of each of the Petitioners would be
restored from the date of their respective termination. Consequential orders
regarding restoration of renewal commission will be passed and the arrears
paid together with simple interest at 6% per annum from the date of
forfeiture to the date of payment within six weeks from today.
69. As regards the specific policies which have been set out in the show
cause notice issued to each of the Petitioners, as long as the LIC takes no
action to cancel such policies, the commission(s) payable in respect of the
premia deposited for such period will continue to be paid to the Petitioners.
Any deprivation of commission thereafter would be strictly in accordance
with law after complying with the procedure contemplated under the
Agents Rules.
70. With the above directions, the writ petitions are allowed with costs of
Rs. 20,000/- each, which will be paid by the LIC to each of the Petitioners
within a period of four weeks from today.
S. MURALIDHAR, J
APRIL 21, 2010
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