Life Insurance Corporation Of ... vs Smt. Anita Rani & Others
2011 Latest Caselaw 1452 Del

*     IN THE HIGH COURT OF DELHI AT NEW DELHI

%                  Judgment Reserved on: 01.03.2011
                  Judgment Delivered on: 11.03.2011

+            RSA No.164/2004 & CM No.8584/2004 (for stay)

LIFE INSURANCE CORPORATION OF INDIA ...........Appellant
             Through: Mr. S.P. Mittal, Advocate

                  Versus

SMT. ANITA RANI & OTHERS                ..........Respondents
              Through: Mr. Arun Sukhija, Advocate.

      CORAM:
      HON'BLE MS. JUSTICE INDERMEET KAUR

    1. Whether the Reporters of local papers may be allowed to
       see the judgment?

    2. To be referred to the Reporter or not?                  Yes

    3. Whether the judgment should be reported in the Digest?
                                                         Yes

INDERMEET KAUR, J.

1 The present appeal has impugned the judgment and decree

dated 01.04.2004 which had endorsed the findings of the trial

Judge dated 19.07.2003 whereby the suit filed by the plaintiffs

seeking recovery of Rs.80,000/- from the defendant/ Life Insurance

Corporation had been decreed in their favour.

2 The present suit had been filed by the two legal

representatives of deceased Harsh Kumar. Harsh Kumar had

submitted a proposal for insurance of his life in the sum of

Rs.80,000/-. This proposal was dated 28.10.1983. A sum of

Rs.2,128/- had been given as premium to the defendant corporation

vide cheque dated 31.10.1983. The deposit memorandum issued by

the defendant corporation evidencing this fact is dated 31.10.1983.

Harsh Kumar died on 10.11.1983. The legal representatives of the

deceased corresponded with the defendant corporation seeking a

claim on the insurance policy; inspite of repeated correspondences

the said claim was finally negatived; suit was accordingly filed.

3 The defence of the defendant was that the deceased had died

on 10.11.1983; the proposal of the deceased had been accepted

only on 11.11.1983 i.e. one day after the date of death of the

deceased; in these circumstances, no valid/binding contract had

come into existence prior to 11.11.1983. Other facts were

undisputed.

4 On the pleadings of the parties, the following five issues were

framed:-

1. Whether Life Insurance Policy issued by the defendant is effected w.e.f. 31.10.1983? If so, the effect? OPP.

2. Whether the said Insurance Policy is effective w.e.f. 11.11.1983? If so, what effect? OPD.

3. Whether the plaintiff is entitled to any interest? If so, at what rate and on what amount?

4. Whether the plaintiff is entitled to the amount claimed in the suit?

5. Relief.

5 The plaintiff examined herself as PW-1. She had reiterated

the averments made on oath. The proposal form bearing the

signatures of Harsh Kumar had been proved as Ex. D/P-1. This

form was admittedly submitted on 28.10.1983. The medical

examination had been conducted by the doctor of the defendant

corporation on 28.10.1983. The first premium paid on this policy in

the sum of Rs.2,128/- was on 31.10.1983; receipt of the said

amount had been proved as Ex. PW-1/1. The policy sent by the

defendant corporation had been proved as Ex. PW-1/3. Along with

the policy, Ex. PW-1/2 which is the acceptance letter-cum-first

premium receipt had also been issued. This document had been

scrutinized by the trial Judge. It had noted that the entire

document is type written but at certain points there was hand-

writing in pen which made a reference to the date of 11.11.1983.

6 Perusal of this document shows that the name of the assured

is Harsh Kumar; the sum assured was Rs.80,000/-; he was a male;

mode of premium was yearly; number of agent was 1926122;

nominee Smt. Anita was the wife; date of proposal was 28.10.1983;

father‟s name was Sh. Wazir Chand; occupation of the assured was

business; address and age was also typed written; the date of

commencement of 31.10.1983 found mention in column marked

Br./Dc. (The learned counsel for the appellant was not able to

explain this abbreviation.) Thereafter in hand-writing on two places

in this document, the date of 11.11.1983 was mentioned. After a

scrutiny of the cross-examination of the witness of the plaintiff as

also the witness of the defendant, the trial Judge had concluded

that this appears to be an interpolation and date of 11.11.1983

appears to have been added later on. This finding was also

endorsed by the first appellate court.

7 The proposal form is Ex. D-1. The details of the assured have

been hand written; it is signed by assured. There is a declaration

by the proposer on the last but one page of the said document.

Emphasis has been laid on one part of this declaration where there

is a mention that if after the date of submission of the proposal but

before the issue of first premium receipt there is any change in the

occupation/financial position/general health of the assured, the

same shall be intimated to the corporation to reconsider the terms

of acceptance of assurance; omission to do so which refer this

assurance as invalid. It is submitted that this clause shows that the

proposal was yet under consideration. This clause in Ex. D-1 in fact

supports the contention of the plaintiff; it states that only in anyone

of the aforenoted three eventualities i.e. change in

occupation/financial position/general health of the assured, the

terms of acceptances of assurance would be liable to be

reconsidered.

8 The facts of the present case are by and large admitted. The

assured had submitted a proposal for his life insurance on

28.10.1983. Medical examination by a doctor appointed by

defendant No. 1 had stood complete on this date. The first

premium by way of cheque in the sum of Rs.2,128/- had also

admittedly been paid by the assured on 31.10.1983. Ex. PW-1/2 is

the acceptance letter-cum-first premium receipt dated 31.10.1983.

Interpolations contained in the said document have been noted and

which are also evident from the face reading of the document. The

entire document is type written bearing date of 31.10.1983 except

at two places where the date of 11.11.1983 has been mentioned in

hand-writing. The assured had died on 10.11.1983. Contention of

the corporation was that the policy had come into existence on

11.11.1983 which was evident from the date mentioned in the

policy Ex. PW-1/3.

9 Both the fact finding courts below had delved into this

argument and had arrived at a conclusion that a perusal of the

documentary evidence which included the terms of the proposal

form, receipt dated 31.10.1983 (Ex. PW-1/2) as also the policy

(Ex.PW-1/3) to hold that the contract between the parties i.e

between the insurer and assured had come into existence on

31.10.1983; proposal had been made on 28.10.1983 and

acceptance had been completed on 31.10.1983. Formality of

sending the policy only remained; death of assured on 10.11.1983

i.e. one date prior to the date of the formal issuance of the policy

on 11.11.1983 did not affect the liability of the insurance company.

10 This is a second appeal. It has been admitted on 10.04.2008.

The following substantial question of law was formulated:-

"Whether a proposal for insurance given during the lifetime of the proposer ceases to be a proposal at the point of time of the death of the proposer which took place prior to the date of acceptance of the proposal?"

11 The vehement contention of learned counsel for the appellant

is that the proposal of the deceased had been accepted by the

defendant corporation only on 11.11.1983; prior thereto, there was

no binding contract between the parties. Attention has been drawn

to Section 4 of the Contract Act, 1872 (hereinafter referred to as

the „said Act‟). It is pointed out that a communication of the

acceptance is complete only when it comes to the knowledge of the

proposer. It is submitted that the contract up to 11.11.1983 was

only a contingent contract; on death of the assured on 10.11.1983,

since the subject matter of the contract i.e. the risk of life of the

assured itself having become non-existent, the contract had

become void. It is submitted that in terms of Section 36 of the said

Act on an impossible event, such a contingent agreement becomes

void. Emphasis has been laid on illustration (b) of the said Section.

It is pointed out that the courts below have failed to appreciate the

ratio decidendi of the judgment of the Apex Court reported in AIR

1984 SC 1014 LIC of India Vs. R. Vasireddy. It is submitted that in

paras 13 & 14 of the said judgment, the Apex Court had clearly

stated that in insurance contracts, silence by itself does not denote

a consent and no binding contract arises until the person to whom

an offer is made says or does something to signify his acceptance;

general rule being that a contract of insurance will be concluded

only when the parties to whom the offer is made accepts it

unconditionally and communicate its acceptance to the person

making the offer.

12 Arguments have been countered. It is submitted that the

courts below are the two fact finding courts, both the said courts

had concurrently held that the contract had come into existence on

31.10.1983; plaintiff was entitled to his claim. Judgment relied

upon by learned counsel for the appellant is clearly

distinguishable.

13 Record has been perused. Dates as aforenoted are admitted.

The proposal form is Ex. D-1. It is dated 28.10.1983; it is duly filled

and signed by the assured i.e. Harsh Kumar. The document itself

describes it as a proposal. It is admitted that on this date the

defendant corporation had medically examined the assured; the

medical examination had not revealed anything untoward; this is

also not the case of the defendant corporation. The premium

amount of Rs.2,128/- had been sent by cheque; the deposit memo

dated 31.10.1983 has been proved as Ex.PW-1/2. The last line of

the document mentions

"Receipt issued subject to realization of „cheque"

The Acceptance Letter-cum-First Premium Receipt has also

been exhibited as Ex.PW-1/2. This is a typed document. The date

mentioned in the document is 31.10.1983. Date at two places (as

aforenoted) has been hand written i.e. of 11.11.1983. The last line

of this document is relevant. It reads as under:-

"If you do not receive policy within 90 days, please write to us at the

above address"

This line indicates that insurance policy had to reach the

assured within next three months failing which the assured should

contact the defendant corporation. What necessarily can be

inferred is that sending of the policy was but a mere formality.

On the right hand column of this Acceptance Letter-cum-First

Premium Receipt (Ex.PW-1/2) is a printed format. It reads as:-

"We have also received the amount noted in the Schedule being the First Premium on the Police assurance for the Plan and amount indicated therein. The acceptance of this payment places the Corporation on risk with effect from the date of this Acceptance cum First Premium Receipt or if the proposal is under the Children Deferred Assurance plan from the deferred date on terms and conditions of the police of assurance which will be sent shortly.

The issue of this receipt is also subject to the realization of the amount in cash and the terms and conditions of acceptance printed overleaf."

A reading of this part of the document again shows that after

receipt of the first premium and subject to the realization of the

cheque, the policy of the assured would be sent.

The „Conditions of Acceptance‟ printed overleaf are also

relevant. The relevant extract which (at the back page of

Ex.PW-1/2) reads as under:-

"It is most important to note that if any change in your occupation or any adverse circumstance connected with your financial position or general health of yourself or that of your family, however unimportant you may consider the same, occurs between the date of proposal and the date of issue of this Receipt or if a proposal for assurance or an application for revival of a policy on your life made to any Office of the Corporation has since the date of this proposal been withdrawn or dropped, deferred or declined or accepted at an increased premium or subject to a lien or on terms otherwise than as proposed or if you have been selected for service in any of the Branches of Military, Naval or Air Force Services between the date of this proposal and the date of issue of this receipt the assurance will be invalid and all moneys which shall have been paid in respect thereof forfeited unless intimation of such event be made in writing to the Corporation and this acceptance of proposal be reapproved

by the Corporation."

14 Perusal of these terms and conditions show that if there is

any change in the occupation/financial position/general health of

the assured which would be the intervening period between the

date of the proposal and the issuance of this receipt, the assurance

will become invalidated. These terms and conditions also throw a

light on the intention of the insurance company which was that

only on any one of the aforenoted contingencies which would be

between the intervening period from the date of proposal to the

date of issuance of the receipt, could the proposal be invalidated.

Date of proposal is admittedly 28.10.1983. Date of this document is

31.10.1983. This document also thus substantiates the argument of

learned counsel for the respondent/plaintiff that the acceptance of

the proposal had stood complete on 31.10.1983; a valid and

binding contract had come into existence on that date. The

issuance and sending of the policy on 11.11.1983 was but only a

formality.

15 The facts of R. Vasireddy (Supra) are clearly distinguishable.

In that case, „V‟ had filed a policy of insurance on 27.12.1960; two

cheques had been issued in favour of the LIC as first premium; first

cheque had been encashed on 29.12.1960 but the second cheque

was dishonoured three times before it was finally encashed on

11.01.1960. The deceased had died on 12.01.1960. Specific

defence of the defendant corporation in the written statement was

that on the date of death of the deceased, the amount covering the

two cheques was still lying deposited in the suspense account and

had not been adjusted towards premium since the proposal had not

been considered; the terms of acceptance had not been fixed and

the premium amount required for the proposal had also not been

calculated; Chapter III of the Binding Orders of 1960 dealing with

the financial powers had not been correctly construed. Further

defence was that the proposal could be accepted by the Divisional

Manager alone; Ex. B-14 which was the said proposal had an

endorsement to the following effect „may be accepted at OR‟;

letters written by the Assistant Manager evidenced that the papers

should be forwarded to the Divisional Manager; since the

Divisional Manager had not considered the papers, a valid binding

contract had not come into existence; it was in these circumstances

that the Apex Court had noted that silence by itself does not denote

a consent; something must be said or done to signify acceptance.

The relevant extract of the said judgment read as follows:-

"The general rule is that the contract of insurance made will be concluded only when the party to whom an offer has been made accepts it unconditionally and communicates his acceptance to the person making the offer. Whether the final acceptance is that of the assured or insurers, however, depends simply on the way in which negotiations for an insurance have progressed."

16 The defendant corporation had accepted the proposal/offer of

the assured on 31.10.1983. Ex. PW-1/2 clearly recites that first

premium has been received and subject to realization of the

cheque, the policy would be sent shortly. The terms and conditions

of acceptance on the back page of Ex. PW-1/2 also show that it was

only in the eventuality of either one of the contingencies; i.e. being

any change in occupation/financial position/health condition of the

assured (which would be between the date of the proposal and the

date of issuance of this receipt), the assurance would be

invalidated and on no other count. None of these contingencies had

admittedly taken place. On a specific query put to learned counsel

for the appellant as to what were the acts or further formalities

done by the department after 31.10.1983, learned counsel for the

appellant had no answer. It is clearly not the case of the appellant

that after 31.10.1983 (which was the date of acceptance of the first

premium on the assurance policy) that the defendant corporation

had taken any step in furtherance of this agreement. It is clear that

the contract had come into existence on 31.10.1983 itself.

17 Section 7of the said Act is relevant. It reads as under:-

"7. Acceptance must be absolute.- In order to convert a proposal into a promise the acceptance must-

(1) be absolute and unqualified;

(2) be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which is to be accepted. If the proposal prescribes a manner in which it is to be accepted, and the acceptance is not made in such manner, the proposer may, within a reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed manner, and not otherwise; but, if he fails to do so, he accepts the acceptance."

Section 8 of the said Act reads as under:-

"8. Acceptance by performing conditions, or receiving consideration:- Performance of the conditions of a proposal, or the acceptance of any consideration for a reciprocal promise which may be offered with a proposal, is an acceptance of the proposal."

18 A co-joint reading of these statutory provisions shows that

the acceptance must be absolute and unqualified; it may be

expressed in some usual and reasonable manner unless the

proposal prescribes the manner in which it is to be accepted.

Performance of a condition of the proposal or the acceptance of

any consideration also tantamounts to an acceptance.

19 In the present case the consideration i.e. the first premium of

the policy had been accepted/acknowledged on 31.10.1983; it was

a step towards the performance of the condition of the proposal

which performance amounted to an acceptance of the proposal.

20 In AIR 1986 Kerala 215 Life Insurance Corporation of India ,

Trivandrum Vs. L. Kamalamma, the judgment of the Apex Court

reported as (supra) was considered by a Division Bench of the

Kerala High Court. It was distinguished on facts. In this case, the

policy had not been issued to the assured, the Court had gone a

step further to hold that even in the absence of issuance of the

policy, a contract had come into existence.

21 In the present case also, the testimony of three witnesses of

the plaintiff as also the witnesses of the defendant had been

scrutinized to arrive at this conclusion. DW-1 had admitted that the

proposal of Harsh Kumar was received in their Branch and the first

premium amount of Rs.2,128/- had been paid by him. In his cross-

examination, he had admitted that the proposal can also be

accepted on the date itself if there is a request by the party or

sometime even retrospectively. It is also not the case of the

defendant No. 1 and he has nowhere pleaded or deposed that

between the intervening period of 31.10.19083 to 11.11.1983 any

act express or implied had been done by him in furtherance of the

agreement between the parties; after 31.10.1983 there was

admittedly no act on the part of the department. The proposal of

28.10.1983 had been accepted by the corporation on 31.10.1983

when the first premium amount had been tendered; all requisite

formalities including the medical examination of the assured had

stood complete. PW-2 who was working as a Development Officer

in the LIC deposed that he had handled this case; the premium on

the proposal was paid on 31.10.1983; the proposal was complete in

all respects; since the Senior Manager Mr. K.C. Mudgal was the

person authorized to accept the proposal and he being on leave

between 07.01.1983 to 10.01.1983, the formality was finally

completed only on 11.11.1983. Thus what was left to be done by

the corporation was only sending the policy which was nothing

more than a formality.

22 The Life Insurance Corporation Act, 1956 was a legislation

engrafted in the statute having the object to provide for

nationalization of life insurance business in India. In AIR 1934 All

298 Muhammad Sultan Vs. Clive Insurance Co,. Ltd. & Anr, a

Division Bench of Allahabad High Court had held that the non

issuance of a formal policy would not affect the liability of the

company with regard to the risk it had undertaken to insure the

assured; in that case, the cash premium had been accepted without

any further condition ; on the proposal and the cover note having

been dispatched by the insurance company ; it was held to be a

binding acceptance upon the defendant corporation. In AIR 1995

SC 1367 Smt. Shashi Gupta Vs. Life Insurance Corporation of India

& another, the Supreme Court while dealing with the amount

payable to assured had observed that where there are two

interpretations which are reasonably possible, the one which

favours the policy holder should be favoured as the same advances

the purpose for which a policy is taken and would be in consonance

with the object to be achieved for getting lives assured.

23 There is no merit in this appeal. Appeal as also the pending

application are dismissed.

INDERMEET KAUR, J.

MARCH 11, 2011 a