DIVISIONAL MANAGER, LIC OF INDIA vs HARIBANDHU SETHA

THIS appeal has arisen from the judgment dated 7th of August, 1992 of the State Commission, Orissa and raises the question of interpretation of the contract of insurance of the Life Insurance Corporation of India under the ''Salary Saving Scheme'' of the State of Orissa.

THE State Commission has taken great pains to spell out the terms and conditions of Insurance Policy of LIC under Orissa Government "Salary Saving Scheme" and may be seen from there. The Salary Saving Scheme of the LIC had been introduced by the State Government of Orissa for the benefit of their employees since 1964. The scheme in the nutshell provides service at the door steps of the salaried employees of the Government. The scheme benefits the policy holders as the risk is covered and an effortless saving is made through small and easy monthly instalments. It benefits him again because of the decreased chances of the Insurance Policy getting lapsed due to the scheme of deduction of the premium from the salary at source. The responsibility of deduction and remitting the premium in time periodically during the term of the policy is taken over by the employer. Under Clause 5 of the Administrative Procedure, the employee polity holder is to give an authorisation letter in the specified Form-A. It authorises the employer to arrange to deduct and pay to the LIC the premium amounts stated therein from the salary of the employee for the given month and also to continue to deduct and pay such amounts every month till further orders, Late Shri Hrudananda Setha was a Junior Engineer (Mechanical) of Orissa State posted under the Executive Engineer, Public Health Department-2, Mahand Bihar, Cuttack (hereinafter called the deceased). He submitted on 29th October, 1989 a proposal in the pre scribed proforma for life insurance of Rs 1,00,000/- alongwith the initial premium of Rs 222/- for two months. LIC accepted the proposal and premium and issued on 30th November, 1989 Policy No. 582651450 for a sum of Rs. 1,00,000/- a convertible whole life insurance policy commencing on 28.11.1989 and with date of maturity being 28th November, 2014. The letter of authorisation was given to the Executive Engineer on 4th December, 1989 by the insured for deduction and remittance of Rs. 110/- per month towards monthly premium from his salary with effect from January, 1990.

THE insured expired on 17th July, 1990. The Complainant who is the father of the deceased and nominee under the said policy, sent intimation of death to the LIC who found that the policy had lapsed due to non-receipt of monthly premium from January, 1990. LIC called upon the complainant to furnish, inter alia, a certificate in respect of premiums from January, 1990 to June, 1990 on the prescribed proforma under die seal and signatures of the Disbursing Officer, if the premium had been recovered and remitted. The Complainant approached the Executive Engineer and his Senior Officers but no information was forthcoming, Ultimately the complaint was filed.

THE State Commission in the impugned order came to the conclusion that insurance is service as defined in Section 2(o) of the Consumer Protection Act, 1986and as life insurance is insurance it is thus, service rendered by the Insurer. It held that in this case there is deficiency in rendering service to the policy holder as well as to the Complainant by the insurer and the officers of the State Government. The State Commission, however, directed Opposite Party Insurer, Appellant before us, to pay the assured amount to the Complainant after deducting from it the amounts of premium which it claims not to have received with interest on the amount from the date of claim till payment at 12 1/2%. A further direction was given that after the insurer collects the arrear from the employer or the State Government within one year from the date of receipt of the order, it shall be paid back to the Complainant since insurer cannot be benefited twice. This appeal came up for hearing before this Commission on 17th May, 1994 when the Counsel for the Respondent No. 2 prayed for the grant of a short time to enable the Executive Engineer concerned to file an affidavit stating whether or not deduction of in stalments of premium becoming due from time to time had been made from the salary of the deceased employee from the period between January, 1990 to July 1990 when the employee unfortunately died. Time for filing affidavit was granted. An Affidavit by Sir Mayadhar Panda working as the Executive Engineer, Rural Water Supply and Sanitation Division No. 1, Cuttack, Orissa has been filed inter alia stating:" "Para 4"That late Hrudananda Setha had been paid his salary without deduction of LIC premium from January, 199Oto June, 1990 and he had acknowledged the payment. Para 5"That from the salary of Late Hrudananda Setha, for the period from 1.7.90 to 16.7.90 premium deduction amounting to Rs. 770/- for the period January, 90 to July, 90 @ Rs. 110/- per month has been made and the cheque bearing No. 645635/007707 dated 29.10.93 which included Rs. 770/- towards premium amount Rs. 770/- of Late Hrudananda Setha has been credited to the LIC

SHRI Rajiv Nayar, learned Counsel for the Appellant submitted with great emphasis that the contract of insurance was rendered null and void in view of admitted position of nonpayment of the premium which is the foundation of the continuance and subsistence of the policy. According to him the special conditions attached to the policy clearly convenants and provides that the continuance of the policy is dependent on the instalment premium to be paid.

THERE is no doubt that the definition of service as contemplated in Section 2(l)(o) of the Act would apply if there is a valid and subsisting contract of insurance at the relevant time Clause 5 inter alia provides that in case the premium shall not be duly paid, then the policy shall be void and all claims to any benefits in virtue thereof shall cease and determine. The special conditions attached to the policy further provides that this policy having been issued under the Salary Saving Scheme, it is declared that the instalment premium shall be payable at the rate shown in the schedule of the policy so long as the life assured continues to be an employee of his present employer whose name is stated in the proposal, and the premiums are collected by the said employer out of the salary of the employee and remitted to the Corporation without any charges. It is further provided that in the event of life assured leaving the employment of the said employer or the premiums ceasing to be so collected and /or remitted to the Corporation, the life assured must intimate the fact to the Corporation and in the event of Salary Saving Scheme being withdrawn from the said employer the Corporation shall intimate the fact to the life assured and all premiums falling due on and after the date of his leaving the employment of the said employer or cessation of collection of the premiums and remittance thereof in the manner aforesaid or withdrawal of the Salary Saving Scheme, as the case may be, shall stand increased by the imposition of the additional charge for monthly payment that has been waived under the Salary Saving Scheme at 5% of the premium exclusive of any premium charged for Double Accident Benefit or Extended Permanent Disability Benefit and any other extra premium charged. It is thus clear that the special conditions attached to the policy clearly convenant that the continuance of the policy is dependant on the instalment premium being paid at the rate shown in the schedule of the policy and such premium to be collected by the employer out of the salary of the employee and remitted to LIC without any charge. It is evident from the said affidavit dated 6th December, 1994 relevant portions reproduced that no deductions were made from the monthly salary of the deceased since January, 1990 and the same were not remitted to LIC. The deduction of Rs. 770/-at the rate of Rs. 110/- per month from January, 90 to July, 90 made on 29th of October, 1993 and remitted to LIC will not revive the policy which lapsed in February, 90 (after expiry of 15 days of the grace period of 20th of the month when the premium fell due). If the policy has lapsed, it could be revised only during the life time of the life assured on certain conditions as provided in Clause 3 of the conditions and privileges attached to the policy. No claim is maintainable under a lapsed policy of insurance. There is no deficiency in service in non-payment of the claim on a lapsed policy. A copy of the Salary Saving Scheme of the Life Insurance Corporation of India for Orissa State Government Employees as amended upto November, 1985 is on the record. A Government servant who decides to take advantage of the scheme has to give alongwith the proposal for insurance, authorisation letter in duplicate in the prescribed form of Corporation. It is apposite to reproduce the same here: "I have taken out a Life Insurance Policy of Rs. 1,00,000/- with the Life Insurance Corporation of India under G.S.S.S., particulars of which are given below, I desire to pay premiums .by deduction from salary every month, hence I request you to kindly arrange to deduct and pay to the Divisional Manager, Life Insurance Corporation of India, at LIC Building, Circuit House Compound Cuttack-I, the premium amount stated below from my salary due for the month given below and also to continue to deduct and pay such amounts every month till further advice. I agree that your liability will be confined to making arrangements for deduction of premium from my salary whenever this can be made and for remitting the amount of deduction to the Corporation in time upto the month and year of last instalment stated below or till I give you and the LIC a specific Notice of withdrawal of authorisation after a minimum period of 3 years from the date of commencement of the policy. I shall be entirely responsible for any consequences on account of nonpayment of premiums on my policy for reasons beyond your control, such as in the event of my proceeding on leave without pay, or my drawing advance salary without deduction, premium per chance, or my withdrawing this authorisation by due notice to you and to the Corporation after the initial period as stated above or my canceling this authorisation for deduction in case of my leaving Orissa Government service. In any such case it will be my responsibility to make arrangements for remittance of premium directly to the Corporation to prevent my policy from lapsing."

IT would be seen that the responsibility of remitting the premium in time periodically is taken over by the employer by this authorisation. The Pay/Disbursing Officer has to deduct the amounts from the salary and deposit and credit to the account of LIC. The Drawing and Disbursing Officer upon deduction of premiums from the salaries of the employees has to record the premium so deducted in "Premium Deduction Books" of respective employees and these books are kept in the custody of the employer. It is thus clear that under the scheme the employer is responsible for deducting the premiums from the salary of the employee and remitting it to the LIC. In case of any non-deduction of premium or non-remittance of premium resulting in the lapse of the Insurance Policy, it is the employer who is negligent and is responsible for the lapsed policy. The Pay and Disbursing Officer in this case has been negligent in complying with the terms and conditions of the Salary Saving Scheme and the responsibility undertaken for deduction and remittance of the monthly premiums. We, therefore, uphold the finding of the State Commission that there is deficiency on the part of the officers of the State Government of Orissa in rendering service to the policy holder as well as the nominee under the policy i.e. the Complainant

THE rightful claimants to the sum assured under the policy of insurance are the legal heirs of the deceased policy holder. The nominee in the policy is under law merely authorised to collect the proceeds of the policy on behalf of the rightful legal heirs of the deceased policy holder. An application has been filed before this Commission by Mrs. Sovasri Dalai @ Setha widow of the deceased claiming to be the sole legal heir after the death of her husband on 17th ( July, 1990 and entitled to get the total claim payable under the said policy of insurance. We f are merely recording this without expressing any opinion as to who is entitled to the amount that is being granted. Officers of the State Government have been negligent in not deducting the amount of the premium from the salary of the deceased and depositing and crediting it to the account of LIC for the period from 1st January, 1990 to July, 1990. The deduction of the premium for the period from January, 1990 to July, 1990 % M Rs. 110/-per month was made subsequently in October, 1993 and remitted to LIC. This payment of the premium cannot revive a lapsed policy as it could be revived during the life time of the life assured with the result that the legal heirs of the deceased have suffered because of the negligence of the officers of the State Government who is responsible to pay compensation.

FOR the above reasons the appeal is allowed and the Order passed by the State Commission as against the appellant, Life Insurance Corporation of India is set aside. We however, direct that the employer namely the State Government of Orissa shall pay a compensation of Rs. 1,00,000/-, the amount payable under the lapsed policy, to the legal representatives of the deceased. The amount shall be deposited by the State of Orissa with the State Commission within a period of three months. The amount will be kept by the State Commission in a fixed deposit receipt earning interest and would be paid to the legal representatives as established by law. In the circumstances the parties shall bear their own costs.