K. Selvaraj vs Life Insurance Corporation of India and Others

S. Palanivelu, J.—The plaintiff is the appellant. He filed O.S. No. 189 of 1999 on the file of the learned Principal District Munsif, Salem for declaration and permanent injunction. The trial Court dismissed the suit by decree and judgment dated 11.03.2002. Challenging the same, the appellant filed A.S. No. 60 of 2002 which came to be dismissed by the learned Principal District Judge, Salem by decree and judgment dated 08.01.2003. The First Appellate Court dismissed the appeal and confirmed the decree and judgment of the trial Court. Challenging the same, the appellant has come forward with this second appeal. The case of the appellant/plaintiff is as follows:-

1[a] The plaintiff was appointed as Agent of Life Insurance Corporation of India about twelve years back. By his hardwork, he secured more than 1000 policies. While so, plaintiff received a letter dated 26.05.1998 from Marketing manager, LIC, Salem Division repudiating Policy No. 760716897 which was secured by the plaintiff and terminating agency of plaintiff under Rule 16(1)(a)(b) and (d) of Agents'' Regulations, 1972. Against termination of his agency, plaintiff preferred an appeal before D1/Zonal Manager, Chennai which was rejected by the order dated 10.12.1998. Plaintiff is not appraised of the grounds for terminating his Agency as contemplated under the Rules, no Charge Memo or Show Cause Notice was issued to the plaintiff before terminating his Agency. As per Schedule 1 of LIC Agent''s Regulations, 1972 only Divisional Manager of LIC has got power to terminate the agency for alleged lapses if any under Rule 16. The order dated 26.05.1998 was not issued by Divisional Manager, order of termination issued by the Marketing Manager is invalid in law. Further, under Rule 16 of Agents Regulations in case of termination of agency excepting in cases of fraud, an Agent would be entitled to the commission for which he has secured business. Termination of Agency of plaintiff without issuing show cause notice violates principles of natural justice and is invalid. Hence, plaintiff has filed the suit for declaring that the termination of his agency as agent of LIC as invalid and for permanent injunction prevailing LIC from continuing the plaintiff as Agent with monetary benefits.

In the written statement, the respondent/defendant has pleaded as follows:-

2[a] When an agency is terminated for reasons of fraud, the payment of renewal commission can be forfeited when the agent has acted with an intention to defraud the Corporation. Decision to terminate agency of plaintiff was taken by Senior Divisional Manager who is the competent authority to terminate the agency, that plaintiff had introduced one Ganesan and policy was issued to the said Ganesan who suffered a road accident on 10.11.1995 due to which his all four limbs had immobilized, that for non-payment of renewal premium from 2/95, the said policy lapsed, that on being purportedly introduced by the plaintiff and examined by one Dr. Nallaiyan, lapsed policy was revived on 24.11.1995 and the wife of the policy holder preferred a claim stating that her husband suffered accident on 21.12.1995, that the plaintiff had deliberately acted in a manner prejudicial to the interest of LIC by attesting specimen signature of policy holder thereby revised the policy by making deliberate false statements.

Based on the above pleadings, the trial Court framed three issues. During the trial of the case, plaintiff examined himself as P.W. 1 and as many as 4 documents were exhibited as Exs. A. 1 to A. 4. On the side of the defendant, D.W. 1 & 2 were examined and as many as 22 documents were exhibited as Exs. B. 1 to B. 2. Having considered the oral and documentary evidence adduced, the trial Court has dismissed the suit by observing that the plaintiff had fraudulently acted to commit loss to LIC. Aggrieved by the same, the unsuccessful plaintiff has preferred an appeal in A.S. No. 60 of 2002 on the file of the learned Principal District Judge, Salem.

The First Appellate Court, on considering the materials dismissed the appeal confirming the judgment and decree of the trial court in O.S. No. 189/1999 dated 11.03.2002. Challenging the same, the plaintiff has come forward with the present second appeal.

While admitting the Second Appeal, this Court has framed the following substantial question of law:-

Whether the termination of the Agency of the plaintiff-appellant, without giving him show cause notice and an opportunity to explain as required by Sub Rule 2 of Rule 16 is in valid and untenable?

The plaintiff was an Agent of Life Insurance Corporation who has come forward challenging the validity of termination order, Ex. A1 which was passed on account of his misconduct. In Ex. A1, it is stated that policy No. 700716897 was repudiated and the agency of the plaintiff is terminated with immediate effect under Rule No. 16(1)(a)(b) & (d) of Agents Regulations 1972. Thereupon, the plaintiff filed an appeal before the Zonal Manager, LIC of India, Chennai, which is marked as Ex. A2 and the appeal was rejected by the Appellate Authority, the Zonal Manager. Hence, he has filed the present suit.

Certain fraud, dishonesty on the part of the plaintiff were unearthed and it was brought to the notice of LIC. It is the matter of reviving of lapsed policy for non-payment of renewal premium from 02/95 of the policy holder one Ganesan. He met with a road accident on 10.11.1995 and his four limbs were immobilized. On being purportedly introduced by the plaintiff to Dr. Nallaiyan, lapsed policy was renewed on 24.11.1995. Wife of Ganesan by name Rasammal, preferred a claim stating that her husband suffered accident on 21.12.1995. The discrepancy on the date of accident has prompted the LIC to initiate action against the plaintiff.

While making claim, policy holder Ganesan had clearly stated the date of accident as 10.11.1995. Obviously, if the accident was on 10.11.1995, suppressing the same, the plaintiff had fraudulently helped the policy holder Ganesan to obtain Ex. B9, Medical Examiner''s Confidential Report stating that his health condition was good and that he had not met with any accident or injury. In Ex. P8, Proposal for revival of lapsed policy, deliberate false statements were made to revive the policy, merely to keep alive the policy and to make the claim of benefits under Extended Permanent Disability Benefit Scheme by signing as witness in Ex. B8 and thereby prejudicially acted against interest of Life Insurance Corporation of India. For injuries sustained by Policy Holder Ganesan on 10.11.1995, he was admitted in Gokulam Hospital where he was treated by D.W. 2. Noting 100% disability and quadriplegia due to cervical cord injury, D.W. 2 issued Ex. B17 report. Quadriplegia means paralysis of four limbs permanently disabled from moving. In fact, in Ex. B14 Requisition Rasammal wife of policy hold had stated about immobilization of her husband below the head and that he has incapacitated from moving. If that be so, policy holder Ganesan could not have been personally present on 24.11.1995 before Dr. Nallaiyan for medical examination. The plaintiff in active connivance with the policy holder must have impersonated Ganesan by producing some other person and obtaining Ex. B9 Medical Report. By falsely stating that policy holder Ganesan was in healthy condition while actually he met with accident on 10.11.1995 and incapacitated as above said, plaintiff failed to act in accordance with duties set under Agents Regulation.

Exs. B16 and B17 are printed questionnaire to be submitted by Life Assured claiming disability benefit. Both the forms were filled up by Dr. P. Sundararajan, Neuro Surgeon who was examined as P.W. 2. He is of the opinion that individual Ganesan was suffering 100% disability and quadriplegia due to cervical cord injury. In his evidence, he would say that from 10.11.1995, the four limbs of Ganesan were not functioning and within three weeks from 10.11.1995, he could not put his signatures. If so, the signature contained in the claim form, Ex. B8 could not have been the signature of Ganesan which was allegedly put by him on 10.11.1995. Hence, the over writing the 10th numericals. With regard to this, in his cross examination lays a suggestion that he did not correct the date from 15th to 10th. Ex. B9 is the medical examiner''s confidential report prepared by Dr. Nallaiyan in which he has stated that Ganesan was in good health on 15.11.1995. The above said piece of evidence would show that instead of Ganesan somebody should have been produced before Dr. Nallaiyan prompting him to issue Ex. B9 as Ganesan was hale and healthy on 15.11.1995. But the actual state of affairs would go to show that Ganesan met with an accident on 10.11.1995 and he was suffering from disability to the extent of 100% and the medical evidence shows that he could not lay his signature.

The attack of the plaintiff on the termination of his agency is on two folds. One is that since the termination order was passed on 16.11.1995 as per Agents Regulations 1972, he should have been issued with show cause notice and an enquiry consequent to the show cause notice should have been conducted. But by means of Ex. A1, his agency was terminated with immediate effect under Rule No. 16(1)(a)(b) & (d) of Agents Regulations 1972. The other limb of contention is that termination order was not passed by a competent authority. As prescribed in Agency ship and Termination, order should be signed by a Divisional Manager of Life Insurance Corporation of India but in Ex. A1, it was signed only by a Marketing Manager and that it is not in accordance with the Rules.

As regards the first contention, it is true that in Ex. A1, it is stated that the termination was against under Rule 16 but the facts of the case are to be borne in mind. In this case, impersonation, forgery and cheating had also been committed by plaintiff against Life Insurance Corporation of India. Hence, the conduct of the plaintiff would attract Rule 15 (b) of the Agency Rules.

Following are the extraction of Rules contained in Rule 15 and 16 of Life Insurance Corporation of India (Agency) Rules, 1972.

Termination of agency on account of certain disqualifications: If an agent:

(a) is found to be of unsound mind by a court of competent jurisdiction;

(b) is found to be guilty of criminal misappropriation or criminal breach of trust or cheating or forgery or an abetment of or attempt to commit any such offence by a court of competent jurisdiction;

(c) in any judicial proceeding, has been found to have knowingly participated in or connived at any fraud, dishonesty or misrepresentation against the Corporation or any of its subsidiaries or against any person having official dealings with the Corporation or any of its subsidiaries,

his appointment shall be liable to be terminated without notice and the competent authority shall forthwith terminate his appointment.

Termination of agency for certain lapses:

(1) The competent authority may, by order, determine the appointment of an agent

(a) if he has failed to discharge his functions, as set out in regulation 8, to the satisfaction of the competent authority;

(b) if he acts in a manner prejudicial to the interests of the Corporation or to the interests of its policyholders;

(c) if evidence comes to its knowledge to show that he has been allowing or offering to allow rebate of the whole or any part of the commission payable to him;

(d) if it is found that any averment contained in his agency application or in any report furnished by him as an agent in respect of any proposal is not true;

(e) if he becomes physically or mentally incapacitated for carrying out his functions as an agent;

(f) if he being an absorbed agent, on being called upon to do so, fails to undergo the specified training or to pass the specified tests, within three years from the date of which he is so called upon:

Provided that the agent shall be given a reasonable opportunity to show cause again such termination.

(2) Every order of termination made under sub-regulation (1) shall be in writing as communicated to the agent concerned.

(3) Where the competent authority proposes to take action under Sub-Regulation (it may direct the agent not to solicit or procure new life insurance business until he is permitted by the competent authority to do so.

Rule 15(b) contemplates that if an agent is found to be guilty of criminal misappropriation or criminal breach of trust or cheating or forgery or an abetment of or attempt to commit any such offence triable by a court of competent jurisdiction, if the series of malpractice as enlisted.

In Rule 15(b), the plaintiff could be found fault with almost all the series of misconduct. Rule 15 provides that if an Agent is found to be guilty of such series of misconducts, his appointment shall be liable to be terminated without notice. Hence, there is no right on the part of the LIC to terminate the agency of the plaintiff without notice. However, they might not have put Rule 16 under Ex. A1.

As regards the competent authority, as per Ex. A1 is concerned, any termination order would be passed by under Rule 15 of Schedule I shall be by the officer incharge of the branch. Ex. A1 is signed by the Marketing Manager. Hence, if Ex. A1 is treated to be under Rule 15, signatory shall be the Officer Incharge of the Branch, namely the Marketing Manager. Hence, the termination order is in order.

The learned counsel for the plaintiff in support of his contention placed reliance upon a Division Bench decision of Gujarat High Court at Ahmedabad in LPA No. 2662/2010 wherein in this case, the court has come to a conclusion that even though the show cause notice was issued, a due enquiry was not conducted and hence the termination order passed under Rule 16 is not sustainable. In this case, the policy holder was suffering from pulmonary tuberculosis and the fact was suppressed by the agent and he completed the operation by renewing the policy. This case is only an instance of suppression of fact and hence it could not be seen on par with the series of misconducts enumerated under Rule 15.

The learned counsel for the plaintiff also relies upon a two Full Bench decisions, of this High Court, one reported in K. Chellathangam Vs. The Chairman, Life Insurance Corporation of India, The Zonal Manager, Life Insurance Corporation of India and The Divisional Manager, Life Insurance Corporation of India, wherein it is observed that the petitioner shall be given a reasonable opportunity to represent his case. In this case, the life assured Shri. Valsalam died of cirrhosis of liver with cardiac failure and was taking treatment during the period when the policy was revived. It is also coming under the category of suppression of facts.

In an unreported judgment of this Court dated 18.11.2010 in WP (MD) No. 6414 of 2005, this Court allowed the petition setting aside the order of termination. The order of termination was in violation of principles of natural justice. In this case also, the deceased was suffering from some disease and the petitioner was in knowledge of the same. As per LIC, this case is also coming under the category of suppression of facts which would be dealt with under Rule 16.

In view of the facts prevailing in the case on hand, the plaintiff would not get advantage of the findings in the above said decisions since the case on hand would not come under Rule 15 since series misconducts of cheating, forgery, criminal breach of trust and fraud are seen on the part of the plaintiff.

In view of the above, this court is of the firm view that the judgment of the courts below need not be disturbed. There is no valid ground to allow the second appeal. The judgments passed by the courts below deserves to be confirmed and they are accordingly confirmed. The Second Appeal is devoid of merits and it suffers dismissal. The substantial question of law is answered as indicated above. In fine, the Second Appeal is dismissed with costs.