RAJ KUMARI vs Life Insurance Corporation of India

THE three appeals arise out of the order dated 23rd December, 1999 passed in Case No. 69/1994 by the District Consumer Disputes Redressal Forum, Betul (for short the ''District Forum'').

FACTS giving rise to the appeals are thus : Life assured late Pramod Agrawal, husband of Smt. Rajkumari Agrawal and father of Neha Agrawal and Aman Agrawal, minors, took Double Accident Benefit Policy No. 970093156 dated 28.3.1988 of the table and term 88-25 for the sum of Rs. 50,000/- of which the annual premium was of Rs. 2,349/-. The other policy dated 28.10.1991 was Money Back Policy No. 970307266 of the table and term, 75-20 for a sum of Rs. 50,000/- payment of premium of Rs. 866/- quarterly, to be paid on 20th of January, April, July and October every year. The life assured died on 29.2.1992 in a road accident. The complainant No. 1 lodged the claim. The Life Insurance Corporation of India (for short "LIC") after investigating the claim made the partial payment of Rs. 1,12,716/- on 26.3.1992 under Policy No. 970093156. However, the balance payment amount under double accident benefits of Rs. 50,000/- was paid on 1.10.1994. According to L.I.C. the Policy No. 970307266 lapsed as the premium due on 20.1.1992 was not paid even within the period of grace, as the Cheque No. 33110866 dated 20.2.1992 of the State Bank of India was deposited with the L.I.C. of which L.I.C. issued the receipt on 28.2.1992 subject to realisation of cheque. The State Bank of India (for short ''the Bank'') did not clear the cheque and returned the same on 13.3.1992 with the remark "Cheque received after the death of the account holder" in view of the revocation of the banker''s authority as envisaged by Section 75 of the Bills of Exchange Act, 1882 (for short ''B.E. Act''). The complainants after notice, filed the complaint on 26.7.1994. The complaint was resisted. During the pendency of the complaint, the L.I.C. paid the amount of double accident benefit of Rs. 50,000/- under the Policy No. 970093156 on 1.10.1994.

The District Forum after appreciation of evidence held that the cheque of the premium was received prior to expiry of the period of one month, which was not dishonoured, but, the amount of the same was not paid by the Bank due to death of the life assured. The death of the life assured was caused in road accident, is an admitted fact. Therefore, the delay in settlement of the claim of double accident benefit, was the deficiency in service, hence, ordered to pay the interest at the rate of 12 per cent per annum on the amount of Rs. 50,000/- from 26.3.1992 upto 1.10.1994, within a period of 60 days failing which the interest was payable at the rate of 18 per cent per annum. The benefits payable under Policy No. 970307266 not paid due to non-encashment of the cheque sent delayed, for the collection of the amount, which was returned by the Bank due to revocation of its authority. However, in view of Section 64-VB of the Insurance Act, 1938 (for short, ''Insurance Act'') the L.I.C. having received the payment cannot avoid its liability to pay the amount, hence, ordered that after adjustment of the due premium the benefits under the policy be paid within a period of 60 days failing which the amount to carry interest from the date of the order at the rate of 12 per cent per annum till payment. L.I.C. was further ordered to pay compensation of Rs. 5,000/-. The District Forum also held the Bank deficient in service in not intimating timely non-clearance of the cheque due to death inspite of the balance in the account holder, due to which L.I.C. treated the policy as lapsed, hence, ordered the Bank also to pay compensation of Rs. 5,000/-.

L.I.C. aggrieved of the order has filed Appeal No. 105/2000. Bank aggrieved of the order has filed Appeal No. 229/2000, while the complainants have filed their Appeal No. 96/2000 to claim interest on the amount of double accident benefits under the Policy No. 970307266 from 26.3.1992 at the rate of 12 percent per annum. Learned Counsel for the L.I.C., in our opinion, rightly submitted that Section 64-VB of the Insurance Act, does not apply in respect of the payments of the premium to L.I.C. on life insurance policies in view of Section 43 of the Life Insurance Corporation Act, 1956 (for short the "L.I.C. Act") which reads thus : "43. Application of the Insurance Act.-(1) The following sections of the Insurance Act shall, so far as may be, apply to the Corporation as they apply to any other insurer namely- Sections 2, 2B, 3, 18, 26, 33, 38, 39, 41, 46, 47A, 50, 51, 52, 110A, 110B, 110C, 119, 121, 122 and 123. (2) The Central Government shall, as soon as may be after the commencement of this Act, by notification in the Official Gazette, direct that the following sections of the Insurance Act shall apply to the Corporation subject to such conditions and modifications as may be specified in the notification, namely- Sections 2D, 10, 11, 13, 14, 15, 20, 21, 22, 23, 25, 27A, 28A, 35, 36, 37, 40, 40A, 40B, 43, 44, 102 to 106, 107 to 110, 111, 113, 114 and 116A. [(2) Section 42 of the Insurance Act shall have effect in relation to the issue to any individual of a licence to act as an agent for the purpose of soliciting or procuring life insurance business for the Corporation as if the reference to an officer authorised by the Controller in this behalf in Sub-section (1) thereof included a reference to an officer of the Corporation authorised by the Controller in this behalf.]

(3) The Central Government may, by notification in the Official Gazette, direct that all or any of the provisions of the Insurance Act other than these specified in Sub-section (1) or Sub-section (2), shall apply to the Corporation subject to such conditions and modifications as may be specified in the notification.

(4) Every notification issued under Sub-section (2) or Sub-section (3) shall be laid for not less than thirty days before both Houses of Parliament as soon as possible after it is issued, and shall be subject to such modifications as Parliament may make during the session in which it is so laid or the session immediately following.

(5) Save as provided in this section, nothing contained in the Insurance Act shall apply to the Corporation."

IN view of the Section 43 of the L.I.C. Act, by mere tender of the premium by cheque, neither the risk would be assumed nor the life assured would be entitled to the benefits under the policy, if the premium is not paid within the grace period or lapsed policy is not revived. IN the present case according to L.I.C. the payment of the cheque tendered was not collected due to return of the cheque, hence, the policy lapsed after the expiry of period of one month. The policy laid down the period during which premium is payable that is "till the stipulated date of the last payment or previous before the death of the life assured". Condition No. 2 speaks of "Payment of Premium" and condition No. 3 of "Revival of Discontinued Policies". Condition No. 10-2 relates to "Accident Benefit" of which Clause (B) relates to "Death of the Life Assured". The relevant conditions referred to above reads thus : "2. Payment of Premium-A grace period of one month but not less than 30 days will be allowed for payment of yearly, half-yearly or quarterly premiums and 15 days for monthly premiums, if death occurs within this period and before the payment if death occurs within this period and before the payment of the premium then due, the policy will still be valid and the sum assured paid after deduction of the said premium as also the unpaid premiums falling due before the next anniversary of the policy. If the premium is not paid before the expiry of the days of grace, the policy lapses.

If the policy has not lapsed and the claim is admitted in case of death, under a policy where the mode of payment of premium is other than yearly, unpaid premium, if any, falling due before the next policy anniversary shall be deducted from the claim amount. 3. Revival of Discontinued Policies-If the policy lapses, it may be revived during the life-time of the Life Assured, but within a period of 5 years from the date of the first unpaid premium and before the date of maturity on submission of proof of continued insurability to the satisfaction of the Corporation and the payment of all the arrears of premium together with interest at such rate as may be fixed by the Corporation from time to time compounding half-yearly.

The Corporation reserves the right to accept or decline the revival of discontinued policy. The revival of a discontinued policy shall take effect only after the same is approved by the Corporation and is specifically communicated to the Life Assured. 10-2. Accident Benefit-If at any time when this policy is in force for the full sum assured, the Life Assured, before the expiry of the period for which the premium is payable or before the policy anniversary on which the age nearer birthday of the Life Assured is 70, whichever is earlier, is involved in an accident resulting in either permanent disability as hereinafter defined or death and the same is proved to the satisfaction of the Corporation, the Corporation agrees in the case of : (a) Disability to the Life Assured... (b) Death of the Life Assured-To pay an additional sum equal to the sum Assured under this policy, if the Life Assured shall sustain any bodily injury resulting solely and directly from the accident caused by outward, violent and visible means and such injury shall within 120 days of its occurrence solely, directly and independently of all other causes result in the death of the Life Assured. However, such additional sum payable in respect of this policy, together with any such additional sums payable under other policies on the life of the Life Assured shall not exceed Rs. 5,00,000/-.

The Corporation shall not be liable to pay the additional sum referred in (a) or (b) above, if the disability or the death of the Life Assured shall- (i) be caused by intentional self injury, attempted suicide, insanity or immorality or whilst the Life Assured is under the influence of intoxicating liquor, drug or narcotic; or (ii) take place as a result of accident while the Life Assured is engaged in aviation or aeronautics in any capacity other than that of a fare paying part-paying or non-paying passenger in any air-craft which is authorised by the relevant regulations to carry such passengers and flying between established aerodromes, the Life Assured having at that time no duties on board the aircraft or requiring descent therefrom; or (iii) be caused by injuries resulting from riots, civil commotion, rebellion, war (whether war be declared or not), invasion, hunting, mountaineering, steeplechasing or racing or any kind; or (iv) result from the Life Assured committing any breach of law; or (v) arise from employment of the Life Assured in the armed forces or military service of any country at war (whether war be declared or not) or from being engaged in policy duty in any military, naval or police organisation."

Learned Counsel for the L.I.C. submitted that the District Forum has revived the lapsed policy of which the discretion was with the L.I.C. and not with the life assured or the District Forum. Counsel cited "Manual For Policy Servicing Department" of which Clause No. 10 relates to Revival A "Novatio'' which reads thus : "10. Revival A ''Novatio'' A revival is a ''Novatio'' that is, a fresh contract, regarding which the insurer is entitled to impose fresh terms and conditions. An insurer is not, therefore, bound to revive every policy but it is open to him to decline to revive a policy or to offer to revive it subject to such fresh terms and conditions as he thinks fit in the circumstances of the case." In our opinion, it was not a case of revival of the policy, therefore, it is not necessary for us to go into the question of non-payment of the premium during the grace period that is within a ''month'' as defined under Section 3(35) of the General Clauses Act, means a month reckoned according to the British Calender, unless the context otherwise requires. From the facts which have come on record it is evident that Life Assured in his life-time paid the cheque on 20.2.1992 to the agent, that is within the period of grace, receipt of which was issued by the L.I.C. on 28.2.1992 subject to the realization of the cheque. If the L.I.C. sends the cheque for collection delayed and within the period prior to collection of the amount of which could not be made as the cheque received by the Bank was after the death of the life assured, the complainants cannot be deprived benefits payable under the policy. Besides, if the policy lapsed as the premium was not paid till 27.2.1992 then the cheque would not have been accepted on 28.2.1992 towards the premium without following the procedure prescribed for revival of the lapsed policy. In the circumstances, the policy would be deemed to be in force as the premium was deposited according to Condition No. 2, hence, the question of revival of the policy as per Condition No. 3 does not arise. In the circumstances, the action of L.I.C. in treating the Policy No. 970307266 as lapsed, cannot be sustained.

IT takes us to delay in payment of Rs. 50,000/- under the first policy. IT is not disputed that the death of the life assured was caused in road accident and timely claim was lodged within the documents that is the First Information Report etc. The L.I.C. did not make the payment of the double accident benefit, but, paid the amount of Rs. 1,12,716/- on 26.3.1992. According to the L.I.C. the documents demanded were submitted by the complainants on 6.10.1993 and after investigation the payment was made during the pendency of the complaint. The cause assigned does not reason to appeal as on the lodgment of the claim, the payment of Rs. 1,12,716/- was made on 26.3.1992 on submission of the same documents. After resubmission of the documents the payment of Rs. 50,000/- was made on 1.10.1994, after a period of one year. Reasonable period for taking a decision on the claim by the insurer should be taken as three months as observed by the Supreme Court in case of United India Insurance Co. v. MKJ Corporation, III (1996) CPJ 8 (SC). Therefore, after giving a margin of three months from the date of payment of Rs. 1,12,716/- for taking a final decision, the interest would be payable from 1st July, 1992 at the rate of 12 per cent per annum till the date of payment i.e. 1.10.1994.

THE order of payment of compensation of Rs. 5,000/- for delayed settlement of the claim and for non-payment of benefit under the second policy, in the facts of this case is justified, as the helpless wife of the deceased and minor children were deprived of their due money which caused hardship, mental pain and sufferings. It takes us to the appeal of the Bank. In our opinion the Bank cannot be held deficient in service in view of Section 75 of the B.E. Act which reads thus : "75. Revocation of banker''s authority-The duty and authority of a banker to pay a cheque drawn on him by his customer are determined by- (1) countermand of payment; (2) notice of the customer''s death."

From a bare reading of Section 75 it is evident that Banker''s authority to pay a cheque drawn on him by his customer stands revoked on notice of the customer''s death. The notice may be in any form, when the fact of death comes to the notice of the Bank, it is the duty of the Banker not to pay the amount of the cheque drawn on the Bank by the customer of the Bank. Therefore, merely because the cheque was returned delayedly would not make the Bank liable to pay compensation. However, that does not mean that the Bank or their officers should not discharge their duties or exercise their authority vigilantly.

IN the result, the Appeal No. 96/2000 is dismissed, Appeal No. 229/2000 is allowed and Appeal No. 105/2000 is partly allowed. The order of the District Forum shall stand modified as indicated hereinabove. IN the circumstances, parties to bear their own costs. A copy of this order be conveyed to the parties and a copy be sent to the District Forum along with record of the case. Ordered accordingly.