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CASE COMMENT ON Harshad J. Shah & Anr. v LIC of India & Ors. AIR 1997, SC 2459
2012-2017 BATCH
Contents
FACTS .......................................................................................................................................................... 3 Issues overlooked by the court ...................................................................................................................... 4 Decision of the court ..................................................................................................................................... 4 Reasons for the decisions of the court .......................................................................................................... 5 Analysis of the decision of the court ............................................................................................................. 6
FACTS
On March 6, 1986 Jaswantrai G. Shah (insured), took four insurance policies of worth Rs. 25,000 each from Life Insurance Company (LIC) though Shri Chaturbhuj H. Shah (general agent of LIC). All four policies have double accidental benefits. Under said policies, premium has to be paid on half yearly basis. The insured deposited his first two premiums on time i.e. on 6th march 1986 and on 6th September 1986 respectively. But he failed to pay 3rd premium which was due on March 6 1987. Later on June 4, 1987 he gave cheque (dated June 4, 1987) to the general agent of LIC for Rs 2,730 for the payment of half yearly premium due on all the four policies. Cheque was encashed by the Son of respondent no.3 on 5th June 1987. Agent of LIC deposited the same amount in the office on 10th august 1987. In the meanwhile, the insured met with a fatal accident on August 9, 1987 and died on the same day. The widow of the insured (Appellant No. 2), as the nominee under the given four policies, submitted a request to the LIC on the basis of the policies but the same was rejected by the LIC on the ground that the no more exist as they had lapsed due to non-payment of the half yearly premium which was due on March 6, 1987 within the period of grace. Appellant No. 2 along with the Consumer Education & Research Society, submitted a complaint before the Gujarat State Consumer Disputes Redressal Commission at Ahmedabad wherein a claim was made for payment dues on the part of LIC with rate of interest on the same. The said complaint was transferred by the Gujarat State Consumer Disputes Redressal Commission to the Maharashtra State Consumer Disputes Redressal Commission at Bombay. Thereafter respondents appealed against the decision at National Consumer Disputes Redressal Commission. National commission changed the decision of state commission. Thereafter the original appellants have appealed at Supreme Court of India.
Court looked into many issues either explicitly or impliedly. But the decision of the court was basically dependent on the answers of two basic issues. They are: 1) Whether paying said amount to the agent by the insured can be considered as a payment to LIC so as to constitute a discharge of his liability? 2) Whether doctrine of apparent authority can be applied to make LIC liable?
237 of Indian Contract Act, 1872 When an agent has, without authority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts or obligations, if he has by his words or conduct induced such third persons to believe that such acts and obligations were within the scope of the agent' s authority.
it was the discretion of the company either to accept the premium amount and charge interest or to lapse the policy. In this case acceptance of the cheque on the part of the agent make insured belief that he is insured and his policy is not lapsed. Moreover in England, premium paid to the general agent acting on behalf of the principal is considered as premium paid to the principal and if the agent has authority, the payment binds the insurers. The authority need not be an express authority, depending on the circumstances it may be implied but still it will bind the insurers. In this case if we see there was implied authority then LIC should be held liable for the 4 policies and should pay accordingly.
LIC of India & Anr. vs. Consumer Education & Research Centre & Ors. 1995 (5) SCC 482