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Life Insurance Corporation of India and ors. (Unit: National Insurance Co. Ltd.) Vs. Omprakash Agarwalla - Court Judgment

LegalCrystal Citation
Subject;Insurance
CourtGuwahati High Court
Decided On
Case NumberLetters Patent Appeal No. 5 of 1974
Judge
ActsInsurance Act, 1938 - Sections 50
AppellantLife Insurance Corporation of India and ors. (Unit: National Insurance Co. Ltd.)
RespondentOmprakash Agarwalla
Appellant AdvocateP. Choudhuri and A.R. Banerjee, Advs.
Respondent AdvocateB.M. Goswami and S.S. Sharma, Advs.
Prior history
M.C. Pathak. C.J.
1. This Letters Patent Appeal arises out of the judgment of the learned single judge.
2. Plaintiff-respondent, Omprakash Agarwalla, is the son of Mangilal Agarwalla, who died on 21st July, 1965, During his lifetime Mangilal Agarwalla insured his life under endowment assurance scheme with accident benefit clause with the National Insurance Company Ltd. for a sum of Rs. 5,000 under proposal No. 51099 dated July 31, 1955. Mangilal Agar-walla obtained the policy bearing No.
Excerpt:
- - the learned single judge, after considering the materials on record, has held that the plaintiff is clearly entitled to a decree for the entire sum of rs. during these six months reinstatement can be effected and the overdue premium with interest at the rate of 6% per annum (minimum 8 annas) will be accepted without evidence of good health......and subject to deduction of all sums due to the company) for six months from the due date of the unpaid premium. during these six months reinstatement can be effected and the overdue premium with interest at the rate of 6% per annum (minimum 8 annas) will be accepted without evidence of good health. if on the expiration of six months from the due date of the first unpaid premium the premium remains unpaid, the policy will continue thereafter as a paid-up assurance without a share in subsequent distribution of profits for such reduced sum assured as was obtainable on the date of default provided that the amount of such paid-up policy is not less than rs. 100. in the event of the paid-up policy available being less than the sum of rs. 100 above, the surrender value of the policy as at the.....
Judgment:

M.C. Pathak. C.J.

1. This Letters Patent Appeal arises out of the judgment of the learned single judge.

2. Plaintiff-respondent, Omprakash Agarwalla, is the son of Mangilal Agarwalla, who died on 21st July, 1965, During his lifetime Mangilal Agarwalla insured his life under endowment assurance scheme with accident benefit clause with the National Insurance Company Ltd. for a sum of Rs. 5,000 under proposal No. 51099 dated July 31, 1955. Mangilal Agar-walla obtained the policy bearing No. 651669 and the date of commencement was August 28, 1955, from the National Insurance Company Ltd. The mode of payment of premium was yearly and the premium was payable on the 28th day of August, each year. The annual premium was Rs. 254-11-0 (Rs. 254.69). The policy was of automatic non-forfeiture system 'A'. Plaintiff, Omprakash Agarwalla, was nominated to receive the money secured by the policy. The business of the National Insurance Company Ltd. was taken over by the Life Insurance Corporation of India and the number of the policy of Mangilal Agarwalla remained the same.

3. Mangilal Agarwalla regularly paid all the premiums due up to August, 1963, on account of the said insurance policy. He also deposited the premium of Rs. 254.69 being the premium due in August, 1964, on December 12, 1964, with the defendant's banker, United Bank of India Ltd., Nowgong, under banker's memo No. 179478 dated December 12, 1964. Mangilal Agarwalla wrote to the defendant. Life Insurance Corporation of India, a letter dated 15th January, 1965 (copy of which is ' Ex. 9 ') to the following effect:

' Dear Sir,

Your Ref.-- Ag/Tp/HG dated 23rd July, 1974.

Our Ref.--Policy No. 651669.

I regret to write to you that in spite of your repeated letters addressed to the Officer-in-charge, Assam Branch unit, Gauhati, they have not yet sent me any official receipt in respect of the premiums paid (1961 to 1963) nor they have transferred the accounts of the above policy to yourself though more than six months has been passed.

Further, I beg to inform you that the premiums due in August, 1964, has already been paid with the United Bank of India Ltd., Nowgong Branch, vide their receipt No. R. 179478 dated 12-12-1964.

I, therefore, request you to kindly look into the matter personally so that the premium receipts due are sent to me without any further delay and, secondly, call the records to H.O. for future service and oblige.

Thanking you,

Yours faithfully,

Sd. Mangilal Agarwalla.'

4. In reply to the above letter dated 15th January, 1965, the Assistant Divisional Manager of the Life Insurance Corporation of India (Unit : National Insurance Company) sent the following reply (vide Ex. 10) to Mangilal Agarwalla under No. Prem/C/Gc/Sc. dated 9th February, 1965

' Dear Sir,

Ref-Pol. No. 651669-Own.

In reply to your letter dated 15-1-65 please note that the above policy account has already been transferred to us and the yearly premium up to that due August, 1963, stands paid.

In case of non-receipt of the receipt please treat this letter as an acknowledgment.

The sum paid on 12-12-1964 to the United Bank of India Ltd., Nowgong, has not yet been refunded to us. However, we are writing to our

Assam office in this regard and on receipt from them we shall make adjustment against the due August, 1964.'

5. No further communication between the parties has been produced and on 21st July, 1965, Mangilal Agarwalla died. Omprakash Agarwalla then made a demand on the Corporation for payment of the money under the policy to him in his capacity as nominee. The claims department of the Corporation informed the plaintiff, Omprakash, that the total amount due to him under the policy was Rs. 2,563 inasmuch as the policy became a paid-up policy for non-payment of the premium due in August, 1964. The defendant-Corporation refused to pay the entire sum under the policy and, therefore, Omprakash Agarwalla filed the suit on July 16, 1968, in the court of the Assistant District Judge, Nowgong, claiming a decree for Rs. 5,500. The suit was contested by the Life Insurance Corporation and its defence was that the insurance policy, due to non-deposit of the premium due in August, 1964, became a paid-up policy and, therefore, the plaintiff was not entitled to a decree exceeding the paid up value of the policy, which was Rs. 2,563 only. The trial court decreed the suit with costs for the sum of Rs. 2,563 only. The plaintiff took an appeal against the decree before the learned district judge, claiming the full amount of Rs. 5,500. The defendant-Corporation filed cross-objection challenging the correctness of the decree for costs of the suit. The learned district judge dismissed the plaintiff's appeal with costs and allowed the cross-objection of the Corporation holding that the plaintiff was not entitled to the costs of the suit. Thereafter, the plaintiff filed the Second Appeal No. 159 of 1971 in the High Court. The learned single judge, after considering the materials on record, has held that the plaintiff is clearly entitled to a decree for the entire sum of Rs. 5,500 and, therefore, he set aside the decrees of the courts below and passed a decree in favour of the plaintiff for Rs. 5,500 together with costs of all the three courts, against the defendants in the suit. Hence this Letters Patent Appeal.

6. The learned single judge has held that, in view of para. 2 of Chap. I, Policy-holders' Servicing Department, Vol. I, Part IV, issued by the Corporation, a notice under Section 50 of the Insurance Act, 1938 (hereinafter referred to as 'the Act'), was obligatory on the part of the insurer and since no such notice under Section 50 of the Act was issued, the policy could not be said to become paid up because the premium had been paid late and the interest due on the premium between its due date and the date of actual payment having been worked out at Rs. 5'09 the interest could not be treated as a loan against the policy.

7. Section 50 of the Act reads as follows I

' 50. Notice of options available to the assured on the lapsing of a policy. --An insurer shall, before the expiry of three months from the date on

which the premiums in respect of a policy of life insurance were payable but not paid, give notice to the policy-holder informing him of the options available to him unless these are set forth in the policy.'

8. Clause 8 of the Privileges and Conditions of the policy in question reads as follows :

'8. Non-forfeiture regulations.--If a premium be unpaid within the days of grace, this policy will lapse and be null and void, but if it shall have acquired a surrender value; the non-forfeiture system, shown in the Schedule, shall apply to this policy. The non-forfeiture systems are described below.

9. System 'A'.--On default in any premium of a policy which has acquired a surrender value the benefits of the policy shall, notwithstanding the default that has occurred, be especially protected for an amount equal to the sum assured (with bonus, if any, attaching immediately prior to default and subject to deduction of all sums due to the company) for six months from the due date of the unpaid premium. During these six months reinstatement can be effected and the overdue premium with interest at the rate of 6% per annum (minimum 8 annas) will be accepted without evidence of good health. If on the expiration of six months from the due date of the first unpaid premium the premium remains unpaid, the policy will continue thereafter as a paid-up assurance without a share in subsequent distribution of profits for such reduced sum assured as was obtainable on the date of default provided that the amount of such paid-up policy is not less than Rs. 100. In the event of the paid-up policy available being less than the sum of Rs. 100 above, the surrender value of the policy as at the due date of the first unpaid premium will be payable on application within five years of the date of default.

10. 'System 'B'.--In the event of discontinuance of premiums under a policy which has acquired a surrender value the policy is kept in force by advancing the premiums from the net surrender value (after deduction of any loan with interest attaching to the policy) as long as the said net surrender value is sufficient to cover the unpaid premiums with interest calculated at 6 per cent, per annum compounded with the same frequency with which the premiums are payable. While the policy is so kept in force such advances with interest may be repaid either in whole or in instalments but such instalment should cover at least one instalment premium with interest up to the date of payment. If no repayment of the advances is made as stated above, the policy will lapse and only the balance of surrender value, if any, will become payable.

11. Non-forfeiture Systems 'A' and 'B' apply to Child's Deferred Assurances, only after the date of commencement of risk.

12. Paragraph 2(a) of Chap. I, Policy-holders' Servicing Department, Vol. I,

Part IV, issued by the Corporation reads as follows :

' 2.(a) For policies subject to automatic paid-up clause, deposits would be adjusted and premium receipts issued if the amount of premium in full is remitted within 6 months from the due date of the first unpaid premium. Interest for late payment, if less than Rs. 5 and if not paid, shall be treated as a loan (called V charge) under the policy. Premium receipt or receipts will be issued in such cases after affixing on each such receipt and its counterpart a rubber stamp of the design specified in paragraph 7(ii) of our circular on Adjustment of Outstanding Deposits Ref : Integration/12 dated 16th January, 1959.'

13. The policy commenced on August 28, 1955, and all premiums due up

to August 28, 1963, were admittedly paid and, therefore, under Clause 6 of the

privileges and conditions of the policy, the policy acquired surrender value.

Therefore, the non-forfeiture regulations under Clause 8 apply to the instant

policy. In the policy it is found that non-forfeiture system 'A' is made

applicable to the policy. It is found that the options that are available to

the insured are incorporated in the policy itself. Notice under Section 50 of the

Act is obligatory if options available to the policyholder are not set forth in

the policy.

14. Going through the instructions issued by the Corporation regarding the adjustment of deposits, of which para. 2(a) has been quoted hereinabove, we are of the opinion that this Clause 2(a) is not an option referred to in Section 50 of the Act and, therefore, no such notice under Section 50 of the Act is obligatory on the part of the insurance company regarding Clause 2(a) aforesaid, with respect to adjustment of deposits. That being so, we are of the opinion that in the instant case no notice under Section 50 of the Act was called for. But the problem does not end here. The opening clause of non-forfeiture system 'A' states that on default in any premium of a policy which has acquired a surrender value the benefits of the policy shall, notwithstanding the default that has occurred, be especially protected for an amount equal to the sum assured (with bonus, if any, attaching immediately prior to default and subject to deduction of all sums due to the company) for six months from the due date of the unpaid premium. The premium that is stated to be not paid within time in the instant case fell due on August 28, 1964, and the amount of premium, that is, Rs. 254.69, was admittedly paid to the banker of the insurance company on December 12, 1964, that is, within six months from the due date of the unpaid premium.

15. From the letter dated 15th January, 1965 (Ex. 9), which has been quoted hereinabove, it is found that the insurance company was not regular in sending official receipts even though premiums were paid and accepted. It

is found that from 1961 to 1963, the premiums were paid by the policy holder but the receipts were not sent. In the same letter, the policyholder informed the insurance company that the premium due in August, 1964, had already been paid with the United Bank of India Ltd., Nowgong Branch, on December 12, 1964, vide their receipt No. R. 179478 dated December 12, 1964, and the receipt for this payment of the premium also has not been received. The insurance compay was, therefore, requested to look into the matter and send the premium receipts without further delay. In Ex. 10, the letter dated 9th February, 1965, from the Assistant Divisional Manager of the Life Insurance Corporation of India, which has been quoted hereinabove, it has been stated that the yearly premiums due up to August, 1963, stood paid and in case of non-receipt of the receipts that letter may be treated as an acknowledgment. Regarding the sum paid on December 12, 1964, that is, the premium due in August, 1964, it was stated in the letter as follows :

'The sum paid on 12-12-64 to the United Bank of India Ltd., Nowgong, has not yet been refunded to us. However, we are writing to our Assam office in this regard and on receipt from them we shall make adjustment against the due August' 64.'

16. It is not disputed that the amount of premium, that is, Rs. 254'69, was paid to the banker of the Life Insurance Corporation of India at Nowgong on December 12, 1964, that is, within six months from the due date of the unpaid premium. Thus, under non-forfeiture system 'A', it was the duty of the insurance company to protect the benefits of the policy notwithstanding the default for six months and when the policyholder stated that he had paid the premium within six months from the due date and the banker of the insurance company did not refuse to accept the premium without the interest and the insurance company also in its letter dated 9th February, 1965 (Ex. 10), accepted that position, it cannot be said that the premium due in August, 1964, remained unpaid under the non-forfeiture system 'A'. On the expiration of six months from the due date of the unpaid premium, the premium did not remain unpaid and since the premium was accepted within six months from the due date, reinstatement of the policy was effected. The insurance company, if it so desired, could have claimed the interest, but the policy, in view of the opening clause of non-forfeiture system 'A', could not be treated as lapsed policy in the instant case.

17. Issue No. 3 in the suit was as follows :

' 3. Whether the plaintiff deposited the requisite premium of Rs. 254.69, being the premium due in August, 1964, as alleged in the plaint?'

18. The trial court, regarding issue No, 3, observed as follows :

' This issue is also not seriously contested by the defendants. P.W. 2 (plaintiff) proves by Exs. 8 and 9 that the premium was really deposited with the authorised bank. It is further admitted that the due date was 28-8-64 but the amount was deposited on 12-12-64. So there is practically nothing more to enquire under this issue and the issue is answered in favour of plaintiff.'

19. The learned district judge also has held that the amount of Rs. 254.69 was paid on December 12, 1964, as per Ex. 8. The learned district judge has only found fault that the interest due was not paid. In view of nonforfeiture system ' A' if the premium was not acceptable without the interest due, the Life Insurance Corporation's banker would not have accepted the premium. Since the agent of the insurance company has accepted the premium in the instant case without the interest, the Life Insurance Corporation now cannot turn round and say that there was no acceptance of the premium due in August, 1964, on December 12, 1964. The interest calculated at 6% per annum for 3 1/2 months (i.e., from August 28, 1964, to December 12, 1964) comes to about Rs. 4.46, that is, less than Rs. 5. There is no justification for calculating the interest for four months as has been done by the courts below in view of the clear terms in non-forfeiture system 'A'. Under clause 2(a) of the instructions regarding the adjustment of deposits, as quoted hereinabove, it has been stated that for policies subject to automatic paid-up clause, deposits would be adjusted and premium receipts issued if the amount of premium in full is remitted within six months from the due date of the first unpaid premium. It has been further stated that interest for late payment, if less than Rs. 5 and if not paid, shall be treated as a loan (called 'x' charge) under the policy. This instruction might have been followed by the agent of the Life Insurance Corporation and it has in our opinion been followed correctly. Clause 2(a) of the instructions regarding the adjustment of deposits is completely in accord with the opening clause of non-forfeiture system 'A'.

20. In the circumstances, we find that, in the instant case, the insurance company, by accepting the premium within six months from the due date through its agent and though the interest was not paid, allowed the policy to be reinstated by giving the benefits of non-forfeiture system 'A' , That being so, we hold that the plaintiff is entitled to the decree as claimed, of course, subject to the deduction of the interest of Rs. 4.46 that was due for late payment of the premium in question.

21. In result, the plaintiff is entitled to a decree of Rs. 5,495.54 (rupees five thousand four hundred ninety-five and paise fifty-four only). Thus, the decree passed by the learned single judge is affirmed with the modification that the sum of Rs. 4.46 as interest will be deducted from the decretal amount. The Letters Patent Appeal stands dismissed with this modification in the decree. The plaintiff will be entitled to costs throughout as decreed by the learned single judge. We, however, leave the parties to bear the costs of this Letters Patent Appeal.

K. Lahiri, J.

22. I agree.

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