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The Life Insurance Corporation of India, Madras Vs. K.A. Madhava Rao - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtChennai High Court
Decided On
Case NumberCivil Revn. Petn. Nos. 895 and 896 of 1970
Judge
Reported inAIR1972Mad112; [1971]41CompCas992(Mad)
ActsInsurance Act, 1938 - Sections 2(10), 40, 40(1), 42 and 42(7); Indian Contract Act - Sections 65 and 70
AppellantThe Life Insurance Corporation of India, Madras
RespondentK.A. Madhava Rao
Cases ReferredState of West Bengal v. B. K. Mondal
Excerpt:
.....to be void or when contracts becomes void any person who received any advantage under such agreement or contract bound to restore it or make compensation - section 65 cannot be invoked when agreement or contract was known to parties to be void ab initio and that it applies to cases in which contract discovered to be void or becomes void after agreement entered into - in present case both parties were aware that contract prohibited by law or would defeat provisions of act of 1938 - section 65 cannot be invoked in such case. - - ganesan, the respondent was granted a licence on 17-7-63 with effect from 7-5-63. it appears that the petitioner decided to appoint the respondent as an agent, after due enquiries having been made on his antecedents and his case was recommended to the..........to any commission. on the first question the trial court held that the plaintiff is entitled to claim commission under section 70 of the contract act even though there was no specific or express agreement by the petitioner to pay commission. on the second question it was held that the business secured by the respondent before he was appointed as an agent under the petitioner is not hit by section 42(7) of the insurance act. the trial court, however, found that the respondent's claim for a sum of rs. 617-46 cannot be allowed in entirety and that he would be entitled to only a sum of rs. 238-50 as his commission as per the relevant rules of the life insurance corporation and decreed the suit only for rs. 238-50 and dismissed to suit as regards the balance of the claim. 4. both the.....
Judgment:
ORDER

1. The respondent who is the same in both the above revisions filed a suit O. S. No. 334 of 1966 on the file of the District Munsif's Court, Tirupattur, against the petitioner herein (the Life Insurance Corporation of India) for recovery of a sum of Rs. 617-46 being the commission due to him in respect of a policy for Rs. 20,000/- in the name of one Dr. T. K. Ganesan which he had canvassed. His case was that he applied for a licence on 16-1-1963 to act as an agent of the petitioner for procuring life insurance business, that on the assurance given by the Development Officer, Tirupattur, that he would be given commission for the business procured by him from the date of the application for licence he canvassed and obtained a proposal from the said Dr. T. K. Ganesan for a sum of Rs. 20,000/- which proposal was ultimately accepted by the petitioner, and a policy No. 112511025 had been issued to him but that contrary to the earlier assurance given by the Development Officer, the petitioner had refused to pay the commission due to him on the said policy.

2. The petitioner resisted the suit contending that it was true that the respondent sent in his application for appointment as an insurance agent on 16-1-1963, that he was granted the necessary licence only on 17-7-1963, that he had been specifically informed by the petitioner by its letter dated 7-5-1963 that any business that he may procure till the grant of the licence would be treated only as a direct business, and that he will not be entitled to any commission for procurement of any business till he is appointed as an agent. The petitioner also contended that the respondent was not authorised to canvass any business on behalf of the petitioner prior to the issue of the licence and as such, he will not be entitled to any commission at all. The petitioner also denied that the Development Officer, Tirupattur had authorised the respondent to procure any business on its behalf, and that in any event the Development Officer had no authority to assure the payment of commission for any business that may be procured till the date of respondent's appointment as an agent, and that even if any assurance had been given, it would not be binding on the petitioner. It was also contended by the petitioner that the provisions of the Insurance Act not only prohibits any person from procuring business as an insurance agent without the requisite licence, but also imposes a ban on the insurer paying any commission to such a person for any business that might have been procured by him.

3. The trial court went into the following two questions: (1) whether the plaintiff-respondent is entitled to any commission and (2) whether the business procured by the plaintiff when he was not an agent is hit by Section 42(7) of the Insurance Act and therefore not entitled to any commission. On the first question the trial court held that the plaintiff is entitled to claim commission under Section 70 of the Contract Act even though there was no specific or express agreement by the petitioner to pay commission. On the second question it was held that the business secured by the respondent before he was appointed as an agent under the petitioner is not hit by Section 42(7) of the Insurance Act. The trial court, however, found that the respondent's claim for a sum of Rs. 617-46 cannot be allowed in entirety and that he would be entitled to only a sum of Rs. 238-50 as his commission as per the relevant rules of the Life Insurance Corporation and decreed the suit only for Rs. 238-50 and dismissed to suit as regards the balance of the claim.

4. Both the petitioner and the respondent filed appeals against the decision of the trial court and the said two appeals came to be disposed of by a common judgment. The lower appellate court has upheld the view of the trial court that even though there is no specific or express agreement to pay commission to the respondent by the petitioner, Section 70 of the Contract Act would enable the respondent to claim the commission in respect of the policy procured by him before the date of his appointment as agent, that Section 42(7) of the Insurance Act will not bar the respondent's claim for commission, and that the petitioner is also estopped from raising such a contention in view of the fact that Ex. A. 7, the premium receipts issued by the petitioner had shown the name of the respondent as an agent. The lower appellate court, however, disagreed with the trial court that the respondent is entitled only to a sum of Rs. 238-50 and not Rs. 617-46 as claimed by him, and decree the suit in entirety, without any discussion as to how the plaintiff became entitled to the entirety of the amount claimed in the suit. The petitioner being aggrieved against the decision of the lower appellate court in the two appeals before it, has filed the above two revisions.

5. Before dealing with the rival contentions of parties before this court, it is necessary to set out certain facts which are material. The respondent applied for a licence to act as an agent of the petitioner under Rule 16(a) of the Insurance Rules, 1939, on 16-1-1963 under Ex. A. 4. Thereafter he seems to have canvassed a life policy and sent a proposal to one Dr. T. K. Ganesan on 21-1-1963. The respondent states that the above proposal was sent on the definite understanding that he will be paid the usual commission on that policy, while the petitioner states that there was no assurance of any commission for procurement of that policy by the petitioner or anybody on its behalf. The said proposal was accepted by the petitioner on 13-2-1963 under Ex. A. 6 Long after the acceptance of the policy of Dr. T. K. Ganesan, the respondent was granted a licence on 17-7-63 with effect from 7-5-63. It appears that the petitioner decided to appoint the respondent as an agent, after due enquiries having been made on his antecedents and his case was recommended to the Controller of Insurance, who is the ultimate authority to make the appointment. Subsequently the respondent wrote to the Controller of Insurance by his letter, Ex. B.3. dated 29-7-1963, that the licence given should be made effective from 16-1-1963, the date of his application, so as to enable him to qualify for commission for all the cases secured and sent by him from the date of his application. But such request of the request of the respondent was not complied with. Thereafter the respondent chose to file the present suit. It is on these facts it has to be considered whether the respondent is entitled to the commission for the policy procured by him before he was appointed as insurance agent of the petitioner.

6. There is not much controversy on facts except as to the question whether there was any assurance given by the Development Officer. Tirupattur, to the respondent that he will be paid the commission for the policies procured by him. The respondent says that there was such an assurance while the petitioner denies the same. The person who is said to have given the assurance has not been examined but the succeeding Development Officer had been examined and he has stated that it may be that his predecessor might have asked the respondent to canvass in anticipation of the licence being granted. But no evidence has been adduced as to whether the Development Officer was authorised to permit persons other than duly appointed agents to canvass business on behalf of the petitioner. Therefore, even assuming that the concerned Development Officer asked the respondent to procure business for the company, in anticipation of the licence being issued by the Controller of Insurance, it is not under any specific authority from the petitioner.

7. The learned counsel for the petitioner contends that the courts below have overlooked Section 40 of the Insurance Act and have proceeded to decree the respondent's suit on the basis that the payment of commission to the respondent has not been prohibited by law, that they have considered the scope of Section 42(7) without reference to Sec. 40 of the Insurance Act and that, therefore, the decision of the courts below that Section 70 of the Contract Act will enable the respondent to claim the suit amount cannot at all be sustained in law. I am of the view that there is considerable force in the submission made by the learned counsel for the petitioner.

8. Section 2(10) of the Insurance Act, 1938, defines as 'Insurance agent' as follows:--

''Insurance agent' means an insurance agent licenced under Section 42 who receives or agrees to receive payment by way of commission or other remuneration in consideration of his soliciting or procuring insurance business (including business relating to the continuance, renewal or revival of policies of insurance)' and Section 40(1) prohibits the payment by way of commission or otherwise for procuring business and that Section so far as it is relevant is as follows:--

'No person shall, after the expiry of six months from the commencement of this Act pay or contract to pay any remuneration or reward whether by way of commission or otherwise for soliciting or procuring insurance business in India to any person except an insurance agent (or a principal, chief or special agent).' The other sub-sections of S. 40 provide for certain restrictions in the quantum of commission payable to an insurance agent. Section 42(7) is as follows: 'Any person who acts as an insurance agent without holding a licence issued under this section to act as such shall be punishable with fine which may extend to fifty rupees, and any insurer or any person acting on behalf of an insurer, who appoints as an insurance agent any person not licensed to act as such or transacts any insurance business in India through any such person shall be punishable with fine which may extend to one hundred rupees.'

A conjoint reading of Sec. 40(1) and Section 42(7) shows that the statute has prohibited any person other than insurance agent as defined in S. 2(10) from acting as an insurance agent and such acting is made punishable under the statute. The insurer is also prohibited from paying or contracting to pay any remuneration or reward whether by way of commission or otherwise for soliciting or procuring insurance by a person excepting an insurance agent as defined in Section 2(10). In this case the respondent was not an insurance agent as defined in Section 2(10) when he is said to have procured the policy in question in respect of which the commission is claimed. The question is whether the respondent is entitled to the suit claim made by him when Section 40(1) specifically injuncts the insurer from paying or agreeing to pay any commission and Section 42(7) makes the procurement of business by the respondent an offence and penalises him for such an action. The courts below have proceeded on the basis that the implied agreement to pay commission has not been prohibited by law. This basis is obviously incorrect having regard to the provision in Section 40(1) of the Insurance Act which specifically prohibits the petitioner from paying or agreeing to pay any commission. Even assuming that the Development Officer, Tirupattur had promised the respondent to pay commission for the policy procured by him when he was not an agent, such contract has been specifically prohibited by law under Section 40(1). Section 23 of the Contract Act states that if a consideration or object of an agreement is forbidden by law or is of such a nature that, if permitted, it would defeat the provisions of any law, the agreement should be treated as void. In this case even if there is an agreement to pay commission by the Development Officer, which in my opinion has not been duly established in this case, such an agreement will be void as such an agreement has been prohibited by S. 40(1) of the Insurance Act and the court cannot enforce such an agreement by directing the petitioner to meet the suit claim. As already stated, the inter-action of Section 40 to the claim made by the respondent has not been considered by the courts below and that is why they have fallen into an error in holding that the plaintiff's (respondent's) claim is not prohibited by law.

9. Then I proceed to consider whether the decision of the courts below that the respondent is entitled to claim the suit amount under Section 70 of the Contract Act is correct. Section 70 of the Contract Act provides as follows:

'Where a person lawfully does anything for another person, or delivers any thing to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered.'

Under that section when a person lawfully does anything for another or delivers anything to him not intending to do so gratuitously and such other person enjoys the benefit thereof, he is bound to pay compensation to the former in respect of, or to restore the thing so done or delivered. This section will stand attracted only if the following three conditions are satisfied--(1) he must have done the thing lawfully; (2) he must not have intended to do so gratuitously and (3) that the person sought to be proceeded against must have enjoyed the benefit. If any one of the conditions is not satisfied, this section cannot come into play. In this case when the respondent is said to have canvassed for the policy in question, he cannot be said to have acted lawfully for Section 42(7) specifically restrains him from acting as an insurance agent without a licence for the purpose. Hence one of the conditions referred to in Section 70 of the Contract Act is not satisfied and therefore Section 70 cannot be applied at all. When a contract or a transaction is illegal as it has been specifically prohibited by a statute the court cannot enforce that contract either directly or indirectly. By giving the benefit of Section 70 of the Contract Act to the respondent, the court will be acting against the provisions of Section 40(1) of the Insurance Act. By enabling the respondent to claim commission on the basis of Section 70 of the Contract Act, the court will be permitting a thing which will definitely defeat the provisions of Section 42(7) of the Insurance Act. The Courts below have proceeded to uphold the claim of the respondent under Section 70 of the Contract Act relying on the decisions in State of Madras v. Periasami Gounder, : AIR1963Mad154 ; Hajee Abdul Lateef v. Sri Sarguru Sarva Samarasa Sanga, (1967) 80 MLW 240 and the decision of the Supreme Court in State of West Bengal v. B. K. Mondal, : AIR1962SC779 .

I am clearly of the opinion that those decisions cannot help the respondent in this case. In those cases the question of enforcement against the Government or the statutory bodies, of contracts which were not entered into in the form prescribed by the statute came up for consideration. There when one party claimed to recover compensation for the work done by him the other party contended that there was no valid, binding and enforceable contract under which the claim could be made, and the courts had very rightly held that as the direction in the statute that the contract with a statutory body should be made in a specified form and manner, was mandatory and not merely directory or obligatory, all contracts contravening the direction were not valid and binding, as against the statutory bodies, though such contracts may be enforced against the particular officer who actually entered into the contract, and that Section 70 of the Contract Act would apply to such contracts. The principles laid down in those decisions will not therefore, apply to the facts of this case where the statute forbids the work being done by the respondent when he was not an agent and payment of commission or reward for such work done by the respondent.

10. The learned counsel for the respondent then contends that even if the agreement to pay commission is held to be void, the respondent is entitled to the benefit of Section 65 of the Contract Act and therefore, entitled to commission for the work done by him to the petitioner. Section 65 states that when an agreement is discovered to be void, or when a contracts becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it. It is well established that the said Section 65 cannot be invoked when the agreement or contract was known to the parties to be void ab initio and that it applies to cases I which the contract is discovered to be void or becomes void after the agreement had been entered into. In this case both the parties were aware that the contract is prohibited by law or will defeat the statutory provisions of the Insurance Act. I therefore hold that Section 65 of the Contract Act cannot be invoked in this case. Taking all the facts and circumstances of the case, I hold that the decisions of the courts below are erroneous. They are therefore set aside and the respondent's suit will stand dismissed. There will, however, be no order as to costs.

11. Revision allowed.


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