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Case Analysis- Harshad J. Shah vs. LIC of India

Harshad shah & Anr (Appellant) v/s Life Insurance Corporation of India & Ors (Respondent)
Case Citations:
Ø Section 48 in The Life Insurance Corporation Act, 1956
Ø Section 237 in The Indian Contract Act, 1872
Ø Section 49 in The Life Insurance Corporation Act, 1956
Ø Article 12 in The Constitution of India, 1949
Ø Section 187 in The Indian Contract Act, 1872

Judgement date:- 04/04/1997

Bench:- 2 Judges Bench of
Hon'ble Justice S. C. Agrawal and Hon'ble Justice G.B. Pattanaik

Case Fact:-
Shah had taken four insurance policies, of Rs 25,000 each, from the Life Insurance Corporation (LIC) of India. All of them came with double inadvertent benefits and were taken on March 6, 1986 through the same insurance broker. The premium was payable on a half-yearly basis.

The half-yearly agiotage due on March 6, 1987 was not paid in time. Later, the agent met Shah and obtained from him a bearer cheque worth Rs 2,730 and dated June 4,1987 towards the bounty on all four policies. The cheque was encashed by the agent's son the following day, but the premium was deposited with LIC much later, on August 10. Meanwhile, Shah met with a fatal accident on August 9 and died the same day.
Shah's widow, who was the nominee under the policies, claimed the amount collectible under the policies. LIC repudiated the claim saying the policies had lapsed on account of non-payment of agio in time or even thereafter, within the grace period.[1]

So the widow, along with the Consumer Education & Research Society (CERS), filed a consumer complaint against LIC as well as the insurance agent. She claimed that the premium was paid to the broker on behalf of LIC, much before Shah met with an accident and expired. on the other hand, LIC contended that agents were not authorized to collect the premium, and so the premium paid to the agent could not be considered as having been paid to LIC.

The Maharashtra State Commission observed that in order to garner more business, agents collected the premiums from policyholders, either in cash or by cheque, and then deposited the money collected in the LIC office. The governance of LIC was aware that this practice was being followed, despite departmental instructions that the agents were not authorized to collect premiums. In view of this, LIC was held to be negligent. Accordingly, the Commission directed LIC to settle the claims in respect of the four policies, after deducting the amount of interest necessary to treat the policies as surviving.[2]
LIC challenged the judgement before the National Commission, which held that the agent receiving a bearer cheque from the insured for the payment of the premium was not acting as LIC's agent. Hence, the date of receipt of premium by LIC had to be considered and not the date of receipt of the premium by the agent.

Since the premium was deposited by the agent a day after the death of the insured, the policy had lapsed. So, the National Commission set aside the order of the State Commission and dismissed the complaint.
Shah's widow then approached the Supreme Court, which considered the provisions of the Life Insurance Corporation of India (Agents) Regulations, 1972. According to Regulation 8 (4), an agent does not have the authority to collect money or accept any risk for or on the behalf of LIC. This condition is also stated in the letter of engagement issued to broker. Hence, the Supreme Court ruled that an agent did not have any express or implied authority to receive premium on LIC's behalf. Consequently, payment to the agent cannot be regarded as payment to LIC so as to make it liable in case of a claim.

It was further held that as the insured had died a day prior to the payment of the premium, the policy had nonchurchgoing. It is possible to revive a lapsed policy only during the lifetime of the insured and not after his death.
The SC said the widow was not entitled to a claim under the policies. However, in view of the peculiar facts and circumstances of the case, LIC was directed to refund the entire sum of premium, along with interest at 15 per cent a year, and costs of Rs 10,000.

Issues:
# Whether payment of premium by the insured to the general agent of the LIC can be regarded as payment to the insurer so as to constitute a discharge of liability of the insured?
# Whether the LIC can be held liable on the basis of the Doctrine of Apparent Authority?

Contentions From Both The Sides:-
Appellant (Naresh S. Mathur):-
Arguments pleaded:-
1.Since the payment had already been made to R3, the policies did not lapse on account of non-payment of the premium and that in any event that said policies could be revived on payment of the interest payable for the delayed payment of the premium amount.
2.Since the agents receive commission on the amount of premium, the said act of R3 was within the scope of their authority and the limitation imposed (by regul'n and appointm't letter) cannot be binding as against third parties viz., the policyholders.
3.Since, LIC by its conduct induced the policyholders to believe in the authority of the agent w.r.t the said act; LIC was liable under S.237[2]of the ICA.
4.Since LIC is ‘state' under Article12of the Constitution it has a duty to act fairly in view of the mandate contained in Article14of the Constitution. ( LIC of India and Anr. v. Consumer Education & Research center and Ors.)

Respondent (Harish Salve):-
Arguments pleaded:-
1.R3 had not been empowered by LIC Regulations and his appointment letter to receive payment from the insured.

2.The grace period had already expired (on April 6) without due payment and the policies had lapsed. The revival of the policies was subject to LIC's discretion and could arise only if the premium can be said to have been paid to the LIC during the life time of the insured (before August 9).

3.The agent had neither express (letter of appointment) nor implied authority (regulation 8(4)), which shows that collection of premium was neither necessary nor incidental. The issuance of the receipt for the said amount by LIC in the name of the insured does not indicate that the amount was received through R3 and that on the basis of the said receipt it cannot be said that the LIC had induced the insured.

Principle Involved:-
Actual authority:-
Actual authority results from a demonstrating of consent that he should represent or act on the behalf of the principal, made by the principal to the agent himself. It may be express or implied.

Implied authority:-
Implied authority may arise in the form of incidental authority, i.e., authority to do whatever is necessarily or normally incidental to the activity expressly authorized, or usual authority, i.e., authority to do whatever an agent of the type anxious would usually have authority to do, or customary authority, i.e., authority to act in bestowal with such applicable business customs as are reasonable.

Apparent Authority:-
The doctrine of apparent authority involves the assumption that there is in fact no authority at all. Under this doctrine where a principal represents, or is regarded by law as representing, that another has authority, he may be bound as against a third party by the acts of that other person within the authority which that person appears to have though he had not in fact given that person such authority or had limited the authority by stipulation not made known to the third party.

Judgement:-
(S.C. Agrawal and G.B. Pattanaik, JJ)
Judges found considerable merit in Salve's submission.

1.(w.r.t 3rdcontention of the Appellants) LIC did not do any sort of inducement. Doctrine of apparent authority underlying S.237can't be invoked especially when the LIC has been careful in making an express provision in the Regulations/Rules, which are judicial in nature.

2.(w.r.t 4thcontention of the appellants) This constitutional obligation has no bearing on the present case. In disclaiming its liability the LIC was acting in accordance with the Regulations/Rules. The said provision has been made in public interest in order to protect the Corp. from any fraud on the part of an agent and LIC was acting quite fairly.

Case Analysis-
After examining the case thoroughly from all the perspective, I can analyze the judgement of the Supreme Court regarding the authority of the agent. According to the judgement of the Supreme Court “when an agent has , without authority, done acts or incurred obligations to the third person 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 obligation were within the scope of the agent's authority” as written in Section 237 of the Indian Contract Act, 1872.

In this case, firstly the said complaint is transferred from the gujarat state consumer dispute redressal commission to the Maharashtra state consumer disputes redressal commission at Bombay. Then the state commission held that in order to collect more business the agent of the lic collects the premiums from the policyholders either in cash or the cheque and then deposit the money so collected in the office of LIC administration despite the departmental instructions that the agents are not authorized to collect the premiums.

Finally, the Supreme Court held that in accordance to the Section 237 of the Indian Contract Act, 1872, principal is liable for the every act of his agent which he is expecting that he is doing that act and it is none of the business to any party that the act that is being done by the agent is authorized to him or not.

Conclusion:-
The 2 judges bench of Hon'ble Supreme Court of India, after dealing with the all facts of the case that Doctrine of the apparent authority can't be invoked from the department of the LIC because also it is managing his provision that are of judicial in nature.

The doctrine of apparent authority involves the assumption that there is in fact no authority at all. Under this doctrine where a principal represents, or is regarded by law as representing, that another has authority, he may be bound as against a third party by the acts of that other person within the authority which that person appears to have though he had not in fact given that person such authority or had limited the authority by stipulation not made known to the third party.

End-Notes
[1]https://indiancaselaws.wordpress.com/2012/01/19/harshad-j-shah-and-anr-v-l-i-c-of-india-and-ors/
[2]https://indiankanoon.org/doc/1359626/

Acknowledgement
I, Tanya Shrivastava student of II Semester BA LL.B would like to express my special thanks of gratitude to my Professor and guide Miss. Seema Pattjoshi who gave us the golden opportunity to do this wonderful assignment on the topic: Harshad j. Shah v. LIC of india
I am sincerely grateful to my teacher for guiding us and providing the relevant information and thus helping me to complete the project successfully.
I would also like to give a hearty thanks to my parents who supported me in completion of this assignment without any type of problem.
Last but not the least I would like to appreciate and thank all my friends and all my mates for helping me in every possible manner in the way of completion of my project.

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