Full Judgment Text
[REPORTABLE]
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO._ OF 2022
(Arising out of SLP (C) No. 14140 OF 2020)
GOKAL CHAND (D) THR. LRS. Appellant(s)
VERSUS
AXIS BANK LTD. & ANR. Respondent(s)
J U D G M E N T
Hrishikesh Roy, J.
Leave granted.
2. Heard Mr. Harshit Khanduja, the learned counsel
appearing for the appellants. Also heard Ms. Suman
Bagga, learned counsel representing the Max Life
Insurance Corporation (respondent No. 2). The first
respondent is represented by Mr. Devendra Kumar Singh.
The appeal arises out of a home loan secured by
3.
the appellants for which obtaining the life insurance
in the name of Gokal Chand (now deceased) was a pre-
Signature Not Verified
Digitally signed by
Neetu Khajuria
Date: 2022.12.15
19:43:38 IST
Reason:
requisite, as set out by the Axis Bank (respondent
no.1).
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4. The appellants project that respondent No. 1 bank
acting as an agent for respondent No. 2 Insurance
Company, on 25.7.2017 sanctioned home loan of Rs.
70,99,172/-. From the disbursed loan amount, insurance
premium of Rs. 6,24,172/- was paid on behalf of the
insured Gokal Chand by the bank to the insurance
company. The loan account has since been settled by the
borrowers on 19.3.2020 during the pendency of the
appeal.
Gokal Chand had faced a medical test on 30.7.2017
5.
as a pre-condition for securing the home loan and
although, he died of cardiac arrest soon thereafter on
8.8.2017, the respondent No. 2 refused to settle the
loan account when the insurance claim was made.
Consequently, a Consumer Complaint was filed by the
appellants before the State Consumer Disputes Redressal
Commission, Haryana (for short “State Commission”). The
State Commission, however, dismissed the Consumer
Complaint with the observation that there was no
privity of contract between the insurer and the
insured.
6. The resultant appeal was dismissed by the National
Consumer Disputes Redressal Commission (for short
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“National Commission”) by the impugned order which has
led to the present appeal before this Court.
7. In the impugned judgment, it was noted that the
Complainant along with her husband, late Gokal Chand
approached the bank for a home loan for which the
respondent bank had insisted that a life insurance
cover should be obtained from respondent No. 2 on the
life of Gokal Chand. The bank accordingly deducted a
sum of Rs.6,24,172/- on 25.7.2017 towards the insurance
premium. The insured Gokal Chand was subjected to
medical tests on 30.7.2017 and although he died on
8.8.2017, the insurance claim was repudiated by
respondent No. 2.
Counsel’s Submissions
8.1. Mr. Harshit Khanduja, the learned counsel for the
appellant would submit that the death of the insured
Gokal Chand was intimated on 16.8.2017 with a request
to process the insurance claim, however, instead of
acting on the information furnished by the appellants,
a letter (purportedly dated 3.8.2017) was served on the
appellant with the information that the proposal for
insurance cover for Gokal Chand is postponed by six
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months. The reason disclosed for postponement was
“Treadmill Test Finding.”
8.2. The appellants have set up a specific case of
the respondent no. 2 ante-dating the purported letter
indicating postponement of the proposal and
unilaterally reversing/refunding the insurance
premium, much after the death of the insured was
informed to the insurance company.
8.3. According to the appellants, both Forums
failed to consider the fact that the insurance company
retained the insurance premium for some time after the
death of the insured on 8.8.2017 and returned the same
only after the appellant, on 16.8.2017, visited the
bank for giving information about the death of the
insured. This was immediately informed by telephone
by the bank to the insurance company and to the
insurance company in the late evening of 16.8.2017
(date of death intimation), posted an ante-dated letter
(bearing the date as 3.8.2017 on it) which was received
by the appellant on 17.8.2017. In the said letter, it
was mentioned that the proposal has been postponed for
six months. On the next date i.e., on 17.8.2017, the
amount debited towards insurance premium was
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unilaterally refunded and was adjusted in the loan
account.
8.4. The contention here is that when the
medical/treadmill test result of the insured was
normal, there was no reason to either postpone or to
reject the insurance policy when the payable premium
was ascertained and debited by the bank to the
insurance company. It is, therefore, argued that the
act of the insurance company was an afterthought
triggered only after the intimation of death and a
request for processing claim. Moreover, such an action
was unreasonable and this would amount to malafide
action.
9.1. Representing the insurance company (respondent
No. 2), Ms. Suman Bagga, learned counsel on the other
hand submits that the proposal was postponed by six
months, and eventually the policy was declined and the
insurance company refunded the premium sum to the bank
with intimation to the appellant and therefore no
concluded life insurance policy existed in this case.
9.2. Ms. Bagga, the learned counsel, therefore argues
that the respondent No. 2 is not bound to honor the
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insurance claim since notwithstanding the collection
of the premium amount the policy was at the proposal
stage only. Moreover, unless acceptance of the
proposal leads to issuance of an insurance policy,
there can be no relationship of insurer and the insured
for a valid claim.
10.1. For the respondent bank, Mr. Devendra Kumar
Singh, the learned counsel while supporting the stand
of the insurance company would submit that they had
forwarded the proposal to the insurance company well
before Gokal Chand died, and had already remitted the
payable insurance premium, and therefore the bank
cannot be said to be deficient in rendering service
either to the Complainant or to the insured (Gokal
Chand).
Reasoning & Decision
As can be noted, the home loan document issued by
11.
the bank to the applicant Gokal Chand (Annexure P-1)
makes it a condition precedent to obtain the life
insurance cover for getting the home loan. The relevant
clause 4.1(k) reads as under: -
(k) comprehensively insure and keep insured, with
the Bank as a sole beneficiary, (i) the Property for
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its full market value or replacement cost, and (ii)
whenever required by the Bank, the risk of death and
injury of the Borrower, and
- shall assign in favour of the Bank and submit
to the Bank the original insurance policy
document(s) and premium/payment receipts;
- Shall promptly inform the Bank of any loss
or damage to the Property due to any force
majeure or Act of God;
- shall do all acts as may be required to
maintain the Bank’s status of sole
beneficiary (under the said insurances) and
receive money thereon;
12. The applicant’s declaration in Loan Letter
(Annexure P-1) authorizing bank to disburse premium to
the insurance company became effective only when all
the formalities as required by insurance company were
satisfied. The satisfaction of the insurance company’s
necessary requirements was a condition precedent, for
disbursal of the premium, as is clear from the
following: -
“Opting for the loan amount along with life/property insurance
in the loan downsize letter shall be considered as the written
intent of the customer to avail the insurance. Such selection
shall be considered to be explicit instruction from the
borrower to the bank in writing to disburse the premium to
the insurance company directly and will become effective only
on the borrower complying with the all formalities as required
by the insurance company...” [Emphasis supplied]
13. While sanctioning the home loan, the respondent
bank, debited the premium amount from the sanctioned
loan, and credited the same to the account of the
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insurance company. This appears to be the business
arrangement of the bank and the insurance company. The
policy accordingly was issued by respondent No. 2 in
the name of “Axis Bank Group Credit Life Policy No.
35002367” .
14. The treadmill test undergone by the insured Gokal
Chand on 30.7.2017, did not bring forth any health
issue, as the extract thereof would show: -
RESULTS : MAX WORK LOAD : 7.28 METS
EXERCISE DURATION : 6.11
MAX HEART RATE : 155 bpm 95 % of target heart rate
163 bpm
MAX BLOOD
PRESSURE
: 136/80 mm Hg
REASON OF
TERMINATION
: Achieved THR,
BP RESPONSE : Normal,
ARRYTHMIA : None,
H.R. RESPONSE : Normal Chronotropic Response
IMPRESSIONS
Negative for
provocable
myocardial
ischemia
:
15. The reason for deferment is surprisingly shown as
treadmill test finding, although, no abnormality as
such was detected in the said test report, as noted
earlier. Yet, the insurance company dispatched an ante-
dated letter (written after getting intimation about
the death of the insured), informing about 6 months
postponement of the proposal.
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16. The above would suggest that the insurance company
hurriedly dispatched the ante dated letter, purporting
to postpone the proposal, only after getting
information about the death of Gokal Chand on
16.8.2017. Interestingly, even in this first ante-dated
communication of the insurance company, there was no
mention of rejection of the proposal or refund of the
insurance premium (Rs. 6,24,172), remitted by the bank
to the insurance company on 25.7.2017 i.e., the date
when the loan amount was sanctioned.
17. The tracking details of the insurance postponement
communication of the respondent No. 2 sent through the
Blue-Dart Courier reflects that the insurance company’s
letter was dispatched only at 19:38 hours on 16.8.2017.
Significantly, there was no mention in this letter,
about the refund of the premium. Thereafter only on
17.8.2017, the premium amount was unilaterally returned
by the respondent No. 2 to the loan account, followed
by the communication dated 31.8.2017 purporting to
decline the insurance policy for the housing loan,
sanctioned by the bank.
18. As earlier indicated, firstly, it was a pre-
requisite for the home loan borrower to obtain life
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insurance coverage and the records show that the loan
amount was sanctioned on 25.7.2017. On that very day,
Rs. 6,24,172/- was remitted towards insurance premium
by the bank to the insurance company. This would
suggest that all the requirements for the policy as
prescribed by insurance company were satisfied at that
stage.
19. On 30.7.2017, the insured was called for medical
examination and Gokal Chand’s treadmill test, did not
flag any health issue. In such backdrop, the
communication of the insurance company for postponing
the life insurance coverage by six months by adverting
to the treadmill test report and that too at a stage
after intimation about the death of the insured to the
respondents, appears to be a malafide act. Moreover,
the decision by the insurance company declining the
policy by unilaterally refunding the insurance premium
in the given circumstances, would suggest that the
respondent No. 2 were deficient in rendering services
to the appellant.
20. The respondents, however, contend that there was
no binding life insurance contract between the
respondent No. 2 and the appellant and the learned
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counsel cited Life Insurance Corporation of India vs.
1
Raja Vasireddy Komalavalli Kamba and Others to argue
that acceptance of an insurance contract may not be
completed by mere retention of the premium or
preparation of the policy document. The acceptance must
be signified by some act by which the law raises a
presumption of acceptance.
21. The ratio of above decision in LIC vs. Raja
Vasireddy Komalavalli Kamba ( supra ) was considered by
this Court in D. Srinivas vs. SBI Life Insurance
2
Company Limited and Others , and it was clarified that
while there is no quarrel with the proposition laid in
Raja Vasireddy Komalavalli Kamba ( supra ), the former
only laid down a flexible formula for the court to see
as to whether there was a clear indication of
acceptance of insurance. The forums below have blindly
relied on the same, and failed to take into cognizance
the later ratio in D. Srinivas (supra) , which stressed
on considering the unique facts of the case to
determine whether there is a presumption of acceptance
of the policy by the insurer.
1
(1984) 2 SCC 719.
2
(2018) 3 SCC 653.
Page 11 of 16
22 . The latter was a case where a housing loan was
obtained by the complainant, his wife, and his son as
joint borrowers and thereafter, Rs. 78,150/- was
debited from their account towards life insurance
premium for the home loan borrowers. The son of the
complainant who was covered under the insurance policy
died of a heart attack and only after the death, the
insurance company informed that the policy was not
accepted, and this was followed by refund of the
premium amount.
23. When the resultant complaint was not entertained
by the National Commission and this was challenged
before this court, Justice S. Abdul Nazeer writing for
the Court observed, that when medical examination is
compulsory before acceptance of premium, it would be
logical to say that premium acceptance was based on
medical examination, and in a situation where premium
is accepted, the pre-condition of medical examination
stands waived. In such circumstances, a concluded
contract governs the parties and when such claim is
repudiated, the same was held to be a case of deficiency
of service in a concluded insurance contract.
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24. The following relevant passages from D. Srinivas
( supra ) which merit our endorsement in the present
facts are extracted below, for ready reference: -
“10. It is clear from the above that the proposer
was willing to join the life insurance coverage from
the respondent Insurance Company subject to his
undertaking medical examination and for his
willingness he authorised the bank to debit his
account for payment of the premium. This clearly
implies that medical examination was to take place
prior to the premium being debited from the bank
account of the proposer. The specific condition in
the policy is that in case the loan amount exceeds
Rs 7.5 lakhs the medical examination was compulsory.
If the medical examination was compulsory for such
cases it should have been done along with filing of
the proposal form before the payment of the premium.
If the proposal was not accepted for any reason the
premium would have been credited to the account of
the proposer. The premium has been refunded after
23-2-2011. From this, it is clear that the Insurance
Company had not rejected the proposal before 23-2-
2011.
12. … The insurance contract being a contract of
utmost good faith, is a two-way door. The standards
of conduct as expected under the utmost good faith
obligation should be met by either party to such
contract.
13. From the aforesaid clause, it may be seen that
the condition precedent for acceptance of the
premium was the medical examination. It would be
logical for an underwriter to accept the premium
based on the medical examination and not otherwise.
Therefore, by the very fact that they accepted the
premium waived the condition precedent of medical
examination.
It is an admitted fact that the premium was paid
14.
on 29-9-2008. That it was only on 18-1-2011 that
the respondent Insurance Company informed the
appellant that the policy was not accepted by them.
We are unable to fathom the reason for such
excessive delay in informing the appellant, which
cannot be excused. We are of the opinion that the
rejection of the policy must be made in a reasonable
time so as to be fair and in consonance with the
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good faith standards. In this case, we cannot hold
that such enormous delay was reasonable. Moreover,
it is borne from the records that the premium was
only repaid on 24-2-2011, after a delay of more than
one year five months. If we consider above aspects,
it can be reasonably concluded that the insurer is
only trying to get out of the bargain, which they
had wilfully accepted. From the aforesaid
circumstances we can easily conclude that the policy
was accepted by the insurer.
15. In the circumstances, there is no reason to
believe that there was no complete contract. There
is clear presumption of the acceptance of the
proposal in favour of the proposer. Therefore, the
majority view of the Commission would not sustain.”
Guided by the above judgment in like circumstances,
25.
the latter ratio is applicable to the facts at hand.
Though, we acknowledge that there is no excessive delay
in the current case between medical test & repudiation
unlike in D. Srinivas (supra), where the period was over
2 years, what needs to be focused upon in the interest
of justice is the trigger & surrounding circumstances
which led to the rejection of proposal by the insurance
company. In that light, the conduct of the respondent
No. 2 cannot be countenanced against the good faith
standards that an insurance contract warrants. In this
case, the pre-condition for the home loan as stipulated
by the respondents was that life of the borrower will
have to be insured. Only after assessment of the
applicant’s credentials, the loan was approved. When
the loan amount was sanctioned, the premium amount was
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kept aside and was credited to the insurance Company
and the insured was subjected to a medical test which
showed normal health status. Thus, premium was accepted
and retained for the life insurance and no change of
this position was found necessary even after the
treadmill test result of the insured. This entire
procedure would suggest, at least from the insurer’s
perspective, that the insurance process was complete &
all mandatory requirements were met. Significantly,
there was no contrary communication by the respondent
No. 2 indicating otherwise as well. Moreover, when the
death information was conveyed to the respondents, most
surprisingly, that was the trigger that led to the
insurance company to issue a back dated letter deferring
the insurance process, which was followed by refund of
the premium a few days later, and then the repudiation
after that.
26. The case at hand shows clear malafide on the part
of respondent No. 2 in the manner they dealt with the
insurance policy, after learning of the death of the
insured person on intimation from the affected persons.
The way the issue was addressed by the respondent No.
2 following the information conveyed does fail, in our
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opinion, the test of Reasonable Conduct. On top of that,
to cover up their late reaction, most tellingly, the
ante dated letter under the garb of an unfounded medical
reason was dispatched. These in our opinion, amount to
a clear case of deficiency of service and a non-bonafide
conduct by the respondent no.2. The contrary finding in
the impugned order do not pass our judicial scrutiny.
27. We are, therefore, persuaded to conclude that the
impugned judgment is unsustainable and the same is set
aside. With this order, the appeal and the complaint
stand allowed. The respondent No.2 is accordingly
directed to process the complainant’s insurance claim
and remit the payable sum. The parties to bear their
own costs.
………………………………………………………J.
[K.M. JOSEPH]
………………………………………………………J.
[HRISHIKESH ROY]
NEW DELHI
DECEMBER 15, 2022
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