Full Judgment Text
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CASE NO.:
Appeal (civil) 6028 of 2002
PETITIONER:
Chairman, Life Insurance Corporation & Ors.
RESPONDENT:
Rajiv Kumar Bhasker
DATE OF JUDGMENT: 28/07/2005
BENCH:
Ashok Bhan & S.B. Sinha
JUDGMENT:
J U D G M E N T
WITH
CIVIL APPEAL NOS. 6029 OF 2002, 2357 OF 2003,
4463, 4620, 5470-71, 6820 OF 2003, 4313 OF 2004 &
1405 OF 2005
AND
CIVIL APPEAL NOS.4558,4557 and 4559 OF 2005
[@ S.L.P. (CIVIL) NOS. 8230, 18958 OF 2003 & 48 OF 2005]
S.B. SINHA, J :
Leave granted in S.L.Ps.
These appeals involving common questions of fact and law were
taken up for hearing together and are being disposed of by this common
judgment.
The basic fact of the matter is as under:
The Life Insurance Corporation (for short "the Corporation") was
created under the Life Insurance Corporation Act, 1956 (for short "the Act").
It floated a "Salary Savings Scheme" which envisaged a life insurance
policy for the salaried class employees a proposal wherefor was made to the
concerned employers. Although the Scheme as such is not on records of the
case, the same has been referred to at some detail in the judgment of this
Court in Delhi Electric Supply Undertaking Vs. Basanti Devi and Another
[(1999) 8 SCC 229] and we intend to refer thereto in extenso as it throws
considerable light on the issue which falls for our determination.
The Corporation issued a brochure in relation to the said Scheme
wherein it was stated:
"It is a simple, economical plan whereby your
employees may obtain life insurance protection for
their families and retirement income for
themselves under advantageous conditions which
might not be available to them otherwise. This it
accomplishes by savings automatically deducted
from their pay and remitted to us once a month.
This is not a group insurance. Each employee
owns his policy individually, is entitled to all its
benefits and can continue the policy in the event of
any change in employment.
Under this plan, you as an employer give facilities
to the representatives of LIC to contact your
employees to offer life insurance cover to them.
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Premium amounts, if an employee agrees to insure
under this plan, are to be deducted every month
from the employee’s salary, in the same manner as
the employee’s provident fund. All the amounts so
collected are paid to the Corporation by one
cheque by the employer. This ensures for the
employee regular payment, monthly, of his
premiums at concessional rates. Deduction of
premium from the salary or wages of an employee
and its remittance to the Life Insurance
Corporation is so beneficial that the recently
amended Payment of Wages Act and the Minimum
Wages Act make it legally permissible for an
employer to do so. On your part, all that the plan
involves is a little extra accounting which you will
surely consider worthwhile because of the...."
The employer concerned in terms of the said scheme was addressed a
letter by the Corporation which is as under:
"Dear Mr Employer,
The Salary Savings Scheme of Life Insurance
Corporation has proved of considerable value to
many organisations and which we believe will be
of keen interest to you and your employees.
The general need on the part of the average
employee for more adequate protection of his
dependants is recognised as well as the desirability
of his adequate provision for his own retirement.
The Scheme is very simple. All that we need is the
cooperation by your Payroll Department. They
have to make the deductions of the premium on the
employee policy-holder’s authorisation and remit
them regularly to LIC along with a reconciliation
statement.
Your employee will, I am confident, appreciate the
benefits of your Salary Savings Scheme. It will be
a practical demonstration of your personal interest
in the welfare of those who help to make your
company successful. Moreover, it is in tune with
the present social trend.
May I discuss the matter with you with a view to
working out details?
Yours very truly,
sd/-
(Branch Manager)"
[Emphasis supplied]
In the event, the employer and the employee agreed to the said offer
made by the Corporation, the former would express its agreement thereto in
the following terms:
"Dear Sir,
Re: Salary Savings Scheme
PA Code No. ...
In order to make the benefits of your Salary
Savings Scheme available to our employees, we
agree to make the payroll deductions authorised in
writing by our employees, in amounts sufficient to
pay the premiums included under your Salary
Savings Scheme.
2. *
3. It is also understood that no form of individual
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premium due notice or receipt will be issued by
you.
4. It is also understood that the employee policy-
holders shall have the right to discontinue
participation in the Scheme at any time. If an
employee exercises this right or if he is terminated,
we will notify you in writing at the office where
the remittance is forwarded and thereafter will not
be responsible for collecting his premiums.
5. *
6. *
7. In all transactions made by us pertaining to this
Scheme and any policies issued by you thereunder,
we shall act as the agent of our employees and not
as your agent for any purpose.
Yours truly
sd/-
Signature of employer"
[Emphasis supplied]
The acceptance letter issued by the concerned Branch Manager of the
Corporation envisaged that it was for the employer to deduct premium from
the salary of the employee and to remit the same to the Corporation. In
other words, the responsibility for collection of the premium by deducting
the same from the salary of the employee and making over the same to the
Corporation was of the employer. Some of the clauses of the letter of
acceptance are as under:
"(a) The employer will receive list of premiums to
be deducted called as demand invoice in duplicate
each month on the specified date.
(b) One copy of the invoice is to be returned along
with the remittance. The second copy is to be
retained by the employer for his record.
(c) It is necessary to inform LIC when an
employee leaves the service or is transferred from
one department to another.
(d) Reconciliation statement in a specified form to
be supplied by LIC will accompany the statement.
(e) The Corporation will make changes in the
invoice based on the information received from the
employer regarding transfer in, transfer out and
exits.
(f) Deductions made in each month will have to be
remitted to us within a week from the date of
making deductions along with a copy of invoice
and a reconciliation statement. Make your cheque
payable to the Life Insurance Corporation of India
and send it along with the copy of invoice with
reconciliation statement drawn in the form
suggested in (d) above to the appropriate Branch
Office. While checking out statement if you find
that an item cannot be paid, rule through the item
on the original statement and note the reason for
non-payment against the item in the remark
column. If you find that an addition is to be made,
make the addition at the end of the statement
giving policy number, name, amount and the
reason for addition. If the employee is transferred
from one department to another, the names of the
departments concerned and code number must be
stated.
(g) In order to bring the invoices up to date, it is
desirable that the employer informs us of all the
changes in the staff immediately as soon as they
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occur. The employer need not wait to incorporate
those in the invoice. The changes communicated to
us through invoice are received date (sic) and the
names of employees continue to appear in the
wrong invoice in the meanwhile."
The employer thereafter addressed a letter to each of the employee
informing him of the Scheme stating:
"Realising that an adequate savings and
protection scheme will mean so much to you and
your family we have arranged for the benefits of
the Salary Savings Scheme of the Life Insurance
Corporation of India for all employees who desire
its privilege. The premium will be automatically
deducted from your salary once a month and
remitted to the Life Insurance Corporation."
The employer, thus, accepted the sole responsibility to collect the
premium from its employees and remit the same by means of one cheque to
the Corporation. It is also evident from the tenor of the correspondences
passed between the Corporation and the employer that the Scheme was as
much as that of the employer as that of the Corporation.
It is not in dispute that for the said purpose a reconciliation statement
was sent in the form prescribed by the Corporation and no individual
premium notice was required to be sent to any employee and, furthermore,
no receipt was to be given therefor. It was also for the employer to inform
the Corporation about the changes in the staff as soon as they occured
including the factum of cessation of employment. The concerned employee
was never made aware of the correspondence between the Corporation and
the employer.
A circular titled "Salary Savings Scheme Endorsement" was also
issued which is in the following terms:
"This policy having been issued under the
Corporation’s Salary Savings Scheme, it is hereby
declared that the instalment premium shall be
payable at the rate shown in the schedule of the
policy so long only as the life assured continues to
be an employee of his present employer, whose
name is stated in proposal and premiums are
collected by the said employer out of the salary of
the employee and remitted to the Corporation
without any charge. In the event of the life assured
leaving the employment of the said employer or
the premium ceasing to be so collected and/or
remitted to the Corporation, the life assured must
intimate the fact to the Corporation and in the
event of the Salary Savings Scheme being
withdrawn from the said employer, the
Corporation shall intimate the fact to the life
assured and all premiums falling due on and after
the date of his leaving employment of the said
employer, or cessation of collection of the
premiums and remittance thereof in the manner
aforesaid, or withdrawal of the Salary Savings
Scheme as the case may be, shall stand increased
by the imposition of the additional charges for the
monthly payment that has been waived under the
Salary Savings Scheme at 5% of the premium
exclusive of any premium charged for double
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accident benefits or extended permanent disability
benefits and any other extra premiums charged.
During the period in which premium is remitted to
the Corporation through the employer, the
instalment premium will be deemed to fall due on
the 20th day of each month instead of the due date
within mentioned."
For one reason or the other, the employers did not deduct the premium
from the salary of the concerned employee.
Upon the death of the concerned employee, his heirs and legal
representatives either filed writ petition in the High Court or filed
applications before the District Consumer Forum constituted under the
Consumer Protection Act, 1986.
The High Court in the writ petition in the case of Rajiv Kumar
Bhasker which is subject matter of Civil Appeal No. 6028 of 2002 and
District Forum, State Commission or National Commission in other cases
following the decision of this Court in Basanti Devi (supra) allowed the
same.
In C. Shakuntala & Anr. [Civil Appeal No. 2357 of 2003], the District
Forum held that both the Corporation and the employer were jointly and
severally liable to pay the assured amount to the concerned employee in
view of the deficiency in service. The said order having been set aside by the
State Commission, the Corporation as also the Employer (BHEL) preferred
appeals before the National Commission which in view of the decision of
this Court in Basanti Devi (supra) set aside the order of the State
Commission. A Special Leave Petition was filed by Deputy Manager
(Finance Adv.), BHEL being Civil Appeal No. 2357 of 2003 wherein a
memorandum of cross objection has been filed by the Corporation.
The contentions of Mr. G.L. Sanghi, learned senior counsel appearing
on behalf of the Corporation are as under:
(i) The employer, in view of the Scheme, not being the agent of the
Corporation, Basanti Devi (supra) requires reconsideration.
(ii) As the policy was issued in the name of the individual employees, in
the event of non-payment of the requisite premium either by the employee or
the employer, the same would result in lapse of the policy. The claimants \026
Respondents were, therefore, not entitled to the sum assured.
(iii) The Corporation being only a commercial undertaking and as in
pursuance thereof, it had merely extended the facility of collection of
premium payable by the employees through the employer, the same would
not make it liable to pay the assured sum in terms of the policy having
regard to the default in making payment of the amount of premium.
(iv) The employer acted only as the agent of the employees and not that of
the Corporation for any purpose and, in that view of the matter, the
Corporation would not be liable to pay the assured amount.
Mr. L. Nageshwar Rao, learned senior counsel appearing on behalf of
the Appellant in Civil Appeal No. 2357 of 2003, would contend that having
regard to the decision of this Court in Basanti Devi (supra), the National
Commission must be held to have committed an apparent error in affirming
the judgment of the District Forum as the employer cannot be made liable to
pay the amount under the policy.
The Salary Savings Scheme, as noticed hereinbefore, provides for a
tripartite arrangement.
The Corporation itself had approached the employers and they agreed
to such proposal; upon acceptance whereof by the Corporation, the employer
addressed a letter to the concerned employees giving details about the
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Scheme. In the letter of the Corporation, it was projected that it was the
scheme of the employer itself. The employers were, thus, allured to ask
their employees to agree to the proposal, on the premise that the same would
amount to a practical demonstration of their interest in the welfare of those
who help to make the companies successful and, furthermore, which would
also be in tune with the ’present social trend’.
The employers in terms of this tripartite arrangement accepted the
responsibility of deducting the premium from the salaries of the same and
send the same to the Corporation by one cheque. As noticed hereinbefore,
the concerned employees would have no knowledge about the contents of
correspondence passed between the Corporation and their employers.
Paragraph 3 of the employer’s letter to the Corporation indicates that
no form of individual premium due notice or receipt would be issued by the
Corporation which clearly shows that the entire responsibility was thrust
upon the employer by the Corporation.
An agency can be created expressly or by necessary implication. It
may be true that the employers in response to the proposal made by the
Corporation stated that they would act as agents of their employees and not
that of the Corporation. But, the expression "agent" in such circumstances
may not mean to be one within the meaning of the Life Insurance
Corporation of India (Agents) Regulation, 1972 made in terms of Section 49
of the Act; but would mean an agent in ordinary sense of the term. An
employer would not be an agent in terms of the said Regulation on the
premise that it was not appointed by the Corporation to solicit or procure
life insurance business. The employers had no duty to discharge to the
Corporation either under the Act or the rules and regulations framed
thereunder but keeping in view the fact that the Corporation did not make
any offer to the employees nor would directly make any communication
with them regarding payment or non-payment of the premium or any other
matter in relation thereto or connected therewith including the lapse of the
policy, if any, it cannot be said that the employer had no role to play on
behalf of the Corporation.
In a plain and simple contract of insurance either the Corporation or
the agent, on the one hand, and the insured, on the other, is liable to comply
with their respective obligations thereunder. In other words, when a contract
of insurance is entered into by and between the insurer and the insured no
third party would have any role to play, but the said principle would not
apply in a case of this nature. In a scheme of this nature, the employers were
to make all endeavours to improve the service conditions of the employees
and discharge its social obligations towards them. So far as the employees
are concerned, they could not approach the insurer directly, and, thus, for all
intent and purport they were to treat their employers as ’agents’ of the
Corporation. The Scheme clearly and unequivocally demonstrates that not
only the contract of insurance was entered into by and between the employee
and the insurer through the employer but even the terms and conditions of
the policy were to be performed only through the employer.
In that limited sense, the employers would be the agents of the insurer.
In Bowstead & Reynolds on Agency, Seventeenth Edition, at page 307, it is
stated:
"Where a person, by words or conduct, represents
or permits it to be represented that another person
has authority to act on his behalf, he is bound by
the acts of that other person with respect to anyone
dealing with him as an agent on the faith of any
such representation, to the same extent as if such
other person had the authority that he was
represented to have, even though he had no such
actual authority."
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Section 182 of the Indian Contract Act, 1872 reads as under:
"’Agent’ and ’principal’ defined \026 An ’agent’ is a
person employed to do any act for another, or to
represent another in dealings with third persons.
The person for whom such act is done, or who is
so represented, is called the ’principal’."
The definition of ’agent’ and ’principal’ is clear. An agent would be a
person employed to do any act for another, or to represent other in dealings
with third parties and the person for whom such act is done or who is so
represented is called the principal. It may not be obligatory on the part of
the Corporation to engage an agent in terms of the provisions of the Act and
the rules and regulations framed thereunder, but indisputably an agent can be
appointed for other purposes. Once an agent is appointed, his authority may
be express or implied in terms of Section 186 of the Contract Act.
For creating a contract of agency, in view of Section 185 of the Indian
Contract Act, even passing of the consideration is not necessary. The
consideration, however, so far as the employers are concerned as evidenced
by the Scheme, was to project their better image before the employees.
It is well-settled that for the purpose of determining the legal nature of
the relationship between the alleged principal and agent, the use of or
omission of the word "agent" is not conclusive. If the employee had reason
to believe that his employer was acting on behalf of the Corporation, a
contract of agency may be inferred.
In Basanti Devi (supra), this Court stated the law thus:
"\005Formation of the contract of insurance is
between LIC and the employee of DESU. Scheme
has been introduced by LIC purely on business
considerations and not for any particular benefit of
insurance conferred on the employee working in
an organisation. Though in the pro forma letter
written by DESU to LIC it is mentioned that
DESU would be an agent of its employee and not
that of LIC but this understanding between LIC
and DESU was not communicated or made known
to the employee. As far as the employee is
concerned he is told that premium will be deducted
from his salary every month and remitted by
DESU to LIC under an agreement between LIC
and DESU. For the employee of DESU, therefore,
DESU had implied authority as an agent of LIC to
collect premium on its behalf and then pay to LIC.
There is nothing on the record to show that Bhim
Singh was ever made aware of the fact that DESU
was not acting as an agent of LIC. Rather in the
nature of the Scheme, the employee was made to
believe that it is the duty of the employer though
gratuitously cast on him by LIC to collect premium
by deducting from the salary of each employee
covered under the Scheme every month and to
remit the same to LIC by means of one
consolidated cheque. Now it could be said that
DESU would not be liable as an agent of its
principal, i.e., LIC and also it was rendering
service of collecting the premium and remitting the
same to LIC free of any cost to the employee. As
to what is the arrangement between LIC and
DESU the employee is not concerned. In these
circumstances DESU cannot perhaps be held liable
under the Act\005"
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We, with respect agree with the said observations and, thus, are
unable to accept the contention of Mr. Sanghi that the matter be referred to a
larger Bench.
We may, furthermore, observe that having induced the employer to
act as a model employer and discharge its social obligations vis-‘-vis its
employees it may not be permissible for a ’State’ within the meaning of
Article 12 of the Constitution to contend at this belated stage that in the
event of default on the part of the employer, it may get itself discharged
from its contractual obligations in such a cavalier manner.
The Scheme clearly provides that in the event of cessation of
employment the concerned employee if continues his employment under a
new employer, the former employer has to inform the Corporation
thereabout. Furthermore, upon retirement or in situations other than taking
up of any job with any other employer, the employee would be entitled to
continue with the policy but therefor, he will have to pay a higher premium.
Even at that stage, the Corporation would have a duty to inform the
employee concerned towards his right. Even in case of non-payment of
premium for any reason whatsoever, in view of the object the Scheme seeks
to achieve, it was the duty of the insurer to inform the employee about the
consequences of non-receipt of such premium from the employer. The
Corporation has failed or neglected to do so. In that view of the matter, we
do not find any reason to take a different view.
In terms of the Scheme, significantly the employee for all transactions
was required to contact his employer only. In view of our findings
aforementioned, the Corporation, thus, cannot be permitted to take a
different stand so as to make the employee suffer the consequences
emanating from the default on the part of the employer. If for some reasons,
the employer is unable to pay the salary to the employees, as for example, its
financial constraints, the employee may be held to have a legitimate
expectation to the effect that his employer would at least comply with its
solemn obligations. Such obligations having been undertaken to be
performed by the employer at the behest of the Corporation as its agent
having the implied authority therefor, the Corporation cannot be permitted to
take advantage of its own wrong as also the wrong of its agent. In any
event, the employer was obligated to inform the employee that for some
reason, he is not in a position to perform his obligation whereupon the latter
could have paid the premium directly to the Appellant herein.
In South Sydney District Rugby League Football Club Ltd. vs. News
Ltd. and Others [177 ALR 611], a similar question came up for
consideration. In that case there existed an exclusionary provision contained
in clause 2.2 in the agreement entered into by the parties thereto to the
following effect :
"NRL will act solely as an independent contractor.
Nothing in this agreement will constitute, or be construed
to be or create, the relationship of employer and
employee, principal and agent, trustee and beneficiary,
joint venturers or partnership between the partners and
NRL."
Construing the said clause it was held that by conduct of the parties a
relationship was designed in which, at the level at which NRL was to
perform its part in the operation of the business of the Appellant therein,
NRL represented the partnership’s business, and invited participation
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therein by clubs etc. The Court held that by reason thereof a fiduciary
relationship came into being which was in substance that of an agency,
stating :
"There are several ancillary matters to which I
should refer briefly. First, I have not referred directly to
an argument advanced by News and NRLI to the effect
that the recitals in the services agreement cannot in any
way be used to contradict cl. 2.2. I do not for one
moment cast doubt on the long-established proposition
that in the construction of an instrument the recitals are
subordinate to the operative part so that where the
operative part is clear, it is treated as expressing the
intention of the parties and it prevails over any
suggestion of a contrary intention afforded by the recitals
: see 10 Halsbury’s Laws of England, 1st ed, 1909, para
803; Norton on Deeds, 2nd ed, 1928, p. 197. The question
is not whether the intent of cl. 2.2 was clear. It is
whether, in the context of the factual relation
consensually created, it was effective in its purpose.
Secondly, having found NRL to be the
partnership’s agent, I do not thereby suggest that any
particular contract entered into by NRL did, or for that
matter did not, bind the partnership. That question is one
of fact in each instance and raises issues that go far
beyond what is of present concern."
A somewhat similar view was taken by the House of Lords in
Branwhite vs. Worcester Works Finance Ltd. [(1969) 1 AC 552] in the
following terms :
"In the Garnac case Lord Pearson with the concurrence
of the House, used these words :
"The relationship of principal and agent can
only be established by the consent of the principal
and the agent. They will be held to have consented
if they have agreed to what amounts in law to such
a relationship, even if they do not recognize it
themselves and even if they have professed to
disclaim it\005But the consent must have been given
by each of them, either expressly or by implication
from their words and conduct."
The significant words, for the present purpose, are
"if they have agreed to what amounts in law to such a
relationship." These I understand as pointing to the fact
that, while agency must ultimately derive from consent,
the consent need not necessarily be to the relationship of
principal and agent itself (indeed the existence of it may
be denied) but may be to a state of fact upon which the
law imposes the consequences which result from agency.
It is consensual, not contractual. So interpreted, this
formulation allows the establishment of an agency
relationship in such cases as the present."
Yet again in Armagas Ltd. vs. Mundogas S.A. [(1986) AC 717], the
House of Lords pointed out that even in absence of any express contract of
agency in relation to the transaction made with the third party, ostensible
authority may be presumed, stating :
"\005Ostensible authority comes about where the principal,
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by words or conduct, has represented that the agent has
the requisite actual authority, and the party dealing with
the agent has entered into a contract with him in reliance
on that representation. The principal in these
circumstances is estopped from denying that actual
authority existed. In the commonly encountered case, the
ostensible authority is general in character, arising when
the principal has placed the agent in a position which in
the outside world is generally regarded as carrying
authority to entered into transactions of the kind in
question. Ostensible general authority may also arise
where the agent has had a course of dealing with a
particular contractor and the principal has acquiesced in
this course of dealing and honoured transactions arising
out of it."
In Gurtner and Others vs. Beaton and Others [(1993) 2 Lloyd’s
Rep.369] their Lordships quoted with approval the following dicta from
Freeman & Lockyer vs. Buckhurst Park Properties (Mangal) Ltd. [(1964) 2
QB 480]:
"The representation which creates "apparent"
authority may take a variety of forms of which the
commonest is representation by conduct, that is, by
permitting the agent to act in some way in the conduct of
the principal’s business with other persons."
It was further held:
"In applying that principle the correct approach is
to consider the whole of the conduct of Cleanacres Ltd.
in the light of all the circumstances in order to determine
whether that conduct amounted to a holding out by them
of Mr. Beaton as having the necessary authority : see per
Lord Justice Browne-Wilkinson in The Raffaella at p. 41.
It is not right to concentrate on the use of the word
"usually" by Lord Justice Diplock in Freeman & Lockyer
at p. 503 and to treat it as decisive in this case on the
ground that an aviation manager cannot be regarded as
"usually" having authority to make a contract for air taxi
work when the aviation business of which he is manager
does not include such work."
Agency as is well-settled, is a legal concept which is employed by the
Court when it becomes necessary to explain and resolve the problems
created by certain fact situation. In other words, when the existence of an
agency relationship would help to decide an individual problem, and the
facts permits a court to conclude that such a relationship existed at a material
time, then whether or not any express or implied consent to the creation of
an agency may have been given by one party to another, the court is entitled
to conclude that such relationship was in existence at the time, and for the
purpose in question. [See "Establishing Agency" by GHL Fridman \026 1968
(84) Law Quarterly Review 224 at p 231].
For the reasons aforementioned, the appeals preferred by the
Corporation including the cross objections filed by it in Civil Appeal No.
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2357 of 2003 are dismissed and Civil Appeal No. 2357 of 2003 is allowed.
However, in the facts and circumstances of the case, there shall be no order
as to costs.