Full Judgment Text
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PETITIONER:
LIFE INSURANCE CORPORATION OF INDIA
Vs.
RESPONDENT:
RAJA VASIREDDY KOMALLAVALLI KAMBA & OTHERS
DATE OF JUDGMENT27/03/1984
BENCH:
MUKHARJI, SABYASACHI (J)
BENCH:
MUKHARJI, SABYASACHI (J)
ERADI, V. BALAKRISHNA (J)
CITATION:
1984 AIR 1014 1984 SCR (3) 350
1984 SCC (2) 719 1984 SCALE (1)561
ACT:
Insurance Law-Contract of Insurance-Proposal and
acceptance-Insured filling up the proposal for insurance for
Rs. 50,000 on 27.12.1960 and after undergoing medical
examination on the same date issues two cheques of Rs. 300
and Rs. 220 towards consideration by way first premium-The
Insurance Corporation encash the cheques on 11.1.1961 and
the insured dies on 12.1.1961 whether there is a concluded
contract of Insurance-When is the acceptance said to be
complete in case of contract of Insurance-contract of Act
Section 2(h) and 4.
HEADNOTE:
One Late Raja Vasireddi Chandra Dhara Prasad died
intestate on 12th January, 1961. He had filled a proposal
for insurance for Rs. 50,000 on 27th December 1960. There
was medical examination by the doctor on the life of the
deceased on 27th, December, 1960. The deceased issued two
cheques being the consideration towards the first premium
for Rs 300 and Rs. 220 respectively which were encashed by
the appellant on 29th December 1960 and 11th January 1961.
On 16th January 1961, the widow of the deceased wrote to the
appellant intimating the death of the deceased and demanded
payment of Rs. 50,000 The Divisional Manager, Masulipatam
Branch denied liability on behalf of the appellant on 28th
January, 1961. Thereafter there was correspondence between
the parties between Ist February 1961 and 23rd December
1963. On 10th January 1964, the respondents filed a suit in
the Court of Subordinate Judge, Masulipatam. The trial court
dismissed the suit holding, inter alia, that there was no
concluded contract, that the proposal was not accepted by
the Divisional Manager for some reason or the other by the
time the deceased had died, that neither the encashment of
the two cheques created a contract of insurance. In appeal,
the High Court after ordering certain other additional
documents set aside the Trial Court Judgment. Hence the
appeal by the Corporation after obtaining the special leave.
Allowing the appeal, the Court
^
HELD; 1. Having regard to the clear position in law
about acceptance of insurance proposal and the evidence of
record in this case, it is clear that the, High Court was in
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error. in coming to the conclusion that there was a
concluded contract of insurance between the deceased and the
Life Insurance Corporation. [360D-E]
2. Though in certain human relationship silence to a
proposal might
351
convey acceptance but in the case of insurance proposal,
silence does not denote consent and no binding contract
arises until the person to whom an offer is made says or
does something to signify his acceptance. Mere delay in
giving an answer cannot be construed as an acceptance, as,
prima facie, acceptance must be communicated to the offer or
The general rule is that the contract of insurance will be
concluded only when the party to whom an offer has been made
accepts it unconditionally and communicates his acceptance
to the person making the offer. Whether the final acceptance
is that of the assured or insurers, however, depend simply
on the way in which negotiations for an insurance have
progressed. [359H, 360A-B]
3: 1. When an insurance policy becomes effective is
well-settled by the authorities but it is clear that the
expression "underwrite" signifies accept liability under
that. The dictionary meaning also indicates that. It is true
that normally the expression "underwrite" is used in Marine
insurance but the expression used in Chapter III of the
Financial Powers of the Standing order in this case
specifically used the expression ’funderwriting and
revivals" of policies in case of Life Insurance Corporation
and stated that it was the Divisional Manager who was
competent to underwrite policy for Rs, 50,000 and above.
[359 B-D]
3: 2. The mere receipt and retention of premium until
after the death of the applicant or the mere preparation of
the policy document is not acceptance. Acceptance must be
signified by some acts or acts agreed on by the parties or
from which the law raised a presumption of acceptance.
[359D-E]
3: 3 In the instant case, the High Court was in error
in coming to the following conclusions;
(i) that there was not sufficient pleading that there
was no concluded contract, and non acceptance of the
proposal was not sufficient averment that the Divisional
Manager was the only competent authority to accept the
proposal; (ii) in its view about the powers of the different
authorities under Chapter III of the Standing order 1960,
dealing with the financial powers; (iii) about the view that
the Assistant Divisional Manager having accepted the
proposal and (iv) about the assurance given by the Field
officers that the acceptance of the first premium would
automatically create a concluded contract of insurance’
[358E-H]
The Court however directed half the amount of the
insurance amount of Rs. 85,000 paid to the Respondents to be
refunded to the Corporation. [360F-G]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil appeal No. 2197
From the Judgment and order dated 16.4.70 of Andhra
Pradesh High Court in appeal No. 431 of 1965.
Dr. YS Chitale, V. G. Shanker, KL Hathi, Ms. Sadhana,
DK Chhaya, MK Arora and Mrs. H. Wahi for the appellant.
352
T. S. Krishnamoorthi Iyer, KR. Choudhry and KS.
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Choudhary for the respondents.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, J. This appeal is by a certificate
granted on 18th September, 1970 by the High Court of Andhra
Pradesh under Article 133(1) (a) of the Constitution as it
stood at the relevant time against the Judgment and decree
of the High Court dated 16th April, 1970. By the said
Judgment and decree, the High Court of Andhra Pradesh had
reversed the Judgment of the learned Subordinate Judge,
Masulipatam dated 19th November, 1964 dismissing the suit of
the plaintiffs-respondents against the appellant. Late Shri
Raja Vasireddi Chandra Dhara Prashad was the husband of
respondent No. 1 and father of the respondents No. 2 to 5
herein. The respondents filed a suit in the Subordinate
Court of Sub-Judge being original suit No. 2 of 1964 on 10th
January, 1964. The short facts leading to this case are:
One Late Raja Vasireddi Chandra Dhara Prasad
(hereinafter referred to as a ’deceased’) died intestate on
12th January, 1961. He had filled a proposal for insurance
for Rs, 50,000 on 27th December, 1960. There was medical
examination by the doctor on the life of the deceased on
27th December, 1960. The deceased had issued two cheques for
Rs. 300 and Rs. 220 respectively in favour of the appellant
as first premium. Cheque for Rs. 300 was encashed by the
appellant on 29th December, 1960. Cheque for Rs. 220 was
dishonoured three times and finally encashed on 11th
January, 1961. As mentioned hereinbefore, the deceased died
on the day following i.e. on 12th January, 1961. On 16th
January, 1961, the widow of the deceased, respondent No. 1
herein, wrote to the appellant intimating the death of the
deceased and demanded payment of Rs. 50,000. The Divisional
Manager, Masulipatam Branch, denied liability on behalf of
the appellant Corporation on 28th January, 1961. Thereafter
there was correspondence between the parties between 1st
February, 1961 to 23rd December, 1963 wherein the
respondents-plaintiffs had claimed the payment and the
appellant had denied liability for the same.
353
On the 10th January, 1964, the plaintiffs filed the
suit in the court of Subordinate Judge, Masulipatam. It was
alleged in the plaint after setting out the facts which have
been set out hereinbefore, that the medical examination
report was submitted to the appellant-corporation by Dr. Sri
C. Sambasiva Rao, Approved Medical practitioner of the
appellant in regard to the medical examination of the
deceased. A report described as "All the Friend’s report"
was duly sent to the appellant with regard to that proposal;
and all the preliminaries were completed and it was further
alleged that the deceased was assured and told by the local
agent and the Field officer of the Corporation that the
payment of the first premium would amount to the acceptance
of the proposal and advised the deceased to pay the first
premium in full. It was, further, stated that the said two
cheques were encashed and the appellant had duly
appropriated the amount and credited in the accounts towards
the premium payable by the deceased. Therefore, it was
stated that the deceased had fulfilled his part of the
insurance contract and the appellant-Corporation by its
overt acts of encashing the cheques and crediting the
amounts in its accounts accepted the proposal of the
deceased. In the premises it was said in the plaint that
there was a concluded and valid insurance contract between
the deceased and the appellant-Corporation and that the
insurance contracted commenced on 11th January, 1961 being
the date of the receipt of the balance towards premium by
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the Corporation. It was further stated in the plaint that
the office of the Divisional Manager of Masulipatam was the
concerned authority to settle the claim of the plaintiffs-
respondents and to pay the amount. The contention of the
Corporation that the proposal was not accepted and as such
there was no concluded insurance contract between the
deceased and the Corporation, was untenable, according to
the plaintiffs. It was alleged that with full knowledge of
the completion of all the preliminaries, the Corporation had
encashed the cheques issued towards the first premium and
therefore it was the case of the plaintiffs-respondents that
the encashment of the cheques amounted in those
circumstances in law to an acceptance of the proposal of the
deceased. It was further alleged that the appropriation of
the amounts by the Corporation towards the first premium by
the deceased was only consistent with the acceptance of the
proposal. The case of the plaintiffs further was that in
this case the first premium was not only received by the
Corporation completely on 11th January, 1961 but it was also
appropriated by it in its accounts and the said premium
amount
354
was received by the Corporation without any demur or
qualification and that in any event the Corporation must be
deemed to have waived by its conduct the formality, if any,
of sending communication of its acceptance of the proposal.
In the premises, the plaintiffs claimed the said amount
along with interest at six per cent per annum from the date
of refusal of payment till the date of payment of the
demand.
Written statement was filed on behalf of the appellant.
In the said written statement, after setting out the facts,
it was denied that the payment of the first premium amounted
to acceptance of the proposal and the allegation about the
assurance given to the deceased as alleged in the plaint was
not true nor the alleged assurance if any, valid under law.
It was, further stated that the two cheques were not
encashed and credited towards the premium account of the
proposal but these were kept only in deposit in suspense
account without any liability of the appellant. It was
further stated that the averments in the plaint that the
defendant Corporation cashed the above two cheques and
appropriated the amounts and credited these in the account
towards premium payable for the proposal were false. It was
stated that on the death of the deceased, the amount
covering two cheques were lying in the deposit and in the
suspense account of the Corporation and was not adjusted
towards the premium since the proposal was not considered,
the terms of acceptance was not fixed and the premium amount
required for the proposal was not calculated. In these
circumstances, the appellant Corporation claimed that there
was no liability for the risk and as such the plaintiffs had
no right to claim and there was no cause of action. It was
categorically stated that the cheques were not credited and
adjusted towards the premium accounts.
During the trial before the learned Subordinate Judge,
five different issues were raised. It is not necessary to
set out in detail those issues but the important and main
issue was whether there was a concluded valid insurance
contract between the deceased and the Life Insurance
Corporation of India.
Both documentary and oral evidence were adduced at the
Trial. The respondents-plaintiffs examined Shri R.V. Bhupala
Prasad, son of the deceased and the Corporation on its
behalf examined Shri Jagannadhachari, the Superintendent of
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the Corpo-
355
ration branch at Guntur. He also produced ex. B-4, the
review slip, prepared by the Branch office, Guntur and sent
to the Divisional officer, Masulipatam. In his deposition,
he had stated that the Divisional Manager was the competent
authority for accepting the proposal for Rs. 50,000.
Normally it took some time for the Divisional Manager to
accept. There was no communication from the Divisional
office to the Branch officer accepting the proposal. He,
further, stated that the amount would be transferred into
the first premium register after the proposal was accepted
and the risk covered. He had produced the account books,
namely; deposit account book and the first premium account
book of the Branch office at Guntur.
Shri Brahmandrao Ramiah Assistant Divisional Manager of
the Life Insurance Corporation office at Madras was also
examined as the second witness of the defendants. He had
further stated that the proposal form was sent from the
office at Guntur to the Divisional office at Masulipatam,
and Ex. B-1 to B-4 and B-8 were sent in this connection. He
further stated that according to the financial powers
Standing order, it was the Divisional Manager who was
competent to accept a proposal for Rs. 50,000 Ex. B-13 is
the copy of the Standing order. The purpose of review slip
Ex. B-4 was to enable the Divisional officer to assess the
risk and take a decision according to the deponent. In this
connection we may refer Ex. B-14 which is the Life Insurance
Corporation of India’s Proposal Review Slip regarding
proposal in the case of the deceased. The endorsement
therein of the assistant Divisional Manager read as follows:
"NOTES AND DECISION : may be accepted at O.R."
WITH E.D.B.
Shri Brahmandrao Ramiah had further stated that the
papers were scrutinised by him in addition to the scrutiny
by the concerned clerks. He stated that the endorsement
marked as Ex. B-14 was initialled by him. He further stated
that the letters ’DM’ were also written by him indicating
that the papers should go to the Divisional Manager on Ex.
B-4. He reiterated that the order of acceptance would not be
communicated to the party if all the formalities were not
complied with; this policy, he stated, was not accepted.
When the acceptance was complete and when there was no
requirement necessary and if the full first instalment was
356
in deposit, it would be adjusted towards premium amount, he
stated.
In this connection before the learned Trial Judge,
reliance was placed on the Life Insurance Corporation of
India Standing order, 1960 (Financial Powers). Chapter III
of the Standing order dealt with the powers of the different
authorities for, inter alia, ’Underwriting and Revivals of
Policy’. The relevant portion of the said Standing order
read as follows:-
------------------------------------------------------------
"Nature of Power Authority Extent of Finan-
cial power (up to
and Including)
------------------------------------------------------------
Rs.
1. Underwriting and
Revivals:
(a) Standard Section Head 2,000 (Sum Proposed)
lives and Supdt or J.O. 5,000 ( -do- )
revival on A.S.O. 10,000 ( -do- )
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original A.D.M. 25,000 ( -do- )
terms D.M. 1,00,000 ( -do- )
------------------------------------------------------------
Note: Proposals on standard lives for more than Rs.
1,00,000 should be referred to the Central
Underwriting Section."
Learned Subordinate Judge by his judgment dated 19th
November, 1964 held that there was no concluded contract. He
held that as per the prospectus of Life Insurance
Corporation of India the risk under the Corporation policy
commenced on the date of receipt of the first premium in
full or the date of acceptance whichever was later and the
second instalment of the premium falls due on a date
calculated from such date of commencement of risk. Learned
Trial Judge was of the opinion that the documents in this
case coupled with evidence on behalf of the Appellant-
Corporation established that the proposal sent by the
deceased was for some reason
357
or other not accepted by the Divisional office by the time
the deceased had died. The Trial Court therefore held that
there was no concluded valid insurance contract between the
deceased and the Corporation. The Trial Court further noted
that it was significant that the case set out in the plaint
and the basis of the claim made in the notices sent to the
Corporation was not that the proposal was as a matter of
fact accepted by the Divisional Manager, on the other hand,
claim was that it should be deemed to have been accepted.
Considering the evidence and the averments, the Learned
Subordinate Judge came to the conclusion that the accounts
do not show the position alleged by the plaintiffs-
respondents that the amounts paid were appropriated towards
the premium and the Trial Court was of the opinion that
encashing of the cheques and the want of any further action
to be done by the deceased did not themselves create a
contract of insurance between the deceased and the
Corporation. The Trial Court was of the opinion that the
proposal must be accepted by the Divisional Manager and that
alone could give rise to a valid contract of insurance which
never happened in this case. The Trial Court further
expressed the view that the other averments in the claim
that the deceased was assured and told by the local agent
and the field officer of the Corporation that the payment of
the first premium would amount to the acceptance of the
proposal were not established and even if such a
representation was made, that did not alter the position as
under the rules the payment of the premium could never
amount to the acceptance of the proposal if the proposal was
not otherwise accepted. In the result, the suit filed by the
respondents-plaintiffs was dismissed with costs. Being
aggrieved by the said decision, the plaintiffs-respondents
field appeal in the High Court. The appellants before the
High Court also filed civil miscellaneous petition praying
that in the circumstances stated in the affidavit filed
therewith the High Court might be pleased to direct the Life
Insurance Corporation to produce certain documents viz.,
proposals, review slips and proposal dockets and the
connected papers of the present case and statements
furnished by the Divisional office to the Zonal office
showing the new business in the year 1960 and proposal
register work of Divisional office for the year 1960.
The High Court directed the Life Insurance Corporation
to produce the documents referred to above. The High Court
by its judgment dated 14th April, 1970 held after
considering the standing order Ex. B-13 and the various
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documents produced for the first time on record that there
was acceptance of proposal and like
358
other contracts, the contract of insurance was complete by
offer and acceptance. In coming to this conclusion the High
Court relied on the alleged adjustment and the endorsement
of the review slip recommending that the proposal "may be
accepted" made on the relevant file by the Assistant
Divisional Manager. Relying on certain other documents which
were called for, for the first time by the High Court
relating to certain other cases where only the Assistant
Divisional Manager made similar endorsement, the High Court
came to the conclusion that there was a valid contract. The
High Court was of the view that the plea that Divisional
Manager was the only authority to accept had not been
categorically taken in the written statement filed on behalf
of the Corporation. On the other hand, there was a general
statement that there was no concussed contract. The High
Court was of the view that having regard to the conduct of
the parties, there was a concluded contract. The High Court
took the view that Ex. B-13 dealing with Chapter III of the
Financial Powers did not categorically deal with the
acceptance of proposals. The High Court was of the view that
the Corporation had not filed any evidence of any order
prohibiting other officers one step below in rank, in this
case the Assistant Divisional Manager, to exercise the power
of Divisional Manager.
In our opinion, the High Court was in error in
appreciating the facts and the evidence in this case. We
cannot accept the High Court’s criticism with the averment
in the written statement that there was not sufficient
pleading that there was no concluded contract and non-
acceptance of the proposal was not sufficient averment that
the Divisional Manager was the only competent authority to
accept the proposal. The High Court, in our opinions was
also wrong in its view about the powers of the different
authorities under Chapter III of the Standing order, 1960
dealing with the financial powers. Indeed there was no
evidence that the Assistant Divisional Manager had accepted
the proposal on the contrary he his deposition as we have
indicated before had stated otherwise. He had stated that
the purpose of review slip was to enable the Divisional
Manager to asses the risk and take a decision. He had never
stated that he had taken a decision to accept the proposal.
The allegation that there was assurance on behalf of the
field officer and local agent to the deceased that the
payment of first premium would amount to the acceptance of
the proposal cannot also be accepted firstly because
factually it was not proved and secondly because
359
there was no evidence that such could have been the
deposition in law.
When an insurance policy becomes effective is well-
settled by the authorities but before we note the said
authorities, it may be stated that it is clear that the
expression "underwrite" signifies accept liability under’.
The dictionary meaning also indicates that.
(See in this connection The Concise oxford Dictionary
Sixth Edition p. 1267.)
It is true that normally the expression "underwrite" is
used in Marine insurance but the expression used in Chapter
III of the Financial powers of the Standing order in this
case specifically used the expression "underwriting and
revivals" of policies in case of Life Insurance Corporation
and stated that it was the Divisional Manager who was
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competent to underwrite policy for Rs 50,000 and above.
The mere receipt and retention of premium until after
the death of the applicant or the mere preparation of the
policy document is not acceptance. Acceptance must be
signified by some act or acts agreed on by the parties or
from which the law raises a presumption of acceptance.
See in this connection the statement of law in Corpus
Juris Secundum, Vol. XLV page 986 wherein it has been stated
as:-
"The mere receipt and retention of premiums until
after the death of applicant does not give rise to a
contract, although the circumstances may be such that
approval could be inferred from retention of the
premium. The mere execution of the policy is not an
acceptance; an acceptance, to be complete, must be
communicated to the offeror, either directly, or by
some definite act, such as placing the contract in the
mail. The test is not intention alone. When the
application so requires, the acceptance must be
evidenced by the signature of one of the company’s
executive officers."
Though in certain human relationships silence to a
proposal might convey acceptance but in the case of
insurance proposal silence does not denote consent and no
binding contract arises until
360
the person to whom an offer is made says or does something
to signify his acceptance. Mere delay in giving an answer
cannot be construed as an acceptance, as, prima facie,
acceptance must be communicated to the offeror. The general
rule is that the contract of insurance will be concluded
only when the party to whom an offer has been made accepts
it unconditionally and communicates his acceptance to the
person making the offer. Whether the final acceptance is
that of the assured or insurers, however, depends simply on
the way in which negotiations for an insurance have
progressed.
See in this connection statement of law in MacGillivray
& Parkington on Insurance Law, Seventh Edition page 94
paragraph 215.
Reference in this connection may be made to the
Statement of law in Halsbury’s Laws of England 4th Edition
in paragraph 399 at page 222.
Having regard to the clear position in law about
acceptance of insurance proposal and the evidence on record
in this case, we are, therefore, of the opinion that the
High Court was in error in coming to the conclusion that
there was a concluded contract of insurance between the
deceased and the Life Insurance Corporation and on that
basis reversing the judgment and the decision of the learned
Subordinate Judge.
The appeal must, therefore, be allowed. We however
record that in view of the fact that such a long time has
elapsed and further in view of the fact that principal
amount together with interest amounting to about Rs.
85,000/- have already been paid to the wife of the deceased
and his children, the Life insurance Corporation in this
case does not insist on the full repayment of the sum paid
and counsel on behalf of the Life Insurance Corporation has
stated that they would accept if half of what has been
received by the respondents, namely principal together with
interest is paid back to the Corporation. We order
accordingly that the respondents will therefore pay back
half of the actual amount received both of the principal
together with interest within three months from this date.
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In the facts and circumstances of the case there will
be no order as to costs in this Court.
With the above observations, the appeal is allowed.
S.R. Appeal allowed.
361