Full Judgment Text
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CASE NO.:
Appeal (civil) 4492 of 2000
PETITIONER:
Life Insurance Corporation of India & Anr.
RESPONDENT:
Smt. S Sindhu
DATE OF JUDGMENT: 04/05/2006
BENCH:
B N Srikrishna & R V Raveendran
JUDGMENT:
J U D G M E N T
RAVEENDRAN, J.
The short question that arises for consideration in this
appeal is whether in the case of a lapsed life insurance policy,
the Life Insurance Corporation of India (’the LIC’ for short)
while paying the reduced sum payable by treating it as a paid-
up policy, is liable to pay interest in regard to premiums paid
from the respective dates of payment of premiums to date of
settlement.
2. A policy of insurance dated 11.3.1994 for an assured sum
of Rs.5 lakhs with risk commencing from 4.12.1993 was issued
in regard to the life of K. Thankachan under the ’money back
policy’ scheme for a period of 20 years. The premium payable
was Rs.8,306/- every quarter. The conditions of the policy
made it clear that the policy will be in force only if the
premiums were paid regularly, every quarter, and that if the
premium was not paid before the expiry of the grace period
provided, the policy will lapse. K. Thankachan paid the
premiums till 4.6.1994 and did not pay the premiums thereafter.
In August, 1996, he opted for revival of the policy by paying
the arrears of premium from 4.9.1994 to 4.6.1996 with interest.
Accordingly, the policy was revived and he paid the premium
till 4.12.1996. Thereafter, the policy again lapsed from 4.3.1997
as premium was not paid. K. Thankachan died on 5.12.1997
and his widow/nominee (the respondent herein) made a claim
for payment of the amount under the policy, by letter dated
1.1.1968.
3. Condition No.4 of the policy contains the exceptions to
lapsing of the policy. The portion of the said condition relevant
for our purpose, is extracted below :-
"4. Non-forfeiture Regulations: If, after atleast three full
years premiums have been paid in respect of this Policy,
any subsequent premium be not duly paid this policy shall
not be wholly void, but shall subsist as a paid-up policy
for a reduced sum payable on the Date of Maturity or at
the Life Assured’s prior death provided the paid up sum
assured is not less than Rs.250. The amount of paid up
assurance for integral number of years’ premiums paid will
be calculated as per Table given below. The policy so
reduced shall thereafter be free from all liability for
payment of within mentioned premium but shall not be
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entitled to participate in future profits. The existing bonus
additions if any, will remain attached to the reduced paid
up policy.
(Emphasis supplied)
4. The ’paid up value’ of the policy was arrived at
Rs.1,13,750/- as per Condition (4) of the policy and was paid
by the LIC to the respondent on 26.3.1998, on her executing a
full and final settlement discharge. As the policy of insurance
with profit plan was eligible for bonus only if premiums are
paid at least for a period of 5 years and as the insured had paid
premium only for a period of three and quarter years, the policy
was found to be ineligible for bonus.
5. The respondent approached the Consumer Disputes
Redressal Forum, Kollam, on 30.4.1998, praying for a direction
to the LIC to pay her the entire sum assured under the policy
namely, Rs.5 lacs with accrued bonus and interest at 12% per
annum, as also Rs.25,000/- as compensation for deficiency of
service and Rs.5,000/- as costs.
6. The Appellant (LIC) resisted the said claim pointing out
that it had released the paid-up value of Rs.1,13,750/- in terms
of the policy, in full and final settlement and it had no liability
either to pay the assured sum or bonus or any interest. The
District Forum by order dated 28.8.1998 rejected the contention
of the respondent that she is entitled to the assured sum of Rs.5
lacs or bonus. It held that the respondent was only eligible for
payment of Rs. 1,13,750/- as paid-up value in terms of
Condition No.4 of the policy. The District Forum, however,
directed the LIC to pay interest at 15% per annum (on the sum
of Rs.1,13,750/-) from the respective dates of receipt of the
amounts of premium to date of settlement. For grant of such
interest, the District Forum relied on the decision of this Court
in Harshad J. Shah v. L.I.C. of India [1997 (5) SCC 64].
7. An appeal was filed by the LIC before the Kerala State
Consumer Disputes Redressal Commission contending that it
was not liable to pay interest from the date of receipt of the
premiums, and the decision in Harshad J. Shah (supra) did not
require payment of such interest. The Commission allowed the
appeal in part, on 31.3.1999. It held that the direction to pay
interest from the dates of payment of premium was in
accordance with the decision in Harshad J. Shah (supra) and
did not call for interference. The rate of interest was, however,
reduced from 15% to 12% per annum. The revision filed by
LIC against the order of the State Commission was rejected by
the National Commission on 2.11.1999, on the ground that
order of the State Commission did not suffer from any illegality
or jurisdictional error. The said order is challenged in this
appeal.
8. At the outset, what should be noticed, is that the amount
that is paid by LIC in regard to a lapsed policy, is not "refund of
the premiums paid on various dates", but a reduced lump sum
(calculated as per condition no. 4 of the policy) instead of the
assured sum. When what is paid by LIC is not refund of
premiums, the question of treating the amount paid by LIC as
refund of premiums paid and then directing payment of interest
thereon from the respective dates of payment of premium does
not arise. That would amount to treating the premiums paid in
respect of a policy which lapsed by default, as fixed deposits
repayable with a hefty rate of interest. Surely, the intention is
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not to reward defaulting policy holders. Moreover, the courts
and Tribunals cannot rewrite contracts and direct payment
contrary to the terms of the contract, that too to the defaulting
party. Be that as it may.
9. We will now examine whether award of interest can be
sustained in any manner. It is now well-settled that interest
prior to the date of suit/claim (as contrasted to pendente-lite
interest and future interest) can be awarded in the following
circumstances :
(a) Where the contract provides for payment of
interest; or
(b) Where a statute applicable to the transaction/
liability, provides for payment of interest; or
(c) Where interest is payable as per the
provisions of the Interest Act, 1978.
10. In this case, the contract, that is the insurance policy,
provides that if the premium is not paid (after regularly paying
premiums for a period of three full years), the policy shall
subsist only as a paid up policy for a reduced sum (calculated as
per Table given in Condition No. (4) of the policy) payable on
the date of maturity or at the prior death of the life assured. It
does not provide for payment of interest on the premiums paid.
In fact, the operative portion of the policy specifically provides
that no interest will be paid. The relevant portion extracted
below :
"The Life Insurance Corporation of India \005 do by this
policy agree, in consideration of and subject to the due
receipt of the subsequent premiums as set out in the
Schedule, to pay the sum assured (together with such
further sum or sums as may be allocated by way of Bonus
in the case of ’with profits’ policies) but without interest,
\005to the person or persons to whom the same is payable in
terms of the said Schedule \005 This policy of assurance shall
be subject to the condition and privileges printed on the
back hereof\005"
(emphasis supplied)
Payment of interest on the premium amounts, from the
respective dates of remittance of premiums, is alien to the
concept of life insurance. In this case, the assured died on
5.12.1997 prior to the date of maturity. Therefore the reduced
sum as a paid up policy became due and payable without any
interest on 5.12.1997. The claim was settled by payment of
Rs.113,750/- on 26.3.1998, within three months from the date
of intimation of death. Therefore, under the contract, no interest
is payable by LIC.
11. Where a statute provides for payment of interest, such
interest will have to be paid in accordance with the provisions
of such statute. Admittedly there is no enactment, or rules made
under any enactment, either relating to contracts in general or
insurance in particular, which provides for payment of interest
in regard to amount payable under such a policy.
12. Let us now consider the provisions of Interest Act, 1978
(’Act’ for short) which deals with payment of interest upto the
date of suit/claim. The Act was enacted to consolidate and
amend the law relating to the allowance of interest in certain
cases. The objects and reasons states that the Act was enacted to
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prescribe the general law of interest in a comprehensive and
precise manner, which becomes applicable in the absence of
any contractual or statutory provision specifically dealing with
interest. Sub-section (1) of Section 3 of the Act provides that in
any proceedings for the recovery of any debt or damages, or in
any proceedings in which a claim for interest in respect of any
debt or damages already paid is made, the Court may, if it
thinks fit, allow interest to the person entitled to the debt or
damages or to the person making such claim, as the case may
be, at a rate not exceeding the current rate of interest, for the
whole or part of the following period, that is to say, --
(a) if the proceedings relate to a debt payable by virtue of a
written instrument at a certain time, then, from the date when
the debt is payable to the date of institution of the proceedings;
(b) if the proceedings do not relate to any such debt, then, from
the date mentioned in that regard in a written notice given by
the person entitled or the person making the claim to the person
liable that interest will be claimed, to the date of institution of
the proceedings.
Sub-section (3) of Section 3 makes it clear that nothing in
Section 3 shall apply in relation to any debt or damages upon
which interest is payable as of right, by virtue of any
agreement, or any debt or damages upon which payment of
interest is barred, by virtue of an express agreement. Clause (a)
of section 2 of the Act defines ’court’ as including a tribunal
and an arbitrator; clause (c) of Section 2 defines ’debt’ as any
liability for an ascertained sum of money and includes a debt
payable in kind but does not include a judgment debt; and
clause (b) defines ’current rate of interest’. Sub-section (1) of
Section 4 of the Act provides that notwithstanding anything
contained in section 3, interest shall be payable in all cases in
which it is payable by virtue of any enactment or other rule of
law or usage having the force of law. Sub-section (2) of section
4 provides that notwithstanding what is stated in section 3 or
section 4(1) of the Act, in the cases of money deposited as
security for performance of an obligation, interest is payable
from the date of deposit; and in the case of money payable by
virtue of a fiduciary relationship, money/property obtained/
retained by fraud and money due as dower/maintenance,
interest is payable from the date of cause of action. A claim for
interest on the amounts of premium paid, from the respective
dates of payment of premium to date of settlement of claim,
does not find support from any of the provisions of the Act.
13. Even assuming that interest can be awarded on grounds
of equity, it can be awarded only on the reduced sum to be
quantified and paid from the date when it becomes due under
the policy (that is on the date of death of the assured) and not
from any earlier date. We do not propose to examine the
question as to whether interest can be awarded at all, on
equitable grounds, in view of the enactment of Interest Act,
1978 making a significant departure from the old Interest Act
(of 1839). The present Act does not contain the following
provision contained in the proviso to section (1) of the old Act :
"interest shall be payable in all cases in which it is now payable
by law." How far the decisions of this Court in Satinder Singh
v. Umrao Singh etc. [AIR 1961 SC 908] and Hirachand
Kothari (D) by LRs. v. State of Rajasthan & Anr. [1985 Supp
SCC 17] and the decision of the Privy Council in Bengal
Nagpur Railway Co. Ltd., vs. Rultanji Ramji [AIR 1938
PC.67], holding that interest can be awarded on equitable
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grounds, all rendered with reference to the said proviso to
section (1) of old Interest Act (Act of 1839), will be useful to
interpret the provisions of the new Act (Act of 1978) may
require detailed examination in an appropriate case.
14. In this case, we have already noticed that the reduced sum
calculated as per the Table in Condition No. (4) of the Policy,
became due only on the death of the assured. No interest is
payable either under the contract of insurance, or under any
statute, or under the Interest Act, 1978 from the respective dates
of payment of premium to date of settlement of claim.
Therefore the District Forum, the State Commission and the
National Commission committed a serious error in awarding
such interest.
15. This takes us to the question whether the decision in
Harshad J. Shah (supra) lays down any principle of law that
LIC should pay such interest on the premium amounts, from the
dates of payment of premium, as assumed by the Consumer
Forum, State Commission and National Commission. We have
carefully examined the said decision and find that no such
principle is enunciated therein. In that case, one J. took out four
insurance policies on 6.3.1986 through a general agent of LIC.
The insured paid the first and second premiums. The third half-
yearly premium which fell due on 6.3.1987 was not paid within
the prescribed period. On 4.6.1987, the general agent of LIC
obtained from J a bearer cheque dated 4.6.1987 for Rs.2,730/-,
(being the half-yearly premium in regard to the four policies),
encashed the cheque through his son, and deposited the
premium with LIC on 10.8.1987. In the meanwhile, the insured
died on 9.8.1987. The widow of the deceased, as the nominee
under the policy, made a claim with LIC for payment of the
sum assured under the four policies. It was repudiated by the
LIC on the ground that the policies had lapsed on account of
non-payment of half-yearly premium which fell due on
6.3.1987, within the grace period. The widow of the insured
submitted a complaint to the State Commission claiming the
sum assured under the said 4 policies, namely, Rs.4,32,000/-.
The State Commission held that LIC was negligent in its
service to the policyholder and directed LIC to settle the claim.
On the other hand, the National Commission held that the
Insurance Agent was not acting as agent of LIC in receiving the
bearer cheque from the insured and therefore, LIC was not
liable. That order was challenged by the claimant before this
Court. The question that arose for consideration of this Court in
that case was whether the payment of premium in respect of a
life insurance policy 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. This Court
answered the said question in the negative. No other question
was raised or considered by this Court. Consequent to its
decision, the appeal was disposed of by this Court with the
following directions :
"For the reasons aforementioned, we are unable to uphold
the claim of the appellants. No ground is made out for
interfering with the decision of the National Commission
that Respondent 3 in receiving the bearer cheque for
Rs.2730 from the insured was not acting as an agent of the
LIC. But keeping in view the facts and circumstances of
the case we direct the LIC to refund the entire amount
of premium paid to the LIC on the four insurance
policies to Appellant 2 along with interest @ 15% per
annum. The interest will be payable from the date of
receipt of the amounts of premium. "
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[Emphasis supplied]
What requires to be noticed in that case, is that the default
having occurred after payment of premium for only one year,
there was no question of application of any ’non-forfeiture
provision’, nor was it permissible to treat the policy as
subsisting as a paid-up policy for a reduced sum. Therefore
nothing was payable by LIC under the policy. Consequently
there was no direction to pay any amount under or in pursuance
of the policy, nor any direction for payment of interest. The
claim based on the policy was completely rejected. This court
however found that a sum of Rs.2730/- had been remitted after
the death of the insured, which was not legally due or payable
to LIC. Therefore, it directed refund of the said sum of
Rs.2730/- wrongly paid as ’premium’ with interest from the
date of its payment. Therefore what was awarded was not
interest on any sum payable by LIC under the policy or in
pursuance of the policy, but interest on the sum of Rs.2730/-
which was found to have been remitted to LIC, de hors the
policy, on 10.8.1987, to retain which, LIC had no legal right.
The sum of Rs.2730/- though paid as ’premium’ on 10.8.1997
and referred to by this Court as ’premium’ for convenience, was
not really due to LIC as ’premium’ as the policy had lapsed and
the insured had died before that date. There was no claim for
refund of Rs.2730/- and the question relating to refund or
S.2730/- was not the subject matter of the claim. Therefore, it is
clear that the direction to refund Rs.2730/- with interest from
the date of its payment was not by way of elucidation of any
principle of law nor based on interpretation of any contractual
term. This Court while rejecting the claim in toto, apparently, in
exercise of power under Article 142, to do complete justice
between the parties, directed refund of Rs.2730/- with interest
from the date of its payment, on the special facts of that case.
16. As contrasted from Harshad J. Shah’s case (supra), in
this case the amount paid (Rs.1,13,750/-) is a contractual
liability of LIC under condition No.4 of the policy to pay a
reduced sum by treating the policy as a paid up policy, on
default. The award of interest in Harshad J. Shah’s case
(supra), being followed by the forum and commissions, is a
classic case of a direction issued by this Court in exercise of
Article 142 on the special facts, being wrongly interpreted as a
general principle of law laid down by this court.
17. We, therefore, allow this appeal and hold that the LIC is
not liable to pay any interest on the sum of Rs.1,13,750/-.
18. However, we find that the following order had been
passed on 7.8.2000 while granting leave :
"Learned Solicitor General has placed on record copy of
the communication received by the instructing counsel
dated 26th July, 2000, according to which amount payable
to the respondent, as per directions of the Consumer
Disputes Redressal Commission, have already been paid. It
is submitted that irrespective of the result of the appeal, the
amount which stands paid, shall not be sought for any
adjustment, in the peculiar facts and circumstances of the
case and no relief would be sought in that behalf against the
respondent. It is submitted that the question of law involved
in the case is of great importance and likely to arise in other
cases."
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In view of it, this decision does not render the respondent liable
to refund any amount already received in pursuance of the order
of the consumer forum, even though we have held that the
respondent is not entitled to any interest on Rs.1,13,750/-. We
may clarify the contents of this para is purely based on a
concession made on 7.8.2000.