Master Policy Holder Banks are liable for deficiency in service for failing to communicate insurance rejection to borrowers.

In brief

The question

1. Whether the complainant qualifies as a "consumer" under Section 2(7) of the Consumer Protection Act, 2019, in relation to the Petitioner Bank.

The court held

The complainant is a "consumer" and the Bank’s failure to communicate the status of the insurance proposal was a gross deficiency in service.

It also directed

The High Court declined to interfere with the concurrent findings of the District, State, and National Commissions, stating that the Petitioner failed to demonstrate any patent perversity or jurisdictional error required for relief under Article 227 and the writ petition was dismissed.

01Facts

The husband of Respondent No. 1 (complainant) availed a home loan from the Petitioner Bank. As part of the loan, a premium for the 'SBI Life Rinn Raksha Group Insurance Scheme' was deducted from his account to secure the liability.

¶ 2

The insurance company (Respondent No. 2) rejected the proposal due to non-submission of medical documents and returned the premium to the Petitioner Bank via cheque in May 2016.

¶ 3-4

The Bank failed to inform the borrower of the rejection or credit the refund to his account during his lifetime; the borrower died in January 2017.

¶ 7-8

The District, State, and National Consumer Commissions concurrently held the Bank liable for deficiency in service, directing it to clear the outstanding loan.

¶ 7, 8, 9

The Bank challenged these orders under Article 227 of the Constitution.

¶ 1

02Issues

i.1. Whether the complainant qualifies as a "consumer" under Section 2(7) of the Consumer Protection Act, 2019, in relation to the Petitioner Bank.

¶ 14

ii.2. Whether the Petitioner Bank committed a "deficiency in service" by failing to communicate the rejection of the insurance proposal and withholding the premium refund.

¶ 18

iii.3. Whether the High Court should interfere with the concurrent findings of the lower forums under its supervisory jurisdiction under Article 227.

¶ 22

03Law Applied

The Court applied Section 2(7) of the Consumer Protection Act, 2019, which defines a "consumer" to include any beneficiary of services hired for consideration.

¶ 15-16

It relied on Spring Meadows Hospital v. Harjol Ahluwalia regarding the rights of beneficiaries and Shriram Chits (India) Pvt. Ltd. v. Raghachand Associates for a liberal construction of the Act.

¶ 17

Regarding banking duties, it applied Canara Bank v. United India Insurance Co. Ltd., establishing that once a bank undertakes to facilitate insurance, negligence in doing so constitutes deficiency in service.

¶ 21

For supervisory jurisdiction, the court followed Shalini Shyam Shetty v. Rajendra Shankar Patil and Radhey Shyam v. Chhabi Nath, which limit Article 227 interference to cases of patent perversity or jurisdictional error.

¶ 23-24

Provisions in the judgment · 2 · Linked ones open on LawLens

Consumer Protection Act, 2019 Section 2

Code of Civil Procedure, 1908 Section 115

04Reasoning

The Court rejected the Bank’s argument that there was no "consumer" relationship, noting that the deduction of the premium as an integral part of the loan transaction meant the Bank provided a service for consideration, making the nominee wife a valid beneficiary.

¶ 16-17

The Court observed that in a Group Insurance Scheme where the Bank is the "Master Policy Holder," it acts as more than a mere conduit; it assumes an obligation to coordinate between the insurer and the borrower.

¶ 19-20

The Bank admitted receiving the refund cheque and rejection notice in May 2016 but failed to establish any attempt to communicate this to the borrower or credit his account until after his death in 2017.

¶ 18-20

The Court reasoned that this negligence deprived the borrower of the opportunity to rectify medical deficiencies and secure coverage, thus constituting a clear deficiency in service.

¶ 21