NATIONAL LAW UNIVERSITY ODISHA, CUTTACK

Project in

Law of Contract - 2

Chairman L.I.C v. Rajiv Kumar Bhaskar , 2003 ACJ 86

SUBMITTED TO- SUBMITTED BY-

Sonal Singh Harsh Wardhan Meena (19BA051)

(Faculty Of Law Of Contract – 2)

Megha Sadhu ( Research Associate Cum Teaching Assistant)

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Chairman L.I.C v. Rajiv Kumar Bhaskar , 2003 ACJ 86

FACTS:

In the case the appeal raised from the earlier judgment and order of a learned single Judge

of the same Court allowing the writ petition of the sole respondent i.e. Rajiv Kumar

Bhaskar with a direction to Life Insurance Corporation of India (L.I.C.), to pay the sum

under the insurance policy with interest at the rate of 12 per cent per annum from the date

of death of employee and costs of Rs. 5,000.

The case under which writ was filed earlier who is the respondent here, stated, was that

respondent’s father late Upendra Sharma was a Lecturer in Ram Lakhan Singh Yadav

College, Aurangabad. In the year of 1992 he insured his life under under the ‘Salary

Savings Scheme’ for Rs. 1,00,000. According to the scheme the amount of premium was

to be deducted from his monthly salary by the college and deposited with the Aurangabad

branch of L.I.C. Upendra Sharma died due to heart attack on 9.7.1996. On 10.9.1996 the

respondent i.e. his son claimed for the payment of the amount and submitted the required

papers in the branch office. As the college authorities had not deposited the premiums of

December, 1995 to July, 1996, respondent deposited the amount due, summing Rs. 6,040,

with the college on 5.11.1996 which was forwarded to L.I.C. on the same day. Further, no

action was taken on the claim, on 20.12.1999 the respondent functioned legal notice & on

24.1.2000 he functioned another notice. By letter dated 2.2.2000 he was intimated by the

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Additional Executive Director of the L.I.C. that the matter had been taken up with the

Aurangabad Divisional office and the claim will be decided soon. When no decision was

given to the respondent moved towards the District Forum constituted under the Consumer

Protection Act with a complaint but the said complaint too was not proceeded further due

to non-fulfilment of quorum as the President of the Meeting had not been appointed. When

no direction was founded out the respondent moved into the Court in the connected writ

petition, looking for direction upon L.I.C. to settle the death claim and pay the amount of

insurance with suitable interest.

L.I.C. in the counter-affidavit submitted didn’t denied that Upendra Sharma had taken life

insurance policy for an amount of Rs. 1,00,000 beginning from 20.3.1992 under the Salary

Savings Scheme. Agreeing to it, however, the employer was responsible for deducting the

premium amount every month from the salary and submitting the same to it, it was the duty

of the guaranteed person to ensure payment of premium under the policy. The amounts of

premium outstanding for the period December, 1995 to July, 1996 were deposited only on

6.11.1996 which further proved that no premium was paid for the aforesaid months and it

was only after the death of the assured that the payment was made by the respondent from

his own cause. The policy did lapsed, the respondent was not entitled to the sum assured,

excluding the paid up value of the deposits, i.e., Rs. 31,800 which L.I.C.was ready to pay

with interest at the rate of 9 per cent per annum, moreover, refund of the amount deposited

on 6.11.96 i.e., Rs. 6,040.

As per L.I.C salary saving scheme the employer was to deduct the premium from the salary

of the employee and deposit with L.I.C. All the related procedures were the accountability

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of the employer. Upon death of the concerned employee, the successors found the employer

had defaulted in payment causing policy to lapse. L.I.C relied on a clause in the acceptance

letter by the employer which said he would act not as the agent of L.I.C but as an agent of

his employees.

ISSUES RAISE

ARGUMENTS RAISED

ARGUMENTS RAISED FROM APPELLANT SIDE :-

The appellant contended that it was briefly stated in the policy and was conveyed to the

employer that in the event of non-payment of premium either by employee or employer

that would result in lapse of the policy and only the amount which have been submitted

by the way of premium would be returned back to the assured at the decided percentage

of interest.

CONTENTIONS:

L.I.C: As the policy was in the name of individual employee, in the event of non-payment

of premium either by employee or employer, would result in lapse of the policy.

HELD:

• The Court held that, the method of collection of premium was indicated in the Scheme

and the employer was already assigned the duty of collecting premium and forwarding

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 the same to L.I.C. As far as the employee as such is concerned, the employer will act

as an agent of L.I.C. It is a matter of common facts that insurance companies employ

agents. When there is no definition of insurance agents in the regulations and

the Insurance Act, the universal principles of the law of agency as contained in

the Contract Actare applied.

• The submission made by the Counsel for the appellants, referring to the famous case of

Basanti Devi, 1999 CCJ 1465 (SC), under which the employer failed to deposit the

premium without information to the employee. In the present case as salary was not

paid to Upendra Sharma from December, 1995, it was to be presumed that he knew

about the non-deposit of the premium, for the premium could be deposited only after

deducting the amount from the salary and where salary itself is not paid there is no

question of deduction and, as such, the question of deposit does not arise. This was the

only difference in the fact-situation between Basanti Devi’s case and the present case.

The question was whether in this situation L.I.C. can be permitted to deny its liability?

The Court opined that this does not substantially change in the legal nature of the

employer, college in the present case, as an agent of L.I.C. merely because the salary is

not paid on time to the employer. The scheme didn’t expected that in such a situation

the employee could hurry to the needed Branch and pay the premium to discharge the

liability of the consequence of the nonpayment.

• The Court by considering that the Corporation did not make any express offer to the

employees neither did make any communication with them regarding payment or non-

payment of the premium or any other matter in relation to the policy and the incapability

of the employee to approach the Corporation directly, show that they treated their

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 employers as ‘agents’ of the Corporation and the employer had a important role to play

in this whole matter. Additionally, even the terms and conditions of the policy were to

be completed only through the employer. This only points to the fact that the employers

would be the agents of the Corporation.

• Furthermore, The Court held that when the existence of an agency bond would help to

resolve an individual problem and the fact authorizes a court to settle that such a bond

existed at a measureable time, then whether or not any express or implied consent to

the formation of an agency may have been given by single party to another, the Court

is authorized to conclude that such bond was in existence at that time for the matter in

question.

• Thereafter, it was seen that the college failed to pay the premium caused by the failure

to pay the salary was common and applicable to all the employees who had enrolled to

the scheme, the respondent’s father only was not supposed to inform L.I.C. that the

salary was not being paid, therefore, as a result he thought that the deductions were not

being made and the premiums were not being deposited. The Court proceeded with the

lines that “it is a usual phenomenon in the State of Bihar that the salary is not being paid

regularly to the employees in various organizations including public undertakings and

Universities, but on that ground the scheme has not been withdrawn by L.I.C. so far.”

• Thereafter, the Court concluded that “according to the terms and conditions of the

policy, like any insurance policy, premiums were supposed to be paid on time. But it

was outward that in the case of college and all such other organizations, which have

subscribed in to the Salary Savings Scheme, L.I.C. had been accepting delayed payment

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 for several months. This simply amounts to waiver. In the present case, the problem

raised due to the death of the respondent’s father, if he had not died, the situation would

not have risen. The consequences could had been be different only because in the

meantime one of the employees died giving rise to the claim. In the opinion of the Court,

till the scheme is taken back or the employee quits the employment and concludes to be

in employment of the employer, the employer be going to remain responsible for

making deductions from the salary as and when the salary is paid to the employees and

for the defaults done by him, the L.I.C. can’t flew away from the liability under the

Scheme. The Court accordingly held that the case was fully covered by the relation of

the decision in Basanti Devi’s case, 1999 CCJ 1465 (SC) and L.I.C. became liable to

pay the sum assured under the insurance policy”.

.LAW POINTS:

Express Authority

Express authority is given by the Principal to the agent by express words, spoken or

written.

Implied Authority

Implied authority is that which is inferred from the conduct of the parties, or from nature

of the employment. Divided into four types:

(i) Incidental authority- authority to do that which is ordinarily or necessarily

incidental to the due performance of the express authority.

https://indiankanoon.org/doc/243525/

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 (ii) Usual authority- authority to do whatever is done by persons occupying

positions in particular trades or businesses;

(iii) Customary authority- authority to act in accordance with the custom and usage

of the place where agent acts and

(iv) Authority derived from the circumstances of the case, the Residuary category.

https://indiankanoon.org/doc/1733066/

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