i . c UJ'E INSURANCE CORPORATION OF INDIA v. RAJA VASIREDDY KOMALLAVALLI KA MBA & OTHERS March 27, 1984 f.\1. BALAKRISHN!' ERADI AND SABAYASACHI MUKHARJI, JJ.] Insurance Law~ Contratt of lnsuran-ce.:;_P,rOpoJa/ an(!. acceptanre-lnsli.red filling up the proposr:il for .insurance for Rs. 50,000 on 27. f2.!960 and after 'under- gofffg-tnedical exa111ination rm the same d;te issues two cheques of. Rs. 300. and Rs. 210 towards cotisideration Dy w~y fir"st p'emium-Thi-Jnsuran_ce .Corporation· encash the cheques 011 1 J. I .196/ and the insured dies on I 2~1.1961~ Whethur there is a co11cluded contract ·of fnsl1ra11ce-When is. the acceplance said to be con1plete in Cases of contract of 1!1surance-C(}nfrac( Act, Sect(ons 2(h) and 4: ·One Lare Raja: Vasireddi Chandr-a Dhara. Prasad died intest::1te on 12th January, 1961.
He had fil.led a propo.;;·a1 for i{lsurance ·for Rs. 50,000 cry 27th December 1960. There was medical examination by the. doctor on the life of the deceased on 27th, D.ecembcr, ]960. The deceased issued two ch!qu:s being the consideration. ·!award'> tho! first premium f0r Rs 300 and.Rs. 220 respecti- vely which. were cncashed by the appellant on 29th Decembe~ 1960 and 11th Ja.nuary1I96!. On 16th January, 1961," the widow of the deceased wrote to the appe11ant iiitint<lting the deatl\ of. the deceased and de1nanded payment cir Rs. so;ooo: The Divisi;Oal Manager, Masulipat~m Branch denied liabilit)i" on behalf of. the ·"appelJant .on 28lh January~ l961. Thereafter·there was cones~ pondence between the parfies between 1st February 1961 and 23rd December 1963 .. On ·10th Janl:1ai:y. 19.64, th~ . respo.:ident5 filed a suit in the Court of Subordin~e Judge,· MaSUliIJi,tam. The trial court dismissed the suit holding, interalia 1 that there Was no .conclud.:d contra"ct, th.at. the Proposal was not. accepted by the Divisional Manager· for so·me reas6n or the other by the time the decea~d.had died,. that neitiler the encashmen~ of the two Cheques crea-ted a contract of ins.ura.1ce. In appeal, the High Caurt aft~r ordering c_eqain other. additional documents set aside t:1e Trial Court Judgment. He.nee the
appeal by the Corporation after .obtaining thi! s'p.:cial leave. ~ · Allowing the.appeal, the Court ' HELD ; f. Havin'g regar2f to the clear position in law about acceptance of insu.rance proposal and the evidence of record in thi'> case, it is. clear ·that the, ·• High CQurt was in· error in coming to th~ conclusion that ther!!. was a ~on-. ·eluded contract
of ·irisurancc between th.: d~c_eased and the Life I11surance. '"f..- Corporation. [360D'E] ·? .. '(hough in certain human r-elatipilship silence to a pfoposal n1i-ght L.J.C. v. R.V. KA!\IBA
convey acceptance ~ut in the ca"se of insurance proposal, sil~nc~ docs not denote consent and· no binding contract arises until the person to \Vhom an offer is · made 5ays or does something to signife' his _acceptance.
Mere delny in giving 3R an'i\Ver canilot be const(ued.as an acceptance, as, p-rin1a facie, acceptance must be communicated to the offerer. Thi! general rule_ is that the contract of insurance will be concluded only wh.:n -the p1rty to whorr1 an off:r has been n1ade ·accepts it unconditionally and con1municate-; his acceptance to the per- – son-making the 9ffer.
Wbe~her the final ac:;eptance i'i- that of the assured or insurers, hOWC\.'Cr, d~pCnds sfrnply :on the way in which negotiations for an insurance hilv~ progressed. [359H, 360A-B) 3 : 1. When an· insurance policy becon1es- effective is v.'Cll-scHled by the authorities bufit is clear that the eApressio:i "underwrite" sig1;1ifics accept 1ia- bility unOer that. The. dictionclry meaning a.lso indicaies that. lt is true 1l1at normally the expressi.on "uod~rwrite" is used in ivlarine insui:ancc bu~ 'the expression used in Chapter Ill of the Financial Powers of the S1a·nding Order in this casi; specifically used the expl-cssiOn 'funder … riting and rev iYals" of policies in case of Lifo Insurance Gorj1oration and stated 1l~at it was. the Divisional Manager who \vas Competent to uil.derwrite policy for Rs, 50,000 iJnd al~ove. [3598,-D]
c 3 : 2. The mere receipt and retention of pren1ium until after the death of the applicant or the mere preparation of the policy document is n·ot acceptance; Acceptance 1nust be signified by some acts or acts agreed on -by the parties of from which the law raised a presumption of acceptance. [359D~E) 3 : '3 'rn th~ instant case, the Iiigh Cuurt was in error in coming to the• foUowing conclu.lions ;
(j.) that there was not sufficient P_leading that there w1s no concluded contract_. and pun acceptance of the proposal 'vas not sufficieit averrpent ,.that the Divisional Manager ~as the only competent authority to accept the propo· sal; (ii) in its view a.bOut the pow_i.!rs of the diff~rent authorities under Chapter III of the Standing Orqer· 1950_, dealing with the financial po,wers ; (iii) about the-view that the Assistant Divisional Manager having accepted the proposal and (;·~) about the assurance given by the Field Officers that the acCeptance of the-first premium would auton:iatically . create a concluded contract of insu· r~nce' j358E-H]
_The Coun however directed half the amJunt of the insurance amount of ·Rs. 85,000 paid to the Re~pondents to be·refunded to the Corporation. [360F·G] CIVIL APPELLATE JURISDICTION : Civil appeal No. 2197
From the Judgment and Order dated 16.4.70 of .Andhra Pradesh High, Court in appeal No. 4)1 of 1965. Dr. YS Chitale, V. G. Shanker, KL.Hathi, Ms. Sadhana, DK Chhaya, MK Arora and Mrs. H. Wahi for the appellant.
SUPRl!MI COURT RSPORTS. [198"4]3 S.C.R. T. S. [<riJhnamoorthi Iyer, K~. Choudhry and KS. Choztdliary . for \he respondents: The Jtidgment of the Court was de!iv~red by SABYASACHI MUKHARJJ, J. This appeal is by ·a certificate
granted on 18th September, 1970 .bY the f:!igh Court of Andhra Pradesh under Articl'e 133(1) (a) of the Constitution as ft stood at the relevant time against the Judgment and decre~ of the. High Court dated 16th April_, 1970. – By the said Judgment' and decree, the· High Conrt ·of Andhra Pradesh had .reversed the Judgment of the :learned Subordinate Judge, Masulipaiam dated 19th November, 1964 di·smissing the suit of the plaintiffs-respondents · agaiast the . appellant. Late Shri Raja Vasireddi Chandra Ohara Prashad was ·the husband. of respondent No .. I and father of the respondents No. 2 to. 5 herein. The respondents filed a suit in the_Subordi- rtate 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 Ohara 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 fo.r Rs. 300 and Rs. 220 respectively in favour of the appellant as first premium.
Cheque for '[ls. 300' was · encashed· by the .appellant on 29th December, 1960. ·Cheque for Rs. 220 was dishonoured three times and finally encashed on 1 Ith. January, 1961. As mentioned hereinbefore, the deceased died on the day following i.e. on 12th January, 1961.
On 16th January, 1961, the widow o(the d.eceased, .respondent No. 1 ·herein, wrote ·-G · to the appellant intimating the death of the deceased and deroah- ded payment of Rs. 50,000. The Divisional Manager, Masulipatam Branch, 'denied liability on beh'alf of the appellant Corporation on 28th January, 1961. Thereafter there was correspondence between . the parties between !st February, 1961 to 23rd' December, 1963 wherein the respondents-plaintiffs had claimed the payment and the app.eliant had denied liability fov the s;ime.
_, L.1.c. v. R.v. KAMBA (Mukharji, J.) On the 10th January, 1964, the plainfiffs'filed the smt rn the .court of Subordinate Judge, Masulipatam. It was alleged in the plaint after setting out the facts which have been set out herein· .before, that the medical examination repott was submitted to the .J1ppellant-corp3ration 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 prelimitiaries werecompleted ani;I it was further alleged that the deceased was assured.and told by the. local agent and the Field Officer of the Corporatioh that the paym~nt of the first premium wou.ld amount.to the acceptance of tho proposal and advised the deceased to pay the first premium in full. It was, further, st!ted that the said two cheques were ehcashed 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 en- .cashing the cheques and crediting. the amounts in its accounts accepted the proposal of -the deceasea. In the premish it was said fo the plaint that there was a concluded. and valid insurance cont· .ract between the deceased and the appellant-Corporation and that the ins.urance contra'cted commenced on I Ith Janurary, 1961 being the date of the receipt of the balance towards premium by the Cor.poration. It was further stated in the plaint that· the Office of -the. Divisional Manager of Masulipatam was the concerned autho- rity 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 cont- -ract between the deceased and the Corporation, was untenable, according to. ilie plaintiffs. It was alleged that with full knowledge . pf the completion of all the preliminaries, the Corporation had encashed the cheques issued towards the first premium and. there- .fore it was the case of the plaintiffs-respondents that the enc,ashment ,of the cheques amounted in those circumstances In law to an .acceptance of the proposal of the deceased. It was further alleged 1hat 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 ·!hat in . this case the first premium was not only received by the Corporation completely _on I Ith January, 1961 but it was als& . _J!ppro.priated by it in its accounts and the said premium amount c
SUP,REME CQURT REPORTS . (!984] 3 S.C.R,;. . A. was re.ceived by t)le Corporation without any demur or qualifica-· tion and th.at in any event t11e ·Corporation must be deemed tc> have Waived by it.s conduct tlie formality, if any, of sending co"" t
,D mrnunication of its acceptance of the proppsal. In the premises, th~ plaintiffs claimed the said amount along with il)terest at six per .cent per annuin from the date of refusal of payment till th~ dat~ or payment ofthe demand.
Written statement was filed on .behalf of the appellant. Jn, the said written statement, after setting out the facts, it was denied . . that t11e payment of the first premium amounted to acceptance of the proposal and the allegation about the assurance given to the dece~sed as alleged° in the.· plai11t was not true nor the alleged assurance.i( any, valid und.er law. It was, futher stated that the two cheques were not e11cashed and credited towards the premium . . account of .the proposal· b.ut these were kept only· in deposit in su~pense account without any tiability of the appellant. · It was. further stated that tb.e averments in' the plaint· that the defendant Corporation cashed the above tw0 cheques and appropriated the.. am9unts and credited these. Jn the account towards premium pay- able for the proposal were false. It was stated that on the death of the.deceased;· the amount covering two cheques were lying in the deposii and in the suspense account of the Corparation· 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 tho$e circumstances, the appellant Corporation cktime<i that there was no liability for the risk and as such the . plaintiffs ·had no right ti> claim and there was no cause of action. It was categorically stated that the cheques were not' credited and adjusted towards· the. prelliinm accounts..
'During the trial before the learned Subordinate Judge, five- difl:eient issue~ were raised. It i.s not necessary to set out in detail those issues but the important and main issue was wh)!ther 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. Bhupa\a Prasad, son of the deceased and the Corporation on its beh<tlf exa- mined Shri Jagannadhacha1{ the Superintendent of the Corpo- '_,
L.I.C. l'. R.V. KAMBA (Mukhar)i, J.) 355· ration branch at Guntur. · He also produ'ced ex. B-4, the revi~w. · slip, prepared by the Branch office, Guntur and. sent to the Divi- ,;ional Officer, Masulipatam. ln 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 t'ime for the Divisional Maoage19to accept. There was no communication from the DivisioQal Office \o the Branch Officer acc~pting the proposal. He, further, stated that the amount would be transferred into t.he first premium register after the propos~l 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. Sbri Brahmandrao Ramiah, Assitant Divisional ~anager .of
the Ufe Insurance Corporation office at Madras was also examined as the second wit!IW!;s of the defendants. He had further stated that the proposal form was S\'nt.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 accord.ing 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 Standin.g 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 i'lay 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 0.R." WITH E.D.B. Shri Jirahmandrao Ramiah had further stated that the papers were scrutinised by him in addition to the scrutiny by the con- cerned clerks.
He stated that the endorsement marked as Ex. B-14 was initialled by him. He further· stated that ·the Jetiers 'DM' were a'lso written by him indicating that the papers should go to the Divisional Manager on Ex. B-4.
H.,e 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 wes no r,equirement necessary and if the full first instalment was c
1l lE. SUPREME COD.RT REPORTS in deposit, it would be adjusted· towards premium amount, he state·d. In this connection. before the learned Trial Judge, "reliance was placed on the Life Insurance Corporation •f India Standing Order, 1960 (Financial Powers).
Chapter Ill of the Sta11\iing Order dealt with the powers of the different authorities for, inter alia, 'Underwriting aod Revivals of ·Policy'; The relevant portion of th~ said Standing Order read as follows :-
"Nature of P_ower l. Underwriting ·and Revivals: (a) Standard lives and re- viva! on original terms Authority Extent of Finaiz- cial power (up to · ~ and· Including) Section Head Supdt or J.O.
A.S.O. A.D.M: D.M. Rs. 2,000 5,000 10,000 25,000 1,00,000 (Sum Proposed) ·do- -do- j -do· -do- Note: Proposals·on standard lives for mor,e than Rs: 1,00,000 should be refe~rcd to the Central Underwriting Section."
Learned Subordinate Judge by his judgment_ dated 19th f ]\!ovember, 1964 held that there was no concluded cqntract. He held . that as per" the pro1;pectus of Life Insurance Corporation oflndia the risk under the Corporation policy commenced on th~ date of receipt of the first permium in full or the date of acceptance which· ever was later and the scconJ instalment . of the premium falls due · 0~ a date calculated from such date of commencement of risk. Learned Trial Judge was of .the OJ1inion that the documents in this case. coupled with evidence on. behalf of the Appellant-Corporation est~blished that the proposal sent by the deceased was for SOfl\e reason , -1~
L.kC. v. R.V. l(AMBA (Mukharji, J.) <0r other not accepted by the Divisional Office by the time the decea- $ed 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 1hat 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, cbim was· that it should be. deemed to have been accepted . Considering the evidence.and the averments, the Learned Su'bordi- nate Judge came to the con.clusion 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 aqy 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 ofihe opinion that the proposal must be accept- .ed by the Divisional Manager and that alone cquld give rise to a valid contr.act of insurance which never happend 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 nev'!!r amount. to the acceptance oft.he 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·respond~nts 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 th" present case and statements furnishea by the Divi- sional Office to the Zonal Office showing the new, business in the year 1960 and proposal register work of Divisional Office for the year 196Q.
The High Couri. directed the Life. Insurance Corporation to produce the documents referred to above. The High Court by its judgment dated 14th April, 1970 held after con~idering the sta~d ing order Ex. B-13 and the various documents produced for .the ;first time on record that there was acceptance of proposal and like ·B
35& SUPREME COUKT 11.EPCRTS [I 984] 3 s.c.R.: -Other contracts, the contract of insurance ·was complete by offer ancl . acceptance, , In coming to –this:.£anclusiori · tJie High Court relied'. on the alleged-adjustment and the 'endorsement of the review slit> 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 Div.isional Manager· inade ·similar endorsement, the Higl:J .Coµrt came; to the condusioll 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 i~ the written statement filed on behalf of the Corporation. On the- other hand, there was a general statement that there was no conclu- . ded contract, The High Court was of the view that having regard! to the conduet of the parties, there was a concluded contract.. The High Court took the view that Ex, B-13 dealing. with Chapter !Hof the Financial Powers did not categorically deal with the ac~eptance 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 avermenl in tbe written statement that there was not sufficient pleading that there ~as no con'cluded • contract and non-acceptance of the proposal was not sufficient 'averment that the Divisional Manager was the only competent authority to accept 1be proposal. The. High Court, in our opinion. was also wrong in its view about the powers of the differenl autho- . rities under Chapter JII of the Standing Order, 1960 dealing with the financial .powers. Indeed there was. no evidence that the Assistant Divisionai Manager had accepted the proposal on the contrary he in bis deposition as we have indicated before had stated otherwise. He bad stated that the purpose of review slip was to enable the Divisi- onal Manager to asses the risk and take a decision.· He had never stated that he bad taken a decision to accept the proposal. The allegaiion that there was assurance on behalf of the field officer and local agent to the deceas<;_d that the payment ;,r first premium would amount to the acceptance 6f the proposal can.not ~!so be accepted • firstly because factually it was no.t proved and secondly becaus~ ..,.
L.I.C. v. R.V K,\MBA (Mukharji, J.) there was no evidence that such could have been the deposition in 1aw. When an insurance poEcy ,becomes effective i1 well-settled by the authorities but before we note the said authorities, it may be 'Stated that it is· clear that the expression ·'underwrite" sig!1ifies· "accept ·liability under'.
The dictionary m;aning 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 insuranc~ but tl1e expres.sion used in Chapter III of t1'e ·Financial powers of the Standing Order in this case specifically used 1he expression "ii°nderwriting 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 aj>ove.
The mere receipt and retention of premium until after the .death of the applicant or the mere preparation of the policy docu- ment is ~ot acceptance. Acceptance must be signified by some :act or acts agreed on by the parties or from which the law. raises n presumption of acceptahce.
See in this connection the· statement of law in Corpus Juris SecundJlm, Vol. XLV page 986 wherein it has bee,n stated as:- . "The merneceipt and retention of premiums until . ·after the death of applicant does not give rise to a contract, alth9ugh the circumstances may be sue!\ thatapproval could be inferred from retention of the premium. The mere execu- · · .tion of the polic;y is not an acceptance ; an acceptance, tp be ,complete, must be communicated to the offeror, either direi:t- 'ly, or by some definite act, such as placing the contract in the mail. The test is no! intention alone. When the applica- tion 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. c
SUPREME COCRT REPORTS (1984) 3 S.C.R, the per~on to ·whom· an offer js m;de says ·or does something to . . signify his acceptance. Mere delay in giving an. answer caiinot be construed as an acceptance, as, primafacie, acceptance must be communicated to the offerer. The general rule is that the contract of insurance will be concluded only when the party to whom an offer bas been made accepts it ·unconditionally and communicates his acceptance to the person making the offer. Whet.her the final accep- tance is that of the assured or insurers, however, depends simply on ' the 'YaY in which negotiations for an insurance have progressed. See in . this connection statement. of law in M acGil/frray & Parkington on Insurance Law, Seventh Edition page 94 paragraph its. Reference in this connecfion may be_ made to the Statement of law in Ha/sbury's Laws of England 4th Edition in paragraph- 399 at pa~e 222.
1> Having regard to the clear position in law about acceptance ~f insurance ptoposal and the e\iiden'ce on record in this case, we are, therefore, of tbe opinion that the High CQurt 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 oh· that basis reversing the judgment and the decision of the _learned Subordinate Judge.
-_ The appeal must, therefore, be allowed. We however record 1 that in view of the fact that sµch 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 bis childern, •the Life insurance Corpbration in this case does not insist on .the full repayment of the sum paid and counsel on behalf oftbe 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 b~ck te> the Corporation. We order accordingly that the respondents wil~ G · therefore pay back half of the actual 'amount rece!ved both ·of the principal together with interest within three months frorn this date. • .H
In the f~cts and. c,ircumstances of the case there will be ne> order as to costs in this Court. With the above observations, the· appeal is allowed . S.R .• Appeal al/owid • -,…
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