Gokal Chand (d) Thr. Lrs. v. Axis Bank Ltd. & Anr.
HRISHIKESH ROY, J.
Leave granted.
2. Heard Mr. Harshit Khanduja, the learned counsel appearing
for the appellants. Also heard Ms. Suman Bagga, lear ned counsel
representing the Max Life Insurance Corporation (respondent No. 2).
The first respondent is represented by Mr. Devendra Kumar Singh.
3. The appeal arises out of a home loan secured by the appellants
for which obtaining the life insurance in the name of Gokal Chand (now
deceased) was a pre-requisite, as set out by the Axis Bank (respondent
no.1).
4. The appellants project that respondent No. 1 bank acting as an
agent for respondent No. 2 Insurance Company, on 25.7.2017 sanctioned
home loan of Rs. 70,99,172/-. From the disbursed loan amount, insurance
premium of Rs. 6,24,172/- was paid on behalf of the insured Gokal Chand
by the bank to the insurance company. The loan account has since been
settled by the borrowers on 19.3.2020 during the pendency of the appeal.
5. Gokal Chand had faced a medical test on 30.7.2017 as a pre-
condition for securing the home loan and although,he died of ca rdiac
arrest soon thereafter on 8.8.2017,the respondent No. 2 refused to settle
the loan account when the insurance claim was made. Consequently, a
Consumer Complaint was filed by the appellants befor e the State
Consumer Disputes Redressal Commission, Haryana (for short “State
Commission”). The State Commission, however, dismissedthe Consumer
Complaint with the observation that there was no privity of contract
between the insurer and the insured.
6. The resultant appeal was dismissed by the National Consumer
Disputes Redressal Commission (for short “National Commission”) by
the impugned order which has led to the present appeal before this Court.
7. In the impugned judgment, it was noted that the Complainant
along with her husband, late Gokal Chand approached the bank for a
home loan for which the respondent bank had insisted that a life insurance
cover should be obtained from respondent No. 2 on the life of Go kal
Chand.The bank accordingly deducted a sum of Rs.6,2 4,172/-on
25.7.2017 towards the insurance premium.The insured Gokal Chand was
subjected to medical tests on 30.7.2017 and although he died on 8.8.2017,
the insurance claim was repudiated by respondent No. 2.
Counsel’s Submissions
8.1. Mr. Harshit Khanduja, the learned counsel for the appellant
would submit that the death of the insured Gokal Chand was intimated
on 16.8.2017 with a request to process the insurance claim, however,
instead of acting on the information furnished by the appellants, a letter
(purportedly dated 3.8.2017) was served on the appella nt with the
information that the proposal for insurance cover for Gokal Chand is
postponed by six months.The reason disclosed for postponement w as
“Treadmill Test Finding.”
8.2. The appellants have set up a specific case of the respondent
no. 2 ante-dating the purported letter indicating postponeme nt of the
proposal and unilaterally reversing/refunding the insurance premium, much
after the death of the insured was informed to the insurance company.
8.3. According to the appellants, both Forums failed to consider
the fact that the insurance company retained the insurance premium for
some time after the death of the insured on 8.8.2017 and retur ned the
same only after the appellant, on 16.8.2017, visited the bank for giving
information about the death of the insured. This was immediately informed
by telephone by the bank to the insurance company and to the insurance
company in the late evening of 16.8.2017 (date of death intimation),posted
an ante-dated letter (bearing the date as 3.8.2017 on it) whi ch was
received by the appellant on 17.8.2017. In the said letter, it was mentioned
that the proposal has been postponed for six months.On the nex t date
i.e., on 17.8.2017, the amount debited towards insurance premium was
unilaterally refunded and was adjusted in the loan account.
8.4. The contention here is that when the medical/treadmill test
result of the insured was normal, there was no reason to either postpone
or to reject the insurance policy when the payable premium was
ascertained and debited by the bank to the insurance company. I t is,
therefore, argued that the act of the insurance com pany was an
afterthoughttriggered only after the intimation of death and a request for
processing claim.Moreover, such an action was unreasonable and t his
would amount to malafide action.
745
9.1. Representing the insurance company (respondent No. 2), Ms.
Suman Bagga, learned counsel on the other hand submits that the proposal
was postponed by six months, and eventually the policy was decl ined
and the insurance company refunded the premium sum to the bank with
intimation to the appellant and therefore no concluded life ins urance
policy existed in this case.
9.2. Ms. Bagga, the learned counsel, therefore argues that the
respondent No. 2 is not bound to honor the insurance c laim since
notwithstanding the collection of the premium amount the policy was at
the proposal stage only. Moreover, unless acceptance of the pro posal
leads to issuance of an insurance policy, there can be no relationship of
insurer and the insured for a valid claim.
10.1. For the respondent bank, Mr. Devendra Kumar Singh,the
learned counsel while supporting the stand of the insurance compa ny
would submit that they had forwarded the proposal to the insur ance
company well before Gokal Chand died, and had already remitt ed the
payable insurance premium, and therefore the bank cannot be said to be
deficient in rendering service either to the Complainant or to the insured
(Gokal Chand).
Reasoning & Decision
11. As can be noted, the home loan document issued by the bank
to the applicant Gokal Chand (Annexure P-1) makes it a condition
precedent to obtain the life insurance cover for getting the home loan.
The relevant clause 4.1(k) reads as under: -
(k) comprehensively insure and keep insured, with th e Bank
as a sole beneficiary, (i) the Property for its full market value
or replacement cost, and (ii) whenever required by the Ban k,
the risk of death and injury of the Borrower, and
- shall assign in favour of the Bank and submit to t he
Bank the original insurance policy document(s) and
premium/payment receipts;
- Shall promptly inform the Bank of any loss or damage
to the Property due to any force majeure or Act of God;
- shall do all acts as may be required to maintain t he
Bank’s status of sole beneficiary (under the said
insurances) and receive money thereon;
GOKAL CHAND (D) THR. LRS. v. AXIS BANK LTD. & ANR.
[HRISHIKESH ROY, J.]
12. The applicant’s declaration in Loan Letter (Annexure P-1)
authorizing bank to disburse premium to the insurance company became
effective only when all the formalities as required by insurance company
were satisfied. The satisfaction of the insurance company’s necessary
requirements was a condition precedent,for disbursal of the premium,
as is clear from the following: -
“Opting for the loan amount along with life/propert y
insurance in the loan downsize letter shall be conside red as
the written intent of the customer to avail the insurance. Such
selection shall be considered to be explicit instruc tion from
the borrower to the bank in writing to disburse the premium
to the insurance company directly and will become effe ctive
only on the borrower complying with the all formali ties as
required by the insurance company ...”[Emphasis supplied]
13. While sanctioning the home loan, the respondent bank, debited
the premium amount from the sanctioned loan, and credited the same to
the account of the insurance company. This appears to be the business
arrangement of the bank and the insurance company. The policy
accordingly was issued by respondent No. 2 in the name of “Axis Bank
Group Credit Life Policy No. 35002367” .
14. The treadmill test undergone by the insured Gokal Chand on
30.7.2017, did not bring forth any health issue, as the extract thereof
would show: -
747
15. The reason for deferment is surprisingly shown as treadmil l
test finding, although, no abnormality as such was detected in the said
test report, as noted earlier. Yet,the insurance company disp atched an
ante-dated letter(written after getting intimation about the death of the
insured), informing about 6 months postponement of the proposal.
16. The above would suggest that the insurance company hurriedly
dispatched the ante dated letter, purporting to postpone t he proposal,
only after getting information about the death of Gokal Chand on
16.8.2017. Interestingly, even in this first ante-dated communication of
the insurance company, there was no mention of rejection of the proposal
or refund of the insurance premium (Rs. 6,24,172), remitted by the bank
to the insurance company on 25.7.2017 i.e., the date when the loan
amount was sanctioned.
17. The tracking details of the insurance postponem ent
communication of the respondent No. 2 sent through the Blue-Dar t
Courier reflects that the insurance company’s letter was dispatched only
at 19:38 hours on 16.8.2017. Significantly, there was no mention in this
letter, about the refund of the premium.Thereafter only on 17.8 .2017,
the premium amount was unilaterally returned by the respondent No. 2
to the loan account, followed by the communication dated 31.8.2017
purporting to decline the insurance policy for the housing loan, sanctioned
by the bank.
18. As earlier indicated, firstly, it was a pre-requisite for the home
loan borrower to obtain life insurance coverage and the records show that
the loan amount was sanctioned on 25.7.2017. On that very day, Rs.
6,24,172/- was remitted towards insurance premium by the bank to the
insurance company.This would suggest that all the requirements for the
policy as prescribed by insurance company were satisfied at that stage.
19. On 30.7.2017, the insured was called for medical examination
and Gokal Chand’s treadmill test,did not flag any health issue. In such
backdrop, the communication of the insurance company for postponing
the life insurance coverage by six months by adverting to the treadmill
test report and that too at a stage after intimation about the death of the
insuredto the respondents, appears to be a malafide act.Moreove r, the
decision by the insurance company declining the policy by unilaterally
refunding the insurance premiumin the given circumstances, would suggest
that the respondent No. 2 were deficient in rendering services t o the
appellant.
GOKAL CHAND (D) THR. LRS. v. AXIS BANK LTD. & ANR.
[HRISHIKESH ROY, J.]
20. The respondents, however, contend that there was no binding
life insurance contract between the respondent No. 2 and the appellant
and the learned counsel cited Life Insurance Corporation of India vs.
Raja Vasireddy Komalavalli Kamba and Others 1 to argue that
acceptance of an insurance contract may not be completed by me re
retention of the premium or preparation of the policy document.The
acceptance must be signified by some act by which the la w raises a
presumption of acceptance.
21. The ratio of above decision in LIC vs. Raja Vasireddy
Komalavalli Kamba (supra) was considered by this Court in D. Srinivas
vs. SBI Life Insurance Company Limited and Others 2, and it was
clarified that while there is no quarrel with the proposition laid in Raja
Vasireddy Komalavalli Kamba (supra), the former only laid down a
flexible formula for the court to see as to whether there was a clear
indication of acceptance of insurance. The forums below have blindly
relied on the same, and failed to take into cognizance the later ratio inD.
Srinivas (supra), which stressed on considering the unique facts of the
case to determine whether there is a presumption of acce ptance of the
policy by the insurer.
22. Thelatter was a case where a housing loan was obtaine d by
the complainant, his wife, and his son as joint borrowers and thereafter,
Rs. 78,150/- was debited from their account towards life insurance
premium for the home loan borrowers. The son of the complainant who
was covered under the insurance policy died of a heart attack and only
after the death, the insurance company informed that the policy was not
accepted, and this was followed by refund of the premium amount.
23. When the resultant complaint was not entertained by th e
National Commission and this was challenged before this court, Justice
S. Abdul Nazeerwriting for the Court observed, that when medical
examination is compulsory before acceptance of premium, it would be
logical to say that premium acceptance was based on medical
examination, and in a situation where premium is accepted, the pre-
condition of medical examination stands waived. In such circumstances,
a concluded contract governs the parties and when s uch claim is
repudiated, the same was held to be a case of deficiency of service in a
concluded insurance contract.
1 (1984) 2 SCC 719.
2 (2018) 3 SCC 653.
749
24. The following relevant passagesfrom D. Srinivas (supra)
which merit our endorsement in the present factsare extra cted below,
for ready reference: -
“10. It is clear from the above that the proposer was willin g
to join the life insurance coverage from the respon dent
Insurance Company subject to his undertaking medica l
examination and for his willingness he authorised t he bank
to debit his account for payment of the premium. This clearly
implies that medical examination was to take place p rior to
the premium being debited from the bank account of the
proposer. The specific condition in the policy is that in case
the loan amount exceeds Rs 7.5 lakhs the medical examination
was compulsory. If the medical examination was compulsor y
for such cases it should have been done along with filin g of
the proposal form before the payment of the premium. I f the
proposal was not accepted for any reason the premium would
have been credited to the account of the proposer. The premium
has been refunded after 23-2-2011. From this, it is clear that
the Insurance Company had not rejected the proposal before
23-2-2011.
***** ***** ***** *****
12. …The insurance contract being a contract of utmost good
faith, is a two-way door. The standards of conduct as expected
under the utmost good faith obligation should be met by either
party to such contract.
13. From the aforesaid clause, it may be seen that the
condition precedent for acceptance of the premium was the
medical examination. It would be logical for an underwr iter
to accept the premium based on the medical examination and
not otherwise. Therefore, by the very fact that they acc epted
the premium waived the condition precedent of medic al
examination.
14. It is an admitted fact that the premium was paid on 29-9-
2008. That it was only on 18-1-2011 that the respon dent
Insurance Company informed the appellant that the p olicy
was not accepted by them. We are unable to fathom the reason
for such excessive delay in informing the appellant , which
GOKAL CHAND (D) THR. LRS. v. AXIS BANK LTD. & ANR.
[HRISHIKESH ROY, J.]
cannot be excused. We are of the opinion that the rejection o f
the policy must be made in a reasonable time so as to be fair
and in consonance with the good faith standards. In this case,
we cannot hold that such enormous delay was reasona ble.
Moreover, it is borne from the records that the premiu m was
only repaid on 24-2-2011, after a delay of more tha n one
year five months. If we consider above aspects, it can be
reasonably concluded that the insurer is only tryin g to get
out of the bargain, which they had wilfully accepte d. From
the aforesaid circumstances we can easily conclude tha t the
policy was accepted by the insurer.
15. In the circumstances, there is no reason to believ e that
there was no complete contract. There is clear presu mption
of the acceptance of the proposal in favour of the pro poser.
Therefore, the majority view of the Commission woul d not
sustain.”
25.Guided by the above judgment in like circumstances, the latter
ratio is applicable to the facts at hand. Though, we acknowledge t hat
there is no excessive delay in the current case between me dical test &
repudiation unlike in D. Srinivas (supra),where the period was over 2
years, what needs to be focused upon in the interest of justice is the
trigger & surrounding circumstances which led to the rejection of proposal
by the insurance company.In that light, the conduct of the respondent
No. 2 cannot be countenanced against the good faith standards that an
insurance contract warrants. In this case, the pre-condition for the home
loan as stipulated by the respondents was that life of the borrower will
have to be insured. Only after assessment of the applicant’s credentials,
the loan was approved. When the loan amount was sanctioned, th e
premium amount was kept aside and was credited to the insurance
Company and the insured was subjected to a medical test which showed
normal health status. Thus, premium was accepted and retained for the
life insurance and no change of this position was found necessary even
after the treadmill test result of the insured. This entire procedure would
suggest, at least from the insurer’s perspective, that the insurance process
was complete & all mandatory requirements were met. Significantly,there
was no contrary communication by the respondent No. 2 indicating
otherwiseas well. Moreover, when the death information was conveyed
to the respondents, most surprisingly, that was the trigger that led to the
751
insurance company to issue a back dated letter deferring the insurance
process, which was followed by refund of the premium a few days later,
and then the repudiation after that.
26. The case at hand shows clear malafide on the pa rt of
respondent No. 2 in the manner they dealt with the insurance policy,after
learning of the death ofthe insured person on intimation from the affected
persons. The way the issue was addressed by the respondent No. 2
following the information conveyed does fail,in our opinion,the test of
Reasonable Conduct. On top of that, to cover up their late reaction,most
tellingly, the ante dated letter under the garb of an unfounded medical
reason was dispatched.These in our opinion, amount to a clear case of
deficiency of service and a non-bonafide conduct by the respondent
no.2. The contrary finding in the impugned order do not pass our judicial
scrutiny.
27. We are, therefore, persuaded to conclude that the impugned
judgment is unsustainable and the same is set aside. With this order, the
appeal and the complaint stand allowed. The respond ent No.2 is
accordingly directed to process the complainant’s insurance claim and
remit the payable sum. The parties to bear their own costs.
Divya Pandey Appeal allowed.
(Assisted by : Roopanshi Virang, LCRA)
GOKAL CHAND (D) THR. LRS. v. AXIS BANK LTD. & ANR.
[HRISHIKESH ROY, J.]