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CASE NO.: Appeal (civil)  5322 of 2007

PETITIONER: P.C. Chacko and another

RESPONDENT: Chairman, Life Insurance Corporation of India and others

DATE OF JUDGMENT: 20/11/2007

BENCH: S.B. SINHA & HARJIT SINGH BEDI

JUDGMENT: J U D G M E N T (Arising out of SLP (C) No. 23951 of 2005)

S.B SINHA, J.

1.      Leave granted.

2.      Application of Section 45 of the Insurance Act, 1938 is in question in  this appeal which arises out of a judgment and order dated 17th December,  2004 passed by a Division Bench of the High Court of Kerala at Ernakulam  in A.F.A. No. 18 of 2000 setting aside the judgment and order of a learned  Single Judge dated 23rd September, 2000 passed in Appeal Suit No.633 of  1993 confirming the judgment and decree passed by the Subordinate Judge  of Kozhikode in OS No. 240 of 1990 dated 27th February, 1993.

3.      Plaintiffs in the suit are the appellants herein.  They filed the said suit  inter alia for recovery of the amount of insurance on the death of one  Chackochan (hereinafter referred to as \021the insured\022).  The insured took an  insurance policy on 21st February, 1987.  He died on 6th July, 1987.  On his  death, the appellants herein claimed the insured amount.  On the premise  that the insured suppressed material facts, the policy had been repudiated by  the respondent on 10th February, 1989.  Non-disclosure and mis-statement in  the proposal form to the various questions to which answers were given by  the insured is said to be the reason for the aforementioned repudiation of the  contract of insurance.   4.      It now stands admitted that the insured had undergone an operation  for Adenoma Thyroid.  The particulars furnished by him while filling up the  application form for obtaining the said policy were as under :-

\023(a)  Did you ever have any operation, accident or  injury?  The answer was \023No\024.  (b)  Have your remained  absent from place of your work on ground of health  during the last 5 years ?  To which answer was \023No\024.  (c)  What has been your state of health?  The answer was  \023good\024.  

    The fact that the said answers were incorrect is not in dispute.  The  suit filed by the appellants, however, was decreed. 5.      On an appeal preferred by the respondents, on the premise that despite  such wrong answers, as the injured died on account of \023polyneuritis\024, a  learned Single Judge of the High Court opined that there was nothing to  indicate that if the injured had disclosed the factum of previous operation,  the appellant-Corporation might not have inclined to insure and insisted on a  higher premium and thus there was no material to show that the non- disclosure was of a material fact justifying repudiation of the policy by the  Corporation.   6.      On an intra court appeal, the Division Bench of the High Court,

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however, by reason of the impugned judgment opined that the parties are  bound by the warranty clause contained in the agreement which is also clear  from the declaration signed by the insured and the non-disclosure related to  a material fact which was required to be answered correctly under question  No.22(a).              7.      Mr. R. Sathish, learned counsel appearing on behalf of the appellants  would submit that a clear finding of fact having been arrived at by the trial  court that despite undergoing Adenoma Thyroid operation four years prior to  the date of proposal of policy, the cause of insured\022s death being  \023polyneuritis\024 which had no connection with the operation and the judgment  of the trial court having been affirmed by the learned Single Judge, should  not have been interfered with by the Division Bench.  Our attention was  further drawn to the fact that the medical officer had noted a black mole on  lower aspect of left side of neck and from Ext. A1 wherefrom it appeared  that there had been no past history suggestive of allergies, injuries,  operations, diseases like rheumatic fever, syphilis etc. and the deceased  having no other complaint due to operation, the impugned judgment cannot  be sustained.  

8.      Life Insurance policy, it was submitted is a requirement of social  security.  In that view of the matter, a suppression could not have been led to  repudiation of policy, particularly when the doctor who examined the  insured was appointed by the respondent-Corporation itself.  Our attention in  this behalf has been drawn to the decision of the Madras High Court in All  India General Insurance Co. Ltd. and another  vs.  S.P. Maheshwari : AIR  1960 Madras 484 for the proposition that there exists a distinction between a  \021representation\022 and a \021warranty\022.   9.      Mr. Patwalia, learned Senior Counsel, appearing on behalf of the  respondents, on the other hand, submitted that having regard to the  provisions contained in Section 45 of the Insurance Act and the policy  having been repudiated within a period of 2 years, the impugned judgment  should not be interfered with.  It was submitted that undergoing of an  operation having a direct nexus with the health of the insured, suppression  thereof has rightly been considered with all seriousness by the Corporation.   It was argued that the operation underwent by the insured being a major one,  was a material fact which ought to have been disclosed.  Not only the  insured had given wrong answers to the questions, his brother himself being  a Life Insurance Corporation\022s agent and furthermore in view of the fact that  a declaration was given by the insured that no untrue averment was made  therein, the contract of insurance was null and void and all monies which  had been paid in respect thereof would stand forfeited to the Corporation.   Learned counsel for the Corporation has placed strong reliance on Mithoolal  Nayak  vs.  Life Insurance Corporation of India  : 1962 Suppl (2) SCR 571.   

10.     The basic fact of the matter is not in dispute.  The insured had  undergone an operation for Adenoma Thyroid.  It was a major operation.   Although the said operation was undergone by him four years prior to the  date of the proposal made by him, he did not disclose thereabout prior to  obtaining the insurance policy. We may notice that he died within six  months from the date of taking of the policy i.e. on 6th July, 1987, policy  having taken on 21st February, 1987.

11.     Section 45 of the Insurance Act reads as under :-   \02445. - Policy not to be called in question on ground of  mis-statement after two years, -   No policy of life insurance effected before the  commencement of this Act shall after the expiry of two  years from the date of commencement of this Act and no  policy of life insurance effected after the coming into  force of this Act shall after the expiry of two years from  the date on which it was effected, be called in question  by an insurer on the ground that a statement made in the  proposal for insurance or in any report of a medical

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officer, or referee, or friend of the insured, or in any other  document leading to the issue of the policy, was  inaccurate or false, unless the insurer shows that such  statement was on a material matter or suppressed facts  which it was material to disclose and that it was  fraudulently made by the policy-holder and that the  policy-holder knew at the time of making it that the  statement was false or that it suppressed facts which it  was material to disclose : Provided that nothing in this section shall prevent the  insurer from calling for proof of age at any time if he is  entitled to do so, and no policy shall be deemed to be  called in question merely because the terms of the policy  are adjusted on subsequent proof that the age of the life  insured was incorrectly stated in the proposal.\024

12.     Section 45 postulates repudiation of such policy within a period of  two years.  By reason of the aforementioned provision, a period of limitation  of two years had, thus, been specified and on the expiry thereof the policy  was not capable of being called in question, inter alia on the ground that  certain facts have been suppressed which were material to disclose or that it  was fraudulently been made by the policy holder or that the policy holder  knew at the time of making it that the statement was false.  Statute,  therefore, itself provides for the limitation for valid repudiation of an  insurance policy.  It takes into account the social security aspect of the  matter  13.     There are three conditions for application of  second part of Section  45 of the Insurance Act which are :-  \023(a) the statement must be on a material matter or must  suppress facts which it was material to disclose;  (b) the suppression must be fraudulently made by the  policy-holder; and  (c) the policy-holder must have known at the time of  making the statement that it was false or that it  suppressed facts which it was material to disclose.\024  [See Mithoolal Nayak (supra]

14.     The insured\022s brother was an agent of the Life Corporation of India.   It was he, who had asked the insured to take the insurance policy.  He, being  an authorized agent of the Life Insurance Corporation, presumably knew the  effect of misstatement of facts.  Misstatement by itself, however, was not  material for repudiation of the policy unless the same is material in nature.   15.     The insured furthermore was aware of the consequence of making a  misstatement of fact.  If a person makes a wrong statement with knowledge  of consequence therefor, he would ordinarily be estopped from pleading that  even if such a fact had been disclosed, it would not have made any material  change.   16.     The purpose for taking a policy of insurance is not, in our opinion,  very material.  It may serve the purpose of social security but then the same  should not be obtained with a fraudulent act by the insured.   Proposal can be  repudiated if a fraudulent act is discovered.   The proposer must show that  his intention was bona fide.  It must appear from the face of the record.  In a  case of this nature it was not necessary for the insurer to establish that the  suppression was fraudulently made by the policy holder or that he must have  been aware at the time of making the statement that the same was false or  that the fact was suppressed which was material to disclose.  A deliberate  wrong answer which has a great bearing on the contract of insurance, if  discovered may lead to the police being vitiated in law.    17.     It is no doubt true that there exists a distinction between a  \021representation\022 and a \021warranty\022.  A Division Bench of the Madras High  Court in S.P. Maheshwari (supra) upon taking into consideration the history  of insurance laws in United States of America, in England and in India  stated :-      \023(10) One great principle of insurance law is that a  contract of insurance is based upon utmost good faith

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Uberrima fides; in fact it is the fundamental basis upon  which all contracts of insurance are made. In this respect  there is no difference between one contract of insurance  and another. Whether it be life or fire or marine the  understanding is that the contract is uberrima fides and  though there may be certain circumstances from the  peculiar nature of marine insurance which require to be  disclosed, and which do not apply to other contracts of  insurance, that is rather an illustration of the application  of the principle than a distinction in principle. From the  very fact that the contract involves a risk and that it  purports to shift the risk from one party to the other, each  one is required to be absolutely innocent of every  circumstance which goes to influence the judgment of the  other while entering into the transaction.\024

18.     While the parties entered into a contract of insurance the same shall,  subject to statutory interdict, be governed by the ordinary law of contract.   The insurer may not rely upon the disclosures made by the insured.  It may  gather information from other sources.  The Madras High Court, although in  our opinion, has rightly issued a note of caution to construe a  \021representation\022 and \021warranty\022 as a general proposition which may operate  harshly against the policy holders, itself noticed :-  \023(12) The principles underlying the doctrine of disclosure  and the rule of good faith oblige the proposer to answer  every question put to him with complete honesty.  Honesty implies truthfulness. But it happens that no man  can do more than say what he believes to be the truth.\024           19.     Whether in a given case the court should take judicial notice of  practice followed in such cases or not would depend upon the facts and  circumstances of each case.  If it is found that the agent himself was  interested in getting the policy executed by the Life Insurance Corporation,  such common knowledge takes a back seat.  

       In S.P. Maheshwari (supra), it was stated : \023(27) This brings us on finally to the topics of  nondisclosure or misrepresentation which are practically  the positive and negative aspects of the same thing. The  effect of misrepresentation on the contract is precisely  the same as that of non-disclosure; it affords the  aggrieved party a ground for avoiding the contract. There  are a number of dicta and one decision to the effect that  life insurance is an exception to the general rule that  innocent misrepresentation may afford grounds for  avoiding a policy and that the misrepresentation must be  fraudulent to have this effect upon a policy of life  insurance. But in order to give the insurer grounds for  avoidance both under non-disclosure as well as  misrepresentations, both must relate only to material  information.\024

       The said decision, therefore, is of no assistance to the appellants  herein.   20.     We are not unmindful of the fact that Life Insurance Corporation  being a State within the meaning of Article 12 of the Constitution of India,  its action must be fair, just and equitable but the same would not mean that it  shall be asked to make a charity of public money, although the contract of  insurance is found to be vitiated by reason of an act of the insured.  This is  not a case where the contract of insurance or a clause thereof is  unreasonable, unfair or irrational which could make the court carried the  bargaining powers of the contracting parties.  It is also not the case of the  appellants that in framing the aforesaid questionnaire in the  application/proposal form, the respondents had acted unjustifiably or the  conditions imposed are unconstitutional.

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21.     In Life Insurance Corpn. Of India & Ors. v. Asha Goel (Smt) & Anr.  [(2001) SCC 160], whereupon reliance has been placed by Mr. Sathish, it  was held : \023The contracts of insurance including the contract of life  assurance are contracts uberrima fides and every fact of  material ( sic material fact) must be disclosed, otherwise,  there is good ground for rescission of the contract. The  duty to disclose material facts continues right up to the  conclusion of the contract and also implies any material  alteration in the character of the risk which may take  place between the proposal and its acceptance. If there  are any misstatements or suppression of material facts,  the policy can be called into question. For determination  of the question whether there has been suppression of any  material facts it may be necessary to also examine  whether the suppression relates to a fact which is in the  exclusive knowledge of the person intending to take the  policy and it could not be ascertained by reasonable  enquiry by a prudent person.\024           It has not been shown in this case that repudiation of the contract of  insurance was not done by the respondent with extreme care and caution or  was otherwise invalid in law.         The Division Bench of the High Court has taken all the aspects of the  matter in consideration and, in our opinion arrived at a just decision. 22.     Strong reliance has been placed by the learned counsel for the  appellants on Allianz Und Stuttgarter Life Insurance Bank Ltd. v. Hemanta  Kumar Das [AIR 1938 CAL 641] wherein in regard to some purported  statements made by the proposor in regard to his age was not found to be  material as would appear from the following : \023It is to be borne in mind that this was an insurance by a  man who admittedly was, at any rate, at the age of over  forty-five years.  He himself stated that he was fifty four.   Therefore, the transaction came within the category of  those proposals which require at the outset the furnishing  by the \023proponents\024 of proof of their age.  Noot Behari  Das was required to furnish proof of his age.  He  produced a horoscope.  The horoscope was accepted by  the company as being sufficient.  Therefore, we may take  that the company issued the policy upon the footing that  they were insuring the life of a man whose age was fifty  four.  This is not a case where the proposer says that his  age was fifty four and the Company merely accepted that  statement at its face value and proceeded to issue a policy  on that footing and subsequently, either shortly  afterwards or a long time afterwards, admitted the age as  stated in the policy in accordance with the provisions of  Cl.9(2) thereof.  This was a case where the whole  transaction from the very beginning proceeded upon the  basis that the company had satisfied themselves that the  proposer was of the age of fifty four and then issued the  policy accordingly.  In my view therefore the admission  contained in the endorsement at page 3 of the policy is of  such a character that the defendants when the policy  matured could not be heard to say that the age of the  insured was anything different from what he himself had  stated it to be in February 1934.  It is not necessary that  one should apply in terms of the principle of estoppel,  because that is merely a rule of evidence.  In my view,  this matter goes far deeper than that.  The question of the  age of the deceased was a definite and determining factor  in the transaction from the very outset.\024

23.     It is not a case where the company had further enquired into the

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matter in regard to the question as to whether the proposor was operated  upon or not. 24.     In Ratan Lal & Anr. v. Metropolitan Insurance Co. Ltd. [AIR 1959  PAT 413], a distinction was made between as to what is material and what is  not material.  In regard to the disclosure of facts in that case itself, it was  opined : \023The well-settled law in the field of insurance is that  contracts of insurance including the contracts of life  assurance are contracts uberrima fides and every fact of  materiality must be disclosed otherwise there is good  ground for rescission.  And this duty to disclose  continues up to the conclusion of the contract and covers  any material alteration in the character of the risk which  may take place between proposal and acceptance.\024

25.     Ratio of the said decision, therefore, instead of assisting the case of  appellants, runs counter to his contention.  

26.     Keeping in view the facts and circumstances of the case, we are of the  opinion that no case has been made out for our interference with the  impugned judgment.  The appeal fails and is accordingly dismissed.  No  costs.