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CASE NO.: Appeal (civil) 4186-87 1988

PETITIONER: LIFE INSURANCE CORPORATION OF INDIA & ORS.

       Vs.

RESPONDENT: SMT.ASHA GOEL & ANR.

DATE OF JUDGMENT:       13/12/2000

BENCH: B.N.Kripal, D.P.Mohapatro

JUDGMENT:

L.....I.........T.......T.......T.......T.......T.......T..J

     D.P.MOHAPATRA, J.

     These appeals, filed by the Life Insurance Corporation of India (hereinafter referred to as the Corporation), are directed  against  the judgment of a Division Bench  of  the Bombay  High  Court  in writ appeal no.843/85  allowing  the appeal  on the ground that the appellant should have had  an opportunity of leading evidence relevant to their contention that the insurance policy was obtained by misrepresentation, and therefore, avoidable at the instance of the Corporation, and  remitting the writ petition to the writ court for fresh decision,  after allowing the Corporation to lead  evidence. The  Division  Bench did not accept the objection raised  by the Corporation against maintainability of the writ petition on  the  ground  that  the   case  involves  enforcement  of contractual  rights  for adjudication of which a  proceeding under  Article  226  of the Constitution is not  the  proper forum.  The contention on behalf of the Corporation was that the  writ  petition should be dismissed as not  maintainable leaving  it to the writ petitioner, respondent no.1  herein, to  file  a  civil suit for enforcement of her  claim.   The factual backdrop of the case relevant for the purpose of the present  proceeding may be stated thus :  Late Naval Kishore Goel,  husband of Smt.  Asha Goel - respondent No.1, was  an employee  of M/s Digvijay Woollen Mills Limited at  Jamnagar as  a  Labour Officer.  He submitted a proposal for  a  life insurance  policy  at Meerut in the State of U.P.   on  29th May,  1979  which  was  accepted   and  the  policy  bearing No.48264637  for  a sum of Rs.1,00,000 (Rs.  One  lakh)  was issued by the Corporation in his favour.  The insured passed away  on 12th December, 1980 at the age of 46 leaving behind his  wife,  a  daughter and a son.  The cause of  death  was certified as acute Myocardial Infarction and Cardiac arrest. The  respondent No.1 being nominee of the deceased under the policy  informed the Divisional Manager, Meerut City,  about the  death  of her husband, submitted the claim  along  with other  papers  as instructed by the Divisional  Manager  and requested  for  consideration  of her claim and  for  making payment.   The  Divisional Manager by his letter  dated  8th

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June,  1981  repudiated any liability under the  policy  and refused  to make any payment on the ground that the deceased had withheld correct information regarding his health at the time  of effecting the insurance with the Corporation.   The Divisional  Manager drew the attention of the claimant  that at  the time of submitting the proposal for insurance on May 29,  1979, the deceased had stated his usual state of health as  good;  that he had not consulted a medical  practitioner within  the  last  five  years  for  any  ailment  requiring treatment  for  more  than  a week;  and  had  answered  the question  if  remained  absent from place of  your  work  on ground of health during the last five years in the negative. According  to  the Divisional Manager, the answers given  by the  deceased  as  aforementioned  were  false.   Since  the respondent   no.1  failed  to  get   any  relief  from   the authorities  of  the  Corporation despite best  efforts  she filed the writ petition seeking a writ of mandamus directing the  Corporation and its officers to pay the sum assured and other  accruing  benefits with interest.  The writ  petition was   opposed   by  the  Corporation   on  the   ground   of maintainability   as  noted   earlier.   Alternatively   the contention  was  raised  that  in case  the  High  Court  is inclined  to  entertain the writ petition  then  opportunity should  be  given  to the Corporation to  lead  evidence  in support  of  its  plea  of repudiation of  the  claim.   The learned  single  Judge  after   examining  the  question  of maintainability  of the writ petition from different angles, held  that  in view of the provisions of the Life  Insurance Corporation  Act,  1956 and the relevant provisions  of  the Insurance  Act, 1928 which are applicable to the Corporation liability  of  the  Corporation  under   a  policy  of  life insurance is a statutory liability and hence a writ petition can  lie under Article 226 of the Constitution.  The learned Judge  also considering the question on the assumption  that the  liability of the Corporation under the policy is not  a statutory  liability but a contractual liability, held  that even  then  a  writ  petition   under  Article  226  of  the Constitution can lie against the Corporation for enforcement of  such  liability.  On these findings the  learned  single Judge  rejected  the  objection of the  Corporation  against maintainability  of  the  writ petition.  Then  the  learned judge  further considered the objection raised on behalf  of the Corporation that the case involves disputed questions of fact  for  determination  of which it will be  necessary  to record  evidence  and  writ jurisdiction of the  High  Court under  Article  226  of  the   Constitution  should  not  be exercised  in such a case.  He was not inclined to hold that the  matter involves disputed questions of fact just because the  Corporation  produced a document which is  inconsistent with  those  produced by the writ petitioner.   The  learned Judge  did  not  feel satisfied that this is a fit  case  in which  the  Corporation  should be granted liberty  to  lead evidence  before  the High Court.  Examining the  matter  on merits  the learned single Judge referred to the  provisions of  section  45  of the Insurance Act,  1938  which  imposes certain  restrictions on the scope of repudiation of a claim by the insurer and held that the Corporation has not brought on  record  satisfactory  evidence to establish any  of  the conditions  envisaged in the second part of section 45.  The learned Judge refused to draw a conclusion that the deceased was  having heart ailment in 1976 for which he had taken  13 days  sick  leave  and held that much importance  cannot  be attached  to  the  leave  records in the  matter.   On  such findings,  the learned Single Judge rejected the case of the Corporation on merit.  The operative portion of the judgment

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reads  as  follows:   In  the result,  the  Life  Insurance Corporation  of  India  and the Respondent No.3  are  hereby directed to pay to the petitioner an amount of Rs.1,00,000/- (One  Lakh)  arising  out of Life Insurance  Policy  of  her husband  deceased  Naval Kishore Goel, bearing  No.48264637, together  with  all  the benefits  accruing  therefrom  with interest  at  the rate of 15% from the date of the death  of the  petitioners  husband within a month.  The LIC is  also directed  to pay cost of Rs.2,000/- to the petitioner.  Rule is accordingly made absolute.

     The  Corporation  carried the matter in a writ  appeal wherein  the Division Bench of the High Court considered the contention  raised on behalf of the Corporation that in  the facts and circumstances of the case the learned single Judge should  not  have granted relief to the writ  petitioner  in exercise   of   jurisdiction  under   Article  226  of   the Constitution.  The Division Bench was of the opinion that it is not possible to accept the submission that relief against the Corporation can never be granted to a policy holder or a person  entitled  to  benefit of the policy under  the  writ jurisdiction of the High Court though the Bench accepted the submission  that  it  should only rarely  be  granted.   The Division  Bench found justification in the grievance  raised on  behalf  of the Corporation that if the writ  court  felt that  it  had  the  jurisdiction  to  grant  relief  to  the petitioner   then  it  committed   error  in  rejecting  the application made by the Corporation for leading evidence and denial of such opportunity would vitiate the judgment.  Then the Division Bench scrutinised the materials produced by the parties  before  the Court, perused the original  documents, particularly  the medical certificates produced by both  the parties  the  Court  was of the opinion  that  the  original records  of  the hospital will have to be seen to come to  a definite  conclusion if there was any previous diagnosis  of Myocardial  infarction of the insured.  The Bench refused to look  to the medical report of December, 1980 since it  came into  existence  after the policy was issued.  The  Division Bench  recorded its conclusion on the point in these  words: In  these  circumstances we are of opinion that even if  we are inclined to reject Mr.  Paranjapes submission that such relief  could  not  be  granted  in  exercise  of  the  writ jurisdiction  there was some substance in the complaint that the  appellants  should have been given the  opportunity  to lead  evidence  to  discharge  the onus  of  justifying  the rejection of the claim which is on them.

     Dealing  with the contention that the case pleaded  by the  Corporation comes within the scope of section 45 of the Insurance  Act,  the Division Bench took the view  that  the matter  will  have  to go back to writ court to  enable  the Corporation  to prove that there was misrepresentation which will  permit the appellants to reject the claim arising from the  death of Naval Kishore Goel.  While leaving the  matter to  the  discretion  of the writ judge  the  Division  Bench observed  that  this is a fit matter in which  the  original records must be seen by the Court and also witnesses proving them  and  their contents.  The Bench allowed the appeal  on the following terms :

     Accordingly  in  this view of the matter we  will  be compelled  to  allow  the  appeal on  the  ground  that  the appellant should have had an opportunity of leading evidence

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relevant to their contention that the policy was obtained by misrepresentation  and  therefore  avoidable   by  LIC.   We therefore  set  aside  the impugned judgment and  order  and direct that the writ petition will come up for a fresh trial before  the  Writ Court at which stage the Writ  Court  will decide  the matters in issue after allowing the LIC to  lead evidence in accordnce with the observations made by us.

     From  the  ultimate paragraph of the Judgment  of  the Division  Bench it appears that the writ petitioner had been permitted to withdraw the amount awarded on her furnishing a bank  guarantee and whether she will keep the bank guarantee operative after disposal of the appeal was left for decision of  the writ judge.  In course of his arguments Shri  Harish Salve,  learned senior counsel appearing for the Corporation fairly  stated that the Corporation will pay the sum awarded by  the  learned  single Judge in favour of  the  respondent no.1.   He submitted that the position of law regarding  the jurisdiction  of  the High Court to entertain writ  petition filed  under Article 226 of the Constitution for realisation of a sum assured under a life insurance policy and the scope of  inquiry by the High Court in case the insurer repudiates the  claim  on any ground may be considered by  this  Court. Article  226  of  the  Constitution  confers  extra-ordinary jurisdiction  on  the High Court to issue  high  prerogative writs  for enforcement of the fundamental rights or for  any other  purpose.  It is wide and expansive.  The Constitution does  not place any fetter on exercise of the extra-ordinary jurisdiction.   It  is  left to the discretion of  the  High Court.   Therefore  it  cannot  be laid down  as  a  general proposition  of  law  that  in no case the  High  Court  can entertain  a  writ  petition  under   Article  226  of   the Constitution  to  enforce  a claim under  a  life  insurance policy.   It  is  neither possible nor proper  to  enumerate exhaustively  the circumstances in which such a claim can or cannot  be  enforced  by  filing   a  writ  petition.    The determination  of  the question depends on consideration  of several  factors, like, whether a writ petitioner is  merely attempting to enforce his/her contractual rights or the case raises important questions of law and constitutional issues; the  nature  of the dispute raised;  the nature  of  inquiry necessary  for determination of the dispute etc.  The matter is  to be considered in the facts and circumstances of  each case.  While the jurisdiction of the High Court to entertain a writ petition under Article 226 of the Constitution cannot be  denied  altogether,  Courts  must   bear  in  mind   the self-imposed  restriction  consistently   followed  by  High Courts  all these years after the constitutional power  came into  existence in not entertaining writ petitions filed for enforcement  of  purely contractual rights  and  obligations which  involve disputed questions of facts.  The Courts have consistently  taken  the  view  that in  a  case  where  for determination  of  the  dispute raised it  is  necessary  to inquire  into facts for determination of which it may become necessary to record oral evidence a proceeding under Article 226  of the Constitution is not the appropriate forum.   The position  is also well settled that if the contract  entered between   the  parties  provide  an  alternate   forum   for resolution  of disputes arising from the contract, then  the parties  should  approach the forum agreed by them  and  the High  Court  in writ jurisdiction should not permit them  to by-pass the agreed forum of dispute resolution.  At the cost of repetition it may be stated that in the above discussions we  have  only indicated some of the circumstances in  which the  High Courts have declined to entertain petitions  filed

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under  Article  226 of the Constitution for  enforcement  of contractual  rights and obligation;  the discussions are not intended  to  be exhaustive.  This Court from time  to  time disapproved  of  a High Court entertaining a petition  under Article 226 of the Constitution in matters of enforcement of contractual  rights  and obligation particularly  where  the claim   by  one  party  is   contested  by  the  other   and adjudication of the dispute requires inquiry into facts.  We may  notice a few such cases;  Mohammed Hanif vs.  The State of Assam (1969) 2 SCC 782;  Banchhanidhi Rath vs.  The State of  Orissa  and  ors.  (1972) 4 SCC 781;   Smt.   Rukmanibai Gupta vs.  Collector, Jabalpur and others (1980 (4) SCC 556; Food  Corporation  of India and others vs.  Jagannath  Dutta and  others  (1993 (Suppl.) (3) SCC 635;  and State of  H.P. vs.   Raja  Mahendra  Pal and others (1999) 4 SCC  43.   The position  that  emerges from the discussins in  the  decided cases is that ordinarily the High Court should not entertain a  writ petition filed under Article 226 of the Constitution for  mere  enforcement  of  a  claim  under  a  contract  of insurance.   Where  an insurer has repudiated the claim,  in case  such  a writ petition is filed the High Court  has  to consider the facts and circumstances of the case, the nature of  the  dispute  raised  and  the  nature  of  the  inquiry necessary  to  be  made for determination of  the  questions raised  and other relevant factors before taking a  decision whether  it should entertain the writ petition or reject  it as not maintainable.  It has also to be kept in mind that in case  an  insured  or  nominee of the  deceased  insured  is refused  relief merely on the ground that the claim  relates to  contractual rights and obligations and he/she is  driven to  a long drawn litigation in the civil court it will cause serious prejudice to the claimant/other beneficiaries of the policy.   The pros and cons of the matter in the context  of the  fact situation of the case should be carefully  weighed and  appropriate decision should be taken.  In a case  where claim  by  an insured or a nominee is repudiated  raising  a serious  dispute  and the Court finds the dispute to be a  s bona  fide one which requires oral and documentary  evidence for its determination then the appropriate remedy is a civil suit  and  not  a  writ petition under Article  226  of  the Constitution.   Similarly, where a plea of fraud is  pleaded by  the  insurer and on examination is found prima facie  to have  merit  and  oral and documentary evidence  may  become necessary  for determination of the issue raised then a writ petition is not an appropriate remedy.

     Coming  to  the  question of scope of  repudiation  of claim  of  the  insured or nominee by the  Corporation,  the provisions  of  section  45  of  the  Insurance  Act  is  of relevance  in the matter.  The section provides, inter alia, that  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 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 is  suppressed facts which it was material to disclose.  The proviso  which deals with proof of age of the insured is not relevant  for  the purpose of the present proceeding.  On  a

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fair  reading  of  the  section  it  is  clear  that  it  is restrictive  in  nature.  It lays down three conditions  for applicability  of the second part of the section namely :  - (a)  the  statement  must be on a material  matter  or  must suppress  facts which it was material to disclose ;  (b) the supression  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.  Mere inaccuracy of falsity in respect of some recitals or items in the proposal is not sufficient.  The burden of proof is on the insurer to establish these circumstances and unless the insurer is able to do so there is no question of the policy being avoided on ground of misstatement of facts.  The contracts of insurance including  the  contract  of life  assurance  are  contracts uberrima fides and every fact of material 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  in  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.  In this connection we  may notice the decision of this Court in Mithoolal Nayak Vs.   Life Insurance Corporation of India (AIR 1962 SC 814), in  which  the position of law was stated thus:  The  three conditions  for the application of the second part of s.  45 are:

     (a) the statement must be on a material matter or must suppress facts which it was material to disclose ;

     (b)  the  supression 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.

     Where  the policy holder, who had been treated, a  few months  before he submitted a proposal for the insurance  of his life with the insurance company by a physician of repute for certain serious ailments as anaemia, shortness of breath and  asthma,  not only failed to disclose in his answers  to the  questions  put to him by the insurance company that  he suffered  from those ailments but he made a false  statement to the effect that he had not been treated by any doctor for any such serious ailment,

     Held  (i) that, judged by the standard laid down in s. 17,  Contract Act, the policy holder was clearly guilty of a fraudulent  suppression  of material facts when he made  his statements, which he must have known were deliberately false and  hence,  the  policy  issued to  him  relying  on  those statements was vitiated.

     (ii)  The principle underlying the Explanation to s.19 of  the Contract Act is that a false representation, whether fraudulent  or innocent, is irrelevant if it has not induced

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the party to whom it is made to act upon it by entering into a  contract.   That principle did not apply in  the  instant case.   The  terms  of  the policy made it  clear  that  the averments  made as to the state of health of the insured  in the  proposal form and the personal statement were the basis of  the  contract between the parties and  the  circumstance between  the  parties and the circumstance that  the  policy holder  had  taken pains to falsify or conceal that  he  had been treated for a serious ailment by a physician only a few months  before  the  policy  was   taken  showed  that   the falsification  or  concealment had an important  bearing  in obtaining the other partys consent.  A man who has so acted cannot  afterwards turn round and say It could have made no difference if you had known the truth. In the circumstances no  advantage  could be taken of the Explanation to s.19  of the Contract Act.

     This  decision  was  relied  upon  in  Life  Insurance Corporation  of India vs.  Smt.G.M.Channabasamma (1991)  (1) SCC  357,  in  which the following observations  were  made: It  is  well  settled  that a  contract  of  insurance  is contract  uberrima  fides  and there must be  complete  good faith on the part of the assured.  The assured is thus under a  solemn  obligation  to make full disclosure  of  material facts  which  may be relevant for the insurer to  take  into account  while  deciding  whether  the  proposal  should  be accepted  or not.  While making a disclosure of the relevant facts,  the  duty  of the insured to  state  them  correctly cannot  be diluted.  Section 45 of the Act has made  special provisions  for  a life insurance policy if it is called  in question  by the insurer after the expiry of two years  from the  date  on which it was effected.  Having regard  to  the facts  of the present case, learned counsel for the  parties have rightly stated that this distinction is not material in the  present  appeal.   If the allegations of fact  made  on behalf of the appellant Company are found to be correct, all the  three conditions mentioned in the section and discussed in  Mithoolal Nayak vs.  Life Insurance Corporation of India must  be  held to have been satisfied.  We must,  therefore, proceed  to  examine the evidence led by the parties in  the case.

     The Life Insurance Corporation was created by the Life Insurance  Corporation Act, 1956 with a view to provide  for nationalisation  of  life  insurance business  in  India  by transferring  all such business to a Corporation established for  the  purpose  and  to provide for  the  regulation  and control  of the business of the Corporation and for  matters connected  therewith  or incidental thereto.  The  said  Act contains  various provisions regarding establishment of  the Life  Insurance Corporation of India;  the functions of  the Corporation,  the  transfer  of   existing  life   insurance business   to  the  Corporation,   the  management  of   the establishment  of the Corporation, the finance, accounts and audit  of the Corporation and certain other related matters. Section  30  of the Act provides that except to  the  extent otherwise  expressly  provided in this Act, on and from  the appointed  day  the  Corporation shall  have  the  exclusive privilege  of carrying on life insurance business in  India; and on and from the said day any certificate of registration under  the  Insurance  Act held by any  insurer  immediately before  the said day shall cease to have effect in so far as it  authorises  him to carry on life insurance  business  in India.   In course of time the Corporation has grown in size and  at  present  it  is one of the  largest  public  sector

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financial undertakings.  The public in general and crores of policy-holders  in  particular  look forward to  prompt  and efficient  service  from  the  Corporation.   Therefore  the authorities  in-charge  of management of the affairs of  the Corporation  should  bear in mind that its  credibility  and reputation  depend  on  its prompt  and  efficient  service. Therefore,  the approach of the Corporation in the matter of repudiation  of  a policy admittedly issued by it should  be one  of  extreme care and caution.  It should not  be  dealt with  in  a mechanical and routine manner.  With  the  above discussions  and observations regarding the questions raised before us, we dispose of the appeals with the direction that the  sum, as directed by the learned Single Judge in  favour of   the  claimant,  will  be   paid  by   the   Corporation expeditiously,  if it has not already been paid.  In view of the  above  order/direction, it is not necessary to  proceed with the case pending before the High Court any further.  No costs.