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PETITIONER: LIFE INSURANCE CORPORATION OF INDIA

       Vs.

RESPONDENT: RAJA VASIREDDY KOMALLAVALLI KAMBA & OTHERS

DATE OF JUDGMENT27/03/1984

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) ERADI, V. BALAKRISHNA (J)

CITATION:  1984 AIR 1014            1984 SCR  (3) 350  1984 SCC  (2) 719        1984 SCALE  (1)561

ACT:      Insurance  Law-Contract   of   Insurance-Proposal   and acceptance-Insured filling up the proposal for insurance for Rs.  50,000  on  27.12.1960  and  after  undergoing  medical examination on  the same  date issues two cheques of Rs. 300 and Rs.  220 towards  consideration by way first premium-The Insurance Corporation  encash the  cheques on  11.1.1961 and the insured  dies on  12.1.1961 whether there is a concluded contract of  Insurance-When is  the acceptance  said  to  be complete in  case of  contract of  Insurance-contract of Act Section 2(h) and 4.

HEADNOTE:      One Late  Raja  Vasireddi  Chandra  Dhara  Prasad  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 issued two cheques being  the consideration   towards the first premium for Rs  300 and  Rs. 220 respectively which were encashed by the appellant  on 29th  December 1960 and 11th January 1961. On 16th January 1961, the widow of the deceased wrote to the appellant intimating  the death of the deceased and demanded payment of  Rs. 50,000  The Divisional  Manager, Masulipatam Branch denied  liability on  behalf of the appellant on 28th January, 1961.  Thereafter there  was correspondence between the parties  between Ist  February 1961  and  23rd  December 1963. On  10th January 1964, the respondents filed a suit in the Court of Subordinate Judge, Masulipatam. The trial court dismissed the  suit holding,  inter alia,  that there was no concluded contract,  that the  proposal was  not accepted by the Divisional  Manager for  some reason or the other by the time the  deceased had  died, that neither the encashment of the two  cheques created a contract of insurance. In appeal, the High  Court  after  ordering  certain  other  additional documents set  aside the  Trial Court  Judgment.  Hence  the appeal by the Corporation after obtaining the special leave.      Allowing the appeal, the Court ^      HELD; 1.  Having regard  to the  clear position  in law about acceptance  of insurance  proposal and the evidence of record in this case, it is clear that the, High Court was in

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error.  in  coming  to  the  conclusion  that  there  was  a concluded contract of insurance between the deceased and the Life Insurance  Corporation. [360D-E]      2. Though  in certain  human relationship  silence to a proposal might 351 convey acceptance  but in  the case  of insurance  proposal, silence does  not denote  consent and  no  binding  contract arises until  the person  to whom  an offer  is made says or does something  to signify  his acceptance.  Mere  delay  in giving an  answer cannot  be construed as an acceptance, as, prima facie, acceptance must be communicated to the offer or The general  rule is  that the contract of insurance will be concluded only when the party to whom an offer has been made accepts it  unconditionally and  communicates his acceptance to the person making the offer. Whether the final acceptance is that  of the assured or insurers, however, depend  simply on the  way in  which negotiations  for  an  insurance  have progressed. [359H, 360A-B]      3: 1.  When an  insurance policy  becomes effective  is well-settled by  the authorities  but it  is clear  that the expression "underwrite"  signifies  accept  liability  under that. The dictionary meaning also indicates that. It is true that normally  the expression "underwrite" is used in Marine insurance but  the expression  used in  Chapter III  of  the Financial  Powers   of  the  Standing  order  in  this  case specifically  used   the   expression   ’funderwriting   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  above. [359 B-D]      3: 2.  The mere  receipt and retention of premium until after the  death of the applicant or the mere preparation of the policy  document is  not acceptance.  Acceptance must be signified by  some acts  or acts agreed on by the parties or from which  the law  raised  a  presumption  of  acceptance. [359D-E]      3: 3  In the  instant case, the High Court was in error in coming to the following conclusions;      (i) that  there was  not sufficient pleading that there was  no  concluded  contract,  and  non  acceptance  of  the proposal was  not sufficient  averment that  the  Divisional Manager was  the only  competent  authority  to  accept  the proposal; (ii) in its view about the powers of the different authorities under  Chapter III  of the  Standing order 1960, dealing with the financial powers; (iii) about the view that the  Assistant   Divisional  Manager   having  accepted  the proposal and  (iv) about  the assurance  given by  the Field officers that  the acceptance  of the  first  premium  would automatically create  a  concluded  contract  of  insurance’ [358E-H]      The Court  however directed  half  the  amount  of  the insurance amount of Rs. 85,000 paid to the Respondents to be refunded to the Corporation. [360F-G]

JUDGMENT:      CIVIL APPELLATE JURISDICTION: Civil appeal No. 2197      From the  Judgment and  order dated  16.4.70 of  Andhra Pradesh High Court in appeal No. 431 of 1965.      Dr. YS  Chitale, V.  G. Shanker, KL Hathi, Ms. Sadhana, DK Chhaya, MK Arora and Mrs. H. Wahi for the appellant. 352      T.  S.   Krishnamoorthi  Iyer,  KR.  Choudhry  and  KS.

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Choudhary for the respondents.      The Judgment of the Court was delivered by      SABYASACHI MUKHARJI, J. This appeal is by a certificate granted on  18th September, 1970 by the High Court of Andhra Pradesh under  Article 133(1)  (a) of the Constitution as it stood at  the relevant  time against the Judgment and decree of the  High Court  dated 16th  April,  1970.  By  the  said Judgment and  decree, the  High Court  of Andhra Pradesh had reversed the  Judgment of  the  learned  Subordinate  Judge, Masulipatam dated 19th November, 1964 dismissing the suit of the plaintiffs-respondents  against the appellant. Late Shri Raja Vasireddi  Chandra Dhara  Prashad was  the  husband  of respondent No.  1 and  father of  the respondents No. 2 to 5 herein. The  respondents filed  a suit  in  the  Subordinate 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   Dhara   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 for Rs. 300  and Rs. 220 respectively in favour of the appellant as first  premium. Cheque  for Rs.  300 was  encashed by the appellant on  29th December,  1960. Cheque  for Rs.  220 was dishonoured  three   times  and  finally  encashed  on  11th January, 1961.  As mentioned hereinbefore, the deceased died on the  day following  i.e. on  12th January,  1961. On 16th January, 1961,  the widow  of the deceased, respondent No. 1 herein, wrote  to the  appellant intimating the death of the deceased and  demanded payment of Rs. 50,000. The Divisional Manager, Masulipatam  Branch, denied  liability on behalf of the appellant  Corporation on 28th January, 1961. Thereafter there was  correspondence between  the parties  between  1st February,  1961   to  23rd   December,  1963   wherein   the respondents-plaintiffs  had  claimed  the  payment  and  the appellant had denied liability for the same. 353      On the  10th January,  1964, the  plaintiffs filed  the suit in  the court of Subordinate Judge, Masulipatam. It was alleged in the plaint after setting out the facts which have been set  out hereinbefore,  that  the  medical  examination report was submitted to the appellant-corporation 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 preliminaries were completed and it was further alleged 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 and  advised the  deceased to pay the first premium in  full. It  was, further, stated that the said two cheques  were   encashed  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  encashing  the  cheques  and  crediting  the amounts  in  its  accounts  accepted  the  proposal  of  the deceased. In  the premises  it was  said in  the plaint that there was  a concluded  and valid insurance contract between the deceased  and the  appellant-Corporation  and  that  the insurance contracted  commenced on  11th January, 1961 being the date  of the  receipt of  the balance towards premium by

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the Corporation.  It was  further stated  in the plaint that the office  of the Divisional Manager of Masulipatam was the concerned authority  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  contract  between  the deceased and  the Corporation,  was untenable,  according to the plaintiffs.  It was  alleged that with full knowledge of the completion of all the preliminaries, the Corporation had encashed the  cheques issued  towards the  first premium and therefore it was the case of the plaintiffs-respondents that the  encashment   of   the   cheques   amounted   in   those circumstances in law to an acceptance of the proposal of the deceased. It  was further  alleged that 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  that in this case  the first  premium was  not only  received by the Corporation completely on 11th January, 1961 but it was also appropriated by  it in  its accounts  and the  said  premium amount 354 was  received  by  the  Corporation  without  any  demur  or qualification and  that in any event the Corporation must be deemed to  have waived by its conduct the formality, if any, of sending  communication of its acceptance of the proposal. In the  premises, the  plaintiffs claimed  the  said  amount along with  interest at six per cent per annum from the date of refusal  of payment  till the  date  of  payment  of  the demand.      Written statement was filed on behalf of the appellant. In the  said written statement, after setting out the facts, it was denied that the payment of the first premium amounted to acceptance  of the  proposal and the allegation about the assurance given to the deceased as alleged in the plaint was not true  nor the alleged assurance if any, valid under law. It was,  further  stated  that  the  two  cheques  were  not encashed and  credited towards  the premium  account of  the proposal but  these were  kept only  in deposit  in suspense account without  any liability  of  the  appellant.  It  was further stated  that the  averments in  the plaint  that the defendant Corporation  cashed  the  above  two  cheques  and appropriated the  amounts and  credited these in the account towards premium  payable for the proposal were false. It was stated that  on  the  death  of  the  deceased,  the  amount covering two  cheques were  lying in  the deposit and in the suspense account  of the  Corporation 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  these circumstances, the  appellant Corporation claimed that there was no liability for the risk and as such the plaintiffs had no right  to claim  and there was no cause of action. It was categorically stated  that the cheques were not credited and adjusted towards the premium accounts.      During the  trial before the learned Subordinate Judge, five different  issues were  raised. It  is not necessary to set out  in detail  those issues  but the important and main issue was  whether 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. Bhupala Prasad, son  of the  deceased and  the  Corporation  on  its behalf examined  Shri Jagannadhachari, the Superintendent of

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the Corpo- 355 ration branch  at Guntur.  He also  produced  ex.  B-4,  the review slip,  prepared by the Branch office, Guntur and sent to the  Divisional officer,  Masulipatam. In 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  time for  the Divisional  Manager to accept. There  was  no  communication  from  the  Divisional office to  the Branch  officer accepting  the proposal.  He, further, stated  that the  amount would  be transferred into the first  premium register  after the proposal 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.      Shri Brahmandrao Ramiah Assistant Divisional Manager of the Life  Insurance Corporation  office at  Madras was  also examined as  the second  witness of  the defendants.  He had further stated  that the  proposal form  was sent  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  according  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  Standing 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 may 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 O.R." WITH E.D.B.      Shri Brahmandrao  Ramiah had  further stated  that  the papers were  scrutinised by  him in addition to the scrutiny by the  concerned clerks.  He stated  that  the  endorsement marked as  Ex. B-14 was initialled by him. He further stated that the  letters ’DM’  were also  written by him indicating that the  papers should  go to the Divisional Manager on Ex. B-4. He 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  was  no requirement necessary and if the full first instalment was 356 in deposit,  it would be adjusted towards premium amount, he stated.      In this  connection before  the  learned  Trial  Judge, reliance was  placed on  the Life  Insurance Corporation  of India Standing  order, 1960  (Financial Powers). Chapter III of the Standing order dealt with the powers of the different authorities for,  inter alia,  ’Underwriting and Revivals of Policy’. The  relevant portion  of the  said Standing  order read as follows:- ------------------------------------------------------------  "Nature of Power     Authority            Extent of Finan-                                            cial power (up to                                            and Including) ------------------------------------------------------------                                         Rs. 1. Underwriting and    Revivals:    (a) Standard     Section Head       2,000  (Sum Proposed)        lives and    Supdt or J.O.      5,000  (    -do-    )        revival on   A.S.O.            10,000  (    -do-    )

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      original     A.D.M.            25,000  (    -do-    )        terms        D.M.            1,00,000  (    -do-    ) ------------------------------------------------------------      Note:     Proposals on standard lives for more than Rs.                1,00,000 should  be referred  to the  Central                Underwriting Section."      Learned Subordinate  Judge by  his judgment  dated 19th November, 1964 held that there was no concluded contract. He held  that   as  per   the  prospectus   of  Life  Insurance Corporation of  India the  risk under the Corporation policy commenced on  the date  of receipt  of the  first premium in full or  the date  of acceptance whichever was later and the second instalment  of  the  premium  falls  due  on  a  date calculated from  such date  of commencement of risk. Learned Trial Judge  was of  the opinion  that the documents in this case coupled  with evidence  on  behalf  of  the  Appellant- Corporation  established  that  the  proposal  sent  by  the deceased was for some reason 357 or other  not accepted  by the Divisional office by the time the deceased  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 that 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, claim was  that it  should be  deemed to have been accepted. Considering the  evidence and  the  averments,  the  Learned Subordinate Judge  came to  the conclusion 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 any 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 of  the opinion  that the proposal must be accepted by the Divisional Manager and that alone could give rise to a valid contract of insurance which never  happened  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  never amount to the acceptance of the 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-respondents 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  the   present  case  and  statements furnished by  the Divisional  office  to  the  Zonal  office showing the  new business  in the  year  1960  and  proposal register work of Divisional office for the year 1960.      The High  Court directed the Life Insurance Corporation to produce  the documents  referred to above. The High Court by  its   judgment  dated   14th  April,   1970  held  after considering the  standing order  Ex. B-13  and  the  various

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documents produced  for the  first time on record that there was acceptance of proposal and like 358 other contracts,  the contract  of insurance was complete by offer and  acceptance. In coming to this conclusion the High Court relied  on the  alleged adjustment and the endorsement of the  review slip  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 Divisional Manager  made similar endorsement, the High Court came to  the conclusion 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 in the written statement filed on behalf of the  Corporation. On  the other hand, there was a general statement that  there was  no concussed  contract. The  High Court was  of the  view that having regard to the conduct of the parties,  there was a concluded contract. The High Court took the  view that Ex. B-13 dealing with Chapter III of the Financial  Powers   did  not  categorically  deal  with  the acceptance 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 averment in the  written statement  that  there  was  not  sufficient pleading that  there was  no  concluded  contract  and  non- acceptance of  the proposal was not sufficient averment that the Divisional  Manager was  the only competent authority to accept the  proposal. The  High Court,  in our  opinions was also wrong  in its  view about  the powers  of the different authorities under  Chapter III  of the  Standing order, 1960 dealing with  the financial  powers.  Indeed  there  was  no evidence that  the Assistant Divisional Manager had accepted the proposal  on the  contrary he  his deposition as we have indicated before  had stated  otherwise. He  had stated that the purpose  of review  slip was  to enable  the  Divisional Manager to  asses the risk and take a decision. He had never stated that  he had taken a decision to accept the proposal. The allegation  that there  was assurance  on behalf  of the field officer  and local  agent to  the  deceased  that  the payment of  first premium  would amount to the acceptance of the  proposal   cannot  also  be  accepted  firstly  because factually it was not proved and secondly because 359 there  was  no  evidence  that  such  could  have  been  the deposition in law.      When an  insurance policy  becomes effective  is  well- settled by  the authorities  but before  we  note  the  said authorities, it  may be  stated that  it is  clear that  the expression "underwrite" signifies accept liability under’.      The dictionary meaning 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 insurance but the expression used in Chapter III of  the Financial  powers of  the Standing order in this case specifically  used  the  expression  "underwriting  and revivals" of  policies in case of Life Insurance Corporation and stated  that it  was  the  Divisional  Manager  who  was

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competent to underwrite policy for Rs 50,000 and above.      The mere  receipt and  retention of premium until after the death  of the  applicant or  the mere preparation of the policy  document  is  not  acceptance.  Acceptance  must  be signified by  some act  or acts  agreed on by the parties or from which the law raises a presumption of acceptance.      See in  this connection  the statement of law in Corpus Juris Secundum, Vol. XLV page 986 wherein it has been stated as:-           "The mere  receipt and retention of premiums until      after the  death of  applicant does  not give rise to a      contract, although  the circumstances  may be such that      approval  could  be  inferred  from  retention  of  the      premium. The  mere execution  of the  policy is  not an      acceptance; an  acceptance, to  be  complete,  must  be      communicated to  the offeror,  either directly,  or  by      some definite  act, such as placing the contract in the      mail.  The  test  is  not  intention  alone.  When  the      application  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 360 the person  to whom  an offer is made says or does something to signify  his acceptance.  Mere delay  in giving an answer cannot be  construed as  an  acceptance,  as,  prima  facie, acceptance must  be communicated to the offeror. The general rule is  that the  contract of  insurance will  be concluded only when  the party  to whom an offer has been made accepts it unconditionally  and communicates  his acceptance  to the person making  the offer.  Whether the  final acceptance  is that of  the assured or insurers, however, depends simply on the  way   in  which  negotiations  for  an  insurance  have progressed.      See in this connection statement of law in MacGillivray & Parkington  on Insurance  Law,  Seventh  Edition  page  94 paragraph 215.      Reference  in  this  connection  may  be  made  to  the Statement of  law in  Halsbury’s Laws of England 4th Edition in paragraph 399 at page 222.      Having regard  to  the  clear  position  in  law  about acceptance of  insurance proposal and the evidence on record in this  case, we  are, therefore,  of the  opinion that the High Court  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  on  that basis reversing the judgment and the decision of the learned Subordinate Judge.      The appeal  must, therefore,  be  allowed.  We  however record that  in view  of the  fact that such 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 his  children, the  Life insurance  Corporation in  this case does  not insist  on the full repayment of the sum paid and counsel  on behalf of the 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  back   to  the  Corporation.  We  order accordingly that  the respondents  will therefore  pay  back half of  the actual  amount received  both of  the principal together with interest within three months from this date.

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    In the  facts and  circumstances of the case there will be no order as to costs in this Court.      With the above observations, the appeal is allowed. S.R.                                       Appeal allowed. 361