GOKAL CHAND (D) THR. LRS. versus AXIS BANK LTD. & ANR. on 15 December 2022

[2022] 17 S.C.R. 739

GOKAL CHAND (D) THR. LRS.

v.

AXIS BANK LTD. & ANR.(Civil Appeal No. 9237 of 2022)

DECEMBER 15, 2022

[K. M. JOSEPH AND HRISHIKESH ROY, JJ.]

Consumer Protection – Insurance Policy – Deficiency ofService – A home loan was secured by the appellants for whichobtaining a life insurance was a pre-requisite – Life insurance inthe name of husband of the complainant (the insured, now deceased)was obtained – As per the appellants, respondent No.1-bank actingas an agent for respondent no.2-Insurance Company, on 25.07.17sanctioned the home loan – From the disbursed loan amount,insurance premium was paid on behalf of the insured by the bankto the insurance company – The insured was subjected to medicaltests on 30.07.17 as a pre-condition for securing the home loan –Died of cardiac arrest on 08.08.17 – Death of the insured wasintimated to the insurance company on 16.08.17 with a request toprocess the insurance claim, however the claim was repudiated –Consumer complaint dismissed by State Commission – Appealdismissed by National Commission – Held: On 30.07.17, the insuredwas called for medical examination and the treadmill test, did notflag any health issue – In such backdrop, the communication (anante-dated letter) of the insurance company for postponing the lifeinsurance coverage by six months by adverting to the treadmill testreport and that too at a stage after intimation about the death of theinsured, appears to be a malafide act – Moreover, the insurancecompany declining the policy by unilaterally refunding the insurancepremium, suggests that the respondent no.2 was deficient inrendering services to the appellant – Impugned judgment set aside– Complaint allowed – Consumer Protection.

Consumer Protection – Insurance policy – Presumption ofacceptance of the policy by the insurer – Ratio of decision in RajaVasireddy Komalavalli Kamba case as clarified in D. Srinivas case –Discussed.

739

A

B

CDEF

G

H

740SUPREME COURT REPORTS

AAllowing the appeal, the Court

HELD: 1.1 The reason for deferment is surprisingly shownas treadmill test finding, although, no abnormality as such wasdetected in the said test report. Yet, the insurance companydispatched an antedated letter (written after getting intimationBabout the death of the insured), informing about 6 monthspostponement of the proposal. This would suggest that theinsurance company hurriedly dispatched the ante dated letter,purporting to postpone the proposal, only after getting informationabout the death of Gokal Chand on 16.8.2017. Even in this firstante-dated communication of the insurance company, there wasCno mention of rejection of the proposal or refund of the insurancepremium (Rs. 6,24,172), remitted by the bank to the insurancecompany on 25.7.2017 i.e., the date when the loan amount wassanctioned. The tracking details of the insurance postponementcommunication of the respondent No. 2 sent through the Blue-DDart Courier reflects that the insurance company’s letter wasdispatched only at 19:38 hours on 16.8.2017. There was nomention in this letter, about the refund of the premium. Thereafteronly on 17.8.2017, the premium amount was unilaterally returnedby the respondent No. 2 to the loan account, followed by thecommunication dated 31.8.2017 purporting to decline theEinsurance policy for the housing loan, sanctioned by the bank.[Paras 15-17][747-A-E]

1.2 It was a prerequisite for the home loan borrower toobtain life insurance coverage and the records show that the loanamount was sanctioned on 25.7.2017. On that very day, Rs.F6,24,172/- was remitted towards insurance premium by the bankto the insurance company. This would suggest that all therequirements for the policy as prescribed by insurance companywere satisfied at that stage. On 30.7.2017, the insured was calledfor medical examination and the treadmill test, did not flag anyGhealth issue. In such backdrop, the communication of theinsurance company for postponing the life insurance coverageby six months by adverting to the treadmill test report and thattoo at a stage after intimation about the death of the insured tothe respondents, appears to be a malafide act. Moreover, thedecision by the insurance company declining the policy byH

unilaterally refunding the insurance premium in the givencircumstances, would suggest that the respondent No. 2 weredeficient in rendering services to the appellant. [Paras 18 and19][747-E-H]

1.3 The respondents, however, contend that there was nobinding life insurance contract between the respondent No. 2and the appellant and Life Insurance Corporation of India vs. RajaVasireddy Komalavalli Kamba and Others was cited to argue thatacceptance of an insurance contract may not be completed bymere retention of the premium or preparation of the policydocument. The acceptance must be signified by some act by whichthe law raises a presumption of acceptance. The ratio of abovedecision in LIC vs. Raja Vasireddy Komalavalli Kamba wasconsidered by this Court in D. Srinivas vs. SBI Life InsuranceCompany Limited and Others and it was clarified that while thereis no quarrel with the proposition laid in Raja VasireddyKomalavalli Kamba, the former only laid down a flexible formulafor the court to see as to whether there was a clear indication ofacceptance of insurance. The forums below have blindly reliedon the same, and failed to take into cognizance the later ratio inD. Srinivas, which stressed on considering the unique facts of thecase to determine whether there is a presumption of acceptanceof the policy by the insurer. [Paras 20 and 21][748-A-D]

D. Srinivas vs. SBI Life Insurance Company Limited andOthers (2018) 3 SCC 653 : 2018 (3) JT 10 – heldapplicable.

Life Insurance Corporation of India vs. Raja VasireddyKomalavalli Kamba and Others (1984) 2 SCC 719 :[1984] 3 SCR 350 – referred to.

1.4 The conduct of the respondent No. 2 cannot becountenanced against the good faith standards that an insurancecontract warrants. In this case, the pre-condition for the homeloan as stipulated by the respondents was that life of the borrowerwill have to be insured. Only after assessment of the applicant’scredentials, the loan was approved. When the loan amount wassanctioned, the premium amount was kept aside and was credited A

B

C

D

E

F

G

H

Ato the insurance Company and the insured was subjected to amedical test which showed normal health status. Thus, premiumwas accepted and retained for the life insurance and no change ofthis position was found necessary even after the treadmill testresult of the insured. This entire procedure would suggest, atleast from the insurer’s perspective, that the insurance processBwas complete & all mandatory requirements were met.Significantly, there was no contrary communication by therespondent No. 2 indicating otherwise as well. Moreover, whenthe death information was conveyed to the respondents, mostsurprisingly, that was the trigger that led to the insurance companyCto issue a back dated letter deferring the insurance process, whichwas followed by refund of the premium a few days later, and thenthe repudiation after that. The case at hand shows clear malafideon the part of respondent No. 2 in the manner they dealt with theinsurance policy, after learning of the death of the insured personon intimation from the affected persons. The way the issue wasDaddressed by the respondent No. 2 following the informationconveyed does fail, the test of Reasonable Conduct. On top ofthat, to cover up their late reaction, most tellingly, the ante datedletter under the garb of an unfounded medical reason wasdispatched. These amount to a clear case of deficiency of serviceEand a non-bonafide conduct by the respondent no.2. The contraryfinding in the impugned order does not pass judicial scrutiny.The impugned judgment is set aside. The complaint standsallowed. The respondent No.2 is directed to process thecomplainant’s insurance claim and remit the payable sum. [Paras25-27][750-E-H; 751-A-D]F

Case Law Reference

[1984] 3 SCR 350referred toPara 20

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 9237of 2022.GFrom the Judgment and Order dated 12.09.2019 of the NationalConsumer Disputes Redressal Commission, New Delhi in First AppealNo. 1834 of 2019.

Harshit Khanduja, Ms. Ayushi Chaurasia, Ms. Sujal Gupta, Dr.Pratyush Nandan, Yash Pal Dhingra, Advs. for the Appellants.H

Devendra Kumar Singh, Karunakar Mahalik, Ms. Suman Bagga,Ms. Manjeet Chawla, Advs. for the Respondents.

The Judgment of the Court was delivered by HRISHIKESH ROY, J.

Leave granted.

2. Heard Mr. Harshit Khanduja, the learned counsel appearingfor the appellants. Also heard Ms. Suman Bagga, learned counselrepresenting 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 appellantsfor which obtaining the life insurance in the name of Gokal Chand (nowdeceased) was a pre-requisite, as set out by the Axis Bank (respondentno.1).

4. The appellants project that respondent No. 1 bank acting as anagent for respondent No. 2 Insurance Company, on 25.7.2017 sanctionedhome loan of Rs. 70,99,172/-. From the disbursed loan amount, insurancepremium of Rs. 6,24,172/- was paid on behalf of the insured Gokal Chandby the bank to the insurance company. The loan account has since beensettled 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 cardiacarrest soon thereafter on 8.8.2017,the respondent No. 2 refused to settlethe loan account when the insurance claim was made. Consequently, aConsumer Complaint was filed by the appellants before the StateConsumer Disputes Redressal Commission, Haryana (for short “StateCommission”). The State Commission, however, dismissedthe ConsumerComplaint with the observation that there was no privity of contractbetween the insurer and the insured.

6. The resultant appeal was dismissed by the National ConsumerDisputes Redressal Commission (for short “National Commission”) bythe impugned order which has led to the present appeal before this Court.

7. In the impugned judgment, it was noted that the Complainantalong with her husband, late Gokal Chand approached the bank for ahome loan for which the respondent bank had insisted that a life insurancecover should be obtained from respondent No. 2 on the life of Gokal A

B

C

D

E

F

G

H

AChand.The bank accordingly deducted a sum of Rs.6,24,172/-on25.7.2017 towards the insurance premium.The insured Gokal Chand wassubjected 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

B

8.1. Mr. Harshit Khanduja, the learned counsel for the appellantwould submit that the death of the insured Gokal Chand was intimatedon 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 appellant with theCinformation that the proposal for insurance cover for Gokal Chand ispostponed by six months.The reason disclosed for postponement was“Treadmill Test Finding.”

8.2. The appellants have set up a specific case of the respondentno. 2 ante-dating the purported letter indicating postponement of theDproposal and unilaterally reversing/refunding the insurance premium, muchafter the death of the insured was informed to the insurance company.

8.3. According to the appellants, both Forums failed to considerthe fact that the insurance company retained the insurance premium forsome time after the death of the insured on 8.8.2017 and returned theEsame only after the appellant, on 16.8.2017, visited the bank for givinginformation about the death of the insured. This was immediately informedby telephone by the bank to the insurance company and to the insurancecompany in the late evening of 16.8.2017 (date of death intimation),postedan ante-dated letter (bearing the date as 3.8.2017 on it) which wasreceived by the appellant on 17.8.2017. In the said letter, it was mentionedFthat the proposal has been postponed for six months.On the next datei.e., on 17.8.2017, the amount debited towards insurance premium wasunilaterally refunded and was adjusted in the loan account.

8.4. The contention here is that when the medical/treadmill testresult of the insured was normal, there was no reason to either postponeGor to reject the insurance policy when the payable premium wasascertained and debited by the bank to the insurance company. It is,therefore, argued that the act of the insurance company was anafterthoughttriggered only after the intimation of death and a request forprocessing claim.Moreover, such an action was unreasonable and thiswould amount to malafide action.H

9.1. Representing the insurance company (respondent No. 2), Ms.Suman Bagga, learned counsel on the other hand submits that the proposalwas postponed by six months, and eventually the policy was declinedand the insurance company refunded the premium sum to the bank withintimation to the appellant and therefore no concluded life insurancepolicy existed in this case.

9.2. Ms. Bagga, the learned counsel, therefore argues that therespondent No. 2 is not bound to honor the insurance claim sincenotwithstanding the collection of the premium amount the policy was atthe proposal stage only. Moreover, unless acceptance of the proposalleads to issuance of an insurance policy, there can be no relationship ofinsurer and the insured for a valid claim.

10.1. For the respondent bank, Mr. Devendra Kumar Singh,thelearned counsel while supporting the stand of the insurance companywould submit that they had forwarded the proposal to the insurancecompany well before Gokal Chand died, and had already remitted thepayable insurance premium, and therefore the bank cannot be said to bedeficient 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 bankto the applicant Gokal Chand (Annexure P-1) makes it a conditionprecedent 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 the Bankas a sole beneficiary, (i) the Property for its full market valueor replacement cost, and (ii) whenever required by the Bank,the risk of death and injury of the Borrower, and -shall assign in favour of the Bank and submit to theBank the original insurance policy document(s) andpremium/payment receipts; -Shall promptly inform the Bank of any loss or damageto the Property due to any force majeure or Act of God; -shall do all acts as may be required to maintain theBank’s status of sole beneficiary (under the saidinsurances) and receive money thereon; A

B

D

E

F

G

H

A12. The applicant’s declaration in Loan Letter (Annexure P-1)authorizing bank to disburse premium to the insurance company becameeffective only when all the formalities as required by insurance companywere satisfied. The satisfaction of the insurance company’s necessaryrequirements was a condition precedent,for disbursal of the premium,as is clear from the following: -B

“Opting for the loan amount along with life/propertyinsurance in the loan downsize letter shall be considered asthe written intent of the customer to avail the insurance. Suchselection shall be considered to be explicit instruction fromthe borrower to the bank in writing to disburse the premiumCto the insurance company directly and will become effectiveonly on the borrower complying with the all formalities asrequired by the insurance company...”[Emphasis supplied]

13. While sanctioning the home loan, the respondent bank, debitedthe premium amount from the sanctioned loan, and credited the same toDthe account of the insurance company. This appears to be the businessarrangement of the bank and the insurance company. The policyaccordingly was issued by respondent No. 2 in the name of “Axis BankGroup Credit Life Policy No. 35002367”.

14. The treadmill test undergone by the insured Gokal Chand onE30.7.2017, did not bring forth any health issue, as the extract thereofwould show: - F

G

H

15. The reason for deferment is surprisingly shown as treadmilltest finding, although, no abnormality as such was detected in the saidtest report, as noted earlier. Yet,the insurance company dispatched anante-dated letter(written after getting intimation about the death of theinsured), informing about 6 months postponement of the proposal.

16. The above would suggest that the insurance company hurriedlydispatched the ante dated letter, purporting to postpone the proposal,only after getting information about the death of Gokal Chand on16.8.2017. Interestingly, even in this first ante-dated communication ofthe insurance company, there was no mention of rejection of the proposalor refund of the insurance premium (Rs. 6,24,172), remitted by the bankto the insurance company on 25.7.2017 i.e., the date when the loanamount was sanctioned.

17. The tracking details of the insurance postponementcommunication of the respondent No. 2 sent through the Blue-DartCourier reflects that the insurance company’s letter was dispatched onlyat 19:38 hours on 16.8.2017. Significantly, there was no mention in thisletter, about the refund of the premium.Thereafter only on 17.8.2017,the premium amount was unilaterally returned by the respondent No. 2to the loan account, followed by the communication dated 31.8.2017purporting to decline the insurance policy for the housing loan, sanctionedby the bank.

18. As earlier indicated, firstly, it was a pre-requisite for the homeloan borrower to obtain life insurance coverage and the records show thatthe 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 theinsurance company.This would suggest that all the requirements for thepolicy as prescribed by insurance company were satisfied at that stage.

19. On 30.7.2017, the insured was called for medical examinationand Gokal Chand’s treadmill test,did not flag any health issue. In suchbackdrop, the communication of the insurance company for postponingthe life insurance coverage by six months by adverting to the treadmilltest report and that too at a stage after intimation about the death of theinsuredto the respondents, appears to be a malafide act.Moreover, thedecision by the insurance company declining the policy by unilaterallyrefunding the insurance premiumin the given circumstances, would suggestthat the respondent No. 2 were deficient in rendering services to theappellant.

A

B

C

D

E

F

G

H

A20. The respondents, however, contend that there was no bindinglife insurance contract between the respondent No. 2 and the appellantand the learned counsel cited Life Insurance Corporation of India vs.Raja Vasireddy Komalavalli Kamba and Others[1 ]to argue thatacceptance of an insurance contract may not be completed by mereretention of the premium or preparation of the policy document.TheBacceptance must be signified by some act by which the law raises apresumption of acceptance.

A

21. The ratio of above decision in LIC vs. Raja VasireddyKomalavalli Kamba (supra) was considered by this Court in D. Srinivasvs. SBI Life Insurance Company Limited and Others[2], and it wasCclarified that while there is no quarrel with the proposition laid in RajaVasireddy Komalavalli Kamba (supra), the former only laid down aflexible formula for the court to see as to whether there was a clearindication of acceptance of insurance. The forums below have blindlyrelied on the same, and failed to take into cognizance the later ratio inD.DSrinivas (supra), which stressed on considering the unique facts of thecase to determine whether there is a presumption of acceptance of thepolicy by the insurer.

22. Thelatter was a case where a housing loan was obtained bythe complainant, his wife, and his son as joint borrowers and thereafter,Rs. 78,150/- was debited from their account towards life insuranceEpremium for the home loan borrowers. The son of the complainant whowas covered under the insurance policy died of a heart attack and onlyafter the death, the insurance company informed that the policy was notaccepted, and this was followed by refund of the premium amount.

23. When the resultant complaint was not entertained by theFNational Commission and this was challenged before this court, JusticeS. Abdul Nazeerwriting for the Court observed, that when medicalexamination is compulsory before acceptance of premium, it would belogical to say that premium acceptance was based on medicalexamination, and in a situation where premium is accepted, the pre-Gcondition of medical examination stands waived. In such circumstances,a concluded contract governs the parties and when such claim isrepudiated, the same was held to be a case of deficiency of service in aconcluded insurance contract.

1 (1984) 2 SCC 719.H2 (2018) 3 SCC 653.

GOKAL CHAND (D) THR. LRS. v. AXIS BANK LTD. & ANR.[HRISHIKESH ROY, J.]

24. The following relevant passagesfrom D. Srinivas (supra)which merit our endorsement in the present factsare extracted below,for ready reference: - “10. It is clear from the above that the proposer was willingto join the life insurance coverage from the respondentInsurance Company subject to his undertaking medicalexamination and for his willingness he authorised the bank to debit his account for payment of the premium. This clearlyimplies that medical examination was to take place prior tothe premium being debited from the bank account of theproposer. The specific condition in the policy is that in casethe loan amount exceeds Rs 7.5 lakhs the medical examination was compulsory. If the medical examination was compulsoryfor such cases it should have been done along with filing ofthe proposal form before the payment of the premium. If theproposal was not accepted for any reason the premium wouldhave been credited to the account of the proposer. The premiumhas been refunded after 23-2-2011. From this, it is clear thatthe Insurance Company had not rejected the proposal before23-2-2011.

***** ***** ***** *****

12. …The insurance contract being a contract of utmost goodfaith, is a two-way door. The standards of conduct as expectedunder the utmost good faith obligation should be met by eitherparty to such contract.

13. From the aforesaid clause, it may be seen that thecondition precedent for acceptance of the premium was themedical examination. It would be logical for an underwriterto accept the premium based on the medical examination andnot otherwise. Therefore, by the very fact that they acceptedthe premium waived the condition precedent of medicalexamination.

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 respondentInsurance Company informed the appellant that the policywas not accepted by them. We are unable to fathom the reasonfor such excessive delay in informing the appellant, which A

B

C

D

E

F

G

H

Acannot be excused. We are of the opinion that the rejection ofthe policy must be made in a reasonable time so as to be fairand in consonance with the good faith standards. In this case,we cannot hold that such enormous delay was reasonable.Moreover, it is borne from the records that the premium wasonly repaid on 24-2-2011, after a delay of more than oneByear five months. If we consider above aspects, it can bereasonably concluded that the insurer is only trying to getout of the bargain, which they had wilfully accepted. Fromthe aforesaid circumstances we can easily conclude that thepolicy was accepted by the insurer.C15. In the circumstances, there is no reason to believe thatthere was no complete contract. There is clear presumptionof the acceptance of the proposal in favour of the proposer.Therefore, the majority view of the Commission would notsustain.”D25. Guided by the above judgment in like circumstances, the latterratio is applicable to the facts at hand. Though, we acknowledge thatthere is no excessive delay in the current case between medical test &repudiation unlike in D. Srinivas (supra),where the period was over 2years, what needs to be focused upon in the interest of justice is theEtrigger & surrounding circumstances which led to the rejection of proposalby the insurance company.In that light, the conduct of the respondentNo. 2 cannot be countenanced against the good faith standards that aninsurance contract warrants. In this case, the pre-condition for the homeloan as stipulated by the respondents was that life of the borrower willhave to be insured. Only after assessment of the applicant’s credentials,Fthe loan was approved. When the loan amount was sanctioned, thepremium amount was kept aside and was credited to the insuranceCompany and the insured was subjected to a medical test which showednormal health status. Thus, premium was accepted and retained for thelife insurance and no change of this position was found necessary evenGafter the treadmill test result of the insured. This entire procedure wouldsuggest, at least from the insurer’s perspective, that the insurance processwas complete & all mandatory requirements were met. Significantly,therewas no contrary communication by the respondent No. 2 indicatingotherwiseas well. Moreover, when the death information was conveyedto the respondents, most surprisingly, that was the trigger that led to theH

insurance company to issue a back dated letter deferring the insuranceprocess, 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 part ofrespondent No. 2 in the manner they dealt with the insurance policy,afterlearning of the death ofthe insured person on intimation from the affectedpersons. The way the issue was addressed by the respondent No. 2following the information conveyed does fail,in our opinion,the test ofReasonable Conduct. On top of that, to cover up their late reaction,mosttellingly, the ante dated letter under the garb of an unfounded medicalreason was dispatched.These in our opinion, amount to a clear case ofdeficiency of service and a non-bonafide conduct by the respondentno.2. The contrary finding in the impugned order do not pass our judicialscrutiny.

27. We are, therefore, persuaded to conclude that the impugnedjudgment is unsustainable and the same is set aside. With this order, theappeal and the complaint stand allowed. The respondent No.2 isaccordingly directed to process the complainant’s insurance claim andremit the payable sum. The parties to bear their own costs.

Divya Pandey(Assisted by : Roopanshi Virang, LCRA)

Appeal allowed.

AB

C

D

E

F

G

H