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1984 (3) TMI 424 - SUPREME COURT

1984 (3) TMI 424 - SUPREME COURT - 1984 AIR 1014, 1984 (3) SCR 350, 1984 (2) SCC 719, 1984 (1) SCALE 561 - C.A. 2197 OF 1970 - Dated:- 27-3-1984 - MUKHARJI, SABYASACHI AND ERADI, V. BALAKRISHNA, JJ. Dr. YS Chitale, V. G. Shanker, KL Hathi, Ms. Sadhana, DK Chhaya, MK Arora and Mrs. H. Wahi for the appellant. T. S. Krishnamoorthi Iyer, KR. Choudhry and KS. Choudhary for the respondents. JUDGEMENT SABYASACHI MUKHARJI, J. This appeal is by a certificate granted on 18th September, 1970 by the High Co .....

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ther 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 .....

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llant intimating the death of the deceased and demanded payment of ₹ 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. On the 10th January, 1964, the plaintiffs filed the suit in the court of Sub .....

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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 h .....

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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 Corporatio .....

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s 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 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 .....

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s 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 .....

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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 Jagannadhach .....

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her, 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 a .....

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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 let .....

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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 Financial power (up to and Including) Rs. 1. Underwriting and Revivals: (a) Standard lives and revival on original te .....

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n 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 or other not accepted by the Divisional office by the time the deceased had died. The T .....

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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 Manag .....

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e 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 Insuranc .....

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anding order Ex. B-13 and the various documents produced for the first time on record that there was acceptance of proposal and like 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 ca .....

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t. 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 Manag .....

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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 t .....

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ot;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 state .....

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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, t .....

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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 para .....

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