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AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • Mr. Kamal Mehta, Advocate., ;
  • Mr. D. Abhinav Rao, Advocate., ;
Judges
  • V.K. Jain, Presiding Member
Acts
  • Section 74 of the Indian Contract Act
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • Mr. Kamal Mehta, Advocate., ;
  • Mr. D. Abhinav Rao, Advocate., ;
Judges
  • V.K. Jain, Presiding Member
Acts
  • Section 74 of the Indian Contract Act
See more information ...
Smart Summary

Structured Summary of the Provided Legal Opinion

Factual and Procedural Background

The complainant purchased a "Jeewan Anand" life insurance policy from the Life Insurance Corporation of India (the appellant) for a 20-year term. A quarterly premium of Rs. 1,69,894/- was payable. The complainant paid eight quarterly premiums amounting to Rs. 13,59,152/- and then stopped making further payments. He served a legal notice on the Corporation seeking refund of the amount paid. The Corporation refused, stating refund was not payable because the policy had not become a paid-up policy (premium for at least three years had not been paid).

Aggrieved, the complainant filed a consumer complaint before the State Commission. The State Commission, by an order dated 21.02.2019, directed the insurer to refund the amount to the complainant within eight weeks, failing which interest at 9% p.a. was to be payable. The Corporation challenged that order before the forum constituting the present opinion. The contested policy provisions (Clause 4 and Clause 7) and certain IRDA Regulations were considered by the court in reaching its decision.

Legal Issues Presented

  1. Whether the complainant is entitled to a refund of the premiums paid where he had not paid premiums for the minimum period (three full years) required by the policy for surrender or paid-up benefits.
  2. Whether the IRDA (Treatment of Discontinued Linked Insurance Policies) Regulations, 2010 (notified 01.07.2010) apply to this policy and entitle the complainant to relief, given that the policy was taken in 2005 and discontinued in 2007.
  3. Whether Section 74 of the Indian Contract Act is applicable in support of the State Commission's order directing refund of premiums.
  4. Whether the State Commission's direction to refund with interest was legally sustainable in view of the contractual terms and the regulatory timeline.

Arguments of the Parties

Complainant's Arguments

  • The complainant's counsel relied on Regulation 4 and Regulation 5 of the IRDA (Treatment of Discontinued Linked Insurance Policies) Regulations, 2010, asserting those regulations provided options and protections to policyholders upon discontinuance, potentially supporting a refund or withdrawal option.

Appellant (Life Insurance Corporation of India) / Respondent's Arguments

  • The Corporation resisted the complaint primarily on the ground that, under the terms of the insurance policy, refund or surrender benefits arise only where at least three full years' premiums have been paid; the complainant had not satisfied that requirement.
  • The Corporation's counsel also submitted that the consumer complaint might be barred by limitation (the complaint was filed about seven years after the policy had discontinued), although the court did not decide the limitation point after disposing the matter on merits.

State Commission's Approach (as challenged)

  • The State Commission relied on Section 74 of the Indian Contract Act in allowing the consumer complaint and directing a refund with interest.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The court's analysis proceeded through a textual and temporal examination of the policy terms and the regulatory instrument invoked by the complainant:

  1. Policy construction:
    • The court examined Clause 4 and Clause 7 of the policy. Clause 4 provides that if at least three full years' premiums have been paid, the policy, upon further non-payment, becomes a reduced (paid-up) policy with attached vested bonus additions but without entitlement to future profits; Clause 7 provides that the policy can be surrendered for cash only after premiums have been paid for at least three years, with a minimum surrender value described in the clause.
    • From the clauses, the court concluded the policy establishes three full years of paid premiums as a prerequisite for surrender or paid-up benefits; nothing in the quoted terms permits a refund where fewer than three years' premiums have been paid.
  2. Applicability of IRDA Regulations, 2010:
    • The complainant's counsel relied on Regulations 4 and 5 of the IRDA (Treatment of Discontinued Linked Insurance Policies) Regulations, 2010. The Regulations were notified on 01.07.2010 and, per Clause 1(2) of the Regulations as quoted in the opinion, they apply from their date of publication and "shall apply to all products of linked life insurance cleared by IRDA thereafter."
    • The court noted the policy in question was taken on 28.03.2005; the last premium paid was on 28.12.2006, and the first unpaid premium was due on 28.03.2007. The Regulations were not in existence at the time the complainant stopped paying premiums and thus could not be applied retrospectively to confer benefits. The court emphasized that the subordinate legislation (the Regulations) had not been given retrospective effect and could not be applied to this matter.
  3. On Section 74 of the Indian Contract Act:
    • The State Commission relied upon Section 74. The court analyzed the provision and held that Section 74 applies where a contract specifies a sum to be paid on breach or contains a stipulation by way of penalty; it permits reasonable compensation up to the amount named. The court found that an insurance contract of the nature before it is not the kind of contract contemplated by Section 74 in the context relied upon by the State Commission, and therefore the Section had no application to justify the refund order. The reliance on Section 74 was held to be misplaced.
  4. Policy rationale and public‑interest considerations:
    • The court accepted the appellant's submission that the insurer accepts the life-risk for consideration by way of premiums and undertakes costs to insure policyholders. If insurers were required to refund premiums during the insured's lifetime contrary to policy terms, it would undermine the insurer's financial viability and its ability to provide insurance cover consistent with the contractual terms.
  5. Conclusion of analysis:
    • Given the policy's explicit minimum thresholds for surrender or paid-up status, the temporal inapplicability of the IRDA Regulations, the misapplication of Section 74 by the State Commission, and the insurer's legitimate contractual and commercial position, the court concluded that the State Commission's order directing refund could not be sustained.
  6. Additional procedural note:
    • The Corporation had raised limitation as a defence (the complaint was filed about seven years after discontinuance), but the court did not decide that point because it disposed of the matter on merits against the complainant.

Holding and Implications

Holding: The impugned order dated 21.02.2019 is set aside and the consumer complaint is dismissed with no order as to costs.

Direct consequences for the parties:

  • The complainant is not entitled to a refund of the premiums paid under the terms of this policy in the circumstances before the court (i.e., where the minimum three full years' premiums required for surrender/paid‑up benefits were not paid and the IRDA Regulations cited were inapplicable by reason of timing).
  • Any amount deposited by the appellant (presumably pursuant to the State Commission's order) is to be refunded to the appellant along with any interest that may have accrued on that amount.
  • The court did not decide the limitation defence raised by the appellant because the complaint was dismissed on merits.

Broader implications:
The opinion does not articulate any new or broader precedent beyond the application of the specific policy terms and the temporal inapplicability of the IRDA Regulations to this matter. Therefore, no new legal principle or binding precedent is set out in this opinion beyond the court's application of existing policy wording and temporal limits on subordinate legislation.

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    Life Insurance Corporation Of India (S) v. Kalluri Siddaiah (S).

    JUSTICE V.K.JAIN (ORAL) Complainant obtained a policy namely Jeewan Anand from the appellant Life Insurance Corporation of India for a term of 20 years. A quarterly premium of Rs. 1,69,894/- was payable by him. He paid 8 quarterly premiums for a total sum of Rs. 13,59,152 and thereafter stopped making payment. The complainant sent a legal notice to the Corporation seeking refund of the above-referred amount Rs. 13,59,152/-. The Corporation replied to the notice stating therein that the said amount was not refundable to the complainant since the policy had not become paid-up, the premium for at least three years having not been paid by him.

    2. Being aggrieved from the refusal of the appellant to refund the amount which the complainant had paid to it, he approached the concerned State Commission by way of a consumer complaint.

    3. The complaint was resisted by the appellant corporation primarily on the ground that in terms of the insurance policy premium was refundable to the complainant who had paid premium for at least three years which would have made policy a paid up policy.

    4. The state Commission vide impugned order dated 21.02.2019 directed the insurer to refund the above referred amount to the complainant within 8 weeks failing which it had to carry interest at the rate of 9% p.a. Being aggrieved the Corporation is before this Commission.

    5. Clause 4 of the insurance policy taken by the complainant reads as under:-

    4. If at least three full years premiums have been paid in respect of this policy, any subsequent premium be not duly paid this policy shall not be wholly void but the sum assured by it shall be reduced to such a sum (paid up value) as shall bear the same ratio to the full sum assured as the number of premiums actually paid shall beat to the local number originally stipulated for in the policy. Provided such reduced sum be not less than Rs. 250/-. The policy so reduced shall thereafter be free from all liability for payment of the within mentioned premium. It shall not be entitled to participate in the future profits but existing vested bonus additions. If any, will remained attached to the reduced paid up policy. Notwithstanding what is above stated, if after at least there full years premiums have been paid in respect of this policy, any subsequent premiums be not duly paid, in the event of death of the life assured within 6 months from the due date of the first unpaid premium, the policy moneys will be paid as if the policy had remained in full force after deduction of (a) the premium or premiums unpaid with interest thereon to date of death, on the same terms as for revival of the Policy during the period and (b) the unpaid premiums failing due before the next anniversary of the Policy.

    6. Clause 7 of the said policy reads as under:-

    7. Guaranteed Surrender Value:

    The policy can be surrendered for cash after the premiums have been paid for at least 3 years. The minimum surrender value allowable in this policy is equal to 30 percent of the total amount of the within-mentioned premium paid excluding the premiums for the first year and all extra premiums and/or additional premium for Accident Benefit that may have been paid. The cash value of any existing vested bonus additions will also be allowed.

    7. It is evident from a perusual of the above referred two clauses that a policy becomes payable only if 3 full years premium is paid by the policyholders. If he pays full 3 years premium, though he cannot participate in future profits, the existing vested bonus additions remain attached to the paid up value of the policy. The policy can be surrendered only after paying premium for at least three years and the minimum surrender value allowed under the policy was 30% of the total amount of the premium paid excluding the premium of the first year and of extra premium and/or additional premium for accidental benefit that may have been paid.

    8. The learned Counsel for the complainant has not been able to draw my attention to any clause in the insurance policy which entitles the the policy holder to claim refund of the premium paid by him even where he has paid premium for less than 3 years. The learned counsel, has drawn my attention to Regulation 4 and 5 of IRDA (Treatment of Discontinued Linked Insurance Policies) Regulations, 2010 which to the extent they are relevant reads as under: Options of a policyholder upon discontinuance of the policy

    4. A policyholder shall be entitled to exercise one of the following options upon the discontinuance of the policy:

    (i) Revival of the policy, or

    (ii) Complete withdrawal from the policy without any risk cover. Obligations of the insurer for revival of the policy

    5. Where a policy is discontinued, the insurer shall take the following steps to enable the policyholder to exercise the option as available in terms of regulation

    (i) Send a notice within a period of fifteen days from the date of discontinuance of the policy to such a policyholder asking him/her to exercise the said options within a period of thirty days of receipt of such notice. Provided that where the policyholder does not exercise the option within the stipulated period of thirty days, the policyholder shall be deemed to have exercised the option mentioned at sub-regulation (ii) of regulation 4. The fund value of the policy shall be part of the segregated fundExplanation: chosen till the policyholder exercises his/her option or till the expiry of thirty days of notice period which ever is earlier. During this period the policy is deemed to be inforce with risk cover as per terms and conditions of the policy.

    (ii) Where the policyholder exercises the option to revive the policy, the risk cover along with investments made in the segregated funds, less applicable charges as per the terms and conditions of the policy, shall be continued. 9. The Regulations relied upon by the learned Counsel for the complainant came to be notified on 01.07.2010. Clause 1(2) of the Regulations provides that they would come into force on the date of their publication in the official budget and shall apply to all products of linked life insurance cleared by IRDA thereafter. 10. The policy was taken by the complainant on 28.03.2005. The last premium was paid by him on 28.12.2006. The premiums payable on 28.03.2017 and for subsequent dates however were not paid. The Regulations relied upon by the learned Counsel for the complainant were not even made at the time the complainant stopped paying premium and committed default by not paying the premium which became due on 28.03. 2007. The Regulations have not been given a respective effect and in fact it being a subordinate legislation they cannot be given a retrospective effect. Therefore, the benefit of the above referred regulations, in my opinion, is not available to the complainant. 11. The State Commission while allowing the consumer complaint placed reliance on Section 74 of the Indian Contract Act which reads as under:-

    When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.
    12. It is evident from a bare perusal of the aforesaid section that it had absolutely no application to the case in hand. The aforesaid section applies to a case where a contract contains an amount to be paid in case of breach of the contract or it contains any other stipulations by way of penalty. The contract of insurance is not a contract of the nature referred in Section 74 of the Indian Contract Act. Therefore Reliance upon the said provision, in my opinion, was only misplaced. 13. As rightly submitted by the Learned Counsel for the appellant, the Corporation insures the risk to the life of the insured for a consideration which comes to it in the form of the premium. Had the complainant unfortunately died at any point of time before he stopped paying premium to the Corporation, the sum insured by the Corporation would have been payable to his nominee. Therefore, the Corporation incurs cost in ensuring the life of the policyholders. If it is made to refund the premium in the lifetime of the insured, in derogation of the terms of the insurance policy, it will not be possible for the Corporation to remain financially viable and it will not be in a position to grant insurance cover to the policyholders. 14. For the reasons stated hereinabove the impugned order cannot be sustained and the same is accordingly set aside. The consumer complaint consequently stands dismissed with no order as to costs. 15. It is also submitted by the learned counsel for the appellant this the consumer complaint was otherwise barred by limitation having been filed about seven years after the policy had discontinued on account of default in payment of premium. However, since on merits I find that the prayer made by the complainant cannot be granted I need not examine the plea of limitation taken by the learned counsel for the appellant. 16. The amount, if any, deposited by the appellant be refunded to it along with interest which may have been accrued on that amount. ......................J V.K. JAIN PRESIDING MEMBER

    (ii) Where the policyholder exercises the option to revive the policy, the risk cover along with investments made in the segregated funds, less applicable charges as per the terms and conditions of the policy, shall be continued.

    9. The Regulations relied upon by the learned Counsel for the complainant came to be notified on 01.07.2010. Clause 1(2) of the Regulations provides that they would come into force on the date of their publication in the official budget and shall apply to all products of linked life insurance cleared by IRDA thereafter.

    10. The policy was taken by the complainant on 28.03.2005. The last premium was paid by him on 28.12.2006. The premiums payable on 28.03.2017 and for subsequent dates however were not paid. The Regulations relied upon by the learned Counsel for the complainant were not even made at the time the complainant stopped paying premium and committed default by not paying the premium which became due on 28.03. 2007. The Regulations have not been given a respective effect and in fact it being a subordinate legislation they cannot be given a retrospective effect. Therefore, the benefit of the above referred regulations, in my opinion, is not available to the complainant. 11. The State Commission while allowing the consumer complaint placed reliance on Section 74 of the Indian Contract Act which reads as under:-

    When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.

    12. It is evident from a bare perusal of the aforesaid section that it had absolutely no application to the case in hand. The aforesaid section applies to a case where a contract contains an amount to be paid in case of breach of the contract or it contains any other stipulations by way of penalty. The contract of insurance is not a contract of the nature referred in Section 74 of the Indian Contract Act. Therefore Reliance upon the said provision, in my opinion, was only misplaced.

    13. As rightly submitted by the Learned Counsel for the appellant, the Corporation insures the risk to the life of the insured for a consideration which comes to it in the form of the premium. Had the complainant unfortunately died at any point of time before he stopped paying premium to the Corporation, the sum insured by the Corporation would have been payable to his nominee. Therefore, the Corporation incurs cost in ensuring the life of the policyholders. If it is made to refund the premium in the lifetime of the insured, in derogation of the terms of the insurance policy, it will not be possible for the Corporation to remain financially viable and it will not be in a position to grant insurance cover to the policyholders.

    14. For the reasons stated hereinabove the impugned order cannot be sustained and the same is accordingly set aside. The consumer complaint consequently stands dismissed with no order as to costs.

    15. It is also submitted by the learned counsel for the appellant this the consumer complaint was otherwise barred by limitation having been filed about seven years after the policy had discontinued on account of default in payment of premium. However, since on merits I find that the prayer made by the complainant cannot be granted I need not examine the plea of limitation taken by the learned counsel for the appellant.

    16. The amount, if any, deposited by the appellant be refunded to it along with interest which may have been accrued on that amount. ......................J

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    Comments

    Life Insurance Corporation Of India (S) v. Kalluri Siddaiah (S).
    (Jan 30, 2020)