IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.2216 OF 2018
[Arising out of SLP (C) No. 14021 of 2017]
D. SRINIVAS … APPELLANT
SBI LIFE INSURANCE CO. LTD.AND ORS. … RESPONDENTS
J U D G M E N T
S. ABDUL NAZEER, J.
1. Leave granted.
2. In this appeal, the appellant has questioned the legality and correctness of the
order dated 03.02.2017 in First Appeal No.560/2012, passed by the National
Consumer Disputes Redressal Commission, New Delhi (for short ‘the
National Commission’) whereby the National Commission has allowed the
appeal filed by the first respondent herein and rejected the complaint of the
3. Brief facts necessary for disposal of this appeal are that the appellant along
with his wife, Smt. D. Suguna and son Mr. D. Venugopal obtained housing
loan of Rs.30,00,000/- (Rupees thirty lacs) in the month of September, 2008
from the respondent Nos. 2 and 3 for construction of a house in Hyderabad.
On 29.09.2008, a sum of Rs.78,150/- (Rupees seventy eight thousand one
hundred fifty) was debited from their loan account towards SBI Life Insurance
Cover under Group Insurance Scheme for home loan borrowers, through
master policy holder i.e. State Bank of Hyderabad, covering the Life of Mr. D.
Venugopal, who was one of the joint loanees. The proposal form dated
29.09.2008 was accompanied by good health declaration by the insured. D.
Venugopal expired on 17.12.2009 due to a massive heart attack. Consequently,
the said life insurance obtained in his name came into force, obligating the
insurer, the first respondent herein, to pay the outstanding amount in their loan
account. The appellant approached the insurer and the bank informing them
about the demise of D. Venugopal and requested them to settle the insurance
claim and to discharge the outstanding loan amount in their house loan
account. Since the insurer did not accede to his request, he filed a consumer
complaint before the State Commission.
4. The insurer contested the complaint mainly on the ground that the proposal for
the policy was not accepted as the insured did not present himself for medical
examination in spite of repeated requests made by the insurer. It was asserted
that the amount of premium of Rs.78,150/- was refunded by cheque dated
10.12.2008 to the State Bank of Hyderabad. Thus, the insurer pleaded no
deficiency in service and denied its liability in connection with the payment to
5. The State Commission allowed the complaint by its order dated 16.07.2012.
However, the National Commission, by majority, allowed the appeal and
dismissed the complaint filed by the appellant.
6. Learned counsel for the appellant submits that the insurance policy was taken
in the name of D. Venugopal in terms of the Insurance Scheme. The proposal
was sent along with the premium of Rs.78,150/- on 29.9.2008. Admittedly,
the insurance company has received the premium on 13.10.2008. D.
Venugopal died on 17.12.2009. This was intimated to the State Bank of
Hyderabad on 3.4.2010. Thereafter, several letters were sent to the bank for
discharge of the loan amount in terms of the insurance policy. The deceased –
D. Venugopal was never called for medical examination. It was only on
18.1.2011 the insurance company had called for medical examination for
coverage of life insurance of the deceased and, therefore, the policy could not
be completed pending examination and that the proposal was returned. It is
clear that there was presumption of acceptance of the proposal in favour of the
deceased as the proposal form along with good health declaration form was
accepted by the bank and sent to the insurance company and the premium was
debited by the bank from his loan account. Neither the appellant nor the
deceased were intimated by the respondents to appear for medical
examination. They did not receive any intimation from the respondents that
the policy has not been issued even though he continued to remain alive for
more than 1 year 3 months. The premium was refunded only after the
appellant insisted for clearance of dues vide cheque dated 23.2.2011, nearly
2½ years after the death of the insured. In this view of the matter, the majority
view of the National Commission is clearly unsustainable.
7. Learned counsel for the respondents, on the other hand, submits that there is
no concluded contract between the parties. Therefore, the insurer is not bound
to discharge loan merely on the ground of receipt of premium for issuing
policy. The deceased did not appear for medical examination. Therefore, the
policy could not be completed on receipt of the death intimation. The
premium amount has been refunded. He prays for dismissal of the appeal.
8. We have carefully considered the submissions of the learned counsel for the
parties. It is not in dispute that the appellant, his wife and his son D.
Venugopal had obtained a housing loan of Rs. 30 lacs from the bank in the
month of September, 2008 for the construction of the house. A sum of Rs.
78,150/- was debited from their loan account towards life insurance cover,
covering the life of D. Venugopal, who was one of the joint loanees. The
proposal form dated 29.09.2008 was also accompanied by good health
declaration by the insured. The insurance company received the premium on
13.10.2008. D. Venugopal died on 17.12.2008. This was intimated to the bank
on 13.4.2010. A notice dated 14.5.2010 was issued to the bank to settle the
loan account. However, the bank did not send any reply to this notice. For
the first time on 18.1.2011 the bank sent a reply stating that the insurance
company vide reference No.15365 dated 17.10.2008 had called for medical
examination for coverage of life insurance of D. Venugopal in respect of the
housing loan in question. It was also informed that a communication was sent
on 16.12.2008 regarding refund of the proposal amount as the insurance
policy could not be completed pending medical examination and the proposal
was rejected. The appellant submitted a reply dated 25.2.2011 stating that at
no point of time any letter from the insurance company was received calling
for medical examination nor did they receive any amount under cheque dated
10.2.2008 said to have been issued. Neither the bank nor the insurance
company had ever informed the proposer or the appellant herein about the
non-issuance of policy for want of medical certificate though they have
alleged that they have intimated the said fact. The letter dated 17.10.2008 was
not sent to the appellant herein.
9. From the scheme it is clear that in the case of joint housing loan the full loan
amount will be insured even if the policy is issued in the name of only one
loanee. In this case, the insured was D. Venugopal son of the appellant,
whereas the loan is the joint loan in the name of the appellant, his son – the
insured and wife of the appellant. The insured had signed a declaration which
is as under:
Good Health Declaration:
“I declare that I am in sound health, do not have
any physical defect/deformity, perform my routine
activities independently and, that I have never
suffered or have been suffering, or have been
hospitalized for any critical illness @ or a
condition requiring medical treatment for a critical
illness as on date.”
10. In cases of loan amount exceeding Rs.7.5 lacs, the provision in the policy
is as under:
Where the loan Amount Exceeds Rs.7.5 Lacs
“As I am willing to join for life insurance cover
from SBI Life Insurance Co. Ltd. subject to my
under-going the medical examination and
satisfying the health underwriting criteria of the
Company, I authorise the Bank to debit my
account for the standard gross premium plus any
additional premium that may be required by SBI
Life based on medical underwriting.
I also note that in the event of SBI Life Insurance
Co. Ltd. not being in a position to accept my life
insurance for any reason whatsoever, the initial
premium amount remitted by the Bank would be
refunded and credited back to my account.”
11. It is clear from the above that the proposer was willing to join the life
insurance coverage from the respondent insurance company subject to his
undertaking medical examination and for his willingness he authorized the
bank to debit his account for payment of the premium. This clearly implies
that medical examination was to take place prior to the premium being debited
from the bank account of the proposer. The specific condition in the policy is
that in case the loan amount exceeds Rs.7.5 lacs the medical examination was
compulsory. If the medical examination was compulsory for such cases it
should have been done along with filing of the proposal form before the
payment of the premium. If the proposal was not accepted for any reason the
premium would have been credited to the account of the proposer. The
premium has been refunded after 23.2.2011. From this, it is clear that the
insurance company had not rejected the proposal before 23.2.2011.
12. Our attention has been drawn to the case of LIC v. Raja Vasireddy
Komalavalli Kamba and Ors., (1984) 2 SCC 719, wherein this Court has clearly
stated that the acceptance of an insurance contract may not be completed by mere
retention of the premium or preparation of the policy document rather the
acceptance must be signified by some act or acts agreed on by the parties or from
which the law raises a presumption of acceptance.
13. Although we do not have any quarrel with the proposition laid therein, it
should be noted that aforesaid judgments only laid down a flexible formula for
the court to see as to whether there was clear indication of acceptance of the
insurance. It is to be noted that the impugned majority order merely cites the
aforesaid judgment, without appreciating the circumstances which give rise to a
very clear presumption of acceptance of the policy by the insurer in this case at
hand. The insurance contract being a contract of utmost good faith, is a two-way
door. The standards of conduct as expected under the utmost good faith
obligation should be met by either party to such contract.
14. From the aforesaid clause it may be seen that the condition precedent for
acceptance of the premium was the medical examination. It would be logical for
an underwriter to accept the premium based on the medical examination and not
otherwise. Therefore, by the very fact that they accepted the premium waived
the condition precedent of medical examination.
15. It is an admitted fact that the premium was paid on 29.09.2008. That it
was only in 18.01.2011 that the respondent insurance company informed the
appellant that the policy was not accepted by them. We are unable to fathom
the reason for such excessive delay in informing the appellant, which cannot be
excused. We are of the opinion that the rejection of the policy must be made in
a reasonable time so as to be fair and 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 was only
re-paid on 24.02.2011, after a delay of more than one year five months. If we
consider above aspects, it can be reasonably concluded that the insurer is only
trying to get out of the bargain, which they had willfully accepted. From the
aforesaid circumstances we can easily conclude that the policy was accepted by
16. In the circumstances, there is no reason to believe that there was no
complete contract. There is clear presumption of the acceptance of the proposal
in favour of the proposer. Therefore, the majority view of the Commission
would not sustain.
17. In the result, the appeal succeeds and is accordingly allowed. The order of
the National Commission dated 22.11.2016 is hereby set aside and the order of
the State Commission dated 16.7.2012 is restored.
18. There shall be no orders as to costs.
(S. ABDUL NAZEER)
February 16, 2018.