Life Insurance Corporation & Ors Vs. Rajiv Kumar Bhasker  Insc 374 (28 July 2005)
Bhan & S.B. Sinha
APPEAL NOS. 6029 OF 2002, 2357 OF 2003, 4463, 4620, 5470-71, 6820 OF 2003, 4313
OF 2004 & 1405 OF 2005 AND CIVIL APPEAL NOS.4558,4557 and 4559 OF 2005 [@
S.L.P. (CIVIL) NOS. 8230, 18958 OF 2003 & 48 OF 2005] S.B. SINHA, J :
granted in S.L.Ps.
appeals involving common questions of fact and law were taken up for hearing
together and are being disposed of by this common judgment.
basic fact of the matter is as under:
Life Insurance Corporation (for short "the Corporation") was created
under the Life Insurance Corporation Act, 1956 (for short "the Act").
floated a "Salary Savings Scheme" which envisaged a life insurance
policy for the salaried class employees a proposal wherefor was made to the
concerned employers. Although the Scheme as such is not on records of the case,
the same has been referred to at some detail in the judgment of this [(1999) 8
SCC 229] and we intend to refer thereto in extenso as it throws considerable
light on the issue which falls for our determination.
Corporation issued a brochure in relation to the said Scheme wherein it was
is a simple, economical plan whereby your employees may obtain life insurance
protection for their families and retirement income for themselves under
advantageous conditions which might not be available to them otherwise. This it
accomplishes by savings automatically deducted from their pay and remitted to
us once a month.
is not a group insurance. Each employee owns his policy individually, is
entitled to all its benefits and can continue the policy in the event of any
change in employment.
this plan, you as an employer give facilities to the representatives of LIC to
contact your employees to offer life insurance cover to them.
amounts, if an employee agrees to insure under this plan, are to be deducted
every month from the employee's salary, in the same manner as the employee's
provident fund. All the amounts so collected are paid to the Corporation by one
cheque by the employer. This ensures for the employee regular payment, monthly,
of his premiums at concessional rates. Deduction of premium from the salary or
wages of an employee and its remittance to the Life Insurance Corporation is so
beneficial that the recently amended Payment of Wages Act and the Minimum Wages
Act make it legally permissible for an employer to do so. On your part, all
that the plan involves is a little extra accounting which you will surely
consider worthwhile because of the...." The employer concerned in terms of
the said scheme was addressed a letter by the Corporation which is as under:
Mr Employer, The Salary Savings Scheme of Life Insurance Corporation has proved
of considerable value to many organisations and which we believe will be of
keen interest to you and your employees.
general need on the part of the average employee for more adequate protection
of his dependants is recognised as well as the desirability of his adequate
provision for his own retirement.
Scheme is very simple. All that we need is the cooperation by your Payroll
Department. They have to make the deductions of the premium on the employee
policy-holder's authorisation and remit them regularly to LIC along with a
employee will, I am confident, appreciate the benefits of your Salary Savings
Scheme. It will be a practical demonstration of your personal interest in the
welfare of those who help to make your company successful. Moreover, it is in
tune with the present social trend.
discuss the matter with you with a view to working out details? Yours very
truly, sd/- (Branch Manager)" [Emphasis supplied] In the event, the
employer and the employee agreed to the said offer made by the Corporation, the
former would express its agreement thereto in the following terms:
Sir, Re: Salary Savings Scheme PA Code No. ...
order to make the benefits of your Salary Savings Scheme available to our
employees, we agree to make the payroll deductions authorised in writing by our
employees, in amounts sufficient to pay the premiums included under your Salary
2. * *
is also understood that no form of individual premium due notice or receipt
will be issued by you.
is also understood that the employee policy- holders shall have the right to
discontinue participation in the Scheme at any time. If an employee exercises
this right or if he is terminated, we will notify you in writing at the office
where the remittance is forwarded and thereafter will not be responsible for
collecting his premiums.
5. * *
6. * *
all transactions made by us pertaining to this Scheme and any policies issued
by you thereunder, we shall act as the agent of our employees and not as your
agent for any purpose.
truly sd/- Signature of employer" [Emphasis supplied] The acceptance
letter issued by the concerned Branch Manager of the Corporation envisaged that
it was for the employer to deduct premium from the salary of the employee and
to remit the same to the Corporation. In other words, the responsibility for
collection of the premium by deducting the same from the salary of the employee
and making over the same to the Corporation was of the employer. Some of the
clauses of the letter of acceptance are as under:
The employer will receive list of premiums to be deducted called as demand
invoice in duplicate each month on the specified date.
One copy of the invoice is to be returned along with the remittance. The second
copy is to be retained by the employer for his record.
is necessary to inform LIC when an employee leaves the service or is
transferred from one department to another.
Reconciliation statement in a specified form to be supplied by LIC will
accompany the statement.
The Corporation will make changes in the invoice based on the information
received from the employer regarding transfer in, transfer out and exits.
Deductions made in each month will have to be remitted to us within a week from
the date of making deductions along with a copy of invoice and a reconciliation
statement. Make your cheque payable to the Life Insurance Corporation of India and send it along with the copy of
invoice with reconciliation statement drawn in the form suggested in (d) above
to the appropriate Branch Office. While checking out statement if you find that
an item cannot be paid, rule through the item on the original statement and
note the reason for non-payment against the item in the remark column. If you
find that an addition is to be made, make the addition at the end of the
statement giving policy number, name, amount and the reason for addition. If
the employee is transferred from one department to another, the names of the
departments concerned and code number must be stated.
order to bring the invoices up to date, it is desirable that the employer
informs us of all the changes in the staff immediately as soon as they occur.
The employer need not wait to incorporate those in the invoice. The changes
communicated to us through invoice are received date (sic) and the names of
employees continue to appear in the wrong invoice in the meanwhile." The
employer thereafter addressed a letter to each of the employee informing him of
the Scheme stating:
that an adequate savings and protection scheme will mean so much to you and
your family we have arranged for the benefits of the Salary Savings Scheme of
the Life Insurance Corporation of India for all employees who desire its privilege. The premium will be
automatically deducted from your salary once a month and remitted to the Life
Insurance Corporation." The employer, thus, accepted the sole
responsibility to collect the premium from its employees and remit the same by
means of one cheque to the Corporation. It is also evident from the tenor of
the correspondences passed between the Corporation and the employer that the
Scheme was as much as that of the employer as that of the Corporation.
not in dispute that for the said purpose a reconciliation statement was sent in
the form prescribed by the Corporation and no individual premium notice was
required to be sent to any employee and, furthermore, no receipt was to be
given therefor. It was also for the employer to inform the Corporation about
the changes in the staff as soon as they occured including the factum of
cessation of employment. The concerned employee was never made aware of the
correspondence between the Corporation and the employer.
circular titled "Salary Savings Scheme Endorsement" was also issued
which is in the following terms:
policy having been issued under the Corporation's Salary Savings Scheme, it is
hereby declared that the instalment premium shall be payable at the rate shown
in the schedule of the policy so long only as the life assured continues to be
an employee of his present employer, whose name is stated in proposal and
premiums are collected by the said employer out of the salary of the employee
and remitted to the Corporation without any charge. In the event of the life
assured leaving the employment of the said employer or the premium ceasing to
be so collected and/or remitted to the Corporation, the life assured must
intimate the fact to the Corporation and in the event of the Salary Savings
Scheme being withdrawn from the said employer, the Corporation shall intimate
the fact to the life assured and all premiums falling due on and after the date
of his leaving employment of the said employer, or cessation of collection of
the premiums and remittance thereof in the manner aforesaid, or withdrawal of
the Salary Savings Scheme as the case may be, shall stand increased by the
imposition of the additional charges for the monthly payment that has been
waived under the Salary Savings Scheme at 5% of the premium exclusive of any
premium charged for double accident benefits or extended permanent disability
benefits and any other extra premiums charged.
the period in which premium is remitted to the Corporation through the
employer, the instalment premium will be deemed to fall due on the 20th day of
each month instead of the due date within mentioned." For one reason or
the other, the employers did not deduct the premium from the salary of the
the death of the concerned employee, his heirs and legal representatives either
filed writ petition in the High Court or filed applications before the District
Consumer Forum constituted under the Consumer Protection Act, 1986.
High Court in the writ petition in the case of Rajiv Kumar Bhasker which is
subject matter of Civil Appeal No. 6028 of 2002 and District Forum, State
Commission or National Commission in other cases following the decision of this
Court in Basanti Devi (supra) allowed the same.
In C. Shakuntala
& Anr. [Civil Appeal No. 2357 of 2003], the District Forum held that both
the Corporation and the employer were jointly and severally liable to pay the
assured amount to the concerned employee in view of the deficiency in service.
The said order having been set aside by the State Commission, the Corporation
as also the Employer (BHEL) preferred appeals before the National Commission which
in view of the decision of this Court in Basanti Devi (supra) set aside the
order of the State Commission. A Special Leave Petition was filed by Deputy
Manager (Finance Adv.), BHEL being Civil Appeal No. 2357 of 2003 wherein a
memorandum of cross objection has been filed by the Corporation.
contentions of Mr. G.L. Sanghi, learned senior counsel appearing on behalf of
the Corporation are as under:
The employer, in view of the Scheme, not being the agent of the Corporation, Basanti
Devi (supra) requires reconsideration.
As the policy was issued in the name of the individual employees, in the event
of non-payment of the requisite premium either by the employee or the employer,
the same would result in lapse of the policy. The claimants Respondents were,
therefore, not entitled to the sum assured.
The Corporation being only a commercial undertaking and as in pursuance
thereof, it had merely extended the facility of collection of premium payable
by the employees through the employer, the same would not make it liable to pay
the assured sum in terms of the policy having regard to the default in making
payment of the amount of premium.
The employer acted only as the agent of the employees and not that of the
Corporation for any purpose and, in that view of the matter, the Corporation
would not be liable to pay the assured amount.
Nageshwar Rao, learned senior counsel appearing on behalf of the Appellant in
Civil Appeal No. 2357 of 2003, would contend that having regard to the decision
of this Court in Basanti Devi (supra), the National Commission must be held to
have committed an apparent error in affirming the judgment of the District
Forum as the employer cannot be made liable to pay the amount under the policy.
Salary Savings Scheme, as noticed hereinbefore, provides for a tripartite
Corporation itself had approached the employers and they agreed to such
proposal; upon acceptance whereof by the Corporation, the employer addressed a
letter to the concerned employees giving details about the Scheme. In the
letter of the Corporation, it was projected that it was the scheme of the
employer itself. The employers were, thus, allured to ask their employees to
agree to the proposal, on the premise that the same would amount to a practical
demonstration of their interest in the welfare of those who help to make the
companies successful and, furthermore, which would also be in tune with the
'present social trend'.
employers in terms of this tripartite arrangement accepted the responsibility
of deducting the premium from the salaries of the same and send the same to the
Corporation by one cheque. As noticed hereinbefore, the concerned employees
would have no knowledge about the contents of correspondence passed between the
Corporation and their employers.
3 of the employer's letter to the Corporation indicates that no form of
individual premium due notice or receipt would be issued by the Corporation
which clearly shows that the entire responsibility was thrust upon the employer
by the Corporation.
agency can be created expressly or by necessary implication. It may be true
that the employers in response to the proposal made by the Corporation stated
that they would act as agents of their employees and not that of the
Corporation. But, the expression "agent" in such circumstances may
not mean to be one within the meaning of the Life Insurance Corporation of India (Agents) Regulation, 1972 made in
terms of Section 49 of the Act; but would mean an agent in ordinary sense of
the term. An employer would not be an agent in terms of the said Regulation on
the premise that it was not appointed by the Corporation to solicit or procure
life insurance business. The employers had no duty to discharge to the
Corporation either under the Act or the rules and regulations framed thereunder
but keeping in view the fact that the Corporation did not make any offer to the
employees nor would directly make any communication with them regarding payment
or non-payment of the premium or any other matter in relation thereto or
connected therewith including the lapse of the policy, if any, it cannot be
said that the employer had no role to play on behalf of the Corporation.
plain and simple contract of insurance either the Corporation or the agent, on
the one hand, and the insured, on the other, is liable to comply with their
respective obligations thereunder. In other words, when a contract of insurance
is entered into by and between the insurer and the insured no third party would
have any role to play, but the said principle would not apply in a case of this
nature. In a scheme of this nature, the employers were to make all endeavours
to improve the service conditions of the employees and discharge its social
obligations towards them. So far as the employees are concerned, they could not
approach the insurer directly, and, thus, for all intent and purport they were
to treat their employers as 'agents' of the Corporation. The Scheme clearly and
unequivocally demonstrates that not only the contract of insurance was entered
into by and between the employee and the insurer through the employer but even
the terms and conditions of the policy were to be performed only through the
that limited sense, the employers would be the agents of the insurer.
& Reynolds on Agency, Seventeenth Edition, at page 307, it is stated:
a person, by words or conduct, represents or permits it to be represented that
another person has authority to act on his behalf, he is bound by the acts of
that other person with respect to anyone dealing with him as an agent on the
faith of any such representation, to the same extent as if such other person
had the authority that he was represented to have, even though he had no such
actual authority." Section 182 of the Indian Contract Act, 1872 reads as
and 'principal' defined An 'agent' is a person employed to do any act for
another, or to represent another in dealings with third persons.
person for whom such act is done, or who is so represented, is called the
'principal'." The definition of 'agent' and 'principal' is clear. An agent
would be a person employed to do any act for another, or to represent other in
dealings with third parties and the person for whom such act is done or who is
so represented is called the principal. It may not be obligatory on the part of
the Corporation to engage an agent in terms of the provisions of the Act and
the rules and regulations framed thereunder, but indisputably an agent can be
appointed for other purposes. Once an agent is appointed, his authority may be
express or implied in terms of Section 186 of the Contract Act.
creating a contract of agency, in view of Section 185 of the Indian Contract
Act, even passing of the consideration is not necessary. The consideration,
however, so far as the employers are concerned as evidenced by the Scheme, was
to project their better image before the employees.
well-settled that for the purpose of determining the legal nature of the
relationship between the alleged principal and agent, the use of or omission of
the word "agent" is not conclusive. If the employee had reason to
believe that his employer was acting on behalf of the Corporation, a contract
of agency may be inferred.
Devi (supra), this Court stated the law thus:
of the contract of insurance is between LIC and the employee of DESU. Scheme
has been introduced by LIC purely on business considerations and not for any
particular benefit of insurance conferred on the employee working in an organisation.
Though in the pro forma letter written by DESU to LIC it is mentioned that DESU
would be an agent of its employee and not that of LIC but this understanding
between LIC and DESU was not communicated or made known to the employee. As far
as the employee is concerned he is told that premium will be deducted from his
salary every month and remitted by DESU to LIC under an agreement between LIC
and DESU. For the employee of DESU, therefore, DESU had implied authority as an
agent of LIC to collect premium on its behalf and then pay to LIC.
is nothing on the record to show that Bhim Singh was ever made aware of the
fact that DESU was not acting as an agent of LIC. Rather in the nature of the
Scheme, the employee was made to believe that it is the duty of the employer though
gratuitously cast on him by LIC to collect premium by deducting from the salary
of each employee covered under the Scheme every month and to remit the same to
LIC by means of one consolidated cheque. Now it could be said that DESU would
not be liable as an agent of its principal, i.e., LIC and also it was rendering
service of collecting the premium and remitting the same to LIC free of any
cost to the employee. As to what is the arrangement between LIC and DESU the
employee is not concerned. In these circumstances DESU cannot perhaps be held
liable under the Act" We, with respect agree with the said observations
and, thus, are unable to accept the contention of Mr. Sanghi that the matter be
referred to a larger Bench.
may, furthermore, observe that having induced the employer to act as a model
employer and discharge its social obligations vis-`-vis its employees it may
not be permissible for a 'State' within the meaning of Article 12 of the
Constitution to contend at this belated stage that in the event of default on
the part of the employer, it may get itself discharged from its contractual
obligations in such a cavalier manner.
Scheme clearly provides that in the event of cessation of employment the
concerned employee if continues his employment under a new employer, the former
employer has to inform the Corporation thereabout. Furthermore, upon retirement
or in situations other than taking up of any job with any other employer, the
employee would be entitled to continue with the policy but therefor, he will
have to pay a higher premium.
at that stage, the Corporation would have a duty to inform the employee
concerned towards his right. Even in case of non-payment of premium for any
reason whatsoever, in view of the object the Scheme seeks to achieve, it was
the duty of the insurer to inform the employee about the consequences of
non-receipt of such premium from the employer. The Corporation has failed or
neglected to do so. In that view of the matter, we do not find any reason to
take a different view.
terms of the Scheme, significantly the employee for all transactions was
required to contact his employer only. In view of our findings aforementioned,
the Corporation, thus, cannot be permitted to take a different stand so as to
make the employee suffer the consequences emanating from the default on the
part of the employer. If for some reasons, the employer is unable to pay the
salary to the employees, as for example, its financial constraints, the
employee may be held to have a legitimate expectation to the effect that his
employer would at least comply with its solemn obligations. Such obligations
having been undertaken to be performed by the employer at the behest of the
Corporation as its agent having the implied authority therefor, the Corporation
cannot be permitted to take advantage of its own wrong as also the wrong of its
agent. In any event, the employer was obligated to inform the employee that for
some reason, he is not in a position to perform his obligation whereupon the latter
could have paid the premium directly to the Appellant herein.
South Sydney District Rugby League Football Club Ltd. vs. News Ltd. and Others
[177 ALR 611], a similar question came up for consideration. In that case there
existed an exclusionary provision contained in clause 2.2 in the agreement
entered into by the parties thereto to the following effect :
will act solely as an independent contractor.
in this agreement will constitute, or be construed to be or create, the
relationship of employer and employee, principal and agent, trustee and
beneficiary, joint venturers or partnership between the partners and NRL."
Construing the said clause it was held that by conduct of the parties a
relationship was designed in which, at the level at which NRL was to perform
its part in the operation of the business of the Appellant therein, NRL
represented the partnership's business, and invited participation therein by
clubs etc. The Court held that by reason thereof a fiduciary relationship came
into being which was in substance that of an agency, stating :
are several ancillary matters to which I should refer briefly. First, I have
not referred directly to an argument advanced by News and NRLI to the effect
that the recitals in the services agreement cannot in any way be used to
contradict cl. 2.2. I do not for one moment cast doubt on the long-established
proposition that in the construction of an instrument the recitals are
subordinate to the operative part so that where the operative part is clear, it
is treated as expressing the intention of the parties and it prevails over any
suggestion of a contrary intention afforded by the recitals : see 10 Halsbury's
Laws of England, 1st ed, 1909, para 803; Norton on Deeds, 2nd ed, 1928, p. 197.
The question is not whether the intent of cl. 2.2 was clear. It is whether, in
the context of the factual relation consensually created, it was effective in
having found NRL to be the partnership's agent, I do not thereby suggest that
any particular contract entered into by NRL did, or for that matter did not,
bind the partnership. That question is one of fact in each instance and raises
issues that go far beyond what is of present concern." A somewhat similar
view was taken by the House of Lords in Branwhite vs. Worcester Works Finance
Ltd. [(1969) 1 AC 552] in the following terms :
the Garnac case Lord Pearson with the concurrence of the House, used these words
relationship of principal and agent can only be established by the consent of
the principal and the agent. They will be held to have consented if they have
agreed to what amounts in law to such a relationship, even if they do not
recognize it themselves and even if they have professed to disclaim itBut the
consent must have been given by each of them, either expressly or by
implication from their words and conduct." The significant words, for the
present purpose, are "if they have agreed to what amounts in law to such a
relationship." These I understand as pointing to the fact that, while
agency must ultimately derive from consent, the consent need not necessarily be
to the relationship of principal and agent itself (indeed the existence of it
may be denied) but may be to a state of fact upon which the law imposes the
consequences which result from agency.
consensual, not contractual. So interpreted, this formulation allows the
establishment of an agency relationship in such cases as the present." Yet
again in Armagas Ltd. vs. Mundogas S.A. [(1986) AC 717], the House of Lords
pointed out that even in absence of any express contract of agency in relation
to the transaction made with the third party, ostensible authority may be
presumed, stating :
authority comes about where the principal, by words or conduct, has represented
that the agent has the requisite actual authority, and the party dealing with
the agent has entered into a contract with him in reliance on that
representation. The principal in these circumstances is estopped from denying
that actual authority existed. In the commonly encountered case, the ostensible
authority is general in character, arising when the principal has placed the
agent in a position which in the outside world is generally regarded as
carrying authority to entered into transactions of the kind in question.
Ostensible general authority may also arise where the agent has had a course of
dealing with a particular contractor and the principal has acquiesced in this
course of dealing and honoured transactions arising out of it." In Gurtner
and Others vs. Beaton and Others [(1993) 2 Lloyd's Rep.369] their Lordships
quoted with approval the following dicta from Freeman & Lockyer vs.
Buckhurst Park Properties (Mangal) Ltd. [(1964) 2 QB 480]:
representation which creates "apparent" authority may take a variety
of forms of which the commonest is representation by conduct, that is, by
permitting the agent to act in some way in the conduct of the principal's
business with other persons." It was further held:
applying that principle the correct approach is to consider the whole of the
conduct of Cleanacres Ltd.
light of all the circumstances in order to determine whether that conduct
amounted to a holding out by them of Mr. Beaton as having the necessary
authority : see per Lord Justice Browne-Wilkinson in The Raffaella at p. 41.
not right to concentrate on the use of the word "usually" by Lord
Justice Diplock in Freeman & Lockyer at p. 503 and to treat it as decisive
in this case on the ground that an aviation manager cannot be regarded as
"usually" having authority to make a contract for air taxi work when
the aviation business of which he is manager does not include such work."
Agency as is well-settled, is a legal concept which is employed by the Court
when it becomes necessary to explain and resolve the problems created by
certain fact situation. In other words, when the existence of an agency
relationship would help to decide an individual problem, and the facts permits
a court to conclude that such a relationship existed at a material time, then
whether or not any express or implied consent to the creation of an agency may
have been given by one party to another, the court is entitled to conclude that
such relationship was in existence at the time, and for the purpose in
question. [See "Establishing Agency" by GHL Fridman 1968 (84) Law
Quarterly Review 224 at p 231].
the reasons aforementioned, the appeals preferred by the Corporation including
the cross objections filed by it in Civil Appeal No. 2357 of 2003 are dismissed
and Civil Appeal No. 2357 of 2003 is allowed.
in the facts and circumstances of the case, there shall be no order as to