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CASE NO.:

Appeal (civil) 6028 of 2002

PETITIONER:

Chairman, Life Insurance Corporation & Ors.

RESPONDENT:

Rajiv Kumar Bhasker

DATE OF JUDGMENT: 28/07/2005

BENCH:

Ashok Bhan & S.B. Sinha

JUDGMENT:

J U D G M E N T

WITH

CIVIL 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 :

Leave granted in S.L.Ps.

These appeals involving common questions of fact and law were

taken up for hearing together and are being disposed of by this common

judgment.

The basic fact of the matter is as under:

The Life Insurance Corporation (for short "the Corporation") was

created under the Life Insurance Corporation Act, 1956 (for short "the Act").

It 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

Court in Delhi Electric Supply Undertaking Vs. Basanti Devi and Another

[(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.

The Corporation issued a brochure in relation to the said Scheme

wherein it was stated:

"It 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.

This 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.

Under this plan, you as an employer give facilities

to the representatives of LIC to contact your

employees to offer life insurance cover to them.

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Premium 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:

"Dear 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.

The 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.

The 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 reconciliation

statement.

Your 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.

May I 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:

"Dear Sir,

Re: Salary Savings Scheme

PA Code No. ...

In 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

Savings Scheme.

2. * * *

3. It is also understood that no form of individual

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premium due notice or receipt will be issued by

you.

4. It 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. * * *

7. In 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.

Yours 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:

"(a) The employer will receive list of premiums to

be deducted called as demand invoice in duplicate

each month on the specified date.

(b) 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.

(c) It is necessary to inform LIC when an

employee leaves the service or is transferred from

one department to another.

(d) Reconciliation statement in a specified form to

be supplied by LIC will accompany the statement.

(e) The Corporation will make changes in the

invoice based on the information received from the

employer regarding transfer in, transfer out and

exits.

(f) 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.

(g) In 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

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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:

"Realising 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.

It is 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.

A circular titled "Salary Savings Scheme Endorsement" was also

issued which is in the following terms:

"This 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

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accident benefits or extended permanent disability

benefits and any other extra premiums charged.

During 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 concerned employee.

Upon 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.

The 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.

The contentions of Mr. G.L. Sanghi, learned senior counsel appearing

on behalf of the Corporation are as under:

(i) The employer, in view of the Scheme, not being the agent of the

Corporation, Basanti Devi (supra) requires reconsideration.

(ii) 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 \026

Respondents were, therefore, not entitled to the sum assured.

(iii) 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.

(iv) 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.

Mr. L. 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.

The Salary Savings Scheme, as noticed hereinbefore, provides for a

tripartite arrangement.

The 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

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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'.

The 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.

Paragraph 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.

An 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.

In a 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 employer.

In that limited sense, the employers would be the agents of the insurer.

In Bowstead & Reynolds on Agency, Seventeenth Edition, at page 307, it is

stated:

"Where 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."

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Section 182 of the Indian Contract Act, 1872 reads as under:

"'Agent' and 'principal' defined \026 An 'agent' is a

person employed to do any act for another, or to

represent another in dealings with third persons.

The 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.

For 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.

It is 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.

In Basanti Devi (supra), this Court stated the law thus:

"\005Formation 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.

There 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\005"

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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.

We 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.

The 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.

Even 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.

In 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.

In 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 :

"NRL will act solely as an independent contractor.

Nothing 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

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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 :

"There 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 its purpose.

Secondly, 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 :

"In the Garnac case Lord Pearson with the concurrence

of the House, used these words :

"The 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 it\005But 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.

It is 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 :

"\005Ostensible authority comes about where the principal,

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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]:

"The 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:

"In applying that principle the correct approach is

to consider the whole of the conduct of Cleanacres Ltd.

in the 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.

It is 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 \026 1968

(84) Law Quarterly Review 224 at p 231].

For the reasons aforementioned, the appeals preferred by the

Corporation including the cross objections filed by it in Civil Appeal No.

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2357 of 2003 are dismissed and Civil Appeal No. 2357 of 2003 is allowed.

However, in the facts and circumstances of the case, there shall be no order

as to costs.