HARSHAD J. SHAH AND ANR. A

v.

L.1.C. OF INDIA AND ORS.

APRIL 4, 1997

B

[S.C. AGRAWAL AND G.B. PATIANAIK, JJ.]

Contract Ac~ 1872 : Sectio11s 186 to 188 and 237.

Ge11eral age11t of UC-Authority of-To receive premium 011 behalf of C

LIC-Actual or appare11t authority to bi11d LIC-Age11t received bearer che-

que from insured 011 accou11t of premium-After encashi11g the cheque the

said age11t deposited the amount with UC after the death of the in­

sured-Meanwhile, the policy lapsed-Letter of appoi11tme11t of agent as well

as Regulation 8( 4) expressly prohibited the agent to collect premium 011 behalf D

of UC-UC by its co11duct did 1101 i11duce the policyholders to believe that

agents were authorised to receive premium 011 behalf of LIC-Held : Agent

had

neither actual 11or appare11t authority to receive premium

011 behalf of

UC-17wugh UC was 'State' withi11 the meaning of Ari. 12 but while maki11g

a provision i11 the Regulations prohibiti11g the agents from collecting premium

011 behalf of the UC, it ca11not be said that UC had not acted fairly or in E

co11so11ance with Pait Ill of the Co11stitutio11-Lif e I11surance Corporation

Act, 1956, S. 49--Life Insura11ce Corporation of India (Agents) Regulations,

1972, Regn. 8--Life Insurance Corporation (Agents) Rules, 1981.

Ge11eral Agent of UC-Authority of-To receive premium 011 behalf of F

LIC-Agent received bearer cheque from insured and deposited the amou11t

with UC after death of insured-Meanwhile the policy lapsed-Age11t had

neither

express

nor implied authority to collect premium on behalf of

UC-LIC also by its conduct did not i11duce the insured to believe that the

agent was autho1ised to receive premium 011 behalf of UC-Held : ll1 the G

circumstances of the case, the agent in receiving the bearer cheque from the

insured was not acting as an agent of the LIC-T11e policy having lapsed for

default in payment of prem~um, the legal heirs of the deceased insured could

11ot make any claim from LIC-However, LIC directed to refund the entire

amount of premium paid to the LIC along with interest @ 15% per annum. H

617

618 SUPREME COURT REPORTS [1997) 3 S.C.R.

A Practice and Procedure :

Costs-Award of-Question

of sufficient

imp01ta11ce requiring decision

of Supreme Cowt raised by appellant-Appellant's claim allowed by Stale

Consumer Displlles Redressal Commission though rejected by National Com­

B mission-Held: In the circumstances of the case, while dismissing the appeal,

UC directed to pay Rs. IO, 000 as costs to the appellant.

The husband of Appellant No. 2 took out four insurance policies

each with double accidental benefits through respondent No. 3 who was a

general agent

of the Life Insurance Corporation of India (LIC).

Premium

C under the said policies was payable on half-yearly basis. The insured

deposited the first and second premium and did not deposit the third

half-yearly premium within the prescribed period. Subsequently, respon­

dent

No. 3

rcceiYed a bearer cheque towards half-yearly premium on all

the four policies. The cheque was encashed

by the son of respondent No.

D 3 and the amount of premium was deposited a day after the death of the

Insured

in a fatal accident Appellant No. 2, t11e

widow of the insured, as

the nominee under the policies, submitted a claim to the LIC on the ground

that the policies had lapsed on account of non-payment of the half yearly

premium even within the period of grace. Appellant No. 2 submitted a

claim before the State Consumer Disputes Redressal Commission. The

E State Commission held that in order to collect more business the agents

of LIC collect the premiums from the policyholders either in cash

or by

cheque and then deposit the money so collected in the office or the LIC

and that this practice had been going on directly

within the knowledge of

the LIC administration despite the departmental instruction that the

F agents are not authorised to collect the premium. The State Commission

was of the

view that when the practice of accepting money by the LIC

Agent

from policyholders is in existence and the money is collected by the agent

in his capacity

and authority the reasonable

inference was that the LIC

was negligent in its service towards the policyholder. The National Con­

sumer Disputes Redressal Commission dismissal the appeal filed hy the

G appellants. Hence this appeal.

The Question before this Court was whether payment of premium in

respect of a life insurance policy

by the insured to the general agent of the

LIC could

be regarded as payment to the insurer so as to constitute a

H discharge of liability of the insured.

J

l

1

HARSHAD .T. SHAH v. L.LC. OF INDIA 619

On behalf of the appellants it was contended that the LIC, by its · A

conduct, had induced the policyholders, including the insured, to believe

that the agents were authorised to receive the premium on behalf of the

LIC,

that the doctrine of apparent authority under

Section 237 of the

Contract Act, 1872 should be invoked; and that LIC, being "State" under

Article

12 of the

Constitution, must act within the confines of the rights

guaranteed under Part III of the Constitution.

B

On behalf of the respondent-UC it was contended that in view of the

condition in the letter of appointment expressly prohibiting respondent

No. 3 from collecting the premium on behalf of the LIC, he had no express

authority to

receive the premium on behalf of the LIC; that respondent C

No. 3 also had no implied authority in view of the express provision in

Regulation 8( 4) of the Life Insurance Corporation of lnd:a (Agents)

Regulations,

1972.

Disposing of the appeal, this

Court

D

HELD : 1.1. Under the Law of Agency, as applicable in England, the

authority of an agent may

be (i) actual or (ii) apparent. Actual authority

results from a manifestation of consent

that the agent should respresent

or act for the principal made

by the principal to the agent himself. It may

be express if it is given wholly or in part by means of words or writing or

or it may be implied when it is regarded by the law as the principal having E

given him because of the interpretation put by the

law on the relationship

and dealings of the two parties. Implied authority may arise in the form

of incidental authority, i.e., authority to

do whatever is

necessarily or

normally incidental to the activity expressly authorised, or usual authority,

i.e., authority to

do whatever an agent of the type concerned

would usually F

have authority to do, or customary authority, i.e., authority to act in

accordance with such applicable business customs as are reasonable. The

authority of the agent may also be implied from the circumstances of the

particular case. [628-E-H]

1.2. The authority of the agent is apparent where it results from a G

manifestation made by the principal to third parties. The doctrine of

apparent authority involves the assumption that there is in fact no

authority

at all. It is the authority of an agent as it appears to others. Under this doctrine where a principal represent, or is regarded by law as

representing, that another has authority, he may

be bound as against a H

620 SUPREME COURT REPORTS (1997) 3 S.C.R.

A third party by the acts of that other person within the authority which that

person appears to have though

he had not in fact given that person such

authority

or had limited the authority by instruction not made known to

the third party. The

notion. of apparent authority is essentially confined

to the relationship

between principal and third party. The position is not

B very different in the law in India. [n this context Sections 186 to 188 and

237 of the Contract Act, 1872 are relevant. (629-A-D]

Bowstead

011 Agency, 15th Et:ln., Article 22, pp. 92 to 94, referred to.

2. Under the law governing Contracts of Insurance the premium may

C be paid by the assured to the insurers or to an insurance agent acting on

behalf of the insurers and if the agent has author!ty to receive it the

payment binds the insurers. The authority need not

be an express

authority; it may

be implied from the circumstances. (629-F-G]

Halsbwy's Laws of England, Vol. 25, pp 254 para

460, referred to.

D

3.1. [n the instant case, it cannot be said that respondent No. 3 had

the express authority to receive the premium

on behalf of the Life

In­

surance Corporation of India (LIC) because in the letter of appointment

there was a condition expressly prohibiting him from collecting the

premium

on behalf of the LIC. Nor respondent No. 3 had an implied

E authority to collect the premium on behalf of the LIC in view of the express

prohibition in Regulation 8(4) of the

Life Corporation of India (Agents)

Regulations,

1972 which in 1981 became a rule and published in the

Gazette. (629-H;

630-A-B]

p 3.2. In the complaint filed before the State Commission, no case was

set up by the appellants that the LIC, by its conduct, had induced the

policyholders, including the insured, to believe that the agents (including

respondent

No. 3) were authorised to receive the premium on behalf of the

LIC. Nor

is there any material on record which may lend support to such

a submission. From the mere fact that respondent

No. 3 had obtained

G bearer cheque from the insured and after encashing the same from the

Bank, had deposited the said amount with the LIC, it cannot

be said that

the LIC induced insured to believe the respondent

No. 3 had been

authorised

by the LIC to receive the premium on behalf of the LIC.

Therefore, the doctrine of apparent authority underlying Section

237 of the

H Indian Contract Act, 1872 cannot be invoked in the facts of this case

HARSHAD J. SHAH v. L.l.C. Of INDIA 621

especially when the LIC has been careful in making an express provision A

in the Regulations/Rules, which are statutory in nature, indicating that the

agents are not authorised to collect any moneys

or accept any risk on

behalf of the LIC

and they can collect so only if they are expressly

authorised to do so. [630-E-H;

631-A-C]

4.1. It is true that the LIC, being

'state' under Article 12 of the B

Constitution, must act within the confines of the rights guaranteed under

Part III of the Constitution. But this constitutional obligation has no

bearing

on the present case. In disclaiming its liability the LIC is acting in

accordance with the provision in Regulations/Rules framed

by it whereby

the agents have been prohibited from collecting the moneys on behalf of the

C

LIC. The said provision has been made in public interest in order to protect

the Corporation from any fraud

on the part of an agent. It cannot be said

that in making such a provision in the Regulations/Rule and in

i:cting in

accordance with the same the LIC has not acted fairly

or in consonance

with its obligations under

Part III of the Constitution. [631-D·F]

LJC of India &Anr. v. Consumer Education & Research Centre & Ors.,

[1995] 5 sec 482, referred to.

D

4.2. No ground is, made out for interfering with the decision of the

National Commission

that respondent No. 3 in receiving the bearer

cheque E

from the insured was not acting as an agent of the LIC. But keeping in view

the facts and circumstances of the case LIC is directed to refund the entire

amount of premium paid to the LIC on the four insurance policies to

appellant

No. 2 along with interest @ 15% per annum. The interest will be

payable from the date of receipt of the amounts of premium. Having regard

to the fact

that the appellants had succeeded before the State Commission F

and the questions raised by them are of sufficient importance requiring a

decision

by this Court respondent No. 1 shall

1iay to the appellants a sum

of

Rs.

10,000 as costs. The amount of premiums with interest and the costs

shall be paid within a period of one month. [631-G-H;

632-A-B]

CIVIL

APPELLATE JURISDICTION : Civil Appeal Nos. 7202-G

7203 of 1996.

From the Judgment and Order dated 26.7.94 of the National Con­

sumer Disputes Redressal Commission, New Delhi in F.A. Nos. 280 and

323 of 1992. H

622 SUPREME COURT REPORTS [1997] 3 S.C.R.

A Naresh S. Mathur and Gopal Singh for the Appellants.

B

Harish N. Salve, K.K. Sharma, C.K. Sasi and Kailash Vasdev for the

Respondents.

The Judgment of the Court w<:s delivered by

S.C. AGRAWAL, J. The question that falls for consideration in these

appeals

by special leave is whether payment of premium in respect of a life

insurance policy

by the insured to the general agent of the Life Insurance

Corporation of India (for short 'LIC') can be regarded

as payment to the

insurer so

as to constitute a discharge of liability of the insured. This

C question arises on the following facts :

Jaswantrai

G.

Shah, the husband of appellant N<J. 2, (hereinafter

referred to

as 'the insured') took out four insurance policies for Rs.

25,000

each with double accidental benefits on March 6, 1986 though Shri

D Chaturbhuj H. Shah (respondent No. 3) who was a general agent of a the

LIC (respondent

No. 1).

Premium under the said policies was payable on

half yearly basis. The insured deposited the first half yearly premium on

March

6, 1986 and the second half yearly premium was deposited on

. September

6, 1986. The third half yearly premium fell due on March 6,

1987 but it was not deposited within the prescribed period.

On June 4, 1987

E respondent No. 3 met the insured and obtained from him a bearer cheque

dated .June

4, 1987 for Rs. 2,730 drawn

OD' Union Bank of India, Malad,

Bombay, towards the half yearly premium on all the four policies. The

cheque

was encashed by the son of respondent No. 3 on June 5, 1987. The

said amount of premium was deposited

by respondent No. 3 with the LIC

on August

10, 1987. In the meanwhile on August 9, 1987 the insured met

F with a fatal accident and he died on the same day. Appellant No. 2, the

widow of the insured,

as the nominee under the policies, submitted a claim

to the LIC on the basis of the said four policies but the claim

was

repudiated by the LIC on the ground that the policies had lapsed on

account of non-payment of the half yearly premium which

fell due on

G March 6, 1987 within the period of grace. Appellant No. 2 along with the

Consumer Education

& Research

Society (appellant No. 1), a Society

registered under the societies. Registration Act and mainly devoted to the

promotion and protection of consumer interest, submitted a complaint

before the Gujarat State Consumer Disputes Redressal Commission at

Ahmedabad wherein a claim

was made for payment of Rs. 4,32,000 to

H appellant No. 2. The said claim comprised Rs.

1,00,000 payable under the

HARSHAD J. SHAH v. L.I.C. OF INDIA [S.C. AGRAWAL,J.) 623

four policies of Rs. 25,000 each, Rs. 1,00,000 payable towards double A

accidental benefit, Rs. 1,32,000 payable by way of interest @ 18% per

annum on the aforementioned amount of Rs. 2,00,000 from June 6, 1987

to March 31, 1991 and Rs. 1,00,000 as compensation for annoyance, agony,

hardship and humiliation caused to the dependents of the insured. The said

complaint

was transferred by the Gujarat State Consumer Disputes

Redressal Commission to the Maharashtra State Consumer Disputes

B

Redressal Commission at Bombay, (hereinafter referred to as 'the State

Commission').

Before the State Commission the case of the appellants

was that the

amount of premium collected

by respondent No. 3 from the insured was C

collected by

hirii on behalf of the LIC. LI C, on the other hand, pleaded

that the amount of premium collected

by the General Agent cannot be said

to have been received

by the LI

C. It was stated that the agents are not

authorised to collect the premium amount. The State Commission,

by its

judgment dated June

5, 1992, directed the LIC to settle the claim in respect

of the four policies within

30 days from the receipt of the order and to pay D

the amount of the claim to appellant No. 2 after deducting the amount of

interest, if

any, necessary to treat the policies as surviving. The State

Commission held that

in order to collect more business the agents of the

LIC collect the premiums from the policyholders either in cash or

by

cheque and then deposit the money so collected in the office of the LIC E

and that this practice had been going on directly within the knowledge of

the LIC administration despite the departmental instructions that the

agents are not authorised to collect the premiums. The State Commission

was of the view that when the practice of accepting money by the LI C

Agent from policyholders

is in existence and the money is collected by

agent in his capacity and authority the reasonable inference was that the F

LIC was negligent in its service towards the policyholder.

Appeals were filed against the said judgment of the

State Commis-

sion

by the appellants as well as by respondent Nos. 1 and 2. The National

Consumer Disputes Redressal Commission (hereinafter referred to

as 'the G

National Commission') by its order dated July 26, 1994 has dismissed the

appeals filed

by the appellants and has allowed the appeal filed by the

respondent Nos. 1 and

2. The National Commission has held that the

insurance Agent in receiving a bearer cheque from the insured towards

payment of the insurance premium was not acting as the Agent of the LIC

H

624 SUPREME COURT REPOR1S [1997} 3 S.C.R.

A nor could it be deemed that the LIC had received the premium on the date

the bearer cheque towards the premium

was received by the insurance

Agent, namely, June

4, 1987 even though he deposited the same with the

LIC on August

10, 1987, one day after the death of the insured. Feeling

aggrieved

by the said decision of the National Commission, the appellants

B

have filed these appeals.

It

is not disputed that the third half yearly premium had become

payable on the four insurance policies of the insured on March

6, 1987 and

it

was not paid within the grace period of one month prescribed in the

insurance

policies._In condition No. 2 of the conditions set out in the

C Insurance Policy it is stated the if the premium is not paid before the expiry

of the

days of

!,'face, the Policy lapses. The case of the appellants is that

since the payment was made to respondent

No. 3 who was the agent of the

LIC on June

4, 1987 by bearer

cheque d<1ted June 4, 1987 for Rs. 2,730,

the policies did not lapse on account of non-payment of the premium

D within the period of grace and that in any event that said policies could be

revived on payment of the interest payable for the delayed payment of the

premium amount. The case of the LIC, on the other hand,

is that

respon­

dent No. 3 had not been empowered by the LIC to receive payment from

the insured on the policies and that handing over of the cheque of Rs.

2, 730 by the insured to respondent No. 3 on June 4, 1987 cannot be regarded

E as payment of premium by the insured to the LIC on June 4, 1987. The

premium on the said policies

was paid to the LI C only on August

10, 1987

but before that the insured had died on August

9, 1987 and, therefore, the

policies, which had lapsed

Oil aCCOUnt of non-payment of premium, COUid

not be revived. The LIC, in this context, places reliance on the, Life

F

G

Insurance Corporation of India (Agents) Regulations, 1972 (hereinafter

referred to

as 'the Regulations') framed by the LI C, in exercise of the

powers vested in it under Section

49 of the Life Insurance Corporation Act,

1956, (hereinafter referred to as 'the Act'). Regulation 8 dealt

with func­

tions of agents and clauses (3) and ( 4) of the said Regulation provide as

follows:

"(3) Every agent shall, with a view to conserving the business

already secured, maintain contract with all persons who have

become policyholders of the Corporation through him

and shall :

H (a) advise every policyholders to effect nomination of assign-

HARSHAD J. SHAH i•. L.l.C. OFINDIA[S.C. AGRAWAL, J.] 625

ments in respect of his policy and offer necessary assistance A

in this behalf;

(b) endeavour to ensure that every instalment of premium

is

remitted by the policyholder to the Corporation within the

period of grace;

(

c) endeavour to prevent the lapsing of a policy or its conversion

into a paid-up policy; and

B

( d) render all reasonable assistance to the claimants in filling

claim forms and generally in complying with the requirements

C

laid down in relation to settlement of claims.

(

4) Nothing contained in these regulations shall be deemed to

confer

any authority on an agent to collect any money or to accept

any risk for or on behalf of the Corporation or to bind the

Corporation in any manner whatsoever :

Provided that an agent may be authorised by the Corporation

to collect and remit renewal premiums under policies on such

conditions

as may be specified."

D

By the Life Insurance Corporation (Amendment) Act, 1981 (Act 1 E

of 1981), clause (cc) was inserted in sub-section (2) of

Section 48 and as a

result, role-making power

was conferred on the Central Government to

make rules providing agents of the LIC including those

who became

employees and agents of the LIC on the appointed day under the Act and

corresponding provision

in

Section 49 of the Act which empowered the

LIC to make regulations

in that regard was deleted. By virtue of sub-sec- F

lion (2-A) of

Section 48, which was also introduced by Act 1 of 1981, it

was provided that the regulations and other provisions as in force imme­

diately before the commencement of the Life Insurance Corporation

(Amendment) Act,

1981, with respect to the terms and conditions of

service of employees and agents of the Corporation including those

who G

became employees and agents of the LIC on the appointed day under the

Act, shall be deemed

to be rules made under clause (cc) of sub-section (2)

and shall, subject to the other provisions, have effect accordingly. In

view

of the said provisions, the Regulations by legal fiction introduced by

Section 48(2A) of the Act became Life Insurance Corporation (Agents)

Rules (hereinafter referred to

as 'the Rules') with effect from January 31, H

626 SUPREME COURT REPORTS [1997] 3 S.C.R.

) A 1981, the date of coming into force of Act 1 of 1981.

B

c

D

E

On behalf of the LIC it has also been stated that one of the condi­

tions of appointment of respondent

No. 3 as General Agent, as laid down

in the letter of appointment dated December

5, 1962, was : "10. As a 'probationary agent you are not authorised to collect

moneys, accept risks or bind the Corporation in

any way other than

to collect the Deposit towards the First

Premium and Fees as

stated in the booklet entitled "Hints to Agents", nor are you

authorised or allowed to advance premium to the Corporation on

behalf of policyholders or to become an assignee except with the

prior permission in writing of the Divisional Manager, under

policies on the

lives of persons other than your own or your very

near relatives such as

wife or minor children, or major children if

they are members of a joint family, or to get assigned to such very

near relatives' policies on the

lives of persons other than their near

relatives

.. You are also not authorised to collect or pass receipts

for moneys paid towards premiums, in respect of which remittan­

ces should be made

to the Branch Office of the Corporation

concerned and receipt in the Corporation's official form obtained.

In respect of

any unauthorised collections,'you

will be acting as an

agent of the party concerned and not

as an agent of the Corpora­

tion and

you alone will be answerable to the party for consequences

of such unauthorised

actions."

On the basis of the aforesaid provisions contained in the Regula­

tion/Rule 8 of the Regulations/Rules and clause 10 of the conditions on

F which respondent No. 3 was appointed as the agent, the LIC claims that

respondent No. 3 had not been authorised by the LIC to collect the

premium from the insured and the action of respondent No. 3 in receiving

the cheque of Rs. 2,730 from the insured on June 4, 1987 cannot be

regarded

as receipt of premium by respondent No. 3 on behalf of the LIC

G and, therefore, the said payment cannot be treated as payment of premium

to the LIC on June

4, 1987 and that insofar as the LIC is concerned the

premium

was paid only on August

10, 1987 after the death of the insured.

In condition No. 2

in the Insurance

Policy it was provided that "if the

premium

is not paid before the expiry of the days of grace, the policy

H

lapses". The grace period allowed for payment of yearly, half yearly or

--

-

HARSHAD J.SHAH v. L.l.C.OFINDIA(S.C. AGRAWAL,J.] 627

quarterly premiums was one month. The said grace period for payment of A

half yearly premium on the policies of the insured expired on April 6, 1987.

Since the premium was admittedly not paid by the insured till April 6, 1987

the policies had lapsed. For revival of discontinued policies condition No.

3 of the Insurance Policy makes the following provision :

"3. Revival of Discontinued Policies : If the Policy has lapsed, it B

may be revived during the life time to Life Assured, but within a

period of

5 years from the date of the first unpaid premium and

before the date of maturity, on submission of proof of continued

insurability to the satisfaction of the Corporation and the payment

of all the arrears of premium together with interest at such rate as

C

may be fixed by the Corporation from time to time compounding

half-yearly. The Corporation reserves the right to accept or decline

the revival of discontinued policy. The revival of a discontinued

policy shall take effect only after the same

is approved by the

Corporation and

is specifically communicated to the Life

Assured."

In view of this condition the matter of revival of the policies of the

insured could be considered only upon submission of proof of continued

insurability to the satisfaction of the LIC and the payment of

all the arrears

of premium together with interest at such rate

as may be fixed by the LIC.

D

In other

words the question of revival of the policies could arise only if the E

premium can be said to have been paid to the LIC during the life time of

the insured, i.e., before August

9, 1987. Therefore, it becomes necessary to

consider whether the half yearly premium was paid

by the insured to the

LIC on June

4, 1987 when the bearer cheque of Rs. 2,730 was delivered by

the insured to respondent No. 3, as claimed by the appellants, or on August

· 10, 1987. when the said amount of Rs. 2,730 was deposited with the LIC,

as claimed

by the LIC. This raises the question whether receipt of the

amount of Rs.

2,730 by cheque by respondent No. 3 can be regarded as

receipt of the said amount

by the LIC through its agent.

F

Shri Naresh S. Mathur, the learned counsel appearing for the respon- G

dents, has submitted that in view of the fact that large number of

policyholders are residing at places where there is no branch office of the

LIC and the facility for depositing the premium with the LIC

is not

available within a reasonable distance it has been the prevailing practice in

the LIC for the agents to collect the premium from the policyholders and

H

628 SUPREME COURT REPORTS [1997] 3 S.C.R.

A to deposit the same at the LIC office later and since the agents receive

commission on the amount of premium which they collect on the policies

the receipt of the premium by the agents must be treated as an act within

the scope of their authority

as agents of the LIC and the limitation imposed

on the authority of the agents to receive the premium in the Regula-

B tions/Rulcs or in the letter of appointment cannot be binding

as against

third parties viz., the policyholders. The learned counsel has, therefore

urged that the payment of premium

hy the insured in the present case by

bearer cheque on June 4, 1987 to respondent No. 3 should be treated to

have been paid to respondent

No. 3 in his capacity as the agent of the

LIC.

c

Shri Harish Salve, the learned senior counsel appearing for the UC,

on the other hand, has submitted that in view of the Regulation/Rule 8 as

well

as clause

10 in the letter of appointment of respondent No. 3 as agent

it cannot

be said that the

UC had conferred an authority on respondent

No. 3 to collect the premium on behalf of the UC and, therefore, the

D receipt of the cheque for Rs. 2,730 by respondent No. 3 from the insured

on June

4, 1987 cannot be regarded as payment received by him on behalf

of the LIC. The learned counsel has, in support of the aforesaid submis­

sion, placed reliance on the law relating to agency governing the scope of

authority of the agent.

E

F

Under the Law of Agency, as applicable in England, the authority of

an agent may be : (i) actual or (ii) apparent.

Actual authority results from a manifestation of consent that he

should represent or act for the principal made

by the principal to the agent

himself.

It may be express if it is given wholly or in part by means of words

or writing or it

may be implied when it is regarded by the law as the

principal having given

him because of the interpretation put by the law on

the relationship and dealings of the law

two parties. Implied authority may

arise

in the form of incidental authority, i.e., authority to do whatever is

G necessarily or

nortyially incidental to the activity expressly authorised, or

usual authority, i.e., authority to do whatever an agent of the type con­

cerned would usually have authority to do, or customary authority, i.e.,

authority to act

in accordance with such applicable business customs as are

reasonable. The authority of the agent

may also be implied from the

H circumstances of the particular case.

-

HARSHAD J. SHAH v. L.I.C. OF INDIA [S.C. AGRAWAL, J.] 629

The authority of the agent is apparent where it results from a A

manifestation made by the principal to third parties. The doctrine of

apparent authority involves the assumption that there

is in fact no authority

at

all. It is the authority of an agent as it appears to others. Under this

doctrine where

_a principal represents, or is regarded by law as repre­

senting, that another has authority,

he may be bound as against a third B

party by the acts of that other person within the authority which that person

appears to have though he had not

in fact given that person such authority

or had limited the authority

by instructions not made known to the third

party. The notion of apparent authority

is essentially confined to the

relationship between principal and third party.

(See : Bowstead on Agency,

15th Edn., Article

22, pages 92 to 94). C

The position is not very different in the law in India.

Section 186 of

the Indian Contract Act,

1872 lays down that the authority of an agent may

be express on implied. An authority

is said to be express when it is given

by_ words spoken or written and an authority is said to be implied when it D

is to be inferred from the circumstances of the case and things spoken or

written, of the ordinary course of dealing,

may be accounted circumstances

of the case (Section 187).

Section 188 prescribes that an agent having as

authority to do an act has authority to do every lawful thing which is

necessary in order to do such act. In Section 237 it is provided that when E

an agent has, without authority, done acts or incurred obligations to third

persons on behalf of his principal, the principal

is bound by such acts or

obligations if he has

by his words or conduct induced such third persons

to believe that such acts and obligations were within the scope of the

agent's authority.

Under the law governing Contracts of Insurance the premium

may

be paid by the assured to the insurers or to an insurance agent acting on

behalf of the insurers and if the agent has authority to receive it the

payment binds the insurers. The authority need not be an express authority;

F

it may be implied from the circumstances.

(See : Halsbury's Laws of G

England, Vol.

25, p. 254 para

460).

In the instant case, it cannot be said that respondent No. 3 had the

express authority to receive the premium on behalf of the LIC because

in

the letter of appointment dated December 5, 1962 there was a condition H

630 SUPREME COURT REPORTS (1997] 3 S.C.R.

A expressly prohibiting him from collecting the premium on behalf of the

LIC. Nor can it be said that respondent

No. 3 had an implied authority to

collect the premium on behalf of the LIC because in

1972 the LIC has

made a regulation (Regulation 8(4), which in

1981 became a rule, prohibit­

ing the agents from collecting premium on behalf of the LIC. This shows

B that collection of premium was not necessary for or

ordiiiarily incidental

to the effective execution of his express authority

by an agent. In view of

this express prohibition

in the Regulations/Rules which were published in

the Gazette it

is not possible to infer an implied authority by the LIC

authorising its agents to collect premium on behalf of the LIC.

c The only question is whether the LIC can be held liable on the basis

of the doctrine of apparent authority.

Shri Mathur has invoked the said

doctrine and has relied upon Section

237 of the Indian Contract Act. He

has urged that, by its conduct in receiving the premium through it agents,

the LIC had induced the policyholders to believe that acts of the agents in

D receiving the premium form the policyholders were within the scope of the

agents' authority.

Shri Mathur has laid stress on the fact that respondent

No. 3 was permitted to deposit the amount of Rs. 2,730 towards premiums

with the LIC on August 10, 1987 on behalf of the insured. We, however,

find that in the complaint that was filed on behalf of the appellants before

E the

State Commission no such case was set up by the appellants that the

LIC,

by its conduct, had induced the policyholders, including the insured,

to believe that the agents (including respondent No. 3) were authorised to

receive the premium on behalf of the LIC. Nor

is there any material on

record which

may lend support to the submission urged on behalf of the

F

appellants that by its conduct the LIC had induced the policyholders,

including the insured, to believe that agents were authorised to receive

premium on behalf of the

LIC. The only circumstance relied upon by the

learned counsel

for the appellants is the receipt of the amount of Rs. 2,

730

by the UC on August 10, 1987. In this regard, the submission of Shri Salve

is that issuance of the receipt for the said amount of 2,730 by the LIC in

G the name of the insured does not indicate that the amount was received

through respondent

No. 3 and that on the basis of the said receipt it cannot

be said that the LI C had induced the insured to believe that respondent

No. 3 was authorised to receive the amount of premium on behalf of the

LIC. We find considerable merit

in this submission. From the mere fact

H that respondent No. 3 had obtained bearer cheque for Rs. 2,

730 from the

HARSHADJ. SHAH v. L.I.C. OF INDIA(S.C. AGRAWAL, J.] 631

insured on June 4, 1987 a~d after encashing the same from the Bank on A

June 5 1987, had deposited the said amount with the LIC on August 10,

1987, it cannot be said that the LI C induced the insured to believe that

respondent No. 3 had been authorised

by the LIC to receive premium on

behalf of the

LI C. We are, therefore, unable to hold that the doctrine of

apparent authority underlying Section

237 of the Indian Contract Act can B

be invoked in the facts of this case especially when the LIC has been careful

in making an express

pro,~sion in the Regulations/Rules, which are

statutory in nature, indicating that the agents are not authorised to collect

any moneys or accept any risk on behalf of the LIC and they can collect

so only if they are expressly authorised to do so.

Shri Mathur has placed reliance on the observations of this Court in

LIC of India & Anr. v. Consumer Education & Research Centre &

Ors.,

(1995) 5 SCC 482, wherein this Court has stressed that since the LIC is

'state' under Article 12 of the Constitution it has a duty to act fairly in view

c

of the mandate contained in Article 14 of the Constitution. It is no doubt D

true that the LIC, being 'state' under Article 12 of the Constitution, must

act within the confines of the rights guaranteed under Part Ill of the

Constitution. But

we are unable to appreciate as to how this constitutional

obligation has bearing on the present case. In disclaiming its liability the

LIC

is acting in accordance with the provision in Regulations/Rules framed E

by it whereby the agents have been prohibited from collecting the moneys

on behalf of the

LI

C. The said provision has been made in public interest

in order to protect the Corporation from any fraud on the part of an agent.

It cannot be said that in making such a provision in the Regulations/Rules

and

in acting in accordance with the same the LIC has not acted fairly or

in consonance

with its obligations under

Part III of the Constitution.

For the reasons aforementioned,

we are unable to uphold the claim

of the appellants. No ground

is made out for interfering with the decision

F

of the National Commission that respondent No. 3 in receiving the bearer

cheque for Rs.

2,370 from the insured was not acting as an agent of the G

LIC. But keeping in view the facts and circumstances of the case we direct

the LIC to refund the entire amount of premium paid to the LIC on the

four insurance policies to appellant

No. 2 along with interest @ 15% per

annum. The interest

will be payable from the date of receipt of the amounts

of premium. We are also of the opinion that having regard to the fact that

H

632 SUPREME COURT REPORTS [1997) 3 S.C.R.

A the appellants had succeeded before the State Commission and the ques­

tions raised by them are of sufficient importance requiring a decision by

this Court respondents

No. 1 shall pay to appellants a sum of Rs.

10,000

(Rupees ten thousand only) as costs. The amount of premiums with interest

and the costs shall be paid within a period of one month. The appeals are

B disposed of accordingly.

v.s.s. Appeals disposed of.