MANU/SC/0186/1984

Equivalent Citation: 1984AC J345, AIR1984SC 1014, [1984]56C ompC as174(SC ), 1984(1)SC ALE561, (1984)2SC C 719, [1984]3SC R350,
1984(16)UJ1040

IN THE SUPREME COURT OF INDIA

Civil Appeal No. 2197 of 1970
Decided On: 27.03.1984
Appellants: Life Insurance Corporation of India
Vs.
Respondent: Raja Vasireddy Komalavalli Kamba and Ors.
Hon'ble Judges/Coram:
Sabyasachi Mukherjee and V. Balakrishna Eradi, JJ.
Counsels:
For Appellant/Petitioner/Plaintiff: Y.S. Chitale, V.G. Shanker, K.L. Hathi, Sadhana and
D.K. Chhaya, Advs
For Respondents/Defendant: T.S. Krishnamurthy Iyer, K.R. Choudhary and K.S.
Choudhary, Advs.
Case Note:
Insurance - contract liability - mere receipt and retention of premiums until
after death of applicant does not give rise to contract - circumstances may
be such that approval could be inferred from retention of premium -
execution of policy not an acceptance - acceptance to be complete must be
communicated to offer or either directly or by some definite act such as
placing contract in mail - test not intention alone when application so
requires acceptance must be evidenced by signature of one of company's
executive officers - general rule that contract of insurance concluded only
when party to whom offer has be made accepts unconditionally and
communicates his acceptance to person making offer - held, High Court was
in error that there was concluded contract of insurance between deceased
and Life Insurance Corporation.
JUDGMENT
Sabyasachi Mukherjee, J.
1. This appeal is by a certificate granted on 18th September, 1970 by the High Court
of Andhra Pradesh under Article 133(1)(a) of the Constitution as it stood at the
relevant time against the Judgment and decree of the High Court dated 16th April,
1970. By the said Judgment and decree, the High Court of Andhra Pradesh had
reversed the Judgment of the learned Subordinate Judge, Masulipatam dated 19th
November, 1964 dismissing the suit of the plaintiffs-respondents against the
appellant. Late Shri Raja Vasireddi Chandra Dhara Prashad was the husband of
respondent No. 1 and father of the respondents No. 2 to 5 herein. The respondents
filed a suit in the Subordinate Court of Sub-Judge being Original suit No. 2 of 1964
on 10th January, 1964. The short facts leading to this case are:
2 . One Late Raja Vasireddi Chandra Dhara Prasad (hereinafter referred to as a
'deceased') died intestate on 12th January, 1961. He had filled a proposal for

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 insurance for Rs. 50,000 on 27th December, 1960. There was medical examination by
the doctor on the life of the deceased on 27th December, 1960. The deceased had
issued two cheques for Rs. 300 and Rs. 220 respectively in favour of the appellant as
first premium. Cheque for Rs. 300 was encashed by the appellant on 29th December,
1960. Cheque for Rs. 220 was dishonoured three times and finally encashed on 11th
January, 1961. As mentioned hereinbefore, the deceased died on the day following
i.e. on 12th January, 1961. On 16th January, 1961, the widow of the deceased,
respondent No. 1 herein, wrote to the appellant intimating the death of the deceased
and demanded payment of Rs. 50,000. The Divisional Manager, Masulipatam Branch,
denied liability on behalf of the appellant Corporation on 28th January, 1961.
Thereafter there was correspondence between the parties between 1st February, 1961
to 23rd December, 1963 wherein the respondents-plaintiffs had claimed the payment
and the appellant had. denied liability for the same.
3. On the 10th January, 1964, the plaintiffs filed the suit in the court of Subordinate
Judge, Masulipatam. It was alleged in the plaint after setting out the facts which have
been set out hereinbefore, that the medical examination report was submitted to the
Appellant-corporation by Dr. Sri C. Sambasiva Rao, Approved Medical practitioner of
the appellant in regard to the medical examination of the deceased. A report
described as "All the Friend's report" was duly sent to the appellant with regard to
that proposal ; and all the preliminaries were completed and it was further alleged
that the deceased was assured and told by the local agent and the Field Officer of the
Corporation that the payment of the first premium would amount to the acceptance of
the proposal and advised the deceased to pay the first premium in full. It was,
further, stated that the said two cheques were encashed and the appellant had duly
appropriated the amount and credited in the accounts towards the premium payable
by the deceased. Therefore, it was stated that the deceased had fulfilled his part of
the insurance contract and the appellant-Corporation by its overt acts of encashing
the cheques and crediting the amounts in its accounts accepted the proposal of the
deceased. In the premises it was said in the plaint that there was a concluded and
valid insurance contract between the deceased and the appellant-Corporation and that
the insurance contracted commenced on 11th January, 1961 being the date of the
receipt of the balance towards premium by the Corporation. It was further stated in
the plaint that the Office of the Divisional Manager of Masulipatam was the concerned
authority to settle the claim of the plaintiffs-respondents and to pay the amount. The
contention of the Corporation that the proposal was not accepted and as such there
was no concluded insurance contract between the deceased and the Corporation, was
untenable, according to the plaintiffs. It was alleged that with full knowledge of the
completion of all the preliminaries, the Corporation had encashed the cheques issued
towards the first premium and therefore it was the case of the plaintiffs-respondents
that the encashment of the cheques amounted in those circumstances in law to an
acceptance of the proposal of the deceased. It was further alleged that the
appropriation of the amounts by the Corporation towards the first premium by the
deceased was only consistent with the acceptance of the proposal. The case of the
plaintiffs further was that in this case the first premium was not only received by the
Corporation completely on 11th January, 1961 but it was also appropriated by it in its
accounts and the said premium amount was received by the Corporation without any
demur or qualification and that in any event the Corporation must be deemed to have
waived by its conduct the formality, if any, of sending communication of its
acceptance of the proposal. In the premises, the plaintiffs claimed the said amount
along with interest at six per cent per annum from the date of refusal of payment till
the date of payment of the demand.
4 . Written statement was filed on behalf of the appellant. In the said written
statement, after setting out the facts, it was denied that the payment of the first

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 premium amounted to acceptance of the proposal and the allegation about the
assurance given to the deceased as alleged in the plaint was not true nor the alleged
assurance if any, valid under law. It was, father stated that the two cheques were not
encashed and credited towards the premium account of the proposal but these were
kept only in deposit in suspense account without any liability of the appellant. It was
further stated that the averments in the plaint that the defendant Corporation cashed
the above two cheques and appropriated the amounts and credited these in the
account towards premium payable for the proposal were false. It was stated that on
the death of the deceased, the amount covering two cheques were lying in the
deposit and in the suspense account of the Corporation and was not adjusted towards
the premium since the proposal was not considered, the terms of acceptance was not
fixed and the premium amount required for the proposal was not calculated. In those
circumstances, the appellant Corporation claimed that there was no liability for the
risk and as such the plaintiffs had no right to claim and there was no cause of action.
It was categorically stated that the cheques were not credited and adjusted towards
the premium accounts.
5 . During the trial before the learned Subordinate Judge, five different issues were
raised. It is not necessary to set out in detail those issues but the important and main
issue was whether there was a concluded valid insurance contract between the
deceased and the Life Insurance Corporation of India.
6. Both documentary and oral evidence were adduced at the Trial. The respondents-
plaintiffs examined Shri R.V. Bhupala Prasad, son of the deceased and the
Corporation on its behalf examined Shri Jagannadhachari, the Superintendent of the
Corporation branch at Guntur. He also produced ex. B-4, the review slip, prepared by
the Branch office, Guntur and sent to the Divisional Officer, Masulipatam. In his
deposition, he had stated that the Divisional Manager was the competent authority for
accepting the proposal for Rs. 50,000. Normally it took some time for the Divisional
Manager to accept. There was no communication from the Divisional Office to the
Branch Officer accepting the proposal. He, further, stated that the amount would be
transferred into the first premium register after the proposal was accepted and the
risk covered. He had produced the account books, namely; deposit account book and
the first premium account book of the Branch Office at Guntur.
7 . Shri Brahmandrao Ramiah, Assistant Divisional Manager of the Life Insurance
Corporation office at Madras was also examined as the second witness of the
defendants. He had further stated that the proposal form was sent from the office at
Guntur to the Divisional Office at Masulipatam, and Ex. B-l to B-4 and B-8 were sent
in this connection. He further stated that according to the financial powers Standing
Order, it was the Divisional Manager who was competent to accept a proposal for Rs.
50,000 Ex. B-13 is the copy of the Standing Order. The purpose of review slip Ex. B-
4 was to enable the Divisional Officer to assess the risk and take a decision according
to the deponent. In this connection we may refer Ex. B-14 which is the Life Insurance
Corporation of India's Proposal Review Slip regarding proposal in the case of the
deceased. The endorsement therein of the assistant Divisional Manager read as
follows:
NOTES AND DECISION : may be accepted at O.R.
WITH E.D.B.
8 . Shri Brahmandrao Ramiah had further stated that the papers were scrutinised by
him in addition to the scrutiny by the concerned clerks. He stated that the
endorsement marked as Ex. B-14 was initialled by him. He further stated that the

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 letters 'DM' were also written by him indicating that the papers should go to the
Divisional Manager on Ex. B-4. He reiterated that the order of acceptance would not
be communicated to the party if all the formalities were not complied with ; this
policy, he stated, was not accepted. When the acceptance was complete and when
there was no requirement necessary and if the full first installment was in deposit, it
would be adjusted towards premium amount, he stated.
9. In this connection before the learned Trial Judge, reliance was placed on the Life
Insurance Corporation of India Standing Order, 1960 (Financial Powers). Chapter III
of the Standing Order dealt with the powers of the different authorities for, inter alia,
'Underwriting and Revivals of Policy'. The relevant portion of the said Standing Order
read as follows :-

Note : Proposals on standard lives for more than Rs. 1,00,000 should be
referred to the Central Underwriting section.
10. Learned Subordinate Judge by his judgment dated 19th November, 1964 held
that there was no concluded contract. He held that as per the prospectus of Life
Insurance Corporation of India the risk under the Corporation policy commenced on
the date of receipt of the first premium in full or the date of acceptance whichever
was later and the second installment of the premium falls due on a date calculated
from such date of commencement of risk. Learned Trial Judge was of the opinion that
the documents in this case coupled with evidence on behalf of the Appellant-
Corporation established that the proposal sent by the deceased was for some reason
or other not accepted by the Divisional Office by the time the deceased had died. The
Trial Court therefore held that there was no concluded valid insurance contract
between the deceased and the Corporation. The Trial Court further noted that it was
significant that the case set out in the plaint and the basis of the claim made in the
notices sent to the Corporation was not that the proposal was as a matter of fact
accepted by the Divisional Manager, on the other hand, claim was that it should be
deemed to have been accepted. Considering the evidence and the averments, the
Learned Subordinate Judge came to the conclusion that the accounts do not show the
position alleged by the plaintiffs-respondents that the amounts paid were
appropriated towards the premium and the Trial Court was of the opinion that
encashing of the cheques and the want of any further action to be done by the
deceased did not themselves create a contract of insurance between the deceased and
the Corporation. The Trial Court was of the opinion that the proposal must be
accepted by the Divisional Manager and that alone could give rise to a valid contract
of insurance which never happened in this case. The Trial Court further expressed the
view that the other averments in the claim that the deceased was assured and told by
the local agent and the field officer of the Corporation that the payment of the first
premium would amount to the acceptance of the proposal were not established and
even if such a representation was made, that did not alter the position as under the

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 rules the payment of the premium could never amount to the acceptance of the
proposal if the proposal was not otherwise accepted. In the result, the suit filed by
the respondents-plaintiffs was dismissed with costs. Being aggrieved by the said
decision, the plaintiffs-respondents field appeal in the High Court. The appellants
before the High Court also filed civil miscellaneous petition praying that in the
circumstances stated in the affidavit filed therewith the High Court might be pleased
to direct the Life Insurance Corporation to produce certain documents viz., proposals,
review slips and proposal dockets and the connected papers of the present case and
statements furnished by the Divisional Office to the Zonal Office showing the new
business in the year 1960 and proposal register work of Divisional Office for the year
1960.
11. The High Court directed the Life Insurance Corporation to produce the documents
referred to above. The High Court by its judgment dated 14th April, 1970 held after
considering the standing order Ex. B-13 and the various documents produced for the
first time on record that there was acceptance of proposal and like other contracts,
the contract of insurance was complete by offer and acceptance. In coming to this
conclusion the High Court relied on the alleged adjustment and the endorsement of
the review slip recommending that the proposal "may be accepted" made on the
relevant file by the Assistant Divisional Manager. Relying on certain other documents
which were called for, for the first time by the High Court relating to certain other
cases where only the Assistant. Divisional Manager made similar endorsement, the
High Court came to the conclusion that there was a valid contract. The High Court
was of the view that the plea that Divisional Manager was the only authority to accept
had not been categorically taken in the written statement filed on behalf of the
Corporation. On the other hand, there was a general statement that there was no
concluded contract. The High Court was of the view that having regard to the conduct
of the parties, there was a concluded contract. The High Court took the view that Ex.
B-13 dealing with Chapter III of the Financial Powers did not categorically deal with
the acceptance of proposals. The High Court was of the view that the Corporation had
not filed any evidence of any order prohibiting other officers one step below in rank,
in this case the Assistant Divisional Manager, to exercise the power of Divisional
Manager.
12. In our opinion, the High Court was in error in appreciating the facts and the
evidence in this case. We cannot accept the High Court's criticism with the averment
in the written statement that there was not sufficient pleading that there was no
concluded contract and non-acceptance of the proposal was not sufficient averment
that the Divisional. Manager was the only competent authority to accept the proposal.
The High Court, in our opinion, was also wrong in its view about the powers of the
different authorities under Chapter III of the Standing Order, 1960 dealing with the
financial powers. Indeed there was no evidence that the Assistant Divisional Manager
had accepted the proposal on the contrary he in his deposition as we have indicated
before had stated otherwise. He had stated that the purpose of review slip was to
enable the Divisional Manager to asses the risk and take a decision. He had never
stated that he had taken a decision to accept the proposal. The allegation that there
was assurance on behalf of the field officer and local agent to the deceased that the
payment of first premium would amount to the acceptance of the proposal cannot
also be accepted, firstly because factually it was not proved and secondly because
there was no evidence that such could have been the deposition in law.
13. When an insurance policy becomes effective is well settled by the authorities but
before we note the said authorities, it may be stated that it is clear that the
expression ''underwrite" signifies 'accept liability under'.

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 14. The dictionary meaning also indicates that.
(See in this connection The Concise Oxford Dictionary Sixth Edition p. 1267.)
15. It is true that normally the expression "underwrite" is used in Marine insurance
but the expression used in Chapter III of the Financial powers of the Standing Order
in this case specifically used the expression "underwriting and revivals" of policies in
case of Life Insurance Corporation and stated that it was the Divisional Manager who
was competent to underwrite policy for Rs. 50,000 and above.
16. The mere receipt and retention of premium until after the death of the applicant
or the mere preparation of the policy document is not acceptance. Acceptance must
be signified by some act or acts agreed on by the parties or from which the law
raises a presumption of acceptance.
17. See in this connection the statement of law in Corpus Juris Secundum, Vol. XLV
page 986 wherein it has been stated as :-
The mere receipt and retention of premiums until after the death of applicant
does not give rise to a contract, although the circumstances may be such that
approval could be inferred from retention of the premium. The mere
execution of the policy is not an acceptance ; an acceptance, to be complete,
must be communicated to the offer or, either directly, or by some definite
act, such as placing the contract in the mail. The test is not intention alone.
When the application so requires, the acceptance must be evidenced by the
signature of one of the company's executive officers.
18. Though in certain human relationships silence to a proposal might convey
acceptance but in the case of insurance proposal silence does not denote consent and
no binding contract arises until the person to whom an offer is made says or does
something to signify his acceptance. Mere delay in giving an answer cannot be
construed as an acceptance, as, prima facie, acceptance must be communicated to
the offeror. The general rule is that the contract of insurance will be concluded only
when the party to whom an offer has been made accepts it unconditionally and
communicates his acceptance to the person making the offer.
Whether the final acceptance is that of the assured or insurers, however, depends
simply on. the way in which negotiations for an insurance have progressed.
1 9 . See in this connection statement of law in MacGillivray & Parkington on
Insurance Law, Seventh Edition page 94 paragraph 215.
20. Reference in this connection may be made to the Statement of law in Halsbury's
Laws of England 4th Edition in paragraph 399 at page 222.
21. Having regard to the clear position in law about acceptance of insurance proposal
and the evidence on record in this case, we are, therefore, of the opinion that the
High Court was in error in coming to the conclusion that there was a concluded
contract of insurance between the deceased and the Life Insurance Corporation and
on that basis reversing the judgment and the decision of the learned Subordinate
Judge.
22. The appeal must, therefore, be allowed. We however record; that in view of the
fact that such a long time has elapsed and further in view of the fact that principal
amount together with interest amounting to about Rs. 85,000/- have already been
paid to the wife of the deceased and his children, the Life insurance Corporation in
this case does not insist on the full repayment of the sum paid and counsel on behalf

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 of the Life Insurance Corporation has stated that they would accept if half of what
has been received by the respondents, namely principal together with interest is paid
back to the Corporation. We order accordingly that the respondents will therefore pay
back half of the actual amount received both of the principal together with interest
within three months from this date.
23. In the facts and circumstances of the case there will be no order as to costs in
this Court.
24. With the above observations, the appeal is allowed.

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