Rajesh H. Shukla, J.@mdashRule. Learned Advocate Shri A.K. Clerk waives service of Rule for the respondents. The present petition has been filed by the petitioner under Arts. 14, 16 as well as Art. 226 of the Constitution of India and also under the Life Insurance Corporation of India (Agents) Regulations, 1972 read with the Insurance Act, 1938 for the prayers:
(A) To admit, entertain and dispose of this petition as early as possible;
(B) To quash and set aside the order dated 1-5-2009 of the Sr. Divisional Manager, L.I.C., Gandhinagar, terminating the agency with forfeiture of renewal commission as also the order of the Zonal Manager dated 10-11-2009 and the order of the Chairman, dated 14-6-2010, confirming the termination of agency with forfeiture of renewal commission and further be pleased to direct the respondent-Corporation to reinstate the agency of the petitioner and to release the renewal commission.
(C) To direct the respondent-Corporation to release the renewal commission withheld by the respondent-Corporation from the date of termination of agency i.e. 1-5-2009 with market rate interest till payment;
(D) To award the cost of Rs. 10,000/-.
(E) To grant any such other and further suitable relief/s which may deem fit in the facts and circumstances of the case.
2. The facts of the case, briefly summarized, are that the petitioner had been working as L.I.C. agent since 2003 under Development Officer Shri B.R. Trivedi attached to Gandhinagar Branch in Gandhinagar Divisional office. The agent so appointed would contribute towards the growth and development of the business of L.I.C. for which a remuneration is paid to the agent. It is the case of the respondent-L.I.C. that during the course of his agency, the petitioner had given proposal for insuring life polices of three persons stated in the petition, and though they were hale and hearty at the time of the proposal when the policy was taken, unfortunately, death occurred resulting in a claim for the death under the policy. According to the L.I.C., the proposal was accepted by the petitioner or recommended by him of such persons having flour mills, pan-bidi galla with less income, and therefore, deliberately the proposal was made keeping back the relevant information. The respondent-L.I.C., therefore, issued a show-cause notice, and ultimately, terminated the agency with forfeiture of the renewal commission of the petitioner vide order dated 1-5-2009 in exercise of power under Regulations 16(1)(a) and (b) as well as Regulation 10(6) and Regulation 19 of Life Insurance Corporation of India (Agents) Regulations, 1972 (hereinafter referred to as (''Agent''s Regulations'').
3. Learned Advocate Shri C.N. Trivedi for the petitioner has referred to the papers and submitted that termination of agency in exercise of power under Regulations 19 and 16 is bad. He submitted that the agency of the petitioner has been terminated under Regulations 16(1)(a) and (b) read with Regulation 10(6) and Regulation 19 of the Agent''s Regulations. He pointedly referred to the regulations and submitted that the proposal was given by the petitioner as agent after completing all formalities including the medical examination, and thereafter, it was accepted by the respondent-Corporation along with the premium, and therefore, the termination of agency is arbitrary and illegal. He submitted that full medical report from the panel doctor of respondent-L.I.C. is required to be submitted at the time of taking the insurance and necessary reports like E.C.G. etc. are submitted. Learned Advocate Shri Trivedi submitted that as agent, the petitioner had taken care that at the time of taking insurance necessary precautions are taken. However, merely because death has occurred cannot be a ground to blame the petitioner or impute against the petitioner. He pointedly referred to Regulation 16 of the Agent''s Regulations which provide:
16. Termination of agency for certain lapses:
(1) The competent authority may, by order, determine the appointment of an agent,--
(a) if he has failed to discharge his functions, as set out in regulation 8, to the satisfaction of the competent authority;
(b) if he acts in a manner prejudicial to the interests of the Corporation or to the interests of its policy-holders;
(c) if evidence comes to its knowledge to show that he has been allowing or offering to allow rebate of the whole or any part of the commission payable to him;
(d) if it is found that any averment contained in his agency application or in any report furnished by him as an agent in respect of any proposal is not true;
(e) if he becomes physically or mentally incapacitated for carrying out his functions as an agent;
(f) if he being an absorbed agent, or being called upon to do so, fails to undergo the specified training or to pass the specified tests, within three years from the date on which he is so called upon:
Provided that the agent shall be given a reasonable opportunity to show cause against such termination.
(2) Every order of termination made under sub-regulation (1) shall be in writing and communicated to the agent concerned.
(3) Where the competent authority proposes to take action under sub-regulation (1), it may direct the agent not to solicit or procure new life insurance business until he is permitted by the competent authority to do so.
4. Similarly, learned Advocate Shri Trivedi has referred to Regulation 19 regarding payment of commission on discontinuation of the agency. He submitted that the termination of agency in exercise of power under Regulation 16 is also arbitrary and illegal. He pointedly referred to Regulations 19(1)(a) and (b) for the purpose and submitted that it could be terminated only if it is established that he has failed to discharge his function under Regulation 8 to the satisfaction of the competent authority. Further, clause (b) of Regulation 19(1) provides that if he acts in a manner prejudicial to the interests of the Corporation or a policy-holder, it could be terminated.
5. Learned Advocate Shri Trivedi referred to Regulation 15 and submitted that it refers to termination of agency on account of certain disqualifications like fraud. He submitted that, as could be seen from this regulation, it could be only in the event of finding given in a judicial proceeding with regard to the guilt of criminal misappropriation or criminal breach of trust or cheating or forgery, such a step could be initiated. He submitted that in the facts of the present case, as there is no criminal complaint even and as there has not been any proceedings initiated by the respondents or any one for any such alleged offence, the same could not have been terminated resorting to Regulation 15. Learned Advocate Shri Trivedi, therefore, submitted that if fraud or allegations of fraud are not established in recommending the proposal for the policy as stated above, the termination of agency is not justified. He submitted that if the fraud or any irregularity is not established, it would also not justify denial of the renewal commission on which the premium is received for such business by the respondent-L.I.C. He, therefore, submitted that as there is no element of fraud, there is no justification for termination of the agency and also for denial of the renewal commission to the petitioner.
6. Learned Advocate Shri Trivedi submitted that even under the provisions of the Contract Act where Sec. 17 of the Act defines ''fraud'', it would not cover the present case. He pointedly referred to Sec. 17(2) of the Act and emphasized "concealment of fact by one party.....". He submitted that in the facts of the present case, there could not have been any concealment in view of the procedure established and followed by the respondent-Corporation including the medical examination of the insured and scrutiny of such papers by the higher officer before acceptance of the policy.
7. Learned Advocate Shri Trivedi has referred to and relied upon the judgment of the High Court (Coram: S.J. Mukhopadhaya, C.J. & J.B. Pardiwala, J.) in L.P.A. No. 2662 of 2010 in Spl. Civil Appli. No. 705 of 2006 dated 5-5-2011 [Geetaben Jigneshbhai Modi v. L.I.C.]. He has also referred to and relied upon the judgment in L.P.A. No. 1622 of 2010 in Spl. Civil Appli. No. 11776 of 2002 dated 18-3-2011 [Chairman, L.I.C. of India v. Urmilaben N. Prajapati, reported in 2011 (4) GLR 3389] by the same Bench. He has also referred to another judgment of the Hon''ble Division Bench of the High Court in L.P.A. No. 1686 of 2006 and allied group of matters (Coram: K.S. Radhakrishnan, C.J. and Akil Kureshi, J.) dated 26-6-2009 [Senior Divisional Manager, L.I.C. of India v. Ajitsinh Amirsinh Raj]. He has also referred to other judgments of this Court in L.P.A. No. 1980 of 2010 in Special Civil Application No. 2217 of 2000 [Keshavlal P. Dalai v. LLC. of India], as well as L.P.A. No. 257 of 2002 in Special Civil Application No. 541 of 2001 [Amratbhai N. Patel v. Senior Divisional Manager, L.I.C. of India], etc.
8. Therefore, learned Advocate Shri Trivedi submitted that a close look at the provisions of Agent''s Regulations would suggest that termination of agency under Regulations 16(1)(a) and (b) is arbitrary and illegal. Similarly, he submitted that exercise of power under Regulation 19 regarding forfeiture of renewal commission is also bad. Learned Advocate Shri Trivedi also referred to the L.I.C. Manual which is a broad guideline for such procedure. He submitted that in absence of any proof or prima facie evidence regarding fraud or concealment of facts as required before attracting fraud as defined in the Contract Act, such termination of the agency and forfeiture of the renewal commission is arbitrary and illegal.
9. Learned Counsel Shri A.K. Clerk for the respondents referred to the papers and the Agent''s Regulations and submitted that the agent is working on trust and faith of the respondent-Corporation for which remuneration is given to him for securing business. He, therefore, submitted that it is a matter of utmost confidence and trust and if such trust or faith is breached, the respondent-Corporation is entitled to terminate the agency. Learned Counsel Shri Clerk submitted that a criminal complaint is not necessary as termination could be made in exercise of power under the Agent''s Regulations itself which provide for such termination. He pointedly referred to Regulations 16(1)(a) and (b) and emphasized that as Regulation 16 provides that if the agent acts in a manner prejudicial to the interests of the Corporation, the agency could be terminated. Similarly, it could be said that he has failed to discharge his duty as an agent while soliciting the proposal for the policy. He again referred to Regulation 19 and submitted that Regulation 19 provides for payment of commission on discontinuation of the agency on the grounds stated therein. Learned Counsel Shri Clerk referred to Regulation 15 also which provides for termination of the agency on account of some disqualification which includes fraud. Learned Counsel Shri Clerk submitted that Agent''s Regulations clearly provide that the business is secured for the L.I.C. and the respondent L.I.C. places trust and faith, and therefore, it is the duty of the agent to have proper verification with regard to every proposal for the risk of life which is recommended for insurance. He submitted that in this case the petitioner has not taken care and in fact there were concealment of facts which had led to acceptance of the policy based on recommendation of the agent. Learned Counsel Shri Clerk submitted that the respondent-Corporation would trust the agent and it is obligatory for him to have proper disclosure and verification before any recommendation. He, therefore, submitted that when he recommended the proposal by the persons who were not having sufficient means of income and when the death has occurred within a short duration, it raises a doubt about the genuineness of the proposal.
10. Learned Counsel Shri Clerk has referred to and relied upon the judgment of the High Court in Special Civil Application No. 541 of 2001 (Coram: Ravi R. Tripathi, J.) dated 21-9-2001 [Amratbhai N. Patel v. Senior Divisional Manager, L.I.C. of India], and submitted that for termination of an agency in exercise of power under Regulation 16, there is no question of granting any hearing and show-cause notice has been issued which is sufficient compliance with the rules of natural justice. He submitted that the regulation provides for the procedure like in a disciplinary proceedings, and on the basis of the finding of facts, the termination could be made under the regulation. Similarly, payment of commission on discontinuation of the agency would also be a consequential step.
11. Learned Counsel Shri Clerk submitted that the submission regarding fraud and concealment of facts are required to be considered. He submitted that as provided in Sec. 17 of the Contract Act, when one of the parties to the contract failed to make a proper disclosure or is liable for concealment of facts, the other party is defrauded, and therefore, it provides a ground for termination of the agency. He submitted that in the facts of the present case, as stated above, when the respondent-Corporation has proposed faith and trust and when the agent does not disclose any fact resulting in concealment of relevant facts in connivance with the party, Sec. 17(2) of the Contact Act would be attracted. He, therefore, submitted that the impugned order is just and proper.
12. Learned Counsel Shri Clerk has also submitted that when the respondent-Corporation as a principal is not having faith based on certain circumstances and when the relationship is purely based on mutual trust and faith, the respondent-Corporation cannot be compelled to continue the agency of a person like the petitioner for whom the respondent-Corporation has no trust or faith. He, therefore, submitted that the termination of agency is just and proper.
13. In view of these rival submissions, it is required to be considered whether the present petition can be entertained and allowed or not.
14. From a bare perusal of the papers and having regard to the rival submissions, the moot question which is required to be considered is whether the respondent-Corporation is justified in terminating the agency and also forfeiting the renewal commission in respect of business procured by the agent on behalf of the respondent-Corporation.
15. There is no doubt that as provided in the Agent''s Regulations as well as under the Insurance Act, the whole business of insurance of indemnity is based on utmost faith. Further, the aforesaid Agent''s Regulations are made for regulating the business and mutual relationship between the agent and the respondent-Corporation. It is also not in doubt that the foundation of mutual relationship of the agent like the petitioner and the respondent-Corporation is based on faith and trust. Such trust and faith in turn enables the agent like the petitioner to procure business for the respondent-Corporation and the respondent-Corporation appoints such agents to procure business by way of such recommendation for insurance proposals from the persons. There is a set procedure which is provided which is required to be followed. Therefore, the agent is merely soliciting business for the respondent-Corporation and he makes a proposal which is subject to further procedure like medical examination, filling up of forms with proper disclosure by the insured which in turn would be scrutinized by the officers of the respondent-Corporation before acceptance. Therefore, once the respondent-Corporation has accepted the business and the policy of the party for covering risks of life as proposed by the agent, it cannot back out.
16. At the same time, the respondent-Corporation which itself has such method of procuring business through the services of agents who are to be nominated under a particular Division and Development Officer is under an obligation to take appropriate steps for scrutiny before appointment of the agents. Once, an agent is appointed and the confidence and trust is implied on such appointment of an agent, the agent is then expected to secure and procure business. Therefore, it is obligatory for the respondent-Corporation that they may be vigilant before appointment of the agent and if there is no trust or faith, they may have their own mechanism for assessment of such suitable persons. However, once an agent is appointed who has to solicit business in the form of proposal for the policy which in turn is accepted by the respondent-Corporation on fulfillment of the procedure, as stated above, the submissions with regard to loss of confidence or faith or concealment of facts leading to fraud based on Sec. 17(2) of the Contract Act cannot be readily accepted.
17. Further, the Agent''s Regulations require a closer scrutiny. As could be seen from Regulations 19 as well as 15, it refers to fraud pursuant to a criminal complaint resulting in some kind of irregularity, and therefore, it has a reference to ''fraud'' as provided in the Indian Penal Code. Assuming that fraud for the purpose of termination of agency may not require stricter proof like fraud in case of criminal prosecution, and the respondent-Corporation may resort to regulation for termination of agency based on fraud defined in the Contract Act. Again, the provisions of Sec. 17(2) of the Contract Act which provide for concealment of material facts leading to fraud has to be prima facie made out. In other words, assuming that the submissions made by learned Counsel Shri Clerk that it is more in the nature of a departmental inquiry and disciplinary proceedings against an employee, still, it requires minimum compliance of rules of natural justice. Therefore, the submission that a show-cause notice has been given and he has been called upon to explain may not be sufficient, and had an opportunity of hearing been given, necessary clarification could have been made like in the departmental inquiry. Therefore, assuming that personal hearing may not be necessary or a sine qua non, it is still desirable for both the agent and the respondent-Corporation to provide such opportunity by which, perhaps, the aspect of concealment of facts or fraud could be thrashed out. It is necessary that such an opportunity is given as concealment of facts or of fraud is the basis for termination of such agency.
18. On the other hand, as rightly submitted by learned Counsel Shri Clerk, it is the mutual trust and faith which is the basis or foundation for mutual relationship.
19. Therefore, having regard to the aforesaid observations, the impugned order cannot be sustained and the present petition deserves to be allowed. The impugned order terminating the agency and also forfeiture of the renewal commission is hereby quashed and set aside. Further, it is directed that the renewal commission may be paid to the petitioner from the order of termination. However, it is clarified that it would be open for the respondent-Corporation to proceed to terminate the agency when there is loss of trust or faith in exercise of power under the Agent''s Regulations after giving a show-cause notice and providing an opportunity of hearing in accordance with law. The petition accordingly stands allowed. Rule is made absolute. No order as to costs.
