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2009 DIGILAW 602 (KER)

L. I. C. of India v. Balakrishna Reddiar

2009-07-06

C.T.RAVIKUMAR, K.BALAKRISHNAN NAIR

body2009
JUDGMENT : K. BALAKRISHNAN NAIR, J. 1. The respondents in the Original Petition are the appellants. The respondent herein filed the Original Petition challenging Exts.P5, P7 and P9 orders. 2. The brief facts of the case are the following: The first respondent was an LI.C. agent. He was a Crore-pathi for the last several years and also a member of the Chairman’s Club. While so, it was noticed that towards the payment of premium for some policies, cheques of the first respondent were issued. Thereupon, he was served with Ext.P1 show cause notice dated 13.4.2000 calling upon him to explain under what circumstance he has issued the cheques towards payment of premium for the seven policies mentioned therein between January and March 2000. He submitted Ext.P2 reply. In the reply, the respondent stated that most of his policy holders are persons belonging to Sakthikulangara and Neendakara area, who are engaged in fishing and related activities. During off-season, they were not able to remit the premium. He used to collect moderate amount everyday from them and then issue the cheques towards the premium in advance from his bank account, even though premium amounts due were not collected in full and it was later collected in small amounts throughout the year. In some cases, the cheques had bounced since he was not able to arrange the amount in time. He has stated that he realised the mistake and will not repeat the mistake in future. Thereafter, he was issued with Ext.P3 notice, asking him to show cause why his agency should not be terminated under R. 16(1) of the LIC of India (Agents) Regulations, 1972 and his commission be forfeited under Rule 19(1) thereof. He submitted Ext.P4 reply. The competent authority considered his reply and issued Ext.P5 order terminating his agency and also forfeiting the renewal commission under R. 19(1) of the aforementioned Regulations. He filed Ext.P6 appeal before the Zonal Manger. The said appeal was dismissed by Ext.P7 order. Then he submitted Ext.P8 memorial before the Chairman, which came to be dismissed by Ext.P9 order dated 24.9.2003. So, the Original Petition was filed challenging Exts.P5, P7 and P9 orders. The appellants filed a counter affidavit supporting the impugned orders. The learned Single Judge after hearing both sides, confirmed the termination of agency, but interfered with the direction to forfeit the commission under R. 19(1) of the Regulations. So, the Original Petition was filed challenging Exts.P5, P7 and P9 orders. The appellants filed a counter affidavit supporting the impugned orders. The learned Single Judge after hearing both sides, confirmed the termination of agency, but interfered with the direction to forfeit the commission under R. 19(1) of the Regulations. The learned Single Judge after referring to Rr.15 and 16 came to the conclusion that Commission can be forfeited under R. 19(1) for fraud, if only there is a finding by a competent criminal court that the agent has committed fraud. The appellants, being seriously aggrieved by the above findings and consequential direction of the learned Single Judge, filed this Writ Appeal. 3. Sri.R.S.Kalkura, learned counsel for the appellants, submitted that R. 15 deals with termination of agency without notice on conviction by the criminal court for certain offences including misappropriation, fraud etc. R. 16 contemplates termination of agency for certain lapses. In such cases, the delinquent agent will be given show cause notice and after considering his explanation, the agency will be terminated, if the explanation is not satisfactory. In this case action has been against the respondent under R. 16(1) (b) which provides that agency can be terminated if the agent acts in a manner prejudicial to the interests of the Corporation or to the interest of the policy holders. The learned counsel also referred to R. 17 of the Regulations, which provides for termination simpliciter, by giving one month’s notice in writing either by the LIC or by the agent. The learned counsel further submitted that, the finding of the learned Single Judge that only on a finding of the competent criminal court that an agent has committed fraud, his commission could be forfeited under R. 19(1) is untenable. We also heard Sri.A.Antony, learned counsel for the respondent/petitioner. 4. The relevant rules relied on by the appellants read as follows: “R.15. We also heard Sri.A.Antony, learned counsel for the respondent/petitioner. 4. The relevant rules relied on by the appellants read as follows: “R.15. Termination of agency on account of certain disqualifications: If an agent: (a) is found to be of unsound mind by a court of competent jurisdiction; (b) is found to be guilty of criminal misappropriation or criminal breach of trust or cheating or forgery or an abetment of or attempt to commit any such offence by a court of competent jurisdiction; (c) in any judicial proceeding, has been found to have knowingly participated in or connived at any fraud, dishonesty or misrepresentation against the Corporation or any of its subsidiaries or against any person having official dealings with the Corporation or any of its subsidiaries his appointment shall be liable to be terminated without notice and the competent authority shall forthwith terminate his appointment.”. “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 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 en absorbed agent, on 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.”. “17. (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.”. “17. Termination of agency by notice: (1) The appointment of an agent may be terminated by the competent authority at any time by giving him one month’s notice thereof in writing. (2) An agent may, by giving one month’s notice in writing to the competent authority, discontinue his agency and after the expiry of the period of one month his agency shall stand terminated.” “19. Payment of commission on discontinuance of agency: (1) In the event of termination of the appointment of an agent, except for fraud, the commission on the premiums received in respect of the business secured by him shall be paid to him If such agent: (a) has continually worked for at least 5 years since his appointment and policies assuring a total sum of not less than Rs.2 lakhs effected through him were in full force on a date one year before his ceasing to act as such agent; or (b) has continually worked as an agent for at least 10 years since his appointment; or (c) being an agent whose appointment has been terminated under clause (e) of sub-regulation (1) of regulation 16 has continually worked as an agent for at least two years from the date of his appointment and policies assuring a total sum of not less than Rs.1 lakh effected through him were in full force on the date immediately prior to such termination: Provided that in respect of an absorbed agent, the provisions of clause (a) shall apply as if for the letters, figures and word “Rs.2 lakhs”, the letters and figures “Rs.50,000” had been substituted.” Thus, an agency can be terminated under Rr.15, 16 and 17. The termination under R. 17 will not disqualify the agent from receiving the commission. The cases covered by R. 15(b) and (c) must normally disentitle the agent to get commission, as most of those cases will come under various shades of fraud. In appropriate cases, an agent terminated under R. 16 may be guilty of fraud and therefore, disentitled to get commission under R. 19(1). The cases covered by R. 15(b) and (c) must normally disentitle the agent to get commission, as most of those cases will come under various shades of fraud. In appropriate cases, an agent terminated under R. 16 may be guilty of fraud and therefore, disentitled to get commission under R. 19(1). Going by the scheme of the above Rules, we feel that only if an agent is found to have committed fraud by a competent court, the forfeiture of commission on premium is permissible, is not the correct legal position. Even if the Corporation finds that the agent has committed fraud and therefore terminated the agency under R. 16, the commission on premium can be denied. 5. Now coming to the facts of the case, we feel that the direction of the learned Single Judge to release the commission on premium is sustainable on other grounds. Though the respondent/petitioner has committed illegalities and irregularities, he cannot be accused of having committed fraud going by the contents of Ext.P2. If the respondent has received the amounts for premium in full and the cheques issued by him bounced, then it is a case of misappropriation, which amount to playing fraud on the policyholder. But, going by Ext.P2, it would appear that the amounts necessary for paying the premium were paid by the fishermen in small amounts throughout the year and even before getting the full amount he used to pay the premium by advancing the amount from his pocket. Occasionally, he issued cheques anticipating that he may be able to raise the amount, and in some cases, the cheques so issued have bounced. The above conduct of the respondent, if taken to be true, cannot be described as fraud, though what is committed by him is illegal. We notice that except the reply by the petitioner, there was no material on record before the L.I.C. to enter a finding that he has misappropriated the premium paid by the policyholders or committed fraud. The records do not reveal that any policyholder has made any complaint or the Corporation has questioned any policyholder in respect of whose policy the respondent has issued the cheque mentioned in Exts.P2 and P3. Therefore, the finding that the respondent has committed fraud is rendered, based on no material on record. In the absence of any fraud, the respondent/petitioner is entitled to get commission on premium under R. 19(1). Therefore, the finding that the respondent has committed fraud is rendered, based on no material on record. In the absence of any fraud, the respondent/petitioner is entitled to get commission on premium under R. 19(1). Therefore, the direction of the learned Single Judge in favour of the respondent/petitioner is sustained, though on a different ground. The amounts payable to the respondent/petitioner shall be released by the appellants within two months from the date of receipt of a copy of this judgment. The Writ Appeal is disposed of as above.