JUDGMENT Indian Contract Act, 1872-Section 201-termination of agency-agency of petitioner, an agent of LIC, terminated with forfeiture of all commissions on ground that he did not make reasonable inquiry in regard to lives to be insured giving rise to early death claim-petitioner failed to discharge his functions as set out in Regulation 8 of Life Insurance Corporation of India (Agents) Regulations, 1972-no illegality in order terminating agency-in terms of Regulation 19 forfeiture can be effected only in case of fraud-act of petitioner in not making any reasonable inquiry on lives of insured before making proposal, never falls within ambit of act of fraud-order of forfeiture of commission quashed. (Paras 14 and 17) Order While the petitioner was an agent of the respondent-Life Insurance Corporation of India, he secured two propose. is on 12.8.1998 for Rs. One lakh each on the life of Mr. O.P. Verma-insured. While giving proposal, moral hazard report was also submitted on the same day, wherein it was stated by the petitioner that he knows Mr. O.P. Verma since last two days. On submission of the said report, Mr. Verma was examined by the L.I.C. doctor who did not find anything wrong with the health of Mr. O.P. Verma. Thereupon, the Development Officer (respondent no. 5) did certify that the information furnished in the moral hazard report is correct. 2. On completion of the aforesaid formalities, proposal was accepted on 11.9.1998, consequently, two policies were issued in favour of the life insured-Mr. O.P. Verma. However, Mr. O.P. Verma died on 30.9.1998 which gave rise to early death claim. After his death when inquiry was made, it transpired that the insured was suffering from Diabetic Nephropathy for last 3 to 4 years and had chronic renal failure and at the same time, he was having massive plural effusion for which he was treated at Apollo Hospital, Ranchi from 28.7.1998 to 6.8.1998. On such disclosure, a departmental proceeding was initiated against the then Development Officer, whereby the punishment of censure was inflicted upon him. After completion of the departmental proceeding against the then Development Officer, notice was issued to this petitioner on 3.7.2002 calling upon him to show cause as to why not his services be terminated with forfeiture of all commissions payable to him for suppressing the material information. 3. After completion of the departmental proceeding against the then Development Officer, notice was issued to this petitioner on 3.7.2002 calling upon him to show cause as to why not his services be terminated with forfeiture of all commissions payable to him for suppressing the material information. 3. Upon receiving said notice, a letter was written wherein request was made to provide him certain documents so that effective show cause be submitted, which were supplied to him. Subsequently, the petitioner realized that some more documents would be necessary and hence, he made request to supply certain documents such as finding given against the Development Officer on the inquiry report, the claim form submitted by the nominee of the deceased and a letter issued by the wife of the deceased. The then Divisional Manager (respondent no. 3) instead of supplying those documents passed an order on 18.12.2002 (Annexure-11), whereby the agency of the petitioner was terminated with forfeiture of all commissions. 4. Being aggrieved with that order, the petitioner preferred a writ application bearing W.P.(C) No. 191 of 2003, which was disposed of directing the petitioner to file an appeal before the Appellate Authority. 5. In compliance of that order, an appeal was filed before the Appellate Authority which was dismissed on 18.6.2003. 6. Both the orders, as contained in Annexures-11 and 13, have been sought to be quashed in this writ application. 7. Mr. 5. In compliance of that order, an appeal was filed before the Appellate Authority which was dismissed on 18.6.2003. 6. Both the orders, as contained in Annexures-11 and 13, have been sought to be quashed in this writ application. 7. Mr. Sharma, learned counsel appearing for the petitioner submits that the respondents instead of supplying the documents, which were very material for filing show cause in order to prove the innocence of the petitioner, passed the order of termination of the agency of the petitioner which is against the principle of natural justice and that the petitioner has never suppressed any material fact, rather in the moral hazard report, it had been categorically stated that the insured is known to him since last two days and during these two days, the petitioner did not find anything wrong with the insured and that even the doctor of the L.I.C. on examining the insured did not find him suffering from any disease disentitling him" to have policy of the L.I.C. and that even the Development Officer had certified it to be a fit case for acceptance of the proposal and under this situation, the order terminating the agency of the petitioner is bad, as the petitioner had never suppressed any material fact disentitling the insured to have policy of L.I.C. and, therefore, the impugned orders are fit to be set aside. 8. learned counsel further submits that in the facts and circumstances as stated above, the petitioner can never be said to have acted fraudulently in any manner and hence, the order passed for forfeiture of all commissions of the petitioner is quite illegal and bad. 9. 8. learned counsel further submits that in the facts and circumstances as stated above, the petitioner can never be said to have acted fraudulently in any manner and hence, the order passed for forfeiture of all commissions of the petitioner is quite illegal and bad. 9. As against this, learned counsel appearing for the respondent-L.I.C submits that whatever documents were asked for by the petitioner at the first instance, those documents were supplied but after those documents were supplied, the petitioner asked for certain documents, which were never relevant for the purpose of filing show cause and that it was filed with a view to delay the matter and, therefore, the Authority, taking into account the circumstances that the insured was suffering from so many kinds of ailments and has been admitted to Apollo Hospital, Ranchi for a quite long period and that the general condition of the petitioner was also not good, still nothing was reported in this regard, rather the proposal was given for issuance of the policy, passed the order terminating the agency of the petitioner which is quite in consonance of the provision of the Regulation framed under the L.I.C. Act, as the petitioner failed to make all reasonable inquiry on the life of the insured and as such, the impugned orders are never warrant to be interfered with by this Court. 10. Learned counsel further submits that a knowing misrepresentation of the truth or concealment of the material fact to induce another to act to his or her detriment would amount to a fraud as per Black's Law Dictionary and in that view of the matter, one who indulges himself in the act of fraud would get himself disentitled to have commission earned earlier in terms of Clause 19 of the Regulations. 11. Having heard learned counsel appearing for the parties, the question, which is to be determined, as to whether the order of termination of the agency of the petitioner is justified or not? 12. Regulation 16 of the Life Insurance Corporation of India (Agents) Regulations, 1972 (in short the Regulations) deals with the termination of agency for certain lapses. 11. Having heard learned counsel appearing for the parties, the question, which is to be determined, as to whether the order of termination of the agency of the petitioner is justified or not? 12. Regulation 16 of the Life Insurance Corporation of India (Agents) Regulations, 1972 (in short the Regulations) deals with the termination of agency for certain lapses. Relevant provisions would be sub-clauses (a) & (b) of Clause 16(1) of the Regulations which read as under:- "16(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 interest of the Corporation or to the interest of its policy holders." 13. Thus, in two situations; one in a case of failure to discharge the function, as set out in Regulation 8 and another situation in which if one acts prejudicial to the interest of the Corporation or to the interest of the policy holders, agency can be terminated. Regulation 8(2) specifically provides that in procuring new life insurance business, an agent shall- (a) take into consideration the needs of the proposer for life insurance and their capacity to pay premiums; (b) make all reasonable enquiries in regard to the lives to be insured before recommending proposals for acceptance and bring to the notice of the Corporation any circumstances which may adversely affect the risk to be underwritten; (c) take all reasonable steps to ensure that the age of the life insured is admitted at the commencement of the policy; and (d) not interfere with any proposer introduced by any other agents. 14. On going through the said provisions, it can be said that if the agent does not make reasonable inquiry in regard to the lives to be insured before proceeding with proposal, his agency would be liable to be terminated in terms of clause (b) of sub-clause (1) of Clause 16 of the Regulations and this is the provision which has been invoked by the Authorities in terminating the agency of the petitioner. It is the case of the petitioner that while making proposal, he never made any misrepresentation of the fact, rather he categorically mentioned in the moral hazard report that the insured is known to him since two days before but this was not sufficient on the part of the petitioner while making proposal for acceptance, as in terms of clause (b) of Clause 8(2) of the Regulations, he was supposed to make reasonable inquiry in regard to the lives of the insured. In the instant case, had the petitioner made inquiry, he could have known easily about the disease of the insured who was admitted to Apollo Hospital, Ranchi from 28.7.1998 to 6.8.1998, as he had made proposal within six days of the discharge from the hospital. Under these situations, the Authorities have rightly taken that the petitioner had failed to discharge his functions as set out in Regulation 8 and, therefore, the order of termination of agency of the petitioner by invoking sub-clause (a) of Regulation 16(1) cannot be said to be bad or illegal in any manner. Hence, I do not find any illegality in the orders, as contained in Annexures-11 and 13. 15. So far the other part of the impugned order relating to forfeiture of all commissions in terms of Regulation 19(1) of the said Regulations is concerned, it was submitted on behalf of the petitioner that since the petitioner has not committed any act of fraud, forfeiture is illegal, whereas the submission is that a knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment would cover fraud and the petitioner by not disclosing the fact which the insured was suffering from can certainly be said to have concealed the material fact and as such, his commission has rightly been forfeited. 16. Meaning of 'fraud' given in Black's Law Dictionary, Eighth Edition is as follows:- "a knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment." 17. 16. Meaning of 'fraud' given in Black's Law Dictionary, Eighth Edition is as follows:- "a knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment." 17. In the instant case, it never happens to the case of the respondents that while giving proposal either there was misrepresentation of the truth or there has been concealment of a material fact, rather it is the case of the respondents that reasonable inquiry in regard to the lives to be insured has not been made before making any proposal. In other words, the Disciplinary Authority passed the order by assuming that if the reasonable inquiry would have been made, the, petitioner could have easily known about the diseases which the insured was suffering from, as he had been admitted to hospital for a quite long period and had been discharged a few days back, but it is never the case that the petitioner was knowing the fact that the insured was suffering from several kinds of diseases and was admitted to hospital still he did not mention all these materials facts in the proposal. Had that been so, the petitioner could have been said to have committed fraud but this is not the case here, rather the case appears to be of not making any reasonable inquiry on the lives of the insured before making proposal and as such, forfeiture of all commissions as ordered under the impugned orders would be quite illegal, as in terms of Regulation 19 of the said Regulations, forfeiture can be effected only in a case of fraud. The said provision reads as follows:- "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 effect 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 effect 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. 50,0001-" has been substituted." 18. Since the act of the petitioner never falls within the ambit of the act of fraud, the order relating to forfeiture of the commission passed by the respondent no. 2 as affirmed by the Appellate Court, is hereby quashed. 19. In the result, this writ application is partly allowed.