2005 (7) TMI 659 - SC - Indian Laws

Supreme Court upholds employer's duty to pay Life Insurance Corporation despite premium collection failure

Chairman, Life Insurance Corporation & Ors. Versus Rajiv Kumar Bhasker

The Supreme Court upheld the liability of the Life Insurance Corporation (LIC) to pay the assured sums under the Salary Savings Scheme, despite the ... When the existence of an agency relationship would help to decide an individual problem, and the facts permits a court to conclude that such a relationship existed at a material time, then whether or not any express or implied consent to the creation of an agency may have been given by one party to another, the court is entitled to conclude that such relationship was in existence at the time, and for the purpose in question Issues Involved:1. Liability of the Life Insurance Corporation (LIC) under the Salary Savings Scheme (SSS).2. Role and responsibility of the employer in the SSS.3. Legal interpretation of agency in the context of SSS.4. Applicability and reconsideration of the Basanti Devi judgment.5. Consequences of non-deduction of premiums by the employer.Detailed Analysis:1. Liability of the Life Insurance Corporation (LIC) under the Salary Savings Scheme (SSS)The core issue revolves around whether LIC is liable to pay the assured sum under the SSS despite the employer's failure to deduct and remit premiums. The judgment reaffirms that LIC, having induced employers to act as agents for premium collection, cannot shirk its liability. The court emphasized that the scheme was designed to project the employer as an agent of LIC to the employees, who were unaware of the internal correspondence between LIC and their employers. Thus, LIC cannot avoid its obligations due to the employer's default.2. Role and Responsibility of the Employer in the SSSThe employer's role in the SSS is crucial as they are responsible for deducting premiums from employees' salaries and remitting them to LIC. The judgment highlighted that the employer accepted this responsibility and acted as an agent for LIC, even though the employer claimed to act on behalf of the employees. The court noted that the scheme's design and communication led employees to believe that their employers were acting on LIC's behalf, thereby creating an implied agency relationship.3. Legal Interpretation of Agency in the Context of SSSThe court delved into the legal concept of agency, citing Section 182 of the Indian Contract Act, 1872, which defines an agent as a person employed to do any act for another or to represent another in dealings with third persons. The judgment clarified that the employer, by agreeing to deduct and remit premiums, acted as an agent of LIC. This agency was inferred from the conduct and representations made by LIC and the employers, despite the absence of a formal appointment under the Life Insurance Corporation of India (Agents) Regulation, 1972.4. Applicability and Reconsideration of the Basanti Devi JudgmentThe judgment upheld the principles laid down in the Basanti Devi case, which established that employers, by deducting premiums and remitting them to LIC, acted as agents of LIC. The court rejected the contention that Basanti Devi required reconsideration, affirming that the employer's role created an implied agency relationship with LIC. The court emphasized that the scheme's design and the employers' actions led employees to reasonably believe that their employers were acting on LIC's behalf.5. Consequences of Non-Deduction of Premiums by the EmployerThe court addressed the implications of employers failing to deduct and remit premiums. It held that LIC could not absolve itself of liability due to the employer's default. The judgment underscored that LIC had a duty to inform employees about the consequences of non-payment of premiums and the potential lapse of policies. The court concluded that LIC's failure to communicate these risks to employees meant that LIC could not deny the claims based on the employer's failure to remit premiums.ConclusionThe Supreme Court dismissed the appeals filed by LIC and upheld the liability of LIC to pay the assured sums under the Salary Savings Scheme, despite the employers' failure to deduct and remit premiums. The judgment reaffirmed the principles of agency, holding that employers acted as agents of LIC, and emphasized LIC's duty to inform employees about the consequences of non-payment of premiums. The court's decision ensures that employees' interests are protected, and LIC cannot evade its obligations due to the employers' default.