ivil appeal No 2197 From the Judgment and order dated 16470 of Andhra Pradesh High Court in appeal No 431 of 1965
Dr YS Chitale V G Shanker KL Hathi Ms Sadhana DK Chhaya MK Arora and Mrs H Wahi for the appellant
352 T section Krishnamoorthi Iyer KR
Choudhry and KS
Choudhary for the respondents
The Judgment of the Court was delivered by SABYASACHI MUKHARJI J
This appeal is by a certificate granted on 18th September 1970 by the High Court of Andhra Pradesh under Article 1331 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 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 insurance for Rs 50000 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 ie 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 50000
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
353 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 354 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
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 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 further 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 these 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
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
Both documentary and oral evidence were adduced at the Trial
The respondents plaintiffs examined Shri RV Bhupala Prasad son of the deceased and the Corporation on its behalf examined Shri Jagannadhachari the Superintendent of the Corpo 355 ration 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 50000
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
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 exhibit B 1 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 50000 exhibit B 13 is the copy of the Standing order
The purpose of review slip exhibit 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 exhibit 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 OR WITH EDB 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 exhibit B 14 was initialled by him
He further stated that the letters DM  were also written by him indicating that the papers should go to the Divisional Manager on exhibit 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 instalment was 356 in deposit it would be adjusted towards premium amount he stated
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 Nature of Power Authority Extent of Finan cial power up to and Including Rs 1
Underwriting and Revivals a Standard Section Head 2000 Sum Proposed lives and Supdt or JO 5000  do  revival on ASO 10000  do  original ADM 25000  do  terms DM 100000  do  Note Proposals on standard lives for more than Rs 100000 should be referred to the Central Underwriting Section 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 instalment 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 357 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 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
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 exhibit B 13 and the various documents produced for the first time on record that there was acceptance of proposal and like 358 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 concussed 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 exhibit 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
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 opinions 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 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 359 there was no evidence that such could have been the deposition in law
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 
The dictionary meaning also indicates that
See in this connection The Concise oxford Dictionary Sixth Edition p 1267 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 50000 and above
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
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 offeror 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
 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 360 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
See in this connection statement of law in MacGillivray  Parkington on Insurance Law Seventh Edition page 94 paragraph 215
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
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
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 85000 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 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
In the facts and circumstances of the case there will be no order as to costs in this Court
With the above observations the appeal is allowed
SR Appeal allowed


Summary:
One Late Raja Vasireddi Chandra Dhara Prasad died intestate on 12th January 1961
He had filled a proposal for insurance for Rs 50000 on 27th December 1960
There was medical examination by the doctor on the life of the deceased on 27th December 1960
The deceased issued two cheques being the consideration towards the first premium for Rs 300 and Rs 220 respectively which were encashed by the appellant on 29th December 1960 and 11th January 1961
On 16th January 1961 the widow of the deceased wrote to the appellant intimating the death of the deceased and demanded payment of Rs 50000 The Divisional Manager Masulipatam Branch denied liability on behalf of the appellant on 28th January 1961
Thereafter there was correspondence between the parties between Ist February 1961 and 23rd December 1963
On 10th January 1964 the respondents filed a suit in the Court of Subordinate Judge Masulipatam
The trial court dismissed the suit holding inter alia that there was no concluded contract that the proposal was not accepted by the Divisional Manager for some reason or the other by the time the deceased had died that neither the encashment of the two cheques created a contract of insurance
In appeal the High Court after ordering certain other additional documents set aside the Trial Court Judgment
Hence the appeal by the Corporation after obtaining the special leave
Allowing the appeal the Court  HELD 1
Having regard to the clear position in law about acceptance of insurance proposal and the evidence of record in this case it is clear 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
360D E 2
Though in certain human relationship silence to a proposal might 351 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 offer or 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 depend simply on the way in which negotiations for an insurance have progressed
359H 360A B 3 1
When an insurance policy becomes effective is well settled by the authorities but it is clear that the expression underwrite signifies accept liability under that
The dictionary meaning also indicates that
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 funderwriting 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 50000 and above
359 B D 3 2
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 acts or acts agreed on by the parties or from which the law raised a presumption of acceptance
359D E 3 3 In the instant case the High Court was in error in coming to the following conclusions i 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 ii in its view about the powers of the different authorities under Chapter III of the Standing order 1960 dealing with the financial powers iii about the view that the Assistant Divisional Manager having accepted the proposal and iv about the assurance given by the Field officers that the acceptance of the first premium would automatically create a concluded contract of insurance  358E H The Court however directed half the amount of the insurance amount of Rs 85000 paid to the Respondents to be refunded to the Corporation
360F G