IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE S.SIRI JAGAN TUESDAY, THE 27TH JULY 2010 / 5TH SRAVANA 1932 WP(C).No. 27863 of 2009(C) --------------------------------------- PETITIONER: ------------------- K.P.VARUGHESE, KALLARACKAL HOUSE, ERICADU, PUTHUPPALLY, KOTTAYAM. BY ADV. SRI.GEORGE SEBASTIAN. RESPONDENT: --------------------- LIC OF INDIA, KOTTAYAM, REPRESENTED BY BRANCH MANAGER (P & GS) LIC OFFICE, JEEVAN PRAKASH, P.B.NO.609, KOTTAYAM. BY ADV. SRI.VARGHESE C.KURIAKOSE. THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 27/07/2010, ALONG WITH W.P.(C). NO. 29137 OF 2009,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: W.P.(C). NO.27863/2009-C: APPENDIX PETITIONERS' EXHIBITS: EXT.P.1: COPY OF THE AWARD DTD. 22/04/2009 PASSED BY INSURANCE OMBUDSMAN, KOCHI. EXT.P.2: COPY OF THE CONSENT LETTER DTD. 20/05/2009 ISSUED BY THE PETITIONER. EXT.P.3: COPY OF THE ACKNOWLEDGEMENT CARD SIGNED BY THE RESPONDENT ON 22/05/2009. EXT.P.4: COPY OF THE AWARD RECTIFIED ON 02/06/2009 BY THE INSURANCE OMBUDSMAN, KOCHI. RESPONDENTS' EXHIBITS: EXT.R1.A: COPY OF THE MASTER POLICY NO. GGI 45281 (GROUP GRATUITY INSURANCE SCHEME). EXT.R1.B: COPY OF THE LETTER TO THE RESPONDENT DTD 31/07/2007. EXT.R1.C: COPY OF THE LETTER DTD. 14/08/2007. EXT.R1.D: COPY OF THE APPLICATION DTD. 30/11/2007. EXT.R1.E: COPY OF THE REPLY DTD. 17/12/2007. EXT.R1.F: COPY OF THE COMPLAINT DTD. 21/02/2009. EXT.R1.G: COPY OF THE STATEMENT OF DEFENCE. //TRUE COPY// P.S. TO JUDGE. Prv. S. Siri Jagan, J. =-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-= W.P(C) Nos. 27863 & 29137 of 2009 =-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-= Dated this, the 27th day of July, 2010. J U D G M E N T These two writ petitions are filed challenging the same order of the Insurance Ombudsman. But the grounds for challenge are distinct and separate. Therefore, these two writ petitions are heard and disposed of together by this common judgment. 2. W.P(C) No. 29137/2009 is filed by the Life Insurance Corporation of India. W.P(C) No. 27863/2009 is filed by Sri. K.P. Varghese, a retired employee of the Adhyapaka Co-operative Bank Ltd., Puthuppally. On retirement from the bank, Sri. K.P. Varghese requested for gratuity. For payment of the gratuity, the bank had taken a group insurance policy with the LIC of India under the Group Gratuity Insurance Scheme of the LIC. Sri. K.P. Varghese filed a complaint before the Insurance Ombudsman contending that he had not been paid the policy amount as per the group insurance policy, but was paid only Rs. 3,50,000/-. The Insurance Ombudsman by Ext. P8 award (in W.P(C) No. 29137/2009, which is the same as Ext. P1 in the other writ petition), held that the petitioner is entitled to an amount of Rs. 4,37,987/- as the policy amount and therefore the LIC has to pay to the employee a further amount of Rs. 87,987/-. Subsequent to Ext. P8, Insurance Ombudsman passed Ext. P9 order, whereby an inadvertent mistake in calculation has been corrected and the amount was re-computed as Rs. 4,53,090/-. W.P(C) No. 29137/2009 is filed by the LIC of India challenging the said direction of the Insurance Ombudsman. W.P(C) No. 27863/2009 is filed by Sri. K.P. Varghese challenging that part of the same award, whereby the Insurance Ombudsman calculated the amount payable taking into account one day's salary dividing the monthly salary by 30 on the ground that as per the Payment of Gratuity Act, 15 days' salary has to be computed by taking the number of days in a month as 26. W.P.C. 27863 & 29137 of 2009. -: 2 :- 3. The contention of the LIC is that as far as they are concerned, they are bound to pay the amount under the policy in accordance with the agreement with the policy holder, namely, the bank. They would take the contention that the agreement between the bank and the LIC is to pay to every employee policy amount calculated as per he policy subject to a maximum of Rs. 3,50,000/-. They would further contend that insofar as the matter falls under the Payment of Gratuity Act, the Insurance Ombudsman has no jurisdiction to entertain the complaint. They would raise another contention that there is no privity of contract between Sri. K.P. Varghese and the LIC of India and therefore they cannot be saddled with the additional liability on a complaint filed by Sri. K.P. Varghese insofar as the policy holder, the bank, has no complaint regarding the payment. 4. According to Sri. K.P. Varghese, as per the policy, which is produced as Ext. P 1 in W.P(C) No. 29137/2009, the sum assured is an amount equal to 15 days salary of the member as on the entry date or the annual renewal date as the case may be, for each year of service up to the normal retirement date, subject to the maximum of 20 months salary. According to him, Rs. 3,50,000/- is the maximum amount of gratuity stipulated under the Payment of Gratuity Act, which limit is not applicable to Ext. P1 policy and therefore he, being the beneficiary of the policy, is entitled to full insurance amount as per the policy. He further submits that as per Explanation to Section 4(2) of the Payment of Gratuity Act, in case of a monthly rated employee, 15 days' wages shall be calculated by dividing the monthly rate of wages last drawn by him by twenty-six and multiplying the quotient by fifteen. Insofar as the policy is for payment of gratuity, W.P.C. 27863 & 29137 of 2009. -: 3 :- admittedly the calculation of 15 days' wages as per the policy has also to be made in accordance with the Explanation to the proviso to Section 4(2), is the contention raised. 5. As far as the question of jurisdiction is concerned, insofar as the issue involved is payment of insurance amount as per a policy, the Insurance Ombudsman certainly has jurisdiction, is his contention. 6. In respect of the contention regarding want of privity of contract, Sri. K.P. Varghese points out that that issue has already been settled by this Court in the decision of Retnavally v. Ambalappad Service Co-operative Bank Ltd., 2005(3) KLT 320 in favour of the employee-beneficiary of the policy. He would therefore submit that he is entitled to insurance amount as per Ext. P1 policy at the rate of 15 days' salary for every completed year of service subject to maximum of 20 months' salary calculated as per the explanation to Section 4(2) of the Payment of Gratuity Act. 7. I have considered the rival contentions in detail. 8. As far as the jurisdiction of the Insurance Ombudsman is concerned, I am of opinion that insofar as what is in question before the Insurance Ombudsman was payment of amounts due under a policy issued by the Life Insurance Corporation of India, notwithstanding the fact that that policy was for payment of gratuity to employees of a bank, the Insurance Ombudsman certainly has jurisdiction, without any doubt. 9. As far as the objection regarding lack of privity of contract between Sri. K.P. Varghese and the LIC is concerned, that question was elaborately considered by me in the decision of Retnavally's case and I have held that such policies are in the nature of a trust with the employees as beneficiaries of the trust although the beneficiaries are not parties to the trust document, namely, the W.P.C. 27863 & 29137 of 2009. -: 4 :- policy. That being so, Sri. K.P. Varghese as the beneficiary of the policy taken by the bank from the LIC of India certainly has privity of contract between the employees and the LIC of India for recovery of policy amount short paid. 10. The next question is as to what is the policy amount payable in accordance with Ext. P1 master policy. The relevant clause is clause (B), which reads thus: “(B) Assurances and Premiums:- 1. Sum Assured: The Sum Assured under the Pure Endowment Assurance shall be an amount equal to 15 days salary of the member as on the Entry Date or the Annual Renewal Date, as the case may be for each year of service up to the Normal Retirement Date subject to the maximum of 20 months salary.” Going by the same, it is abundantly clear that the sum assured is an amount equal to 15 days' salary of the employee for each year of service, up to the normal retirement date, subject to the maximum of 20 months' salary. Going by the said clause in the master policy,the LIC could not have validly restricted the insurance amount payable under Ext. P1 as Rs. 3,50,000/- insofar as the upper limit prescribed is 20 months' salary of the employee. Since the policy is admittedly for payment of gratuity to the employees of the bank, for which provision is made in Section 4A of the Payment of Gratuity Act, necessarily the 15 days' salary has to be computed in terms of the proviso to Section 4(2) of the Payment of Gratuity Act, which reads thus: “4. Payment of gratuity:- (1) Gratuity shall be payable to an employee on the termination of his employment after he has rendered continuous service for not less than five years,- W.P.C. 27863 & 29137 of 2009. -: 5 :- (a) on his superannuation, or (b) on his retirement or resignation, or (c) on his death or disablement due to accident or disease: Provided that the completion of continuous service of five years shall not be necessary where the termination of the employment of any employee is due to death or disablement: Provided further that in the case of death of the employee, gratuity payable to him shall be paid to his nominee or, if no nomination has been made, to his heirs, and where any such nominees or heirs is a minor, the share of such minor, shall be deposited with the controlling authority who shall invest the same for the benefit of such minor in such bank or other financial institution, as may be prescribed, until such minor attains majority. Explanation:- For the purposes of this section, disablement means such disablement as incapacitates an employee for the work which he was capable of performing before the accident or disease resulting in such disablement. (2) For every completed year of service or part thereof in excess of six months, the employer shall pay gratuity to an employee at the rate of fifteen days' wages based on the rate of wages last drawn by the employee concerned: Provided that in the case of a piece-rated employee, daily wages shall be computed on the average of the total wages received by him for a period of three months immediately preceding the termination of his employment, and, for this purpose, the wages paid for any overtime work shall not be taken into account: Provided further that in the case of an employee who is employed in a seasonal establishment and who is not so employed throughout the year, the employer shall pay the gratuity at the rate of seven days' wages for each season Explanation:- In the case of a monthly rated employee, the fifteen days' rates shall be calculated by dividing the monthly rate of wages last drawn by him by twenty six and multiplying the quotient by fifteen. xx xx xx” (underlining supplied) W.P.C. 27863 & 29137 of 2009. -: 6 :- Therefore, I am satisfied that 15 days' salary has to be calculated in accordance with above said explanation. The Insurance Ombudsman has taken the monthly salary of Sri. K.P. Varghese as Rs. 30,206/-, which is not disputed before me. Admittedly, he had 30 years of continuous service. Calculating the insurance amount payable on the basis of the said inputs, the gratuity payable as per the policy would be [30206 x 15 x 30/26] Rs. 5,22,796.15. The upper limit of 20 months' salary prescribed under the policy would certainly be higher than that. Therefore, as per the master policy, Sri. K.P. Varghese is entitled to the amount of Rs. 5,22,796.15, as the insurance amount. It is declared so. Ext. P9 order in W.P(C) No. 29137/2009, which is the same as Ext. P4 in W.P(C) No. 27863/2009, would stand modified accordingly. The LIC of India is directed to pay the additional amount of Rs. 1,72,796.15 to Sri. K.P. Varghese through the bank within one month from the date of receipt of a copy of this judgment. On the balance amount of Rs, 1,72,796.15, the LIC shall pay 6% interest from 25-4-2007 when the LIC first made the payment of Rs. 3,50,000/- still date of payment. Sd/- S. Siri Jagan, Judge. Tds/