Life Insurance Corporation Of India & ... vs Smt. S Sindhu

"4. Non-forfeiture Regulations: If, after atleast three full years premiums have been paid in respect of this Policy, any subsequent premium be not duly paid this policy shall not be wholly void, but shall subsist as a paid-up policy for a reduced sum payable on the Date of Maturity or at the Life Assured's prior death provided the paid up sum assured is not less than Rs.250. The amount of paid up assurance for integral number of years' premiums paid will be calculated as per Table given below. The policy so reduced shall thereafter be free from all liability for payment of within mentioned premium but shall not be entitled to participate in future profits. The existing bonus additions if any, will remain attached to the reduced paid up policy.

4. The 'paid up value' of the policy was arrived at Rs.1,13,750/- as per Condition (4) of the policy and was paid by the LIC to the respondent on 26.3.1998, on her executing a full and final settlement discharge. As the policy of insurance with profit plan was eligible for bonus only if premiums are paid at least for a period of 5 years and as the insured had paid premium only for a period of three and quarter years, the policy was found to be ineligible for bonus.

5. The respondent approached the Consumer Disputes Redressal Forum, Kollam, on 30.4.1998, praying for a direction to the LIC to pay her the entire sum assured under the policy namely, Rs.5 lacs with accrued bonus and interest at 12% per annum, as also Rs.25,000/- as compensation for deficiency of service and Rs.5,000/- as costs.

6. The Appellant (LIC) resisted the said claim pointing out that it had released the paid-up value of Rs.1,13,750/- in terms of the policy, in full and final settlement and it had no liability either to pay the assured sum or bonus or any interest. The District Forum by order dated 28.8.1998 rejected the contention of the respondent that she is entitled to the assured sum of Rs.5 lacs or bonus. It held that the respondent was only eligible for payment of Rs. 1,13,750/- as paid-up value in terms of Condition No.4 of the policy. The District Forum, however, directed the LIC to pay interest at 15% per annum (on the sum of Rs.1,13,750/-) from the respective dates of receipt of the amounts of premium to date of settlement. For grant of such interest, the District Forum relied on the decision of this Court in Harshad J. Shah v. L.I.C. of India [1997 (5) SCC 64].

7. An appeal was filed by the LIC before the Kerala State Consumer Disputes Redressal Commission contending that it was not liable to pay interest from the date of receipt of the premiums, and the decision in Harshad J. Shah (supra) did not require payment of such interest. The Commission allowed the appeal in part, on 31.3.1999. It held that the direction to pay interest from the dates of payment of premium was in accordance with the decision in Harshad J. Shah (supra) and did not call for interference. The rate of interest was, however, reduced from 15% to 12% per annum. The revision filed by LIC against the order of the State Commission was rejected by the National Commission on 2.11.1999, on the ground that order of the State Commission did not suffer from any illegality or jurisdictional error. The said order is challenged in this appeal.

(emphasis supplied) Payment of interest on the premium amounts, from the respective dates of remittance of premiums, is alien to the concept of life insurance. In this case, the assured died on 5.12.1997 prior to the date of maturity. Therefore the reduced sum as a paid up policy became due and payable without any interest on 5.12.1997. The claim was settled by payment of Rs.113,750/- on 26.3.1998, within three months from the date of intimation of death. Therefore, under the contract, no interest is payable by LIC.

17. We, therefore, allow this appeal and hold that the LIC is not liable to pay any interest on the sum of Rs.1,13,750/-.

In view of it, this decision does not render the respondent liable to refund any amount already received in pursuance of the order of the consumer forum, even though we have held that the respondent is not entitled to any interest on Rs.1,13,750/-. We may clarify the contents of this para is purely based on a concession made on 7.8.2000.