2006 (5) TMI 493 - SC - Indian Laws

Whether in the case of a lapsed life insurance policy, the Life Insurance Corporation of India ( the LIC for short) while paying the reduced sum payable by treating it as a paid- up policy, is liable to pay interest in regard to premiums paid from the respective dates of payment of premiums to date of settlement?

Issues Involved:
1. Liability of LIC to pay interest on premiums paid for a lapsed life insurance policy.
2. Applicability of non-forfeiture regulations.
3. Eligibility for bonus under the policy.
4. Jurisdiction and correctness of Consumer Disputes Redressal Forum, State Commission, and National Commission decisions.
5. Interpretation of the Supreme Court's decision in Harshad J. Shah v. LIC of India.

Detailed Analysis:

1. Liability of LIC to pay interest on premiums paid for a lapsed life insurance policy:
The primary issue is whether LIC is liable to pay interest on premiums paid from the respective dates of payment to the date of settlement in the case of a lapsed life insurance policy. The court held that the amount paid by LIC in regard to a lapsed policy is not a "refund of the premiums paid on various dates" but a reduced lump sum calculated as per Condition No. 4 of the policy. The court emphasized that treating the premiums paid as fixed deposits repayable with interest would be contrary to the terms of the insurance contract and would unjustly reward defaulting policyholders. The court concluded that no interest is payable by LIC under the contract, as the policy specifically states that the sum assured is payable "without interest."

2. Applicability of non-forfeiture regulations:
Condition No. 4 of the policy outlines the non-forfeiture regulations, stating that if premiums for at least three full years have been paid and subsequent premiums are not paid, the policy will subsist as a paid-up policy for a reduced sum. The court confirmed that the reduced sum of Rs. 1,13,750 was correctly calculated and paid by LIC as per this condition, and no interest on the premiums paid was warranted.

3. Eligibility for bonus under the policy:
The policy was ineligible for a bonus as the insured had paid premiums only for three and a quarter years, whereas the policy required premiums to be paid for at least five years to be eligible for a bonus. The court upheld LIC's position that the policy was not entitled to any bonus.

4. Jurisdiction and correctness of Consumer Disputes Redressal Forum, State Commission, and National Commission decisions:
The court reviewed the decisions of the Consumer Disputes Redressal Forum, the State Commission, and the National Commission, which had directed LIC to pay interest on the sum of Rs. 1,13,750 from the respective dates of receipt of the premiums. The court found that these decisions were erroneous as they misinterpreted the Supreme Court's decision in Harshad J. Shah v. LIC of India and incorrectly applied the principles of interest payment. The court clarified that interest prior to the date of suit/claim can only be awarded if the contract, statute, or Interest Act, 1978, provides for it, none of which were applicable in this case.

5. Interpretation of the Supreme Court's decision in Harshad J. Shah v. LIC of India:
The court clarified that the decision in Harshad J. Shah did not establish a general principle that LIC should pay interest on premiums from the dates of payment. In Harshad J. Shah, the court directed the refund of a specific amount of premium with interest due to the special facts of that case, where the premium was wrongfully retained by LIC. The court emphasized that this direction was not a general principle of law but an exercise of power under Article 142 to do complete justice in that particular case.

Conclusion:
The Supreme Court allowed the appeal, holding that LIC is not liable to pay any interest on the sum of Rs. 1,13,750. However, the court noted that due to a concession made during the proceedings, the respondent is not required to refund any amount already received in pursuance of the order of the consumer forum.

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