COURT ROOM EXERCISE 7 CONTRACTS II

The case of the writ petitioner is that his father late Upendra Sharma was a Lecturer in
Sidho Kanhu College, Ranchi. In the year 2002, he got his life insured under the 'Salary
Savings Scheme' for Rs. 1,00,000. As per terms of the scheme the amount of premium was to
be deducted from his salary by the college and deposited with the Ranchi Branch, of L.I.C.
Upendra Sharma died of heart attack on 9.7.2006. On 10.9.2006 the respondent lodged
claim for payment of the amount and, on being asked, submitted the required papers in the
branch office. As the college authorities had failed to deposit the premiums for the months
December, 2005 to July, 2006, respondent deposited the amount due, being Rs. 6,040, with
the college on 5.11.2006 which was remitted to L.I.C. on the same day. As no action was
taken on the claim, on 20.12.2009 the respondent served legal notice. On 24.1.2010, he
served another notice. By letter dated 2.2.2010 he was informed by the Additional Executive
Director (Marketing) of the Corporation that the matter had been taken up with the Ranchi
Divisional office and the claim will be decided shortly. When no decision was communicated
the respondent approached the District Forum constituted under the Consumer Protection
Act with a complaint which was registered as Case No. 33 of 2010 but the said complaint too
was not taken up for want of quorum as the President of the Forum had not been appointed.
Finding no way out the respondent moved this Court in the connected writ petition, i.e.,
C.W.J.C. No. 8452 of 2010 seeking direction upon L.I.C. to settle the death claim and pay the
amount of insurance with interest.

L.I.C. in its counter-affidavit did not deny that Upendra Sharma had taken life insurance
policy for an assured amount of Rs. 1,00,000 commencing from 20.3.2002 under the Salary
Savings Scheme. According to it though the employer was responsible for deducting the
premium amount every month from the salary and remitting the same to it, it was the duty of
the assured to ensure payment of premium under the policy. The amounts of premium due
for the period December, 2005 to July, 2006 were deposited only on 6.11.2006 which proves
that no premium was paid for those months and it was only after the death of the assured
that the payment was made by the respondent from his own source. The policy having
lapsed, the respondent was not entitled to the sum assured, except the paid up value of the
deposits, i.e., Rs. 31,800 which L.I.C. is ready to pay with interest at the rate of 9 per cent per
annum, besides refund of the amount deposited on 6.11.2006 i.e., Rs. 6,040. The learned
single Judge negatived the contention of the appellant and allowed the writ petition.

The counsel for the L.I.C. pleaded that in the present case the salary itself was not
paid to the respondent's father; therefore, there was no question of any deduction
from the salary and deposit thereof with L.I.C. In the present case as the salary itself
was not paid to Upendra Sharma, he should have known that no deduction was being
made and, consequently, premiums were not being deposited because deductions
could be made only if salary was paid and when salary was not paid there was no
occasion to make any deduction and deposit. It was stated by the counsel stated that
in a large number of undertakings and organisations including the Universities in the
State of Jharkhand, salary is not being paid regularly to the employees. As a matter
of fact, L.I.C. was seriously considering to withdraw the scheme from the concerned
undertakings or organisations, etc. Secondly, the counsel submitted that as the
respondent had filed complaint before the District Forum under the Consumer
Protection Act, which was pending, the writ petition was not maintainable. In the
present case no material has been produced by the parties and this Court is being
asked to proceed on assumptions as to the terms of the Salary Savings Scheme. Copy
of the Scheme has not been brought on record and it is thus not known as to what the
terms of the Salary Savings Scheme were under which the respondent's father
obtained the insurance policy. Lastly, it was submitted that there being contrary
decision of another single Judge in a similar case, the single bench should have
referred the case to a larger Bench. The Salary Savings scheme has been explained in
these words:

It is a simple, economical plan whereby your employees may obtain a life insurance
protection for their families and retirement income for themselves under
advantageous conditions which might not be available to them otherwise. This it
accomplishes by savings automatically deducted from their pay and remitted to us
once a month. This is not a group insurance. Each employee owns his policy
individually, is entitled to all its benefits and can continue the policy in the event of
any change in employment.

Under this plan, you as an employer give facilities to the representatives of L.I.C. to
contact your employee to offer life insurance cover to them. Premium .amounts, if an
employee agrees to insure under this plan, are to be deducted every month from the
employee's salary, in the same manner as the Employee’s Provident Fund. All the
amounts so collected are paid to the Corporation by one cheque by the employer.
This ensures for the employee regular payment, monthly, of his premiums at
concessional rates. Deduction of premium from the salary or wages of an employee
and its remittance to L.I.C. is so beneficial that the recently amended Payment of
Wages Act and the Minimum Wages Act make it legally permissible for an employer
to do so. On your part, all that the plan involves is a little extra accounting which you
will surely consider worthwhile because the employer is informed about the
advantages of the Scheme from the employer's as well as the employees' point of
view, by letter, specimen whereof has been set out in the brochure itself, by the
Branch Manager of L.I.C. The brochure also contains the specimen of the letter to be
sent by the employer in response. Thereafter, letter of acceptance is issued by the
Branch Manager along with an enclosure. Some of clauses thereof may usefully be
noticed as follows:
(a) The employer will receive list of premiums to be deducted called as demand
invoice in duplicate each month on the specified date.

(b) One copy of the invoice is to be returned along with the remittance. The second
copy is to be retained by the employer for his record.

(c) It is necessary to inform L.I.C. when an employee leaves the service or is

transferred from one department to another.

(d) Reconciliation statement in a specified form to be supplied by L.I.C. will

accompany the statement.

(e) The Corporation will make changes in the invoice based on the information
received from the employer regarding transfer in, transfer out and exits.

(f) Deductions made in each month will have to be remitted to us within a week from
the date of making deductions along with a copy of invoice and a reconciliation
statement. Make your cheque payable to Life Insurance Corporation of India and
send it along with the copy of invoice with reconciliation statement drawn in the
form suggested in (d) above to the appropriate Branch Office. While checking out
statement if you find that an item cannot be paid, rule through the item on the
original statement and note the reason for nonpayment against the item in the
remark column. If you find that an addition is to be made make the addition at the
end of the statement giving policy number, name, amount and the reason for
addition. If the employee is transferred from one department to another, the names
of the departments concerned and code number must be stated.

(g) In order to bring the invoices up to date, it is desirable that the employer informs
us of all the changes in the staff immediately as soon as they occur. The employer
need not wait to incorporate those in the invoice. The changes communicated to us
through invoice are received date (Sic.) and the names of employers continue to
appear in the wrong invoice in the meanwhile.

The brochure also contains the form of the letter in which the employees are
informed about the scheme, which also may be quoted as under:

Realising that an adequate savings and protection scheme will mean so much to you
and your family we have arranged for the benefits of the Salary Savings Scheme of
the Life Insurance Corporation of India for all employees who desire its privilege.
The premium will be automatically deducted from your salary once a month and
remitted to the Life Insurance Corporation.

There are two issues which arise for consideration in the Appellate Court.

i. If the learned single Judge wanted to differ, he should have referred the case
to a larger Bench?
ii. Shall the employer to be the agent of L.I.C. notwithstanding a clause to the
contrary in the Scheme?

Argue.