LPAs No. 531, 534, 535, 537 of 2010. Case: Life Insurance Corporation of India & Anr. Vs 1. R. K. Mahajan, 2. Man Singh Khushwaha, 3. Nandini Sundriyal, 4. P. K. Singh. High Court of Delhi (India)

Case NumberLPAs No. 531, 534, 535, 537 of 2010
CounselFor Appellant: Mr. Kamal Mehta, Advocate with Mr. Sudeep Singh, Adv. and For Respondents: Mr. R. K. Saini, Adv., Mr. Ajay Sharma, Ms. Rupali Sharma, Adv.
JudgesG. Rohini, CJ and Rajiv Sahai Endlaw, J.
IssueLife Insurance Corporation Act, 1956 - Section 49; Foreign Exchange Management Act, 1999 - Section 16; Specific Relief Act, 1963 - Section 14(1); Constitution of India - Articles 12, 14, 226
Judgement DateNovember 27, 2015
CourtHigh Court of Delhi (India)

Judgment:

G. Rohini, CJ.

  1. By common order dated 21.04.2010, the learned Single Judge allowed W.P.(C) Nos.10426, 10442, 10443 of 2006 and W.P.(C) 3277 of 2007. Aggrieved by the same, the Life Insurance Corporation of India/the sole respondent therein preferred these four appeals under Clause 10 of the Letters Patent.

  2. The Respondents/Writ petitioners are the agents with the Life Insurance Corporation of India (for short ''LIC''). By separate orders dated 24.11.2005, their agency was terminated by the LIC and renewal commission was forfeited in terms of Life Insurance Corporation of India (Agents) Regulations, 1972 (hereinafter referred to as ''the Regulations''). Against the said orders of termination though the writ petitioners preferred appeals to the Zonal Manager, the same were rejected by orders dated 30.05.2006. Aggrieved by the same, they filed W.P.(C) Nos.10426, 10442, 10443 of 2006 and W.P.(C) No.3277 of 2007 contending inter alia that the orders of termination as well as the orders of the Appellate Authority dismissing the appeals were in violation of the principles of natural justice. Accepting the said contention, the learned Single Judge allowed all the writ petitions. Accordingly, while setting aside the impugned orders dated 24.11.2005 and 30.05.2006, the learned Single Judge directed restoration of the agency of the writ petitioners from the date of their respective termination. The learned Single Judge also directed payment of renewal commission and the arrears together with simple interest @ 6% per annum from the date of forfeiture to the date of payment. The said order is under challenge in these appeals preferred by the LIC.

  3. We have heard the learned counsel for both the parties. Since the facts have been set out in detail by the learned Single Judge in the order under appeal, we are not repeating the same. However, it is necessary to notice the relevant statutory provisions.

  4. In exercise of the powers conferred in it under Section 49 of the Life Insurance Corporation Act, 1956 and with the previous approval of the Central Government, the LIC made the Regulations called the Life Insurance Corporation of India (Agents) Regulations, 1972 which shall apply to all agents appointed by LIC for the purpose of soliciting or procuring life insurance business for LIC. The Regulations contain specific provisions prescribing the qualifications for appointment as agents, the training and tests they have to undergo, the period of probation, their functions and also commission and remuneration payable for the discharge of their functions. The agency is liable to be terminated on different grounds specified in the Regulations and as per Regulation 16, the appointment of an agent may be terminated by the competent authority for any of the lapses mentioned therein. Since the impugned orders of termination were passed in terms of Regulation 16(1), the same may be reproduced hereunder for ready reference:-

    "16. Termination of agency for certain lapses:

    (1) The competent authority may, by order, determine the appointment of an agent.

    (a) If he has failed to discharge his functions, as set out in regulation 8, to the satisfaction of the competent authority;

    (b) if he acts in a manner prejudicial to the interests of the Corporation or to the interests of its policyholders;

    (c) if evidence comes to its knowledge to show that he has been allowing or offering to allow rebate of the whole or any part of the commission payable to him;

    (d) if it is found that any averment contained in his agency application or in any report furnished by him as an agent in respect of any proposal is not true;

    (e) if he becomes physically or mentally incapacitated for carrying out his functions as an agent;

    (f) if he being an absorbed agent, on being called upon to do so, fails to undergo the specified training or to pass the specified tests, within three years from the date on which he is so called upon;

    Provided that the agent shall be given a reasonable opportunity to show cause against such termination."

  5. As could be seen, the proviso to Regulation 16(1) mandates that the agent shall be given a reasonable opportunity to show cause against the termination.

  6. The writ petitioners were appointed as Agents long back. They were issued notices dated 15.07.2004 by the LIC alleging that irregularities have been observed in various policies under the Salary Savings Scheme with a view to defraud the Corporation and further stating that the entire matter is under investigation and disciplinary action is contemplated and, accordingly, directing them not to procure or solicit any new LIC insurance business unless permitted to do so. Subsequently, the writ petitioners were served with show cause notices informing the alleged discrepancies/lapses on their part on the working of Salary Savings Scheme and calling upon them to show cause as to why they should not be held guilty of the charges and as to why the penalty of termination of agency under Rule 16(1) with forfeiture of renewal commission should not be imposed. The writ petitioners submitted their replies denying the allegations and explaining that no direct and independent role was ever played by them in adjusting the premia remitted under the scheme in question. However, the disciplinary authority by separate orders dated 24.11.2005 terminated the agency of all the four petitioners under Rule 16(1) of the Regulations concluding that they were guilty of having attempted to defraud the LIC and having acted in a manner prejudicial to the interest of LIC. The appeals preferred by the writ petitioners under Regulation 20 against the orders of termination were also dismissed by the Divisional Manager of LIC.

  7. As noticed above, the proviso to Regulation 16(1) mandates that the agents shall be given a reasonable opportunity to show cause against the termination of agency. It is not in dispute that the orders of termination were preceded by show cause notices. The sum and substance of the allegations was that the money deposited by the Paying Authority (PA) pursuant to the Salary Savings Scheme had been, at the instance of the petitioners, misappropriated towards payment of premium for new/fresh policies of private individuals unconnected with the Paying Authority. The grievance of the writ petitioners is that no documents were enclosed with the show cause notices to show that any of the writ petitioners was responsible for the adjustment of the premia remitted by way of cheques of the Paying Authority under Salary Savings Scheme against either the first or any of the subsequent premia payable towards the proposals recommended by them and that except a bald allegation that the writ petitioners had misled the staff of the LIC into adjusting the amounts in question, the show cause notices did not indicate how and in what manner it was done. It was also contended before the learned Single Judge that the alleged fraud had to be proved by producing credible and cogent evidence which the LIC failed to do. The said contentions were sought to be refuted by the LIC contending that the show cause notices had set out all the relevant details and that the writ petitioners submitted their replies without asking for any of the supporting documents. It was also contended that the writ petitioners were not entitled for personal hearing since there was no such statutory requirement and that termination of agency was on account of loss of confidence of the LIC in the Agent.

  8. We may at the outset mention that the proposals in which the alleged irregularities were committed by the writ petitioners were dated several years before the show cause notices. Though the proposal numbers and the amount of premium were set out in the show cause notices, admittedly, the petitioners were not furnished with any of the documents which were stated to have been relied upon by the LIC to conclude that they were guilty of misconduct. It is also relevant to note that though the LIC claimed to have undertaken an inquiry prior to issuance of the show cause notices, the petitioners were not even furnished a copy of such inquiry report. Under these circumstances, the learned Single Judge opined that the requirement of providing a reasonable opportunity to show cause against the proposed termination, as envisaged under Regulation 16(1), was not satisfied. The learned Single Judge has also taken note of the fact that the LIC was unable to furnish to the Court the details of the investigation stated to have been made by it and that even the documents referred to in the show cause notices could be made available for perusal of the Court after several adjournments and that during the hearing on 17.02.2010, it was conceded by LIC that the voluminous documents submitted before the Court on that date were not furnished earlier to any of the petitioners much less enclosed with the show cause notices. On the basis of the replies given to the RTI applications made by the petitioners during the pendency of the writ petitions, the learned Single Judge also found that the agents had no role to play in terms of making adjustments of premia collected under the Salary Saving Scheme and that there is no material to substantiate the bald statement in the show cause notices that the writ petitioners were responsible for the adjustment of the remittances made under the Salary Saving Scheme against the premium payable against fresh policies. Though an attempt was made by the LIC to justify the orders of termination placing reliance upon the charge-sheet filed by CBI on the basis of the very same documents referred to in the show cause notices, the learned Single Judge declined to accept the same observing that the said charge-sheet was prepared later by the CBI and that it did not form the basis of the termination orders and that at any rate, the acceptability of the said charge-sheet is yet to be decided by the criminal court.

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