In The District Consumer Forum
University Institute of Legal Studies, Intra Department Moot Court Competition 2013
Ashok KumarComplainant
v.
Mr. X,Respondent 1
IBI BankRespondent 2
Memorial For Complainant
Team Code: B 4
Table of ContentsSTATEMENT OF JURISDICTION........................................................................................ iiiIDENTIFICATION OF CONTENTIONS............................................................................... ivSTATEMENT OF FACTS.........................................................................................................vSUMMARY OF ARGUMENTS..............................................................................................viARGUMENTS ADVANCED................................................................................................... 11. ASHOK IS A CONSUMER:................................................................................................. 12. RESPONDENT NO. 1 i.e., MR. X IS LIABLE................................................................... 4
2.1. UNFAIR TRADE PRACTICE:..................................................................................... 42.2. RESPONDENT NO.1 HAS FRAUDULENTLY MISREPRESENTED FACTS:........5
a) False statement of fact: ............................................................................................... 6b) Induces the other party to contract:............................................................................. 6c) Not free consent........................................................................................................... 7
2.3. PRINCIPLE OF UBERRIMAE FIDEI IS APPLICABLE HERE:...............................92.4. FIDUCIARY RELATIONSHIP EXISTED................................................................. 10
a) Duties of a Fiduciary..................................................................................................12b) Duty of Loyalty......................................................................................................... 12c) Duty to Disclose Relevant Facts and Render Accounts.............................................12d) Duty of Due Care.......................................................................................................12
2.5. SPECIAL KNOWLEDGE REGARDING SUBJECT................................................ 132.6. ESTOPPEL:.................................................................................................................15
3. BANK IS ALSO LIABLE:..................................................................................................183.1. BANK IS VICARIOUSLY LIABLE:..........................................................................183.2 DEFICIENCY IN SERVICE:....................................................................................... 21
a) Unfair Deductions......................................................................................................21b) Delay in refunding premium:.................................................................................... 24
4. BANK AND INVESTMENT MANAGER ARE JOINTLY AND SEVERLY LIABLE:...26Prayer.......................................................................................................................................31
Index Of AuthoritiesLIC of India v. Sheela Devi, II (1991) CPJ 722 (Har).............................................................. 2Smt. Pushpa Meena v. Shah Enterprises 1990 RLT Part III, 59................................................2CC/1871/09 .............................................................................................................................. 2Commissioner of Income Tax, A.P., v. Taj Mahal Hotel, Secunderabad, AIR 1972 SC 168(170).................................................................................................................................... 4I (2008) CPJ 319 NC ................................................................................................................ 4Avon Insurance plc v. Swire Fraser Ltd[2000] 1 All ER(Comm) 573, [2000] CLC 665 .........6Smith v. Chadwick(1884) 9 AppCas 187, at p.196, and Avon Insurance pls Vs. Swire Fraser Ltd[2000]1All ER(Comm) 573................................................................................................. 6Peek Vs. Gurney........................................................................................................................6Bappu Rawther Abdul Kassim Rawther v. State of Kerala, AIR 1964 Ker. 109......................8Mrs. Elizabeth Maud Baines v. Ram Sahai Sethi, AIR 1940 Lah. 505 ....................................9AIR 1957 M.P. 223..................................................................................................................10Mr. Maheshkumar Premchand Shah. v. United India Insurance Co. Ltd. ..............................10Thigpen v. Locke, 363 S.W.2d 247, 253 (Tex. 1962)..............................................................10Ramesh v. M/s Agro Company, .............................................................................................. 11Paul v. North............................................................................................................................ 11 2011(4)RCR(Civil)336 .......................................................................................................... 11Sadhu Kumar v. Bank of India, 2010(4)RCR(Civil)566 ........................................................12Tirupati Texknit Limited (T.T. Ltd.) v. Habib Bank Limited and Ors. ...................................12Burdett v. Miller...................................................................................................................... 12Cf. Dominguez v. Brackey Enters........................................................................................... 12Indian evidence Act, 1872....................................................................................................... 13Schawel VS. Reade[1913] 2 IR 81..........................................................................................13[1957] 1 WLR 370.................................................................................................................. 13Bishnoi v. SBI..........................................................................................................................14Hedley Byrne v Heller.............................................................................................................14AIR 2002 Raj. 505...................................................................................................................14Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465...........................................15Hem Noluni Jidah v. Isolyne AIR 1962 SC 1471....................................................................15Govindsa Marotisa v. Ismail AIR 1950 Nag 22...................................................................... 15Sohu Madho Das v.. Mukund Ram AIR 1955 SC 481, 492; ..................................................15Draupadi Beherani v. Samabri Behera AIR 1958 Ori 242...................................................... 15Bangalore Development Authority v. R. Hanumaiah AIR 2005 SC 3631..............................15R.S. Madamappa v. Chandramma AIR 1965 SC 1812, 1815.................................................16Dhiyan Singh v. Jugal Kishore AIR 1952 SC 145.................................................................. 16Emperor v. Maha Ram ILR 40 All 393................................................................................... 16Hem Nolini v. Isolyne AIR 1962 SC 1471..............................................................................16Satish Kumar Rao v. Gorakhpur University AIR 1981 All 377.............................................. 16Gujarat State Financial Corp. v. Lotus Hotels Pvt. Ltd. AIR 1982 Guj 198...........................16R.S. Maddanappa v. Chandramma AIR 1965 SC 1812)......................................................... 16Loon Karan v. John and Co., AIR 1967 All. 308, 311.............................................................18Motilal Chandnoo Lal v. Golden Tobacco Co., AIR 1957 M.P. 223.......................................18Pasupati Gouri v.. Brindaban Khan, ILR(1951) 1 Cal. 82;..................................................... 18Central Bank of India Vs. Pravin Jagjivan Gosalia. II (2002) CPJ 462: 2002 (1) CPR
i
449(Mah)................................................................................................................................. 19Elof Hansson (I) Pvt. Ltd. Vs. Prithivi Softech Ltd................................................................ 19Jayakrishna Trading Co. and others Vs. Kandsamy weaving factory and Co.........................20Mohindru Vs. ICICI Bank, AIR 2003 SC 311........................................................................ 20(2005) 4 SCC 530 ...................................................................................................................21Umedilal Aggarwal Vs. United India Assurance Co. Ltd., I(1991) CPJ 3(5,6)......................21New India Assurance Co. Ltd. Vs. Vipro Electronics Pvt. Ltd...............................................21Mantora Oil Products (P) Ltd., Kanpur Vs. Oriental Insurance Company Ltd., I(19911) CPJ 323 (326) (NC)........................................................................................................................ 24 Sudhir Kumar and others v. Bureau of Indian Standards....................................................... 24S.I. Strong & Liz Williams, Tort Law, Oxford University Press.............................................26M.P. State Road Transport Corporation v. Abdul Rahman, AIR 1997, MP 248,....................27Parthasartyhy Chetty & co. vs. Gajapathi Naidu & co., ILR 48 Mad. 787.............................28Kishalal Shrilal Patwa Vs. Union Of India, AIR 1960 MP 289 at p. 290...............................29Chesire and Fifoot, Law of Contract, 1943 Ed........................................................................29
BOOKS, ARTICLES, JOURNALS, TREATISES AND DIGESTS:
1) Consumer Protection Act, 1986
2) Code of Civil Procedure, 1908
3) Insurance Act, 1938
4) Indian Contract Act, 1872
5) Indian Evidence Act, 1872
6) Sale of Goods Act, 1930
7) Reports of cases argued and determined in the Court of Appeals and Court of Errors
of South Carolina, on appeal from the courts of law, Volume 4.
8) Sanjiva Rows Commentary on The Indian Contract Act, 1872 And Tenders, (ACT
NO. IX Of 1872), Delhi Law House, 11th Edition, 2009,
9) Leakes Law of Contracts, Vol. I, Edition II, 2007.
10) Storys Law of Contracts, Vol. 1, Edition III, 2008.
11) Mindy Chen-Wishart, Contract Law, Indian Edition, II Edition, 2010
12) M.C. Bhandari, 'Law of Contract', Ashoka Law House, New Delhi (India), Third
Edition 2008.
13) Ratanlal and Dhirajlal, The Law of Evidence, 23rd Edition, 2010
14) TAYLOR, Contract Act, 12th Edition, 2009.
ii
STATEMENT OF JURISDICTION
In accordance with Section 11 of Consumer Protection Act, 1986 Complainant submits to the Hon'ble District Consumer Disputes Redressal Forum the dispute regarding violation of consumer rights, as the total amount involved is less than Rupees 20 lakhs.
iii
IDENTIFICATION OF CONTENTIONS
1. Whether Ashok is a consumer?
2. Whether Mr. X is guilty?
3. Whether Bank is liable?
4. Whether Mr. X and Bank are jointly and severely liable?
5. Whether Mr. Ashok is entitled to compensation?
iv
STATEMENT OF FACTS
1. Ashok Kumar- A Retired Chief Engineer from State services and a resident of
Chandigarh.
2. Ashok retired- July, 2010 , Received a good amount of retiral benefits on
October, 2010.
3. Ashok returned the earlier investment of a dead lock period of 3 years.
Received Rs.24,300. Refund was credited on 7th October, 2010.
4. Ashok purchased the new policy on 10th October, 2010. One time Investment
of Rs.50,000
5. Ashok received the new policy document by registered post on 22nd October,
2010. He was shocked to find out that the policy was not a one time investment
rather an every year investment for 10 years.
6. Ashok returned the policy with a request of refund on 23rd October, 2010 and
mentioned in his letter addressed to the bank that he was misled that it is a one
time investment policy.
7. Request was acknowledged by IBI Bank on 28th October, 2010.
8. Nothing was heard from the Bank till three months.
9. Ashok forced to send a strong reminder to the head office and MR. X on 31 st
January, 2011.
10. Ashok received Rs.48,500 from the Bank on 3rd February, 2011.
v
SUMMARY OF ARGUMENTS
Whether Ashok is a consumer?
In the case at bar, complainant has opted for Investment Plan and has paid his
first premium to show his bona fide interest and being so, acting on the
assurance of Respondent No. 1, he had signed a cheque of Rs. 50,000 as a
token to avail services from IBI bank after signing the prescribed form for
purchasing said insurance scheme. It is amply clear he had purchased that
policy for his old age security and not for any commercial purpose and hence is
a consumer.
Whether Mr. X is guilty?
Mr. X has resorted to unfair trade practice on account fraud and
misrepresentation. He has special knowledge regarding the subject, therefore Mr.
Ashok acted on his advice and suffered losses. There was breach of trust. There
existed fiduciary relationship between both of them, as result Mr. X asserted
undue influence on Mr. X.
Whether Bank is liable?
Since the respondent no. 1 was agent of respondent no.2 therefore the
respondent no. 2 will be liable for the acts of respondent no.1 and will be
liable to refund the amount of deductions with interest. As mandated by
IRDA, if the policyholder is not satisfied with it, or feels that he has been
cheated, and wish to cancel the policy, the insurer will be liable to return
paid premiums. The only deductions that can be made by the insurer for i.
cost incurred during health check-up, ii.charges towards stamp duty and
iii. mortality charge for interim period. In addition to these deductions.
There has been negligence on part of respondent no. 2 in refunding the
amount of premium.
vi
Whether Mr. X and Bank are jointly and severely liable?
Complainant has suffered loss on account of unnecessary deductions, dedcuted
by respondent no.2. Firstly complainant suffered loss when respondent no. 1
advised complainant to deinvest in earlier policy and later on when wrong
insurance policy was issued fraudulently complainant suffered loss. Moreover,
even on the cancellation of policy the premium amount was refunded 3 months
and 6 days latter. So, it is contended that the respondent no. 1 and respondent no.
2 jointly and severly liable.
Whether Mr. Ashok is entitled to compensation.
There was a difference between the contract agreed and signed by the
complainant and respondent no. 1 and the policy document received by the
complainant from respondent no. 2. As the terms and conditions of the former
contract were not written or executed by the latter policy document, there was a
breach of contract on part of the respondent no. 2 . Hence, the complainant is
entitled to demand for compensation under Section 73 i.e., due to breach of
contract exercised by respondent no. 2.
vii
ARGUMENTS ADVANCED
1. THAT MR.ASHOK IS A CONSUMER:
Consumer1 means any person who purchases goods or hires any service for a consideration
which is not for commercial purpose.
In the case at bar, complainant has opted for Investment Plan and has paid his first premium
to show his bona fide interest and being so, acting on the assurance of Respondent No. 1, he
had signed a cheque of Rs. 50,000 as a token to avail services from IBI bank after signing
the prescribed form for purchasing said insurance scheme.2 It is amply clear he had
purchased that policy for his old age security and not for any commercial purpose and hence
is a consumer. In addition to this, the moment the contractual relationship is established a
substantive right as a potential user of services is vested in a consumer. Policy holder who
pays the premium is a consumer of potential services available to him from the life insurance
corporation.3
The meaning of the word 'service' has been expanded by extending it 'to facilities in
connection with insurance' which is a wide ranging activity in day to day life in the modern
times. The provision of 'facilities in connection with insurance' has been specifically
included within the scope of the expression 'service' by the definition of the said word
contained in Section 2(1)(o) of the Act. Having regard to the philosophy of the Consumer
Protection Act and it is avowed object of providing cheap and speedy redressal to consumers
1 Section 2(d), Consumer Protection Act, 1986 :i. buys any goods for a consideration which has been paid or promised or partly paid and partly
promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or promised or partly paid or partly promised, or under any system of deferred payment when such use is made with the approval of such person, but does not include a person who obtains such goods for resale or for any commercial purpose; or
ii. [hires or avails of] any services for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any beneficiary of such services other than the person who [hires or avails of] the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first mentioned person [but does not include a person who avails of such services for any commercial purpose].
2 Page 3 of the factsheet.3 Definition of clause (o) appearing in sub-section(1) of Section 2 of the Consumer Protection Act, 1986
1
affected by the failure on the part of persons providing service for consideration, the
insurance disputes will be covered by the expression 'insurance' occcuring in section 2(1)(d).
Whenever there is a default or negligence in regard to such settlement of an insurance that
will constitute a 'deficiency' in the service on the part of the insurance company, it will be
perfectly open to the concerned aggrieved consumer to approach the Redressal Fora under
the Act seeking appropriate relief.4
It is well settled that when the expression Commercial Purpose has not been defined in the
Act, its common parlance meaning should be given and according to that a commercial
purpose is that purpose, the object or aim of which is to make profit.5 A contract of insurance
will be concluded only when the party to whom an offer has been made accepts it
inconditionally and communicates his acceptance to the person making the offer.6
In the case of Col. Iqbal Inder Singh Vs. Kotak Mahindra Old Mutual Life Insurance
Company7, the complaint an aged retired person of 64 years age, come into consumer
relation with OP-2, through its agent OP-1 who approached him repeatedly to sell their
short term saving plan, for 3 years by inviting investment from complaint. The agent
explained to him on loose sheets the whole scheme and benefits. He opted for this short
term saving plan. He agreed and purchased a policy in early June, 2006. The proposal
form, in fine print in English language was filled by the agent himself, so that complainant,
in filling the same may not commit mistakes. The loose sheets in the hand of agent are
annexed with the affidavit of complainant and with his complaint. He in September, 2008,
found that the policy issued in short term saving plan, was not for 3 years. It was found for
10 years with liability to pay premium of Rs.50,000/- every six month, and not Rs.50,000/-
annual as explained to him. ORDER: Consumer Forum condemned this act and misconduct
of OP-1 & OP-2 and held that This is a fit case for handing it over to police and directe
Delhi Police to record an FIR, based on complaint in this case and other facts produced by
complainant in this case/ on record, and examine the matter to prosecute the OP-1 & OP-2,
for various offences of cheating, forgery etc.
4 LIC of India v. Sheela Devi, II (1991) CPJ 722 (Har).5 Smt. Pushpa Meena v. Shah Enterprises 1990 RLT Part III, 59.6 Dr. J.N. Barowalia, Commentary on Consumer Protection Act, 1986, 5th Edition, Universal Law Publishing
Co. Pvt. Ltd., Pg. 2447 CC/1871/09
2
Forum held OP-2, guilty of deficiency in service perfection leading to harassment of this
senior Citizen in his old age and directed:-
a) OP-2 to return entire premium or other sum received from complainant with
an interest of 12% from date of acceptance of his reply.
b) to pay Rs.1.00 lakh as compensation for deficiency by committing fraud and
cheating, inclusion of litigation expenses.
So, it is clear from the facts of the case that Complainant falls under the ambit of word
consumer defined under Consumer Protection Act, 1986 and therefore can claim
compensation under the jurisdiction of District Forum.
3
2. THAT RESPONDENT NO. 1 i.e., MR. X IS LIABLE.
2.1. UNFAIR TRADE PRACTICE:
Unfair Trade Practice - The Act8 says that, unfair trade practice means a trade practice which,
for the purpose of promoting the sale, use or supply of any goods or for the provison of any
service, adopts any unfair method or unfair or deceptive practice.9
The meaning of the term 'unfair trade practice' has been enlarged by the Parliament by
including making of statement giving false representation.10 On a careful analysis of 'Unfair
Trade Practice' defined in MRTP Act11, it is quite clear that the trade practice which is
undertaken by the company for the purpose of prompting the sale, use or supply of any
goods or for the provision of any service/services adopts one or more following practices and
thereby causes loss or injury to the consumers of such goods or service whether by
eliminating or restricting competition or otherwise would amount to 'unfair trade practice'.
Sub clause (1) of clause (r) of sub-section (1) of section 2 of the consumer protection act
deals with the false and misleading representation or statement, whether orally or in writing
or by visible representation which is included in the definition of the word 'unfair trade
practice'.
In Awaz Vs. RBI12 it was held that a complaint in respect of unfair trade practice is held
8 Consumer Protection Act, 1986 9 (1) The practice of making any statement, whether orally or in writing or by visible representation which
(i) falsely represents that the goods are of particular standard, quality, quantity, grade, composition, style or model;(ii) falsely represents that the services are of a particular standard, quality or grade;(iii) falsely represents any re-built, second-hand, renovated, reconditioned or old goods as new goods;(iv) represents that the goods or services have sponsorship, approval performance, characteristics, accessories, uses or benefits which such goods or services do not have;(v) represents that the seller or the supplier has a sponsorship or approval or affiliation which such seller or supplier does not have;(vi) makes false or misleading statement concerning the need for, or the usefulness of, any goods or services;(vii) gives to the public any warranty or guarantee of the performance, efficacy or length of life of a product or of any goods that is not based on an adequate or proper test thereof;(viii) makes to the public a representation in a form that purports to be a warranty or guarantee of a product or of any goods or services; or a promise to replace, maintain or repair an article or any part thereof or to repeat or continue a service until it has achieved a specified result, if such perported warranty or guarantee or promise is materially misleading.
10 Commissioner of Income Tax, A.P., v. Taj Mahal Hotel, Secunderabad, AIR 1972 SC 168(170)11 Section 36A of the Monopolies and Trade Restrictive Act.12 I (2008) CPJ 319 NC
4
maintainable under the C.P. Act, 1986.
2.2. RESPONDENT NO.1 HAS FRAUDULENTLY MISREPRESENTED FACTS:
The founding principle of contract is a simple one: Agreement is what the parties have
settled on through a communicative process between them. As every agreement has to be
reduced to making the offer and its acceptance, another way of expressing this is to settle on
what was offered and what was the communication surrounding the offer. An actionable
misrepresentation is an unambiguous false statement of fact made to claimant and which
induces the claimant to enter into the contract with the statement maker. 13
Misrepresentation comprises the law relating to the effect on a contract(and hence the
parties positions) where that contract was entered into on the basis of a false statement made
during the course of contractual negotiations. A contract made as the result of a misleading
representation is, subject to the limitations, voidable at the instance of the person to whom
the misrepresentation was made(the misrepresentee).14
During the course of negotiations leading to the conclusion of a binding agreement, one or
other of the contracting parties may make a statement or give an assurance calculated to
produce in the mind of the other party a belief that facts exist which render the proposed
bargain advantageous to the interests of the other party.15
For a claim based on Fraud16 to succeed, there must have been an unambiguous, false
statement of existing fact, which induced the claimant to enter into the contract. 17
13 Jill poole, Contract Law, 2011, 7th Edition, Pg 31614 J. Beatson, A.Burrows and J. Cartwright, Anson's Law of Contract, 29 th Edition, Oxford University Press,
p.299 15 Ibid. p.13316 SECTION 17 - Indian Contract Act-Fraud defined .Fraud means and includes any of the following acts
committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his [agent] , or to induce him to enter into the contract: (1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true; (2) the active concealment of a fact by one having knowledge or belief of the fact; (3) a promise made without any intention of performing it; (4) any other act fitted to deceive; (5) any such act or omission as the law specially declares to be fraudulent.
17 Chesire, Fifoot & Furmston, Law of Contract, 15th Edition, 2006, Oxford University Press, p. 330
5
a) False statement of fact:
That the statement is substantially correct and the difference between what was represented
and the correct position have induced complainant to make the contract.18 In the present
case, respondent no. 1 made a fraudulent misrepresentation that policy is one time
investment plan but indeed it was a regular investment plan for 10 years. Respondent no. 1
was clearly aware of this fact that the investment plan was a regular one for 10 years.
Despite possessing such knowledge, him making the complainant understand that it is a one
time investment plan is a sheer case of Misrepresentation.
b) Induces the other party to contract:
The representation must be material: Representation made in this case has induced
complainant to contract as it is material. Mr. X has represented a fact which has positively
influenced complainant, considering entering the contract, to decide positively in favour of
doing so.19. 'Fact that policy is one time investment plan is material one as on the basis of
this representation complainant purchased that policy. He cant have the intention of
investing in a 10-15 years plan with liability of Rs.50,000/- every year as he was an old
retired man aged about 65 years.'
Known to the representee: 'The fact that the policy is not a one time investment plan was
very much in the knowledge of respondent no. 1 i.e., investment manager but he purposely
misrepresented this fact so that he could sell that policy as the insurance brokers are paid
certain proportion of the policy as commission.20'
Intended to be acted upon: To be actionable, a misrepresentation must be intended to be
acted upon.21 Respondent no. 1 intended complainant to act upon the fraudulent
misrepresentation that the policy is one time investment plan and for the same purpose he
even advised the complainant to deinvest in earlier policy and invest that amount in the said
18 Avon Insurance plc v. Swire Fraser Ltd[2000] 1 All ER(Comm) 573, [2000] CLC 665 19 Smith v. Chadwick(1884) 9 AppCas 187, at p.196, and Avon Insurance pls Vs. Swire Fraser Ltd[2000]1All
ER(Comm) 573 at p. 63320 Section 10, Insurance Act 1938.21 Peek Vs. Gurney
6
plan.
Actually acted upon: Representee must have acted in good faith on the representation made.
However mere fact that the representee fails to take advantage of an opportunity to discover
the truth, such a person still will be induced by the misrepresentation. In Redgrave VS. Hurd 22, it was held that the contract could be rescinded for the misrepresentation. Significantly, a
fraudulent misrepresentation will be considered to have induced the contract even if it is not
the only factor to have contributed to the decision to enter the contract. 'Complainant acting
on the advice and fraudulent misrepresentation first deinvested in the former plan and
invested that amount with some addition in the said new investment plan after signing the
prescribed form for the purchase of the said policy and handed over the cheque in regard to
the premium of policy as full and final payment to respondent no.1.'
Lord Diplock observed that the following proposition:-
"Where the intended victim of 'conspiracy to defraud' is a private
individual the purpose of the conspirators must be to cause the victim
economic loss by depriving him of some property or right, corporeal or
incorporeal, to which he is or would or might become entitled. The
intended means by which the purpose is to be achieved must be dishonest.
They need not involve fraudulent misrepresentation such as is needed to
constitute the civil tort of deceit. Dishonesty of any kind is enough."
Respondent no.1 occupied a position in which he was expected to safegaurd, or not to act
against, the financial interests of another. He abused that position dishonestly, intending by
that abuse to make gain or cause loss.23
c) Not free consent
Consent is an act of reason, accompanied with deliberation, the mind weighing as in a
balance, the good and evil on each side. And, therefore, it has been well remarked by an
able commentator upon the law of nature and nations, that every true consent supposes
three things:
22 (1881) 20 ChD 123 Kingsley Napley, Serious Fraud: Investigation and Trial, 4th Edition, 2012, pg. 1.22
7
Firstly, a Physical Power;
Secondly, a moral power; and
Thirdly, a serious and free use of them;
And hence it is, that if consent is obtained by meditated imposition, circumvention,
surprise or undue influence, it is to be treated as a delusion, and not as deliberate and
free act of the mind. For although the law will not generally examine into the wisdom
or prudence of men disposing of their property, or in binding themselves by contracts,
or by of their acts, yet it will not suffer them to be entrapped by the fraudulent
contrivances, or cunning, or deceitful management of those who purposely mislead
them.24
In the present case the consent for the purchase was induced by fradulently misrespresented
fact that the policy was one time investment plan as informed by the manager but indeed it
was a regular plan for which premium was to be paid Rs. 50,000/- per year for 10 years
which was very much prejudice to the interest of Complainant.
It is upon this general ground, that there is a want of rational and deliberate consent, that
the contracts and other acts of idiots, lunatics, and other persons, non-compotes mentis, are
generally deemed to be invalid in courts of Equity. The usage of the reason is the first
requiste to constitute the obligation of a promise, which idiots, mad men and infants are
consequently incapable of making.25
In order to constitute fraud, it is well known, that the person making the statement must have
been aware of the falsity of the statement.26 In the present case it was in the knowledge of
respondent no. 1 that the term of the policy was for 10 years but he told the complainant that
the policy was one time investment plan. Complainant never agreed for the revised plan,
which cannot be thrust upon him. There being no ad-idem, there is no contract.
There is nothing to disbelieve the complainant who is already 65 years of age as he cant
24 Story's Equity Jurisprudence, 8th Ed., Vol. 1, Sec. 223, P. 218;25 Ibid.P. 219;26 Bappu Rawther Abdul Kassim Rawther v. State of Kerala, AIR 1964 Ker. 109 at p. 112
8
have the intention of investing in 10-15 years plan with liability of Rs.50,000/- every year. It
is obvious that Bank Official/ Officers, have misused their position with this old man, and
without his knowledge signed proposal in his name giving consent for a revised plan. It is
clearly given in the proposition that the complainant signed the prescribed form for the
purchase of one time investment plan only. That agent of IBI Bank have changed data,
record and indulged in fabrication for promoting business, to have wrongful gain, out of
innocent complainant.
In India, Section 17, Contract Act, read with Section 19 permits a contract to be avoided
when based on representations, made by one of the parties or his agent when these are
known to be false by the person making.27 Fraud means and even includes the suggestion as
to a fact of that which is not true by one who does not believe it to be true and the active
concealment of a fact by one having knowledge or belief of the fact.28
SEBI Act29 empowers SEBI to register and regulate working of Investment Advisors and
such other intermediaries who may be associated with securities market in any other manner.
If a person is an advisor, he would be subject to the Investment Advisors Regulations; and
would require a much higher level of qualifications. He would act as an advisor to the
investor on all financial products. He would receive all payments from the investor and there
would be no limits set on these payments.30
2.3. PRINCIPLE OF UBERRIMAE FIDEI IS APPLICABLE HERE:
Mere silence as to facts likely to affect the willingness of a person to enter into a contract is
not fraud, unless silence is in itself equivalent to speech, or where it is the duty of the person
keeping silent to speak as in the cases of contracts uberrimae fidei - (contracts requiring
utmost good faith).
Certain types of contract impose a duty of disclosure irrespective of the nature of the
relationship between the parties. They are called contracts ubberrimae fidei (of utmost 27 Mrs. Elizabeth Maud Baines v. Ram Sahai Sethi, AIR 1940 Lah. 505 at P. 508.28 Section 17 of Indian Contract Act, 1872.29 Section 11 (2)(b)30 SEBI guidelines
9
goodfaith), and the most common example is the contract of insurance.
The duty to disclose can be imposed upon the insurer as well as the insured as demonstrated
in cases such as Motilal Chandnoo Lal Vs. Golden Tobacco Company31.
However, the only remedy available to the insured is to rescind the contract and recover
their premium which seems hopelessly inadequate. This is another example of the law
being biased towards the insurer as, even when the insurer is at fault, the insured is still
penalised severely, whereas the outcome will have little impact on the insurer32. In the
present case the insurer was under the duty to disclose the nature of the policy being issued
to the insured.
Certain types of contract impose a duty of disclosure irrespective of the nature of the
relationship between the parties. They are called contracts ubberrimae fidei (of utmost
goodfaith), and the most common example is the contract of insurance.33
2.4. FIDUCIARY RELATIONSHIP EXISTED
An Investment manager, who was a fiduciary had a duty of undivided loyalty to the
complainant.34 This duty has been breached by a variety of types of misconduct that do not
involve negligence. As a result, the reach of fiduciary duty can be proven without the use of
expert testimony in the case.35
In this fiduciary duty case the manager, as a fiduciary, has the burden of proving that he or
she has acted appropriately.36
An advantage of a breach of fiduciary duty claim over a negligence claim or a breach of
31 AIR 1957 M.P. 223 at p. 223.32 (Smith, 2006, pg. 249)33 Mr. Maheshkumar Premchand Shah. v. United India Insurance Co. Ltd. 34 Fiduciary Relationship, http://www.pli.edu/product_files/booksamples/595_sample7.pdf, Accessed on
11.02.2013 at 5.45 PM.35 Anderson & Steele, Fiduciary Duty, Tort and Contract: A Primer on the Legal Practice Puzzle, 47 SMU L.
REV. 235, 249 (1994).36 Thigpen v. Locke, 363 S.W.2d 247, 253 (Tex. 1962).
10
contract claim is that in many breach of fiduciary duty cases the plaintiff is not limited to
compensatory damages. The client may recover any profit of the accountant-fiduciary
regardless of whether the breach of fiduciary duty caused the client any injury or whether
the contractual expectations of the client were met. In addition, punitive damages may be
available.37
A fiduciary relationship existed as there has been a special confidence reposed in Mr. X
who, in equity and good conscience, is bound to act in good faith and with due regard for the
interests of the complainant reposing the confidence. 38
Manager has fiduciary duties to complainant who have contractual. There existed
contractual obligations between respondent and the complainant. Respondent had been
advising complainant for the last 10 years. There developed trust between both the parties.
Both the parties entered into contract after signing prescribed form for purchase of said
insurance policy.
Since Mr. X rendered Financial and Investment advice there existed fiduciary relationship as
held in the case of The Institue of Chartered Accountants of India Vs. Shaunak H. Satya 39.
Here the respondent used to provide investment advice to the complainant for the last 10
years, as a consequence of which complainant developed trust on the respondent and
therefore he acted on the advise of the respondent leading to loss. Trusting respondent,
complainant agreed to the terms of insurance as orally explained to the him and signed
prescribed form for the purchase of said insurance scheme. Which later on was found to be a
regular investment plan requiring to pay Rs. 50,000/- for 10 years. It does not seem to
logical for a man of 65 years of age to invest in 10-15 years of investment. This is the fraud
committed on the part of bank and its officials. Handing over the cheque to respondent no. 1
for encashment clearly shows that there exist ficuciary relationship between teh parties.40
An accountant may be a fiduciary where he or she renders personal financial, investment, or
tax advice to a client. I
An accountant was held to have a fiduciary relationship with a client for whom the
37 Ramesh v. M/s Agro Company, 38 Paul v. North39 2011(4)RCR(Civil)336 40 Proposition Pg. 2
11
accountant provided extensive business advisory services over a course of seven years in
addition to accounting and tax services41. A fiduciary relation exists between two persons
when one of them is under a duty to act or to give advice for the benefit of another upon
matters within the scope of the relation.
a) Duties of a Fiduciary
Where an accountant is a fiduciary he or she is subject to a number of fiduciary duties. These
include a duty of loyalty, a duty to disclose relevant facts and to render accounts, a duty of
due care, and a duty to maintain client confidences.
b) Duty of Loyalty
Where an accountant is a fiduciary he or she owes a duty of loyalty to the other party to the
relationship regarding matters within the scope of the relationship.42 In general, the duty of
loyalty requires the fiduciary to act solely for the benefit of the person to whom the duty is
owed with respect to all matters within the scope of the fiduciary relationship.
c) Duty to Disclose Relevant Facts and Render Accounts
Where an accountant is a fiduciary he or she has a duty to disclose all relevant facts as to
matters within the scope of the fiduciary relationship. In a case, an accountant was found to
have breached his fiduciary duty by deliberately giving misleading investment advice. 43
d) Duty of Due Care
Where an accountant is a fiduciary he or she owes a duty of due care to the other party to the
relationship. Thus, an accountant who is a fiduciary because another relies upon him or her
for financial or investment advice must exercise care in making recommendations to the
other person44.
Respondent should have been loyal to the complainant in this particular case. Believing
respondent, complainant acted on his advice without even confirming its authenticity. Thus,
41 Sadhu Kumar v. Bank of India, 2010(4)RCR(Civil)566 42 Tirupati Texknit Limited (T.T. Ltd.) v. Habib Bank Limited and Ors. 43 Burdett v. Miller44 Cf. Dominguez v. Brackey Enters
12
it clearly proves that there existed fiduciary relationship between both them. Respondent
should have told him about the true terms and conditions of the policy instead of making
false representation for earning reward points or commission as paid to the insurance
brokers under section 10 of the Insurance Act.
According to section 10145, if there exists a fiduciary or quasi fiduciary relationship between
the parties to the transaction the onus of proving the bona fides of the transaction is upon the
adversary who has been benefited under the transaction. Since by reason of such relationship
one can exert undue influence on the other the dominant party has to uphold the transaction
and not the servient party. The servient party being entirely in the hands of the dominant
party cannot prove the mala fides of the transaction. The dominant party has possession of
materials in connection with the transaction. The dominant party has possession of materials
in connection with the transaction. He may supress them and conceal the circumstances
under which the transaction came in existence. SO onus lies upon him clear the conscience
of the court.
2.5. SPECIAL KNOWLEDGE REGARDING SUBJECT
Where the person making the statement has special knowledge of the subject-matter of
the contract, or holds themselves out as having such knowledge, the courts may also
be more willing to treat the statement as a term of the contract. A party may hold
himself out as having special knowledge by suggesting that there is no need to check
the accuracy of the statement made.46 In Oscar Chess Ltd. Vs. Williams,47 a private
seller represented his car to be a 1948 Morris. It was infact a 1939 version of the
same model, worth substantially less. The statement of the cars age was held not to
be a term. The private seller had no special knowledge and had relied on the
registration book for his belief.
When a customer invests in securities, the banker acts as an advisor. The advice can be given
officially or unofficially. While giving advice the banker has to take maximum care and
45 Indian evidence Act, 187246 Schawel VS. Reade[1913] 2 IR 8147 [1957] 1 WLR 370
13
caution. Here, the banker is an advisor, and the customer is a client.48
We have seen that headley Byrne has been regarded as the progenitor of the principle of
assumption of responsibility, which has now been extended beyond liability for
statements. In this case49 it was decided that a Bank can be liable for a negligent information
supplied without consideration to a regular client. In Kapfunde v Abbey National Plc and
another the Court held that a duty of care will generally be owed to the person to whom a
statement is made and who relies on it.50
In the case of Avinash vs. LIC of India51, it was observed that:
"...... it is difficult to identify a compelling reason why, in addition to the duty of skill and
care vis-a-vis the trustees which the third parties have accepted, or which the law has
imposed upon them, third parties should also owe a duty of care directly to the
beneficiaries".
It is clear from Hedley Byrne that for a duty of care to arise in respect of speech or writing,
something more is required than in the straightforward case of physical damage caused by an
act where, generally speaking, foreseeability of harm will be sufficient. This is very largely
because a statement is likely to cause economic loss rather than physical harm and the risk of
crushing liability is exacerbated by the fact that information is likely to be disseminated
among a large number of persons even if it was originally addressed only to a small group.
In our present case also, respondent was advising complainant from the last ten years.
Respondent was expertise in his subject having a great knowledge regarding Insurance and
other investment schemes. Moreover respondent intended complainant to rely on the advice
given by him, clear from the fact that he pressed upon complainant to deinvest in his earlier
policy and invest that amount in new investment scheme, It was held in the case of Galoo Ltd
(In liq) & Others v Bright Grahame Murray (a firm) and another, that when the auditor
'intends' that the third party, a particular identified person, will rely on it, then the auditor
will bear the consequences of his advice. Acting on the assurance of respondent i.e.,
investment manager, that the old investment policy did not have any growth prospects,
48 Bishnoi v. SBI49 Hedley Byrne v Heller50 1998 WL 1044284 (CA (Civ Div))51 AIR 2002 Raj. 505
14
complainant deinvested in his earlier investment policy and invested that amount in new
policy prescribed by the respondent which led to loss of Rs. 700/- to complainant.
Generally the claimant must show that advice was given in circumstances in which it was
reasonable to rely on that advice, such as in the context of a professional relationship.52
2.6. ESTOPPEL:
Estoppel53: When one person has, by his declaration, act or omission, intentionally caused or
permitted another person to believe a thing to be true and to act upon such belief, neither he
nor his representative shall be allowed, in any suit or proceeding between himself and such
person his representatives, to deny the truth of that thing.
When one party has by his declaration, act or omission, intentionally caused or permitted
another person to believe a thing to be true and to act upon such belief, estoppel operates.54
Facts of the present case clearly states that the respondent made the complainant to believe
that the policy was one time investment plan which in reality was regular investment plan.55
According to Section 11556, there is a rule of evidence by which a person is not allowed to
plead the contrary of a fact or state of things which he has formely asserted as existing.57 So,
here complainant is not only entitled to premium amount only but also to deductions
alongwith exemplary compensation.
The respondent by his word or conduct made a promise to complainant in unequivocal and
clear terms intending to create legal relations knowing or intending that it would be acted
upon by the complainant to whom the promise was made and it was so acted upon by the
complainant, therefore promise is binding on the respondent. He will not be entitled to go
back on the promise made.58
Estoppel is based on equity and good conscience and the object is to prevent fraud and
secure justice between the parties by promotion of honesty and goodfaith and by preventing
52 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465.53 Section 115 of Evidence Act54 Hem Noluni Jidah v. Isolyne AIR 1962 SC 1471.55 Proposition pg. 256 Indian Evidence Act 187257 Govindsa Marotisa v. Ismail AIR 1950 Nag 22; Sohu Madho Das v.. Mukund Ram AIR 1955 SC 481, 492;
Draupadi Beherani v. Samabri Behera AIR 1958 Ori 242.58 Bangalore Development Authority v. R. Hanumaiah AIR 2005 SC 3631.
15
from them approbating and reprobating at the same time.59
Before an estoppel can arise there must60: a) First, There should be a representation of an existing fact distinct from mere
promised future made by one party to the other,
b) Secondly that the other part believing it must have been induced to act on the faith of it and
c) Thirdly that he must have so acted to his detriment.
All the above mentioned essentials adequately apply to our present case and therefore
respondent is guilty. Moreover, Estoppel is a rule of civil actions.61
To raise a plea of estoppel the declaration, act or omission must be made with the intention
of causing or permitting another person to believe a thing to be true and act upon such
belief. 62
Estoppel cannot be pleaded by a party who is an author of a forged document relied upon by
him to plead estoppel.63
If a man, either in express terms or by conduct, makes a representation to another of the
existence of a certain state of facts which he intends to be acted upon in a certain way, and it
be acted upon is that way, in the belief of the existence of such a state of facts, to the damage
of him who so believes and acts, the first is estopped from denying the existence of such a
state of facts.64
Essential elements are65:
d) Representation or a statement to be acted upon,
e) Action on the faith of such statement and in the manner intended, and
59 R.S. Madamappa v. Chandramma AIR 1965 SC 1812, 1815.60 Dhiyan Singh v. Jugal Kishore AIR 1952 SC 14561 Emperor v. Maha Ram ILR 40 All 393.62 Hem Nolini v. Isolyne AIR 1962 SC 1471.63 Satish Kumar Rao v. Gorakhpur University AIR 1981 All 377.64 Gujarat State Financial Corp. v. Lotus Hotels Pvt. Ltd. AIR 1982 Guj 198.65 R.S. Maddanappa v. Chandramma AIR 1965 SC 1812)
16
f) Resultant prejudice or detriment to the person acting.
Here the correctness of the policy document is in issue and it will not suffice to prove the
signature or handwriting of the complainant on the policy document as acceptance of offer.66
66 Section 61 of Indian evidence act
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3. THAT BANK IS ALSO LIABLE:
3.1. BANK IS VICARIOUSLY LIABLE:
Agent and principal defined67 .An agent is a person employed to do any act for another or
to represent another in dealings with third persons. The person for whom such act is done, or
who is so represented, is called the principal.
It is based on the general principle Qui Facit per Alium facit per se which means that the
act of an agent is act of the principal.
In an agency one person(principal) employs another person(agent) to represent him or to act
on his behalf, in dealings with third person. The act of the agent binds the principal in the
same manner in which he would be bound if he doees that act himself. The agent may be
expressely or impliedly authrorised to do an act on behalf of the principal.
Explaining the definition of agent as stated in section 182, Dhavan J. Observed68:
According to this definition, an agent never acts on his own behalf but always
on behalf of another. He either represents his principal in any transactions or
dealings with a third person, or performs an act for the principal. In either case,
the act of the agent will be deemed in law to be not his own but of the principal.
The crucial test of the status of an agent is that his acts bind the principal.
The contract of agency is of fiduciary character. 69 It is based on a confidence reposed by the
principal in the agent. Agency is founded on a contract, either express or implied, by which
one of them parties confides to the other the management of some business to be transacted
in his name or in his account, and by which the other assumes to do the business and to
render an account of it.70 One of the important feature of an agency is, open person is
employed to transact the business of another for a recompense or recompensation; the
recompense may be either a fixed amount mutually settled, or may be fluctuating and may
even by uncertain, as in case of indents.
67 Section 182, Indian Contract Act, 187268 Loon Karan v. John and Co., AIR 1967 All. 308, 311.69 Motilal Chandnoo Lal v. Golden Tobacco Co., AIR 1957 M.P. 223 at p. 223.70 Pasupati Gouri v.. Brindaban Khan, ILR(1951) 1 Cal. 82;
18
In the case of Naseem Bano and Ors Versus L.I.C. Of India and Ors.71 The facts of the case
were that Employee took out insurance policy under Salary Saving Scheme of the L.I.C.
First two premiums were paid by employee. He issued authorization in favour of employer
to deduct monthly instalment of premium from his monthly salary. Employer not acting as
an insurance agent of the L.I.C. under the Insurance Act, but only as an agent under Section
182 of the Contract Act under the general principle of law of agency. Employee had no
reason to disbelieve that employer would not act as an agent of L.I.C. and jeopardize the
policy. It was the sole responsibility of the employer to collect premium and remit it to the
L.I.C. Employer defaulted. Held, L.I.C. cannot escape from the consequences ensuing from
acts of commission or omission of the employer acting as its agent under the general
principle of agency.
Fraud committed by agent for collecting deposits under scheme-liability of bank
The Liability was denied by bank, held that the agents were servants of bank and
relationship of master and servant existed, and hence bank was liable for the fraudulent act
of the agent and was liable to refund the amount with interest. 72. Since the respondent no. 1
was agent of respondent no.2 therefore the respondent no. 2 will be liable for the acts of
respondent no.1 and will be liable to refund the amount of deductions with interest.
In an agency one person(principal) employs another person(agent) to represent himself or to
act on his behalf, in dealings with the thrird person. The act of the agent binds the principal
in the same manner in which he would be bound if he does that act himself.73
It was held that, Contracts entered into through an agent, and obligations arising from acts
done by an agent, may be enforced in the same manner, and will have the same legal
consequences, as if the contracts had been entered into and the acts done by the principal in
person.74 Since the contract of life insurance were entered into by respondent no.1 i.e. Agent
of respondent no. 2, therefore the it will be considered as if the contract was entered into by
respondent no.2 itself.75 It will have same legal consequences as if it has been entered into by
71 2004(3) MPHT 35872 Central Bank of India Vs. Pravin Jagjivan Gosalia. II (2002) CPJ 462: 2002 (1) CPR 449(Mah)73 R.K. Bangia, Pg. 41574 Section 226, Indian Contract Act, 187275 Elof Hansson (I) Pvt. Ltd. Vs. Prithivi Softech Ltd
19
bank itself.76
An agent, having an authority to carry on a business, has authority to do every lawful thing
necessary for the purpose, or usually done in the course, of conducting such business.77
The negligence was solely on the part of Mr. X but this does not discharge bank from its
liability as Vicarious liability is derived from the relationship of master and servant or
implied authority which is popularly known as "course of employment". In the case of M.S.
Grewal Vs. Deep Chand Sood, School teachers entrusted with the duty to take care of the
children while on picnic spot along a river - Teachers acted in rash and negligent manner
resulting in death of children by drowning in the river - The School establishment cannot
escape from the 'vicarious liability' only because the negligence was exclusively and
personally attributed to the teachers concerned in the criminal proceedings.
An Insurance broker is an agent who has an authority to negotiate the sale of insurance on
behalf of his principal i.e, bank, with a third person. He merely makes the two parties to
enter a contract. He gets his commission78 whenever any transaction materialises through
his efforts.79 So, in the present case, respondent no. 1 i.e., Investment manager is an agent of
respondent no. 2 i.e., Bank, acting in the official intercourse of business and therefore bank
is very much liable for the act of his agent. It is the duty of Investment mananger to advice
his clients regarding investment decisions in the due course of that duty respondent furnished
negligent advice where it was possible for respondent to foresee the consequences of his
advice and moreover respondent made fraudulent misrepresentation about the policy leading
to loss to complainant. Moreover there is a clear provision80 that Misrepresentations made,
or frauds committed, by agents acting in the course of their business for their principals,
have the same effect on agreements made by such agents as if such misrepresentations or
frauds had been made, or committed by the principals. In the case of LIC vs. Phatangi Devi
it was held that payment to agent is payment to principal. So Handing over the cheque to
76 Jayakrishna Trading Co. and others Vs. Kandsamy weaving factory and Co.77 Sction 188, Indian Contract Act, 187278 Section 10 of Insurance Act. (10) insurance agent means an insurance agent licensed under
section 42 [* * *] who receives or agrees to receive payment by way of commission or other remuneration in consideration of his soliciting or procuring insurance business [including business relating to the continuance, renewal or revival of policies of insurance];
79 Mohindru Vs. ICICI Bank, AIR 2003 SC 311.80 Section 238, Indian Contract Act, 1872
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Mr. X for encashment amounts to handing over the premium amount to Bank. In the case
Aneeta Hada Vs. M/s Godfather Travels & Tours Pvt. Ltd.81- It was held that Company must
itself be made an accused - Company is the principal offender - Prosecution cannot be
launched against persons responsible for conduct of business of company without
prosecuting the company itself. So, it is clear from facts of the case that bank is also liable
for act of Mr.s X.
3.2. DEFICIENCY IN SERVICE:
The term service82 means service of any description which is made available to potential
users and includes the provision of facilities in connection with banking, financing,
insurance, transport, processing, supply of electrical or other energy, board or lodging or
both, entertainment, amusement or the purveying or news or other information, but does not
include the rendering of nay service free of charge or under a contract of personal service.
Deficiency83 means any fault, imperfection, shortcoming or inadequacy in the quality,
nature and manner of performance which is required to be maintained by or under any law
for the time being in force or has been undertaken to be performed by a person in pursuance
of a contract or otherwise in relation to any service.
Whenever, there was a default of negligence in regard to such settlement of an insurance that
will constitute a deficiency in the service on the part of the Insurance Company and it will
be perfectly open to the concerned aggrieved consumer to approach the Redressal Forums
under the Act seeking appropriate relief.84
It was laid down that whenever there was default or negligence in regard to service that will
constitute deficiency in service on the part of the insurer and it was perfectly open to the
aggrieved party for seeking appropriate relief under the Act.85
a) Unfair deductions
As consumers, at times we regret buying products at the later stages. This is generally
81 (2005) 4 SCC 530 82 Section 2(1)(o), Consumer Protection Act, 198683 Section 2(1)(g)84 Umedilal Aggarwal Vs. United India Assurance Co. Ltd., I(1991) CPJ 3(5,6).85 New India Assurance Co. Ltd. Vs. Vipro Electronics Pvt. Ltd.
21
because as a matter of fact, we start analyzing the product only after we have paid for
it. An advantage comes with life insurance policies to enable users to decide whether
they wish to continue with the current policy or return it.
This time duration is generally of 15 days, with in which a consumer have to take a
decision. It is known as free-look period.
As mandated by IRDA, a policyholder has the right to review policy terms and
conditions for 15 days from the date of receipt of policy. If the policyholder is not
satisfied with it, or feels that he has been cheated, and wish to cancel the policy, the
insurer will be liable to return paid premiums. The only deductions that can be made
by the insurer for i. cost incurred during health check-up, ii.charges towards stamp
duty and iii. mortality charge for interim period. In addition to these deductions.86
Therefore no other deductions are to be made. In this case no charges for medical
examination were spent, no stamp duties were paid by the respondent company.
There policy clause that deductions were proportionate to the stock market
fluctuations was in contradiction to official IRDA circular87.
The purpose of Free look period is to provide insured a chance to check whether the
policy is as per the terms promised or not. If the policy is not as per promised term
then the insured can get the policy cancelled. Here the main motive is to provide
insured a chance to cancel the policy if not satisfied and if undue deductions are
made from the premium amount then main purpose gets vanquish. Free look period
starts from date of receival of policy document.
Provisio 6(2) of the IRDA(Protection of Policy Holders Interests) Regulations, 2002
mandates all Life Insurance Companies to provide the insured with an option to
review the terms and conditions of the policy, and in case if he disagrees to the same,
to return the policy within a period of 15 days from the date of receipt of policy
docuemnts. On exercising the option, he shall be entitled to a refund of premium paid
subject to deduction of proportionate risk preimium for the period of cover and
certain other costs pertaining to stamp duty and medical examination of the proposer.
86 IRDA/LIFE/CIR/13/200987 IRDA/LIFE/CIR/13/2009
22
While this provision of free look is also to be available in health insurance policies
and such other policies issued by life insurance companies where there is a deferred
coverage of risk, in view of the absence of risk cover in such policies during the free
look period, all life insurance companies are hereby directed not to deduct any
proportionate risk premium in cases where the insured exercises the option of
returning the policy within the free look period.88
All life insurance companies are advised to ensure due complaince with the
provisions contained in the Circular, as any failure to do so would render them liable
to appropriate acion under the provisions of IRDA act, and Insuance Act, 1938 and
the regulations frmaed thereunder.
Insurance Regulatory and Development Authority (IRDA) had come out with the
concept of 'free-look period' which allowed a customer buying a new life insurance
cover to review the policy within 15 days from the receipt of the document. The
facility was later extended to health insurance two year ago. It was primarily done to
ensure that the policyholder did not get shortchanged from what she was initially
promised and bring in transparency in the way insurance was sold in the country.
If a new customer feels that the policy does not include all the clauses promised when
it was sold either by the agent or by the company, the insured can return the policy
within two weeks and the insurer will have to return the premium paid, after
deducting proportionate risk premium for the period of cover and certain other costs
pertaining to stamp duty and medical examination of the proposer.
The refusal of the respondent/insurance company to refund the full amount of the
premium paid by the appellant on the unutilised portion of the total coverage
mentioned in the policies is clearly illegal. The conduct of the respondent/insurance
company in refusing to honour its obligation for making the refund fully undoubtedly
constituted a 'deficiency in service' and the National Commission set aside the view
expressed by the State Commission that since the case relates to the return of
premium paid on the insurance policies 'it does not come under the jurisdiction of the
88 IRDA/LIFE/CIR/13/2009
23
Consumer Protectio Act'.89
Moreover, acting on the advice of respondent no. 1, complainant deinvested in his
earlier policy leading to loss of Rs. 700 to the complainant
b) Delay in refunding premium:
It is clear from the facts of the case that he made a request for cancellation, a day
after receival of policy document i.e., on 23rd October 2011 (within 15 days of free
look period). But the amount of premium was refunded 3 months after the
acknowledgment of request despite the bank accepting the reposnsibility of refunding
the money at the earliest, which is negligent on part of respondent no. 2 and the main
cause of stock market fluctuation deductions. Had the policy been cancelled within
15 days there would have been no deductions and thus there would have been no loss
to the complainant.
The complainant made a request for cancellation of policy on 23rd October and his
request was acknowledged on 28th October,2011. No answer was received for three
months and a reminder letter was sent to the respondents, as a result, received the
refund on 3.2.2011 i.e., 3 months and 6 days after the request for cancellation. There
has been negligence on part of respondent no. 2 in refunding the amount of premium.
Inordinate delay in refund of application money is not justified.90
After already have been suffered a loss of Rs. 700, complainant has suffered a greater
monetary loss of Rs. 1,500. The complete monetary loss of Rs. 2,200 was due to the
negligence of the respondents. It's not just the monetary loss he had to suffer, but
being an old man, he had to witness the harrassment and take over-stress of not only
sending the request letter but also having to send a strong reminder. It has been 2
years and he still has not bought another old age security policy due to his fear as he
could not bear the fraud again. He was entitled to get the interest charged on his
deposit of Rs. 50,000 for 3 months but instead of receiving such interest, he was
refunded a deducted amount which was due to stock market fluctuations. These stock
89 Mantora Oil Products (P) Ltd., Kanpur Vs. Oriental Insurance Company Ltd., I(19911) CPJ 323 (326) (NC).
90 Sudhir Kumar and others v. Bureau of Indian Standards
24
market fluctuations were due to Respondent No. 2. In the case of Tata Infotech Ltd. v.
Collector of Customs91, no answer was furnished by respondent to explain delay in
refunding money. Held respondent liable to pay interest at 12% p.a. To petitioner. He
was expecting to derive benefits and security in his old age, but he failed and just had
to suffer the mental trauma.
It was held in the case of LIC of India Vs. P.S. Aggarwal, that where the refund of
premium was made after 4 months, there is deficiency in service on part of the bank.
91 2004 (111) DLT 178
25
4. BANK AND INVESTMENT MANAGER ARE JOINTLY AND SEVERLY
LIABLE:
It is possible for several people simultaneously to be liable for the same damage. For
instance, an employer and employee may both be liable to the victim of a tort, either due to
vicarious liability or because both have primary liability. Joint tortfeasors were those who
acted with a common design and caused an injury. Several tortfeasors each acted
independently, but all contributed to the injury. Where there are joint or several tortfeasors,
the claimant can decide whether to sue one of them, all of them, or any combination of them.
If the claimant is successful against more than one potential defendant, those defendants can
ask the court to allocate the liability between them. The court will usually allocate the
liability on some other basis. For instance, if the claimant obtains judgment against both an
employer and an employee and the employee cannot afford to pay damages, the court may
order the employee to pay the full amount.92
As in the present case, complainant has suffered loss on account of unnecessary deductions,
dedcuted by respondent no.2. Complainant used to act on the advice of respondent no. 1 as a
consequence of which he suffered losses, Firstly complainant suffered loss when respondent
no. 1 advised complainant to deinvest in earlier policy and later on when wrong insurance
policy was issued fraudulently complainant suffered loss. Moreover, even on the cancellation
of policy the premium amount was refunded 3 months and 6 days latter. So, it is contended
that the respondent no. 1 and respondent no. 2 jointly and severly liable. It was held in the
case of Nilmadhub Mookerjee v. Dookeeram Khottah93 that to constitute a joint liability the
act complained of must be joint and not separate. The joint liability arises under three
circumstances:-
a) Agency, when one person employs another to do an act which turns out to be
a tort.
b) Vicarious liability i.e., liability arising from relations, as master and servant,
principal and agent, guardian and ward etc.
c) Joint action- where two or more persons combine together to commit an act 92 S.I. Strong & Liz Williams, Tort Law, Oxford University Press, p. 38593 (1874) 15 Beng LR 161
26
which amounts to a tort.
In the present case there existed not only agency relationship between respondent no.
1 and respondent no. 2 but the tort was committed against the complainant jointly by
both the respondents and hence jointly and severly liable. Since, the damages cannot
be apportioned so as to award one sum against one defendant and another against the
other defendant, though they may have been guilty in unequal degree.94
94 M.P. State Road Transport Corporation v. Abdul Rahman, AIR 1997, MP 248, p. 253
27
5. THAT MR. ASHOK IS ENTITLED FOR COMPENSATION FOR
BREACH OF CONTRACT:95
When the consent of one of the parties is not free consent, i.e., it has been caused by one or
the other of the above stated factors, the contract is not a valid one. When consent to an
agreement is caused by coercion, undue influence, fraud or misrepresentation, the agreement
is a contract voidable at the option of the party whose consent was so cause.
Section 7396 is confined to cases where a contract is broken by a failure or refusal to
perform it. A breach occurs where a party repudiates or fails to perform one or more of the
obligations imposed upon the respondent by the contract.97 There was a difference between
the contract agreed and signed by the complainant and respondent no. 1 and the policy
document received by the complainant from respondent no. 2. As the terms and conditions of
the former contract were not written or executed by the latter policy document, there was a
breach of contract on part of the respondent no. 2 . Hence, the complainant is entitled to
demand for compensation under Section 73 i.e., due to breach of contract exercised by
respondent no. 2.
Section 73 of Indian Contract Act is the general one governing all cases of breach of
contract, resulting in loss of damage to one of the contracting parties. This section deals with
compensation for loss or damages caused by breach of contract. When a contract has been
broken, the party when suffered by such breach is entitled to receive, from the party who has
broken the contract, compensation for any losse damages caused to him thereby, which
naturally arose in the usual course of things from such breach.98
Section 73 of the contract act is declaratory of the Common Law as to damages. The law
imposes an obligation or implies the terms that upon breach of contract, damages must be
paid; that also provided in plain terms by the section.99 It is essential that a person who
claims damages for breach of contract should have performed or was ready to perform his
95 Section 19 and 19 A Indian Contract Act, 187296 Indian Contract Act97 Parthasartyhy Chetty & co. vs. Gajapathi Naidu & co., ILR 48 Mad. 787.98 Sanjiva Row's, Commentary on The Indian Contract Act, 1872 and Tenders, Delhi Law House, 12 th Edition,
p. 104699 Sanjiva Row's, Commentary on The Indian Contract Act, 1872 and Tenders, Delhi Law House, 12 th Edition,
p. 1047
28
part of the obligation arising under the contract. It is the fundamental principle of damages
for breach of contract that these are awarded to place the injured party in the same position
in which he would have been, had he not sustained the injury of which he complains.
Damage may be defined as the disadvantage which is suffered by a person as a result of
the act or default of another.100 A breach occurs where a party repudiates or fails to perform
one or more of the obligations imposed upon him by the contract.101
A fiduciary who breaches his or her fiduciary duty to another is subject to tort liability to the
other for any harm caused by the breach of duty. In addition, in an appropriate case the
fiduciary may be liable for punitive damages and/or prejudgment interest.102
a) 45% over and above principal amount: The complainant was entitled to get
45% over and above the principal amount as per the agreed terms. Hence, he
must get Rs. 22,500 i.e., 45% over and above Rs. 50,000.
b) Litigation charges: He also had to hire and avail the service of a renowned
Advocate. He deserves to get compensated for the litigation charges paid by
him i.e., Rs. 25,000.
c) Monetary loss of previous purchased investment plan: He suffered a
monetary loss of Rs. 700 when he was penalised by respondent no. 1 for which
he must be compensated an equivalent amount.
d) Monetary loss due to negligence of respondent 2: His next monetary loss of
Rs. 1,500 was due to negligence on part of respondent no. 2. There is no valid
reason for him receiving just Rs. 48,500 instead of the complete principal
amount of Rs. 50,000. He is bound to receive Rs. 1,500.
e) Mental trauma: Being an old man, he had to undergo harrassment, mental
trauma and agony instead of receiving the expected retirement benefits. Mental
relief should be availed by him which can be done by providing him with Rs.
50,000.
100Kishalal Shrilal Patwa Vs. Union Of India, AIR 1960 MP 289 at p. 290.101Chesire and Fifoot, Law of Contract, 1943 Ed., p. 382102Fiduciary Relationship, http://www.pli.edu/product_files/booksamples/595_sample7.pdf, accessed on
11/02/2013 at 5.46 PM
29
f) Exemplary charges: Exemplary charges should be charged against
respondent no. 2 as this will be a strict warning and alertness for them not to
repeat this. This will also set an example in the eyes of others to be careful
while taking decisions regarding purchasing policies.
If any other relief is to be provided, the consumer Fora have to protect the interests of
consumers and would be within their rights, if any deficiency in service is noticed from the
facts disclosed in the complaint sent by them but which the consumer had failed to formulate
and articulate in the complaint.103
103 United Insurance Co. Ltd. Vs. Mohan Lal and sons, I(1992) CPJ 165 (166) (NC): 1992
30
Prayer
Wherefore, in the light of the issues raised, arguments advanced, reasons given and
authorities cited, it is humbly prayed before the Hon'ble District Consumer Disputes
Redressal Forum:
1. That the present complaint be allowed.
2. That the respondents shall be held liable as charges have been proved against them.
3. Complainant shall be given Rs. 1,49,700/- for compensating the damages.
And any other relief that this Honble Forum may be pleased to grant in the interest of
justice, equity and good conscience.
Counsel for Complainant
31
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