Date of hearing                    :           27-07-2015

Date of judgment                 :           21-09-2015

JUDGMENT AND ORDER

This complaint is filed under Section 17 of the Consumer Protection Act, 1986 against the respondents praying for refund of the amount of Rs. 30 lakhs paid by the claimant to the respondents as one-time insurance premium and compensation amounting to Rs. 2. Lakhs, Rs. 50,000/- (toward cost, expenses and miscellaneous charges along with interest @ 12% amounting to                 Rs. 10,50,000/-, totaling Rs. 43,30,000/-

2.         In the complaint the complainant alleges that she is a citizen of India and permanent resident of Itanagar in the district of Papumpare, Arunachal Pradesh. On 30-08-2010 the Respondent No. 5 and 6 came to her residence and introduced themselves as Assistant Branch Manager and Authorized Agent of the Birla Sun Life Insurance company and fraudulently convinced the complainant to open one life insurance policy under the establishment of the Birla Sun Life Insurance Company Limited. It is alleged that the aforesaid respondents fraudulently made the complainant to believe that it is an one-time fixed deposit policy and made her to pay a sum of Rs. 30 lakhs by way of cheque. The policy bearing No. 004381559, Client ID (Owner) – 30085719095 commenced on 30-08-2010. But the complainant in the month of August 2011 came to know that the said policy is a yearly premium policy instead of one-time  premium policy and the complainant is not so financially sound to run this policy on yearly basis by paying the installment of Rs. 30 lakhs per year. It is alleged that the complainant was deceived by the said persons to undertake the said policy making her to believe the same as one-time fixed deposit policy. Thus, the respondents have committed deficiency in service including fraud, cheating and other offences for the time being in force. It is also alleged that signature of the complainant was taken by aforesaid two persons without filling up the application form nor the complainant was asked to fill up the application form and they convinced the complainant that they would fill up the application form in the office of Birla Sun Life insurance Company; and that on good faith the complainant put her signature in the application form. The complainant  did not intend to open yearly premium policy and in fact she was mis-represented that the policy was a one-time- fixed deposit policy by the aforesaid  persons. The respondents suppressed the material facts regarding the nature of the policy and made the complainant believe that the policy is one-time fixed deposit policy. When the complainant came to the Branch office of the Birla Sun Life Insurance Company,

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Itanagar she came to know that the authorized agent is Respondent No. 4, whom the complainant has never seen or met before. Thus, the respondent company has violated the standard norms of Agent Regulation in opening insurance policy. It is further alleged that the policy certificate of the respondent company bearing Policy No. 004381559 is not a valid contract as per law and is vitiated by fraud and for suppression of material facts. It is also alleged that the complainant made complaint regarding her grievances to the respondent No. 1 on various occasion in the month of January and August, 2013, but her grievances were not redressed. It is further alleged that the complainant cannot be deprived of her hard earned money by way of fraudulent activities of the respondents or on their behalf which has caused deficiency in service in terms of Section 2 (1) (d) of the Consumer Protection Act, 1986. The complainant has also alleged that severe sufferings and mental strain due to unjust and unlawful action of the respondents in withholding the amount of Rs. 30 lakhs with loss of other consequential benefits. In the premises, the complainant has filed the present complaint.

3.         Notice of the complaint having been served, the respondents appeared through their Advocates and filed a joint written statement on behalf of Respondents No. 1,2,3, 5 and 6. The Respondent No. 4 did not contest the case.

4.         In their written statement the respondents pleaded, inter alia that the complaint is false, frivolous and vexatious and does not raise any consumer disputes as defined under the Act; the Commission has no jurisdiction to entertain the complaint and the complainant has failed to demonstrate any deficiency in service on the part of the respondents. It is pleaded that the complainant purchased the policy bearing No. 004381559 on 30-08-2010 for an annual premium of Rs. 30 lakhs and the complainant paid the first premium and not thereafter and accordingly the policy got lapsed on 30-09-2012. It is also pleaded that the policy is a legal contract between the policy holder and the Insurance Company and the party to the said contract are bound by the terms and conditions. As per the terms of the policy the complainant was provided with free-look period of 15 days to cancel the policy in case the complainant is not satisfied with the terms and conditions of the policy. The policy was sent to the complainant, which was delivered on 09-09-2010 and the complainant retained the policy, but did not raise any objection within the free look period of 15 days. It is stated that due to non-payment of premium, which fell due on 30-09-2011, the policy got lapsed on 30-09-2011, whereupon notice was issued to the complainant to revive the policy, but the complainant did not revive the same within two years from the date of first unpaid premium. The complainant failed to

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pay the 2^nd and 3^rd premium under the policy and therefore as per the terms of the policy it was terminated on 30-09-2013. It is further pleaded that the fund value accrued under the policy was Rs. 20,39,844.68. Accordingly to the term of the policy the surrender charge stood at Rs. 16,50,000/-. In second year the said surrender  of Rs. 16,50,000/- was deducted from the policy fund value under the policy comes to Rs. 5,89,844.68 from which service tax @ 12.036% on surrender charge amounting to Rs. 2,03,940/- was deducted. After deducting the charges as per terms and conditions of the policy, net amount payable to the complainant after termination of the policy comes to Rs. 2,85,904.68 and the respondents are ready to deposit the said amount before the Commission.

5.         The Complainant also filed a copy of the Insurance Regulatory and Development Authority (Terms of Discontinued Link Insurance Policy) Regulations 2010 issued vide Notification No. F. No. IRDA/REG/2.52/2010 dated Hyderabad the 1^st July 2010 by submitting an affidavit. The said notification of the Insurance Regulatory Authority have not been disputed but rather by the respondents.

6.         On the basis of respective pleadings and the disputed facts that has emerged therefrom the following issues arises to be determined in the present complaint:-

1. Whether the insurance  contract madeby the complainant with the respondent company against the Policy No. 004381559 dated 31-08-2010 is vitiated by mis-representation on the part of the respondent or their agent?
2. Whether the respondents are liable to refund the amount of                     Rs. 30,00,000/-  or part thereof paid by the complainant towards the policy No. 004381559 dated 31-08-2010, which was lapsed for non payment of subsequent policy premium?
3. What relief the complainant is entitled to?

7          We have heard Mr. G. Pegu, learned counsel appearing for the complainant and Mr. B. Picha, learned counsel appearing for the respondents. Both the parties led us through the proposal form and other documents annexed with their respective pleadings. Both sides have submitted written argument in support of their respective claim. It is submitted on behalf of the complainant that the complaint was approached by the Respondent No. 5 and 6 for opening a life insurance policy to her from the Birla Sunlife Insurance Company and convinced her regarding benefits to the policy for which she would require pay one-time premium amounting to Rs. 30 lakhs and also convinced her that they would fill up

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the application form in the office whereupon the complainant in good faith put her signature on unfilled application form. The policy shows that it was filled up not by the aforesaid respondents, but a person name Hano Hailang and as per the said policy she would require to pay a sum of Rs. 30 lakhs per year for a term of 38 years, which was never been consented by the complainant. Accordingly, a fraud was played upon her by the respondent and there was absence of bonafide on the part of the Insurance company which amounts to deficiency in service. It is submitted that the petitioner is an assessee under the income tax wherein her annual income is assessed at Rs.10 lakh per annum. As per her financial condition she would not opt for a policy of which premium is Rs. 30 lakhs per year for a term of 38 years, which infers fault, imperfection, shortcoming or inadequacy in the nature and manner of performance on the part of the Insurance Company . Mr Pegu has further submitted that due care was not taken on the part of the insurance company in opening the policy wherein the permanent Account Number (PAN) of the complainant was not noted, though the same was required under the rule. The complainant, when received the letter dated 10-10-2011 from the insurance company informing her the non-payment of the renewal premium, she was utterly shocked as she never consented to open a policy which goes beyond one year, inasmuch as, she is not financially capable to pay an amount of Rs. 30 lakhs per year for a period of 38 years. Accordingly, the complainant made an application for discontinuance of the policy. On receipt of the letter, the insurance company stated that they would look into the matter and check the policy details and would inform accordingly. But, later the complainant was informed that she had the opportunity to revive the policy only within two years from the lapsation date which was 30-09-2011. Thereafter the complainant submitted an application for refund of the money on various occasion and lastly on        10-08-2013 i.e. before the lapse of two years, but the insurance company took no step. The aforesaid action compelled the complainant to serve a

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legal notice through her advocate upon the insurance company on 01-11-2013 for refund of the money. Referring to letter date 08-09-2013, under which the complainant allegedly agreed to pay renewal premium, the complainant stoutly denied the same and inspite of request for production of the original, the said letter was neither produced nor shown to the complainant. Finally, Mr. Pegu submitted that as per the notification of IRDA dated 01-07-2010 issued by the Insurance Regulatory and Development Authority (Treatment of Discontinued link Insurance Policy ), the discontinuation charge could not be imposed on single premium policy and the respondents in violation of the said regulation have deducted the discontinuance and other charges and has denied the benefit available thereunder to the Complainant, which amounts to deficiency in service. It is submitted that even assuming, but not admitting that the contract of insurance was validly entered into between the complainant and the insurance company, even then the respondents are not entitled to deduct the discontinuance charge and not refunding the premium as they have done in the instant case, which calls for interference from this Commission.

8.                     Per contra, it is submitted by Mr. B. Picha, appearing on behalf of the respondents that the complainant duly purchased the policy in question, which has a liability to pay the annual premium of Rs. 30 lakhs for a period of 3 years. The complainant paid the first premium of Rs. 30 lakhs and defaulted to pay the rest and accordingly the policy got lapsed on 30-09-2012 and hence there is no deficiency in service on the part of the respondent. It is further submitted that the insurance policy is a legal contract between the policy holder and the Insurance Company and the party to the contract are bound by the terms and conditions. As per the terms and conditions of the policy the complainant was provided a ‘free look period’ of 15 days from the date of receipt of the policy to cancel the same in case the complainant is not satisfied to the terms and conditions, but the complainant did not exercise the said option to cancel the policy within the free look period and now the complainant is not entitled to dispute the same. Mr. Picha further submitted that the fund value accrued under the policy was raised to Rs. 22,39,844.68 from which surrender charge of Rs. 16,50,000/- was

deducted and net fund value under the policy comes to Rs. 5,89,844.68 from which service charge @ 12.036% on the surrender charge of Rs. 2,03,940/- was deducted and after deducting those charges as per terms and conditions of the policy net amount payable to the complainant after termination of the policy comes to Rs. 3,85,904.68 and the respondents are ready to pay the said amount.

9.         We have given our anxious consideration to the submissions made by the learned counsels. We have also perused the documents including the proposal form which is available on record. We have also perused the Notification dated 01-07-2010 issued by the Insurance Regulatory and Development Authority.

10.       It is an admitted fact that the insurance policy in question is a very high value policy wherein the premium is fixed at Rs. 30 lakhs per year. This is an unit link policy. The policy statement shows that Rs. 2,40,000/- was deducted only as premium allocation charge and net invested premium was Rs. 27,60,000/- only. As per the investment fund option, 30.0% was the premium allocation percentage on NAV of 33.1442 whereunder 24,981.7460 units was allotted. Under the provision of maximize the premium allocation percentage was fixed at 70.0% NAV of 14,7859 whereunder 130,665.0250 unit were allotted. Policy charges are deducted from premium before investment @ 8% in the first year and 2% for 2^nd and 3^rd year. Surrender charge to be deducted from the policy fund value at the time of surrender is Rs. 18 lakh for the first year, Rs. 16,50,000/- in the 2^nd year and Rs. 15,00,000/- in the 3^rd year and there is no surrender charge after five years. It is noteworthy that in the application form the annual income of the proposer i.e. the complainant is shown as Rs. 10 lakh and in the colum “Permanent Account No”. (PAN) is filled up as “NA”. It is difficult to understand as to how a person having an annual income of Rs. 10 lakh would be able to pay Rs. 30 lakhs yearly premium having so many other expenses, for a period of 3 years. That apart, the complainant being an assessee under the Income Tax Act has got a PAN No. which was also shown in the form as “not available”. There is no justification worthname to justify the capability for payment of Rs. 30 lakhs as yearly premium for a period of 3 years by the complainant, which ought to have been the first and foremost consideration for the Insurance Company. But the same are lacking in the instant case. The allegation of the complainant that the representative of the insurance company i.e. Respondent No. 5 and 6 approached her on 30-08-2010 and on the same very day they obtained the policy premium of Rs. 30 lakhs convincing the complainant. But a bare perusal of

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the application form and other related documents leaves no manner of doubt that highly complicated terms and conditions including the provision of unit allocation, surrender value etc. is not possible to be understood by a common man within a very short period of time. In fact no time for consideration was given to the complainants before paying the premium and the concerned respondents were successful in convincing the complainant to enter into the contract which the complainant alleged to be mis-representation and suppression of essential materials facts. Viewed from the above facts, just discussed above, we find sufficient force on the argument made on behalf of the complainant.

11.       The Insurance Policy is dated 30-08-2010. But before issuance of the aforesaid policy, the Insurance Regulatory and Development Authority                  ( Treatment of Discontinued Link insurance Policy) Regulation 2010 came into effect from 01-07-2010. The Notification was issued in exercise of the powers conferred by Clause (2D) of Sub-section 114A of the Insurance Act, 1938 read with Section 14 and 26 of the Insurance Regulatory and Development Authority Act, 1999 in consultation with the Insurance Advisory Committee and has statutory force. The said regulation came into force on the date of its publication in the Official Gazette and applies to all products of link life insurance acquired by the authority thereafter. In the said regulation, the obligation of the insurer upon discontinuance of a policy is provided as follows:

“Obligation of an insurer upon discontinuance of a policy”

Clause 7.       The obligation of the insurer in this regard shall be as follows:

i.          to impose discontinuance charge only to recoup expenses incurred towards procurement, administration of the policy and incidental thereto;

ii.         To design the discontinuance charges, to encourage the policy holders to continue with the contract for the full term;

iii.        To ensure that the discontinuance charges reflect the actual expenses incurred;

iv.        To structure the discontinuance charges within the statutory ceiling on commissions and expenses and,

v.         To ensure that the charges levied on the date of discontinuance (as a percentage of one annualized premium) do not exceed the limit specified below:-

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*AP-Annualized premium

*FV- Fund value on the date of discontinuance.

Provided that where a policy is discontinued, only discontinuance charge may be levied by the insurer, and no other charges by whatsoever name called shall be levied.

Provided that no discontinuance charges shall be imposed on single premium policies and on top ups.

            A bare reading of the provisions of the aforesaid regulation disclose that where a policy discontinues only discontinuance charges may be levied by the insurer and no other charges by whatsoever name called shall be levied. Under the second provisio it has further provided that no discontinuance charges shall be imposed on single policy and on top ups. As per the aforesaid regulations the maximum discontinuance charges for the policy having on annualized premium above Rs. 25,000/- in which case is lower of 6% subject to maximum of Rs. 6000/-.

12.       The aforesaid notification having been published on 01-07-2010 i.e. before the insurance contract made by the complainant and the insurance company, which was on 30-08-2010, is very much applicable to the contract  of insurance made by the complainant with the respondent insurance company, which is also

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a link insurance policy. The respondent knowing fully well about the existence  of the aforesaid regulation has willfully misrepresented the complainant and did not incorporate the said terms of the aforesaid obligation of the insurer upon discontinuance policy as provided in Clause 7 of the Regulation. But, since the said regulation was very much in force at the time of contract and the insurance made by the complainant with the insurance company, it would be fully applicable in the instant case.

13.       The respondent having admitted their liability to be Rs. 3,85,904.68 upon order from this Commission the said amount was deposited with the Registry of this Commission during pendency of this complaint, which has eventually been duly paid to the complainant. Although the respondent in their reply took objection about jurisdiction of this Commission to decide the dispute, however, no argument was made on this point and we find that this Commission has jurisdiction to decide the complaint.

14.       From the above discussions we are of the view that complainant has been able to make out a case that there was deficiency in service which was hired by the complainant by paying necessary charges to the Insurance Company in getting her life insured through the Birla Sunlife Insurance Company Limited. Accordingly, after discontinuation of the policy the respondents are bound to return the complainant the amount/admissible amount from the premium of Rs. 30 lakhs as per provision of Clause 7 of the Insurance Regulatory and Development (Treatment of Discontinued Link Insurance) Regulation, 2010, and we order accordingly.

15.       The respondents are also directed to pay a sum of Rs. 25,000/- to the complainant towards the mental harassment and agony which she had to suffer since 2010 till date. The aforesaid amount of balance premium of Rs. 30 lakhs minus the admissible amount as per Regulation 7 shall carry interest @ 9 % per annum from the date of the order. We also award a sum of Rs. 25,000/- as cost to be paid to the complainant by the Insurance Company. The amount so directed, shall be paid  within a period of 2 months from today

16.       In result, the complaint is allowed.

MEMBER                                          PRESIDENT