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Judgment
V.K.Jain, Presiding Member
The complainants who are mother and son, obtained two separate ULIP Policies namely Allianz Bajaj Unit Gain Policies for Rs.50 lacs each paying annual premium of Rs.10 lacs each for the first three years of the policies. In July 2007, they received a statement of account which disclosed that the value of their investment at that time was Rs.25,65,810.03. The case of the complainants is that the policies were taken through an agent of the insurer namely Mr. Prakash D.M. who had promised annual return of 30% to them while selling the policies. Since even the principal amount paid by them had reduced as per the statement supplied to them, the complainants sought refund of the amount which they had paid alongwith interest on that amount.
The case of the insurer is that as per the proposal form submitted by the complainants, the fund allocation proposed by them was 20% in equity fund, 20% in debt fund, 30% in cash fund and 30% in balanced fund but the policy holder could always change the allocation as per his choice. According to the insurer, the complainants had exercised the option to shift their shares to 100% equity as against 20% envisaged in the original proposal and this was done on 11.04.2008. After surrendering the policies on 17.09.2009, the complainants approached the concerned State Commission by way of two separate Consumer Complaints.
The complaints were opposed by the insurer primarily on the ground that there was no deficiency on their part in rendering services to the complainants and that the value of the investments made by the complainants had reduced to Rs.26,29,700/- on account of the valuation prevailing at that time.
The State Commission allowed the Consumer Complaints to the extent that the insurer was directed to pay Rs.3,70,300/- to the complainants in each case alongwith interest at the rate of 9% per annum, compensation quantified at Rs.1 lac and the cost of litigation quantified at Rs.5,000/-.
Being aggrieved from the order passed by the State Commission, the insurer is before this Commission by way of these two separate appeals.
The first grievance of the complainants is that the insurer had paid 40% of the first year premium to the agent as commission which the insurer was not entitled to pay. Reliance in this regard is placed upon the provisions contained in Section 40A of the Insurance Act.
The relevant provisions of Section 40A of the Insurance Act have been quoted in para 9 of the impugned order and read as under:
Section 40-A Insurance Act, 1938 reads as follows:
40A. (1) No person shall pay or contract to pay to an insurance agent, and no insurance agent shall receive or contract to receive by way of commission or remuneration in any form in respect of any policy of life insurance issued in India by an insurer after the 31st day of December, 1950, and effected through an insurance agent, an amount exceeding- (a) where the policy grants an immediate annuity or a deferred annuity in consideration of a single premium, or where only one premium is payable on the policy, two percent of that premium, (b) where the policy grants a deferred annuity in consideration or more than one premium, seven and a half percent of the first year's premium, and two percent of each renewal premium payable on the policy, and (c) in any other case, thirty-five percent of the first year's premium, seven and a half percent of the second and third year's renewal premium, and thereafter five percent of each renewal premium payable on the policy:
Provided that in a case referred to in clause (c), an insurer, during the first ten years of his business may pay to an insurance agent and an insurance agent may receive from such an insurer, forty per cent of the first year's premium payable on the policy:
Provided further that in case referred to in clause (c) where the rate of commission payable on the first year's premium is equal to or less than twenty-one per cent thereof, and the rate on the fourth and fifth year's premiums does not exceed six percent thereof, the Life Insurance Corporation of India may pay to an insurance agent, and the insurance agent may receive from it, commission on the sixth and subsequent year's renewal premiums payable on the policy at a rate not exceeding six per cent of each renewal premium. (2) No person shall pay or contract to pay to a special agent, and no special agent, shall receive or contract to receive, by way of commission or as remuneration in any form, in respect of any policy of life insurance issued in India by an insurer - after the 31st of December, 1950, and effected through- a special agent, an amount exceeding-(a) in a case referred to in clause(a) of sub-section(l), one half per cent of the premium, (b) in a case referred to in clause (b) of sub-section(l), two per cent of the first year's premium payable on the policy and (c) in a case referred to in clause (c) of sub-section (1), fifteen per cent of the first year's premium payable on the policy:
Provided that in a case referred to in clause (c), an insurer, during the first ten years of his business, may pay to a special agent, and a special agent may receive from such an insurer, seventeen and a half per cent of the first year's premium payable on the policy:
Provided further that in a case referred to in clause (c), where the rate of commission payable on the first year's premium is equal to or less than twenty-one per cent thereof, and the rate on the fourth and fifty year's premiums does not exceed six per cent thereof, the Life Insurance Corporation of India may pay to an insurance agent, and the insurance agent may receive from it, commission on the sixth and subsequent year's renewal premiums payable on the policy at a rate not exceeding six per cent of each renewal premium.
(3) ...
(4) ...
(a) ...
(b) ...
Provided ..
(5) Without prejudice to the provisions of section 102 in respect of a contravention of any of the provisions of the preceding sub-sections by an insurer, any insurance agent who contravenes the provisions of sub-section (1) or subsection (3) shall be punishable with fine which may extend to one hundred rupees.
It is evident from the aforesaid provision that in case of an ordinary agent, the insurer is entitled to pay not more than 35% of the first year premium in a case governed by clause (c) sub-section (1) of Section 40A of Insurance Act. Though in case of a special agent, the insurer could also pay 15% of first year's premium as commission to such special agent, there is no averment in the written version of the insurer that the person who sold the policies to the complainant was a special agent. Therefore, the insurer could have paid only the premium which was permissible to be paid to an ordinary agent. The submission of the learned counsel for the insurer is that the proviso to clause (c) sub-section (1) of Section 40A of Insurance Act permits them to pay upto 40% of first year's premium, within first ten years of their business and since this company was incorporated in the year 2001, the payment of commission at the rate of 40% of the first year premium was sanctified by law. I find that in the Consumer Complaint, there is no specific averment that the insurer could not have paid more than 35% of the first year premium as commission to the agent. Only a bald averment was made that the insurer had paid a hefty sum of Rs.10 lacs as commission to the agent. This obviously was incorrect. Since there was no specific averment that the commission could not have exceeded 35% of the premium paid for the first year, the insurer had no occasion to plead that it was entitled to pay commission in terms of the proviso to clause (c) sub-section (1) of Section 40A of Insurance Act. Therefore, I find no merit in the submission of the complainants that payment of 40% of the first year premium was illegal.
The main grievance of the complainants appears to be that the agent had promised annual return of 30% to them while selling the policy whereas even the principal amount paid by them got substantially reduced in the year 2008. There is no written promise made by the agent to the complainants that they would be entitled to or even that they could expect return of 30% per annum on the investment made by them on these policies. The complainants Mrs. Rashmi Menezes is a well-educated person she being the Director of a well-known pharmaceutical company. Therefore, if such a promise was made by the agent, a person of her stature, knowledge and wisdom would certainly have insisted upon a written promise instead of believing the oral promise alleged to have been made by the agent. This is more so when the alleged promise of annual return of 30% was contrary to the terms and conditions of the proposal form which contained no such promise. More importantly, even after receiving the insurance policies, the complainants did not opt for the return of the policy during the free lookout period of 15 days. If the agent had promised annual return of 30% to them, it was expected of the complainants to return the policy on this ground alone. Had that been done, the complainants would have been entitled not only to return of the entire amount paid by them with appropriate interest, they could also have succeeded in getting compensation from the insurer on account of the agent having made such a false promise. However, no such option was exercised by the complainants, which, in turn, indicates that such a promise was never made to them by the agent and that was the reason they did not return the policy during free lookout period of 15 days. In these circumstances, I am unable to accept the case of the complainants that the agent had promised annual return of 30% to them.
The third grievance of the complainants is that the insurer had not disclosed to them as to what would they do with the 70% of the premium which they would retain out of the premium paid for the first year, 2% of the premium which they retained out of the premium paid for the second year and 1% of the premium which they retained out of the premium paid for the third year. Even this, according to the State Commission, amounted to an unfair trade practice. I however, find myself unable to accept the view taken by the State Commission. In my opinion, when the insurer says that it will invest only 30% of the first year premium, it is implicit in such a statement that the remaining 70% of the first year premium will be retained by the insurer. The insurer was not obliged by any law to disclose how they proposed to utilize these 70% of the premium out of the premium received for the first year, 2% of the premium out of the premium received for the second year and 1% of the premium out of the premium received for the third year. No such requirement is prescribed in the Insurance Act or in the guidelines framed by IRDA. In any case, nothing prevented the complainants from insisting upon such a disclosure before subscribing to the insurance policies taken by them. They would have been within their right to insist upon such a disclosure before they submitted a proposal for obtaining these policies. Moreover, even during the free lookout period, they did not chose to return the policies on the ground that the policy document was silent as to the utilization of 70% of the first year premium, 2% of the second year premium and 1% of the third year premium. Therefore, the complainants cannot be allowed to make such a grievance at a belated stage.
For the reasons stated hereinabove, the impugned orders cannot be sustained and the same are set aside. The Consumer Complaints are consequently dismissed with no order as to costs.