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Judgment
J.B. Pardiwala, J.—Present appeal is directed against the judgment and order dated 13.8.2010 passed by learned Single Judge in Special
Civil Application No. 705 of 2006 preferred by the Appellant, original writ Petitioner herein challenging the action of the Respondent-Corporation
in terminating her as an agent and forfeiting of commission due and payable to the Appellant for all times to come. Learned Single Judge dismissed
the petition confirming the order passed by Respondent-Corporation terminating the agency of the Appellant and also confirmed the order with
regard to the forfeiture of commissions.
Brief facts relevant for the purpose of deciding the present appeal can be summarized as under:
2.1 The Appellant original writ Petitioner was working as an agent of the Respondent-Corporation attached to CBO- 14/83Z Ahmedabad
Divisional Office, Ahmedabad. The Respondent is a Corporation duly constituted under the provisions of the Life Insurance Act, 1956. The
Appellant introduced a proposal on the life of one Mr. S.B. Garange under plan and term 11-25 for Rs. 2 Lacs dated 3rd August, 2001 which
resulted into Policy No. 824146059. On scrutiny upon the Respondent-Corporation and after considering the answers given by the insured in the
proposal form, more particularly, answers to Question No. 12(a)(b)(c) relating to personal history, the proposal was accepted for sum insured for
Rs. 1,50,000/-. It is the case of the Respondent-Corporation that the Appellant knowing fully well that the insured i.e.late Shri S.B. Gorange was
suffering from cancer and suppressed this material fact and submitted Agents'' Confidential Report dated 3rd August, 2001 stating therein that the
proposer was not suffering from any ailment and having sound healthy and recommending acceptance of the life which ultimately resulted into
policy bearing No. 824146059. Respondent-Corporation thought fit to issue charge-sheet and show cause notice to the Appellant dated 3rd
March, 2004 calling upon the Appellant to show cause as to why penalty of termination of agency and forfeiture of renewal commission in terms of
Rule 16(1)(a) and (b) of the LIC of India (Agents'') Regulation Act, 1972 (herein after referred to as the ''Regulations'' for short) should not be
imposed.
The case of the Appellant original writ Petitioner before the Authorities of the Corporation was that it was not within her knowledge that the
insured was suffering from cancer and as a matter of fact, this ailment was concealed by the insured. In her reply dated 9.6.2004 to the show
cause notice, she brought to the notice of the Corporation the following facts:
(A) Appellant repeatedly had inquired with the insured as to whether he was taking any treatment for any disease or admitted in hospital. If he was
treated in a Hospital then he is obligated to disclose about the same. The Appellant also inquired with the mother, brother and brother''s wife in this
regard and all of them said that the insured had no ailment and was not hospitalized at any point of time.
(B) Appellant arranged for medical examination of the insured through the approved medical examiner, Dr. Bansi Wadhwa. After medical
examination of Dr. Wadhva tendered his medical report certifying that the insured was quite healthy and had no ailments.
(C) Before accepting the risk, other reports on the life of Shri S.B. Gorange such as CBC, ESR, Cholesterol, ECG, etc. were called for by LIC
and the same were submitted. In all these reports, nothing was revealed that deceased Shri Gorange was suffering from any disease.
(D) LIC called for another medical report. Deceased was taken for medical examination to Dr. M.P. Wadhva, Medical Examiner of LIC of India
and on examination, it was found that deceased had no ailment.
All these facts were brought to the notice of the Authorities of the Corporation and most importantly, the record reveals that these facts are not
disputed by the Corporation. However, entire liability is sought to be fastened on the Appellant as agent of the Corporation.
The explanation of the Appellant was not accepted by the Competent Authority and ultimately, vide order dated 31st March, 2004 passed by
Divisional Manager, Competent Authority, the agency of the Appellant being Agency Code No. 537838 was terminated in terms of Rule 16(a)
and (b) of the Regulations with forfeiture of renewal commission.
This order of the Senior Divisional Manager was challenged before the Zonal Manager, LIC, Mumbai by the Appellant by filing appeal vide
letter dated 17th May, 2004. The appellate Authority, namely, Zonal Manager, vide order dated 3rd November, 2004 dismissed the appeal.
The order of the appellate Authority was once again made a subject matter of challenge before the Chairman of the Respondent-Corporation in
the form of Memorial before the Chairman under the Regulation No. 24 of the Regulations. Chairman, LIC, vide order dated 22nd July, 2005
rejected the said memorial and confirmed both the orders i.e. Senior Divisional Manager, Ahmedabad and Zonal Manager, LIC, Mumbai.
Against the concurrent findings of 3 Authorities of the Respondent-Corporation, the Appellant preferred Special Civil Application No. 705 of
2006 and the learned Single Judge dismissed the petition confirming the orders of all the 3 Authorities of the Corporation.
Appellant, original writ Petitioner, aggrieved by this order passed by learned Single Judge is in appeal before us.
We have heard learned Counsel Mr. C.N. Trivedi appearing for the Appellant and Mr. A.K. Clerk, learned Counsel appearing for
Respondent-Corporation.
The principal contentions on behalf of the Appellant are as under:
(I) The orders of the Authorities of the Corporation terminating the agency and forfeiting commissions are patently illegal and erroneous and
perverse.
(II) It is further submitted that there is a flagrant violation of the principles of natural justice as the Authorities have reached to the conclusion
holding the Appellant guilty of violating the regulations without any fact finding inquiry and without there being an iota of evidence to hold the
Appellant responsible.
(III) It is further submitted that Corporation could not have forfeited the commissions of the policies on the ground of fraud because all throughout
all the authorities proceeded under Regulation 16 and Regulation 16 does not speak about fraud.
(IV) It is further submitted that the order of termination of agency as well as the order of forfeiture of renewal commissions are liable to be quashed
and set aside.
Per contra, the contentions raised on behalf of the Respondent-Corporation are as under:
(I) It is submitted by the learned Counsel for the Respondent-Corporation that the Agents are not under a regular employment under LIC, instead
they are appointed under Regulation 4 of LIC (Agents'') Regulation, 1972. No regular salaries are paid to them. It is further submitted that they are
entitled to receive commission under Regulation 10 of the said Regulations. It is further submitted that Regulation No. 17(1) confers the unfettered
power with the Corporation to terminate the agency of the Appellant for any reason. Regulation 17(2) confers similar power on insurance agents to
discontinue its agency by giving one month''s notice.
(II) It is further submitted that the Appellant acted in a manner prejudicial to the interest of the Corporation.
(III) It is further submitted that this Court may not disturb the order passed by the learned Single Judge who has confirmed the findings recorded
by the three Authorities concurrently.
Having regard to the rival contentions of the parties and the nature of dispute, we are of the view that interference with the order passed by the
learned Single Judge is warranted. In the present case, the Respondent-Corporation initiated the proceedings against the Appellant on the premise
that the Appellant knowingly perpetuated fraud by pushing a life on the books of the Corporation by withholding and suppressing the fact that the
insured late Shri S.B. Gorange was suffering from cancer. The defence of the Appellant all throughout remained that she had taken all possible care
to see that minute test of the details are collected by her from the insured and family members and it was not within her knowledge that the insured-
deceased Shri S.B. Gorange was suffering from cancer.
We are not able to understand as to how and on what basis Respondent-Corporation has reached to the conclusion that the Appellant has
perpetuated fraud or acted in a manner prejudicial to the interests of the Corporation. The fact remains that the insured- deceased, Shri S.B.
Gorange, died because he was suffering from cancer. Now cancer is an ailment which cannot be merely detected on a clinical examination. What is
disturbing was the fact that deceased, Shri S.B. Gorange, was fully medically checked up by two Doctors of the Corporation, namely, Dr. Bansi
Wadhva and Dr. M.T. Wadhva. Both these Doctors certified upon examination of the deceased that he had no ailment and he was fit and healthy.
This fact is not disputed by the Corporation. Further, other reports like ECG, ESR, CBC, etc. were also called for and they were also furnished.
Even at that point of time, Respondent-Corporation did not raise any objection obviously because all the reports must have been clear indicating
no ailment and/or no disease. How then Corporation expect the Appellant to know about the ailment if the insured and his family members have
suppressed this fact and if they are guilty of suppression of important fact? Prima-facie, it appears that all possible precautions and care, which is
expected of an agent can be said to have been taken by the Petitioner and if the panel doctors of the Corporation, two in numbers, could not
detect and diagnose cancer then how does Corporation expect the Appellant its agent to know that insured was suffering from cancer.
Now, in this regard, we may also consider the matter from the angle as to how inquiry has been conducted or rather any inquiry is conducted
before reaching to the ultimate conclusion that the Appellant is guilty of violating of Regulations of the Corporation.
Firstly, we shall examine the order of the Competent Authority, namely, Divisional Manager. It is evident that first show cause notice was
issued calling upon the Appellant to explain and show cause why the charges leveled against her should not be accepted and why agency should
not be terminated with forfeiture of renewal commissions. To this, according to us, a satisfactory reply was given. What is important is the manner
in which, the entire case has been handled by the Corporation. We noticed that there is no inquiry worth the name. How can the Corporation fix
the liability of the agent based on the allegations revealed in the charge-sheet and the reply given by the agent. We noticed that there is no
independent inquiry worth the name in this regard and no opportunity seems to have been given to the Appellant to even lead oral evidence, if
necessary. The most disturbing feature of the entire matter is the order passed by the Competent Authority, namely, Senior Divisional Manager,
which read as under: FINAL ORDER I have gone through the show-cause notice dated 3rd March, 2004.
I have perused the records of the case and have given careful consideration to the facts of the case and the reply dated 09/15.03.2004 submitted
by you, which I do not find satisfactory at all.
You have acted in a manner prejudicial to the interest of the Corporation as envisaged under Regulations 8(2)(b) and 16(1)(a)(b) & (d) of
(Agents'') Regulations 1972.
I therefore, order as under:
As per Regulations 16(1)(a)(b) & (d) of (Agents'') Regulations 1972, your above agency is terminated and Renewal Commissions payable to you
as per Regulation 19(1) of Agents'' Regulations 1972 stands forfeited with immediate effect.
You are disqualified and shall not solicit or procure new Life Insurance Business on our behalf at any time.
A plain reading of the order would suggest that it is a non speaking order. What has weighed with and what has not weighed with the Authority
is absolutely not clear.
Now, we shall proceed to the appellate Authority''s order. The order of the appellate Authority reads as under:
Considering the facts and circumstances of the case, I am satisfied that the charges set out against Smt. G.J. Modi in the show-cause notice dated
3rd March, 2004 have been proved and the penalty of termination of her agency with forfeiture of Renewal Commission imposed on her by the Sr.
Divisional Manager, Ahmedabad by the order dated 31st March, 2004 is just and fair. I do not find any new point or cogent ground brought out
by the Appellant in her appeal dated 17th May, 2004 warranting interference with the penalty already imposed.
Now, therefore, in exercise of the powers conferred on me under LIC of India (Agents'') Regulations 1972, I hereby confirm the penalty of
termination of agency under Regulation 16(1)(a)(b) and (d) of LIC of India (Agents'') Regulations 1972 with forfeiture of Renewal Commission
under Regulation 19(1) imposed on Smt. G.J. Modi by the order dated 31st March, 2004 of the Sr. Divisional Manager, Ahmedabad.
Accordingly, the Appeal dated 17th May, 2004 preferred by Smt. G.J. Modi be and is hereby rejected.
The order of the appellate Authority also would suggest that no reasons are assigned or there is no discussion anything on the record to the
case put forward by the Appellant or why the case put forward by the Appellant is not accepted by the authorities of the Corporation. Same is the
case so far as the order passed by the Chairman of the Corporation under Rule 24 of the LIC of India (Agents'') Rules, 1972 in the form of
Memorial, which reads as under:
Having therefore examined the Memorial submitted by Smt. G.J. Modi in the light of the facts and circumstances of the case as revealed by the
records, I am satisfied that the penalty imposed on her is justified. I further observe that the Memorialist has not brought out any new point in her
Memorial so as to warrant interference in the orders passed by the Sr. Divisional Manager, Ahmedabad and confirmed by the Zonal Manager,
Mumbai and that the Memorial deserves to be rejected which I hereby do. The Memorial dated 28.12.2004 is disposed of accordingly. Dated at
Mumbai this 22nd day of July, 2005.
It would be expedient to quote judgment of the Supreme Court in the case of State of U.P. and Another Vs. Johri Mal, wherein, Supreme
Court has tried to explain the scope and extent of power of the judicial review of the High Court contained in Article 226 of the Constitution of
India and also the extent to which the decision making process can be reviewed:
Para- 28. The scope and extent of power of the judicial review of the High Court contained in Article 226 of the Constitution of India would vary
from case to case, the nature of the order, the relevant statute as also the other relevant factors including the nature of power exercised by the
public authorities, namely, whether the power is statutory, quasi judicial or administrative. The power of judicial review is not intended to assume a
supervisory role or done the robes of omnipresent. The power is not intended either to review governance under the rule of law nor do the Courts
step into the areas exclusively reserved by the supreme lex to the other organs of the State. Decisions and actions which do not have adjudicative
disposition may not strictly fall for consideration before a judicial review Court. The limited scope of judicial review succinctly put are:
(i) Courts, while exercising the power of judicial review, do not sit in appeal over the decisions of administrative bodies.
(ii) A petition for a judicial review would lie only on certain well-defined grounds.
(iii) An order passed by an administrative authority exercising discretion vested in it, cannot be interfered in judicial review unless it is shown that
exercise of discretion itself is perverse or illegal.
(iv) A mere wrong decision without anything more is not enough to attract the power of judicial review; the supervisory jurisdiction conferred on a
Court is limited to seeing that Tribunal functions within the limits of its authority and that its decisions do not occasions miscarriage of justice.
(v) The Courts cannot be called upon to undertake the Government duties and functions. The Court shall not ordinarily interfere with a policy
decision of the State. Social and economic belief of a Judge should not be invoked as a substitute for the judgment of the legislative bodies. (See
Ira Munn v. State of Ellinois, 1876 (94) US (Supreme Reports) 113).
Para-30. It is well-settled that while exercising the power of judicial review the Court is more concerned with the decision making process than the
merit of the decision itself. In doing so, it is often argued by the defender of an impugned decision that the Court is not competent to exercise its
power when there are serious disputed questions of facts; when the decision of the Tribunal or the decision of the fact finding body or the arbitrator
is given finality by the statute which governs a given situation or which, by nature of the activity the decision maker''s opinion on facts is final. But
while examining and scrutinizing the decision making process it becomes inevitable to also appreciate the facts of a given case as otherwise the
decision cannot be tested under the grounds of illegality, irrationality or procedural impropriety. How far the Court of judicial review can
reappreciate the findings of facts depends on the ground of judicial review. For example, if a decision is challenged as irrational, it would be well-
nigh impossible to record a finding whether a decision is rational or irrational without first evaluating the facts of the case and coming to a plausible
conclusion and then testing the decision of the authority on the touch-stone of the tests laid down by the Court with special reference to a given
case. This position is well settled in Indian Administrative Law. Therefore, to a limited extent of scrutinizing the decision making process, it is
always open to the Court to review the evaluation of facts by the decision maker.
Para-31. In Chief Constable of the North Wales Police v. Evans (1982 (3) All ER 141) the law is stated in the following terms:
... The purpose of judicial review is to ensure that the individual receives fair treatment, and not to ensure that the authority, after according fair
treatment, reaches on a matter which it is authorized or enjoined by law to decide for itself a conclusion which is correct in the eyes of the Court.
Para-32. Prof. Bernard Schwartz in his celebrated book (Administrative Law, III Edn. Little Brown Company 1991) dealing with the present
status of judicial review in American context, summarized as under:
If the scope of review is too broad, agencies are turned into little more than media for the transmission of cases to the Courts. That would destroy
the values of agencies, created to secure the benefit of special knowledge acquired through continuous administration in the complicated fields. At
the same time, Court should not rubber-stamp agencies; the scope of judicial enquiry must not be so restricted that it prevents full enquiry into the
action of legality. If that question cannot be properly explored by the Judge, the right to review becomes meaningless ....in the final analysis, the
scope of review depends on the individual Judges estimate of the justice of the case.
We may also quote Supreme Court decision in the case of Indian National Congress (I) Vs. Institute of Social Welfare and Others, wherein,
Supreme Court has explained about the duty and the obligations of a quasi judicial authority and Administrative Act distinguished from a quasi
Judicial Act:
But there are cases where there is no lis or two contending parties before a statutory authority yet such a statutory authority has been held to
be quasi-judicial and decision rendered by it as quasi judicial decision when such a statutory authority is required to act judicially. In Queen v.
Dublin Corporation (1878) 2 IRR 371, it was held thus:
In this connection the term judicial does not necessarily mean acts of a Judge or legal tribunal sitting for the determination of matters of law, but for
purpose of this question, a judicial act seems to be an act done by competent authority upon consideration of facts and circumstances and
imposing liability or affecting the rights. And if there be a body empowered by law to enquire into facts, makes estimates to impose a rate on a
district, it would seem to me that the acts of such a body involving such consequence would be judicial acts.
Atkin L. J. as he then was, in Rex v. Electricity Commissioners (1924) 1 KB 171 stated that when any body of persons having legal authority
to determine questions affecting the rights of subjects and having the duty to act judicially, such body of persons is a quasi-judicial body and
decision given by them is a quasi-judicial decision. In the said decision, there was no contest or lis between the two contending parties before the
Commissioner. The Commissioner, after making an enquiry and hearing the objections was required to pass order. In nutshell, what was held in the
aforesaid decision was, where a statutory authority is empowered to take a decision which affects the rights of persons and such an authority under
the relevant law required to make an enquiry and hear the parties, such authority is quasi-judicial and decision rendered by it is a quasi-judicial act.
In Province of Bombay v. Kusaldas S. Advani and Ors. (supra) it was held thus:
(i) that if a statute empowers an authority, not being a Court in the ordinary sense, to decide disputes arising out of a claim made by one party
under the statute which claim is opposed by another party and to determine the respective rights of the contesting parties who are opposed to each
other, there is a lis and prima facie and in the absence of anything in the statute to the contrary it is the duty of the authority to act judicially and the
decision of the authority is a quasi-judicial act; and
(ii) that if a statutory authority has power to do any act which will prejudicially affect the subject, then, although there are not two parties apart from
the authority and the contest is between the authority proposing to do the act and the subject opposing it, the final determination of the authority
will yet be a quasi-judicial act provided the authority is required by the statute to act judicially. In other words, while the presence of two parties
besides the deciding authority will prima facie and in the absence of any other factor impose upon the authority the duty to act judicially, the
absence of two such parties is not decisive in taking the act of the authority out of the category of quasi-judicial act if the authority is nevertheless
required by the statute to act judicially.
The legal principles laying down when an act of a statutory authority would be a quasi-judicial act, which emerge from the aforestated
decisions are these:
Where (a) a statutory authority empowered under a statute to do any act (b) which would prejudicially affect the subject (c) although there is no lis
or two contending parties and the contest is between the authority and the subject and (d) the statutory authority is required to act judicially under
the statute, the decision of the said authority is quasi-judicial.
Applying the aforesaid principle, we are of the view that the presence of a lis or contest between the contending parties before a statutory
authority, in the absence of any other attributes of a quasi-judicial authority is sufficient to hold that such a statutory authority is quasi-judicial
authority. However, in the absence of a lis before a statutory authority, the authority would be quasi-judicial authority if it is required to act
judicially.
Coming to the second argument of learned Counsel for the Respondent, it is true that mere presence of one or two attributes of a quasi-judicial
authority would not make an administrative act as quasi-judicial act. In some case, an administrative authority may determine question of fact
before arriving at a decision which may affect the right of an Appellant but such a decision would not be quasi-judicial act. It is different thing that in
some cases fair-play may demand affording of an opportunity to the claimant whose right is going to be affected by the act of the administrative
authority, still such an administrative authority would not be quasi-judicial authority.
What distinguishes an administrative act from quasi-judicial act is, in the case of quasi-judicial functions under the relevant law the statutory
authority is required to act judicially. In other words, these law requires that an authority before arriving at decision must make an enquiry, such a
requirement of law makes the authority a quasi-judicial authority.
Learned Counsel for the Respondent then contended that a quasi-judicial function is an administrative function which the law requires to be
exercised in some respect as if it were judicial and in that view of the matter, the function discharged by the Election Commission u/s 29A of the
Act is totally administrative in nature. Learned Counsel in support of his argument relied upon the following passage from Wade and Forsyth''s
Administrative Law:
A quasi-judicial function is an administrative function which the law requires to be exercised in some respects as if it were judicial. A typical
example is a minister deciding whether or not to confirm a compulsory purchase order or to allow a planning appeal after a public inquiry. The
decision itself is administrative, dictated by policy and expediency. But the procedure is subject to the principles of natural justice, which require
the minister to act fairly towards the objections and not (for example) to take fresh evidence without disclosing it to them. A quasi-judicial decision
is therefore an administrative decision which is subject to some measure of judicial procedure.
We do not find any merit in the submission. At the outset, it must be borne in mind that another test which distinguishes administrative function
from quasi-judicial function is, the authority, who acts quasi-judicially is required to act according to the rules, whereas the authority which acts
administratively is dictated by the policy and expediency. In the present case, the Election Commission is not required to register a political party in
accordance with any policy or expediency but strictly in accordance with the statutory provisions. The afore-quoted passage from Administrative
Law by Wade and Forsyth is wholly inapplicable to the present case. Rather, it goes against the argument of learned Counsel for the Respondent.
The afore-quoted passage shows that where an authority whose decision is dictated by policy and expediency exercises administratively although it
may be exercising functions in some respects as if it were judicial, which is not the case here"".
We are of the view that it is well settled that any person in a quasi judicial matter passes an order without stating the reasoning by which he had
come to that particular finding, the order itself is arbitrary on the face of it. The person against whom the order is passed is entitled to know as of
right as to under what circumstances and for what reasons his prayer was been rejected. As soon as one tells him that his prayer is rejected, and
that he is not bound to give reasons, the order passed is an order which is arbitrary and is required to be set aside. That order can never be
sustained in a State where the citizens are governed by law. Even a citizen who approaches any authority who has a power to act judiciously and
he acts in a quasi judicial manner where he is bound to take objective facts into consideration the person against whom the order is passed is
entitled to know that only the relevant factors were considered objectively; that irrelevant factors never entered the field, that mind was applied and
that with a proper reasoning the order was passed. It is quite likely that another person may take a different view but that is entirely a different
matter. If the Court has no power of appeal over a quasi judicial officer, the Court may not exercise that power but the Court has certainly a
power to examine as to whether the person had a power, whether the person exercised that power judiciously, whether the power that was
exercised was not exercised arbitrarily and it was in a judicial manner in the sense it was made known that all relevant factors were considered and
irrelevant factors were never considered. This would be the essence of how a quasi judicial officer is expected to behave and act. The order
passed on the face of it should show that the order was passed after taking into consideration all the relevant objective facts. This is only possible if
the order is speaking order. If on the face of it the order does not show any reasons the arbitrariness is writ large on it"".
This is one limb of the matter so far as the termination of the agency is concerned. Now, we shall deal with the second limb, namely, whether
Respondent-Corporation could have ordered forfeiture of renewal commissions payable to the Appellant as an agent. So far as this issue is
concerned, we have already decided the same while deciding LPA No. 1622 of 2010 dated 18.3.2011. In the said judgment, we have taken the
view that all acts prejudicial to the interest of the Corporation are not necessarily or can be said to be falling within the ambit of fraud. The
authorities, in the present case, all throughout have proceeded under Regulation 16. Regulation 16, no where refers to the fraud and when the
Authorities have proceeded under Regulation No. 16, they cannot allege fraud or presumed or assumed fraud only because, according to the
Corporation, the Appellant acted in a manner prejudicial to the interest of the Corporation. In this regard, we shall quote few important paragraphs
of the judgment delivered by this bench in LPA No. 1622 of 2010.
This is suggestive of the fact that all throughout all the authorities have proceeded under Regulation 16 only. Regulation 16 of the Regulations
reads as under:
Regulation 16: Termination of agency for certain lapses:
The competent authority may, by order, determine the appointment of an agent.
(a) if he has failed to discharge his functions, as set out in regulation 8, to the satisfaction of the competent authority;
(b)if he acts in a manner prejudicial to the interests of the Corporation or to the interests of its policyholders;
(c) if evidence comes to its knowledge to show that he has been allowing or offering to allow rebate of the whole or any part of the commission
payable to him;
(d) if it is found that any averment contained in his agency application or in any report furnished by him as an agent in respect of any proposal is not
true;
(e) if he becomes physically or mentally incapacitated for carrying out his functions as an agent;
(f) if he being an absorbed agent, on being called upon to do so, fails to undergo the specified training or to pass the specified tests, within three
years from the date on which he is so called upon;
provided that the agent shall be given a reasonable opportunity to show cause against such termination.
2 Every order of termination made under sub-regulation (1) shall be in writing and communicated to the agent concerned.
3 Where the competent authority proposes to take action under Sub-regulation (1) it may direct the agent not to solicit or procure new life
insurance business until he is permitted by the competent authority to do so.
On fair analysis of Regulation 16 it is very clear that the competent authority is empowered to determine the appointment of an agent if the
agent has failed to discharge his functions, as set out in regulation 8, to the satisfaction of the competent authority or if the agent acts in a manner
prejudicial to the interests of the Corporation or to the interests of its policyholders. We take note of a very important fact that Regulation 16
nowhere refers the word ''fraud''. Clause (1) of Regulation 19 makes a reference of ''fraud''. Regulation 19 provides for appointment of
commission of discontinuance of agency. Any order passed under Regulation 19(1) is not appealable. Regulation No. 19(1) reads as under:
Regulation 19 Payment of commission on discontinuance of agency:
In the event of termination of the appointment of an agent, except for fraud, the commission on the premiums received in respect of the business
secured by him shall be paid to him if such agent: (a) has continually worked for at least 5 years since his appointment and policies assuring a total
sum of not less than Rs. 2 lakhs effected through him were in full force on a date one year before his ceasing to act as such agent; or (b) has
continually worked as an agent for at least 10 years since his appointment; or (c) being an agent whose appointment has been terminated under
Clause (e) of sub-regulation (1) of regulation 16 has continually worked as an agent for at least two years from the date of his appointment and
policies assuring a total sum of not less than Rs. 1 lakh effected through him were in full force on the date immediately prior to such termination;
Provided that in respect of an absorbed agent the provisions of Clause (a) shall apply as if for the letters, figures and word ""Rs.2 lakhs"", the letters
and figures ""Rs.50,000"" had been substituted.
Any commission payable to an agent under sub-regulation (1) shall, notwithstanding his death, be payable to his nominee or nominees or, if no
nomination is made or is subsisting, to his heirs, so long as such commission would have been payable had the agent been alive.
3 In the event of the death of the agent while his agency subsists, any commission payable to him had he been alive shall be paid to his nominee, or,
if no nomination is made or is subsisting, to his heirs, so long such commission would have been payable had the agent been alive, provided he had
continually worked as an agent for not less than 2 years from the date of his appointment and policies assuring a total sum of not less than Rs. 1
lakh effected through him were in full force on the date immediately prior to his death.
4 If the renewal commission payable under sub-regulation (1) or sub-regulation (2) or sub-regulation (3) falls below Rs. 100/- in any financial year
(hereinafter referred to as the said financial year), the competent authority may, notwithstanding anything contained in the said sub-regulation,
commute all commission payable in subsequent financial year for a lump sum which shall be three times the amount of renewal commission paid in
the said financial year, and on the payment of such lump sum to the agent or his nominees or heirs, as the case may be, no commission on the
business effected through the agent shall be payable in the financial year subsequent to the said financial year.
To our mind, the position is very clear. In the event of the termination of an agent ''except for fraud'' (emphasis supplied) the Commission on the
premium received in respect of the business secured by the agent shall be paid to the said agent as prescribed under Regulation 19. Regulation
prescribes that, ''except in case of fraud'' after discontinuance of the agency, the agent is required to be paid the commission on the premiums
received in respect of the business secured by him in the past.
Now, we shall deal with an important Regulation i.e. Regulation 15, which refers and talks about fraud. Regulation 15 reads as under:
Termination of agency on account of certain disqualifications:
If an agent:
(a) is found to be of unsound mind by a court of competent jurisdiction;
(b) is found to be guilty of criminal misappropriation or criminal breach of trust or cheating or forgery or an abetment of or attempt to commit any
such offence by a court of competent jurisdiction;
(c) in any judicial proceedings, has been found to have knowingly participated in or connived at any fraud, dishonesty or misrepresentation against
the Corporation or any of its subsidiaries or against any person having official dealings with the Corporation or any of its subsidiaries, his
appointment shall be liable to be terminated without notice and the competent authority shall forthwith terminate his appointment.
Regulation 15 talks about termination of agent on account of certain disqualifications and very importantly we take note of the fact that in
Regulation 15 the word used is ''shall'' meaning to say that if an agent incurs disqualification on account of being found to be of unsound mind by a
court of competent jurisdiction or is found to be guilty of criminal misappropriation or criminal breach of trust or cheating or forgery or an abetment
of or attempt to commit any such offence by a court of competent jurisdiction or in any judicial proceedings, has been found to have knowingly
participated in or connived at any fraud, dishonesty or misrepresentation against the Corporation or any of its subsidiaries or against any person
having official dealings with the Corporation or any of its subsidiaries his appointment as agent stands terminated. On plain reading of the language
of Regulation 15 it is very clear that once the agent is disqualified in the event of any order passed by the competent court of law in judicial
proceedings and once there is a finding recorded by the competent court of law in any judicial proceedings as regards fraud, the appointment
stands automatically terminated without notice and the competent authority is left with no other option, but forthwith terminate his appointment.
There is no discretion because of the word ''shall''. As against that, Regulation 16 talks about termination of agent on account of certain lapses. The
lapses have been enumerated in Clauses (a) to (f) of Regulation 16. Again, the language of Regulation 16 is important. It says that the competent
authority ''may'' by order determine the appointment of an agent. This is suggestive of the fact that in the event of certain lapses on the part of the
agent, the competent authority may or may not determine appointment of an agent. That means, there is a discretion with the authority. In a given
case the authority may find lapse of such a nature which may not warrant termination of the appointment of an agent. Therefore, unlike Regulation
15 where there is no discretion there appears to be some discretion in Regulation 16, which talks only about lapses.
What can be deduced on plain interpretation of Regulations 15, 16 and 19 is that for coming to the conclusion that the agent has played fraud
with the Corporation in connivance with any person may be the person he has insured there must be a full fledged trial in the court of a competent
court. In the trial evidence would be led by both the sides and after considering the evidence if in any judicial proceeding there is a finding that the
agent is guilty of fraud, the appointment stands automatically terminated. We do not propose to say, that fraud would stand established only if there
is criminal prosecution and pursuant to that a full-fledged trial resulting in findings regarding fraud. It may not be possible or would not be feasible at
times to initiate criminal prosecution in all cases. In such eventuality, it is expected from the Corporation, which is a ''State'' within the meaning of
Article 12 of the Constitution to adopt a fair and reasonable procedure. When we say fair and reasonable procedure we mean a regular
departmental enquiry. In a regular departmental enquiry also the person concerned will get an opportunity of leading oral evidence as well as
documentary evidence which includes cross-examination of witnesses, if any. That would at least give a reasonable opportunity to the agent to
meet with the charge of fraud. We are saying this because, the lapses enumerated under Regulation 16 nowhere refers in explicit terms ''fraud''
though it does refer to some lapses on the part of the agent which might be equated with incorrect statement made by the agent or false information
given by the agent. We also take notice of the fact that appeal is provided under Regulations 16, 17, 18 and 19, but no appeal is provided against
order passed under Regulation 19. It would be profitable to quote the wordings of Honourable Supreme Court in the matter of Union of India
(UOI) Vs. Chaturbhai M. Patel and Co., In paragraph 7 it has been held as under:
It is well settled that fraud like any other charge of a criminal offence whether made in civil or criminal proceedings, must be established beyond
reasonable doubt: per Lord Atkin in AIR 1941 93 (Privy Council) However suspicious may be the circumstances, however strange the
coincidences, and however grave the doubts, suspicion alone can never take the place of proof. In our normal life we are sometimes faced with
unexplainable phenomenon and strange coincidences, for, as it is said, truth is stranger than fiction.
In the present case all throughout when the authorities have proceeded under Regulation 16 they have read fraud or rather, we should say
presumed and assumed fraud only because, according to the corporation, the Respondent acted in a manner prejudicial to the interests of the
Corporation. Again, going back to Regulation 16(b) it is very clear that if an agent acts in a manner prejudicial to the interests of the Corporation it
does not necessarily mean that he has played fraud. All acts prejudicial to the interests of the Corporation are not necessarily or can be said to be
falling within the ambit of fraud. When allegations of fraud are levelled they cannot be easily presumed and that is why, perhaps, the Regulations
have referred to the word ''fraud'' in Regulation 15 saying that if there is a finding of fraud in any judicial proceedings, the appointment shall be
liable to be terminated without notice.
We take notice of the fact that if fraud is to be read in all cases falling within the ambit of Regulation 16(b) then, it will be a dangerous
proposition. If the Corporation wants to forfeit the commissions due and payable to the agent with regard to policies where there is no complaint,
they would easily read or would say that fraud has been played upon by the agent by acting in a manner prejudicial to the interest of the
Corporation. There is a scope of mischief. The Division Bench of this Court in the matter of State v. Prathmesh Farms Private Limited, reported in
2011 (1) GLR 159 in paragraph 12.1 has observed as under:
12.1 When material words are capable of bearing two or more constructions, the most firmly established rule for construction is the rule laid down
in Heydon''s case, which is also known as ""purposive construction"" or ""mischief rule"". Court is required to make such construction as shall
suppress the mischief and advance the remedy, and suppress certain inventions and evasions for continuance of the mischief, and pro private
commodo, and to add force and life to the cure and remedy, according to the true intent of the makers of the Act, pro bono publico, as discussed
in several judgments of the Apex Court, including The Bengal Immunity Company Limited Vs. The State of Bihar and Others, and Ameer Trading
Corporation Ltd. Vs. Shapoorji Data Processing Ltd., In the words of Lord Griffith: ""The courts now adopt a purposive approach which seeks to
give effect to the true purpose of legislation and are prepared to look at much extraneous material that bears on the background against which the
legislation was enacted"". [Pepper v. Hart (1993) 1 All ER 42.
Again, at the cost of repetition, we would like to mention that in the present case the allegations against the agent are to the effect that she
knew that late Ashokkumar R Parmar was suffering from pulmonary tuberculosis and in spite of this knowledge, as an agent, she recommended
the Corporation for the policy. We take notice of the fact that without any proper departmental enquiry or detailed investigation in this regard, the
Corporation could not have jumped to the conclusion that the agent is guilty of fraud by suppressing the fact that the insured was suffering from
pulmonary tuberculosis. We take notice of the fact having perused all the three orders passed by the Corporation i.e. first order of the Divisional
Manager, second order passed by the appellate authority and the third order in the form of Memorial by the Chairman of the Corporation that all
the three authorities have based their conclusions solely taking into consideration the reply filed by the Respondent to the show-cause notice. There
was no other enquiry of any nature worth the name at the end of the Appellant-Corporation. It can be a case of carelessness or negligence.
However, though we are not supposed to go into the questions of facts, but in the present case, having regard to the peculiar circumstances, we
are constrained to observe that there is not an iota of material on record to suggest that there was any meeting of minds or any conspiracy hatched
for the purpose of defrauding the Corporation.
In this view of the matter, we hold that the Respondent-Corporation has dealt with the matter in a very slipshod manner. Respondent-
Corporation is a State within the meaning of Article 12 of the Constitution and is expected to act fairly. One of the facets of the principle of natural
justice over and above the facet of audi alteram partem is to act fairly. The manner in which the Corporation has acted and the manner in which
decisions have been taken by all authorities to terminate the agency and order forfeiture of the renewal commissions leaves us with no other option
but to quash the judgment and order passed by learned Single Judge and allow the main special civil application by quashing and setting aside all
the three orders passed by Corporation-Authorities.
In the result, LPA No. 2662 of 2010 stands allowed. Judgment and order passed by learned Single Judge in Special Civil Application No.
705 of 2006 is quashed and set aside. The order dated 31.3.2004 passed by Senior Divisional Manager, LIC, Ahmedabad order dated
3.11.2004 passed by Zonal Manager, LIC, Mumbai and order dated 22.7.2005 passed by Chairman, LIC, Mumbai are quashed and set aside.