Kuldeep Tiwari vs Oriental Insurance Company and Others

Rajendra Menon, J.

Invoking the extra-ordinary jurisdiction of this Court under Article 226/227 of the Constitution, petitioner has called in question tenability of order (Annexure P-l), dated 30-7-2002, by which the agency of the petitioner as Insurance Agent has been terminated.

Petitioner was appointed vide Annexure P-3 as an agent in accordance with the Insurance Regulatory and Development Authority (Licensing of Insurance Agents) Regulations, 2000 for a period of three years from 15-1-2002 for procuring and soliciting business of general insurers. It is the case of the petitioner that after the license was granted to him vide Annexure P-3 he had been discharging his duties effectively and sincerely to the fullest satisfaction of the competent authority. He has procured the business as required under the Rules, but in an arbitrary manner without giving him any opportunity of hearing, without issuing show-cause notice and in total disregard an in-violation of the principle of natural justice, his agency has been terminated, on the ground of complaint received against him with regard to collection of premium and termination of agency on the basis of enquiry conducted behind the back of the petitioner is said to be unsustainable.

On notice being issued, respondent insurance company has filed its return and it is submitted by them that the petitioner is only an agent, there is no relationship of employer and employee, he was only authorised to act as an Insurance Agent vide Annexure P-3 and, therefore, question of his removal from services does not arise. However, in Para 5.7 of the return it is mentioned as under:--

"That, the contents of this paragraphs are denied. The petitioner received amount from M/s Bharti Telent Hq., Gwalior that the petitioner on 26-4-2001 collected amount Rs. 2,100/- towards the premium of Transit Insurance of house hold item from Gwalior to Raipur as their officer Mr. Chanda has been transferred. But the same amount which is collected by the petitioner is not deposited with the respondent company. The complaint was lodged and after enquiring, it is found that petitioner and Mr. Sanjay Saxena act is against the interest of respondent company, the report is submitted to the Regional Manager, Indore, the same is annexed herewith and marked as Annexure R-l and the complaint is also annexed as Annexure R-2. On the basis of report Annexure R-2 Shri Jain A.O. submitted his report Annexure R-3 on 11-6-2002. Shri Sanjay Saxena Development Officer also submitted the reply dated 5-6-2002 on 7-6-2002 the same is annexed Annexure R-4. It is apparent the petitioner misappropriated the money and also violated mandatory provision of Section 218 of the Contract Act."

It is therefore, the case of the respondents that termination of the Insurance Agency is as per the terms and conditions of the license granted to the petitioner and the contract can be terminated without conducting any enquiry.

Referring to the provisions of the regulations namely the Insurance Regulatory and Development Authority (Licensing of Insurance Agents) Regulations, 2000, it was submitted by learned Counsel for the respondents that there is no provisions in the said regulations for issuing show- cause notice or conducting enquiry and cancellation of license is permissible. Accordingly it is argued that no case for grant of relief is made out. In support of the contention learned Counsel invites attention to the judgment of the Supreme Court in the case of Life Insurance Corporation of India Vs. Lalitha Devi, and a judgment of the Karnataka High Court in the case of B.K. Vadiraja and Anr. v. Managing Director, L.I.C. of India and Ors., reported in AIR 2002 Kar 113, to contend that no case for interference in the matter is made out. It is argued that the termination of agency is in accordance with the statutory provisions and, therefore, no interference is called for.

I have heard learned Counsel for the parties and perused the record. The Supreme Court in the case of Life Insurance Corporation of India (supra) and High Court in the case of B.K. Vadiraja, have held that the relationship of agent and insurance company is purely contractual and it is not that of an employer and employee. However, in those cases it was held that before termination of agency, notice of one month would satisfy the principle of natural justice. That apart in the cases referred to termination of agency were not because of any allegations of misappropriation or misconduct, but were for different reasons. However, in both the cases termination after giving notice was held to be valid. In the present case admittedly no notice have been issued before termination. Arguments of learned Counsel was that the statutory regulations does not contain any provision for issuing notice or conducting enquiry.

In the present case, the respondents have clearly contended that the petitioner received a sum of Rs. 2100/- on 26-4-2001 from M/s. Bharti Headquarter, Gwalior as premium of a transmit insurance of household item from Gwalior to Raipur. In spite of collecting the aforesaid amount, petitioner has not deposited the same with the company. A complaint was lodged and after enquiry it was found that the petitioner and one Mr. Sanjay Saxena acted against the interest of Insurance Company. Copies of the complaint, enquiry and report submitted have been filed as Annexures R-l, R-2 and R-3 respectively. Thereafter, it is, indicated in the return that it is apparent that the petitioner has misappropriated the money.

From the aforesaid it is clear that in the present case termination of the agency has taken place on the ground that the petitioner has misappropriated the amount of premium collected by him.

Even if the petitioner is not an employee, the fact remains that the agency granted to him under the statute was for a period of three years and in normal circumstances he is entitled to continue as an agent upto 15-1-2005. However, the agency is being terminated on the ground that he has misappropriated the amount which was to be deposited with the company. In the aforesaid backdrop the question is whether he is entitled for hearing, whether principle of natural justice are required to be followed.

In this regard the Supreme Court in the case of Raghunath Thakur Vs. State of Bihar and Others, , while considering the case of blacklisting of contractors has held that an order blacklisting a contractor has civil consequence and the future business of the person is affected. It has been held that in the aforesaid case that a person adversely affected by an order has right of being heard and making representations against order even though rules do not provide so expressly. Applicability of the Rules of natural justice it has been held has to be read into such provision blacklisting the contractor without hearing has been set aside in the aforesaid judgment. Similarly the Supreme Court while considering the question of administrative action in the case of Km. Nelima Misra Vs. Dr. Harinder Kaur Paintal and others, , has observed that an administrative authority is oblige to adopt a fair procedure. An administrative order which involves civil consequences must be made consistently with the rule of audi alterant pattem. Similar views have been expressed by the Supreme Court in the case of S.N. Mukherjee Vs. Union of India, , and it has been held that administrative action should be supported by reasons and the principles of natural justice should be followed. Requirement of natural justice was held to be a precondition and action taken without following the principles of natural justice was held to be violative of Article 14 of the Constitution of India in the case of D.K. Yadav Vs. J.M.A. Industries Ltd., . Recently a Bench of this Court while considering the question of cancellation of appointment without affording opportunity of hearing as in the case of Vinod Kumar Dwivedi v. Union of India and Ors., 2002(4) M.P.H.T. 394, has held that essential facet of Article 14 is following the principles of audi alteram partem and any action taken in contravention of the aforesaid principle would be arbitrary and in-violation of Article 14 of the Constitution. Even though, in the case of Vinod Kumar Dwivedi the matter was considered in the light of the order passed for cancellation of appointment. But, from the aforesaid judgments, it is clear that when an order is passed which has penal consequences, requirement of natural justice is a condition which has to be fulfilled, before taking action.

In the present case as indicated hereinabove the petitioner''s agency is not terminated on the basis of any stipulation contained in his appointment order, but the termination is on the basis of complaint and enquiry conducted against the petitioner and on the basis of the report received on such enquiry. That being so, it casts a stigma on the petitioner and even if the order (Annexure P-l) is innocuous the reason indicated in Para 5.7 of the return filed by the respondents clearly indicate that they took action against the petitioner because of misappropriation. Foundation and the motivation is the allegation of misappropriation of premium. If that being so the petitioner was entitled to an opportunity of hearing. Even if no enquiry as contemplated under the departmental rules for terminating the services of the employee is required at least an opportunity of explaining the circumstances existing against him and consideration of the same is the minimum requirement of law which should have been fulfilled before terminating the agency of the petitioner. The action taken for terminating the agency even without asking for an explanation and giving an opportunity to explain the circumstances existing against the petitioner in the opinion of this Court is unsustainable and in clear violation of the basic principle of natural justice and the entire action stands vitiated have been hit by Article 14 of the Constitution in view of the catena of the judgments referred to hereinabove.

Even though the principles for conducting departmental enquiry and procedure to be followed for terminating the employee by an employer can not be applicable in the present case, but the fact that the agency of the petitioner is being terminated before the expiry date, the same will have penal and civil consequences and therefore, the minimum requirement of issuing a show-cause notice and giving opportunity of hearing to submit explanation is required to be fulfilled in such case.

Accordingly, it has to be held that terminating the agency of the petitioner without issuing show-cause notice to him and without giving him opportunity of hearing is unsustainable. Accordingly, order (Annexure P-l), dated 30th July, 2003 passed against the petitioner stands quashed. Respondents are free to proceed in the matter after giving opportunity of hearing to the petitioner.