Mahesh Narayandas Kothari vs Life Insurance Corporation of India and Others

S.A. Bobde, J.—Rule, returnable forthwith. Heard finally by consent of learned counsel for the parties.

By this petition, the petitioner has challenged the order terminating his agency with respondent no.1 - Life Insurance Corporation of India. The petitioner was appointed as an Agent in the year 1988. It appears that the respondent Life Insurance Corporation noticed some irregularities and defects in his functioning; for instance the money of the customers was found in his account. The Insurance Corporation issued a show cause notice to the petitioner under Regulation 16(1)(a) of the Life Insurance Corporation of India (Agents) Regulations, 1972 on 26/11/2007. After a reply was submitted by the petitioner, the competent authority i.e. respondent no.4, without hearing the petitioner issued an order dated 15/3/2010 terminating the petitioner''s agency with forfeiture of renewal commission payable to the petitioner under Regulation 16(1)(a),(b) and 19(1) of the LIC of India (Agents) Regulations, 1972.

The petitioner preferred an appeal against the said order before the Zonal Manager i.e. respondent no.3 u/s 20 of Life Insurance Corporation of India (Agents) Regulations, 1972. The Zonal Manager passed an order dated 26/10/2010 without hearing the petitioner and dismissed his appeal. Thereafter, the petitioner filed a memorial before the Chairman on 29/12/2010. This memorial was also rejected. Therefore, the petitioner has approached this court against the termination of his agency.

Mr.Haq, the learned counsel for the petitioner, submitted that the order of termination is completely unsustainable since it has been passed without compliance of rules of natural justice. The learned counsel further submitted that the order rejecting his appeal against such an illegal order is also illegal as same is having been passed in violation of the rules of natural justice. Admittedly the petitioner was not heard before the orders were passed.

Clause 16 of the Agents Regulations, 1972 framed by the L.I.C. in exercise of the power conferred on it u/s 49 of the Life Insurance Corporation Act, 1956, under which the order terminating the agency was passed, reads as follows -

Termination of agency for certain lapses:

(1) 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 interest of the Corporation or to the interest 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.

(Emphasis supplied)

We are of the view that term reasonable opportunity to show cause against such termination of agency clearly contemplates the grant of hearing to the agent. It is not disputed that the termination of agency involves civil consequences, which in a given case could also be stigmatic. It is settled law that an action which involves such consequences should be taken after a person has been given an opportunity to show cause and heard. Though the clause does not mention hearing, the reasonable opportunity to show cause must include a hearing having regard to the nature of the action.

Clause 23 of the Regulations reads as follows -

Consideration of appeals:

(1) Where an appeal is received under these regulations, the appellate authority shall consider all the circumstances of the case and pass such orders as it deems fit:

Provided that the appellant shall be given a reasonable opportunity of representing his case.

(2) All appeals shall be disposed of as expeditiously as possible but not later than six months from the date of the receipt of the appeal by the appellate authority.

This provision also contemplates affording of a reasonable opportunity which, in our view, requires that the agent should be heard in support of his appeal.

Mr.Haq, learned counsel for the petitioner, relied on a recent judgment of the Supreme Court in the case of Prakash Ratan Sinha Vs. State of Bihar and Others, where the Supreme Court observed as follows

The decision complained against in the instant case is an administrative decision. The decision is likely to have far reaching civil consequences for the appellant, as it has adversely affected his right to continue in the promotional post. Therefore, in our view, the decision concerning the promotion makes itself available for scrutiny by the courts on the touchstone of well established principles of natural justice. The decision that was questioned before the Court was an administrative decision having civil consequences and is alleged to have been taken without affording an opportunity of hearing to the appellant.

Further, the court observed that the nature of the statutory duty imposed on the decision maker itself implies an obligation to hear before deciding the case unless the hearing is expressly prohibited. The court observed as follows-

Corollary principles emanating from these cases are as to what particular rule of natural justice should apply to a given case must depend to an extent on the facts and circumstances of that case and that it is only where there is nothing in the statute to actually prohibit the giving of an opportunity of being heard and on the other hand, the nature of the statutory duty imposed on the decision maker itself implies an obligation to hear before deciding. These cases have also observed, whenever an action of public body results in civil consequences for the person against whom the action is directed, the duty to act fairly can be presumed and in such a case, the administrative authority must give a proper opportunity of hearing to the affected person.

This Court in Canara Bank case has stated that: (SCC P.570, para 15)

The adherence to principles of natural justice as recognised by all civilized States is of supreme importance when a quasi judicial body embarks on determining disputes between the parties, or any administrative action involving civil consequences is in issue.

Even an administrative order, which involves civil consequence must be consistent with the rules of natural justice.

In the result, we find that it was necessary for the authorities to hear the petitioner before terminating his agency and also before rejecting his appeal against his termination.

Mr.Haq, the learned counsel for the petitioner, further submitted that the Chairman was bound to hear the petitioner before he rejected a memorial. According to the learned counsel, there is no difference between the consideration of a memorial by the Chairman of the L.I.C. and the Competent Authority or by the Appellate authority as to whether the petitioner''s agency should be terminated. Clause 24 of the said Regulations, which provides for the consideration of the memorial reads as follows

Memorial :

An agent whose appeal under these regulations, not being an appeal against an order under sub regulation (1) of regulation 17, has been rejected by the appellate authority may address a memorial to the Chairman of the Corporation in respect of that matter within a period of three months from the date of receipt by the agent of a copy of the order of the appellate authority and the Chairman shall, after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify.

We find that there is a marked difference between clauses 16 and 23 of the Regulations which clearly contemplate the hearing of the agent at the first instance and also in an appeal and clause 24 which deals with a memorial. A proviso that he shall be given an opportunity to show cause against such termination as in clause 16, or that he shall be given a reasonable opportunity for representing his case as in clause 23 is significantly absent in clause 24 of the Act which provides for the decision of a memorial. Though it is true that there is nothing in the Regulations which provides the giving of an opportunity of being heard, the nature of the statutory duty imposed on the decision maker itself implies an obligation to hear before deciding the case. It cannot be said that the said obligation is imposed at every stage. All that depends on the nature of the obligation. We find that the provision of presenting a memorial and deciding the same is significantly different in its nature and impact, and empowers the Chairman to decide the same by passing such an order as the circumstances of the case justify after making such enquiry as he deems necessary. It seems to be in the nature of last resort. We do not consider it necessary to impose an obligation of hearing as the regulations themselves do not provide for such a hearing and, in fact, contemplate that there need not be such a hearing. The duty to hear a person as to the action proposed to be taken is an essential requirement of rules of natural justice because it is settled law that no man can be condemned unheard. Therefore, there are provisions for hearing the person, against whom an order is proposed to be passed by the competent authority and by the appellate authority. We find that there is sufficient compliance of rules of natural justice if the proceedings taken as a whole and it is not necessary that the Chairman should hear the agent before taking a decision on the memorial.

The rules of natural justice are a safe guard against action by which a person may be punished are adversely affected and they must be complied with. If the entire procedure for imposing punishment or passing adverse orders is completed in successive stages; such as the first order by an authority in the first stage and an appeal in the next stage, it is necessary to consider the entire process for seeing whether there is compliance with the rules of natural justice. In the present case, the process is completed in the passing of the order in the first stage and the appellate stage. The third stage complies the consideration of the memorial by the Chairman which comes after the action is taken and the appeal is dismissed. Since there is sufficient compliance with the rules of natural justice during the first two stages, we are of the view that there would be no failure of justice if no hearing is provided by the Chairman before deciding.

Mr.Kothari, learned counsel for the respondents, submitted that the petitioner is an agent, appointed by the L.I.C., and not an employee of the L.I.C. We find that there is a difference between the relationships of the Corporation with its Agent and employee. Agency is purely a matter of contract and its termination involves the termination of contract, as distinct from a contractor and employer. In the circumstances, we find that there is sufficient compliance with the rules of natural justice and the agent''s services are to be terminated after giving a reasonable opportunity by competent authority under clause 16 and appellate authority under clause 23 of the Life Insurance Corporation of India (Agents) Regulations, 1972. In the result, impugned orders are set aside and the matter is directed to be decided afresh by the competent authority i.e. respondent no.4, after hearing the petitioner. Rule is made absolute in above terms.

Mr.Haq, the learned counsel for the petitioner, prayed for grant of monetary compensation. We are not inclined to go into the question in this writ petition. The petitioner is at liberty to take appropriate proceedings for compensation, as may be advised.