Holding

The Supreme Court held that where an insurer’s repudiation does not satisfy the stringent conditions of Section 45 of the Insurance Act, the claimant is entitled to the policy proceeds and a writ under Article 226 is an appropriate remedy.

Summary

The husband of Smt. Asha Goel obtained a life insurance policy from the Life Insurance Corporation of India (LIC) in 1979 and died in 1980. The widow claimed the sum assured, but LIC denied payment alleging that the deceased had misrepresented his health in the proposal. The widow filed a writ petition under Article 226 of the Constitution seeking a mandamus directing payment; the Single Judge upheld the claim, while the Division Bench remanded the matter to allow LIC to lead evidence. On appeal, the Supreme Court examined whether a writ is the proper forum and the applicability of Section 45 of the Insurance Act, which imposes a strict burden on insurers to prove fraudulent mis‑statement of material facts. The Court held that the insurer had not satisfied the conditions of Section 45, and that where the insurer’s repudiation is not supported by such proof, the claimant is entitled to the policy proceeds and a writ is an appropriate remedy. Consequently, the Court set aside the Division Bench order and directed that the sum assured be paid as ordered by the Single Judge.

Issues considered

Whether a writ petition under Article 226 is maintainable for enforcement of a life insurance claim when the insurer repudiates the claim.
Whether the High Court should entertain a writ petition where factual disputes requiring evidence exist.
Interpretation of Section 45 of the Insurance Act, 1928 regarding the insurer's burden of proof for repudiation.
Whether the insurer's liability under a life insurance policy is statutory or contractual for purposes of writ jurisdiction.
Whether the appropriate remedy is a writ of mandamus or a civil suit.

Legislation cited

Life Insurance Corporation Act, 1956s. 30

Subjects

Article 226writ jurisdictionlife insurance claimrepudiationSection 45insurance lawcontractual rightsstatutory liabilitycivil suitburden of proof

Judgment

A LIFE INSURANCE CORPORATION OF INDIA AND ORS.
v.
SMT. ASHA GOEL AND ANR.

DECEMBER 13, 2000

B [B.N. KIRPAL AND D.P. MOHAPATRA, JJ.]

Constitution of India, 1950 : Article 226--- -Writ Jurisdiction of High ,..
Courts-Life insurance coverage for husband-Died of cardiac arrest a year
C thereafter-Wife claiming the insured amount-LIC repudiating her claim on
the ground that deceased withheld correct information regarding his health
at the time of effecting insurance-Wife filing writ petition in the High Court
for a direction of payment of the sum assured--Objection raised by the
Corporation on maintainability of the writ petition-Single Judge allowed
the writ petition holding that liability of the Corporation was statutory- -On
D appeal, Division Bench of the High Court remanded case back to the Single
Judge for a fresh trial-Observed that relief under the writ Jurisdiction to
a policy holder could be granted very rarely-On appeal, Held : Extra-
ordinary jµrisdiction of the High Courts under Article 226 is very wide and
expansive-Restriction imposed on this jurisdielion is self imposed-Ordinarily
E a writ petition under Article 226 is not entertained for mere enforcement of
a claim under a contract of insurance-Such relief cannot be denied where
insured/nominee is refused relief merely on the ground that the relief relates
to the contractual rights and long drawn litigation in the civil court will
cause serious prejudice to the beneficiaries/claimants-Civil suit is the
appropriate remedy where repudiation of claim raises serious doubts and the
F Court finds the dispute to be bonafide requiring evidence for its determination.

Insurance Act, 1928-Section 45--Repudiation of claim--Contracts of
insurance including that oflife assurance are uberrima fides- - Non-disclosure
of material facts is a good ground for recession-Mere inaccuracy of falsity
in respect of some recitals or items in the proposal is not sufficient-The
G burden ofproof to establish that the policy holder has deliberately suppressed
material facts is on the insurer.

Life Insurance Corporation of India Act, 1956-Section 30-Life
Insurance Corporation of India having the exclusive privilege of carrying life
insurance business in India-The said corporation, at present, is one of the
H 646
L.l.C. OF INDIA v. SMT. ASHA GOEL 647

largest public sector financial undertakings with crores of policy holders- · A
Corporations approach in the matter of repudiation of a policy admittedly
issued by it should be one of extreme care and not in a mechanical and
routine manner.

The husband of respondent No. l, in the year 1979, got issued a life
insurance policy in his favour for sum of Rs. l,00,000. The said insured died B
of acute Myocardial Infraction and cardiac arrest after a year i.e. in 1980,
leaving behind his wife, a son and a daughter. Being a nominee of her late
husband, the widow submitted her claim to the appellant for payment.
Appellant-Corporation refused her claim on the ground that the deceased
withheld correct information regarding his health at the time of effecting the C
insurance. The deceased was said to have declared himself to be usually in a
good state of health. He had also stated that he had not consulted a medical
prcctitioner within the last five years for any ailment requiring treatment
for more thot week and also that he had not remained absent from his place
of work on the ground of health during the last five years. According to the
appeD!nnt th~ above statements of the deceased were,£a1se. On the said rejection D
of her claim, the widow filed a writ petition before the High Court seeking
issuance of a writ of mandamus to the appellant for payment of the sum assured
alongwith other cccruing benefits. The appellant opposed the writ petition on
the ground of non-maintainability and in the alternative prayed for an
opportunity to leiid evidence in support of its plea of repudiation of the claim.
Single Judge held that the liability of the appellant Corporation was statutory
E
and so the writ petition was maintainable. The Single Judge, holding that the
instent ccse did not involve disputed questions of fact, refused leave to the
appe!lant Corporation to lead evidence. On appeal, Division Bench of the High
Court allowed the appeal by remitting the case back to the Single Judge for
a fresh trial and an opportunity to the appellant Corporation to lead evidence F
and also produce witnesses to prove them. The Division Bench also observed
that relief against the Corporation to a policy holder under the writ
jurisdiction could be granted only rarely. Hence, these appeals.

Disposing of the appeals, the Court
G
HELD. l. Article 226 of the Constitution confers extra-ordinary
jurisdiction on the High Court to issue high prerogative writs for enforcement
of the fundamental rights or for any other purpose. It is wide and expansive.
The Constitution does not place any fetter on exercise of the extra-ordinary
jurisdiction. It is left to the discretion of the High Court. Therefore, it cannot
be laid down as a general proposition of law that in no case the High Court H
648 SUPREME COURT REPORTS (2000) SUPP. 5 S.C.R.

A can entertain a writ petition under Article 226 of the Constitution to enforce
a claim under a life insurance policy. It is neither possible nor proper to
enumerate exhaustively the circumstances in which such a claim can or
cannot be enforced by filing a writ petition. The determination of the question
depends on consideration of several factors like whether a writ petitioner is
B merely attempting to enforce his/her contractual rights or the case raises
important question oflaw and constitutional issues; the nature of the dispute
raised; the nature of inquiry necessary for determination of the dispute etc. r·
The matter is to be considered in the facts and circumstances of each case. \
While the jurisdiction of the High Court to entertain a writ petition under
Article 226 of the Constitution cannot be denied altogether, Courts must bear
C in mind the self-imposed restriction consistently followed by High Courts all
these years after the constitutional power came into existence in not
entertaining writ petitions filed for enforcement of purely contractual rights
and obligations which involve disputed questions of facts. The Courts have
consistently taken the view that in a case where for determination of the
dispute raised it is necessary to inquire into facts for determination of which
D it may become necessary to record oral evidence, a proceeding under Article
226 of the Constitution is not the appropriate forum. The position is also well
settled that if the contract entered between the parties provide an alternate
forum for resolution of disputes arising from the contract, then the parties
should approach the forum agreed by them and the High Court in writ
E jurisdiction should not permit them to bypass the agreed forum of dispute
resolution. (654-0, H; 655-A)

Mohammed Hanif v. The State of Assam, (1969) 2 SCC 782;
Banchhanidlu Rath v. The State of Orissa & Ors., [1972) 4 SCC 781; Smt.
Rukmanibai Gupta v. Collector, Jabalpur & Ors., [1980) 4 SCC 556; Food
F Corporation ofIndia & Ors. v. Jagannath Dutta & Ors., [1993) Suppl. 3 SCC
635 and State ofH.P v. Rana Mahendra Pal & Ors., (1999) 4 SCC 43, referred
to.

1.2. Ordinarily High Court should not entertain a writ petition filed
G under Article 226 of the Constitution for mere enforcement of a claim under
a contract of insurance. Where an insurer has repudiated the claim, in case
such a writ petition is filed the High Court has to consider the facts and
circumstances of the case, the nature of the dispute raised and the nature of
the inquiry necessary to be made for the determination of the q11estions raised
and other relevant factors before taking a decision whether it should entertain
H a writ or reject it as not maintainable. It has also to be kept in mind that in
L.l.C. OF INDIA v. SMT. ASHA GOEL 649
case an insured or a nominee of the deceased insured is refused relief merely A
on the ground that the claim relates to contractual rights and obligations nnd
he/she is driven to a long drawn litigation in the civil court it will cnuse
serious prejudice to the claimant/other beneficiaries of the policy. The pros
and cons of the matter in the context of the fact situation of the case should
be carefully weighed and appropriate decision should be taken in a case where
claim by an insured or a nominee is repudiated raising a serious dispute and B

) the Court finds the dispute to be a bonajide one which required oral and
documentary evidence for its determination, then the appropriate remedy is a
civil suit and not a writ petition under Article 226 of the Constitution.
Similarly where a plea of fraud is pleaded by the insurer and on examination
is found prima facie to have merit and oral and documentary evidence may C
become necessary for determination of the issue raised then writ petition is
not an appropriate remedy. (655-E, H; 656-A)

2. On a fair reading of Section 45 of the Insurance Act it is clear that
it is restrictive in nature. Mere inaccuracy or falsity in respect of some
recitals or items in the proposal is not sufficient. The burden of proof is on D
the insurer to establish the circumstances enumerated in Section 45, and
unless the insurer is able to do so there is no question of the policy being
avoided on the ground of misstatement of facts. The contracts of insurance
i11cluding the contract of life assurance are contracts uberrima fides and every
fact of material must be disclosed; otherwise, there is good ground for
recession of the contract. The duty disclosed to material facts continues right E
upto the conclusion of the contract and also implies any material alteration
in the character of the risk which may take place between the proposal and
its acceptance, if there are any misstatements or suppression of material facts,
the policy can be called in question. For determination of the question whether
there has been suppression of any material facts it may be necessary to also F
examine whether the suppression relates to a fact which is in the exclusive
knowledge of the person intending to take the policy and it could not be
ascertained by reasonable enquiry by a prudent person. (656-D-H)

Mithoolal Nayak v. life Insurance Corporation of India, AIR (1962)
SC 814 and life Insurance Corporation v. Smt. G.M Channabasamma, (19911 G
1sec357, referred to .
...,
• 3. The Life Insurance Corporation was created by the Life Insurance
Corporation Act, 1956 with a view to provide for nationalisation of life
insurance business in India by transferring all such business to a Corporation
established for the purpose and to provide for the regulation and control of H
650 SUPREME COURT REPORTS [2000] SUPP. 5 S.C.R.

A the business of the Corporation and for matters connected therewith or
incidental thereto. In course of time the Corporation has grown in size and at
present it is one of the largest public sector financial undertakings. The public
in general and crores of policy holders in particular look forward to prompt
and efficient service. Therefore, the approach of the Corporation in the matter
B of repudiation of a policy admittedly issued by it should be one of extreme
care and caution. It should not be dealt with in a mechanical and routine
manner. [68-F, 659-8, C]

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 4186-87 of
(
1988.
c From the Judgment and Order dated 2/17.7.86 of the Bombay High Court
in A. No. 843of1985.

H.N. Salve, Dr. Y.S. Chitale, Sr. Advs. K.K. Sharma, Kailash Vasdev and •
A.K. Gupta for the appearing parties.
D
The Judgment of the Court was delivered by

D.P. MOHAPATRA, J. These appeals, filed by the Life Insurance
Corporation of India (hereinafter referred to as 'the Corporation'), are directed
against the judgment of a Division Bench of the Bombay High Court in writ
E appeal no. 843/85 allowing the appeal on the ground that the appellant should
have had an opportunity of leading evidence relevant to their contention that
the insurance policy was obtained by misrepresentation, and therefore,
avoidable at the instance of the Corporation, and remitt:ng the writ petition
to the writ court for fresh decision, after allowing the Corporation to lead
F evidence. The Division Bench did not accept the objection raised by the
Corporation against maintainability of the writ petition on the ground that the
case involves enforcement of contractual rights for adjudication of which a
proceeding under Article 226 of the Constitution is not the proper forum. The
contention on behalf of the Corporation was that the writ petition should be
dismissed as not maintainable leaving it to the writ petitioner, respondent no. I
G herein, to file a civil suit for enforcement of her claim.
The factual backdrop of the case relevant for the purpose of the present
proceeding may be stated thus :

Late Naval Kishore Goel, husband of Smt. Asha Goel - respondent No. I,
H was an employee of Mis Digvijay Woollen Mills Limited at Jamnagar as !1
/
L.l.C. OF INDIA v. SMT. ASHA GOEL [~OHAPATRA. JI 651
Labour Officer. He submitted a proposal for a life insurance policy at Meerut A
in the State of U.P. on 29th May, 1979 which was accepted and the policy
bearing No. 48264637 for a sum of Rs. 1,00,000 (Rs. One lakh) was issued by
the Corporation in his favour. The insured passed away on 12th December,
1980 at the age of 46 leaving behind his wife, a daughter and a son. The cause
of death was certified as acute Myocardial Infraction and Cardiac arrest. The B
respondent No. 1 being nominee of the deceased under the policy informed

)
,
the Divisional Manager, Meerut City, about the death of her husband,
submitted the claim along with other papers as instructed by the Divisional
Manager and requested for consideration of her claim and for making payment.
The Divisional Manager by his letter dated 8th June, 1981 repudiated any
liability under the policy and refused to make any payment on the ground that C
the deceased had withheld correct information regarding his health at the time
of effecting the insurance with the Corporation. The Divisional Manager drew
the attention of the claimant that at the time of submitting the proposal for
insurance on May 29, 1979, the deceased had stated his usual state of health
as good; that he had not consulted a medical practitioner within the last five
years for any ailment requiring treatment for more than a week; and had D
answered the question if remained absent from place of your work on ground
of health during the last five years in the negative. According to the Divisional
Manager, the answers given by the deceased as aforementioned were false.
Since the respondent no. I failed to get any relief from the authorities of the
Corporation despite best efforts she filed the writ petition seeking a writ of E
mandamus directing the Corporation and its officers to pay the sum assured
and other accruing benefits with interest.

The writ petition was opposed by the Corporation on the ground of
maintainability as noted earlier. Alternatively the contention was raised that
in case the High Court is inclined to entertain the writ petition then opportunity F
should be given to the Corporation to lead evidence in support of its plea
of repudiation of the claim.

The learned single Judge after examining the question of maintainability
of the writ petition from different angles, held that in view of the provisions G
of the Life Insurance Corporation Act, 1956 and the relevant provisions of the
Insurance Act, 1928 which are applicable to the Corporation liability of the
Corporation under a policy of life insurance is a statutory liability and hence
a writ petition can lie under Article 226 of the Constitution. The learned Judge
also considering the question on the assumption that the liability of the
Corporation under the policy is not a statutory liability but a contractual H
i
I
652 SUPREME COURT REPORTS [2000) SUPP. 5 S.C.R.

A liability, held that even then a writ petition under Article 226 of the Constitution
can lie against the Corporation for enforcement of such liability. On these
findings the learned single Judge rejected the objection of the Corporation
against maintainability of the writ petition. Then the learned judge further
considered the objection raised on behalf of the Corporation that the case
B involves disputed questions of fact for determination of which it will be
necessary to record evidence and writ jurisdiction of the High Court under
Article 226 of the Constitution should not be exercised in such a case. He was
not inclined to hold that the matter involves disputed questions of fact just
(
because the Corporation produced a document which is inconsistent with
those produced by the writ petitioner. The learned Judge did not feel satisfied
C that this is a fit case in which the Corporation should be granted liberty to
lead evidence before the High Court.

Examining the matter on merits the learned single Judge referred to the
provisions of section 45 of the Insurance Act, 1938 which imposes certain
restrictions on the scope of repudiation of a claim by the insurer and held that
D the Corporation has not brought on record satisfactory evidence to establish
any of the conditions envisaged in the second part of section 45. The learned
Judge refused to draw a conclusion that the deceased was having heart
ailment in 1976 for which he had taken 13 days sick leave and held that much
importance cannot be attached to the leave records in the matter. On such
E findings, the learned Single Judge rejected the case of the Corporation on
merit. The operative portion of the judgment reads as follows:

"In the result, the Life Insurance Corporation of India and the
Respondent No. 3 are hereby directed to pay to the petitioner an
amount of Rs. 1,00,000 (One Lakh) arising out of Life Insurance Policy
of her husband deceased Naval Kishore Goel, bearing No. 48264637,
F together with all the benefits accruing therefrom with interest at the
rate of 15% from the date of the death of the petitioner's husband
within a month. The LIC is also directed to pay cost of Rs. 2,000 to
the petitioner. Rule is accordingly made absolute."

G The Corporation carried the matter in a writ appeal wherein the Division
Bench of the High Court considered the contention raised on behalf of the
Corporation that in the facts and circumstances of the case the learned single
Judge should not have granted relief to the writ petitioner in exercise of
jurisdiction under Article 226 of the Constitution. The Division Bench was of
the opinion that it is not possible to accept the submission that relief against
H the Corporation can never be granted to a policy holder or a person entitled
L.l.C. OF INDIA v. SMT. ASHA GOEL [MOHAPATRA, J.) 653
to benefit of the policy under the writ jurisdiction of the High Court though A
the Bench accepted the submission that it should only rarely be granted. The
Division Bench found justification in the grievance raised on behalf of the
Corporation that if the writ court felt that it had the jurisdiction to grant relief
to the petitioner then it committed error in rejecting the application made by
the Corporation for leading evidence and denial of such opportunity would B
vitiate the judgment. Then the Division Bench scrutinised the materials
produced by the parties before the Court, perused the original documents,
') particularly the medical certificates produced by both the parties the Court
/ was of the opinion that the original records of the hospital will have to be
seen to come to a definite conclusion if there was any previous diagnosis of
Myocardial infarction of the insured. The Bench refused to look to the C
medical report of December, 1980 since it came into existence after the policy
was issued. The Division Bench recorded its conclusion on the point in these
words:

"In these circumstances we are of opinion that even if we are inclined
to reject Mr. Paranjape's submission that such relief could not be D
granted in exercise of the writ jurisdiction there was some substance
in the complaint that the appellants should have been given the
opportunity to lead evidence to discharge the onus of justifying the
rejection of the claim which is on them."

Dealing with the contention that the case pleaded by the Corporation E
comes within the scope of section 45 of the Insurance Act, the Division
Bench took the view that the matter will have to go back to writ court to
enable the Corporation to prove that there was misrepresentation which will
permit the appellants to reject the claim arising from the death qf Naval
Kishore Goel. While leaving the matter to the discretion of the writ judge the
Division Bench observed that this is a fit matter in which the original records F
must be seen by the Court and also witnesses proving them and their contents.
The Bench allowed the appeal on the following terms :

"Accordingly in this view of the matter we will be compelled to allow
the appeal on the ground that the appellant should have had an G
opportunity of leading evidence relevant to their contention that the
policy was obtained by misrepresentation and therefore avoidable by
LIC. We therefore set aside the impugned judgment and order and
direct that the writ petition will come up for a fresh trial before the Writ
Court at which stage the Writ Court will decide the matters in issue
after allowing the LIC to lead evidence in accordance with the H
654 SUPREME COURT REPORTS [2000] SUPP. 5 S.C.R.

A observations made by us."
From the ultimate paragraph of the Judgment of the Division Bench it
appears that the writ petitioner had been permitted to withdraw the amount
awarded on her furnishing a bank guarantee and whether she will keep the
bank guarantee operative after disposal of the appeal was left for decision of
B the writ judge.

In course of his arguments Shri Harish Salve, learned senior counsel
appearing for the Corporation fairly stated that the Corporation will pay the
sum awarded by the learned single Judge in favour of the respondent no. I.
He submitted that the position of law regarding the jurisdiction of the High
C Court to entertain writ petition filed under Article 226 of the Constitution for
realisation of a sum assured under a life insurance policy and the scope of
inquiry by the High Court in case the insurer repudiates the claim on any
ground may be considered by this Court.

Article 226 of the Constitution confers extra-ordinary jurisdiction on the
D High Court to issue high prerogative writs for enforcement of the fundamental
rights or for any other purpose. It is wide and expansive. The Constitution
does not place any fetter on exercise of the extra-ordinary jurisdiction. It is
left to the discretion of the High Court. Therefore it cannot be laid down as
a general proposition of law that in no case the High Court can entertain a
E writ petition under Article 226 of the Constitution to enforce; a claim under
a life insurance policy. It is neither possible nor proper to enumerate
exhaustively the circumstances in which such a claim can or cannot be
enforced by filing a writ petition. The determination of the question depends
on consideration of several factors, like, whether a writ petitioner is merely
attempting to enforce his/her contractual rights or the case raises important
F questions of law and constitutional issues; the nature of the dispute raised;
the nature of inquiry necessary for determination of the dispute etc. The
matter is to be considered in the facts and circumstances of each case. While
the jurisdiction of the High Court to entertain a writ petition under Article 226
of the Constitution cannot be denied altogether, Courts must bear in mind the
G self-imposed restriction consistently followed by High Courts all these years
after the constitutional power came into existence in not entertaining writ
petitions filed for enforcement of purely contractual rights and obligations
which involve disputed questions of facts. The Courts have consistently
taken the view that in a case where for determination of the dispute raised
it is necessary to inquire into facts for determination of which it may become
H necessary to record oral evidence a proceeding under Article 226 of the
L.l.C. OF !NOIA v. SMT. ASHA GOEL [MOHAPATRA, J.] 655
Constitution is not the appropriate forum. The position is also well settled A
that if the contract entered between the parties provide an alternate forum for
resolution of disputes arising from the contract, then the parties should
approach the forum agreed by them and the High Court in writ jurisdiction
should not permit them to by-pass the agreed forum of dispute resolution. At
the cost of repetition it may be stated that in the above discussions we have B
only indicated some of the circumstances in which the High Courts have
>,
declined to entertain petitions filed under Article 226 of the Constitution for
) enforcement of contractual rights and obligation; the discussions are not
/
intended to be exhaustive. This Court from time to time disapproved of a High
Court entertaining a petition under Article 226 of the Constitution in matters
of enforcement of contractual rights and obligation particularly where the C
claim by one party is contested by the other and adjudication of the dispute
requires inquiry into facts. We may notice a few such cases; Mohammed
Hanifv. The State of Assam, [1969] 2 SCC 782; Banchhanidhi Rath v. The
State ofOrissa and ors. [1972] 4 SCC 781; Smt. Rukmanibai Gupta v. Collector,
Jabalpur and others, [1980] 4 SCC 556; Food Corporation of India and
others v. Jagannath Dutta and others, [1993] (Suppl.) 3 sec 635; and State D
of H.P. v. Raja Mahendra Pal and others, [1999] 4 SCC 43.

The position that emerges from the discussions in the decided cases is
that ordinarily the High Court should not entertain a writ petition tiled under
Article 226 of the Constitution for mere enforcement of a claim under a E
contract of insurance. Where an insurer has repudiated the claim, in case such
a writ petition is filed the High Court has to consider the facts and
circumstances of the case, the nature of the dispute raised and the nature of
the inquiry necessary to be made for determination of the questions raised
and other relevant factors before taking a decision whether it should entertain
the writ petition or reject it as not maintainable. It has also to be kept in mind F
that in case an insured or nominee of the deceased insured is refused relief
merely on the ground that the claim relates to contractual rights and obligations
and he/she is driven to a long drawn litigation in the civil court it will cause
serious prejudice to the claimant/other beneficiaries of the policy. The pros
and cons of the matter in the context of the fact situation of the case should G
be carefully weighed and appropriate decision should be taken. In a case
where claim by an insured or a nominee is repudiated raising a serious dispute
and the Court finds the dispute to be as bona fide one which requires oral
and documentary evidence for its determination then the appropriate remedy
is a civil suit and not a writ petition under Article 226 of the Constitution.
Similarly, where a plea of fraud is pleaded by the insurer and on examination H
656 SUPREME COURT REPORTS [2000) SUPP. 5 S.C.R.

A is found prima facie to have merit and oral and documentary evidence may
become necessary for determination of the issue raised then a writ petition
is not an appropriate remedy.

Coming to the question of scope of repudiation of c'.aim of the insured
or nominee by the Corporation, the provisions of section 45 of the Insurance
B Act is of relevance in the matter. The section provides, inter alia, that no
policy of life insurance effected after the coming into force of this Act shall,
after the expiry of two years from the date on which it was effected, be called
,-I
. ·-
in question by an insurer on the ground that a statement made in the proposal
for insurance or in any report of a medical officer, or referee, or friend of the
C insured, or in any other document leading to the issue of the policy, was
inaccurate or false, unless the insurer shows that such statement was on a
material matter or suppressed facts which it was material to disclose and that
it was fraudulently made by the policy-holder and that the policy-holder knew
at the time of making it that the statement was false or that is suppressed facts
which it was material to disclose. The proviso which deals with proof of age
D of the insured is not relevant for the purpose of the present proceeding. On
a fair reading of the section it is clear that it is restrictive in nature. It lays
down three conditions for applicability of the second part of the section
namely: -(a) the statement must be on a material matter or must suppress facts
which it was material to disclose ; (b) the supression must be fraudulently
E made by the policy holder; and (c) the policy holder must have known at the
time of making the statement that it was false or that it suppressed facts which
it was material to disclose. Mere inaccuracy of falsity in respect of some
recitals or items in the proposal is not sufficient. The burden of proof is on
the insurer to establish these circumstances and unless the insurer is able to
do so there is no question of the policy being avoided on ground of
F misstatement of facts. The contracts of insurance including the contract of
life assurance are contracts uberrima fides and every fact of material must be
disclosed, otherwise, there is good ground for rescission of the contract. The
duty to disclose material facts continues right up to the conclusion of the
contract and also implies any material alteration in the character of the risk
G which may take place between the proposal and its acceptance. If there are
any misstatements or suppression of material facts, the policy can be called
in question. For determination of the question whether there has been
suppression of any material facts it may be necessary to also examine whether
the suppression relates to a fact which is in the exclusive knowledge of the
person intending to take the policy and it could not be ascertained by
H reasonable enquiry by a prudent person.
L.l.C. OF INDIA v. SMT. ASHA GOEL [MOHAPATRA, J.] 657
In this connection we may notice the decision of this Court in Mithoolal A
Nayak v. Life Insurance Corporation of India, AIR (1962) SC 814, in which
the position of law was stated thus: "The three conditions for the application
of the second part of s. 45 are:

(a) the statement must be on a material matter or must suppress facts
which it was material to disclose; B
(b) the supression must be fraudulently made by the policy holder;
and

(c) the policy holder must have known at the time of making the
statement that it was false or that it suppressed facts which it C
was material to disclose.

Where the policy holder, who had been treated, a few months
before he submitted a proposal for the insurance of his life with
the insurance company by a physician of repute for certain
serious ailments as anaemia, shortness of breath and asthma, not
only failed to disclose in his answers to the questions put to him D
\ by the insurance company that he suffered from those ailments
I but he made a false statement to the effect that he had not been
\ treated by any doctor for any such serious ailment.
Held (i) that, judged by the standard laid down ins. 17, Contract
Act, the policy holder was clearly guilty of a fraudulent E
suppression of material facts when he made his statements, which
he must have known were deliberately false and hence, the policy
issued to him relying on those statements was vitiated.

(ii) The principle underlying the Explanation to s.19 of the Contract
Act is that a false representation, whether fraudulent or innocent, F
is irrelevant if it has not induced the party to whom it is made
to act upon it by entering into a contract. That principle did not
apply in the instant case. The terms of the policy made it clear
that the averments made as to the state of health of the insured
in the proposal form and the personal statement were the basis G
of the contract between the parties and the circumstance between
the parties and the circumstance that the policy holder had taken
pains to falsify or conceal that he had been treated for a serious
ailment by a physician only a few months before the policy was
taken showed that the falsification or concealment had an impo1tant
bearing in obtaining the other party's consent. A man who has H
658 SUPREME COURT REPORTS (2000) SUPP. 5 S.C.R.

A so acted cannot afterwards turn round and say "It could have
made no difference if you had known the truth." In the
circumstances no advantage could be taken of the Explanation to
s.19 of the Contract Act."

This decision was relied upon in life Insurance Corporation of
B India v. Smt. G.M Channabasamma, [1991) I SCC 357, in which the
following observations were made:

" .. .It is well settled that a contract of insurance is contract uberrima
tides and there must be complete good faith on the part of the
assured. The assured is thus under a solemn obligation to make full
c disclosure of material facts which may be relevant for the insurer to
take into account while deciding whether the proposal should be
accepted or not. While making a disclosure of the relevant facts, the
duty of the insured to state them correctly cannot be diluted. Section
45 of the Act has made special provisions for a life insurance policy
if it is called in question by the insurer after the expiry of two years
D from the date on which it was effected. Having regard to the facts of
the present case, learned counsel for the parties have rightly stated
that this distinction is not material in the present appeal. If the
allegations of fact made on behalf of the appellant Company are found
to be correct, all the three conditions mentioned in the section and
i
E discussed in Mithoolal Nayak v. life Insurance Corporation of India
\\
must be held to have been satisfied. We must, therefore, proceed to
examine the evidence led by the parties in the case."

The Life Insurance Corporation was created by the Life Insurance
Corporation Act, 1956 with a view to provide for nationalisation of life insurance
F business in India by transferring all such business to a Corporation established
for the purpose and to provide for the regulation and control of the business
of the Corporation and for matters connected therewith or incidental thereto.
The said Act contains various provisions regarding establishment of the Life
Insurance Corporation of India; the functions of the Corporation, the transfer
G of existing life insurance business to the Corporation, the management of the
establishment of the Corporation, the finance, accounts and audit of the
Corporation and certain other related mutters. Section 30 of the Act provides
that except to the extent otherwise expressly provided in this Act, on and from
the appointed day the Corporation shall have the exclusive privilege of
carrying on life insurance business in India; and on and from the said day
H any certificate of registration under the Insurance Act held by any insurer
L.l.C. OF INDIA v. SMT. ASHA GOEL [MOHAPATRA, J.) 659
immediately before the said day shall cease to have effect in so far as it A
authorises him to carry on life insurance business in India.

In course of time the Corporation has grown in size and at present it
is one of the largest public sector financial undertakings. The public in
general and crores of policy-holders in particular look forward to prompt and
efficient service from the Corporation. Therefore the authorities in-charge of B
management of the affairs of. the Corporation should bear in mind that its
credibility and reputation depend on its prompt and efficient service. Therefore,
the approach of the Corporation in the matter of repudiation of a policy
admittedly issued by it should be one of extreme care and caution. It should
not be dealt with in a mechanical and routine manner.
c
With the above discussions and observations regarding the questions
raised before us, we dispose of the appeals with the direction that the sum,
as directed by the learned Single Judge in favour of the claimant, will be paid
by the Corporation expeditiously, if it has not already been paid. In view of
the above order/direction, it is not necessary to proceed with the case pending D
before the High Court any further. No costs.

RC.K. Appeals disposed of.
\