Summary: The National Consumer Disputes Redressal Commission (NCDRC) has ruled that insurance policies must be interpreted holistically, particularly concerning grace periods when premiums are paid via Electronic Clearing System (ECS). This decision came in a case where the Life Insurance Corporation of India (LIC) was held responsible for delaying the processing of a monthly premium, leading to an ECS dishonour. The deceased policyholder, Tarandeep Singh, died due to a heart attack on February 1, 2015. His mother, the nominee, filed a death insurance claim for Rs. 8 lakh, which LIC rejected, arguing the policy had lapsed due to unpaid premium and the expiration of the grace period. Both the District Forum and State Commission found LIC deficient in service, noting that the ECS for the premium due on January 9, 2015, was presented late on January 21, 2015, and subsequently dishonoured. They concluded that the grace period should commence from the ECS dishonour date (January 21, 2015), extending until February 6, 2015, meaning the policy was active at the time of death. The NCDRC upheld these concurrent findings, emphasizing that in the absence of a clear definition of “grace period” within the policy document, provisions of the Payment and Settlement Systems Act, 2007, and the Negotiable Instruments Act, 1881, apply to electronic fund transfer dishonours. These acts typically provide a grace period from the date of notice of dishonour, not from the original due date, thereby clarifying that the policy was indeed in force.
Dear Friends,
Holding the Life Insurance Corporation of India (LIC) responsible for the delay in sending monthly premium mandated through the electronic clearing system (ECS) and calculating the grace period from the premium due date, the national consumer disputes redressal commission (NCDRC) directed LIC to pay the Rs8 lakh death insurance claim to the nominee of the deceased life assured (DLA).
HELD THAT: In this case there are concurrent findings of both the fora below against the insurance company. After careful consideration of the clauses of the insurance policy referred to above, we are of the considered view that both the fora below have correctly interpreted the policy clauses to hold that the grace period in the present case would start from 21 January 2015 and end on 6 February 2015 and not on 24 January 2015 as contended by the insurance company.”
BRIEF FATCS:
1.The case is related to the death insurance claim filed by Satwinder Kaur, mother of Tarandeep Singh, the DLA.
2. Mr Singh had bought a money-back policy for the term of 20 years from LIC.
3. Under the policy, the sum assured on death was Rs.8 lakh.
4. Mr Singh had made his mother the nominee for the insurance policy.
5. On 1 February 2015, he died due to a heart attack. His mother, Ms Kaur, filed the death insurance claim but did not receive any response from LIC.
6. She then filed a complaint before the Chandigarh district consumer disputes redressal forum-I.
7. In an order on 4 April 2019, while partly allowing the appeal, the district forum directed LIC to pay the death insurance claim money to Ms Kaur.
8. In its order, the district forum observed that as the ECS bounced or dishonoured on 21 January 2015, having a harmonious construction to the terms and conditions (T&C) of the insurance policy, the grace period would commence from 21 January 2015 and expire on 6 February 2015.
9. The Court observed that on the death of the insured (Mr Singh) on 1 February 2015, the insurance policy was in operation, subsisting, existing and had not lapsed, hence, there was a deficiency in service on the part of the insurance company.
10. LIC challenged the order before the Chandigarh (Union Territory) state consumer disputes redressal commission. While upholding the district forum’s order, the state commission dismissed the appeal on 6 December 2021.
11. THE STATE COMMISSION observed that against the due date, i.e., 9 January 2015, the invoice for the collection was generated late on 15 January 2015 and further ECS was put on 21 January 2015, on which date it dishonoured due to insufficient funds. “Therefore, in our view, the fault lay with LIC, who put the ECS very late and not on the due date, which was 9 January 2015. In such an eventuality, we do not find any fault with the view expressed by the district commission that the grace period of 15 days would start from 21 January 2015, which lasted up to 6 February 2015.
12. Aggrieved by the dismissal, LIC filed a revision petition before NCDRC.
13. It contended that both the fora below failed to consider that the premium due on 9 January 2015 was not paid, the ECS had dishonoured due to insufficient funds and with 15 days of grace period, the premium was not paid as the policy lapsed on 24 January 2015. “Therefore, on the date of death of the policyholder (Mr Singh) on 1 February 2015 the policy being in lapsed condition, nothing was payable by the insurer.”
NCDRC OBSERVED THAT the short point for consideration in the case is whether, on the date of death of the insured, the policy in question has lapsed or not and whether it was revivable within the grace period. It is not in dispute that although the insured had given standing instructions for the payment of premium through ECS to his bank, in the past, most of the time the ECS was getting dishonoured and subsequently, the insured used to pay the premium in cash which used to be accepted by the insurance company. Payment of the premium up to December 2014 is not in dispute, the bench noted.
THE COUNSEL FOR MS KAUR ARGUED THAT LIC relied upon clause 2, payment of premium, where it has been vaguely written that a grace period of 15 days will be allowed for payment of monthly premiums; however, the clause does not specify that the grace period of 15 days would be counted from the due date, irrespective of the date of dishonour of the ECS.
He also contended that even for making a payment towards dishonoured cheques, there is a grace period of 15 days from the date when the drawer of the cheque receives the notice from the payee informing about the dishonour of the cheque and such grace period does not start from the date of presentation of the cheque or ECS nor does it start from the date when the liability to pay occurs.
HON’BLE NCDRC HELD THAT “In the absence of any clear definition of the term ‘grace period’ in the policy document, the provisions of the Payment and Settlement Systems Act, 2007 and that of Negotiable Instruments Act, 1981, apply to the dishonour of electronic fund transfer,”.
THE COUNSEL FOR LIC RELIED ON CLAUSES 2 AND 3 of the insurance policy. He contended Mr Singh paid a premium of Rs.4,283 on the 9th of every month and opted for ECS. Between January 2014 and January 2015, the DLA dishonoured the ECS mandate five times and deposited the premium in cash.
“For the premium, which was due on 9 January 2015, the ECS was sent on 15 January 2015 and it was dishonored due to insufficient funds as such, the policy lapsed and even within the grace period of 15 days i.e. up to 24 January 2015 the premium amount was not paid therefore the policy was in lapsed condition w.e.f. 24 January 2015. Mr Singh expired on 1 February 2015 and on the date of his death, the policy was in lapsed condition,” LIC contended.
DECISION OF NCDRC After going through the orders of the state commission, district commission and other relevant records and rival contentions of the parties, NCDRC, while dismissing the revision petition of LIC, says it finds no reason to interfere with the orders of fora below.
CONCLUSION: from above decision of NCDRC is it clarified that provisions of clauses of policy documents must be read holistically. It should be noted that in the absence of any clear definition of the term ‘grace period’ in the policy document, the provisions of the Payment and Settlement Systems Act, 2007 and that of Negotiable Instruments Act, 1981, apply to the dishonour of electronic fund transfer.
PLEASE NOTE THAT: The Payment and Settlement Systems Act, 2007, is the piece of legislation that contains the provisions of the law governing these two different kinds of electronic money transfers: NEFT and RTGS. Cases that include the dishonouring of electronic transfers are addressed in Section 25 of the Payment and Settlement Systems Act, which was passed in 2007.
The provisions of Chapter XVII of the Negotiable Instruments Act, 1881 shall apply to situations relating to the dishonour of electronic money transfer, according to Section 25(5) of the Payment and Settlement Systems Act of 2007, which states that these provisions shall apply.
| SECTION 25 PAYMENT AND SETTLEMENT SYSTEMS ACT, 2007:
Dishonour of Electronic Funds Transfer for insufficiency, etc., of funds in the account. — (1) Where an electronic funds transfer initiated by a person from an account maintained by him cannot be executed on the ground that the amount of money standing to the credit of that account is insufficient to honour the transfer instruction or that it exceeds the amount arranged to be paid from that account by an agreement made with a bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may be extended to two years, or with fine which may extend to twice the amount of the electronic funds transfer, or with both: Provided that nothing contained in this section shall apply unless— (a) the electronic funds transfer was initiated for payment of any amount of money to another person for the discharge, in whole or in part, of any debt on other liability; (b) the electronic funds transfer was initiated in accordance with the relevant procedural guidelines issued by the system provider; (c) the beneficiary makes a demand for the payment of the said amount of money by giving a notice in writing to the person initiating the electronic funds transfer within thirty days of the receipt of information by him from the bank concerned regarding the dishonour of the electronic funds transfer; and (d) the person initiating the electronic funds transfer fails to make the payment of the said money to the beneficiary within fifteen days of the receipt of the said notice. (2) It shall be presumed, unless the contrary is proved, that the electronic funds transfer was initiated for the discharge, in whole or in part, of any debt or other liability. (3) It shall not be a defence in a prosecution for an offence under sub-section (1) that the person, who initiated the electronic funds transfer through an instruction, authorization, order or agreement, did not have reason to believe at the time of such instruction, authorization, order or agreement that the credit of his account is insufficient to effect the electronic funds transfer. (4) The Court shall, in respect of every proceeding under this section, on production of a communication from the bank denoting the dishonour of electronic funds transfer, presume the fact of dishonour of such electronic funds transfer, unless and until such fact is disproved. (5) The provisions of Chapter XVII of the Negotiable Instruments Act, 1881 (26 of 1881) shall apply to the dishonour of electronic funds transfer to the extent the circumstances admit. Explanation. —For the purpose of this section, “debt or other liability” means a legally enforceable debt or other liability, as the case may be. |
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| CHAPTER XVII OF THE NEGOTIABLE INSTRUMENTS ACT, 1881
OF PENALTIES IN CASE OF DISHONOUR OF CERTAIN CHEQUES FOR INSUFFICIENCY OF FUNDS IN THE ACCOUNTS SECTION 138. DISHONOUR OF CHEQUE FOR INSUFFICIENCY, ETC., OF FUNDS IN THE ACCOUNT.—Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may be extended to two years’, or with fine which may extend to twice the amount of the cheque, or with both: Provided that nothing contained in this section shall apply unless— (a) the cheque has been presented to the bank within a period of three months from the date on which it is drawn or within the period of its validity, whichever is earlier; (b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice; in writing, to the drawer of the cheque, within thirty days of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and (c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice. Explanation.—For the purposes of this section, “debt of other liability” means a legally enforceable debt or other liability. SECTION 139. PRESUMPTION IN FAVOUR OF HOLDER.—It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section138 for the discharge, in whole or in part, of any debt or other liability. SECTION 140. DEFENCE WHICH MAY NOT BE ALLOWED IN ANY PROSECUTION UNDER SECTION 138.—It shall not be a defence in a prosecution for an offence under section 138 that the drawer had no reason to believe when he issued the cheque that the cheque may be dishonoured on presentment for the reasons stated in that section. SECTION 141. OFFENCES BY COMPANIES.— (1) If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence: Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter. (2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation.—For the purposes of this section, — (a) “company” means any body corporate and includes a firm or other association of individuals; and (b) “director”, in relation to a firm, means a partner in the firm. SECTION 142 COGNIZANCE OF OFFENCES.— (1)Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),— (a) no court shall take cognizance of any offence punishable under section 138 except upon a complaint, in writing, made by the payee or, as the case may be, the holder in due course of the cheque; (b) such complaint is made within one month of the date on which the cause of action arises under clause (c) of the proviso to section 138: Provided that the cognizance of a complaint may be taken by the Court after the prescribed period, if the complainant satisfies the Court that he had sufficient cause for not making a complaint within such period; (c) no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under section 138. (2) The offence under section 138 shall be inquired into and tried only by a court within whose local jurisdiction,— (a) if the cheque is delivered for collection through an account, the branch of the bank where the payee or holder in due course, as the case may be, maintains the account, is situated; or (b) if the cheque is presented for payment by the payee or holder in due course, otherwise through an account, the branch of the drawee bank where the drawer maintains the account, is situated. Explanation.—For the purposes of clause (a), where a cheque is delivered for collection at any branch of the bank of the payee or holder in due course, then, the cheque shall be deemed to have been delivered to the branch of the bank in which the payee or holder in due course, as the case may be, maintains the account. 143A- POWER TO DIRECT INTERIM COMPENSATION.— (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, the Court trying an offence under section 138 may order the drawer of the cheque to pay interim compensation to the complainant— (a) in a summary trial or a summons case, where he pleads not guilty to the accusation made in the complaint; and (b) in any other case, upon framing of charge. (2) The interim compensation under sub-section (1) shall not exceed twenty per cent. of the amount of the cheque. (3) The interim compensation shall be paid within sixty days from the date of the order under sub-section (1), or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the drawer of the cheque. (4) If the drawer of the cheque is acquitted, the Court shall direct the complainant to repay to the drawer the amount of interim compensation, with interest at the bank rate as published by the Reserve Bank of India, prevalent at the beginning of the relevant financial year, within sixty days from the date of the order, or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the complainant. (5) The interim compensation payable under this section may be recovered as if it were a fine under section 421 of the Code of Criminal Procedure, 1973 (2 of 1974). (6) The amount of fine imposed under section 138 or the amount of compensation awarded under section 357 of the Code of Criminal Procedure, 1973 (2 of 1974), shall be reduced by the amount paid or recovered as interim compensation under this section. SECTION 148-POWER OF APPELLATE COURT TO ORDER PAYMENT PENDING APPEAL AGAINST CONVICTION.— (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), in an appeal by the drawer against conviction under section 138, the Appellate Court may order the appellant to deposit such sum which shall be a minimum of twenty per cent. of the fine or compensation awarded by the trial Court: Provided that the amount payable under this sub-section shall be in addition to any interim compensation paid by the appellant under section 143A. (2) The amount referred to in sub-section (1) shall be deposited within sixty days from the date of the order, or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the appellant. (3) The Appellate Court may direct the release of the amount deposited by the appellant to the complainant at any time during the pendency of the appeal: Provided that if the appellant is acquitted, the Court shall direct the complainant to repay to the appellant the amount so released, with interest at the bank rate as published by the Reserve Bank of India, prevalent at the beginning of the relevant financial year, within sixty days from the date of the order, or within such further period not exceeding thirty days as may be directed by the Court on sufficient cause being shown by the complainant. |
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