MITHOOLAL NAYAK v. LIFE INSURANCE CORPORATION OF INDIA

The first premium due on the policy was taken from the amount which was already in deposit with the respondent company in connection with the proposal made in 1942. Then, on May 22, 1945, Mahajan Deolal wrote a letter to the respon dent company in which he said that his financial condition had become suddenly wors9 and that he would not be able to pay the premium for the policy. He requested that the policy be cancelled. In the meantime the premium for l 945 not having been paid, the policy lapsed. Then, on October 28, 1945, Mahajan Deolal made a request for revival of . the policy, but a few days before · that, namely cm October 18,-1945, the policy was assigned in favour of the appellant, by an endorsement made on the policy itself. This assignment was duly registered by the respondent company by means of its letter dated November 1, 1945 in which the respondent company said that . it accepted the assignment without expressing any opinion as to its validity or IHI •• M ith,./al N 9alo Life I nSVfdfUI CorJ>ottJliota of IUi11 Da1J. • lHI llu"-"'N•Jd •• Lift lruw-• c .. ;.rolilA o/ IMW. o.,J. 578 SUPREME COURT REPORTS [1962) SUPP. eff6Ct.

The respondent company also made an enquiry from the appeflant as to whether the latter had any insurable interest in the life of the insured and what consideration had passed from him to the insured. To this the appellant replied that he had no insurable interest in the life of Mahajan Deolal except that the latter waa a. friend and he (the appellant) had purchased the policy for a sum of Re. 427.12 nP. being the premium paid by him so far, because Mahajan Deolal did not wish to conti nue the policy. On his request for a revival of the policy Mahajan Deola.l was again medically examined, this time by one Dr. Belapurkar. Later on February 25, 1946, he was examined by Dr. Clarke. The policy was then revived on payment of all arrears of premium, these arrears having been paid by the present appellant. On receipt of the revival fee, the policy appears to have been revived some time in July, 1946. We have already stated that Mahajan Deola.I died in November, 1946.

The certificate of Dr. Cla.rke, who was the medical attendant at the time when Mahajan Deolal died, showed that the primacy cause of death of Mahajan Deolal . was malaria. followed by Bt>vere type of diarrhoea. ; the secondary cause was anaemia, chronic bronchitis and enlargement of liver. In the certificate which Dr. Clarke gave there was mention of certain other medical practitioners who had attended Mahajan Deolal at t.lle tiine of his <lea.th. One of such medical practitioners mentioned in the certificate was Dr. Lakshmanan. On r6Ceipt of this certificate the respondent company got into touch with Dr. Lakshmana.n and discovered from him that Mahajan Deolal had been treated in September· October, 1943, by Dr. Lakahmana.n for ailments which, according to the doctor, were of a 1erioua nature. Several iuul!ll were tried between the partiea in the trial court. But the four questions which 11111 Mil/too/al Nlf)d v.

Life 1 nJ:uranu Cor~tia 4f India DasJ, 2 S.C.R. SUPREME COURT REPORTS 579 were argued iu the High Court and on which the fate of the appeal depends were these :- ( l) Whether the policy was vitiated by fraudulent suppression of material facts by Mahajan Deolal ? (2) Whether the preeent appellant had no insurable interest in the life of the insured, and if so, can he sue on the policy ? (3) Whether the Fespondent company had issued the policy with full knowledge of the facts relating to the health of the insured and if so, is it estopped from cont.eating the validity of the policy ? (4) Whether in any event the appe llant is entitled to refund of the money he had paid to the respondent company ? These are the four questions which have been agitated before us and we shall deal with such of them as are necessary for deciding this appeal. So far as the first question is concerned, the learned trial Judge found that though Mahajan Deolal had given a negative answer to question no, 13 in the proposal form and to questions nos.

5(a), 5(b), 5 (f) and l2(b) in the personal statement, these answers though not strictly accurate, furnish ed no grounds for repudiating the claim of the appellant by the respondent company, in as much as s.45 of the Insurance Act, 1938 (4 of 1938) applied and the answers did not amount to a fraudulent suppression of material facts by the policy-holder within the meaning of that section. The learned trial Judge fonnd that the ailments for which Dr. Lakshmanan treated Mahajan Deolal in September-October, 19.43, were of a casual or trivial nature and the failure of the policy-hG!der to disclose those ailments did not attract the second part of • ,,,, M~N~ •• LVw , __ c.,_,i. •Ir.. D .. 1. 580 SUPREME OOURT REPORTS (1962] SUPP. the finding of On behalf of the before us s. 45 of the Insnr&nce Act. The High Court came to a contrary conclusion and held that even apply ing s. 45 of the Insurance Act, the policy-holder was guilty of a fraudulent suppression of material facts relating to his health within the meaning of that section and the respondent oomp'lny was entitled to avoid the contract on that ground. appellant it has been argued learned trial Judge on thiA question was the correct finding and that the High Court was wrong in arriving at a contrary finding on this question in view of the evidence given in the case.

The judgment of the High Court is a judgment in reversal and the appellant has a right of appeal under Art. 133( l )(a) of the Constitution in as much as the value of the subject matter of the dispute in the court of first instance and still in dispute is more t.han Ra. 20,000f-. We have, therefore, allowed learned counsel for the parties to take us through the evidence in the case. On a consider ation of that evidcnoe we have come to the con clusion that the finding of the .High Court is the oorreot finding. We shall presently consider the evidlliloe, but it may be advantageous to read first s. 45 of the Insnranoe Act, 1938, as it stood at the relevant time. The eeution, so far as it is relevant for our purpoee, is in these terms : "No policy of insurance effected before the commencement of this Act shall after the expiry of two yea.rs from the date of commencement of this Act and no policy of life insuranoe effected after the coming iu to force of this Act shall, after the expiry of two years from the date on which it was effected, be oalled in question by an insurer on the ground that a statement m9.de in the proposal for insurance or in any report of a medical officer, or referee, or friend of the inlllred, or in any other dooument le&dilli to • 2 S.C.R. SUPREME COURT REPORTS 581 the issue of the policy, was inaccurate or false, unless the insurer shows that such state· ment was on a material matter or suppressed facts which it was material to disclose and th11t 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 it suppressed facts which it wu material to disclose. x x" x x x x IHB M itA.olal N .,.,, •• Lifel.,.,..., Corp.ratioo of 1.-. Das J, It would be noticed that the operating part of s.

45 relevant for our states in effect (so far as is purpose) that no policy of life insurance effected after the coming into force of the Act shall, after the expiry of two. years from the date on which it was effected, be called 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 insured, or in any other document leading to the issue of the policy, was inaccurate or false ; the second part of the section is in the nature of a proviso which creates an excep· tion. It says in effect that if the insurer shows that such statement was on a material matter or suppressed facts which it was material to dicclose and t.hat 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 it suppressed facts which it was material to disclose, . then the insurer can call in question the policy effected as a result of such inaccurate or false statement.

In the case before us the policy was issued on March 13, 1945, and it was tci come into effect from January 15, 1945. ·The amount insured was payable after January 15, 1968, or at the death of the insured, if earlier. The respondent company repudiated the claim by its letter· dated October 10, 1947. Obviously, therefore, two years had expired from the date on which the policy was effected. We are clearly of the opinion thats. 45 of the Insurance Act applies in the present caae in MW1Do/ol }.'nyak ... M lttJttronc. l:MJHwalion "' 1"4 ;,/ DaaJ. 582 SUPREME COURT REPORTS [1962) SUPP. view of the clear terms in whkh the s11ction is worded, though learned counsrl for the resporident company S'•ught, at one stage>, to arf!ue that the time in July, 1946, revi\'al of the poli0y somP in law a new contract between the constituted parties and if two yrars were to be counted from July, 1916, then the period of two years had not expired from the date of tl1c revival. 'Whether the revival of a lapsed policy constitutes a new contract or not for other purposeB, it is clear from the word ing of the operative part of s.

45 thnt the period of two years for the purpooe of the sfction has to be calculated from the date on ~vhirh the policy was origirndl.v cffec~ed ; in the present case this can only mean the date on whieh the policy (Ex. P-2) was effected. From that date a period of two years had clearly expired when the respondent company rtpudiated the claim. As we think that s. -t.'i of the Insurance Act. applies in the present case, we aro relieved <;f the tl\8k of examining the lagal position thll.t W<l\llcl follow as a. result of ina.ccnrn te c~atl'mt'nts mu<lt' by the insured in the proposal form or the !)(•rsonal statement etc. in a case where b. 4ii docs not apply and where the aver111e11ts made in the proposal form and in the personal statement art' made the basis of the contrnct. The three conditions for the application of the second pa.rt of s. 45 arf'- (a) the statemPnt must he on a. material matter or must supprcBB facts which it was material to disclose ; (b) the suppreBBion must be frau<iulently made by the poliry-holder ; and (c} the policy-holder must have known at the time of 111aking the stakment that it waa false or that it suppreBSed facts which it was material to disclose.

The crucial question before us is whether these three conditione were fulfilled in the present 2 S.C.R. SUPREME COURT REPORTS 583 IUU Millu>olal N~ v. Li/elnsur Corpo<alion of In4i. Da.r J. It is case. We think that they were. We are llnable to agree with the learned trial Judge that the ailments for which Mahajan Deolal was trnaterl by Dr. Lakshmanan in September-October, 1943, were trivia I or casual ailments. Nor do we think that Mahajan Deolal was likely to forget in July, 1944, that he had been treated by Dr. Lakshmanan for certain seriouR ailments only a few months before that rlate. This brings us to a consideration of the evidenee of Dr. Lakshmanan. That evidence is clear and unequivocal. Dr. Lakshmanan says that Dr. Motilal Nayak brought the patient to him at Jabalpur. We have already referred to the fact that Dr. Motilal Na.yak had himself made a false statement in his friend's report dated July 17, 1944, when he said that he had never heard that the insured had impossible to suffered from any illness. believe that Dr.

Moti!al Nayak would not remember that he had himself taken the insured to Jabalpur for treatment by Dr. Lakshmanan who was an experienced consulting physician. Dr. Lakshmanan said that when he first examined Mahajan Deolal on September 7. 1943, he found that his condition was serious as a result of the impoverished condi tion of his blood, anrl that Mahajan Deolal was suffering from anaemia, oedema of the feet, diarrhoea and panting on exertion. The doctor the blood. The ask<'d for an examination of pathological report supported the diagnoeis that Mahajan Deolal was suffering from secondary anaemia meaning thereby that anaemia was due to lack of iron and malnutrition. Dr. Laksbmanan further found that from the symptoms disclosed the disease was a major one. Mahajan Deolal had also cardiac asthma which was a symptom of anae mia and due to dilatation of heart. Dr. Lakshmanan saw the patient again on Septomb<'r 9, 1!14:~, and then a«ain on September J6, W-t::. On October 6, 1943 :M:,.hajan Deolul Lilll3ei f :.Vent to Dr.

Laksh· manan. On that date Dr. Lakshmanan found that J~Z .11.ilWWN~ v. Lift '"""•11t1 c..p...,;,. of /Nlia /las 1. 584 SUPREME COURT REPORTS [1962) SUPP. in hiR ovidence anaemia bad very greatly diea ppeared. In croes examina.tion Dr. Lak~hm1man admitted that the anaemia, dilatation of heart and cardiac asthma from which Mahajan D~ola.l was suffering constitu ed a pa.ssing phase which might disa.ppcar by treat ment. He furthllr admitted that he did not ment ion cardiac asthma in his letter addressed to the respondent company. We have given our very earnest consideration to the evidence of Dr. Laksh ma.nan and we arc unable to hold that the ailments from which Mahajan Deolal was then suffering were either trivial or casual in nature. The ailments to treatment. though amenable were serious Mahajan Daolal's son gave ovidence in the case and he sa.id though Dr. Laksb.manan prescribed some medicine, his father that his father did not tuko it.

He further said was a. strict vegetarian. Tl.is evidence was given by thll son with regard to what the doctor had 11&id that he prescribed fresh liver juice made a.t home according to his directions three times a day. He also prescribed iroa sulphate in tnblet from with plenty of water. Tho son furth1>r said that dur ing his stay at Jabalpur his fathn frlt · weakneBB, freely and was though he used to move about never confined to bt>d. The son to make it appear in his evidence that his father was suffering from nothing eerious. Dr. Lakshma.nan said in his evidence that his fees for visiting a. patient a.t Jaba.lpur were Rs. 16/· per visit. We agree with the High Court that if Mahajan Deolal was not suffering from any serious ailment, he would not have been ta.ken by his physican, Dr. Motile.I Na.yak from his village to Jabalpur nor would he have consulted Dr. Lakshmanan, a consulting physioian of repute, for so many days on payment of Rs.16/- per visit.

No doubt·, Mahajan Deola.l's son now tries to make light of the illness of his father but Dr. Lakshmana.n's ovidcnco shows olearly enough that in September-October, 1943. Mahajan J&62 Milhoolal Na;ak v. Life IRJUrante Co·po1«1ion o/'f•li• Dad. 2 S.C.R. SUPREME COURT REPORTS 585 Deolal was suffering from a serious type of anaemia treated by Dr., Lakshmanan. for which he was Mahajan Deolal could not have forgotten in July, 1944, that he was so treated only a few months earlier and furthermore, Mahajan Deolal must have to disclose known that it was material this fact to the respondAnt company. In his answers to the questions put to him he not only failed to disclose what it was material for him to disclose, but he made a false statement to the effect that he had not been treated.by any doctor for any such serious ailment as anaemia or shortness of breath or ast· there was a deliberate hma. suppression fraudnlently made by Mahajan Deolal.

Fraud, according to s. l 7 of the Indian Contract Inter Act, 1872 (IX of 1872), means and includes ttUa any of the following acts committed by a party to a contract. wit.h intent to de~eive another party or to induce him to enter into a contract- the suggestion, as to a fact, of that which is not true by one who does not believe it to be true; and In other words, (!) (2) the active concealqient of a fact by one having knowledge or belief of the fact. Judged by the standard laid down in s. 17, Mahajan Deolal was clearly guilty of a fraudulent suppression of material facts when he made his statements on July 16, 1944, statements which he must have known were delibarately false. Therefore, we are in agreement with the High Court in answering appellant. the first question against We may here dispose of the third qu\)stion. Learned counsel for the appellant has argued before us that Mahajan Deolal was ex? mined under the direction of the respondent company by as many as four doctors, namely, Dr.

Desai, Dr. Kapadia, Dr. Belapurkar and Dr. Clarke. further pointed out that Mahajan Deolal had correctly It is 1118! Jlillll>OW N9" v. Lif1·.i-_, c.p.,.,;. •f 11"U. D.s }. 586 SUPREME OOURT REPORTS [1962] SUPP. disclosed that he had suffered previously from malaria, pneumonia. and cholera. Dr. Kapadia, it is pointod out, was specifica. Jly asked t.o oxamine Mahajan Deolal in viow of the conflictiniz reports which Dr. Desai had earlier submitted. On theee facts, the a.rgumE'nt has been that the re~pondent company had full knowledge of a.II facts relevant to the state of health of llfahajan Deola.I and having knowledge of the full facts, it was not open to the respondent company to call the policy in question on tho basis of the answers given by Mahajan Deolal in the proposal form and the personal statement, even though those answers were in accurate. Learned counsel for th<' a.ppell1mt has referred us to th~ Explanation to s.

19 of the Indian Contract Act in support of his argument. We are It is unable to accept this argument ns correct.. indeed trne that llfahajan Deolal was examinPd by as many as four doctors. It is also tnri> that the respondent company had before it the eo·nflfoting re ports of Dr. Desai and it specially asked Dr. Kapadia to examine Mahajan Deolal in view of the rl'ports submitted by Dr. Desai. Yet, it muRt be pointed out that the respondent comprmy had no means of knowing that Mahajan Deolal had been treated for the serious ailment of secondarv anaemia followed by dilatation of heart etc. in"Septcmber October, 1943 by Dr. Lakshmane.n. Xor e:in it be 11aid that if the respondent company had know· ledge of those facts, they would not have made any difference. The principle underlying tho Ex· planation to s. 19 of the Contract Act ie that a false representation. whether fraudulent or innocent is irre· levant if it has not induced the party to whom it is made to act upon it by enteriniz into a contract.

We do not think that that principle applies in the present ca11C. The terms of the policy make it-clear thai the avermunts ma<le as to the state of health of the insured in the proposal form and the personal statement were the basis of tho contract l>etween the 1961 M it/JNlal ll8'11k •• Ufa'"'"'~ OorfJ"alW.. of .tndil Dos J, """. 2 $.C.R. SUPREME OOURT REPORTS f187 parties, and the circumstance that Mahajan Deolal had taken pains to falsify or. conceal that he had been treated for a serious ailment by Dr. Lakshma nan only a few months before the policy was taken shows that the falsification or concealment had an important bearing in obtaining the other party's consent. A man who has so acted cannot after wards turn round and say: "It could have made no difference if you had known the truth. " In our opinion, no question of waiver arises in the circu· mstanoes of this case, nor can the appellant take advantage of the Explanation to s.

19 of the Indian Contract Act. Our finding on the first question makee it un· necessary for us to decide the second question, the present appellant merely namely, whether gambled on the life of Mahajan Deolal when he took the assignment on October 18, 1945. The contention of the respondent company was that appellant had no insurable interest in the life of Mahajan Deolal and when be took the assignment of the policy on October. 18, 1945 he was merely indulging in a gamble on Mahajan Deolal's life; the contract waq therefore, void by reason of s. 30 of Indian Contract Act. On behalf of the appellant, however, the contention was that s. 38 of the insurance Act provided a complete code for assignment and transfer of insurance policies and the assignment made in favour of the appellant by Mahajan Deolli.l was a valid assignment in accord. ance with the provisions of s. 38 aforesaid. The High Court, it appears, proceeded on the footing that from the very inception the policy was taken for the benefit of the appellant on the basis of a gamble on the life of Mahajan Deolal ; it said that the appellant and his brother, Dr.

Motilal Nayak, knew very well that Mahajan Deolal was not likely to live very long aud when the policy was taken out in 1944, it was really for the benefit of the persent appellant, who soon after took an assignment 1962 .llilMolol Jf9olf v. Lif• 1.,.,,_, ~ll'f81io1 •/ l1 1lio Doll. 588 SUPREME OOURT REPORTS [1962] SUPP. on payment of the premium already pa.id by Ma.ha.ja.n Deolal a.nd s11ch arrears of premium aa were then outstanding. It iB unneoesea.ry for us to give our decision on these contentions; bec~use if Ma.ha.ja.n Deolal wa.s him~elf guilty of a fraudulent supprossion of m~terial facts on which the respon· dent company w~ <lisch<1.rged from pJrforming its pa.rt of the contract, th~ appellant who holds an assignment of the policy cannot stand on a. better footing than Mahajan D~o!R.I himself. It wa.s argued before us tha.t if the policy was valid in its inception, that ii to say, if it was in fa.ct effecte<l for the use nn<l bandit of Mahajan Ddolal, who undoubtedly had an insurable interest in his own lifo, it could not afr.erwards be invalidated by R.Bsign. ment to a person who had no interest but who merely took it IH a speculation.

Ollr attention was SE>v<ral decisions on t.his quest.ion, American e.nd English, noticed in para 502 of law (fourth Edition). Ma.cGillivray on Insurance We consider it mmecessary decisions or to go into tho question posed therein. That question must be left to be determined in a. ca.so where it properly a.rises. As we have stated earlier, on our conclusion on the first question, the appellant is clearly out of Court and can not claim the bendit of a contra.ct which had been entered into R.B a result of 1~ fraudulent suppression of material facts by Mahajan Deolal. to examine This brings us to the last question, namely, whether the appellant is entitled to a refund of the money he had· paid to tbu respondent company. Here again one of the tcr:n~ of the policy was that all moneyR that had bren pa.id in consequence of the policy would belong to the company if the policy was vitiated by reason of a fra.11d11lent suppression of material fact8 h~· t lH' iusur1·1l.

We agree with the High Court that where t be contract is had on the groun<i of fran<i, the party who hn.s been guilty of fraud or a. person whc, cln.ims under him ca.n not 1912 Mithoolol Na]Oi v. Li/• Inm011U Corporation of lnii< Dos 1. 2 S.C.R. SUPREME OOURT REPORTS 589 ask for a refund of the money pa.id. It is a well established principal that courts will not entertain an action for money had and received, where, in order to succeed, the plaintiff has to prove his own fraud. We are further in agreement with the High Court that in oases in which there is stipulation that by reason of a breach of warranty··by one of the parties to the contract, the other party shall be discharged from the performance of his part of the contract, neither s. 65 nor s. 64 of Indian Contract Act has any application. For the reasons giv.en above we have come to the conclusion that there in no merit in the appeal. The appeal is accordingly dismissed with costs. Appeal dismissed. .... 1962