Holding

A delay by the finance company in forwarding a duly paid insurance premium to its sister insurer amounts to a deficiency of service, making the finance company liable for compensation under the Consumer Protection Act.

Summary

The appellant, a widow, claimed that her deceased husband had paid an insurance premium for a loan secured by Shriram City Union Finance Ltd., but the finance company delayed forwarding the premium to its sister insurance company, resulting in a failure to activate the policy. The District Forum and State Commission held that this constituted a deficiency of service and awarded compensation, but the National Consumer Disputes Redressal Commission set aside those orders, finding no evidence of premium payment or deduction. On appeal, the Supreme Court examined the factual record, noting that the finance company itself admitted receipt of the demand draft for the premium and that the premium was deducted as part of the loan processing. The Court held that the delay in forwarding the premium amounted to a clear deficiency of service and that the risk was covered from the date of premium payment under the Insurance Act. Consequently, the Supreme Court set aside the National Commission’s order, reinstated the lower courts' findings, and directed the finance company to pay compensation and costs to the appellant.

Issues considered

What constitutes a deficiency of service under the Consumer Protection Act, 1986 in the context of delayed forwarding of an insurance premium?
Whether the National Consumer Disputes Redressal Commission can set aside the findings of the State Commission on the basis of alleged lack of evidence of premium payment and deduction.
Interpretation of Section 64VB(2) of the Insurance Act, 1938 regarding the date from which risk is covered upon premium payment.

Legislation cited

Consumer Protection Act, 1986s. 21(b)
Insurance Act, 1938s. 64VB(2)

Subjects

deficiency of serviceconsumer complaintinsurance premiumloan securityNational Consumer Disputes Redressal Commissionrevision jurisdictioncompensation

Judgment

58 [2019]
SUPREME COURT 6 S.C.R. 58
REPORTS [2019] 6 S.C.R.

A ASHATAI W/O ANAND DUPARTE
v.
SHRIRAM CITY UNION FINANCE LTD.
(Civil Appeal No. 3962 OF 2019)
B APRIL 16, 2019
[UDAY UMESH LALIT AND INDU MALHOTRA, JJ.]
Consumer Protection Act, 1986:
Deficiency in service – Complainant-appellant’s husband took
C personal loan from the Finance Company and Finance Company
secured the loan by issuance of an insurance policy by its sister
concern – Payment of insurance policy premium by the
complainant’s husband and Finance Company received a Demand
Draft for the same – Thereafter, death of complainant’s husband –
Issuance of notice by Finance Company to complainant for payment
D
of the loan instalments – Legal notice by complainant to the Finance
Company to recover the loan through the insurance policy –
However, Finance Company denied having received the premium
amount and that the amount was deducted from the loan amount
towards processing fee and stamp charges – Consumer complaint
E by appellant alleging deficiency in service – Allowed by the District
Forum as also State Commission, however, set aside by the National
Commission – On appeal, held: Husband of the appellant had paid
the insurance premium by a Demand Draft in favour of the Insurance
Company – Finance Company in the revision petition filed before
the National Commission, itself admitted that it had received the
F
Demand Draft from the complainant’s husband towards payment of
the insurance premium; and that it had deducted an amount towards
processing of the loan, and payment of stamp charges – Finance
Company however delayed in forwarding the amount to the
Insurance Company for obtaining the insurance policy – Thus, there
G was a clear deficiency of service by the Finance Company –
Furthermore, the risk would be covered from the date of payment of
the insurance premium – Loan was secured from the date on which
the insurance premium was paid – Premium having been paid by
the appellant’s husband during his life-time, the loan was to be
H
58
ASHATAI W/O ANAND DUPARTE v. SHRIRAM CITY UNION 59
FINANCE LTD.

adjusted from the insurance policy – In view thereof, order passed A
by the National Commission set aside – Finance Company to pay
compensation and costs to appellant – Insurance Act, 1938 – s.
64VB (2).
s. 21 (b) – Revisional jurisdiction – Exercise of, by the
National Commission – Held: Revisional jurisdiction of the National B
Commission is a limited jurisdiction, to be exercised in case the
State Commission lacked jurisdiction, or acted with illegality or
material irregularity.
Allowing the appeal, the Court
HELD: 1.1 The National Commission, in exercise of its C
revisional jurisdiction, set aside the concurrent findings of the
District Forum and State Commission. The revisional jurisdiction
of the National Commission is a limited jurisdiction, to be
exercised in case the State Commission lacked jurisdiction, or
acted with illegality or material irregularity. [Para 3.1][64-F-G] D
Galada Power and Telecommunication Limited v. United
India Insurance Company Limited & Anr. (2016) 14 SCC
161 ; Rubi (Chandra) Dutta v. United India Insurance
Co. Ltd. (2011) 11 SCC 269 : [2011] 3 SCR 977
– referred to. E
1.2 The National Commission has allowed the Revision
Petition of the respondent-Finance Company on two grounds;
first, that the appellant had failed to produce any evidence to
prove that the insurance premium was paid to the respondent-
Finance Company; and second, that there was no evidence to F
prove that the respondent-Finance Company deducted the
insurance premium from the loan account. The respondent-
Finance Company in the Revision Petition filed before the
National Commission, has itself admitted that it had received the
Demand Draft from the appellant’s husband towards payment of
the insurance premium. Hence, the first ground on which the G
National Commission has set aside the order of the State
Commission is factually incorrect. With respect to the second
ground, the respondent-Finance Company has admitted that it
had deducted an amount of Rs. 2,120/- towards processing of the
H
60 SUPREME COURT REPORTS [2019] 6 S.C.R.

A loan, and payment of stamp charges. However, it was contended
by the Respondent-Finance Company that this deduction was not
made towards payment of the insurance premium. A perusal of
the documents shows that the Respondent-Finance Company was
providing a loan facility to the borrowers, which was secured by
an insurance policy issued by its own sister concern. It was a
B
composite inter-linked transaction. The Cover Note issued by
the sister concern shows that the beneficiary of the insurance
policy is the respondent-Finance Company. Thus, the deduction
of Rs. 2,120/- from the loan account was towards processing of
the composite transaction. [Paras 3.2, 3.4][65-C-F; 66-A-F]
C 1.3 The deceased husband of the appellant had fulfilled his
part of the transaction, by depositing Rs. 400/- by way of the
Demand Draft towards the insurance premium, and also the
charges of Rs. 2,120/- towards processing of the loan transaction.
The respondent- however delayed in forwarding the amount to
D the Insurance Company for obtaining the insurance policy. Hence,
there was a clear deficiency of service by the respondent-Finance
Company in delay in obtaining the insurance policy from its sister
concern. [Paras 3.5, 3.6][66-F-H]
1.4 The risk would be covered from the date of payment of
E the insurance premium. The loan was secured from the date on
which the insurance premium was paid. The premium having been
paid by the appellant’s husband during his life-time, the loan was
to be adjusted from the insurance policy. The National
Commission erroneously set aside the order passed by the State
Commission on factually incorrect grounds. The appellant has
F made out a clear case of deficiency of service on the part of the
respondent-Finance Company. The order passed by the National
Commission is set aside. The respondent-Finance Company is
directed to pay compensation of Rs. 50,000/-, and costs of
Rs. 25,000/- to the appellant. [Paras 3.7, 3.8, 4, 5][67-C-G]
G Case Law Reference
(2016) 14 SCC 161 referred to Para 3.1
[2011] 3 SCR 977 referred to Para 3.1

H
ASHATAI W/O ANAND DUPARTE v. SHRIRAM CITY UNION 61
FINANCE LTD.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3962 A
of 2019.
From the Judgment and Order dated 30.11.2018 of the National
Consumer Disputes Redressal Commission, New Delhi in Revision
Petition No. 472 of 2018.
Amol Nirmalkumar Suryawanshi, Adv. for the Appellant. B
Amit Sharma, Sourabh Leekha, Ms. Kapil Dua, Deepak Goel,
Advs. for the Respondent.
The Judgment of the Court was delivered by
INDU MALHOTRA, J. Leave granted. C
1. The present Civil Appeal has been filed to challenge the Order
dated 30.11.2018 passed in Revision Petition No. 472 of 2018 by the
National Consumer Disputes Redressal Commission (hereinafter referred
to as “the National Commission”).
2. The factual matrix in which the present case has been filed is D
as under :
2.1. The Complainant/Appellant’s husband Late Anand Duparte
had obtained a personal loan of Rs. 2,00,000/- on 27.02.2015
from the Respondent – Finance Company.
E
The personal loan was advanced on 27.02.2015 after
executing the loan agreement, and completing all legal
formalities.
The Respondent – Finance Company secured the loan
by issuance of an insurance policy by its sister concern i.e.
F
M/s Shriram General Insurance Company Ltd., on behalf of
the Borrower.
In the Cover Note of the said policy, the Insured was
shown as: M/s Shriram City Union Finance Ltd. i.e. the
Respondent – Finance Company.
G
The insurance policy was a Group Insurance Policy
issued to various borrowers, including the Appellant’s husband,
whose name was at Serial No. 263 of the list.
2.2. The loan was to be serviced by the Appellant’s husband in 48
monthly instalments of Rs. 7,933/- each. The 1 st loan
H
62 SUPREME COURT REPORTS [2019] 6 S.C.R.

A instalment of Rs. 7,933/- was paid on 07.03.2015 vide Cheque
No. 433931.
2.3. The Appellant’s husband admittedly paid the premium of the
insurance policy. The Respondent – Finance Company
received a Demand Draft of Rs. 400/- from the Appellant’s
B husband towards the insurance premium. The Group
Insurance Policy was issued from 30.03.2015 to 29.03.2016.
2.4. On 17.03.2015 i.e. within 18 days after obtaining the loan,
the Appellant’s husband suddenly passed away.
2.5. The Respondent – Finance Company issued a notice to the
C Appellant for payment of the loan instalments.
2.6. The Appellant requested the Respondent – Finance Company
to recover the loan through the insurance policy.
2.7. A Legal Notice dated 16.12.2015 was addressed by the
D Appellant to the Respondent – Finance Company, requesting
that the loan amount be recovered from the Insurance
Company.
2.8. The Respondent – Finance Company replied to the Legal
Notice on 29.01.2016, and denied having received the
Demand Draft of Rs. 400/- from the deceased husband of
E
the Appellant. It was further contended that the amount of
Rs. 2,120/- was deducted from the loan amount towards
processing fee and stamp charges.
2.9. The Appellant filed a Consumer Complaint before the District
Consumer Disputes Redressal Forum, Nanded.
F
The Appellant submitted that after the loan was
sanctioned on 27.02.2015, the amount was credited to the
loan account after deducting the insurance premium. The
Respondent – Finance Company obtained the insurance policy
from its sister concern on 30.03.2015. Had the insurance policy
G been issued when the loan was advanced, the amount would
have been recovered through the insurance policy. There was
therefore a deficiency of service by the Respondent – Finance
Company in delay in obtaining the insurance policy from its
sister concern. The Respondent – Finance Company was
H not entitled to recover the loan from the Appellant.
ASHATAI W/O ANAND DUPARTE v. SHRIRAM CITY UNION 63
FINANCE LTD. [INDU MALHOTRA, J.]

The Appellant prayed that the Respondent – Finance A
Company be restrained from recovering the loan amount from
her, since the recovery was wrong and unreasonable, and
prayed for payment of compensation.
2.10. The District Forum allowed the Consumer Complaint filed
by the Appellant vide Order dated 27.02.2017. It was held B
that since the Appellant’s husband had paid the 1st loan
instalment on 07.03.2015, it could be presumed that all the
loan formalities had been completed by that date. This proved
that the Appellant’s husband had paid the insurance premium
soon after the loan was sanctioned. The Respondent –
Finance Company had been negligent in obtaining the policy C
late, since it had forwarded the premium amount to the
Insurance Company after a delay of about 1 month.
As per Section 64 VB (2) of the Insurance Act, 19381
the risk was covered from the date of payment of insurance
premium. D

The District Forum held that there was deficiency of
service on the part of the Respondent – Finance Company.
It was ordered that the Respondent – Finance Company shall
not recover any amount from the Appellant towards the loan
obtained by her deceased husband; and ordered compensation E

of Rs. 10,000/- towards mental agony, and Rs. 3,000/- towards
Costs.
2.11. The Respondent – Finance Company challenged the Order
of the District Forum before the State Consumer Disputes F
Redressal Commission, Mumbai.
The State Commission dismissed the Appeal vide Order
dated 19.09.2017. It was held that since the insurance
premium was deducted from the loan account of the
Appellant’s husband, the District Forum had rightly allowed
G
the Consumer Complaint.
1
Section 64VB (2) – For the purposes of this section, in the case of risks for which
premium can be ascertained in advance, the risk may be assumed not earlier than the
date on which the premium has been paid in cash or by cheque to the insurer.
Explanation – Where the premium is tendered by postal money-order or cheque sent
by post, the risk may be assumed on the date on which the money-order is booked or
the cheque is posted, as the case may be. H
64 SUPREME COURT REPORTS [2019] 6 S.C.R.

A 2.12. Aggrieved by the Order of the State Commission, the
Respondent – Finance Company filed a Revision Petition
before the National Commission u/S. 21 (b) of the Consumer
Protection Act, 1986.
The National Commission set aside the Order passed
B by the State Commission, and allowed the Revision Petition
filed by the Respondent – Finance Company vide Order dated
30.11.2018.
The National Commission held that the Appellant-
Complainant had taken a contradictory stand regarding
C payment of the insurance premium in her Legal Notice
dated 16.12.2015. She had stated that a Demand Draft of
Rs. 400/- was received by the Respondent – Finance
Company from her husband. However, there was no
document evidencing receipt of the said Demand Draft by
the Respondent – Finance Company towards payment of
D premium.
It was further held that there was no evidence of any
deduction of the insurance premium from the loan account
either. The Respondent – Finance Company could not be
held to be negligent in rendering services.
E
2.13. Aggrieved by the final Order dated 30.11.2018 passed by
the National Commission, the Appellant has filed the present
Civil Appeal.
3. We have heard learned Counsel for both parties, and perused
F the pleadings on record.
3.1. The National Commission, in exercise of its revisional
jurisdiction, has set aside the concurrent findings of the
District Forum and State Commission, by the impugned Order
dated 30.11.2018.
G The revisional jurisdiction of the National Commission
is a limited jurisdiction,2 to be exercised in case the State
Commission lacked jurisdiction, or acted with illegality or
material irregularity. 3
2
Galada Power and Telecommunication Limited v. United India Insurance Company
Limited & Anr., (2016) 14 SCC 161.
H 3
Rubi (Chandra) Dutta v. United India Insurance Co. Ltd., (2011) 11 SCC 269.
ASHATAI W/O ANAND DUPARTE v. SHRIRAM CITY UNION 65
FINANCE LTD. [INDU MALHOTRA, J.]

Section 21(b) reads as follows : A
“call for the records and pass appropriate orders in
any consumer dispute which is pending before or has
been decided by any State Commission where it appears
to the National Commission that such State Commission
has exercised a jurisdiction not vested in it by law, or B
has failed to exercise a jurisdiction so vested, or has
acted in the exercise of its jurisdiction illegally or with
material irregularity.”
(emphasis supplied)
3.2. The National Commission has allowed the Revision Petition C
of the Respondent – Finance Company on two grounds; first,
that the Appellant had failed to produce any evidence to prove
that the insurance premium was paid to the Respondent –
Finance Company; second, that there was no evidence to
prove that the Respondent – Finance Company deducted D
the insurance premium from the loan account.
3.3. A perusal of the pleadings and record, would show that both
these findings are factually incorrect.
With respect to the first ground, the Respondent –
Finance Company in paragraph 4(c) of the Revision Petition E
filed before the National Commission, has itself admitted that
it had received the Demand Draft from the Appellant’s
husband towards payment of the insurance premium.
The relevant extract is set out herein below for ready reference :
F
“That sometime in the month of March 2015, a request
for availing the Personal Accidental Insurance Policy
from Shriram General Insurance Company Limited
(hereinafter referred to as the ‘Insurance Company’)
was received from Late Sh. Anand Duparte alongwith
the Demand Draft towards the payment of the insurance G
premium, whereupon the same was forwarded to
‘Insurance Company’ and after carrying out their due
diligence, the Group Personal Accidental Insurance
Policy was thereon issued by ‘Insurance Company’.”
(emphasis supplied) H
66 SUPREME COURT REPORTS [2019] 6 S.C.R.

A Hence, the first ground on which the National Commission
has set aside the Order of the State Commission is factually
incorrect.
3.4. With respect to the second ground, the Respondent – Finance
Company has admitted that it had deducted an amount of
B Rs. 2,120/- towards processing of the loan, and payment of
stamp charges.
However, it was contended by the Respondent – Finance
Company that this deduction was not made towards payment
of the insurance premium.
C A perusal of the documents shows that the
Respondent – Finance Company was providing a loan facility
to the borrowers, which was secured by an insurance policy
issued by its own sister concern viz. M/s Shriram General
Insurance Company Limited. It was a composite inter-linked
transaction.
D
The Cover Note issued by M/s Shriram General
Insurance Company Limited, shows that the beneficiary of
the insurance policy is the Respondent – Finance Company
viz. M/s Shriram City Union Finance Ltd.
E The Cover Note further shows that the Group Insurance
Policy dated 30.03.2015 was issued to 280 borrowers, with
the loan amounts mentioned against their respective names.
Thus, the deduction of Rs. 2,120/- from the loan account
was towards processing of the composite transaction.
F 3.5. The deceased husband of the Appellant had fulfilled his part
of the transaction, by depositing Rs. 400/- by way of the
Demand Draft towards the insurance premium, and also the
charges of Rs. 2,120/- towards processing of the loan
transaction.
G 3.6. The Respondent – Finance Company however delayed in
forwarding the amount to the Insurance Company for
obtaining the insurance policy, which was issued on 30.03.2015
for the period 30.03.2015 to 29.03.2016.
Hence, there was a clear deficiency of service by the
Respondent – Finance Company in delay in obtaining the
H
insurance policy from its sister concern.
ASHATAI W/O ANAND DUPARTE v. SHRIRAM CITY UNION 67
FINANCE LTD. [INDU MALHOTRA, J.]

3.7. Section 64VB(2) of the Insurance Act, 1938 provides that : A
“For the purposes of this section, in the case of risks
for which premium can be ascertained in advance, the
risk may be assumed not earlier than the date on which
the premium has been paid in cash or by cheque to the
insurer.” B
It is the admitted position that the deceased husband of
the Appellant had paid the insurance premium by a Demand
Draft in favour of the Insurance Company. This has been
acknowledged in paragraph 4(c) of the Revision Petition filed
by the Respondent – Finance Company, as referred to above. C
As a consequence, the risk would be covered from the
date of payment of the insurance premium. The loan was
secured from the date on which the insurance premium was
paid. The premium having been paid by the Appellant’s
husband during his life-time, the loan was to be adjusted from D
the insurance policy.
3.8. The National Commission has erroneously set aside the Order
passed by the State Commission on factually incorrect
grounds.
The Appellant has made out a clear case of deficiency E
of service on the part of the Respondent – Finance Company.
4. In view of the aforesaid discussion, the Order dated 30.11.2018
passed by the National Commission in Revision Petition No. 472 of 2018
is hereby set aside. The Civil Appeal is allowed.
F
5. The Appellant – widow has been unnecessarily dragged
though legal proceedings on account of deficiency of service by the
Respondent – Finance Company. We deem it appropriate to direct the
Respondent – Finance Company to pay Compensation of Rs. 50,000/-,
and Costs of Rs. 25,000/- to the Appellant.
6. All pending Applications, if any, are accordingly disposed of. G

7. Ordered accordingly.

Nidhi Jain Appeal allowed.

H