HARSHAD J. SHAH AND ANR.versusL.I.C. OF INDIA AND ORS.

                    HARSHAD J. SHAH AND ANR.                                  A
                                     v.
                      L.1.C. OF INDIA AND ORS.

                              APRIL 4, 1997
                                                                               B
            [S.C. AGRAWAL AND G.B. PATIANAIK, JJ.]


      Contract Ac~ 1872 : Sectio11s 186 to 188 and 237.

       Ge11eral age11t of UC-Authority of-To receive premium 011 behalf of C
LIC-Actual or appare11t authority to bi11d LIC-Age11t received bearer che-
que from insured 011 accou11t of premium-After encashi11g the cheque the
said age11t deposited the amount with UC after the death of the in-
sured-Meanwhile, the policy lapsed-Letter of appoi11tme11t of agent as well
as Regulation 8(4) expressly prohibited the agent to collect premium 011 behalf D
of UC-UC by its co11duct did 1101 i11duce the policyholders to believe that
agents were authorised to receive premium 011 behalf of LIC-Held : Agent
had neither actual 11or appare11t authority to receive premium 011 behalf of
UC-17wugh UC was 'State' withi11 the meaning of Ari. 12 but while maki11g
a provision i11 the Regulations prohibiti11g the agents from collecting premium
011 behalf of the UC, it ca11not be said that UC had not acted fairly or in E
co11so11ance with Pait Ill of the Co11stitutio11-Life I11surance Corporation
Act, 1956, S. 49--Life Insura11ce Corporation of India (Agents) Regulations,
1972, Regn. 8--Life Insurance Corporation (Agents) Rules, 1981.

      Ge11eral Agent of UC-Authority of-To receive premium 011 behalf of F
LIC-Agent received bearer cheque from insured and deposited the amou11t
with UC after death of insured-Meanwhile the policy lapsed-Age11t had
neither express nor implied authority to collect premium on behalf of
UC-LIC also by its conduct did not i11duce the insured to believe that the
agent was autho1ised to receive premium 011 behalf of UC-Held : ll1 the G
circumstances of the case, the agent in receiving the bearer cheque from the
insured was not acting as an agent of the LIC-T11e policy having lapsed for
default in payment of prem~um, the legal heirs of the deceased insured could
11ot make any claim from LIC-However, LIC directed to refund the entire
amount of premium paid to the LIC along with interest @ 15% per annum. H
                                    617
    618                   SUPREME COURT REPORTS                   [1997) 3 S.C.R.

A         Practice and Procedure :

        Costs-Award of-Question of sufficient imp01ta11ce requiring decision
  of Supreme Cowt raised by appellant-Appellant's claim allowed by Stale
  Consumer Displlles Redressal Commission though rejected by National Com-
B mission-Held: In the circumstances of the case, while dismissing the appeal,
  UC directed to pay Rs. IO, 000 as costs to the appellant.

        The husband of Appellant No. 2 took out four insurance policies
  each with double accidental benefits through respondent No. 3 who was a
  general agent of the Life Insurance Corporation of India (LIC). Premium
C under the said policies was payable on half-yearly basis. The insured
  deposited the first and second premium and did not deposit the third
  half-yearly premium within the prescribed period. Subsequently, respon-
  dent No. 3 rcceiYed a bearer cheque towards half-yearly premium on all
  the four policies. The cheque was encashed by the son of respondent No.
D 3 and the amount of premium was deposited a day after the death of the
  Insured in a fatal accident Appellant No. 2, t11e widow of the insured, as
  the nominee under the policies, submitted a claim to the LIC on the ground
  that the policies had lapsed on account of non-payment of the half yearly
  premium even within the period of grace. Appellant No. 2 submitted a
  claim before the State Consumer Disputes Redressal Commission. The
E State Commission held that in order to collect more business the agents
  of LIC collect the premiums from the policyholders either in cash or by
  cheque and then deposit the money so collected in the office or the LIC            J
  and that this practice had been going on directly within the knowledge of
  the LIC administration despite the departmental instruction that the
F agents are not authorised to collect the premium. The State Commission
  was of the view that when the practice of accepting money by the LIC Agent
  from policyholders is in existence and the money is collected by the agent
  in his capacity and authority the reasonable inference was that the LIC
  was negligent in its service towards the policyholder. The National Con-
  sumer Disputes Redressal Commission dismissal the appeal filed hy the
G appellants. Hence this appeal.

          The Question before this Court was whether payment of premium in
     respect of a life insurance policy by the insured to the general agent of the
     LIC could be regarded as payment to the insurer so as to constitute a
                                                                                     l
                                                                                     1


H    discharge of liability of the insured.
                 HARSHAD .T. SHAH v. L.LC. OF INDIA                      619

      On behalf of the appellants it was contended that the LIC, by its · A
conduct, had induced the policyholders, including the insured, to believe
that the agents were authorised to receive the premium on behalf of the
LIC, that the doctrine of apparent authority under Section 237 of the
Contract Act, 1872 should be invoked; and that LIC, being "State" under
Article 12 of the Constitution, must act within the confines of the rights
guaranteed under Part III of the Constitution.
                                                                           B

      On behalf of the respondent-UC it was contended that in view of the
condition in the letter of appointment expressly prohibiting respondent
No. 3 from collecting the premium on behalf of the LIC, he had no express
authority to receive the premium on behalf of the LIC; that respondent          C
No. 3 also had no implied authority in view of the express provision in
Regulation 8( 4) of the Life Insurance Corporation of lnd:a (Agents)
Regulations, 1972.

      Disposing of the appeal, this Court
                                                                                D
        HELD : 1.1. Under the Law of Agency, as applicable in England, the
authority of an agent may be (i) actual or (ii) apparent. Actual authority
results from a manifestation of consent that the agent should respresent
or act for the principal made by the principal to the agent himself. It may
be express if it is given wholly or in part by means of words or writing or
or it may be implied when it is regarded by the law as the principal having     E
given him because of the interpretation put by the law on the relationship
and dealings of the two parties. Implied authority may arise in the form
of incidental authority, i.e., authority to do whatever is necessarily or
normally incidental to the activity expressly authorised, or usual authority,
i.e., authority to do whatever an agent of the type concerned would usually     F
have authority to do, or customary authority, i.e., authority to act in
accordance with such applicable business customs as are reasonable. The
authority of the agent may also be implied from the circumstances of the
particular case. [628-E-H]

      1.2. The authority of the agent is apparent where it results from a       G
manifestation made by the principal to third parties. The doctrine of
apparent authority involves the assumption that there is in fact no
authority at all. It is the authority of an agent as it appears to others.
Under this doctrine where a principal represent, or is regarded by law as
representing, that another has authority, he may be bound as against a          H
    620                   SUPREME COURT REPORTS                   (1997) 3 S.C.R.

A third party by the acts of that other person within the authority which that
    person appears to have though he had not in fact given that person such
    authority or had limited the authority by instruction not made known to
    the third party. The notion. of apparent authority is essentially confined
    to the relationship between principal and third party. The position is not
B   very different in the law in India. [n this context Sections 186 to 188 and
    237 of the Contract Act, 1872 are relevant. (629-A-D]

          Bowstead 011 Agency, 15th Et:ln., Article 22, pp. 92 to 94, referred to.

          2. Under the law governing Contracts of Insurance the premium may
C be paid by the assured to the insurers or to an insurance agent acting on
    behalf of the insurers and if the agent has author!ty to receive it the
    payment binds the insurers. The authority need not be an express
    authority; it may be implied from the circumstances. (629-F-G]

          Halsbwy's Laws of England, Vol. 25, pp 254 para 460, referred to.
D
         3.1. [n the instant case, it cannot be said that respondent No. 3 had
    the express authority to receive the premium on behalf of the Life In-
    surance Corporation of India (LIC) because in the letter of appointment
    there was a condition expressly prohibiting him from collecting the
    premium on behalf of the LIC. Nor respondent No. 3 had an implied
E   authority to collect the premium on behalf of the LIC in view of the express
    prohibition in Regulation 8(4) of the Life Corporation of India (Agents)
    Regulations, 1972 which in 1981 became a rule and published in the
    Gazette. (629-H; 630-A-B]

p       3.2. In the complaint filed before the State Commission, no case was
  set up by the appellants that the LIC, by its conduct, had induced the
  policyholders, including the insured, to believe that the agents (including
  respondent No. 3) were authorised to receive the premium on behalf of the
  LIC. Nor is there any material on record which may lend support to such
  a submission. From the mere fact that respondent No. 3 had obtained
G bearer cheque from the insured and after encashing the same from the
  Bank, had deposited the said amount with the LIC, it cannot be said that
  the LIC induced insured to believe the respondent No. 3 had been
  authorised by the LIC to receive the premium on behalf of the LIC.
  Therefore, the doctrine of apparent authority underlying Section 237 of the
H Indian Contract Act, 1872 cannot be invoked in the facts of this case
                 HARSHAD J. SHAH v. L.l.C. Of INDIA                       621

especially when the LIC has been careful in making an express provision          A
in the Regulations/Rules, which are statutory in nature, indicating that the
agents are not authorised to collect any moneys or accept any risk on
behalf of the LIC and they can collect so only if they are expressly
authorised to do so. [630-E-H; 631-A-C]

      4.1. It is true that the LIC, being 'state' under Article 12 of the        B
Constitution, must act within the confines of the rights guaranteed under
Part III of the Constitution. But this constitutional obligation has no
bearing on the present case. In disclaiming its liability the LIC is acting in
accordance with the provision in Regulations/Rules framed by it whereby
the agents have been prohibited from collecting the moneys on behalf of the      C
LIC. The said provision has been made in public interest in order to protect
the Corporation from any fraud on the part of an agent. It cannot be said
that in making such a provision in the Regulations/Rule and in i:cting in
accordance with the same the LIC has not acted fairly or in consonance
with its obligations under Part III of the Constitution. [631-D·F]
                                                                                 D
      LJC of India &Anr. v. Consumer Education & Research Centre & Ors.,
[1995] 5 sec 482, referred to.

       4.2. No ground is, made out for interfering with the decision of the
National Commission that respondent No. 3 in receiving the bearer cheque         E
from the insured was not acting as an agent of the LIC. But keeping in view
the facts and circumstances of the case LIC is directed to refund the entire
amount of premium paid to the LIC on the four insurance policies to
appellant No. 2 along with interest @ 15% per annum. The interest will be
payable from the date of receipt of the amounts of premium. Having regard
to the fact that the appellants had succeeded before the State Commission        F
and the questions raised by them are of sufficient importance requiring a
decision by this Court respondent No. 1 shall 1iay to the appellants a sum
of Rs. 10,000 as costs. The amount of premiums with interest and the costs
shall be paid within a period of one month. [631-G-H; 632-A-B]

     CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 7202-                      G
7203 of 1996.

      From the Judgment and Order dated 26.7.94 of the National Con-
sumer Disputes Redressal Commission, New Delhi in F.A. Nos. 280 and
323 of 1992.                                                                     H
    622                  SUPREME COURT REPORTS                  [1997] 3 S.C.R.

A         Naresh S. Mathur and Gopal Singh for the Appellants.

         Harish N. Salve, K.K. Sharma, C.K. Sasi and Kailash Vasdev for the
    Respondents.

          The Judgment of the Court w<:s delivered by
B
          S.C. AGRAWAL, J. The question that falls for consideration in these
    appeals by special leave is whether payment of premium in respect of a life
    insurance policy by the insured to the general agent of the Life Insurance
    Corporation of India (for short 'LIC') can be regarded as payment to the
    insurer so as to constitute a discharge of liability of the insured. This
C   question arises on the following facts :

         Jaswantrai G. Shah, the husband of appellant N<J. 2, (hereinafter
   referred to as 'the insured') took out four insurance policies for Rs. 25,000
   each with double accidental benefits on March 6, 1986 though Shri
D Chaturbhuj H. Shah (respondent No. 3) who was a general agent of a the
   LIC (respondent No. 1). Premium under the said policies was payable on
   half yearly basis. The insured deposited the first half yearly premium on
   March 6, 1986 and the second half yearly premium was deposited on
 . September 6, 1986. The third half yearly premium fell due on March 6,
   1987 but it was not deposited within the prescribed period. On June 4, 1987
E respondent No. 3 met the insured and obtained from him a bearer cheque
   dated .June 4, 1987 for Rs. 2,730 drawn OD' Union Bank of India, Malad,
   Bombay, towards the half yearly premium on all the four policies. The
   cheque was encashed by the son of respondent No. 3 on June 5, 1987. The
   said amount of premium was deposited by respondent No. 3 with the LIC
   on August 10, 1987. In the meanwhile on August 9, 1987 the insured met
F with a fatal accident and he died on the same day. Appellant No. 2, the
   widow of the insured, as the nominee under the policies, submitted a claim
   to the LIC on the basis of the said four policies but the claim was
   repudiated by the LIC on the ground that the policies had lapsed on
   account of non-payment of the half yearly premium which fell due on
G March 6, 1987 within the period of grace. Appellant No. 2 along with the
   Consumer Education & Research Society (appellant No. 1), a Society
   registered under the societies. Registration Act and mainly devoted to the
   promotion and protection of consumer interest, submitted a complaint
   before the Gujarat State Consumer Disputes Redressal Commission at
   Ahmedabad wherein a claim was made for payment of Rs. 4,32,000 to
H appellant No. 2. The said claim comprised Rs. 1,00,000 payable under the
      HARSHAD J. SHAH v. L.I.C. OF INDIA [S.C. AGRAWAL,J.)              623

four policies of Rs. 25,000 each, Rs. 1,00,000 payable towards double A
accidental benefit, Rs. 1,32,000 payable by way of interest @ 18% per
annum on the aforementioned amount of Rs. 2,00,000 from June 6, 1987
to March 31, 1991 and Rs. 1,00,000 as compensation for annoyance, agony,
hardship and humiliation caused to the dependents of the insured. The said
complaint was transferred by the Gujarat State Consumer Disputes
Redressal Commission to the Maharashtra State Consumer Disputes B
Redressal Commission at Bombay, (hereinafter referred to as 'the State
Commission').

       Before the State Commission the case of the appellants was that the
amount of premium collected by respondent No. 3 from the insured was           C
collected by hirii on behalf of the LIC. LI C, on the other hand, pleaded
that the amount of premium collected by the General Agent cannot be said
to have been received by the LI C. It was stated that the agents are not
authorised to collect the premium amount. The State Commission, by its
judgment dated June 5, 1992, directed the LIC to settle the claim in respect
of the four policies within 30 days from the receipt of the order and to pay   D
the amount of the claim to appellant No. 2 after deducting the amount of
interest, if any, necessary to treat the policies as surviving. The State
Commission held that in order to collect more business the agents of the
LIC collect the premiums from the policyholders either in cash or by
cheque and then deposit the money so collected in the office of the LIC        E
and that this practice had been going on directly within the knowledge of
the LIC administration despite the departmental instructions that the
agents are not authorised to collect the premiums. The State Commission
was of the view that when the practice of accepting money by the LI C
Agent from policyholders is in existence and the money is collected by
agent in his capacity and authority the reasonable inference was that the      F
LIC was negligent in its service towards the policyholder.


      Appeals were filed against the said judgment of the State Commis-
sion by the appellants as well as by respondent Nos. 1 and 2. The National
Consumer Disputes Redressal Commission (hereinafter referred to as 'the G
National Commission') by its order dated July 26, 1994 has dismissed the
appeals filed by the appellants and has allowed the appeal filed by the
respondent Nos. 1 and 2. The National Commission has held that the
insurance Agent in receiving a bearer cheque from the insured towards
payment of the insurance premium was not acting as the Agent of the LIC H
    624                   SUPREME COURT REPOR1S                  [1997} 3 S.C.R.

A nor could it be deemed that the LIC had received the premium on the date
    the bearer cheque towards the premium was received by the insurance
    Agent, namely, June 4, 1987 even though he deposited the same with the
    LIC on August 10, 1987, one day after the death of the insured. Feeling
    aggrieved by the said decision of the National Commission, the appellants
    have filed these appeals.
B
           It is not disputed that the third half yearly premium had become
    payable on the four insurance policies of the insured on March 6, 1987 and
    it was not paid within the grace period of one month prescribed in the
    insurance policies._In condition No. 2 of the conditions set out in the
C   Insurance Policy it is stated the if the premium is not paid before the expiry
    of the days of !,'face, the Policy lapses. The case of the appellants is that
    since the payment was made to respondent No. 3 who was the agent of the
    LIC on June 4, 1987 by bearer cheque d<1ted June 4, 1987 for Rs. 2,730,
    the policies did not lapse on account of non-payment of the premium
D   within the period of grace and that in any event that said policies could be
    revived on payment of the interest payable for the delayed payment of the
    premium amount. The case of the LIC, on the other hand, is that respon-
    dent No. 3 had not been empowered by the LIC to receive payment from
    the insured on the policies and that handing over of the cheque of Rs. 2,
    730 by the insured to respondent No. 3 on June 4, 1987 cannot be regarded
E   as payment of premium by the insured to the LIC on June 4, 1987. The
    premium on the said policies was paid to the LI C only on August 10, 1987
    but before that the insured had died on August 9, 1987 and, therefore, the
    policies, which had lapsed Oil aCCOUnt of non-payment of premium, COUid
    not be revived. The LIC, in this context, places reliance on the, Life
     Insurance Corporation of India (Agents) Regulations, 1972 (hereinafter
F   referred to as 'the Regulations') framed by the LI C, in exercise of the
     powers vested in it under Section 49 of the Life Insurance Corporation Act,
     1956, (hereinafter referred to as 'the Act'). Regulation 8 dealt with func-
     tions of agents and clauses (3) and (4) of the said Regulation provide as
     follows:
G
             "(3) Every agent shall, with a view to conserving the business
             already secured, maintain contract with all persons who have
             become policyholders of the Corporation through him and shall :

H            (a) advise every policyholders to effect nomination of assign-
      HARSHAD J. SHAH i•. L.l.C. OFINDIA[S.C. AGRAWAL, J.]            625

             ments in respect of his policy and offer necessary assistance A
             in this behalf;

        (b) endeavour to ensure that every instalment of premium is
            remitted by the policyholder to the Corporation within the
            period of grace;
                                                                             B
        (c) endeavour to prevent the lapsing of a policy or its conversion
            into a paid-up policy; and

        (d) render all reasonable assistance to the claimants in filling
            claim forms and generally in complying with the requirements     C
            laid down in relation to settlement of claims.

        (4) Nothing contained in these regulations shall be deemed to
        confer any authority on an agent to collect any money or to accept
        any risk for or on behalf of the Corporation or to bind the
        Corporation in any manner whatsoever :                             D
           Provided that an agent may be authorised by the Corporation
        to collect and remit renewal premiums under policies on such
        conditions as may be specified."

       By the Life Insurance Corporation (Amendment) Act, 1981 (Act 1 E
of 1981), clause (cc) was inserted in sub-section (2) of Section 48 and as a
result, role-making power was conferred on the Central Government to
make rules providing agents of the LIC including those who became
employees and agents of the LIC on the appointed day under the Act and
corresponding provision in Section 49 of the Act which empowered the
LIC to make regulations in that regard was deleted. By virtue of sub-sec- F
lion (2-A) of Section 48, which was also introduced by Act 1 of 1981, it
was provided that the regulations and other provisions as in force imme-
diately before the commencement of the Life Insurance Corporation
(Amendment) Act, 1981, with respect to the terms and conditions of
service of employees and agents of the Corporation including those who G
became employees and agents of the LIC on the appointed day under the
Act, shall be deemed to be rules made under clause (cc) of sub-section (2)
and shall, subject to the other provisions, have effect accordingly. In view
of the said provisions, the Regulations by legal fiction introduced by
Section 48(2A) of the Act became Life Insurance Corporation (Agents)
Rules (hereinafter referred to as 'the Rules') with effect from January 31, H
     626                  SUPREME COURT REPORTS                    [1997] 3 S.C.R.

)A 1981, the date of coming into force of Act 1 of 1981.
           On behalf of the LIC it has also been stated that one of the condi-
     tions of appointment of respondent No. 3 as General Agent, as laid down
     in the letter of appointment dated December 5, 1962, was :
                                                                                      --
 B           "10. As a 'probationary agent you are not authorised to collect
             moneys, accept risks or bind the Corporation in any way other than
             to collect the Deposit towards the First Premium and Fees as
             stated in the booklet entitled "Hints to Agents", nor are you
             authorised or allowed to advance premium to the Corporation on
             behalf of policyholders or to become an assignee except with the
 c           prior permission in writing of the Divisional Manager, under
             policies on the lives of persons other than your own or your very
             near relatives such as wife or minor children, or major children if
             they are members of a joint family, or to get assigned to such very
             near relatives' policies on the lives of persons other than their near
 D           relatives .. You are also not authorised to collect or pass receipts
             for moneys paid towards premiums, in respect of which remittan-
             ces should be made to the Branch Office of the Corporation
             concerned and receipt in the Corporation's official form obtained.
             In respect of any unauthorised collections,'you will be acting as an
 E            agent of the party concerned and not as an agent of the Corpora-
              tion and you alone will be answerable to the party for consequences
              of such unauthorised actions."

         On the basis of the aforesaid provisions contained in the Regula-
   tion/Rule 8 of the Regulations/Rules and clause 10 of the conditions on
 F which respondent No. 3 was appointed as the agent, the LIC claims that
   respondent No. 3 had not been authorised by the LIC to collect the
   premium from the insured and the action of respondent No. 3 in receiving
   the cheque of Rs. 2,730 from the insured on June 4, 1987 cannot be
   regarded as receipt of premium by respondent No. 3 on behalf of the LIC
 G and, therefore, the said payment cannot be treated as payment of premium
   to the LIC on June 4, 1987 and that insofar as the LIC is concerned the
   premium was paid only on August 10, 1987 after the death of the insured.

         In condition No. 2 in the Insurance Policy it was provided that "if the
   premium is not paid before the expiry of the days of grace, the policy
 H lapses". The grace period allowed for payment of yearly, half yearly or
            HARSHAD J.SHAH v. L.l.C.OFINDIA(S.C. AGRAWAL,J.]                    627

     quarterly premiums was one month. The said grace period for payment of A
     half yearly premium on the policies of the insured expired on April 6, 1987.

-    Since the premium was admittedly not paid by the insured till April 6, 1987
     the policies had lapsed. For revival of discontinued policies condition No.
     3 of the Insurance Policy makes the following provision :

              "3. Revival of Discontinued Policies : If the Policy has lapsed, it      B
              may be revived during the life time to Life Assured, but within a
              period of 5 years from the date of the first unpaid premium and
              before the date of maturity, on submission of proof of continued
              insurability to the satisfaction of the Corporation and the payment
              of all the arrears of premium together with interest at such rate as     C
              may be fixed by the Corporation from time to time compounding
              half-yearly. The Corporation reserves the right to accept or decline
              the revival of discontinued policy. The revival of a discontinued
              policy shall take effect only after the same is approved by the
              Corporation and is specifically communicated to the Life Assured."
                                                                                       D
            In view of this condition the matter of revival of the policies of the
      insured could be considered only upon submission of proof of continued
      insurability to the satisfaction of the LIC and the payment of all the arrears
      of premium together with interest at such rate as may be fixed by the LIC.
      In other words the question of revival of the policies could arise only if the   E
      premium can be said to have been paid to the LIC during the life time of
      the insured, i.e., before August 9, 1987. Therefore, it becomes necessary to
      consider whether the half yearly premium was paid by the insured to the
      LIC on June 4, 1987 when the bearer cheque of Rs. 2,730 was delivered by
      the insured to respondent No. 3, as claimed by the appellants, or on August
                                                                                       F
    · 10, 1987. when the said amount of Rs. 2,730 was deposited with the LIC,
      as claimed by the LIC. This raises the question whether receipt of the
      amount of Rs. 2,730 by cheque by respondent No. 3 can be regarded as
      receipt of the said amount by the LIC through its agent.

           Shri Naresh S. Mathur, the learned counsel appearing for the respon-        G
     dents, has submitted that in view of the fact that large number of
     policyholders are residing at places where there is no branch office of the
     LIC and the facility for depositing the premium with the LIC is not
     available within a reasonable distance it has been the prevailing practice in
     the LIC for the agents to collect the premium from the policyholders and          H
    628                  SUPREME COURT REPORTS                  [1997] 3 S.C.R.

A to deposit the same at the LIC office later and since the agents receive
    commission on the amount of premium which they collect on the policies
    the receipt of the premium by the agents must be treated as an act within
    the scope of their authority as agents of the LIC and the limitation imposed
    on the authority of the agents to receive the premium in the Regula-
B   tions/Rulcs or in the letter of appointment cannot be binding as against
    third parties viz., the policyholders. The learned counsel has, therefore
    urged that the payment of premium hy the insured in the present case by
    bearer cheque on June 4, 1987 to respondent No. 3 should be treated to
    have been paid to respondent No. 3 in his capacity as the agent of the LIC.

c         Shri Harish Salve, the learned senior counsel appearing for the UC,
    on the other hand, has submitted that in view of the Regulation/Rule 8 as
    well as clause 10 in the letter of appointment of respondent No. 3 as agent
    it cannot be said that the UC had conferred an authority on respondent
    No. 3 to collect the premium on behalf of the UC and, therefore, the
D   receipt of the cheque for Rs. 2,730 by respondent No. 3 from the insured
    on June 4, 1987 cannot be regarded as payment received by him on behalf
    of the LIC. The learned counsel has, in support of the aforesaid submis-
    sion, placed reliance on the law relating to agency governing the scope of
    authority of the agent.

E
         Under the Law of Agency, as applicable in England, the authority of
    an agent may be : (i) actual or (ii) apparent.

        Actual authority results from a manifestation of consent that he
  should represent or act for the principal made by the principal to the agent
F himself. It may be express if it is given wholly or in part by means of words
  or writing or it may be implied when it is regarded by the law as the
  principal having given him because of the interpretation put by the law on
  the relationship and dealings of the law two parties. Implied authority may
  arise in the form of incidental authority, i.e., authority to do whatever is
G necessarily or nortyially incidental to the activity expressly authorised, or
  usual authority, i.e., authority to do whatever an agent of the type con-
  cerned would usually have authority to do, or customary authority, i.e.,
  authority to act in accordance with such applicable business customs as are
  reasonable. The authority of the agent may also be implied from the
H circumstances of the particular case.
          HARSHAD J. SHAH v. L.I.C. OF INDIA [S.C. AGRAWAL, J.]              629

           The authority of the agent is apparent where it results from a A
    manifestation made by the principal to third parties. The doctrine of

-   apparent authority involves the assumption that there is in fact no authority
    at all. It is the authority of an agent as it appears to others. Under this
    doctrine where _a principal represents, or is regarded by law as repre-
    senting, that another has authority, he may be bound as against a third B
    party by the acts of that other person within the authority which that person
    appears to have though he had not in fact given that person such authority
    or had limited the authority by instructions not made known to the third
    party. The notion of apparent authority is essentially confined to the
    relationship between principal and third party. (See : Bowstead on Agency,
    15th Edn., Article 22, pages 92 to 94).                                       C

           The position is not very different in the law in India. Section 186 of
    the Indian Contract Act, 1872 lays down that the authority of an agent may
    be express on implied. An authority is said to be express when it is given
    by_ words spoken or written and an authority is said to be implied when it      D
    is to be inferred from the circumstances of the case and things spoken or
    written, of the ordinary course of dealing, may be accounted circumstances
    of the case (Section 187). Section 188 prescribes that an agent having as
    authority to do an act has authority to do every lawful thing which is
    necessary in order to do such act. In Section 237 it is provided that when      E
    an agent has, without authority, done acts or incurred obligations to third
    persons on behalf of his principal, the principal is bound by such acts or
    obligations if he has by his words or conduct induced such third persons
    to believe that such acts and obligations were within the scope of the
    agent's authority.
                                                                                    F
          Under the law governing Contracts of Insurance the premium may
    be paid by the assured to the insurers or to an insurance agent acting on
    behalf of the insurers and if the agent has authority to receive it the
    payment binds the insurers. The authority need not be an express authority;
    it may be implied from the circumstances. (See : Halsbury's Laws of G
    England, Vol. 25, p. 254 para 460).

          In the instant case, it cannot be said that respondent No. 3 had the
    express authority to receive the premium on behalf of the LIC because in
    the letter of appointment dated December 5, 1962 there was a condition          H
    630                  SUPREME COURT REPORTS                  (1997] 3 S.C.R.

A expressly prohibiting him from collecting the premium on behalf of the
    LIC. Nor can it be said that respondent No. 3 had an implied authority to
    collect the premium on behalf of the LIC because in 1972 the LIC has
    made a regulation (Regulation 8(4), which in 1981 became a rule, prohibit-
    ing the agents from collecting premium on behalf of the LIC. This shows
B   that collection of premium was not necessary for or ordiiiarily incidental
    to the effective execution of his express authority by an agent. In view of
    this express prohibition in the Regulations/Rules which were published in
    the Gazette it is not possible to infer an implied authority by the LIC
    authorising its agents to collect premium on behalf of the LIC.

c       The only question is whether the LIC can be held liable on the basis
  of the doctrine of apparent authority. Shri Mathur has invoked the said
  doctrine and has relied upon Section 237 of the Indian Contract Act. He
  has urged that, by its conduct in receiving the premium through it agents,
  the LIC had induced the policyholders to believe that acts of the agents in
D receiving the premium form the policyholders were within the scope of the
  agents' authority. Shri Mathur has laid stress on the fact that respondent
  No. 3 was permitted to deposit the amount of Rs. 2,730 towards premiums
  with the LIC on August 10, 1987 on behalf of the insured. We, however,
  find that in the complaint that was filed on behalf of the appellants before
E the State Commission no such case was set up by the appellants that the
  LIC, by its conduct, had induced the policyholders, including the insured,
  to believe that the agents (including respondent No. 3) were authorised to
  receive the premium on behalf of the LIC. Nor is there any material on
  record which may lend support to the submission urged on behalf of the
  appellants that by its conduct the LIC had induced the policyholders,
F including the insured, to believe that agents were authorised to receive
  premium on behalf of the LIC. The only circumstance relied upon by the
  learned counsel for the appellants is the receipt of the amount of Rs. 2, 730
  by the UC on August 10, 1987. In this regard, the submission of Shri Salve
  is that issuance of the receipt for the said amount of 2,730 by the LIC in
G the name of the insured does not indicate that the amount was received
  through respondent No. 3 and that on the basis of the said receipt it cannot
  be said that the LI C had induced the insured to believe that respondent
  No. 3 was authorised to receive the amount of premium on behalf of the
  LIC. We find considerable merit in this submission. From the mere fact
H that respondent No. 3 had obtained bearer cheque for Rs. 2, 730 from the
       HARSHADJ. SHAH v. L.I.C. OF INDIA(S.C. AGRAWAL, J.]                  631

insured on June 4, 1987 a~d after encashing the same from the Bank on A
June 5 1987, had deposited the said amount with the LIC on August 10,
1987, it cannot be said that the LI C induced the insured to believe that
respondent No. 3 had been authorised by the LIC to receive premium on
behalf of the LI C. We are, therefore, unable to hold that the doctrine of
apparent authority underlying Section 237 of the Indian Contract Act can B
be invoked in the facts of this case especially when the LIC has been careful
in making an express pro,~sion in the Regulations/Rules, which are
statutory in nature, indicating that the agents are not authorised to collect
any moneys or accept any risk on behalf of the LIC and they can collect
so only if they are expressly authorised to do so.
                                                                                   c
       Shri Mathur has placed reliance on the observations of this Court in
LIC of India & Anr. v. Consumer Education & Research Centre & Ors.,
(1995) 5 SCC 482, wherein this Court has stressed that since the LIC is
'state' under Article 12 of the Constitution it has a duty to act fairly in view
of the mandate contained in Article 14 of the Constitution. It is no doubt         D
true that the LIC, being 'state' under Article 12 of the Constitution, must
act within the confines of the rights guaranteed under Part Ill of the
Constitution. But we are unable to appreciate as to how this constitutional
obligation has bearing on the present case. In disclaiming its liability the
LIC is acting in accordance with the provision in Regulations/Rules framed         E
by it whereby the agents have been prohibited from collecting the moneys
on behalf of the LI C. The said provision has been made in public interest
in order to protect the Corporation from any fraud on the part of an agent.
It cannot be said that in making such a provision in the Regulations/Rules
and in acting in accordance with the same the LIC has not acted fairly or
in consonance with its obligations under Part III of the Constitution.
                                                                                   F

      For the reasons aforementioned, we are unable to uphold the claim
of the appellants. No ground is made out for interfering with the decision
of the National Commission that respondent No. 3 in receiving the bearer
cheque for Rs. 2,370 from the insured was not acting as an agent of the            G
LIC. But keeping in view the facts and circumstances of the case we direct
the LIC to refund the entire amount of premium paid to the LIC on the
four insurance policies to appellant No. 2 along with interest @ 15% per
annum. The interest will be payable from the date of receipt of the amounts
of premium. We are also of the opinion that having regard to the fact that         H
    632                 SUPREME COURT REPORTS                 [1997) 3 S.C.R.

A the appellants had succeeded before the State Commission and the ques-
    tions raised by them are of sufficient importance requiring a decision by
    this Court respondents No. 1 shall pay to appellants a sum of Rs. 10,000
    (Rupees ten thousand only) as costs. The amount of premiums with interest
    and the costs shall be paid within a period of one month. The appeals are
B   disposed of accordingly.

    v.s.s.                                              Appeals disposed of.