JUDGMENT
Patnaik, J.
1. This appeal has been preferred by the defendant — Life Insurance Corporation of India — challenging the judgment of the learned Principal Sub Judge, Ernakulam dated 28-2-1987 in O.S. 139 of 1986, by which the defendant has been made liable to pay an assured sum of Rs. 2,00,000/-with interest and costs to the plaintiff as the nominee of her deceased husband, under an alleged contract of insurance,
2. The plaintiff averred that her husband late T.N. Devaraj filled up the form of proposal for insurance on his life for a sum of Rs. 2,00,000/- (Rupees two lakhs) — Ext. B1(a) on 5-3-1982 and sent the same along with a cheque for Rs. 2625/- as the first premium to the Divisional Office of the Life Insurance Corporation of India, Trivandrum after getting himself medically examined by the doctors. The appellant accepted the proposal and encashed the cheque and acknowledged the same by granting the receipt dated 9-3-1982 (Ext. A1), (the office copy of which is marked as Ext. B1(c)). Shri Davis Thomas, the agent of the appellant informed late Devaraj that issuance of the policy is only an office formality and would come in due course. But, Devaraj expired on 19-3-1982 on account of sudden renal failure. According to the plaintiff, grant of receipt Ext. A1 would indicate that there was an unconditional acceptance of a tender made in payment of the premium due under the contract, the offer of which was contained in the receipt; it constituted the first premium and consequently a contract of insurance came into existence; it is binding on the defendant-Corporation. But, when the plaintiff put forth her claim by the letter dated 16-6-1982 (Ex. A3), a reply dated 22-6-1982 (Ext. A4) was received from the Divisional Manager, LIC of India, Trivandrum stating that the proposal by her husband was not accepted by the Corporation and hence the contract was not complete. The appellant, therefore, declined to pay the amount as claimed.
3. The defendant-appellant resisted the claim on the ground that the said proposal of the deceased husband of the plaintiff received on 9-3-1982 had not been accepted by the time of his death and as such there was no concluded contract between the deceased and the defendant-Corporation so as to make it liable to pay the amount as stated in the proposal. Since the proposal was sent for assurance of a sum of rupees two lakhs, the ultimate authority to consider its acceptance was the Central Office of the Corporation at Bombay. It takes time to complete this process. The proposer, however, died before it was considered by the authority competent to accept the proposal. The agent is appointed to procure insurance business only and he is not empowered to make statements on behalf of the defendant-Corporation. Hence the defendant-Corporation is not bound by it. The cheque sent by the deceased which was encashed was held in deposit in the “Suspense Account” and not adjusted towards the premium. The acceptance of proposal and grant of first premium receipt are essential to create a binding legal obligation on the defendant-Corporation. The receipt (Ext. A1) being not a receipt towards payment of premium and the defendant-Corporation having not signified about the acceptance of the proposal, there was no completed contract.
4. The learned Sub Judge, by relying on the decision of this Court in LIC of India v. Kamalamma 1986 Ker LT 347 : (AIR 1986 Kerala 215), decreed the suit and held that the very encashment of the cheque sent by Devaraj (deceased) on 9-3-1982 amounts to acceptance of the proposal since the initial payment made by Devaraj as shown in the receipt (Ext. A1) should be taken as the payment of his first premium. She distinguished the decision of the Supreme Court in LIC of India v. Vasireddi, AIR 1984 SC 1014 by stating that the facts in that case were resting on an offer never acted upon and it was a case of total absence of a contract. Accordingly, she decreed the suit and held that the defendant (Appellant), is liable to pay the assured amount to the plaintiff.
5. The learned counsel for the appellant relied on the decision of the Supreme Court in Vasireddi’s case, AIR 1984 SC 1014, whereas the learned counsel for the respondent relied on Karnalamma’s case 1986 Ker LT 347 : (AIR 1986 Kerala 215) in support of their respective contentions.
6. In view of the aforesaid rival contentions, sole question that arises for consideration is whether acceptance of the cheque that accompanied the proposal form would amount to the acceptance of the proposal and a contract of insurance concluded despite non-issue of a policy signifying the acceptance of the proposal.
7. Admittedly, the defendant-Corporation never issued any policy of life insurance, nor a demand was made by it on the proposer to pay any premium before his death. The amount under Ext. A1 was said to have been paid on the advice of one Shri Devis Thomas, who is an agent of the Corporation. There is nothing in the evidence on record to show that he is a salaried employee of the Corporation. The work of an agent of the Insurance Corporation is only to solicit persons to take out insurance policies. He is not involved in the adminstrative affairs of the Corporation, much less authorised to take decisions on matters pertaining to the issue of policy. Therefore, he cannot be said to be a person authorised to make statements on behalf of the Corporation. That being so, the Corporation is not bound by the conduct of the agent in advising the deceased to remit an amount of Rs. 2625/- as premium or his statement that issue of a policy is a mere formality.
8. The only basis of of the plaintiff’s claim rests on Ext. A1. If it is construed as document evidencing acceptance of the proposal by the defendant-Corporation she must succeed, if not, the she is bound to fail. Ext. A1 is captioned as Suspense Memorandum. It shows that the amount of Rs. 2625/- was received as an initial amount towards proposal. It is mentioned therein as follows:
" SUSPENSE MEMORANDUM Payment as shown along side has been received and held in suspense. If the payment is found in order the amount will be adjusted and Corporation's Official Receipt issued."
This clearly indicates that the amount received has been deposited in the “suspense account” in favour of the deceased. The Division Bench of this Court in Kamalamma’s case 1986 Ker LT 347 : (AIR 1986 Kerala 215) considered the implications of identical words contained in a similar document as Ext. A1 and interpreted to mean that the total amount paid by the deceased was accepted subject to the amount being correct; in the event of deficiency, the defendants reserved their right to repudiate their obligations under the contract; in the absence of any repudiation of the contract by reason of any deficiency in the amount paid, the plea that there was no contract at all cannot be accepted; Ext. A1 (of that case) was an unconditional receipt in the sense that the only qualification it contains is that it is an acknowledgement of receipt of the amount which would be accompanied by an official receipt issued by the branch office; there was no qualification in the acceptance of the amount tendered as the first premium, in law, therefore, it evidenced an unconditional acceptance of a tender made in payment of the premium due under the contract. The said view was taken on the facts of that case.
9. DW 1, who is the Branch Manager of the Life Insurance Coropration of India, Ernakulam Branch, has deposed that Ext. A1 was issued in token of the amount received from the proposer to be utilised as premium as and when the proposal was accepted in future. The amount received as initial payment towards premium would be utilised only after the acceptance of the proposal. The premium amount is fixed after the acceptance of the proposal. It is done on the advice of the central office. He deposed these facts with reference to the instructions contained in Ext. B2 — Underwriting Manual, compiled by the authorities concerned of the Life Insurance Corporation, the legal validity of which has not been challenged. The Corporation officers are bound to act according to the said instructions.
The expression “suspense account” in the common parlance means an account in which the amount is held in deposit in favour of the person who remitted it and may be refunded in future, if the same is not appropriated or utilised for the purpose for which it was remitted. On a plain reading of the contents of Ext. Al, in our opinion, it does not admit of an intepretation that the money sent along with the proposal unasked for and kept in suspense account by the Corporation before the settlement of the actual rate of premium should be treated as the first premium.
10. The proposal form, when duly filled in and signed by the proposed assured and forwarded to the insurers, operates as a formal offer by the proposed assured to the insurers to enter into a contract of insurance. The proposal form shows the terms on which he is willing to contract, and if the offer is accented, he cannot insist on having an insurance differing in its terms from those specified in the proposal. Since the proposal form, in practice, proceeds from the insurers, it further shows the terms upon which they too are willing to contract. They are bound, therefore, after acceptance to issue a policy in accordance with the proposal. (See p. 101 of General Principles of Insurance Law (5th Edn.) by E.R. Hardy Ivamy).
The first requisite of any valid contract is that there should be mutual agreement –consensus ad idem — between the parties. So to form any binding contract there must be a definite promise by one party and an acceptance by the other. Negotiations may carry on for a considerable time between them, but no valid contract can come into being until one accepts without qualification the final proposal of the other.
It is important to know the exact time when an agreement to insure comes into being as until then should the casualty insured against occur, the insurer will not be bound. There is a crucial distinction between the making of the contract and the commencement of the risk, as the former commonly precedes the latter. (See pp 11, 12 of Colinvaux’s Law of Insurance (6th Edn.)).
11. The law on offer and acceptance of a contract of insurance on life has been enunciated at pages 87 and 226 in Mac-Gillivray and Parkington on Insurance Law (8th Edn.) as follows:
“In order that a binding contract of insurance shall be concluded, there must be an offer put forward by one party to the contract and an acceptance of it by the other. An offer is usually made by the proposer who completes a proposal form and sends it to the insurers for their consideration. Counterproposals may, however, be made by the insurers so that negotiations may end with the insurers making a final offer of insurance cover to the applicant which it is up to him to accept by, for instance, tendering the premium due.
An acceptance will be of no effect in law unless the parties have agreed upon every material term of the contract they wish to make. The material terms of a contract of insurance are: the definition of the risk to be covered the duration of the insurance cover, the amount and mode of payment of the premium and the amount of the insurance payable in the event of a loss. As to all these there must be a consensus ad idem that is to say, there must either be an express agreement or the circumstances must be such as to admit of a reasonable inference that the parties were tacitly agreed. Without such agreement, it would be impossible for the courts to give effect to the parties contract except by virtually writing the contract for them, which it is not the function of the courts to do.
The general rule is that a contract of insurance will be concluded only when the party to whom an offer has been made accepts it unconditionally and communicates his acceptance to the person making the offer. Whether the final acceptance is that of the assured or insurers depends simply on the way in which the negotiations for an insurance have progressed. In many cases both offer and acceptance are made and given respectively through the parties’ authorised agents. It is particularly important that the person accepting for the insurers should be someone empowered to make contracts on their behalf. In life assurance especially it is traditional for the assured’s proposal to be put before the directors for their appraisal and decision. A purported acceptance by someone without actual or ostensible authority to give it does not bind the insurers.
Silence does not denote consent and therefore no binding contract arises until the person to whom an offer is made says or does something to signify him acceptance of it. Mere delay in giving an answer cannot be construed as an acceptance as prima facie, acceptance must be communicated to the offer or.”
12. The principles quoted above by the authorities have been approved and affirmed by the Supreme Court in LIC of India v. R. Vasireddy, AIR 1984 SC 1014. In that case also the deceased had filed a proposal for insurance for Rs. 50,000/- on 27-12-1960. There was medical examination by the doctor of the life of the deceased on 27-12-1960. The deceased had issued two cheques and the same were encashed by the Life Insurance Corporation on 29-12-1960 and on 11-1-1961. The deceased died on the day following, i.e. on 12-1-1961. The widow of the deceased demanded payment of Rs. 50,000/-. The Divisional Manager denied liability and thereafter a suit was filed by the widow for recovery of the same. The Sub Judge dismissed the suit. On appeal, the High Court of Andhra Pradesh reversed the judgement by holding that there was a valid contract between the deceased and the Corporation and having regard to the conduct of the parties there was a concluded contract. The Supreme Court reversed the finding of the High Court and restored the judgment and decree of the Sub Judge. The statement of law in Corpus Juris Secundum, Vol. XLIV page 986 was quoted with approval, which is as follows:
“The mere receipt and retention of premiums until after the death of applicant does not give rise to a contract, although the circumstances may be such that approval could be inferred from retention of the premium. The mere execution of the policy is not an acceptance and acceptance to be complete, must be communicated to the offerer, either directly, or by some definite act, such as placing the contract in the mail. The test is not intention alone. When the application so requires, the acceptance must be evidenced by the signature of one of the company’s executive officers.”
In L.I.C. v. Kamalamma 1986 Ker LT 347 : (AIR 1986 Kerala 215), the deceased made a proposal for insurance on his life on 30-12-1976. The proposal was accompanied by a cheque dated 30-12-1976 for a sum of Rs. 726.80. A receipt dated 30-12-1976 was issued by the Development Officer of the L.I.C. like the one issued in the present case. The deceased died on 31-12-1976. The Division Bench by referring to Halsbury’s Laws of England observed that any positive act indicative of an intention to create a contract may be sufficient acceptance; for example, the receipt of the permium. On facts, it was found that the amount sent by the deceased along with the proposal was treated as premium. On the finding that the evidence in that case conclusively proved the existence of a contract during the life time of the deceased, it was held that the contract was binding on the insurance corporation. The Supreme Court decision in Vasireddy’s case, AIR 1984 SC 1014 was distinguished by stating that the facts of that case clearly indicated the total absence of a contract and the facts of this case (Kamalamma’s case) speak to the contrary.
But in the present case there was no acceptance of the proposal creating a concluded contract. Firstly, the amount remitted under Ext. A1 was not treated as premium. Secondly, Ext. A1 nowhere spells out that receipt of the amount which is the initial deposit towards the proposal signifies the consent of the insurer to accept the offer or the proposal. Moreover, at no point of time the acceptance of the proposal was communicated by the defendant-Corporation to the deceased. Hence we are unable to agree with the contention of the learned counsel for the plaintiff-respondent that the ratio in Kamalamma’s case is applicable to this case.
13. DW 1 by referring to the instructions contained in the Manual (Ext. B2) has deposed that the rules for acceptance of the proposal are specifically given therein. Proposal for Rs. 2 lakhs could be accepted only by the Central Office. The amount received as intial payment towards premium is utilised only after the acceptance of the proposal. The divisional office is bound by these instructions to refer the matter to the Central Office at Bombay for consideration and acceptance of the proposal. The Divisional Manager has no authority to accept the proposal for insurance of life, the assured amount of which exceeds rupees one lakh. Hence grant of a receipt by the Divisional Manager who has no power to issue a policy cannot lead to an inference that by his act he intended to create a concluded contract.
14. It is further contended by the learned counsel for the respondent that the deceased was never informed that the policy would be issued only after the acceptance , of the proposal. It is true that no communication was received from the Divisional Officer to the effect that the proposal was required to be accepted by the Central Office in order to complete the contract. But, that by itself cannot be a ground to hold that the contract was concluded on mere submission of the proposal. In view of what has been said by the Supreme Court, non-communication by the Divisional Office or by the Central Office to the effect that the insurance contract will be complete only after the acceptance of the proposal cannot be construed as acceptance of the same.
15. For the reasons stated above, we hold that there was no concluded contract of insurance between the defendant-Corporation and the deceased before his death. In the absence of such a contract, the Corporation is not liable to pay the amount to the plaintiff as claimed by her.
16. We, therefore, allow the appeal and set aside the judgment and decree of the learned Sub Judge and dismissed the suit. The parties are directed to bear their own costs throughout.