When admittedly Ganesan is the Agent of the Insurance Company and received the premium from Gurusamy and in fact that Gurusamy was also given a policy, we are shocked and surprised to see, how the Insurance Company can disown its liability, more so when it does not suspect the bona fides on the part of Gurusamy. It is not the case of the Insurance Company that as per rules/conditions of the Policy, whenever a client receives a Policy from the agent, he has to go over to the office and contact the -manager or any named officer to show the policy which he has received to ascertain its genuineness.{Para 9}
10. Let us turn to analyse the legal position. The word 'agent' is derived from the Latin word "agere" which means 'to do'. Thus, an agent is a person, who acts for another whether by express or implied consent. The general rule is that whatever a person may do himself, he may authorize another to do for him in accordance with the maxim "qui facit per alium facit per se " meaning he who does anything by another, does it by himself.
In Krishna v. Ganapathi, MANU/TN/0264/1955 : AIR1955Mad648 , a Division Bench of this Court explained the concept of agency in the following terms:
"An agent is thus a person either actually or by law held to be authorized and employed by any person to bring him into contractual or other legal relations with a third party. He is a representative vested with authority, real or ostensible to create voluntary primary obligations for his principal by making promises or representations to third person calculated to induce them to change their legal relations. Representative character and derivative authority may briefly be said to be the distinguishing feature of an agent."
(a) What House of Lords ruled way back on 19th July, 1912 in Lloyd v. Grace, Smith & Co. 1912 AC 716 would be relevant. In that case, Lord Macnaghten expressed his view in the following terms,
"The only difference in my opinion between the case where the principal receives the benefit of the fraud, and the case where he does not, is that in the latter case the principal is liable for the wrong done to the person defrauded by his agent acting within the scope of his agency; in the former case he is liable on that ground and also on the ground that by taking the benefit he has adopted the act of his agent; he cannot approbate and reprobate."
Lord Shaw of Dunfermline agreed with Lord Macnaghten and further added the following,
"The case is in one respect the not infrequent one of a situation in which each of two parties has been betrayed or injured by the fraudulent, conduct of a third. I look upon it as a familiar doctrine as well as a safe general rule, and one making for security instead of uncertainty and insecurity in mercantile dealings, that the loss occasioned by the fault of a third person in such circumstances ought to fall upon the one of the two parties who clothed that third person as agent with the authority by which he was enabled to commit the fraud.
... I am aware of the approval given to this language in subsequent cases, as for instance in Ruben v. Great Fingall Consolidated, 1906 AC 439, by Lord Davey, and in British Mutual Banking Co. v. Charnwood Forest Rv. Co., 18 O.B.D. 714, by Lord Bowen. If I may respectfully do so, I tender my entire concurrence in the opinion Just delivered by my noble and learned friend Lord Macnaghten upon the dicta of Lords Davey and Bowen in these cases. But I do so subject to this - that I cannot bring myself to think that it was ever distinctly meant to be announced or suggested as law that, on the assumption that a person deals with an agent in good faith, and that the conduct of the agent is fully within the scope of his authority, then the principal of that agent is not responsible for the agent's fraud, by reason of the fact that the agent did not mean to 'benefit his principal by the fraud, but to benefit himself. That, in my opinion, is not the law. On the contrary, the principal is, in such circumstances, legally responsible for his agent's conduct."
The principal is liable for the fraud of his agent acting within the scope of his authority, whether the fraud is committed for the benefit of the principal or for the benefit of the agent.
IN THE HIGH COURT OF MADRAS
C.M.A. No. 55 of 1997
Decided On: 27.10.2003
The National Insurance Company Limited Vs. M. Nandan and Ors.
Hon'ble Judges/Coram:
A.S. Venkatachala Moorthy and S.R. Singaravelu, JJ.
Citations: II(2004)ACC645, 2004ACJ1449, 2004(2)CTC522, (2004)1MLJ146, MANU/TN/1923/2003.
1. National Insurance Company Limited, being aggrieved by the award passed by the Motor Accident Claims Tribunal, Madras, in MCOP No. 435 of 1992, has preferred the above appeal.
2. The first respondent herein filed a petition in MCOP No. 435 of 1992 before the Motor Accident Claims Tribunal, Madras, under Sections 140 and 146 of the Motor Vehicles Act read with Rule 3 of the MACT Rules, praying the Tribunal to fix the compensation payable, to him at Rs. 1,00,000 and to further hold that the owner and insurer of the vehicle in question viz., lorry bearing Registration No. TN-28-Y-3839 are vicariously liable to compensate him for the injuries sustained by him.
The first respondent herein, as petitioner, has stated in the petition filed by him that when he was riding in his Scooter bearing Registration No. TMA-1033 in EVR Salai from east to west, the lorry in question viz., TN-28-Y-3839, owned by the 1st respondent in the Claim Petition, which was also coming in the same direction, driven in a rash and negligent manner, hit him behind, as a result of which, he was thrown off the scooter and sustained grievous injuries.
The first respondent herein claimed a total compensation of Rs. 1,00,000 on various heads.
3. The appellant herein, as 2nd respondent in the Claim Petition, filed a counter, raising various pleas. It is contended therein that the policy produced is a forged one and that in fact, no premium was received by the Insurance Company for the Insurance Policy and hence, the Insurance Company is not liable to pay any compensation to the injured. A further contention has also been raised to the effect that the accident had taken place only due to the fault of the first respondent herein, who was riding in his motor cycle. A specific averment is made that the driver of the lorry drove the vehicle slowly and cautiously. The appellant/2nd respondent also put the first respondent/claimant to strict proof of the injuries sustained by him and eligibility to claim such a huge compensation.
4. Before the Tribunal, the injured/1st respondent herein examined himself and also examined the Doctors to substantiate his case and various exhibits were also marked. The Insurance Company in turn examined its Divisional Manager, Administrative Officer and also one of its staff. The Tribunal, after elaborately considering the oral and documentary evidence, came to the conclusion that the accident took place only because of the rash and negligent driving of the lorry, belonging to the 2nd respondent herein. The Tribunal further found that the appellant/Insurance Company is liable to pay the compensation to the victim as insurer of the lorry. With regard to quantum, a sum of Rs. 44,000, carrying interest thereon at 12% p.a. was fixed by the Tribunal.
Being aggrieved by the award passed by the Tribunal, the above appeal has been filed.
5. It has to be noted that the only point taken is that the said vehicle was not insured with the appellant/Insurance Company and that the act of fraud committed by an agent cannot create any liability on the employer viz., the Insurance Company.
6. The vehicle that is involved in the accident is the lorry bearing Registration No. TN-28-Y-3839. The said lorry is owned by one Gurusamy, who is the 2nd respondent herein and first respondent in the MACTOP. The Tribunal has given a finding that the accident took place at about 1.30 P.M. on 12.2.1992 in E.V.R. Periyar Road, when the lorry hit the scooter bearing Registration No. TMA-1033, driven by the first respondent herein viz., the claimant, and in which the latter sustained injuries. The further finding by the Tribunal is that at the relevant time the said lorry was driven in a rash and negligent manner. It has to be pointed out that the said findings stand and those have not been questioned by any of the parties to the proceedings.
7. The only question to be considered is, whether the defence of the Insurance Company can be upheld.
The accident was on 12.2.1992. RW-1 is the Branch Manager of the Insurance Company in Dharmapuri, who was working in Thiruchengode in the same capacity at the relevant time. Ex.R-3 is the Complaint dated 6.8.1992, lodged by him with the Sub Inspector of Police, Thiruchengode. It is necessary to extract the same in its entirety, which reads as under,
" To: The Inspector of Police, Tiruchengode, 4th August, 1992. Sir, Sub: Ref: Theft of company policy documents and issuing the same under forgery signature by Shri K.Ganesan, Agent attached to our Tiruchengode Branch. Shri. K. Ganesan, Agent, aged 31 years, son of Shri K. Karuppannan, residing at Vasanthapuram Village, Paramathy Main Road, Namakkal Tk. has been working as an Agent of our Tiruchengode Branch having office No. 81-D, Chetty St., Tiruchengode-637 211 since 13.7.88. The duty of an Insurance agent is to procure general insurance business on our behalf and the agent is earning commission for the same. However, the agent is not authorized to issue any policy documents. Recently, it has come to our notice that he has stolen some documents from our office and issued the same to some parties under the forged signature. This instance, came to our knowledge when one of the forged documents came to our office for reference with regard to "No Claim Discount" applicable. We narrate the instance in the following lines. One of our valued client Mr. Gurusamy, S/o. Shri Ramasamy, Oorkinathuthottam, Unjanai Post, Thiruchengode Taluk approached our office to obtain "No Claim Discount"' particulars for his Motor Vehicle. On scrutiny of the policy by our office, we were surprised to find that no such policy was issued by us and also the premium was not accounted for. On further scrutiny of the policy document produced, it was found that the policy was issued by our agent Mr. K. Ganesan, under the forged signature of our Branch In-charge Mr. T.V. Vajravel. On further verification, we found that the policy documents were stolen from the office. The next day, one more similar instance was reported. We do not know, how many such cases would be reported in the near future to us. Our branch-in-charge contacted the agent immediately and made enquiries with him. Mr. K. Ganesan has admitted in writing that he had stolen the documents and issued the same without remitting the premium to the company. On 1.8.1992, several, members of the public came to my residence confirmation to the effect that our company is holding the risk for the documents issued by the Agent Mr. K. Ganesan. We later found that Mr. K. Ganesan was absconding and is not at all traceable in the locality. From the foregoing it may be noted that Mr. K. Ganesan has committed criminal offence by stealing company's documents unauthorisedly issuing them to the public and misappropriating the premium amount without remitting the same to the office. The exact number of documents stolen and exact amount of premium collected and misappropriated are not known now. We are trying to ascertain this information and shall intimate to you as soon as the quantum is ascertained. We now request you to register the case and take necessary action to apprehend the said Mr. K. Ganesan. Necessary action under the law may also be initiated against Mr. K. Ganesan. Yours faithfully (SD)T.V. VAJRAVEL). Asst. Branch Manager."
Later on, when this witness was examined before Court, he has clearly deposed that one Ganesan was the agent of the Insurance Company and that he received premium from various parties, but however, he did not remit the same in the company and because of which, they gave the complaint Ex.R-3. He has not stated that the said Ganesan was not authorised to receive premium. This witness again stated in his evidence that Gurusamy viz., the 2nd respondent was given a policy by Ganesan and that RW-1 found that printed policy form of the company had been used by Ganesan and further the policy was forged.
8. There is no dispute between the parties that
(i) Ganesan was the agent of the Insurance Company at the relevant time.
(ii) Ganesan was authorised to receive premium.
(iii) Gurusamy, the insured, paid premium to Ganesan.
(iv) Ganesan did not remit the premium with the Insurance Company.
(v) Ganesan used the policy form available in the Insurance Company.
(vi) Ganesan forged the signature of the Officer and issued the form to Gurusamy.
(vii) Gurusamy was not a party to the fraud committed by Ganesan. In fact Gurusamy had no knowledge about the fraud.
(viii) No rule/condition is there to the effect that Gurusamy should not receive the policy from Ganesan.
(ix) There is no rule/condition that whenever a client receives a policy from an agent, he has to go over to the office and contact the officer concerned to verify its genuineness.
9. When admittedly Ganesan is the Agent of the Insurance Company and received the premium from Gurusamy and in fact that Gurusamy was also given a policy, we are shocked and surprised to see, how the Insurance Company can disown its liability, more so when it does not suspect the bona fides on the part of Gurusamy. It is not the case of the Insurance Company that as per rules/conditions of the Policy, whenever a client receives a Policy from the agent, he has to go over to the office and contact the -manager or any named officer to show the policy which he has received to ascertain its genuineness.
10. Let us turn to analyse the legal position. The word 'agent' is derived from the Latin word "agere" which means 'to do'. Thus, an agent is a person, who acts for another whether by express or implied consent. The general rule is that whatever a person may do himself, he may authorize another to do for him in accordance with the maxim "qui facit per alium facit per se " meaning he who does anything by another, does it by himself.
In Krishna v. Ganapathi, MANU/TN/0264/1955 : AIR1955Mad648 , a Division Bench of this Court explained the concept of agency in the following terms:
"An agent is thus a person either actually or by law held to be authorized and employed by any person to bring him into contractual or other legal relations with a third party. He is a representative vested with authority, real or ostensible to create voluntary primary obligations for his principal by making promises or representations to third person calculated to induce them to change their legal relations. Representative character and derivative authority may briefly be said to be the distinguishing feature of an agent."
(a) What House of Lords ruled way back on 19th July, 1912 in Lloyd v. Grace, Smith & Co. 1912 AC 716 would be relevant. In that case, the brief facts are, the appellant viz., Lloyd being dissatisfied with the income derived from the property called at the office of the respondent's firm for the purpose of consulting them on the matter. At the office she saw one Sandles, who was the respondent's conveyancing manager and managing clerk. After discussion, the appellant was again asked to come on the next morning i.e, 12th January along with the title deeds. Sandles advised her to sell the property and invest the proceeds in certain Companies. Appellant handed over the documents and in the course of the interview Sandles left the room taking the deeds with her and after interval of 20 minutes, he came back with the clerk and got the signature of the appellant, who signed the same believing that they were, something to sign before the sale could be proceeded with. Those documents were in fact a conveyance by the appellant to Sandles of the property. Later, the appellant came to know of this and she commenced an action against the respondent's firm. The respondent by their defence denied that the appellant never instructed them as her solicitors, and they pleaded alternatively that the appellant had conveyed the property to Sandles. The appellant in her reply denied having executed the conveyance and alleged that she was induced to execute, the said indentures by the fraud of Sandles acting in the course of his employment and within the scope of his authority as managing clerk of the respondent and that he fraudulently stated to the appellant that her execution of the said indentures was necessary and usual to enable the respondents to sell the property. In that case, Lord Macnaghten expressed his view in the following terms,
"The only difference in my opinion between the case where the principal receives the benefit of the fraud, and the case where he does not, is that in the latter case the principal is liable for the wrong done to the person defrauded by his agent acting within the scope of his agency; in the former case he is liable on that ground and also on the ground that by taking the benefit he has adopted the act of his agent; he cannot approbate and reprobate."
Lord Shaw of Dunfermline agreed with Lord Macnaghten and further added the following,
"The case is in one respect the not infrequent one of a situation in which each of two parties has been betrayed or injured by the fraudulent, conduct of a third. I look upon it as a familiar doctrine as well as a safe general rule, and one making for security instead of uncertainty and insecurity in mercantile dealings, that the loss occasioned by the fault of a third person in such circumstances ought to fall upon the one of the two parties who clothed that third person as agent with the authority by which he was enabled to commit the fraud.
... I am aware of the approval given to this language in subsequent cases, as for instance in Ruben v. Great Fingall Consolidated, 1906 AC 439, by Lord Davey, and in British Mutual Banking Co. v. Charnwood Forest Rv. Co., 18 O.B.D. 714, by Lord Bowen. If I may respectfully do so, I tender my entire concurrence in the opinion Just delivered by my noble and learned friend Lord Macnaghten upon the dicta of Lords Davey and Bowen in these cases. But I do so subject to this - that I cannot bring myself to think that it was ever distinctly meant to be announced or suggested as law that, on the assumption that a person deals with an agent in good faith, and that the conduct of the agent is fully within the scope of his authority, then the principal of that agent is not responsible for the agent's fraud, by reason of the fact that the agent did not mean to 'benefit his principal by the fraud, but to benefit himself. That, in my opinion, is not the law. On the contrary, the principal is, in such circumstances, legally responsible for his agent's conduct."
The principal is liable for the fraud of his agent acting within the scope of his authority, whether the fraud is committed for the benefit of the principal or for the benefit of the agent.
(b) In Citizens' Life Assurance Company Limited v. Brown 1904 AC 423, it has been held that the principal is answerable for every wrong what servant or agent as is committed in the course of the service, though no express command or privity of the master is proved, and no sensible distinction can be drawn between the case of fraud and the case of any other wrong.
(c) Of course, the position would be different if the Insurer connives with the agent. In Bigger v. Rock Life Assurance Co., 1902 (1) KB 516, and Newsholme Bros. v. Road Transport and General Insurance Co. Ltd. 1929 (2) KB 356, the Court ruled that if an agent takes part in a fraud on the insurers, whether by concealing or misrepresenting the material fact in concert with the proposer or by conniving at such a concealment or misrepresentation on the part of the proposer, the agent is not regarded as acting as agent of the insurers and his knowledge of the truth is not imputed to them.
11. We refer to the ruling of the Supreme Court Oriental Insurance Company Limited v. Inderjit Kaur and Ors. 1997 (10) Supreme 289 which in our opinion will have some relevance.
In that case, the Insurance Company issued the policy on 30th November, 1989. The premium for the policy was paid by cheque and the same was dishonoured. This was intimated by the Insurance Company to the insured on 23rd January, 1990. The premium was paid in cash on 2nd May, 1990. In the meantime, on 19th April 1990, the accident took place i.e., the bus collided with a truck, whose driver died. The truck driver's widow and minor sons filed a claim petition and the same was allowed by the Tribunal, which held the insured and the insurer jointly and severally liable. As the insurer could not succeed before the High Court, it approached the Supreme Court. In that case, the, Supreme Courted ruled as under:
" We have, therefore, this position. Despite the bar created by Section 64-VB of the Insurance Act, the appellant, an authorized insurer, issued a policy of insurance to cover the bus without receiving the premium therefor. By reason of the provisions of Sections 147(5) and 149(1) of the Motor Vehicles Act, the appellant became liable to indemnify third parties in respect of the liability which that policy covered and to satisfy awards of compensation in respect thereof notwithstanding its entitlement (upon which we do not express any opinion) to avoid or cancel the policy for the reason that the cheque issued in payment of the premium, thereon had not been honoured.
The policy of insurance that the appellant issued was a representation upon which the authorities and third parties were entitled to act. The appellant was not absolved of its obligations to third parties under the policy because it did not receive the premium. Its remedies in this behalf lay against the insured. "
12. It is most disturbing to find that the Insurance Company has taken such a defence in the original petition. Even assuming that such a defence was not taken seriously before the Tribunal and that the Insurance Company was more concerned about the quantum, we do not understand as to why the Insurance Company has filed the present appeal and thus acted in an uncharitable manner to its 'valued clients'. Is it to harass the valued client'? since if the stand of the Insurance Company is upheld, the person who will suffer is only its 'valued client'. If at all the Insurance Company has got any grievance, it can only be against its agent Ganesan. Whether the concerned officers in the Insurance Company have acted negligently by filing an appeal without applying their mind or is it that they are not able to take a right decision before filing an appeal? Certainly it cannot be said that the concerned officers of the appellant company have acted diligently.
13. The contract of Insurance is a contract of uberrima fides i.e., utmost good faith. The officers of the nationalised Insurance Company have to discharge their duties diligently, taking into consideration the interests of its 'valued clients'. What the Supreme Court said with reference to the banks would equally apply to the insurance companies like the appellant. The Supreme Court of India in Union Bank of India v. Vishwa Mohan, MANU/SC/0272/1998 : (1998)ILLJ1217SC observed as under,
" ... It needs to be emphasised that in the Banking business, absolute devotion, diligence, integrity and honesty needs to be preserved by every bank employee and in particular the bank officer. If this is not observed, the confidence of the public/depositors would be impaired. ..."
14. We are dismissing this Appeal, awarding a cost of Rs. 5,000 (Rupees five thousand only) and this amount shall be paid only by those personally, who were responsible for filing this Appeal and not from the company's funds. That apart, all expenses incurred by the Insurance Company in filing the appeal, shall be met out by them personally.
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