PRINCIPAL'S LIABILITY FOR DEFECIENCY IN SERVICES FOR THE ACT OF AGENT 

 

Normally no person is held responsible for the wrongs done by someone else. However, there are few instances wherein a person can be held liable for the conduct of another person. This liability is known as Vicarious Liability. Liability of the Principal for the act of his Agent is the most common in law. When a principal authorises his agent to perform any act, he becomes liable for the act of such agent provided the agent has conducted it in the course of performance of duties.

 While taking up the issue  of  defeciecy in services under Consumer Protection Act, in most of the cases of deficiency in services ,responsibility is shifted to the shoulder of others in order to avoid the claim of  consumer. The question for deciding the liability rests on the facts and circumstances of each case.In day to day life we come across agents for number of services we avail,e.i. banking ,post office ,insurance etc.We are often not aware as to when a person contacting us is company’s agent for the purpose of responsibility in case of any default and when he becomes our agent. We also do not differentiate between an agent and broker.

Insurance agents represent insurance companies  for selling policies to  people and explain the features of the policies offered by the company.In the process,whatever is communicated by the agent is considered to be communicated by the company. These are soliciting agents who solicit business for the insurance company, but do not have the legal authority to bind the company to a contract.The insurance company must approve of the application before the insurance becomes effective,hence proposal form is a proposal only till acceptance is finally made by the insurance company and then issues policy papers.Agent does not assure the policy made by merely getting proposal form signed unless proposal is approved.

 If an insurance applicant has a particular need, brokers represent the applicant  hunting many insurance companies for getting suitable policy for the applicant and help the applicant to find the right insurance company at the best price .Here such broker is an agent of applicant /insured and not the insurance company ,hence insurance company is not liable for his act.

But what will be the situation if premium money is not paid by the agent on behalf of insured or paid late  resulting into no policy.Who is responsible in such a situation is the question at times raised in various cases.This issue was resolved by the Hon’ble SC in the year 1997 in the matter of Harshad J. Shah & Anr. v.  L.I.C. of India & Ors. reported in AIR 1997 Supreme Court 2459 wherein their Lordships, after considering a similar contention, held that an agent has no authority to accept the premium on behalf of LIC and that the deposit made by the agent after the death of the deceased would not entitle the claimant to get the amount insured under the policy. It was held as under:

 

“17. 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 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, prohibiting the agents from collecting premium on behalf of the LIC. This shows that collection of premium was not necessary for or ordinarily 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”.

 

In view of the above holding by the apex court,two things are very clear:

!)Regulation 8(4)1981 prohibit the agents from collecting premium on behalf of Insurance co.

!!)such prohibiting Rules were published in the official gazette,hence there cannot be an implied authority to the agent if not specifically mentioned in the appointment letter as an agent

But in day to day life, we are doing this mistake ,handover cash money to the agent for depositing to LIC/insurance co. on our behalf which may any time lead to a problem.We should always issue an account payee cheque /draft in the name of insurance company and not bearer cheque or in the name of agent .By issuing cheque in the name of insurance company, we are giving money to insurance company and not to the agent .In such a case, if agent defaults in handing over the same to the company ,insurance company has to bear the responsibiy if proposal form reached to them through this agent  is otherwise correct and is to the fit tune to be accepted.

In number of mediclaim cases ,consumer states that the proposal form was filled up by the agent and the statement given in the proposal form was not known to them.But this argument is also not sustainable in view of the fact that proposal form is  signed by the insured and once it is signed it is considered the statement by the insured ,no matter he did not fill it .Agent does not become responsible

At times,an arrangement has been made for deduction of  insurance premium from the salary of the insured through his employer.In case of default in payment of premium to the insurance company by the employer ,employer is an agent of insurance co. if this mode for collection of premium  is chosen /opted by the insurance company

Recently Hon’ble National Commission  in the matter of  life Insurance Corp. Of India   V/S  Girdharilal P. Kesarwani & Anr in its order dt. 14.01.2009 has once again made it clear its stand in this connection and held that an agent has no authority to collect premium on behalf of insurance company

This law of agency was discussed in much details in the year 2005 also when UTI had issued number of cheques in the names of depositors and sent them through post office .The cheques so issued never reached to the depositors and the question before the court was who was responsible to bear the loss 

Briefly stated the facts are as follows.

UTI is a statutory corporation established under Section 3 of the UTI Act, 1963. Under the various schemes from time to time, UTI issue cheques towards maturity amount of the units purchased and/or towards repurchase value.UTI started receiving a large number of complaints from unit holders alleging non-receipt of the cheques. In all 1600 unit holders had not received cheques of the value of app. Rs. 3 Crores 35 lakhs. All these cheques were intercepted, new accounts opened in Banks/Post Offices in the names of payees of the cheques and thereafter the moneis were withdrawn leaving a minimum balance in the accounts. . As the unit holders had not received the money, they filed complaints in various District Forums. The District Forums have held that the UTI is bound to pay the amounts to the unit holders. Most of the Appeals and/or Revision Petitions have been dismissed. Against the dismissal of the Appeals/Revisions by the National Consumer Disputes Redressal Commissiont, these Appeals had  been filed before the Supreme court

The question before this Court is whether the loss is to be borne by the unit holder payee and/or by the Appellant. The answer to this question would depend on whether the post office was acting as an agent of the unit holder and/or the Appellant

Thus the law is that in the absence of any contract or request from the payee, mere posting would not amount to payment. In cases where there is no contract or request, either express or implied, the post office would continue to act as the agent of the drawer. In that case the loss is of the drawer.

UTI, therefore, was asked through their officer representing Mr. Bhat whether in any of the matters there was any proof of any contract that the amounts could be sent by post or any proof that any request had been made by any of the payees that the amount be sent by post. Mr. Bhat was also asked whether there was any proof of any practice from which it can be implied that the payee had requested/consented to have the cheques sent by post. After making inquiries and taking inspections of the papers from the lower Forums, Mr. Bhat very fairly stated that there was no proof in any of these matters.it has been held that the post offices were agents of the Company  and, therefore, the loss, if any, has to be borne by the Appellant. It has been held that as the Appellant had not paid the unit holders, the unit holders are entitled to receive the money from the Appellant/UTI.

 

It is crystal clear from the above discussion thatdecision about the agents responsibility rests on the facts of the case and circumstances and authority  under which a person is appointed as an agent.

 

Dr Prem Lata

Member,CDRF,Shalmar Bagh

www.consumerawakening.com

 

 

 

 

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