KLE SOCIETY’S LAW COLLEGE BENGALURU

(A Constituent college of KLE Technological University)

TOPIC OF THE ASSIGNMENT

Case Analysis on

Mithoolal Nayak v. Life Insurance Corporation Of India,

AIR 1962 SC 814.

Submitted by,
Sneha Gowda R.S
SRN: 03FL21BLL078
Program: III LLB. (3-YEARs)
YEARs)
Course: Law of Insurance.

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CERTIFICATE

This is to certify that Ms. Sneha Gowda R. S has completed the assignment on
Case Analysis of Mithoolal Nayak v. Life Insurance Corporation Of India,

AIR 1962 SC 814, under my guidance and supervision. I certify that this is an
original and bona fide work.

Signature of the Course teacher:

Name of the Course teacher: Ms. Soumya M Nittoor.

DECLARATION

I, the undersigned, hereby declare that the assignment on Case Analysis on

Mithoolal Nayak v. Life Insurance Corporation Of India, AIR 1962 SC 814
are my original work and the conclusions drawn therein are based on the
material collected by me.

SIGNATURE:

NAME: Sneha Gowda R. S

SRN: 03FL21BLL078

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Mithoolal Nayak v Life Insurance Corporation Of India,

AIR 1962 SC 814.

Facts of the case:

 The insured namely Mahajan Deolal had made a proposalon December 1942 for
insuring his life with an insurance company for a sum of Rs. 10,000/-
 The proposal lapsed on the expiry of six months for want of completion of medical
examination.
 On 16th July 1944, the insured again made a proposal for Rs.25,000/- for insuring
his life and the policy was issued by the company to the insured on dated 13th March,
1945 with a condition that the policy would be void if any untrue or incorrect
statement had been made in the proposal form.
 After a short time the policy lapsed in 1945 due to non payment of premium and
later made a request for revival of the policy on 28th October,1945
 But meanwhile on 18th October, 1945, the insured by making an endorsement on the
policy itself had assigned the policy in favour of the Appellant herein(
MithoolalNayak).
 The Assignment was duly registered by the Company by its lettered on dated 1st
November, 1945 and on reciept of the revival fee the policy was renewed by the
company in July, 1946.
 The insured (assignor) died in November,1946 and the Appellant (the assignee) made
a demand against the insurance company on the basis of Life Insurance Policy which
was assigned to him,
 The claim was repudiated by the company on the ground that the insured (assignor)
was guilty of deliberate misrepresentation and fraudulent suppression of material
information in answer to the questions in the proposal form, which formed the basis
of the contract in the policy.

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Issues:

1. Whether the policy was vitiated by fraudulent suppression of material facts by the
insured (Mahajan Deolal)?
2. Whether the assignee had insurable interest in the life of the insured?
3. Whether the assignee is entitled to refund of the money?

Laws Applicable:

Section 45 of the Insurance Act, 1938 which states that policy not to be called in question
on ground of mis - statement after 2 years

“ No policy of life insurance effected before the commencement of this Act shall after the
expiry of two years from the date of commencement of this Act and no policy of life
insurance effected after the coming into force of this Act shall, after the expiry of two years
from the date on which it was effected, be called in question by an insurer on the ground that
a statement made in the proposal for insurance or in any report of a medical officer, or
referee, or friend of the insured, or in any other document leading to the issue of the policy,
was inaccurate or false.”

Provided that when the insurer shows that such statement was on a material matter or
suppressed facts which it was material to disclose and that it was fraudulently made by the
policy-holder and that the policy-holder knew at the time of making it that the statement was
false or that it suppressed facts which it was material to disclose, then the policy can be called
in question even after expiry of two years.

Section 38 of Insurance Act, 1938 – Assignment and transfer of policies

“A transfer or assignment of a policy of insurance, wholly or in part , whether with or

without consideration, may be made only by an endorsement upon the policy itself or by a
separate instrument , signed in either case by the transferor or by the assignor or his duly
authorised agent and attested by at least one witness, specifically setting forth the fact of
transfer or assignment and the reasons thereof, the antecedents of the assignee and the terms
on which the assignment is made.”

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Section 17 of the Indian Contract Act, 1872 – defines Fraud as “Fraud” means and
includes any of the following acts committed by a party to a contract, or with his connivance,
or by his agent, with intent to deceive another party thereto of his agent, or to induce him to
enter into the contract:—

a). The suggestion, as a fact, of that which is not true, by one who does not believe it to

be true;

b). The active concealment of a fact by one having knowledge or belief of the fact;

c). A promise made without any intention of performing it;

d) Any other act fitted to deceive;

e). Any such act or omission as the law specially declares to be fraudulent.

Section 19 of Indian Contract Act, 1872 – Voidability of agreements without free consent.

a). When consent to an agreement is caused by coercion, fraud or misrepresentation, the

agreement is a contract voidable at the option of the party whose consent was so caused.

b). A party to a contract, whose consent was caused by fraud or misrepresentation, may, if he
thinks fit, claim that the contract shall be performed and that he shall be put in the position in
which he would have been if the representations made had been true.

Section 64 of Indian Contract Act, 1872 - Consequences of rescission of Voidable

Contarct

“When a person at whose option a contract is voidable rescinds it, the other party thereto
need not perform any promise therein contained in which he is promisor. The party
rescinding avoidable contract shall, if he have received any benefit thereunder from another
party to such contract, restore such benefit, so far as may be, to the person from whom it was
received.”

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Judgement

In this case two years had expired from the date on which the policy was effected, by
the time the Company repudiated the claim. It is of the clear opinion that it is the latter part of
section 45 of the Insurance Act, 1930 that applies to the present case. The period of two years
for the purpose of the section has to be calculated from the date on which the policy was
originally effected and as a period of two years had clearly expired when the company
repudiated the claim, it is not open to it to take the advantage of the provisions of section 45
of the Act but we can apply proviso to sec.45 of the Insurance Act, 1938.The only question,
therefore, that remains for consideration in this case is, whether the policy-holder had made
an inaccurate or false statement on a material matter or suppressed facts which it was material
to disclose and it was fraudulently made by the policy-holder and the policy-holder knew at
the time of making it that the statement was false or that it suppressed facts which it was
material to disclose.

The original policy holder is guilty of fraudulent suppression of material facts relating
to his health. Assignment or transfer of policy under section.38 of Insurance Act, 1938 is
valid but as assignor is at guilt, the assignee cannot stand on a better footing than the assignor
has and thus the assignee cannot claim the benefit to the contract. Money cannot be recovered
on the death of the assignor on his own wrong doing.

Fraud on the part of assured will not be a ground for claiming refund of premium
because a person cannot take advantage of his own fraud.

If the period of 2 years has expired from the date on which the policy of life insurance
was effected, the policy cannot be called in question on the ground that statement made in
proposal is false, but can be repudiated only if the material facts are fraudulently suppressed
which was ought to be disclosed and revival of the policy constitutes a new contract between
the same parties.

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Analysis:

1).Whether the policy was vitiated by fraudulent suppression of material facts by the insured
(Mahajan Deolal)?

Sec. 45 of Insurance Act, 1938 states that "No policy of life insurance effected before the
commencement of this Act shall after the expiry of two years from the date of
commencement of this Act and no policy of life insurance effected after the coming into
force of this Act shall, after the expiry of two years from the date on which it was effected, be
called in question by an insurer on the ground that a statement made in the proposal for
insurance or in any report of a medical officer, or referee, or friend of the insured, or in any
other document leading to the issue of the policy, was inaccurate or false, unless the insurer
shows that such statement was on a material matter or suppressed facts which it was material
to disclose and that it was fraudulently made by the policy-holder and that the policy-holder
knew at the time of making it that the statement was false or that it suppressed facts which it
was material to disclose.”

Two years had already expired from the date on which the policy was effected. The three
conditions for the application of the second part of Sec.45 are-

(a) The statement must be on a material matter or must suppress facts which it was material
to disclose;

(b) The suppression must be fraudulently made by the policy-holder; and

(c) The policy-holder must have known at the time of making the statement that it was false
or that it suppressed facts which it was material to disclose.

And in this case all the conditions are fulfilled.

2). Whether the assignee had insurable interest in the life of the insured?

The assignee herein has no insurable interest from the very inception the policy was taken
for the benefit of MithoolalNayak on the basis of a gamble on the life of Mahajan Deolal but
not entitled to benefit because if Mahajan Deolal was himself guilty of a fraudulent

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suppression of material facts on which the company was discharged from performing its part
of the contract, the assignee who holds an assignment of the policy cannot stand on a better
footing than Mahajan Deolal himself. Policy is valid in its inception, that is to say, if it was in
fact effected for the use and benefit of Mahajan Deolal, who undoubtedly had an insurable
interest in his own life, it could not afterwards be invalidated by assignment to a person who
had no interest but who merely took it as a speculation but the assignee cannot claim the
benefit of a contract which had been entered into as a result of a fraudulent suppression of
material facts by Mahajan Deolal.

3).Whether the assignee is entitled to refund of the money?

One of the terms of the policy was that all moneys that had been paid in consequence of the
policy would belong to the company if the policy was vitiated by reason of a fraudulent
suppression of material facts by the insured. The contract is bad on the ground of fraud, the
party who has been guilty of fraud or a person who claims under him cannot ask for a refund
of the money paid. Here there is a breach of warranty by one of the parties to the contract and
that the other party can be discharged from the performance of his part of the contract.

Conclusion:

“ On a fair reading of Sec.45 of the Insurance Act, 1938, it is clear that it is restrictive in
nature. It lays down three conditions for applicability of the second part of this Section
namely

a). The statement must be on a material matter or must suppress facts which was material to
disclose.

b). The suppression must be fraudulently made by the policy holder.

c). The policy holder must have known at the time of making the statement that it was false
or that it suppressed facts which was material to disclose .

The burden of proof is on the insurer to establish these circumstances and unless the insurer is
able to do so there is no question of policy being avoided on ground of misstatement of facts.

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The contracts of insurance are uberrima fides and every material facts must be disclosed,
otherwise, there is a good ground for recession of the contract. The duty to disclose the
material facts continues right up to the conclusion of the contract and also implies any
material alterations in the character of the risk which may take place between the proposal
and its acceptance. If there are any misstatements or there is suppression of material facts ,
the policy can be called into question.

For determination of the question whether there has been suppression of any material facts, it
may be necessary to also examine whether the suppression relates to a fact which is in the
exclusive knowledge of the person intending to take the policy and it could not be ascertained
by an enquiry by a prudent person.”

The original policy holder herein is guilty of fraudulent suppression of material facts relating
to his health and hence the company is entitled to void the contract. The assignment was valid
one which was made in accordance with the provisions of Sec.38 of Insurance Act, 1938 and
the assignee who holds the assignment of the policy cannot stand on a better footing than his
assignor himself and cannot claim the benefit to the contract which had been entered into as a
result of fraudulent suppression of material facts by the insured and that the assignee will be
subject to all the liabilities and equities to which the transferor or assignor was subject at the
date of the transfer or the assignment.

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Bibliography

1. Law of Insurance by Avtar Singh.

2. Principles of Insurance Law by M. N Srinivasan .
3. Modern Law of Insurance by K.S.N Murthy & K.V.S Murthy and Sharma .
4. SCC Online.

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