TANJORE LIFE ASSURANCE CO LTD BY R SIVARAMA AIYAR, VAKIL, TANJORE, LIQUIADATOR OF THE SAID COMPANY Vs. SKUPPANNA ROW

JUDGEMENT

(1.) Both the junior members of the Bar who appeared in this case argued it very ably. The fasts are not in dispute. A policy was effected on the life of one Nagammal on the 29th of May 1906. The premia were payable monthly. The assured made 61 payments and then discontinued the payment. She died on the 6th of April 1914 and the present suit was instituted on the 11th of April 1917. The District Munsif dismissed the suit. On appeal the Subordinate Judge gave a decree for the amount of the premia paid by the deceased. I agree with the conclusion of the lower Appellate Court, though not for the reasons given by it. When the insurance was effected the rule of the company stood thus [see Exhibit E, Clauses (b) and (c)]. "The policy-holders mentioned above who have been making payments duly in that manner, will be paid interest at the rate of Rs. 6 per annum. It is only after the death of the policy holder that the life assurance amount will be determined. (c) If the present policyholders desire they may pay the entire amount for 69 months and stop (paying) the monthly premium. it was under this last clause that Nagammal paid for 60 months and then stopped payment. That she was justified in discontinuing payment is clear from two exhibits, C and C (1), which were letters written by the Secretary of the Company to the assured. In these letters it is pointed out that as she has discontinued payment she is not entitled to interest. There is no suggestion that the policy had lapsed owing to nonpayment of the premium. In or about January 1911 the share holders held ah extraordinary meeting at which they passed resolutions to the effect that the premium should be continued tit be paid till the death of the assured. Rule 70 is "premiums shall be payable until the death of the policy-holder." It is common ground that no notice was given to the assured about this extraordinary meeting. The contention on behalf of the company is that as under the new rules the premia ought to have been continued till the death of Nagammal, she forfeited her right even for the payment of the amount paid by her as the policy had lapsed by nonpayment.

(2.) The Subordinate Judge has not discussed the real question for decision, apparently as the arguments in the Court below were not directed to it. He has referred to Section 65 of the Contract Act and has held that, as the contract has become void, the promisee is entitled to the refund of the moneys paid under it. There can be no doubt that, if there has been failure to pay the stipulated premia, the assured is not entitled to a refund of the sum actually paid. The principle is stated very succinctly in Crawley s book on insurance as to when and under what circumstances the premium will be re-paid. Roughly speaking, in three classes of cases the assured can claim refund, where there has been fraud on the part of the company in inducing the assured to insure in the company, or where the policy has become void ab initio or where no risk has been incurred by the insurer. Macgillivray quoted by Mr. Venkatarama Aiyar for the appellant states the law thus: "The general rule applicable to claims for the return of premium is that if the insurers have never been on the risk they have not earned the premium and ought to return it. Thus if a contract of insurance is set aside on the ground of misrepresentation or mistake or for some other reason the policy is held to have been void ab initio or to have been avoided before the risk began to run, the assured is, in the absence of any express condition to the contrary, entitled to claim re-payment of any premiums which he may have paid. Bermon v. Woodbridge (1781) 2 Doug. 781 : 99 E.R. 497; Anderson v. Fitzgerald (1853) 4 H.L.C. 484 at p. 508 : 17 Jur. 995 : 10 E.R. 551 : 49 R.R. 202; Goldstein v. Salvation Army Assurance Society (1917) 2 K.B. 291 : 86 L.J.K.B. 793 : (1917) W.C. & I. Rep. 192 : 117 L.T. 63; Moses v. Pratt (1815) 4 Camp. 297 : 16 R.R. 794; Pritchard v. Marchant s and Tradesman s Mutual Life Assurance Society (1858) 3 C.B.N. (N.S.) 622 : 27 L.J.C.P. 169 : 4 Jur. (N.S.) 307 : 6 W.R. 340 : 140 E.R. 885 : 11 R.R. 777 all bear out this statement of law. The next question is when the risk was run by the company. In Canning v. Farquhar (1886) 16 Q.B.D. 727 : 55 L.J.Q.B. 225 : 54 L.T. 350 : 34 W.R. 423 it was stated that, in the absence of a provision to the contrary, the risk commences at the time when a binding contract of insurance is concluded. Applying this principle the risk commenced against the defendant company on the execution of Exhibit A, the policy of insurance, on the 29th of May 1906, and if the assured is bound by the new rules passed by the company at its extraordinary meeting, there can be no doubt, on the principles of the decisions already quoted by me, the heirs of the assured will not be entitled to claim the return of the premium.

(3.) Now comes the question which has been raised by the learned Vakil for the respondent, whether the new rules were binding upon Nagatnmal. The right principle is, that ordinarily a concluded contract cannot be re-opened by one of the parties to it making a change in regard to the terms of trie contract. The principle is well illustrated by Allen v. Gold Reefs of West Africa Limited (1900) 1 Ch. 656 : 69 L.J. Ch. 266 : 43 W.R. 452 : 82 L.T. 210 : 16 T.L.R. 213. In page 663 Lord Justice Romer put this question to the Counsel. "Can you alter articles so as to affect past transactions?" The answer was: "We do not propose to alter the relation of debtor or creditor." In the same judgment Lindley, M.R., says at page 672: "But then comes the question whether this can be done so as to impose a lien or restriction in respect of a debt contracted before and existing at the time when the articles are altered. Again, speaking generally, I am of opinion that the articles can be so altered, and that, if they are altered bona fide for the benefit of the company, they will be valid and binding as altered on the existing holders of paid-up shares, whether such holders are indebted or not indebted to the company when the alteration is made. But, as will be seen presently, it does not by any means follow that the altered article may not be inapplicable to some particular fully paid-up share holder. He may have special rights against the company, which do not invalidate the resolution to alter the articles, but. which may exempt him from the operation of the articles as altered." And then at the end of page 673 the learned Lord Justice says: "A company cannot break its contracts by allering its articles, but, when dealing with contracts referring to revocable articles, and especially with contracts between a member of the company and the company respecting his shares, care must be taken not to assume that the contract involves as one of its terms an article which is not to be altered." Vaughan Williams, L.J., who differed from the majority of the Bench says: "A resolution may alter the regulations of a company but cannot retrospectively affect existing rights." Lord Justice Romer also said that if there was a concluded contract, the company will not be Justified in altering its terms by subsequent resolution. The case before the Court of Appeal was one affecting a share-holder. A share-holder would usually have notice of the proposed change in the articles of association. He would have an opportunity of contesting the proposal to change the rule. His case is, therefore, not in pari materia with that of a stranger who is a policy-holder and who is not given notice of meetings of the company. Therefore, while the observations contained in this decision are certainly in favour of the view that a concluded contract should not be altered to the prejudice of the promisee by anything done behind his back and to which he had not submitted himself, the suggestion of the learned Vakil for the appellant that a policy-holder is as much bound as a share-holder by any change that may be made in the rules is not borne out by this judgment. He, however, relied upon the decision of the House of Lords in British Equitabls Assurance Co. Ltd. v. Baily (1906) A.C. 35 : 75 L.J. Ch. 73 : 94 L.T.I : 13 Manson 13 : 22 T.L.R. 152. That was undoubtedly a case of a policy- holder and the question there was whether he was affected by a new rule passed at an extraordinary meeting of the company. The reservations contained in the judgment of the noble Lords support the view taken in Allen v. Gold Reefs of West Africa Limited (1900) 1 Ch. 656 : 69 L.J. Ch. 266 : 43 W.R. 452 : 82 L.T. 210 : 16 T.L.R. 213. In that case the facts were these: The assured entered into a contract which contained these terms: "I agree to conform to and abide by the deed of settlement and by laws, rules and regulations of the company in all respects." Another provision to which ha submitted was this: "l shall pay all such other sums, if any, as the company by their directors may have ordered to be added to such an amount by way of bonus or otherwise according to their practice for the time being." What was done at the extraordinary meeting was to set apart a certain amount of the profits for a reserve fund. The assured contended that as the prospectus on the faith of which he assured his life did not provide for allocating a portion of the profits to the reserve fund, the action of the company was not binding on him. Lord Macnaghten at the very outset of his judgment quotes these observations of Cozens Hardy, L.J.--"A company cannot, by altering its articles, justify a breach of contract" and then proceeds: "No one, I should think, would be inclined to dispute the proposition thus asserted." The noble Lord then refers to the fact that the assured had bound himself to abide by any changes that may be made by the company and then says: "It will be observed that the prospectus does not purport to give an assurance of any sort that the allocation of profits would never be altered." Finally he concludes: "l am at a loss to understand how the Court of Appeal came to the conclusion that the statements in this prospectus constituted a collateral contract or are to be treated as incorporated in the contract of insurance." Lord Robertson used similar language. Lord Lindley, who took part in the decision in Allen v. Gold Reefs of West Africa Limited (1900) 1 Ch. 656 : 69 L.J. Ch. 266 : 43 W.R. 452 : 82 L.T. 210 : 16 T.L.R. 213 says at the bottom of page 42: "A by-law to the effect that no creditor or policy-holder should be paid what was due to him would, in my opinion, be clearly void as an illegal excess of power." The noble Lord, like Lord Macnaghten, prints out that the prospectus on the faith of which the policy-holder entered into the contract was not part of the contract and, therefore, as the assured had bound himself to abide by any changes that may be made regarding the distribution of profits, he should not be heard to say that the company had no power to change its rules. Now applying these principles to the present case, it is clear in the first place that Nagammal did not bind herself to abide by any other alterations that may be made by the company in future. Mr. Venkatarama Aiyar referred to this sentence in Exhibit A: "The company shall be subject and liable to pay...to the assured or her assignee S. Kuppanna Row, son or heirs or to whomsoever she assigns such sums that shall become due and payable by virtue of the rules contained on the back hereof agreeable to the regulations of the company." That only related to the amount that may be found due. The assured did not submit herself to any changes that may be made by the company in its rules. Moreover the contract between Nagammal and the company had become concluded and it was not open to the company to change any of its terms by its one-sided action. It seems to me, therefore, that the action of the company, so far as assurances which were completed before they passed new rules were concerned, was ultra vires and could not bind the policy-holder. In this view, in my opinion, the decision of the Subordinate Judge is right and this appeal should be dismissed with costs. Moore, J.