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Ashatai v. Shriram City Union Finance Ltd.

Civil Appeal · 2019 INSC 540Decided 16 Apr 2019
Civil Appeal No. 3962 of 2019
Justice Uday Umesh Lalit · Justice Indu Malhotra

Background

The appellant's husband took a personal loan from the respondent finance company, which arranged a group insurance policy through its own sister insurance company to cover the loan, deducting money from the loan account for the premium. He died just 18 days after taking the loan, before the insurance policy's cover period had formally begun, and the finance company then demanded repayment from his widow instead of recovering the dues through the insurance. A consumer complaint succeeded before the District Forum and the State Commission, but the National Consumer Disputes Redressal Commission reversed this in the finance company's favour, prompting the widow's appeal to the Supreme Court.

Decision Breakdown

The Supreme Court found that the National Commission's two grounds for ruling against the widow were factually wrong: the finance company had itself admitted receiving the insurance premium demand draft, and had admittedly deducted processing/insurance-related charges from the loan account. Under Section 64VB(2) of the Insurance Act, 1938, insurance risk is covered from the date the premium is paid, and since the premium was paid before the borrower's death, the loan was already secured by the insurance policy. The Court held the finance company guilty of deficiency of service for delaying submission of the premium to the insurer, set aside the National Commission's order, restored the finding against the finance company, and additionally awarded the widow compensation and costs.

Lesson Learnt

A lender that bundles an insurance policy with a loan and collects the premium cannot later pursue the borrower's family for repayment while sitting on an insurance claim it was responsible for processing: consumers are entitled to have such loans settled through the insurance they paid for.

Official source (sci.gov.in)View Judgment (PDF)

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