What was the core issue in Harshad Shah v. LIC?

If paying premium to LIC’s general agent equals payment to LIC, so the insured’s liability is discharged and the policy stays alive.

Which Indian Contract Act sections mattered?

Sections 187 (express & implied authority), 188 (agent must be authorised), and 237 (apparent authority when principal induces third party).

What did the Supreme Court decide?

The agent had no express or implied authority to collect premium; Section 237 did not apply. Payment to the agent did not stop policy lapse.

Did the Court grant any monetary relief?

Yes. LIC was directed to refund amounts paid by the appellants with 15% interest and to pay ₹10,000 as court fee to the appellants.

What is the exam takeaway?

Without clear authority or principal’s inducement, payment to an agent is not payment to the insurer. Always check the scope of agency.

Harshad Shah v. LIC

CASE_TITLE: Harshad Shah v. LIC PRIMARY_KEYWORDS: apparent authority; premium payment to agent; Section 237 ICA SECONDARY_KEYWORDS: Section 187 ICA; Section 188 ICA; policy lapse; revival; consumer dispute PUBLISH_DATE: 25-10-2025 AUTHOR_NAME: Gulzar Hashmi LOCATION: India slug: harshad-shah-v-lic

Quick Summary

Question: If the insured pays the premium to a general agent of LIC, does it count as payment to LIC?

The Supreme Court said no on these facts. The agent had no authority (express or implied) to collect premium. Also, there was no inducement by LIC to make the insured believe that he had such authority. So, the policy lapsed. Still, the Court ordered LIC to refund amounts with 15% interest and pay ₹10,000 as court fee to the appellants.

Issues

Does payment of premium to LIC’s general agent amount to payment to LIC, discharging the insured’s liability?

Rules (Indian Contract Act)

Section 187

Explains express and implied authority. Authority must come from the principal’s words or conduct.

Section 188

Agent must be authorised to do the act. If not authorised, the principal is generally not bound.

Section 237

Apparent authority: Principal may be bound if he induces the third party to believe the agent has authority.

Exam Tip: Ask: (1) Was there authority? (2) If not, did the principal hold out the agent? (3) What do regulations say?

Facts (Timeline)

6 Mar 1986: Jaswantrai G. Shah took four LIC policies (₹25,000 each) with double accidental benefit via general agent Chaturbhuj H. Shah.

6 Sep 1986: First half-yearly premium paid. Next premium due 6 Mar 1987, not paid in time.

4 Jun 1987: Agent obtained a bearer cheque ₹2,730 for all four policies; encashed on 5 Jun 1987 by agent’s son.

9 Aug 1987: The insured met with a fatal accident and died.

10 Aug 1987: Agent deposited the premium with LIC—after the death.

Claim & Repudiation: Widow (nominee) claimed under policies. LIC repudiated—policies had lapsed (non-payment within grace).

Consumer Fora: State Commission found LIC negligent; asked LIC to settle (reduced amount). Both sides appealed.

National Commission: Ruled for LIC; held the agent was not authorised to collect premium. Appeal reached the Supreme Court.

Arguments

Appellants (Insured & Society)

Payment to general agent should count as payment to LIC; policy should not lapse.
Section 237 ICA: LIC held out agent as authorised; public relied on it.
LIC branch was not easily accessible; agent took commission and collected premiums in practice.
If the payment is valid, policy stands revived within insured’s lifetime.

Respondent (LIC)

Regulations clearly prohibited agents from collecting premium.
No express or implied authority under Sections 187–188.
No inducement by LIC to trigger Section 237 (apparent authority).
Revival requires valid payment during life per policy rules; deposit came after death.

Judgment (Held)

The Supreme Court held that the agent had no authority (express or implied) to collect premium. LIC had not induced the insured to believe otherwise; hence Section 237 did not apply.

Result: Payment to the agent was not payment to LIC; policies had lapsed. However, LIC was directed to refund the amounts with 15% interest and pay ₹10,000 as court fee to the appellants.

Ratio (Reasoning)

Authority matters: Agents cannot collect premium unless authorised (S.187–188).
No holding out: Without LIC’s inducement, S.237 (apparent authority) is not attracted.
Revival rule: Late premium must be paid within the life of the insured; deposit after death cannot revive the policy.

Why It Matters

Insurance companies often restrict agent powers. Customers must pay at authorised channels. For exams and practice, always check: Was there authority? Any holding out? What do the policy and regulations say?

Key Takeaways

Agent ≠ Bank: Collection needs clear authority.
S.237 is narrow: Needs inducement by principal.
Revival timing: Late payment must be within insured’s life.
Read regulations: Internal rules can limit agency power.

Mnemonic + 3-Step Hook

Mnemonic: “A.I.R. Test”

Authority? (S.187–188)
Inducement? (S.237)
Revival timing?

3-Step Hook

Check authority: express or implied?
Check holding out: did principal cause belief?
Check timing: payment within life?

IRAC Outline

Issue	Rule	Application	Conclusion
Is premium paid to a general agent valid payment to LIC?	ICA Ss.187–188 (authority), S.237 (apparent authority/holding out).	No authority and no inducement by LIC; regulations barred agent collection; deposit post-death.	Payment invalid; policies lapsed; refund with 15% interest and ₹10,000 court fee ordered.

Glossary

Express Authority: Authority given in words (written/oral) by the principal.
Implied Authority: Authority inferred from conduct, position, or usual course of business.
Apparent Authority: When the principal’s conduct leads others to believe the agent has authority.
Revival of Policy: Bringing a lapsed policy back into force as per the policy terms; usually requires valid payment while insured is alive.