Bank Responsible For Facilitating Insurance Under Master Policy; Failure To Inform Borrower Of Rejection Constitutes Deficiency In Service: Chhattisgarh High Court

"Once the petitioner undertook to facilitate insurance under the Master Policy and admittedly received the insurer's communication along with the refunded premium, it was under a corresponding duty to act with due diligence and keep the borrower informed," High Court of Chhattisgarh at Bilaspur, in a significant judgment, has held that a bank acting as a Master Policy Holder in a group insurance scheme is duty-bound to inform the borrower about the status of their insurance proposal.

A Single Bench of Justice Ravindra Kumar Agrawal observed that the failure to communicate the rejection of an insurance proposal or to timely refund the premium amount constitutes a "deficiency in service" under the Consumer Protection Act, 2019. The Court emphasized that such facilitation of insurance becomes an integral part of the banking services rendered to the customer.

The matter arose from a home loan transaction where the borrower, Late Shri Ashok Kumar Srivastava, had applied for insurance coverage under the SBI Life Rinn Raksha Group Insurance Scheme. While the bank deducted the premium, the insurance company rejected the proposal due to non-submission of medical documents and returned the premium to the bank. However, the bank failed to inform the borrower of this rejection or credit the refund to his account during his lifetime, leading to a consumer complaint by his widow after his demise.

The primary question before the court was whether a borrower, for whom a bank facilitates insurance under a Master Policy, qualifies as a "consumer" of the bank regarding that specific service. The court was also called upon to determine whether the bank’s failure to communicate the insurer's rejection of a proposal and the retention of the refund amount during the borrower's lifetime amounts to a deficiency in service. Furthermore, the court examined the limits of its supervisory jurisdiction under Article 227 of the Constitution of India.

Nominee And Beneficiary Fall Within The Definition Of 'Consumer'

The Court rejected the petitioner-bank's contention that the complainant was not a "consumer" under Section 2(7) of the Consumer Protection Act, 2019. The Bench noted that the definition of a consumer is inclusive and extends to any beneficiary of services hired for consideration.

Court Explains Scope Of Section 2(7) Of Consumer Protection Act

The Court observed that the deceased husband of the complainant had availed a housing loan and, as an integral part of that transaction, the bank deducted the premium for securing insurance coverage. The Bench held that the bank was not acting merely as a conduit for remittance but had undertaken the responsibility of facilitating insurance coverage for its borrowers.

Facilitation Of Insurance Is An Integral Part Of Banking Service

Citing the precedent set by the Supreme Court in Shriram Chits (India) Pvt. Ltd. v. Raghachand Associates, the Court reiterated that the definition of "consumer" must be construed liberally to advance the object of the legislation. It held that the deceased had hired banking services which included the facilitation of insurance under the Master Policy.

"The deceased borrower had hired the banking services of the petitioner for consideration, which included facilitation of insurance under the Master Policy, and the complainant, being the nominee and beneficiary of such services, squarely falls within the inclusive definition of 'consumer' under Section 2(7) of the Act."

Bank Cannot Absolve Itself Of Liability As Master Policy Holder

The petitioner-bank argued that its role was confined to deducting and remitting the premium and that the responsibility to communicate deficiencies lay solely with the insurer. The High Court found this argument untenable, noting that the bank, as the Master Policy Holder, was the primary point of coordination in a group insurance arrangement.

Duty Of Care Owed By Bank In Group Insurance Schemes

The Court pointed out that the insurance company had specifically requested the bank to either credit the refund to the borrower’s account or hand it over against acknowledgement. The bank’s failure to do so for over a year, and only adjusting the amount after the borrower's death, was viewed as gross negligence.

Bank Bound To Act With Due Diligence Once Responsibility Undertaken

Relying on the Apex Court's ruling in Canara Bank v. United India Insurance Co. Ltd., the Bench observed that even if effecting insurance was not originally the bank's obligation, once it undertook that responsibility, it became an integral part of the banking service. Any negligence in discharging that obligation would warrant a finding of deficiency.

"In such an arrangement, the petitioner was not a mere collecting agent, but the Master Policy Holder through whom the proposal was processed and the premium was remitted... it was under a corresponding duty to act with due diligence and keep the borrower informed."

Limited Scope Of Interference Under Article 227 Of The Constitution

The High Court underscored that its jurisdiction under Article 227 is supervisory and not appellate. It stated that findings of fact concurrently recorded by the District, State, and National Consumer Commissions should not be disturbed unless they are shown to be perverse, arbitrary, or wholly unsupported by evidence.

Supervisory Jurisdiction Cannot Be Used To Correct Mere Errors Of Fact

The Bench referred to the principles laid down in Shalini Shyam Shetty v. Rajendra Shankar Patil and Radhey Shyam v. Chhabi Nath, noting that the power of superintendence is intended to keep subordinate courts and tribunals within the bounds of their authority.

Concurrent Findings Of Consumer Fora Upheld

The Court concluded that the petitioner failed to demonstrate any jurisdictional error or manifest illegality in the orders passed by the consumer commissions. Since the conclusions reached by the lower fora represented a plausible and reasonable view based on the evidence, the Court declined to interfere with the concurrent findings.

"This Court, therefore, finds no ground to upset the concurrent findings of fact recorded by the consumer forums. Consequently, the writ petition deserves to be and is hereby dismissed."

The Court upheld the directions issued by the District Commission, which had ordered the bank to adjust the outstanding loan amount of Rs. 14,05,585/-, close the loan account, and issue a No Objection Certificate (NOC) to the complainant, along with compensation for the loss of insurance benefit.

Date of Decision: 25 June 2026