SRINAGAR: Holding that a bank cannot defeat a borrower’s insurance claim by reversing the insurance premium after the borrower’s death, the District Consumer Disputes Redressal Commission, Baramulla/Bandipora, has directed J&K Bank and PNB MetLife India Insurance Company to treat a deceased Kupwara borrower as covered under a loan-linked insurance scheme, pay the admissible insurance benefits, and jointly compensate his family with Rs 2.3 lakh.
The order was passed on July 16, 2026, by a bench comprising Commission President Peerzada Qousar Hussain and Member Nyla Yaseen in a consumer complaint filed by Shahzada Begum, widow of late Mohammad Ayoub Dar, along with their three minor children, against J&K Bank and PNB MetLife India Insurance Company.
The complainants had sought Rs 18 lakh as compensation for alleged deficiency in service, breach of trust and negligence, besides compensation for mental agony and litigation expenses.
According to the complaint, Mohammad Ayoub Dar had availed a cash credit loan from J&K Bank’s Old Chowk, Kupwara branch for establishing his business, New Brand Ready-Made Garments. Before disbursing the loan, the bank offered him a loan-linked insurance cover, following which Rs 16,000 was deducted from his account on May 6, 2022, towards the insurance premium.
Dar died less than a month later, on June 1, 2022. The complainants alleged that after learning about his death, the bank reversed the deducted premium to the borrower’s account and subsequently initiated recovery proceedings against the family instead of processing the insurance claim.
Despite repeated representations by the widow seeking settlement of the outstanding loan under the insurance cover, the bank denied that any valid insurance existed.
The Commission found that the deduction of the premium amount was undisputed and held that the subsequent reversal of the premium after the borrower’s death could not extinguish the rights that had accrued in favour of the insured.
“Once the premium was deducted and the borrower was enrolled for insurance coverage, the rights accruing under the policy could not be defeated merely by reversing the premium after the death of the borrower/insured,” the Commission observed.
It further held that the conduct of the bank amounted to both deficiency in service and an unfair trade practice.
“The conduct of the OPs in refunding the premium after the death of the borrower amounts to a clear deficiency in service and an unfair trade practice. The consumer cannot be made to suffer on account of internal lapses, if any, between the Bank and the Insurance Company,” the order said.
Applying the principle of the “preponderance of probabilities”, the Commission concluded that the deceased borrower had opted for the insurance cover by paying the premium and that the opposite parties had failed to establish that no insurance contract had come into existence before his death.
The Commission ruled that “the deduction of premium created a legitimate expectation of insurance coverage and the reversal of the premium after the death of the borrower cannot ordinarily defeat the rights of the insured or his legal heirs unless the OPs establish, by cogent evidence, that no contract of insurance ever came into existence and that the borrower was duly informed of the same before his death.”
Allowing the complaint, the Commission directed J&K Bank and PNB MetLife to treat the deceased borrower as duly covered under the loan-linked insurance scheme on the date of his death.
It directed PNB MetLife to pay the insurance amount due under the policy, together with interest at five per cent per annum from the date of filing of the complaint until its realisation.
The Commission also ordered the opposite parties to jointly pay Rs 2 lakh as compensation and Rs 30,000 towards litigation expenses to the complainants.
Further, it directed that the insurance proceeds be adjusted against the outstanding loan liability of the deceased borrower in accordance with the terms of the insurance cover. If any amount has already been recovered or is sought to be recovered from the legal heirs towards the same loan, the Commission said it must be dealt with strictly in accordance with law and the insurance policy.
The Commission directed the opposite parties to comply with the order within four weeks, failing which the awarded amount will carry interest at seven per cent per annum from the date of the order until payment.
