Full Judgment Text
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 5103 OF 2002
Deokar Exports Pvt. Ltd. .... Appellant
Versus
New India Assurance Company Ltd. ....Respondent
O R D E R
R. V. Raveendran J.
The appellant imported a De-hydration Machine financed
by Maharashtra State Finance Corporation (for short
'MSFC'). The machine was insured by the appellant with the
respondent (also referred to as the ‘Insurer’) through
MSFC, against the risk of fire for the period 12.9.1986 to
12.3.1988. Long after the expiry of the policy, on
25.8.1988, MSFC sent a cheque for Rs.3,135/- on behalf of
the appellant for renewal of the policy. A formal stamped
receipt was issued by the insurer confirming the receipt of
the cheque on 26.8.1988.
2. By letter dated 7.4.1989, the insurer informed the
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appellant that it had received the premium amount from
MSFC, but as no proposal had been received from appellant,
it was not in a position to issue the fire insurance
policy. The insurer sent a standard proposal form to the
appellant along with the said letter. The appellant filled
and signed proposal form and delivered it to the insurer on
16.6.1989. In the said proposal, the appellant stated that
insurance cover was required for the period 12.3.1988 to
12.9.1989. But the insurer issued an insurance policy dated
30.6.1989 extending insurance cover for the period
26.8.1988 to 25.8.1989. The Insurer sent the insurance
policy to MSFC as required. MSFC did not raise any
objection about the period of cover when the policy was
received by it. Nor was the policy renewed beyond
25.8.1989.
3. On 10.2.1990, the machine was damaged in a fire
accident. On 17.2.1990, the appellant lodged a claim for
Rs.26,91,139/- with the insurer, in regard to the said
damage. The insurer rejected the claim on the ground that
there was no insurance cover on 10.2.1990. Feeling
aggrieved, the appellant approached the National Consumer
Disputes Redressal Commission (‘Commission’ for short)
complaining deficiency in service by the Insurer. The said
complaint was dismissed on 23.9.1992 on the ground that the
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complaint involved decision on complex issues of fact and,
therefore, the appropriate remedy was by way of suit. The
appellant thereafter filed a civil suit on 29.3.1993
claiming Rs.26,91,130/-, being the value of the damaged
machine, with interest etc. The appellant submitted that
the suit was in time, if the period spent in prosecuting
the claim before the Commission was excluded under section
14 of Limitation Act, 1963.
4. The Trial Court by judgment and decree dated 16.9.1999
dismissed the suit. It upheld the contention of the
appellant that the insurance cover could only be
prospective, that is for a period of one year from the date
of issue of the policy; and that as the insurance policy
was issued on 30.6.1989, it should be deemed to have been
issued to cover a period of one year commencing from that
date; and that therefore, as on the date of the fire
accident – 10.2.1990, the machine must be deemed to have
been insured. However, the trial court dismissed the suit
as barred by limitation. It refused to exclude the time
spent in prosecuting the complaint before the National
Consumer Redressal Commission for purposes of limitation.
Feeling aggrieved, the appellant filed an appeal before the
Bombay High Court contending that the finding regarding
limitation was erroneous. The insurer filed cross-
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objections challenging the finding that the insurance was
in force on the date of fire accident. The High Court by
its judgment dated 9.3.2001 dismissed the appeal by the
appellant and allowed the cross-objections of the insurer.
The High Court held the suit was not barred by limitation.
But it held that the suit was liable to be rejected on
merits, as there was no insurance cover on 10.2.1990. It
held that the date of insurance policy was immaterial and
what was material was the date of assumption of risk; and
as the insurer had assumed risk with effect from 26.8.1988
for a period of one year upto 25.8.1989, it cannot be made
liable for a fire accident which occurred after the expiry
of the policy. The High Court also noted that when the
policy was sent to MSFC, which was acting on behalf of the
appellant, no objection was raised in regard to the period
of insurance cover.
5. The said decision of the High Court is challenged in
this appeal by special leave. The appellant contended that
a contract of insurance, unless otherwise mutually agreed,
shall always be prospective in its operation, that is from
the date of issuance of the policy of insurance or cover
note. It was submitted that as the proposal by the
appellant required insurance cover for the period 12.3.1988
to 12.9.1989, the insurer could have issued the policy
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assuming risk from the required date, that is, 12.3.1988.
If that was not possible, for whatever reason, the policy
should have assumed risk prospectively from the date of
issue of the policy, and not from some retrospective date
chosen by the insurer. It was further submitted that as the
insurer had sent the policy to MSFC, the appellant could
not point out the error relating to the period of insurance
cover. The appellant contended that in the circumstances,
the policy should be treated as having been issued
prospectively for one year effective from 30.6.1989; and if
so, the machine was deemed to have been insured on the date
of the accident.
6. On the contentions urged, the following questions
arise for our consideration :
(i) Where the insurance company is not able to issue a
policy of insurance, for the period required in the
proposal, whether the alternative is only to issue
the policy to be effective prospectively from the
date of issue.
(ii)
Whether the insurer was justified in issuing the
policy showing the period of insurance cover as
26.8.1988 to 25.8.1989?
(iii)
Whether the policy should be treated as one covering
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the machine against tie risk during the period
30.6.1989 to 29.6.1990?
7. The contention and grievance of the appellant is not
that the insurance policy should have covered the risk
during the period specified in its proposal. Its contention
is that the policy of insurance ought to have covered the
risk for a period of one year with effect from the date of
issue of the policy of insurance, and not for the period
stipulated in the policy, nor for the period mentioned in
its proposal.
8. Section 64 VB of The Insurance Act, 1938 (‘Act’ for
short) provides that no risk can be assumed unless premium
is received in advance. Sub-sections (1) and (2) of the
said section, relevant for our purpose, are extracted below:
"64-VB. No risk to be assumed unless premium is
received in advance - (1) No insurer shall assume
any risk in India in respect of any insurance
business on which premium is not ordinarily payable
outside India unless and until the premium payable
is received by him or is guaranteed to be paid by
such person in such manner and within such time as
may be prescribed or unless and until deposit of
such amount as may be prescribed, is made in advance
in the prescribed manner.
(2) For the purposes of this section, in the
case of risks for which premium can be ascertained
in advance, the risk may be assumed not earlier than
the date on which the premium has been paid in cash
or by cheque to the inusrer .
Explanation - Where the premium is tendered by
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postal money order or cheque sent by post, the risk
may be assumed on the date on which the money order
is booked or the cheque is posted, as the case may
be."
(Emphasis supplied)
Two things emerge from the said section. The first is that
the insurer cannot assume risk unless and until premium is
received or guaranteed or deposited. The second is that a
policy issued can assume the risk from a retrospective date
provided such date is not earlier than the date on which
premium had been paid in cash or by cheque to the insurer.
9. In this case, the proposal sent by the appellant was
received by the insurer on 16.6.1989. It required that the
period of insurance cover should be for the period
12.3.1988 to 12.9.1989. The reason why the respondent
wanted the insurance cover retrospectively from 12.3.1988
is obvious. The initial insurance policy expired on
12.3.1988. Under the terms of finance between MSFC and the
appellant, apparently it was necessary to have an
uninterrupted and continuous insurance cover during the
period the machine was secured in favour of MSFC.
Therefore, the appellant wanted the insurance cover to be
continued by way of renewal for the period 12.3.1988 to
12.9.1989. But the premium amount for one year was received
by the insurer only on 26.8.1988. Having regard to the bar
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contained in Section 64-VB of the Act, the insurer could
not accept the request of the appellant to grant insurance
cover with retrospective effect from a date prior to
26.8.1988 when it received the premium. Therefore, the
insurer adopted the standard, logical and obvious course of
issuing the insurance policy with effect from the date on
which it received the premium amount by cheque that is
with effect from 26.8.1988. As the premium paid was for one
year and the standard term of fire policy was one year, the
policy was issued assuming risk for the period 26.8.1988 to
25.8.1989. Non-issue of the policy for the period
commencing from 12.3.1988 required by the appellant, was
for a good and valid reason. There was also nothing
illogical or arbitrary about the insurance of a policy
specifying the period of insurance cover as one year
effective from the date of receipt of the premium, that is
from 26.8.1988 to 25.8.1989. If the appellant wanted
insurance cover prospectively it should have so specified
in the proposal. Having failed to do so and having sought
retrospective cover, the appellant cannot make a grievance
when the insurance cover is issued retrospectively from the
date of receipt of the premium.
10. Another aspect which requires to be noticed is that
when the policy was sent by the insurer to MSFC, there was
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no protest or objection from MSFC that the policy was
issued for a wrong period. Nor did it return the policy to
the insurer with a request to make it prospective from the
date of the policy. The appellant did not choose to
examine the policy or cross-check with MSFC about the
currency of the insurance policy or about the need to
further renewal of the policy. In fact, it would appear
from the record that MSFC had written on 31.7.1989 to the
appellant that the insurance policy was due to expire in
August, 1989. It is, thus, clear that both the appellant
and MSFC were aware of the fact that the insurance cover
under the policy was for the period 26.8.1988 to 25.8.1989
but neither of them objected to it. Nor was any premium
paid for further renewal of the policy beyond 25.8.1989.
Obviously, therefore, the insurer cannot be made liable for
the loss which occurred on account of a fire accident on
10.2.1990.
11. A policy of insurance is a contract based on an offer
(proposal) and an acceptance. The appellant made a
proposal. The respondent accepted the proposal with a
modification. Therefore, it was a counter proposal. The
appellant had three choices. The first was to refuse to
accept the counter-proposal, in which event there would
have been no contract. The second was to accept either
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expressly or impliedly, the counter-proposal of the
respondent (that is respondent’s acceptance with
modification) which would result in a concluded contract in
terms of the counter proposal. The third was to make a
counter proposal to the counter-proposal of the respondent
in which event there would have been no concluded contract
unless the respondent agreed to such counter-counter-
proposal. But the appellant definitely did not have the
fourth choice of propounding a concluded contract with a
modification neither proposed nor agreed to by either
party. If the appellant did not agree to the policy
covering the period 26.8.1988 to 25.8.1989 instead of the
period 12.3.1988 to 12.9.1989, the result would never
create an insurance contract effective from 30.6.1989 or
any other date.
12. The contention of the learned counsel for the
appellant that an equitable view must be taken is
untenable. In a contract of insurance, rights and
obligations are strictly governed by the policy of
insurance. No exception or relaxation can be made on the
ground of equity.
12. We, therefore, find no reason to interfere with the
judgment of the High Court. The appeal is dismissed with
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costs quantified at Rs.10,000/-.
...........................J.
(R.V. RAVEENDRAN)
...........................J.
(LOKESHWAR SINGH PANTA)
New Delhi
September 23, 2008