Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6347 OF 2000
H.P. State Forest Company Ltd. ……..Appellant
Vs.
M/s. United India Insurance Co. Ltd. …….Respondent
J U D G M E N T
HARJIT SINGH BEDI,J.
1. The facts leading to this appeal are as under:
2. In October 1987, a meeting was convened by the
Managing Director of the appellant with representatives
of various Insurance Companies in Shimla with a
proposal to insure the timber lying in several forest areas
of the State. A proposal was also made to the National
th
Insurance Company on 26 October 1987 to act as a
2
lead company while the other Insurance Companies were
to be co-sharers. After negotiations, the respondent
th
agreed (on the 30 October 1987) to insure the timber
lying in the South Zone in the value of Rs.3.42 Crores
th
and also issued a cover note dated 7 November 1987
th
followed subsequently by a policy dated 16 November
th th
1987 to be valid from 6 November 1987 to 5 November
1988. The appellant also deposited a sum of
Rs.2,43,504 as the tentative premium subject to the
approval by the Tariff Advisory Commission. It appears
that on account of heavy rains in the Shimla region in
September 1988 and consequent large scale flooding in
the South Zone, the insured timber was washed away.
This fact was conveyed to the respondent by several
rd st
letters between 3 October 1988 and 31 September
1989. The case of the appellant is that instead of
meeting its contractual obligations, the respondent
th
refuted its liability to pay on the 13 October 1988 on
the pretext that the policy had, in fact, been issued for a
th
period of 8 months only starting from 6 November 1987
3
th
and ending on 5 July 1988 and the period of one year
mentioned in the policy was on account of a
typographical mistake. It also appears that after
prolonged negotiations, some additional premium was
paid with respect to the aforesaid policy. It is the
grievance of the appellant that despite having accepted
the additional premium even after the policy had been
th
repudiated on 13 October 1988, the respondent-
company still refused to make good the loss. The
th
appellant accordingly issued a legal notice dated 7 May
th
1992 followed by another dated 7 December 1992 but
to no avail, and on the contrary, the respondent vide its
th
communication dated 24 December 1992 yet again
repudiated the appellant’ claim. Faced with this
situation, the appellant through its Advocate, issued a
th
notice dated 18 April 1993 to the respondent under
clause 13 of the Insurance Policy calling for the
th
appointment of an arbitrator. In its reply dated 19 May
1993, the Insurance Company refused to accept this
proposal as well. Frustrated thereby, the appellant filed
4
a complaint before the National Consumer Redressal
th
Forum (hereinafter called the “Commission”) on 18 April
1994 on which notice was issued to the respondent.
Several objections such as the complaint being belated
th
as the claim had been repudiated by letter dated 13
October 1988, and that the insurance covered only a
period of 8 months, were taken by the respondent. A
rejoinder affidavit was thereafter filed by the appellant
controverting the pleas raised by the respondent. The
Commission, however, after prolonged hearing by its
th
order dated 15 February 1996 relegated the appellants
to the remedy of a civil court. This order was challenged
th
and was set aside by this Court on 13 March 1997 and
a direction was issued to the Commission to examine the
complaint on merits. The Commission accordingly went
th
in to the matter and dismissed the complaint on 16
August 2000 holding that the issues were covered
against the appellant by the judgment of this Court in
National Insurance Co.Ltd. vs. Sujir Ganesh Nayak &
Co. & Anr. (1997) 4 SCC 366 in which it had been held
5
that the complaint could not be entertained as it was
time barred having been brought before the Commission
after the expiry of the period fixed by Clause 6(ii) of the
Insurance Policy. It is against this order that the present
appeal has been filed.
3.
Mr. Sharma, the learned counsel for the appellant has
submitted that Section 44 of the Limitation Act provided
a period of limitation of 3 years from the date of
disclaimer and as such the period of 12 months fixed by
clause 6(ii) could not be sustained by virtue of the
provisions of section 28 of the Contract Act, 1872. In
this connection, he has pointed out that this matter was
concluded against the respondent by the judgment in
Food Corporation of India vs. New India Assurance
Co.Ltd. & Ors. (1994) 3 SCC 324 which had been
reaffirmed in Muni Lal vs. Oriental Fire & General
Insurance Co.Ltd. & Anr. (1996) 1 SCC 90 and that
Sujir Ganesh Nayak case (supra) which was based on
the pre amended Section 28 ibid was, therefore,
inapplicable. Mr. Nandwani, the learned counsel for the
6
respondent has, however, submitted that the claim had,
th
in fact, been repudiated on 13 October 1988 and as the
3 years period was deemed to have commenced from that
day, the complaint was barred even on the appellant’s
best case as the complaint had been filed in April 1994.
He has, further, argued that as far back as in the
judgment in Vulcan Insurance Co.Ltd. vs. Maharaj
Singh & Anr. (1976) 1 SCC 943 and followed
subsequently in several judgments (and even in those
referred to above), it had been held that a clause in an
Insurance Policy fixing a period of limitation
extinguishing the right to file a suit or complaint within a
certain stipulated period which could be less than that
prescribed by the Limitation Act, was not violative of
Section 28 of the Contract Act and as such the findings
of the Commission were perfectly in accordance with the
law for this additional reason as well.
4. We have considered the arguments advanced by the
learned counsel for the parties.
7
5. It is clear from the record that the timber had been
washed away some time in September 1988 and after
prolonged correspondence, the respondent ultimately
th
vide its communication dated 13 October 1988
repudiated the appellant’s claim. It is also clear from the
counter affidavit filed by the respondent that the
th
appellant had, vide its letter dated 7 November 1987,
asked for insurance cover for a period of 8 months and
that the period of one year fixed in the insurance policy
was evidently a typographical mistake which had, in any
th
case, been rectified in the records of the company on 17
December 1987, that is long before the flood. The claim
of the appellant that the respondent company had, even
th
after the 13 October 1988, impliedly admitted its
liability under the policy also appears to be incorrect as
the surveyors had been appointed on the persistent
demand of the claimant/appellant and the premium
taken thereafter was only to make good the deficiency in
the premium that had been paid for the policy for the
period of eight months. It is, therefore, apparent that as
8
on the date of the flood, there was no insurance policy in
existence or any commitment on behalf of the respondent
to make the payment under the policy. We, therefore,
endorse the argument raised by the respondent that even
accepting the case of the appellant at its very best that
the period of limitation would be 3 years under Section
44 of the Limitation Act, the complaint would, even then,
be beyond time, having been filed in April 1994.
6. In view of the above observations, we find that the
second issue with regard to the implications of clause 6
(ii) of the policy vis-à-vis Section 28 is really academic,
but as the learned counsel for the parties have addressed
us on this score, we have chosen to deal with it as well.
We see from the order of the Commission that it has
relied upon Sujir Ganesh Nayak’s case (supra) to hold
that the complaint could not be entertained as being
time barred. The counsel for the appellant had, however,
argued before the Commission as before us, that as
Section 28 of the Contract Act had undergone significant
amendments, the aforesaid judgment required a re-
9
appraisal. This submission had been rejected by the
Commission by observing that it was bound by the
judgment in Sujir Ganesh Nayak’s case and that the
appellant could agitate the question as to its correctness
before the Supreme Court. The matter was, accordingly,
adjourned by us to enable the parties to find out if the
amendment had, indeed, been made and, if so, to what
effect. During the resumed hearing, the learned counsel
for the appellant candidly admitted that the amendment
had been made but had thereafter been repealed and the
matter would, thus, have to be examined under Section
28 of the Contract Act, as originally placed. We have,
accordingly, chosen to deal with this matter under that
provision. 7. It would be clear
from the above prefatory note that the discussion would
involve an appreciation of Clause 6(ii) of the Policy and
Section 28 of the Contract Act. Both these clauses are
reproduced below:
“6(ii) In no case whatsoever shall the
company be liable for any loss or damage
10
after the expiration of 12 months from the
happening of the loss or damage unless
the claim is the subject of pending action
or arbitration: it being expressly agreed
and declared that if the company shall
declaim liability for any claim hereunder
and such claim shall not within 12
calendar months from the date of the
disclaimer have been made the subject
matter of a suit in a court of law then the
claim shall for all purposes be deemed to
have been abandoned and shall not
thereafter be recoverable hereunder.
Section 28
Agreements in restrain of legal
proceedings void-
Every agreement, by which any party
thereto is restricted absolutely from
enforcing his rights under or in respect of
any contract, by the usual legal proceedings
in the ordinary tribunals, or which limits
the time within which he may thus enforce
his rights, is void to that extent.
Savings of contract to refer to
arbitration dispute that may arise
Exception 1 – This section shall not render
illegal a contract, by which two or more
persons agree that any dispute which may
arise between them in respect of any
subject or class of subjects shall be referred
to arbitration and that only the amount
awarded in such arbitration shall be
recoverable in respect of the dispute so
referred.
11
Savings of contract to refer questions
that have already arisen.
Exception 2 – Nor shall this section render
illegal any contract in writing, by which two
or more persons agree to refer to arbitration
any question between them which has
already arisen, or affect any provision of any
law in force for the time being as to
references to arbitration.”
8. In Sujir Nayak’s case (supra) to which primary reference
has been made by the learned counsel for the parties while
dealing with an identical situation where a contract
contained a provision prescribing a period of limitation
shorter than that prescribed by the Limitation Act, it was
held that the contractual provision was not hit by Section
28 as the right itself had been extinguished.
9. Mr. Sharma has, however, submitted that in view of the
observations in some paragraphs in Food Corporation of
India’s case, the observations in Sujir Nayak’s case were
liable to reconsideration. We, however, find no merit in this
plea for the reason that in Sujir Nayak’s case, Food
12
Corporation of India’s case (supra) has been specifically
considered and Vulcan Insurance Company’s case (supra)
too had been relied upon. In Sujir Nayak’s case , this
Court was called upon to consider condition 19 of the policy
which was in the following terms:
“Condition 19. – In no case whatever
shall the company be liable for any loss
or damage after the expiration of 12
months from the happening of loss or the
damage unless the claim is the subject of
pending action or arbitration.”
10.While construing this provision vis-à-vis Section 28 of the
Contract Act and the cases cited above and several other
cases, in addition, this is what the Court ultimately
concluded:
“16. From the case-law referred to above the
legal position that emerges is that an agreement
which in effect seeks to curtail the period of
limitation and prescribes a shorter period than that
prescribed by law would be void as offending
Section 28 of the Contract Act. That is because
such an agreement would seek to restrict the party
from enforcing his right in Court after the period
prescribed under the agreement expires even
though the period prescribed by law for the
enforcement of his right has yet not expired. But
there could be agreements which do not seek to
curtail the time for enforcement of the right but
which provide for the forfeiture or waiver of the
right itself if no action is commenced within the
period stipulated by the agreement. Such a clause
13
in the agreement would not fall within the mischief
of Section 28 of the Contract Act. To put it
differently, curtailment of the period of limitation is
not permissible in view of Section 28 but extinction
of the right itself unless exercised within a specified
time is permissible and can be enforced. If the
policy of insurance provides that if a claim is made
and rejected and no action is commenced within
the time stated in the policy, the benefits flowing
from the policy shall stand extinguished and any
subsequent action would be time-barred. Such a
clause would fall outside the scope of Section 28 of
the Contract Act. This, in brief, seems to be the
settled legal position. We may now apply it to the
facts of this case.
19. The clause before this Court in Food Corpn.
case extracted hereinbefore can instantly be
compared with the clause in the present case. The
contract in that case said that the right shall stand
extinguished after six months from the termination
of the contract. The clause was found valid because
it did not proceed to say that to keep the right alive
the suit was also required to be filed within six
months. Accordingly, it was interpreted to mean that
the right was required to be asserted during that
period by making a claim to the Insurance Company.
It was therefore held that the clause extinguished the
right itself and was therefore not hit by Section 28 of
the Contract Act. Such clauses are generally found in
insurance contracts for the reason that undue delay
in preferring a claim may open up possibilities of
false claims which may be difficult of verification with
reasonable exactitude since memories may have
faded by then and even ground situation may have
changed. Lapse of time in such cases may prove to
be quite costly to the insurer and therefore it would
not be surprising that the insurer would insist that if
the claim is not made within a stipulated period, the
right itself would stand extinguished. Such a clause
would not be hit by Section 28 of the Contract Act.
21. Clause 19 in terms said that in no case
would the insurer be liable for any loss or damage
after the expiration of twelve months from the
happening of loss or damage unless the claim is
subject of any pending action or arbitration. Here the
claim was not subject to any action or arbitration
proceedings. The clause says that if the claim is not
pressed within twelve months from the happening of
14
any loss or damage, the Insurance Company shall
cease to be liable. There is no dispute that no claim
was made nor was any arbitration proceeding
pending during the said period of twelve months. The
clause therefore has the effect of extinguishing the
right itself and consequently the liability also. Notice
the facts of the present case. The Insurance
Company was informed about the strike by the letter
of 28-4-1977 and by letter dated 10-5-1977. The
insured was informed that under the policy it had no
liability. This was reiterated by letter dated 22-9-
1977. Even so more than twelve months thereafter
on 25-10-1978 the notice of demand was issued and
the suit was filed on 2-6-1980. It is precisely to avoid
such delays and to discourage such belated claims
that such insurance policies contain a clause like
clause 19. That is for the reason that if the claims
are preferred with promptitude they can be easily
verified and settled but if it is the other way round,
we do not think it would be possible for the insurer
to verify the same since evidence may not be fully
and completely available and memories may have
faded. The forfeiture clause 12 also provides that if
the claim is made but rejected, an action or suit
must be commenced within three months after such
rejection; failing which all benefits under the policy
would stand forfeited. So, looked at from any point of
view, the suit appears to be filed after the right stood
extinguished. That is the reason why in Vulcan
Insurance case while interpreting a clause couched in
similar terms this Court said: (SCC p. 952, para
23)
“It has been repeatedly held that such a clause
is not hit by Section 28 of the Contract Act.”
Even if the observations made are in the nature
of obiter dicta we think they proceed on a correct
reading of the clause.”
In the light of the fact that Food Corporation’s case has been
considered in Sujir Nayak’s case , no further argument
remains in the present matter, as Clause 6(ii) and Condition
19 are, in their essence, pari materia.
15
11. Mr. Sharma has also placed reliance on Muni Lal’s case
(supra) . In this case, the primary issue before the Court
was as to whether an amendment under Order 6 Rule 17 of
the CPC ought to be allowed after the relief which had been
sought to be introduced had become time barred. We,
therefore, find that no case for interference is made out.
The appeal is, accordingly, dismissed. There will be no
order as to costs.
…………………………
…..J.
(DALVEER BHANDARI)
……………………………..J.
(HARJIT SINGH BEDI)
New Delhi,
Dated: December 18, 2008