Full Judgment Text
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CASE NO.:
Appeal (civil) 3317 of 2008
PETITIONER:
National Insurance Co. Ltd.
RESPONDENT:
Yellamma & Anr
DATE OF JUDGMENT: 06/05/2008
BENCH:
S.B. Sinha & Lokeshwar Singh Panta
JUDGMENT:
J U D G M E N T
REPORTABLE
CIVIL APPEAL NO. 3317 OF 2008
(Arising out of SLP (C) No.16359 of 2006)
S.B. Sinha, J.
1. Leave granted.
2. Respondent No.2 was the owner of a Mini Bus. An insurance policy
in respect of the said vehicle was sought to be taken by him. For the said
purpose, the second respondent issued a third party cheque towards payment
of insurance premium.
The Development Officer of the appellant by inadvertence issued a
cover note. However, when the said mistake came to his notice, the
respondent No.2 was contacted by the Development Officer. He was asked
to pay the amount of premium. It was not tendered and in stead the
respondent No.2 is said to have returned the original cover note and took
back the cheque. The original cover note as also all the duplicate copies
thereof was cancelled.
The said insurance cover was issued for the period 3.9.1991 to
2.9.1992. On or about 12.9.1991, the said vehicle met with an accident.
First respondent who suffered an injury therein filed a claim petition in
terms of the provisions contained in Section 166 of the Motor Vehicles Act,
1988 (the Act). An award for a sum of Rs.43,000/- was made. The
Tribunal, in its award, categorically held :
"The petitioners have produced Ex.P.7 the Xerox
copy of the cover note Ex.R.1. There is all the
chances of the owner of the vehicle having taken
Xerox copy of the cover note Ex.R.1 and returning
the original cover note Ex.R.1 to the insurance
company as deposed by RW.1. If really the cover
note was not cancelled, the original cover note
should have been with the insured and respondent
No.3 could not have produced the original cover
note Ex.R.1. Hence, the case of 3rd respondent that
the owner of the vehicle had given third party
cheque and that later he had taken back the cheque
and returned the original cover note Ex.R.1 to the
insurance company and that the insurance
company has cancelled cover note is more
probable. As Ex.P.7 is the Xerox copy of the
original cover note Ex.R.1 and as the original
cover note Ex.R.1 and its copies Exs.R.2 to R.4
have been produced by the insurance company, the
argument of the learned counsel for the petitioners
that respondent No.3 is liable to pay the
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compensation cannot be accepted. Hence, from
the above discussion, I hold that there was no valid
insurance policy as on the date of the accident and
as such the respondent No.3 is not liable to pay
any compensation to the petitioners."
3. Second Respondent did not prefer any appeal thereagainst. Rirst
Respondent only preferred an appeal questioning the quantum of
compensation.
The High Court, by reason of the impugned judgment, while
enhancing the amount of compensation to a sum of Rs.1,50,000/-, held :
"The above provision disclose that a policy can be
issued against the issuance of cheque and the
liability commences from the date of issuance of
cheque and not from the date of its encashment.
There is no provision in law that the consideration
for policy should flow only from the insured and
not from the third party. The development officer
has acted in a hasty manner. No attempt was made
to present the cheque for encashment. If the
cheque was encashed it was well and good for the
insurer otherwise steps could have been taken for
cancellation of the policy Ex.R.1. The reason that
the cheque is not issued by the insured is not a
ground for valid cancellation. The endorsement of
cancellation is vague, it does not bear the date.
The officer who has made endorsement of
cancellation is not examined. The endorsement of
the insured is not taken on the policy to
substantiate that the cancellation was with due
notice and knowledge by the insured. Therefore,
under the above circumstances, the very
cancellation of the policy for untenable reason is
bad in law. The accident has occurred within 15
days from the date of issue of cover note. Hence,
the insurer is liable to pay the compensation."
4. Mr. Dua, learned counsel appearing on behalf of the appellant, would
submit that keeping in view the provisions contained in Section 65(v)(b) of
the Insurance Act, 1938 and furthermore in view of the finding of fact
arrived at by learned Motor Vehicles Accidents Claims Tribunal which was
not questioned by the insured, the impugned judgment cannot be sustained.
As nobody had appeared despite service of notice on behalf of the
respondent, we requested Mr. U.U. Lalit, senior counsel to assist us.
5. It is neither in doubt nor in dispute that all the copies including the
insurance cover which were marked as Ex.R.1 to R.4 had been produced
before the Tribunal to show that original insurance cover had been taken
back by the Development Officer concerned for one reason or the other.
The Administrative Officer of the appellant not only examined
himself before the Tribunal but also proved the note prepared by the
Divisional Manager of Ludhiana which was marked as Ex.R.5. The
Tribunal, as noticed hereinbefore, on appreciation of the evidence produced
before it, held that the vehicle was not legally insured.
6. The High Court, however, wrongly proceeded on the premise that a
cheque could be issued by a third party.
A contract of insurance like any other contract, is a contract between
the insured and the insurer. The amount of premium is required to be paid
as a consideration for arriving at a concluded contract. If the insurer insists
that a cheque should be issued only by the insured and not by a third party,
no exception thereto can be taken. The fact remains that the cheque was not
encashed. Concededly, the insured did not make any payment.
Section 64VB of the Insurance Act mandates that before a contract of
insurance comes into being, the premium should be received by the insurer
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in advance, stating :
"Section 64VB - No risk to be assumed unless
premium is received in advance\027(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 insurer.
Explanation.\027Where the premium is
tendered by 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."
7. The question came up for consideration recently before this Court in
Deddaooa & Ors. v. Branch Manager, National Insurance Co. Ltd. [(2008) 2
SCC 595], wherein upon noticing the precedents which were operating in
the field, it was clearly held :
"18. The ratio of the said decision was, however,
noticed by this Court in New India Assurance Co.
Ltd. v. Rula and Ors. [(2003) 3 SCC 195]. It was
held that ordinarily a liability under the contract of
insurance would arise only on payment of
premium, if such payment was made a condition
precedent for taking effect of the insurance policy
but such a condition which is intended for the
benefit of the insurer can be waived by it. It was
opined:
’13...If, on the date of accident, there was a
policy of insurance in respect of the vehicle
in question, the third party would have a
claim against the Insurance Company and
the owner of the vehicle would have to be
indemnified in respect of the claim of that
party. Subsequent cancellation of the
insurance policy on the ground of non-
payment of premium would not affect the
rights already accrued in favour of the third
party.’
The dicta laid down therein clarifies that if on the
date of accident the policy subsists, then only the
third party would be entitled to avail the benefit
therof.
19. Almost an identical question again came up for
consideration before this Court in National
Insurance Co. Ltd. v. Seema Malhotra and Ors.
[(2001) 3 SCC 151], a Division Bench noticed
both the aforementioned decisions and analysed
the same in the light of Section 64-VB of the 1938
Act. It was held:
’17. In a contract of insurance when the
insured gives a cheque towards payment of
premium or part of the premium, such a
contract consists of reciprocal promise. The
drawer of the cheque promises the insurer
that the cheque, on presentation, would yield
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the amount in cash. It cannot be forgotten
that a cheque is a bill of exchange drawn on
a specified banker. A bill of exchange is an
instrument in writing containing an
unconditional order directing a certain
person to pay a certain sum of money to a
certain person. It involves a promise that
such money would be paid.
18. Thus, when the insured fails to pay the
premium promised, or when the cheque
issued by him towards the premium is
returned dishonoured by the bank concerned
the insurer need not perform his part of the
promise. The corollary is that the insured
cannot claim performance from the insurer
in such a situation.
19. Under Section 25 of the Contract Act an
agreement made without consideration is
void. Section 65 of the Contract Act says
that when a contract becomes void any
person who has received any advantage
under such contract is bound to restore it to
the person from whom he received it. So,
even if the insurer has disbursed the amount
covered by the policy to the insured before
the cheque was returned dishonoured, the
insurer is entitled to get the money back.
20. However, if the insured makes up the
premium even after the cheque was
dishonoured but before the date of accident
it would be a different case as payment of
consideration can be treated as paid in the
order in which the nature of transaction
required it. As such an event did not happen
in this case, the Insurance Company is
legally justified in refusing to pay the
amount claimed by the respondents.’
20. A contract is based on reciprocal promise.
Reciprocal promises by the parties are condition
precedents for a valid contract. A contract
furthermore must be for consideration."
8. In today’s world payment by cheque is ordinarily accepted as valid
tender but the same would be subject to its encashment. A distinction,
however, exists between the statutory liability of the insurance company vis-
‘-vis the third party in terms of Sections 147 and 149 of the Motor Vehicles
Act and its liability in other cases but it is clear that if the contract of
insurance had been cancelled and all concerned had been intimated
thereabout, the insurance company would not be liable to satisfy the claim.
9. In this case, there cannot be any doubt or dispute whatsoever that no
privity of contract came into being between the appellant and the second
respondent and as such the question of enforcing the purported contract of
insurance while taking recourse to Section 147 of the Motor Vehicles Act
did not arise.
Second respondent did not contest the case at any stage. It did not
adduce any evidence before the Tribunal. It does not appeal from the
judgments of the High Court. No argument in the appeal was advanced in
his behalf. Before us also, no appearance has been made on behalf of the
respondent No.2 despite service of notice.
10. The accident took place in the State of Karnataka. Respondent No.2
is a resident of Ludhiana. The transaction in question was purported to have
been entered in Ludhiana. First respondent, therefore, in our opinion, may
not be in a position to enforce the award as against the respondent No.2.
11. In the peculiar facts and circumstances of this case, we are, therefore,
of the opinion that the interest of justice would be subserved if we, in
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exercise of our jurisdiction under Article 142 of the Constitution of India,
direct that the awarded amount be paid by the appellant to the first
respondent with liberty to it to recover the same from the second respondent
by initiating an appropriate proceeding in this behalf.
12. This appeal is allowed to the aforementioned extent and with the
aforementioned directions. As the respondents have not appeared before us,
there shall be no order as to costs.