The Orienrtal Insurance Co. vs Mithlesh & Others
2017 Latest Caselaw 4528 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

						A.F.R.
 
Court No. - 28
 

 
Case :- FIRST APPEAL FROM ORDER No. - 394 of 1998
 

 
Appellant :- The Orienrtal Insurance Co.
 
Respondent :- Mithlesh & Others
 
Counsel for Appellant :- S.K. Srivastava,A.K.Srivastava,Satosh,V.C. Dixit,Yogesh Agarwal
 
Counsel for Respondent :- B.P. Verma,B.P.Verma,H.P. Pandey,H.Pandey,K.M. Mishra,S.N.Pandey,Samir Sharma
 

 
Hon'ble Saumitra Dayal Singh,J.	
 
	This appeal has been filed by the insurer-Oriental Insurance Company Ltd. as also S.M. Dixit, the then Branch Manager of the said insurance company against the award of the Motor Accident Claims Tribunal, Mathura dated 01.04.1998 in Motor Accident Claim No. 67 of 1993 by which the said Tribunal has awarded Rs. 4,10,760/- together with interest @ 15% to the claimant-respondents, arising from the accidental death of one Chhiddimal on 19.03.1993. He was knocked down by the truck insured by the present appellant while the deceased was riding a bicycle.
 
	In this appeal, the appellants do not dispute occurrence of the accident or finding of the Tribunal as to the negligence of the driver of the offending truck or quantification of compensation awarded. They dispute the liability of compensation being fixed on the insurer to the exclusion of the owner of the offending truck. Also, it is contended, the rate of interest was awarded @ 15% is excessive. 
 
	In respect of first argument so advanced by learned counsel for the appellants it is noted, the truck bearing registration no. URR - 1187 owned by one Pappu S/o Jallo had been initially sought to be insured by the appellant. In fact against cheque payment of the premium, a cover note had been issued, made effective on 12.03.1993.
 
	However, the cheque got dishonoured on 16.03.1993. Admittedly, the intimation of the cheque having been dishonoured was given to the owner of the truck namely Pappu on 18.03.1993 in writing, by the insurer. According to the Tribunal the written intimation was given to the insured/truck owner, on 18.03.1993 wherein it was made clear, in view of cheque having been dishonoured the insurance of the risk cover did not exist. 
 
	Again, admittedly, the accident giving rise to the instant appeal occurred on 19.03.1993 that is after intimation given to the insured of the risk cover having been withdrawn by the insurer.
 
	Thereafter, on 24.03.1993 the insured deposited the premium amount in cash. The premium having been paid, the insurance cover was revived by the appellant.
 
	In this regard, Sri V.C. Dixit, learned counsel for the appellant insurer contends, the accident occurred on 19.03.1993 when the insurance contract stood repudiated. In view of the fact that the insured did not inform the appellant about the accident, it was the case of material concealment and therefore no risk cover could exist, continue or arise, despite the fact of the premium amount having been paid.
 
	It is also contended, even otherwise, once the accident had occurred on the date prior to payment of premium, there was no question of risk coverage arising retrospectively, inasmuch as a contract of insurance only covers an unknown or the uncertain event. It is that uncertain event or happening that forms the subject matter of contract of insurance or is central to the contract of insurance. An event that has already occurred and is therefore known to one party no longer falls it did not fall within the ambit of a risk for execution of a valid contract of insurance. 
 
	While the owner has been served through publication, none has appeared to oppose the instant appeal on behalf of owner.
 
	In view of the above, learned counsel for appellant submits, while the liability of the insurer vis-a-vis the third party claim, as has arisen in this case, would continue on the insurer to the extent the insurer would continue to be liable to pay up the compensation amount to the third party. Yet, it must  necessarily have a right to recover against the insured. 
 
	In this regard, Sri Samir Sharma, has placed reliance on the judgment of the Supreme Court in the case of Oriental Insurance Co. Ltd. Vs. Inderjit Kaur reported in (1998) 1 SCC 371. That was a case where subsequent to the cheque issued for payment of premium amount having got dishonoured, premium was paid to the insurer subsequent to intimation of contract of insurance have been repudiated upon dishonour of cheque. As in this case, the accident occurred between the date of cheque having got dishonoured and subsequent payment of premium amount. In this regard the Supreme Court held as below:-
 
"9. We have, therefore, this position. Despite the bar created by Section 64- VB of the Insurance Act, the appellant, an authorised insurer, issued a policy of insurance to cover the bus with out receiving the premium therefor. By reason of the provisions of Section 147(5) and 149(1) of the Motor Vehicles Act , the appellant became liable to identify third parties in respect of the liability which that policy covered and to satisfy awards of compensation in respect thereof notwithstanding its entitlement (upon which we do not express any opinion) to avoid or cancel the policy for the reason that the cheque issued in payment of the premium thereon had not been honoured.
 
10. The policy of insurance that the appellant issued was a representation upon which the authorities and third parties were entitled to act. The appellant was not absolved of its obligations to third parties under the policy because it did not receive the premium. Its remedies in this behalf lay against the insured." 
 
	He has further placed reliance on another judgement of the Supreme Court in the case of National Insurance Co. Ltd. Vs. Seema Malhotra and Ors. reported in (2001) 3 SCC 151. The Supreme Court first noticed and considered the judgment in the case of Oriental Insurance Co. Ltd. Vs. Inderjit Kaur (supra) and observed, this judgment had not expressed any opinion on the question of entitlement to avoid or to cancel the policy of the insurance against the insured in the event a cheque issued for payment of premium having got dishonoured. Then, the Supreme Court had observed  as under:-
 
"8. The direction that the Insurance Company can now deduct the premium amount from the compensation to be fixed is no solace to the insurer. The essence of the insurance business is the coverage of the risk by undertaking to indemnify the insured against loss or damage. They agree to pay the damages arising out of any accident by taking a chance that no accident might happen. Motivation of the insurance business is that the premium would turn to be the profit of the business in case no damage occurs. Such business of the insurance company can be carried on only with the premium paid by the insured persons on the insurance policy. The only profit, if at all the insurance company makes, of the insurance business is the premium paid when no accident or damage occurs. But to ask the insurance company to bear the entire loss or damages of somebody else without the company receiving a pie towards premium is contrary to the principles of equity, though the insurance companies are made liable to third parties on account of statutory compulsions due to the initial agreement, entered between the insured and the company concerned.
 
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12. Thus the question has now to be considered as the same is the crux of the issue involved in this case. As pointed out earlier the insurance is a contract whereby one undertakes to indemnify another against loss, damage or liability arising from an unknown or contingent event and is applicable only to some contingency or act to occur in future. We have to consider how far the legislature has controlled the insurance business. Section 2(9) of the Insurance Act defines "insurer", inter alia, as

"any body corporate...carrying on the business of insurance, which is a body corporate incorporated under any law for the time being in force in India".

Section 2-D of the Act says that:

"2-D. Every insurer shall be subject to all the provisions of this Act in relation to any class of insurance business so long as his liabilities in India in respect of business of that class remain unsatisfied or not otherwise provided for."

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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 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."

(emphasis supplied)

Then, recently, the Supreme Court in the case of BHS Industries v. Export Credit Guarantee Corpn. Ltd., (2015) 9 SCC 414, observed as under :

"12. At the outset, it may be stated that contracts of insurance are contracts of uberrima fides and every material fact is required to be disclosed. In United India Insurance Co. Ltd. v. M.K.J. Corpn.1 a two-Judge Bench has observed: (SCC p. 431, para 6)

"6. It is a fundamental principle of Insurance law that utmost good faith must be observed by the contracting parties. Good faith forbids either party from concealing (non-disclosure) what he privately knows, to draw the other into a bargain, from his ignorance of that fact and his believing the contrary. Just as the insured has a duty to disclose, ''similarly, it is the duty of the insurers and their agents to disclose all material facts within their knowledge, since obligation of good faith applies to them equally with the assured'."

(Emphasis supplied)

Also, it may be noted Section 64-VB. of the Insurance Act, 1938 reads as under :-

"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 insurer.

Explanation.--Where 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.

(3) Any refund of premium which may become due to an insured on account of the cancellation of a policy or alteration in its terms and conditions or otherwise shall be paid by the insurer directly to the insured by a crossed or order cheque or by postal money order and a proper receipt shall be obtained by the insurer from the insured, and such refund shall in no case be credited to the account of the agent.

(4) Where an insurance agent collects a premium on a policy of insurance on behalf of an insurer, he shall deposit with, or dispatch by post to, the insurer, the premium so collected in full without deduction of his commission within twenty-four hours of the collection excluding bank and postal holidays.

(5) The Central Government may, by rules, relax the requirements of sub-section (1) in respect of particular categories of insurance policies.

1[(6) The Authority may, from time to time, specify, by the regulations made by it, the manner of receipt of premium by the insurer.]"

(Emphasis supplied)

The Supreme Court in the case of Deokar Exports (P) Ltd. Vs New India Assurance Co. Ltd. reported in (2008) 14 SCC 598 has, in respect of section 64-VB of the Insurance Act, 1938, held as below :-

"10. ..........................................................................................................................................................................

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.

11. 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 appellant 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 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 as required by the appellant, was for a good and valid reason. There was also nothing illogical or arbitrary about the issuance 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."

(Emphasis supplied)

In the instant case, the first contract of insurance could not arise before 12.3.1993 when the insurer received the cheque for the premium amount. However, it was repudiated by the insurer on 18.3.1993 upon the cheque issued by the insured being dishonoured by his banker (on 16.3.1993). This is accepted and admitted between the parties. In any case, this has to be taken to be so in view of the finding of the Tribunal itself.

Thereafter, till 24.3.1993, there did not exist any contract of insurance. The accident occurred on 19.3.1993. The second contract of insurance is claimed, by the insurer to have arisen thereafter, on 24.3.1993, upon payment of premium amount by the insured, in cash. Thus, on 24.3.1993, the insured was was under an obligation to inform the insured about the occurrence of the accident on 19.3.1993.

Having failed to act in good faith, by concealing this material fact, the insured induced the insurer to cover the risk, if at all it may be so described, of the liability arising therefrom, against payment of premium at the same rate as the insurer would have accepted to cover another vehicle that was not involved in such an accident. Besides the fact, upon occurrence of the happening of the accident, that event may not have remained a 'risk' eligible to coverage under an insurance contract, still, the insurer would be within its rights to plead repudiation of such contract, if arises, on ground of active concealment and or non-disclosure of essential fact, within special knowledge of the insured.

In view of the fact that the event or happening of accident had occurred and was known to the insured, it was no longer in the realm of an uncertain event or happening that could be categorised as a 'risk' for the purpose of execution of a contract of insurance, the insurance contract stood repudiated and or was void. The event of accident having already occurred prior to the payment of the premium amount, there could not have arisen a contract of insurance to cover that event.

The liability to compensate had already arisen upon occurrence of the accident. As a subject matter of contract of insurance, it went outside the realm of such contract. It may have fall in the realm of a contract for underwriting but not of insurance. Therefore, the award of the Tribunal insofar as it does not grant the appellant a right to recover against the insured respondent no. 8 is erroneous.

The award of the Tribunal containing a direction to the insurer to recover the compensation from it's own officer is clearly erroneous in view of the discussion made above.

It appears the Tribunal has been influenced by the fact of undue loss having been caused to the insured in the facts and circumstances of the case. Besides and in addition to discussion made above, there was no evidence led and there is no material to conclude that the act of insuring the offending truck from prior date was on account of any misconduct of appellant no. 2. It was for the insured to have disclosed the correct fact with regard to the occurrence of the accident on 19.03.1993. Consequence of such non-disclosure cannot be visited on the officer of the insurer. The only remedy open, as provided in the above discussed decisions of the Supreme Court is to give the insurer a right to recover against the owner.

The argument advanced by learned counsel for the appellants that the interest awarded @ 15% is exorbitant does not merit interference in this appeal for reason of such interest being paid only for five year period only, the accident having occurred in 1993 and deposit having been made in 1998. Also, in the computation of compensation awarded, under the impugned award, no provision has been made for future prospects, to which the claimants appear to be entitled.

However, it is made clear for the period from the date of the deposit made by the appellant till the date of its release in favour of the claimant-respondents, the claimants would be entitled to only such interest as may have accrued on the amount deposited by the appellant and no further amount would be payable towards interest.

In view of the above, the award of the Tribunal is modified to the extent, the Tribunal shall now proceed against the owner of the insured the truck bearing registration no. URR - 1187 owned by one Pappu S/o Jallo and require it to furnish adequate security for an amount equal to the entire amount deposited by the appellant under interim order passed in this appeal or to deposit such amount within a period of three months from today. At the same time the balance decretal amount, lying in deposit before the Tribunal may be released in favour of the claimant respondent.

Should the owner respondent default in complying with the direction to secure and/or discharge the insurer within three months from today, he shall be further liable for interest (towards payment to be made to the insurer), at the rate of 6%, on the amount deposited by the insurer in compliance of order passed in this appeal, from the the date of its deposit made by the insurer-appellant to the date of deposit by the owner.

In view of the above, the instant appeal is allowed in part. No order as to costs.

Order Date :- 18.9.2017

A. Singh

Civil Misc. Impleadment Application No. 371871 of 2014

IN

Case :- FIRST APPEAL FROM ORDER No. - 394 of 1998

Appellant :- The Orienrtal Insurance Co.

Respondent :- Mithlesh & Others

Counsel for Appellant :- S.K. Srivastava,A.K.Srivastava,Satosh,V.C. Dixit,Yogesh Agarwal

Counsel for Respondent :- B.P. Verma,B.P.Verma,H.P. Pandey,H.Pandey,K.M. Mishra,S.N.Pandey,Samir Sharma

Hon'ble Saumitra Dayal Singh,J.

This application has been filed by one Satendra Mohan Dixit to be impleaded as party. The impleadment application has been filed, occasioned by a direction issued in the impugned award that the compensation amount be first recovered from the insurer-Oriental Insurance Company Ltd. and subsequent to such recovery being made equal amount may be recovered from Satendra Mohan Dixit who was, at the relevant time Branch Manager of the said insurance company branch, Ghaziabad which had been issued the insurance policy of the offending vehicle involved in the accident.

There is no objection by either the insurer appellant or the claimant respondent. Owner respondent is unrepresented.

The application is allowed. Necessary impleadment may be carried out during the course of the day.

Order Date :- 18.9.2017

A. Singh

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Case :- FIRST APPEAL FROM ORDER No. - 394 of 1998

Appellant :- The Orienrtal Insurance Co.

Respondent :- Mithlesh & Others

Counsel for Appellant :- S.K. Srivastava,A.K.Srivastava,Satosh,V.C. Dixit,Yogesh Agarwal

Counsel for Respondent :- B.P. Verma,B.P.Verma,H.P. Pandey,H.Pandey,K.M. Mishra,S.N.Pandey,Samir Sharma

Hon'ble Saumitra Dayal Singh,J.

Affidavit of service discloses service of notice on respondent no. 8 through publication in newspaper. Service on the said respondent is deemed sufficient.

Claimant-respondent no. 2 Chiranji is reported to be dead. The word 'since deceased' be added against her name.

Order Date :- 18.9.2017

A. Singh