Amravati District Central Co-Op. ... vs United India Insurance Co. Ltd. ...
2004 Latest Caselaw 792 Bom

JUDGMENT

Anoop V. Mohta, J.

1. This First Appeal has been preferred by the original plaintiff/appellant herein, against the original defendants/respondents herein, and thereby challenged the Judgment dated 7-12-1995 whereby the suit of the appellant was dismissed with costs.

2. Facts :- The appellant is a Corporate Body, constituted under the Maharashtra Co-operative Societies Act, and carrying on a business of Banking within the territory of Amravati District and called as Amravati District Central Co-operative Bank Limited (for short 'the Bank'). As per the Banks normal practice and in order to save its imovable and immovable properties from loss, they used to take various insurance policies including the policies to cover likely losses arising from fire, burglaries etc. The appellant-Bank, used to take Banker's Blanket Policy (for short 'Banker's Policy), in order to get indemnified in case of losses likely to result for negligence or fraud of its officers, clerks, servants, committed directly or in connivance with each other. Such banker's Policy covers all the branches of the appellant Bank, including the head office. This Banker's Policy, further covers the loss or losses suffered by the appellant bank due to criminal act of its officers, clerks or servants.

3. The General Insurance Corporation came into existence in 1973 and various individual insurance units carrying on by the General Insurance business were amalgamated and about 4 units came into existence as components of the General Insurance Corporation. The Union Co-operative Insurance Society Limited was amalgamated with the respondent United India Insurance Company Limited (for short Insurance Company'). Thus the respondent insurance company due to merger, had inherited all the assets and liabilities of the Union Co-operative Insurance Society Limited at the relevant time.

4. The appellant's suit was based on the Banker's Blanket Policy, issued by the erstwhile Union Co-operative Society Limited for the period 1-7-1974 to 30-6-1975. The insurance amount under the Policy was Rs. 6 lakhs and the total premium paid was of Rs. 23,434/-. As contended the respondent insurance company was bound to indemnify the appellant Bank's losses incurred during the period of 12 months and also for losses discovered and sustained within the retroactive period of not exceeding 5 years from the date of discovery of any loss or losses. The relevant clauses of the renewed Bankers Policy are :

" 1. The word 'Five' appearing in the last line of para one on page three of the Policy under the heading "warranted free of all claim is hereby deleted and replaced by word 'two'.

3. The Company shall not be liable to pay the first Rs. 11,500/- (rupees eleven thousand five hundred only), (two percent of limit of indemnity) of each & every loss in respect of claims under clauses 1 and 2 or 4 and 25 of each and every loss with a minimum of Rs. 11,500/- (rupees eleven thousand five hundred only), (two percent on limit of indemnity) under clauses 5 or 6 which indemnity would but for this memorandum have been provided by this Policy.

9. The excess on the indemnity of Rs. 6,00,000/- on the Policy will be Rs. 11,500/- and the deductibles for the additional risks of Dishonest Act Rider and Hypothecation of goods extension will be Rs. 11500/- or 25% of each and every claim whichever is higher. The excess in respect of all claims shall be applied to each discovery of a fraud or a individual loss and not all discoveries or losses of a fraud which may be claimed under one claim."

5. The relevant extracted clause of the Banker's Policy of the year 1973-74 are as under :

"1. BY REASON OF ANY MONEY and / or SECURITIES in which they are interested, or the custody of which they have undertaken, and which now are or are by them supposed or believed to be or at any time during the said period of twelve months may be in or upon their own premises or upon the premises of their bankers in any recognised place of safe deposit in India or any of the Insured's Branches in India or lodged or deposited in the ordinary course of business for exchange, conversion, or registration with the insurers thereof, or with any agents of such issuers or with any person employed to procure or manage the exchange, conversion, or registration thereof, being (while so in or upon such premises or so placed, lodged or deposited as aforesaid), lost destroyed, or otherwise made away with by fire, burglary, theft, robbery or hold-up, whether with or without violence, and whether from within or without and whether by the officers, clerks and servants of the Insured or any other person or persons, whomsoever.

(8).......... "THE TOTAL LIABILITY of the society in respect of any loss or losses caused by (a) acts or omissions of any one person (whether one of the officers, clerks or servants of the Insured or not) or acts or omissions in which such person is concerned or implicated or (b) in respect of any casualty or event is limited to the amount underwritten hereunder irrespective of the total amount of such loss. Upon the discovery of any loss under this insurance (and subject to the due payment of the further premium hereinafter mentioned) a further premium calculated pro-rata upon the annual premium for the unexpired time and the amount of such loss shall be payable by Insured to the society and subject as aforesaid, as from the time of the discovery of such loss, and even although the further premium may not meanwhile have been actually paid, this insurance shall be treated as renewed so as at all times during the said period of twelve calendar months to continue as an insurance to the full extent of Rupees 6,00,000/- six lacs. Notwithstanding any previous loss for which the society may have paid or be liable to pay hereunder, the true intent and meaning of these presents being that while, the total liability of the society is to be limited as aforesaid to any number of separate claims for losses incurred in ,any otherwise may either on the same or different days, arise against the society hereunder, subject only to its right on the discovery of any loss to the payment of the further premium herein before mentioned.

In estimating the amount of any loss the value of any securities shall be taken at the average market price or value in rupees on the day of discovery of such loss (omitting Sundays and Holidays) and if there be no market price or value for the same or any of them on such day then the value thereof shall be the value as agreed between the respective parties or in the event of difference as ascertained by arbitration. WARRANTED FREE OF ALL CLAIM 1. For losses not discovered within the said period of twelve calendar months or in the event of non-renewal within the six calendar months next following the expiry date of this Policy (Provided only that if there be: any other insurance in force during the said six calendar months, whether effected by the Insured or otherwise, this Policy shall not cover or contribute to any losses covered by such other insurance) and for losses sustained prior to the date of inception of this Policy i.e. 1st July, 1973, but subject always to this warranty as well as to all other conditions contained herein and to the renewal annually of this insurance up to date of notice of claim the Insured shall be entitled to indemnification for losses discovered during the twelve calendar months covered by this Policy and sustained within a retroactive period of not exceeding "Five years from the date of discovery of any loss or losses."

*"2 years". (Disputed and unsigned handwritten words)

6. The appellant Bank filed the suit on 14-9-1981, for recovery of Rs. 2,70,958.87 with interest @ 18% per annum. The appellant averred that during the Audit in Achalpur Branch, in the year 1974, it was discovered that due to fraud, misappropriation and other criminal acts on the part of the employees working in that branch, during the period 1967-68 to 1973-74, the appellant bank had suffered loss of Rs 2,70,958.87 ps. The appellant bank had submitted report to the police accordingly, and also lodged claims with the respondent insurance company, as claim No. 7/MC/73-74. As averred, the respondent insurance company by its order dated 29-9-1980, repudiated the claim of the appellant. The appellant therefore, challenged the said repudiation. The appellant received a letter dated 29-8-1980, along with a letter dated 23-8-1980, from the respondent insurance company, and thereby rejected the claims in to. Therefore, the appellant bank had preferred the suit in question on 14-9-1981.

6A. The basic points for determinations are:

"(a) The Banker's Blanket Policy for the period 1st July, 1974 to 30th June, 1975 which was in force and under which the claim in suit has been preferred was in fact, renewal of Policy previously issued by Union Co-operative Insurance Society Limited, and which did not provide for such repudiation as it is claimed by the Defendants.

(b) The proviso about "Excess Clause" cannot come into operation to repudiate the claim as it never existed at the time of Policy under which claim is preferred and in view of the warranty providing for retrospective period.

(c) 'Banker's Blanket Policy' is issued in favour of the plaintiff bank as one unit including its branches and though losses sustained under various accounts for varying amounts in regional office, Achalpur are still to be treated as one claim under the Policy for the simple reason that total liability under the Policy of the defendants extended upto Rs. 6,00,000/-.

(d) Interpretation put on 'Excess Clause' by the defendant company that each item of misappropriation must exceed the amount mentioned in excess clause and even then its liability would be restricted to difference between excess clause amount actual amount exceeding that clause, is not only unjust, improper and against the letter or spirit of indemnity granted under the Policy.

(e) If at all excess clause is applicable, it should read along with one total claim under the Policy and not in respect of each item making up the total claim

(f) There cannot be a term in a contract of indemnity which would have the effect of destroying the very contract embodying that term.

(g) Interpretation put by the defendants on excess clauses, assuming but not admitting that it applies to Policy under which suit claim is filed, is contrary to the provisions of contract Act as well as Insurance Act, it is further submitted that it is beyond the powers and authority of the defendants company to include or read such a term in insurance contract."

7. The respondent No. 1 /original defendant No. 1, accepted the written statement filed by the respondent No. 2 /original defendant No. 2, and resisted the claim of the appellant. The respondents, denied the insurance amount and its premium, however, denied to indemnify for the loss discovered and sustained within the retroactive period of not exceeding 6 years from the date of discovery of any loss or losses, as alleged. It is further submitted that the alleged loss sustained by the appellant bank from 19-8-1972 to 30-7-1973 is of Rs. 56,790/-, and the amount of loss sustained from 1-7-1973 to 19-8-1974 was of Rs. 35,234,97. and thus total of Rs. 91,953.87, was expected. As the respondents were liable for the losses sustained within two years from the date of discovery of loss which in the case in hand starts from 19-8-1972 onwards. Therefore, resisted that the case of the appellant of the period commence from 1967 to 1974 and / or sustained loss, as alleged. They resisted the case of the appellant bank that, the loss was discovered on 19-8-1974. The respondent insurance company further averred that in view of the provisions of "excess clauses" incorporated in the Policy, the loss falling under clause 5 of the Policy were subject to extent of 25%, of each and every loss and maximum of Rs. 1 1,500/- and loss falling under clause 4 of the policy were subject to the excess of Rs. 11,500/-, for each and every loss and as there was not a single item in the above amount of Rs. 91,943.87, exceeds the amount of Mrs. 1,500/-, during the period referred above, the respondents were not liable for this payment under the above Policy, towards loss due to defalcation by the employees of the appellant Bank.

8. There is no dispute about the existence of the same bankers Blanket Policy and its applicability to the loss suffered by the appellant Bank due to dishonesty or criminal acts of the officers, clerks and servants of the appellant bank. However, as contended, it was subject to conditions and terms of the Policy. There is no further dispute that the respondent insurance company had issued Policy in the year 1974-75, and it was further renewed on 1-7-1974 and thereafter, from year to year. The existence of clause to indemnify for the losses discovered and sustained within the retrospective period of not exceeding two years from the date of discovery of any loss or losses, was not challenged, as that was the specific condition of the bankers Policy of the year 1974-75, and/or prior to those periods. However, it was specifically averred that they were liable for the losses further discovered and sustained within the retroactive period of two years from the date of such discovery. The respondent also denied that 'Excess Clause' was unjust, improper and against the letter and spirit of indemnity granted under the Policy. There is no case made out or any averment made that the earlier Policy of the year 1973-74 was also with the clause of two years of its retroactivity, as contended for the first time in this appeal. There are no other specific submissions raised by the respondent insurance companies.

9. The evidence was lead by the parties and based on the clause of bankers Policy and appellant bank's record, to support its respective case, through P.W. 1 - Vinayak, P. W. 2 - Balkrishna (the appellant Bank) and D. W. 1 Prabhakar (respondents). The respondents made no substantive challenge to the suit amount in the evidence.

10. The learned Civil Judge, Junior Division, Amravati by its judgment dated 7-12-1985, dismissed the suit of the appellant bank in toto with costs. The learned judge observed that; the respondents were not bound to indemnify for the loss discovered and sustained within the retrospective period not exceeding five years from the date of discovery of any loss or losses. The appellant bank did not suffer loss as claimed. The appellant failed to prove that, the repudiation of the claim of respondent was unjust, illegal and contrary to the terms of the bankers Policy, as alleged. The respondents were not jointly and severally liable for the suit claim. The losses suffered below Rs. 11,500/- for individual item by the appellant were not covered by the Insurance Company, and accordingly dismissed the suit in toto.

COMMON REASONINGS.

11. The learned Advocate appeared for the appellant in support of his submission, relied on , General Assurance Society v. Chandmull Jain, in which the Supreme Court has interpreted the basic principles of contract of Insurance. Those are as under (Para 12) ".......The four essentials of a contract of insurance are (i) the definition of the risk, (ii) the duration of the risk, (iii) the premium and (iv) the amount of insurance. See Mac Gillivaray on Insurance Law (5th Edn.) Vol. I. para 656, page 316, but the Policy which Is issued contains more than these essentials because it lays down and measures the rights of the parties and each side has obligations which are also defined. In a Policy against fire the purpose is not so much to insure the property but to insure the owner of the property against lost. The Policy not only defines the risk and its duration but also lays down the special terms and conditions under which the Policy may be enforced on either side."

In the same judgment, the Supreme Court has further declared the principle of interpreting such contract of insurance. Those extract are as under :

"...... In interpreting documents relating to a contract of insurance the duty of the Court is to interpret the words in which the contract is expressed by the parties, because it is not for the Court to make a new contract, however, reasonable, if the parties have not made it themselves. Looking at the proposal, the letter of acceptance and the cover notes, it is clear that a contract of insurance under the standard Policy for fire and extended to cover flood, cyclone etc., had come into force."

12. In , Biman Krishna Bose v. United India Insurance Co., the Supreme Court has declared and interpreted the provisions in respect of renewal of Insurance Policy in para No. 5, which is reproduced as under :

"5. A renewal of an Insurance Policy means repetition of the original Policy. When renewed, the Policy is extended and the renewed Policy in identical terms from a different date of its expiration comes into force. In common parlance, by renewal, the old Policy is revived and it is sort of a substitution of obligations under the old Policy unless such Policy provides otherwise. It may be that on renewal, a new contract comes into being but the said contract is on the same terms and conditions as that of the original Policy. When an insurance company which has exclusive privilege to carry on insurance business has refused to renew the mediclaim Policy of an insured on extraneous and irrelevant consideration, any disease which an insured had contacted during the period when the Policy was not renewed, such disease cannot be covered under a fresh insurance Policy in view of the exclusion clause. The exclusion clause provides that the pre-existing diseases would not be covered under the fresh insurance Policy. If we take the view that the mediclaim Policy cannot be renewed with retrospective effect, it would give handle to the Insurance company to refuse the renewal of the Policy on extraneous consideration thereby deprive the claim of the insured for treatment of disease which have appeared during the relevant time and further deprive the insured for all time to cover those diseases under an insurance Policy by virtue of the exclusion clause. This being the disastrous effect of wrongful refusal of renewal of the insurance Policy, the mischief and harm done to the insured must be remedied. We are, therefore, of the view that once it is found that the act of an insurance company was arbitrary in refusing to renew the Policy, the Policy is required to be renewed with effect from the date when it fell due for its renewal.."

In view of this foundation, we will proceed further in the matter, considering the clauses and contract of such parties based on such insurance contract of Policy.

13. The learned Advocate appearing for the respondent insurance company relied on , Ramsingh v. Century Insurance Co. Ltd. This case nowhere deals with the clauses in question. It is distinguishable on facts and law, as well.

14. The learned Advocate appearing for the appellant however, conceded in view of the decision in Central Bank of India, (supra), whereby it is held that 'Excess Clause' is permissible, and it is within the framework, and therefore, no further submission is made on this issue. However, if old clause's of 1973-74 Bankers Policy if govern the case, then added clause in Banker's Policy of the year 1974-75, even cannot affect the case of the appellant Bank.

15. The contract between the parties based on the terms and conditions of the Banker's Policy in question, including the principle of indemnity, will govern by the general provisions of the Contract Act and Banker's Policy and its clauses referred above, are clear that upto 1973-74 there was the retractivity period of 5 years and not two years as mentioned and /or incorporated in the last policy in question i.e. of the year 1974-75. There is no dispute that the Banker's Policy and its terms and conditions are In the nature of commercial transaction between the parties. The appellants were fully aware of those terms and conditions while signing and /or while making the payment towards the said Policy. The parties are bound by its terms and conditions. The Banker's Policy of 1973-74 also reflects that it was renewal of earlier policies No. 7/A/ BB/126/72.

16. Looking to the transactions and the purpose and objects, even though some additional clauses including 'Excess Clause', to restrict liability of not below Rs. 11,500/- for individual item and retractivity of two years were incorporated in the Policy of 1974-75, in question. The clauses and/or terms and conditions of such policies prior to 1974-75 cannot be skate over. If those policies provides period of transactions or cover the losses of any nature of the appellant bank discovered prior to 5 years, from the date of Policy cannot be overlooked. Those terms and conditions as per then existing Policy cannot be taken away by new Policy and/or by new incorporation of terms and conditions In new Policy, such as of the year 1974-75." By its new clause or its new Policy, the terms and conditions of the clauses of then existing Banker's Policy can-' not be taken away or cannot be said to be waited or now not in existence, The 1973-74 Banker's Policy provides the clause of retractivity for the losses up to prior 5 years from the date of discovery as in the present case. The fraud and/or defalcation discovered by the appellant bank for 7 years, commencing from 1967-68 upto 1974-75 cannot be rejected or discarded. In my view, the present Policy of the year 1974-75 even though with 'excess clause' or incorporated clause of two years, instead of five years as referred above, the plain reading of earlier contracts and terms and conditions the respondents, are sufficient to cover the loss suffered by the plaintiff bank, during those period at least for retroactive period of 5 years, based on old policy of the year 1973-74.

17. The Banker's Policy of 1973-74 taken out. by the parties for the respective years in a case like this, with the condition of 5 years retroactivity. If there was no renewal payment or premium paid, still at least for 6 months, the respondent insurance company would have been liable for the losses and / or for fraud discovered by the appellant bank of the retroactive period of 5 years. If this is an undisputed position, then merely because the appellant bank had renewed the Bankers Policy for further period of 12 months by paying regular premium, even if with this alleged additional clause by that itself, the rights which were accrued in favour of the appellant bank, could not be taken away by this new clause or condition. The rights created and accrued by then existing terms and conditions of specific clause and/of provisions of the earlier Policy prior to 1974-75 cannot be rejected in toto, as done in the present case.

18. The respondent insurance company should have incorporated the specific and additional clause and /or rider and should have curtailed the accrued rights of the appellant bank by specific condition in the insurance Policy of the year 1974-75. I am of the view that the respondent insurance company should not take shelter of their own terms and conditions on this technicalities of restricted liabilities and or non applicability of their policies to the loss cause and/ or fraud discovered and should not avoid to indemnify such loss based on the existing Policy of the loss suffered by the appellant bank. The claim of the appellant according to me was within the frame work of the law as well as within the frame work of the policies in question. In view of the above reasoning, I accept the contentions raised by the appellant, and determining the points in favour of the appellants/plaintiffs, and against the respondent.

19. As there is no serious dispute about the claim as raised by the appellant /original plaintiff, and as the same is based on the bank's record, and the same was placed on record by leading evidence in support of the same. However, there is sufficient reason to remand the matter for fresh decision the merit of the matter based on the existing evidence on the record.

CONCLUSION:

20. Therefore, the appeal is allowed. The judgment and order/decree dated 7-12-1985, in Special Civil Suit No. 38/1981, passed by the Joint Civil Judge, Senior Division, Amravati is aside, and the matter is remanded for decision on merit, of the claims as prayed. With direction to decide the same within six months from the receipt of the copy of the order and judgment. The parties may adduce additional evidence, if so advised. However, existing evidence can be taken note of while passing the final judgment. However, no order as to costs.