National Insurance Co. Ltd vs National Co-Operative Consumer ...
2009 Latest Caselaw 2187 Del

*          IN THE HIGH COURT OF DELHI AT NEW DELHI


+                              RFA (OS) No. 16/1996


%                                         Reserved on      : 09.04.2009
                                          Date of decision : 21.05.2009

NATIONAL INSURANCE CO. LTD
     ...    ...   ...    ...    ...                 ...     ...    ...     ...APPELLANT

                          Through : Dr.Uday U.Lalit, Sr.Advocate with
                                    Mr.Vishnu Mehra,
                                    Mr.Prasenjit Keswani &
                                    Mr.Siddesh Kotwal
                                    Advocates.

                                  -VERSUS-

NATIONAL CO-OPERATIVE CONSUMER FEDERATION OF INDIA
LTD.
         ...    ...    ...    ...   ...   ...    ...  RESPONDENT


                          Through : Mr. J.P.Sengh, Sr. Advocate with
                                    Ms.Garima Kapoor
                                    and Mr.Summet Batra, Advocates.


CORAM :

HON'BLE MR. JUSTICE SANJAY KISHAN KAUL
HON'BLE MR. JUSTICE SUDERSHAN KUMAR MISRA

1. Whether the Reporters of local papers
     may be allowed to see the judgment?                   Yes

2. To be referred to Reporter or not?                      Yes

3. Whether the judgment should be
     reported in the Digest?                               Yes

SANJAY KISHAN KAUL, J.

1. The present appeal arises out of a long drawn dispute

over the last 27 years with a Public Insurance Company

and a Public Sector Corporation arrayed against each

other.

2. The claim of the respondent for loss of goods on

account of unprecedented rain at Kandla Port was

rejected by the appellant-Insurance Company. The only

question thus is as to which pocket of the government is

enriched.

3. The respondent is a Public Sector Corporation and acts

as a canalizing agent of the Government of India inter

alia for export of rice. The respondent thus purchases

rice from different locations in India which is shipped

through different ports including the one at Kandla.

4. The appellant is a subsidiary of the General Insurance

Corporation of India. The appellant issued an Open

Marine Inland Transit Insurance Policy ('the Policy' in

short) for the benefit of the respondent in respect of the

rice which was being shipped. Unprecedented rain and

cyclone hit the Kandla Port on 09/10.07.1981 which, as

per the respondent, affected 22,538 metric tons of rice.

The respondent thus made a claim for loss of Rs.1.64

crores under the Policy. The claim was, however,

rejected by the appellant resulting in the suit being filed

by the respondent against the appellant on the Original

Side of this Court being CS(OS) No.274/1982 for

Rs.1,73,17,336/- consisting of claim for damages

amounting to Rs.1,64,92,701/- along with interest till

the date of filing of the suit along with claim for future

interest. The suit stands decreed in terms of the

impugned judgment and decree dated 19.03.1996 for a

sum of Rs. 1,38,39,684/- along with interest at the rate

of 12 per cent per annum from the date of institution of

the suit till realization. The appellant has thus come in

appeal.

5. The submissions of the learned counsel for the appellant

are two-fold:

i) The storage of the rice at the port was not covered

under the said Policy as the said Policy covered goods

only during transit;

ii)The failure of the respondent to comply with the

warranties and conditions of the insurance policy

discharged the appellant of its obligations;

6. In order to appreciate the aforesaid pleas, the factual

matrix resulting in the issuance of the insurance cover

has to be set out.

7. The appellant to further his business approached the

respondent on 02.01.1981 with a request for placing the

insurance business covering the risks during transit of

rice from different centres of procurement to the port.

The formal proposal was sent vide a letter dated

02.01.1981 expressing the reluctance of the appellant

to normally accept transit insurance of rice against all

risks but in view of the cordial relations between the

parties, the appellant expressed its willingness to

underwrite the business of the respondent against all

risks excluding infestation loss, weevil or web damage

and shortage in weight out of sound bags at the rate of

Rs. 2.50 % less 5 %. The additional premium was also

prescribed against some other kinds of risks. This was

followed up by a letter dated 02.02.1981 (Ex P-18) in

respect of the finalization of the rates. The respondent

in reply sent a letter dated 10.02.1981 (Ex P-17) as a

follow up. The rates and terms & conditions were sent

by the appellant under the cover of the letter dated

02.03.1981 (Ex P-14) and a provisional bill was also sent

for depositing a premium of Rs.25,001/- (Ex P-15).

8. The respondent in pursuance thereto sent a reply dated

23.03.1981 (Ex P-21). This letter clearly stated that in

cases where the stocks of the respondent might be

stored at the godown or at the ports for a period of

fortnight or so pending shipment, all such risk of fire

and rain etc. were to be included in the proposal, but

the storage would not exceed three fortnights. The

request thus made was for issuance of an Open Cover

Policy on the above lines including storage at the

warehouses or at the ports and for fire and rain risks for

a maximum period of three fortnights.

9. The appellant acknowledged the aforesaid letter of the

respondent vide letter dated 26.03.1981 (Ex P-13)

stating that the rates indicated were for transits

insurance and noting that the stocks may be stored at

the godown or at the ports for a maximum period of 45

days. The rates of additional premium for the insurance

cover during storage were specified at the rate of Rs.

0.03 % per month or part thereof and that the bill for

deposit of premium of Rs.25,001/- had already been

delivered to the respondent and a copy of which was

enclosed. The respondent sent the cheque for

Rs.25,001/- under a cover of the letter dated

04.04.1981 (Ex P-20) being the advance premium

covering the risk during transit and also covering all

risks for stocks stored at the warehouses at the ports. It

was specifically stated by the respondents that "since

your cover note mentioned above does not cover the

risk of stocks during storage at the port; we would,

therefore, request you to please send us amendments

covering the risk during storage, both in the cover note

and in the original policy head." The consignment

despatches had already started moving to the ports

and, therefore, a request was made to issue the

declaration to be given so that the respondent could

send the statement of despatches to the appellant.

10. The Policy dated 06.04.1981 (Ex P-12) provided for the

terms of insurance as under:

" Terms of Insurance: Insured against Rail Risks Clause including the risk of theft &/or

non-delivery of a complete bag. Including the risk of Strike, Riots and Civil Commotions.

Subject to Clauses A, H (Revised) and N and as per memorandum attached."

11. It may be noted that Clause A refers to Rail Risks

Clause, clause H (Revised) to Theft Pilferage and Non

Delivery (Insured Value) Clause and Clause N to Strike,

Riots and Civil Commotions Clauses(Inland Transit). A

separate Memorandum was also attached to the Policy

forming a part of the Policy. Clause 2 of this

Memorandum attached provides as a condition of the

contract that the assured are bound to declare every

consignment without exception and the underwriter is

bound to accept the same but not exceeding the sum of

Rs. 50,00,000/-. Clause 8 of the Memorandum refers to

certain special conditions and sub clause (iv) of the

same is as under:

"The Policy will be extended, on request, to cover the storage risk at the intermediary point or part on payment of additional premium @ 0.03%-5% per month or part thereof."

12. The aforesaid also was sent to the respondent by the

appellant under the cover of the letter dated 21.04.1981

(Ex P-10) stating that all declarations under the Policy

up to 15.04.1981 were awaited. The respondent

responded by a letter dated 27.04.1981 (Ex P-22)

stating that while examining the policy, it had been

found that the appellant had not covered two points

that were clearly discussed and agreed to as under:

"(i)Coverage of risk for movement of goods by road is not covered.

(ii) Coverage of risk for two stocks stored in the godowns is not mentioned in the policy."

13. The appellant was asked to look into the matter and

issue necessary amendments.

14. The appellant in response thereto sent a letter dated

04.05.1981 (Ex P-8) enclosing an endorsement to

extend the Policy to cover the movement of goods by

road. In respect of the storage, it was stated as under:

"As regards to the storage risk, please note that it has already been covered by conditions 8 (iv) of the memorandum attached to the policy."

15. The respondent thereafter sent the statement of

despatches of rice to the Kandla Port under the cover of

the letter dated 17.06.1981 (Ex P-7) and once again

requested for a printed format for sending the details of

the despatches. The appellant consequently issued the

Marine Certificate of Insurance for a sum of

Rs.1,38,39,684/- (Ex P-6). The column under the

premium stated the calculation for the marine as well as

the war and/or strikes and civil commotions and the

total amount came to Rs.20,050/-. It is after these

communications that the unfortunate incident of

cyclone hitting the coastal ports including the one at

Kandla Port occurred on 9/10.07.1981. The respondent

immediately informed the appellant by a telegram as

well as letter dated 10.07.1981 (Ex P-5) and requested

for a representative of the appellant to visit the Kandla

Port for inspection. The appellant vide letter dated

13.07.1981 (Ex P-4) stated that no cover had been

provided against rain or fresh water damage. It was

recorded in the letter that the agreement between the

parties was that the basic risk would be extended to

goods stored in godown if and when request was

received from the end of the respondent and no such

request was received. It was stated that in the

alternative even if such a request was received, the

storage cover would only have been against the risks

provided in the basic clauses and thereby no cover

would have been available against rain and/or fresh

water damage.

16. In view of this dispute, a legal notice was sent by the

respondent dated 30.07.1981 (Ex P-3) which was replied

to by the appellant on 25.09.1981 (Ex P-2). Not only

that, the appellant vide letter dated 14.10.1981 (Ex P-1)

returned a cheque for Rs.19,812/- sent by the

respondent. This resulted in the institution of the suit.

The case set up by the respondent was that the Policy

covered the risk of fire and rain while the goods were

stored in the godown or at the port awaiting shipment.

The respondent used to furnish declarations to the

appellant to calculate the premium payable by the

respondent which in turn was dependent on the

quantities of goods transported from the procurement

centres to the port and the period of storage at the

ports. The allegation of the appellant that the relevant

premium had not been paid was specifically disputed on

account of the fact that the Policy in question was an

Open Marine Policy and the premium was to be

calculated by the appellant as per the rates agreed

upon. Thus, on the information of the despatches, it is

the appellant who was to inform the premium, the initial

amount having been paid of Rs.25,001/-. Thus, as and

when further amounts were to be demanded, the same

were to be paid by the respondent.

17. It is necessary to look into the defence set up by the

appellant since during the course of arguments,a

number of pleas were raised by the learned senior

counsel for the appellant and learned senior counsel for

the respondent was at pains to emphasize that the

same were not even pleaded in the written statement,

no evidence had been led and thus at the stage of

appeal, pleas of all kinds sought to be urged on behalf

of the appellant were not permissible as the very

foundation had not been led. We may notice that the

submission made by the learned senior counsel for the

appellant of warranties and conditions of the Policy not

being complied with by the respondent included a plea

that only on the memorandum of declarations could the

liability be fastened. Thus, making up of a declaration

was a condition precedent under the insurance policy

and that was to be coupled with a request to be made

with respect to the specific commodities

stored/intended to be stored for an additional cover. It

was claimed that the respondent declared stocks

weighing only 5065.9 metric tons as per the Certificate

of Insurance (Ex P-6) up to 17.06.1981 while the

declarations in respect of the remaining goods were not

provided.

18. The second plea linked with this urged by learned senior

counsel for the appellant was that since no request for

additional cover was made, no premium was charged

and in any case stocks kept in open and beyond

declarations were not subject to any cover.

19. Learned senior counsel for the respondent submitted

that these pleas are devoid of any pleadings in the

written statement and thus the substratum of the pleas

of the respondent do not even exist in the written

statement much less in the evidence led which could

only be on the basis of the pleas raised in the written

statement.

20. A perusal of the written statement shows that two

preliminary objections were taken. Firstly, that the

policy of insurance did not cover the period of storage of

goods in the godown including the risks of fire and rain.

The appellant was stated not to have provided to the

respondent with any storage cover in respect of any or

all despatches listed in the declarations submitted to

the appellant with effect from 17.06.1981. The second

preliminary objection was about the failure of the

respondent to take all precautions necessary to

minimize the losses. On merits, it was stated that the

appellant vide its letter dated 26.03.1981 (Ex P-13) had

informed the respondent that an additional premium at

the rate of Rs. 0.03 % per annum or part thereof would

be payable and had enclosed a bill for the same, but

the amount of additional premium covering such risk

was not paid. Since the additional premium was not

paid, the risk was not covered. The policy covered the

additional risk only of strikes, riots and civil commotions

for which additional premium had been charged, but no

additional premium had been charged for risks or

damage caused on account of rain or fresh water during

the period when the goods remained in the warehouses

or at the ports. It was, thus, alleged that the Policy

could cover only such risks as were covered. This is the

sum and substance of the defence raised in the written

statement. The issues framed on the pleadings of the

parties are as under:

i) Whether Shri. A.K.Mukherjee is the principal officer of the plaintiff and duly authorized to institute the suit and sign and verify the plaint on behalf of the plaintiff? OPP

ii) Whether 22538.490 metric tons rice of the value of Rs. 5,62,07,672 was stored at Kandla Port on 09.07.81 and 10.07.81 and was badly affected on account of rains? OPP

iii) What is the extent of the loss suffered by the plaintiff on account of damage to the goods? OPP

iv) Whether the plaintiff did not take all precautions necessary to minimize the losses? OPD

v) Whether the policy of insurance Exhibit P-12 does not cover the period of storage in godowns including the risk of fire and rains in spite of Ex. P-8? OPD

vi) Whether the cover to storage risk at the intermediary point did not become effective unless the payment of additional premium was made? OPD

vii) Relief.

21. A perusal of the aforesaid issues would also itself show

that the same have been naturally framed on the basis

of the defence set up by the appellant. Learned Single

Judge found all the issues in favour of the respondent

and on the basis of the extent of coverage, decreed the

suit with interest.

22. The respondent examined 7 witnesses in support of its

case while the appellant examined only one witness. A

perusal of the impugned judgment shows that the

testimony of PW-3, PW-4 and PW-6 clearly established

that all necessary precautions were taken by the

respondent to cover the stock of rice. The damage due

to heavy rainfall , which affected the complete Kandla

Port, was more than established by the testimony of

PW-5. The respondent had taken immediate steps to

inform the appellant of sufferance of the loss. The

respondent minimized the loss by selling the same in

the open market at the rate of Rs.2,200/- per metric ton

as against the initial tenders received of Rs.1,700/- per

metric ton. The learned Single Judge has acknowledged

that the Special Condition 8(iv) of the Policy provided

for extension of cover for storage risk by additional

premium and a cheque had already been sent by the

respondent towards the advance premium and it had

been clearly mentioned that the Policy should cover all

risks at the stores, warehouses or at the ports. The

communications of the respondent were acknowledged

by the appellant including vide letter dated 04.05.1981

(Ex P-8). The respondent in letter dated 27.04.1981 (Ex

P-22) specifically raised a question of coverage of risk

for the stock stored in the godown not being mentioned

in the Policy and the appellant assured them vide letter

dated 04.05.1981 (Ex P-8) that it had already been

covered by Special Condition 8(iv) of the Memorandum

attached to the Policy. Thus, the risk of covering the

storage of goods at the port was covered on payment of

additional premium. It was never the case of the

appellant nor could they establish that the respondent

had, ever, refused to pay the additional premium. The

policy was an open one and the premium had to be

demanded from time to time by the appellant

depending on the extent of despatches. The learned

Single Judge relied upon the Judgment of Bombay High

Court in Ramchandra Ramvallabh and Ors v. Gomtibai

and Ors; AIR 1926 Bombay 82 for the proposition that

in such Open Marine Insurance Policy non payment of

premium is no defence to claim for insurance loss as

there is an undertaking to pay the premium which is to

be demanded by the insurer from time to time

depending on the shipment.

23. We have examined the testimony of the witnesses and

their appreciation by the learned Single Judge. We find

that there has been proper appreciation of the evidence

consisting of the oral testimony and the documents. The

witnesses have given details of the goods purchased

and stored as well as the shipments made. The sole

witness of the appellant is one Mr. K.K. Dutta. His only

deposition was that the additional premium had not

been paid by the respondent for coverage of the risk of

storage of goods in godown or at the port. The witness

had never dealt with the particular policy in issue. He

admitted that in Open Marine Insurance Policy, some

deposits are taken from the insured which are adjusted

after declaration is made by the insured from time to

time. No demand was made by the appellant which was

not paid by the respondent.

24. We find force in the contention of the learned senior

counsel for the respondent that the senior counsel for

the appellant has argued his case beyond the pleadings,

the evidence led before the learned Single Judge and

the issues framed. The hearing, in fact, lasted for

different time periods on four days for the submissions

of the appellant alone. There is no plea raised in the

written statement and naturally nor any evidence led

about the absence of declaration on the part of the

appellant in breach of the warranties and conditions

under the Policy. It is no doubt true that the

declarations are required to be made under such an

Open Insurance Policy because once transit of the goods

started, the premium was liable to be debited to the

account of the respondent. All the goods were to be

covered for transit insurance and storage. This is

completely a new plea sought to be raised by learned

senior counsel for the appellant and is sought to be

supported only by reference to cross examination of

some witnesses of the respondent. Such a course of

action is wholly impermissible when neither a plea has

been raised nor substantive evidence led in the absence

of the plea. A similar situation is in respect of the plea

of the counsel about there being no possible coverage

for alleged storage outside for loading of shipment.

This plea was predicated on the ground that there are

three segments of the insurance consisting of the

transit, storage at godown and outside for loading of

shipment and at best only the first two could have been

covered. The sum and substance of the plea of the

appellant before the learned Single Judge was that the

respondent failed to pay the additional premium for the

coverage for which the bill was sent. No evidence

whatsoever was led in support of this plea that the

appellant demanded some premium and the respondent

did not pay the same. The plea was sought to be

changed to one of additional premium not being paid as

the additional risk was not covered. This plea is

completely belied by the exchange of communications

between the parties as succinctly discussed by the

learned Single Judge consisting of the letter of the

respondent Ex P-22 and the response of the appellant

Ex P-8. The respondent had raised the issues as per Ex

P-22 that i) Coverage of risk for movement of goods by

road is not covered and ii) Coverage of risk for the

stocks stored in the godowns is not mentioned in the

policy.

25. The appellant issued the necessary endorsement to the

Policy to cover the movement of goods and

categorically stated that the storage of risk was already

covered as per the Special Condition 8(iv) of the

Memorandum attached to the Policy. The implication

was that the storage risk was now covered on payment

of additional premium as specified as per the Special

Condition 8(iv) of the Memorandum attached to the

Policy and as a sequel to the same it was for the

appellant to debit the premium. The policy was not one

where premium had to be paid fully in advance for the

reason that it is an Open Marine Insurance Policy, where

tentative amounts are taken in advance and depending

on the despatches the insured keeps on making the

additional payments. If the appellant wanted some

additional advances, it should have asked for the same.

It never did so. That is the obvious reason why in the

written statement, the defence taken is that the

respondent failed to pay the premium on demand

which plea of the appellant has been falsified.

26. The learned counsel for the appellant sought to

contend that the premium should be paid in advance in

terms of Section 64VB of the Insurance Act, 1938 ('the

said Act' for short), the relevant portion of which reads

as under:

"64VB. 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."

(emphasis supplied)

27. A reading of the aforesaid shows that the premium is

payable in advance or is guaranteed to be paid in such

a manner as may be prescribed. In such Open Marine

Insurance Policies, the premium is guaranteed to be

paid. The judgment in General Assurance Society

Limited v. Chandmull Jain and Anr; AIR 1966 SC 1644

(1) referred to by the appellant, in fact, reads against

the appellant as the principle laid down is that in a

contract of insurance if there is any ambiguity or doubt,

the contract is to be construed contra proferentem i.e.

against the insurance company. The letters exchanged

between the parties in the present case leave no

manner of doubt as to how the Policy is to be read in

view of the assurance given by the appellant. No

doubt, the court does not to re-write the contract and

the Policy has to be strictly construed as observed in

Oriental Insurance Co.Ltd. v.Sony Cheriyan; AIR 1999 SC

3252 and United India Insurance Co.Ltd. v. M/s

Harchand Rai Chandan Lal; AIR 2004 SC 4794.

28. The judgment in National Insurance Co.Ltd v. Seema

Malhotra and Ors; (2001) 3 SCC 151 dealing with

Section 64VB of the said Act also does not help the

appellant as it deals with the general principle that if

the insured fails to pay the promised premium or its

cheque is returned as 'dishonoured' then the insurer

has no obligation to pay the insurance amount. The

same is the view taken in Deddappa and Ors v. Branch

Manager, National Insurance Co. Ltd; (2008) 2 SCC 595

and Deokar Exports Pvt. Ltd v. New India Assurance

Company Ltd; 2008 (14) SCALE 283.

29. As noticed above, in the present case the premium is

guaranteed and it is an Open Marine Insurance Policy

for which the premium demanded by the appellant was

paid by the respondent. The learned Single Judge has

thus rightly referred to the judgment in Ramchandra

Ramvallabh and Ors v. Gomtibai and Ors's case(supra).

We fail to appreciate as to what is the incorrect fact

disclosed which would absolve the insurer on the

principles laid down in P.J.Chako and Anr.V. Chairman,

Life Insurance Corporation of India and Ors.; AIR 2008

SC 424. It is, in fact, the plea of the appellant which is

false as raised in the written statement that it

demanded premium which was not paid.

30. Learned counsel for the appellant made a reference to

the judgment in Union Insurance Society of Canton

Limited v. George Wills and Co. Privy Council; 1916 AC

& Privy Council 281 to contend that the declarations and

warranties under the Open Marine Insurance Policy are

mandatory. As noticed above, it has never been the

case put up by the appellant in the written statement

that there were any declarations which were not made

by the respondent.

31. In the end, we express our anguish at the fact that so

much of judicial time has been taken in a fight between

an Insurance Company of the Government and a Public

Sector Corporation which ought to have been settled

between the parties. Learned senior counsel for the

appellant argued the case at length on pleas which were

never raised in the written statement for which

evidence was not led, issues were not framed and

submissions were not advanced before the learned

Single Judge. A completely different colour is sought to

be given in the appeal to the defence of the appellant

which was principally one of non payment of premium

demanded by the insurer which plea itself was false.

The issue of declarations not being submitted was never

raised in the written statement. The original plea is

totally false. A witness not familiar with the policy and

the facts entered the witness box and there was no

other witness.

32. We had put the parties to notice that the party which

fails in this appeal must pay actual costs to the other

party. The parties have filed their bill of costs. The

appellant claims to have spent Rs.9,00,384/- on the

litigation while the respondent claims to have spent

Rs.2,54,800/- on the litigation. The respondent must

thus get the actual costs.

33. We may note that the decretal amount was directed to

be deposited in the Court in terms of the Order dated

17.06.1996. The appeal was admitted on 18.09.1996

and in terms of the Order dated 19.02.1997, the

decretal amount was permitted to be withdrawn by the

respondent on furnishing a bank guarantee to the

satisfaction of the Registrar of this Court. The

respondent furnished the bank guarantee and the

Registrar of the Court was pleased to accept the same

with the result that the respondent withdrew the

amount. The amount thus lying in the Court in the

interregnum period in the FDR along with interest

accrued thereon was released to the respondent.

34. In view of the fact that we find no merit in the appeal,

the same is dismissed with costs quantified at

Rs.2,54,800/-. The bank guarantee furnished by the

respondent stands discharged and the same be

returned to the respondent.

SANJAY KISHAN KAUL, J.

May 21, 2009 SUDERSHAN KUMAR MISRA, J.

dm