DEDDAPPA & ORS. v. THE BRANCH MANAGER, NATIONAL INSURANCE CO. LTD

Citation: [2007] 13 S.C.R. 287

Court: Supreme Court of India

Bench: S.B. SINHA, H.S. BEDI

Case summary

DEDDAPPA & ORS. v. THE BRANCH MANAGER, NATIONAL INSURANCE CO. LTD.pdf

Judgment text

DEDDAPPA & ORS. v. ~ THE BRANCH MANAGER, NATIONAL INSURANCE CO. LTD. DECEMBER 12, 2007 [S. B. SINHA AND HARJIT SINGH BEDI, JJ. ] Insurance Act, 1938 - s.

64-B - Contract ofinsurance - Third ·1 party insurance - Under Motor Vehicles Act - Liability ofinsurer - Motor accident - Claim for compensation - Plea ofinsurer that accident having taken place after cancellation ofpolicy in view of dishounour ofcheque towards premium, it was not liable - Motor accident tribunal holding that insurer was liable despite dishounour ofcheque - High Court reversing order oftribunal - On appeal, held: Third party liability ofthe insurer arising under insurance contract, would be met only ifthe contract is valid - In the instant ~ case policy was not valid as premium could not be said to have been received in view ofdishonour ofcheque - However, in the facts of the case, direction issued to insurer to pay the claim amount, and later recover the samefrom the owner ofthe vehicle- Motor Vehicles Act, 1988 - ss. 147 and 149 - Constitution ofIndia, 1950 - Article 142 ~ Contract. A tempo, driven by respondent No.

2 ran over the daughter of the appellant-claimant while she was sleeping in her hut. She died on the spot. Appellant fded application claiming compensation u/s 166 of Motor Vehicles Act, 1998. Respondent-insurance company took the plea that although vehicle in question was insured for the relevant period, but the cheque issued therefore having been dishonoured, the policy was cancelled and thus it was not liable. The insurer also examined witnesses, to prove cancellation of policy by producing the Postal acknowledgment showing intimation thereabout which was served to the insured y and a copy of letter to RTO and the memo issued by the Bank as regards dishonour ofthe cheque. Tribunal allowed the claim holding that insurer was liable to pay the awarded amount despite cancellation ofthe contract of insurance. High Court allowed the appeal preferred by the insurance company. Hence the present appeal. Allowing the appeal, the Court HELD: 1.

1 Section -64-VB of Insurance Act in no unmistakable terms provides for issuance of a valid policy only on receipt ofpayment ofthe premium. There is distinction between the statutory liability ofthe insurance company vis-a-vis a third party in the context of Sections 147 and 149 of Motor Vehicles Act and its liabilities in other cases. But the same liabilities arising under a contract of insurance would have to be met ifthe contract is valid. If the contract of insurance has been cancelled and all concerned have been intimated thereabout, the insurance company would not be liable to satisfy the claim. [Paras 15 and 26) [292-F] [297 A-·B] x New India Assurance Co. Ltd. v. Ru/a and Ors. 2000 (3) SCC 195; National Insurance Co. Ltd. v. Seema Malhotra and Ors. 2001 (3) SCC 151 - relied on. Oriental Insurance Co. Ltd. v. Inderjit Kaur and Ors. 1998 (1) SCC 371; New India Assurance Co. Ltd. v. Harshadbhai Amrutbhai Modhiya and Anr. 2006 (5) SCC 192 - referred to. 1.

2 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. In today's world payment made by cheque is ordinarily accepted as valid tender. Section 64-VB of the Insurance Act also provides for such a scheme. Payment by cheque, however, is subject to its encashment. [Paras 22, 23 and 24) [295 C-D) Damadilal and Ors. v. Parashram and Ors. 1976 (4) SCC 855 - referred to. 1. 3 A beneficial legislation should not be construed in such .... a manner so as to bring within its ambit a benefit which was not ' contemplated by the legislature to be given to the party. [Para 27] [297 B-C] Regional Director, Employees' State Insurance Corporation, Trichur v. Ramanuja Match Industries AIR 1985 SC 278- relied on. 2.

However, as the appellant hails from the lowest strata of society, in a case of this nature, the Court should, in exercise of its extra-ordinary jurisdiction underArticle 142 ofthe Constitution oflndia, direct the Respondent No. 1 to pay the amount of claim to the appellants herein and recover the same from the owner of the vehicle viz. , Respondent No. 2, particularly in view ofthe fact that no appeal was preferred by him. [Para 28] [297 E-G] CIVILAPPELLATE JURISDICTION: Civil Appeal No. 5829 of2007. From the Judgment and Order dated 15. 06. 2005 of the High -i Court ofKamataka at Bangalore in Miscellaneous First Appeal No. 5751 of 2002. C. M. Angadi and Rameshwar Prasad Goyal, for the Appellants. Mrs. Pankaj Bala Verma, Kiran Suri and Dr. Laxmi Shastri, for the Respondent. S. B. Sinha, J. 1. Leave granted. 2. This appeal is directed against the judgment and order dated 15. 6. 2005 passed by a learned Single Judge of the High Court of Kamataka in M. F. ANo.

5751 of2002, whereby and whereunder an appeal preferred by the respondent herein from thejudgment and order dated 12. 06. 2002 passed by the Motor Accidents Claims Tribunal in M. C. A. No. 113 of2001 was allowed. 3. Shantamma, daughter ofthe appellant herein was sleeping in v her hut. Atempo bearing No. KA 37 - 2257 which was being rashly and ' negligently driven by Respondent No. 2 herein ran over her. She died on the spot. Household articles ofthe appellant also were damaged in the said accident. 4. An application for grant of compensation was filed by the appellants herein under Section 166 ofthe Motor Vehicles Act, 1988 (for short "the Act") in the Court of C. J. (SD) & Motor Accidents Claims Tribunal at Gangavati in the district ofKoppal on 12. 06. 2006. 5. The said vehicle was insured with the National Insurance Company. A plea was taken therein by the Insurance Company that although the vehicle in question was insured by the owner for the period 17. 10. 1997 and 16. 10.

1998, but the cheque issued therefor having been dishonoured, the policy was cancelled and, thus, it was not liable therefor. 6. By an Award dated 12. 06. 2002, the learned Motor Vehicles Accidents Claims Tribunal allowed the said claim application directing payment of compensation for a sum ofRs. 1,58,000/-with interest@ 12% per annum holding that the Insurer was liable to pay the said )awarded amount despite cancellation ofthe contract ofinsurance. As noticed hereinbefore the High Court ofKamatakaon an appeal preferred by the first respondent herein allowed the same relying on thejudgment ofthe Karnataka High Court in M. F. A. No. 6430 of2001. 7. Mr. C. M.

Angadi, the learned counsel appearing on behalfof the appellant in support ofthis appeal inter alia submitted that the High Court committed a serious error inpassing the impugnedjudgment in so far as it failed to take into consideration that when the insurance cover was issued, the liability of the Insurance Company subsists despite dishonour ofcheque evidencing payment ofthe insurance premium. 8. Strong reliance in this behalf has been placed on Oriental Insurance Co. Ltd. v. Inderjit Kaur and Ors. [(1998) 1 SCC 371] and National Insurance Co. Ltd. v. Seema Malhotra and Ors. [(2001) 3 sec 151]. 9. Before embarking on the said question we may notice the . ,, . admitted facts. Second respondent who was driving the vehicle was also the owner thereof. The insurance policy was to remain valid for the DEDDAPPA&ORS. v. THEBRANCHMANAGER, 291 period 17. 10. 1997 to 16. 10. 1998. Respondent No. 2 issued a cheque on 15. 10. 1997.

The said cheque was presented for encashment before the Syndicate Bank. The Bank by its letter dated 21. l 0. 1997 issued a 'Return Memo' disclosing dishonour ofthe cheque with the remarks "fund insufficient". First Respondent thereupon cancelled the policy of insurance. The said information was communicated to Respondent No. 2. An intimation thereabout was also given to the R. T. O. concerned. 10. BeforetheMotorVehicleAccidents Claims Tribunal, the insurer has also examined witnesses, inter alia, to prove cancellation ofthe policy of insurance, postal acknowledgement showing intimation thereabout which was served to the insured and a copy ofthe letter dated 6. 11. 1997 issued to the R. T. 0. and the memo issued by the Bank as regards dishonour ofthe cheque etc. 11. Indisputably, the accident had occurred on 6. 2. 1998 that is much after communication ofcancellation ofthe policy. 12.

Keeping in view the aforementioned backdrop ofall events, we may notice the legal issues addressed before us by the learned counsel. 13. Section 147 of the Act obligates the owner of the motor vehicle to get the vehicle insured in so far as the claim ofthird party is concerned. The Act does not deal with contract ofinsurance as such. Contract ofinsurance is governed by the Insurance Act, 1938 (for short "the 1938Act"). 14.

Section 64-VB ofthe 1938Act provides that no risk is to be assumed unless premium is received in advance inthe following terms:- "Section 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 ofsuch amount as may be prescribed, is made in advance in the prescribed manner. (2) For the purposes ofthis section, in the case ofrisks 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 ofpremium which may become due to an insured on account ofthe cancellation ofa 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 ofthe agent. (4) Where an insurance agent collects a premium on a policy of insurance on behalfofan insurer, he shall deposit with, or despatch 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. 15.

The saidprovision, therefore, in no unmistakable term provides -;· for issuance ofavalid poliCy only on receipt ofpayment ofthe premium. 16. The question came up for consideration before this Court in Inderjit Kaur (supra), wherein it was opined that a policy ofinsurance which is issued in public interest would prevail over the interest ofthe insurance company. In that case abus met with an accident. The policy ofinsurance was issued on 30. 11. 1989. Aletter stating that the cheque had been dishonoured was sentby the Insurance Company to the insurer on 23. 1. 1990. The premium was paid in cash on 2. 5. 1990. The accident took place 19. 4. 1990.

Despite noticing Section 64-VB of the 1938 Act, buthaving regard to the underlying public policybehind the statutory ~ scheme in respect ofinsurance as evidenced by Sections 147and Section 149 ofthe Act and in particular having regard to the fact that policy of insurance to cover the bus without receiving the premium had already been issued, this Court held that the Insurance Company was liable to indemnifythe insured. 17. We may, however, notice that in terms ofsub-section (5) of Section 147 and sub-section (1) ofSection 149 oftheAct, the Insurance Company became liable to satisfy awards ofcompensation in respect thereof, notwithstanding its entitlement to avoid or cancel the policy for the reason that the cheque issued for payment ofpremium thereon had not been honoured. 18. The said question, however, was left open in Jnderjit Kaur (supra). 19.

The said decision proceeded on the basis that it was the -~ Insurance Company which was responsible for placing itselfin the said predicament as it had issued a policy ofinsurance upon receipt only of a cheque towards the premium in contravention ofthe provisions of Section 64-VB ofthe 1938Act. The public interest in a situation ofthat nature and applying the principle ofestoppel, this Court held, would prevail over the interest ofthe Insurance Company. 20. The ratio ofthe said decision was, however, noticed by this Court in New India Assurance Co. Ltd. v. Rula and Ors. [(2000) 3 sec 195]. It was held that ordinarily a liability under the contract of ' insurance would arise only onpayment ofpremium, ifsuch payment was made a condition precedent for taking effect ofthe insurance policy but such a condition which is intended for the benefit ofthe insurer can be waived by it. It was opined:- ".. .

If, on the date ofaccident, there was a policy ofinsurance in respect ofthe vehicle in question, the third party would have a claim against the Insurance Company and the owner ofthe vehicle would have to be indemnified in respect ofthe claim ofthat party. Subsequent cancellation ofthe insurance policy on the ground of non-payment ofpremium would not affectthe rights already accrued in favour ofthe third party". The dicta laid down therein clarifies that ifon the date ofaccident the policy subsists, then only the third party would be entitled to avail the benefit thero£ 21. 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 ofSection 64-VB ofthe 1938 Act. It was held: "17.

In a contract ofinsurance when the insured gives a cheque towards payment of premium or part of the premium, such a contract consists ofreciprocal promise. The drawer ofthe 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 ofexchange drawn on a specified banker. Abill ofexchange is an instrument in writing containing an unconditional order directing a certain person to pay a certain sum ofmoney 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 I his part ofthe promise. The corollary is that the insured cannot claim performance from the insurer in such asituation. 19. Under Section 25 ofthe Contract Act an agreement made without consideration is void.

Section 65 ofthe ContractAct 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, ifthe insured makes up the premium even after the cheque was dishonoured but before the date ofaccident it would be a different case as payment ofconsideration can be treated as paid in the order in which the nature oftransaction required it. As such an event did not happen inthis case, the Insurance Company is legallyjustified in refusing to pay the amount claimed by the respondents". 22. Acontract is based onreciprocal promise. Reciprocal promises by the parties are condition precedents for a valid contract. Acontract furthermore must be for consideration. 23.

Intoday's worldpaymentmade by cheque is ordinarily accepted as valid tender. Section 64VB ofthe 1938 Act also provides for such a scheme. 24. Payment by cheque, however, is subject to its encashment. In Damadilal & Ors. v. Parashram & Ors. [(1976) 4 SCC 855], this Court observed : "On the ground ofdefault, it is not disputed that the defendants tendered the amount in arrears by cheque within the prescribed time. The question is whether this was a lawful tender. It is wellestablished that a cheque sent in payment of a debt on the request ofthe creditor, unless dishonoured, operates as valid discharge ofthe debt and, ifthe cheque was sent by post and was met on presentation, the date ofpayment is the date when the cheque was posted... " 25. Recently again in New India Assurance Co. Ltd. v.

Harshadbhai Amrutbhai Modhiya and Am: [(2006) 5 SCC 192], although in the context of the Workmen Compensation Act, 1923, Balasubramanyan, J opined : "It is not brought to our notice that there is any other law enacted which stands in the way ofan insurance company and the insured entering into a contract confining the obligation ofthe insurance l - company to indemnifyto aparticular head orto aparticular amount when it relates to aclaim for compensation to a third party arising under the Workmen's Compensation Act. In this situation, the obligationofthe insurance company clearly stands limited and the relevant proviso providing for exclusion ofliability for interest or penalty has to be given effect to. Unlike the scherre ofthe Motor Vehicles Act the Workmen's Compensation Act does not confer a right on the claimant for compensation under that Act to claim the paymentofcompensationin its entirety from the insurerhimself'.

It was further observed:- "The law relating to contracts ofinsurance is part ofthe general law ofcontract. So said Roskill, L. J. in Cehave v. Bremer. This view was approved by Lord Wilberforce in Reardon Smith v. Hansen-Tangen (All ERp. 576 h) wherein he said: "It is desirable thatthe same legal principles should apply to the law of contract as a whole and that different legal ,-1_principles should not apply to different branches ofthat law. " A contract of insurance is to be construed in the first place from the terms used in it, which terms are themselves to be understood in their primary, natural, ordinary and popular sense. (See Colinvauxs Law ofInsurance, 7th Edn. , para2-01. )A policy ofinsurance has therefore to be construed like any other contract.

On a construction ofthe contract in question it is clear that the insurer had not undertaken the liability for interest and penalty, but had undertaken to indemnify the employer only to reimburse the compensation the employer was liable to pay among ot'1er things underthe Workmen's CompensationAct. Unless one is in aposition to void the exclusion clause concerning liability for interest and penalty imposed on the insured on account ofhis failure to comply with the requirements ofthe Workmen's Compensation Act of y 1923, the insurer cannot be made iiable to the insured for those amounts. "" J-- 26. We are not oblivious ofthe distinction between the statutory ~~ liability ofthe Insurance Company vis-a-vis a third party in the context ofSections 147 and 149 ofthe Act and its liabilities in other cases. But the same liabilities arising under acontract ofinsurance would have to be met if the contract is valid.

Ifthe contract of insurance has been cancelled and all concerned have been intimated thereabout, we are of the opinion, the insurance company would not be liable to satisfy the claim. 1 27. Abeneficial legislation as is well known shouldnot be construed in such a manner so as to bring within its ambit a benefit which was not contemplated by the legislature to be given to the party. In Regional Director, Employees' State Insurance Corporation, Trichur v. Ramanuja Match Industries [AIR 1985 SC 278], this Court held : "We do not doubt that beneficial legislations should have liberal construction with aview to implementing the legislative intent but where such beneficial . legislationhas a scheme ofits own there is -;_ no warrant for the Court to travel beyond the scheme and extend the scope ofthe statute on the pretext ofextending the statutory benefit to those who are not covered by the scheme. " We, therefore, agree with the opinion ofthe High Court. 28.

However, as the appellant hails from the lowest strata of society, we are ofthe opinion that in a case ofthis nature, we should, in exercise ofour extra-ordinary jurisdiction under Article 142 ofthe Constitution ofIndia, direct the Respondent No. I to pay the amount of ~ claim to the appellants herein and recover the same from the owner of the vehicle viz. , Respondent No. 2, particularly in view ofthe fact that no appeal was preferred by him. We direct accordingly. 29. We, therefore, allow the appeal with the aforementioned directions. In the facts and circumstances ofthe case, however, there shall be no order as to costs. K. K. T. Appeal allowed.