PETITIONER:
ORIENTAL INSURANCE CO.LTD.
Vs.
RESPONDENT:
INDERJIT KAUR & ORS.
DATE OF JUDGMENT: 08/12/1997
BENCH:
CJI, S.P. BHARUCHA, S.C. SEN
ACT
HEADNOTE
JUDGMENT
JUDGMENT BHARUCHA,J.
Leave granted.
This appeal is heard by a Bench of 3 Judges because learned counsel for the appellant, the Oriental Insurance Co. Ltd., had submitted that the decision of this Court in United India Insurance Co.Ltd, vs Ayeb Mohammed & Ors., 1991 (2) ACJ 650, had been misread by the Motor Accident Claims Tribunal and the High Court and that, while the appellant would pay the amount of compensation awarded in this matter it desired, in view of the general importance or the question, an authoritative pronouncement.
For the purposes of the appeal, therefore, very few facts are relevant, A bus met with an accident, Its policy of insurance was issued by the appellant on 30th November, 1989. The premium for the policy was paid by cheque. The cheque was dishonoured. A letter stating that it had been dishonoured was sent by the appellant to the insured on 23rd January, 1990. The letter claimed that, as the cheque had not been encashed, the premium on the policy had not been received and that, therefore, the appellant was not at risk, The premium was paid in cash on 2nd May, 1990. In the meantime, on 19th April, 1990, the accident took place: the bus collided with a truck, whose driver died. The truck drivers widow and minor sons filed the claim petition. The appellant denied the claim asserting that under the terms of Section 64-VB of the Insurance Act, 1938, no risk was assumed by an insurer unless the premium thereon had been received in advance. The Motor Accident Claims Tribunal rejected the appellants contention and awarded the claimants compensation in the sum of Rs.96,000/- with interest at the rate of 12 per cent per annum from the date of the petition, to be paid by the insured and the appellant jointly and severally. The appeal filed by the appellant before the High Court of Punjab & Haryana was summarily dismissed, and it is that order which is now under challenge.
Mr.Jitender Sharma, learned counsel for the appellant, relied upon Section 64-VB of the Insurance Act. It reads thus:
’’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 p 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 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 on an insurer,
he shall deposit with, or despatch
by post to, the insurer, the p
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.
Mr. Sharma submitted that, in view of the provisions of Section 64-VB of the Insurance Act, the appellant could not in law have assumed any risk under the policy of insurance covering the bus until the premium had been paid. The premium had not been paid inasmuch as the cheque that had been given to the appellant by the insured in payment of the premium had been dishonoured. The appellant was, therefore, not at risk and not liable to pay any any of the compensation that had been awarded.
Mr.Sharma relied upon the decision in the case of United India Insurance Co.Ltd. vs Ayeb Mohammed (ibid. The Orissa High Court had upheld the award of compensation in the sum of Rs15,000/- against the insurer on the footing that it had issued a cover note undertaking the risk. The insurers stand was that the cheque covering the premium had bounced and, in the absence of payment, the cover note it had issued had become ineffective and there was no policy which obliged it to pay the compensation. The view of the High Court was that, in the absence of steps to cancel the cover note, the insurers liability continued although the bouncing of the cheque and the steps taken by the insurer cancelling the risk note had, this court said, been found as a fact. The insurer had issued a notice to the registering authority and the parties that the cheque had bounced and the liability had ceased but the High Court had recorded a finding that the notice of cancellation had not been served on the insured. This Court then said:
"The fact that the cheque had
bounced was a matter within the
knowledge of the insured. At any
rate, there would be that
presumption and, therefore, in
ordinary circumstances no special
notice would be required.
5. Since Mr.Madan had told us at
the commencement of the hearing of
the matter that the amount being
small he was not interested in
disputing the liability to pay in
this case but the insurer would
like to have the principle of law
decided, we do not think it is
necessary to issue notice to the
respondents.
6. In the setting indicated we are
of the view that the High Court was
not right in holding that in the
absence of steps for cancellation
of the cover note, the risk would
be subsisting but as Mr.Madan has
himself stated, we do not interfere
with the decision of the High Court
requiring the sum of Rs.15,000/- to
be paid by the insurer.’’
We find it is difficult to conclude that the judgment in the case of United India Insurance Company Ltd. vs.Ayeb Mohammed decides a principle of law because no notice had been issued on the special leave petition. At the same time, the opinion is expressed in the judgment that the High Court was in error in holding that, in the absence of steps to cancel the cover notre, the risk would subsist.
Chapter 11 of the Motor Vehicles Act, 1988, provides for the insurance of motor vehicles against third party risks. Section 146 thereunder states that no person shall use or cause or allow any other person to use a motor vehicle in a public place unless there is in forced in relation to the use of the vehicle a policy of insurance that complies with the requirements of the Chapter. Section 147 sets out the requirements of policies and the limits of liability. A policy of insurance, by reason of this provision, must be a policy which is issued by a person who is an authorised insurer. Sub-section 5 reads thus:
’’(5) Notwithstanding anything
contained in any law for the time
being in force, an insurer issuing
a policy of insurance under this
section shall be liable to
indemnify the person or classes of
persons specified in the policy in
respect of any liability which the
policy purports to cover in the
case of that person or those
classes of persons.’’
Section 149 refers to the duty of insurers to satisfy judgments and awards against persons insured in respect of third party risks. Subsection (1) thereof reads thus:
’’(1) If, after a certificate of
insurance has been issued under
sub-section (3) of section 147 in
favour of the person by whom a
policy has been effected, judgment
or award in respect of any such
liability as is required to be
covered by a policy under clause
(b) of sub-section (1) of section
147 (being a liability covered by
the terms of the policy) (or under
the provisions of section 163A) is
obtained against any person insured
by the policy, then,
notwithstanding that the insurer
may be entitled to avoid or cancel
or may have avoided or cancelled
the policy, the insurer shall,
subject to the provisions of this
section, pay to the person entitled
to the benefit of the decree any
sum not exceeding the sum assured
payable thereunder as if he were
the judgment debtor, in respect of
the liability, together with any
amount payable in respect of costs
and any sum payable in respect of
interest on that sum by virtue of
any enactment relating to interest
on judgment.’’
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.
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.
We may note in this connection the following massage in the case of Montreal Street Railway Company vs.Normandin, A.I.R.1917 Privy Council 142;
’’When the provisions of a statute relate to the performance of a public duty and the case is such that to hold null and void acts done in neglect of this duty would work serious general inconvenience or injustice go persons who have no control over those entrusted with the duty and at the same time would not promote the main object of the Legislature, it has been the practice to hold such provisions to be directory only, the neglect of them, though punishable, not affecting the validity of the acts done.’
It must also be noted that is was the appellant itself who was responsible for its predicament. It had issued the policy of insurance upon receipt only of a cheque towards the premium in contravention of the provisions of Section 64-VB of the Insurance Act. The public interest that a policy of insurance serves must, clearly, prevail over the interest of the appellant.
We are of view, in the circumstances, that the observations in the case of United India Insurance Co.Ltd. vs Ayeb Mohammed do not lay down good law.
The appeal is dismissed. The respondents not having appeared, there shall be no order as to costs.