IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH FAO No.2394 of 1996 (O&M) Date of decision:22.09.2010 The Oriental Insurance Company Limited ....Appellant versus Smt. Kamla Devi and others ...Respondents II. FAO No.2395 of 1996 (O&M) The Oriental Insurance Company Limited ....Appellant versus Smt. Gumman and others ...Respondents III. FAO No.2396 of 1996 (O&M) The Oriental Insurance Company Limited ....Appellant versus Raj Karan alias Raj Singh and others ...Respondents IV. FAO No.2397 of 1996 (O&M) The Oriental Insurance Company Limited ....Appellant versus Babu Lal Sharma and others ...Respondents FAO No.2394 of 1996 (O&M) - 2 - V. FAO No.2398 of 1996 (O&M) The Oriental Insurance Company Limited ....Appellant versus Brahma Devi and others ...Respondents VI. FAO No.2399 of 1996 (O&M) The Oriental Insurance Company Limited ....Appellant versus Dharambir and others ...Respondents VII. Civil Revision No.3597 of 1996 (O&M) The Oriental Insurance Company Limited ....Appellant versus Umesh Chand and others ...Respondents ----- Present: Mr. Jagtar Kureel, Advocate, and Mr. D.P.Gupta, Advocate, for the appellant. Mr.Navin Kapur, Advocate, for National Insurance Company. Mr. Sandeep Vermani, Advocate, for respondents 1 and 2 in FAO No.2395 of 1996 and respondents 1 to 4 in FAO No.2398 of 1996. Mr. J.S.Yadav, Advocate, for respondents 1 to 7 in FAO No.2394 of 1996. ----- 1. Whether reporters of local papers may be allowed to see the judgment ? 2. To be referred to the reporters or not ? 3. Whether the judgment should be reported in the digest ? ---- FAO No.2394 of 1996 (O&M) - 3 - K.Kannan, J. I. The problem stated 1. The batch of appeals addresses the effect of alleged issue of fake cover note by an agent of the Insurance Company and raises the question whether the act of the agent could bind the Company to suffer an action for damages at the instance of third parties or their representatives for death or bodily injuries suffered in a motor accident. II. The fact situation 2. The motor accident involved a collision of two trucks, one having been insured with the Oriental Insurance Company which is the appellant in these appeals and another truck insured with the National Insurance Company. The claimants were either persons injured or representatives of deceased persons travelling in yet another vehicle matador van, on way to Gurgaon. When it reached near Bajja restaurant, near Village Rampura on National Highway-8, the truck which had been insured with the Oriental Insurance Company came from the opposite side and collided with the matador van. At about the same time, yet another truck insured with the National Insurance Company dashed the matador van from the back side, by the result of which four persons were killed on the spot and other persons received injuries. On the evidence tendered by the respective parties on both sides, the Tribunal assessed the liability for the appellant-insurer's vehicle to have contributed to the extent of 70% and apportioned the liability for the other truck insured with the National Insurance Company at 30%. The appellant contended that the cover note alleged to have been issued on 16.07.1990 to owner FAO No.2394 of 1996 (O&M) - 4 - of the insured’s vehicle was a fabrication. The accident had admittedly occurred on 17.07.1990 and according to the insurer, the cheque had been given by the owner/insured only on 19.07.1990 but the cover note had been ante-dated as if to make it appear as though it had been issued a day prior to the accident. The cover note already issued by the agent was cancelled and a fresh cover note had been again issued on 19.07.1990. The contention was that on the day when the accident took place, namely on 17.07.1990, there was no policy of insurance at all. III. Evidence before the Tribunal, its scope and relevance 3. In support of the contention that the cover note had been issued only subsequently, the Insurance Company had examined RW5, an investigator of General Insurance Companies, who had given a report which was marked at R5, finding that the cover note was ante- dated. When the issue is before the Tribunal, it shall be the duty of the Tribunal to consider whether the cover note was ante-dated or not and a report itself will have no evidentiary value except to the extent of saying that the Insurance Company had entrusted the matter to an investigator for consideration whether it was ante-dated or not. The outcome of the report will be irrelevant and the issue has to be decided on the basis of evidence adduced by the insurer before the Tribunal. The investigator's evidence that he had enquired with the Branch Manager whether he had authorized the agent to issue a cover note could also be not relevant in this Court, for, it will amount to hearsay and the evidence of the Manger itself will have to be brought to say whether he had authorized the agent to issue a cover note or not. I will not therefore attach any importance to FAO No.2394 of 1996 (O&M) - 5 - the evidence of RW5. The Development Officer of the Insurance Company was also examined as RW6 and he gave evidence to the effect that the particular agent Rajender Kumar, who had issued the cover note, was only authorized to secure business of the Company and he had no authority to issue the cover note. He affirmed that neither the Branch Manager nor himself had ever given authority to him to issue a cover note. Referring to the particular cover note purported to have been issued on 16.07.1990, RW6 stated that it contained the signature of Rajender Kumar, agent all right but it was produced along with the cheque only on 19.07.1990. He had also gave evidence to the effect that he had enquired with the agent as to why the premium had not been deposited within 24 hours with the Company along with the cover note. He was reported to have told “that the insured got the cover note issued in order to disposal of the challan” (sic). The Development Officer issued a fresh cover note R7 on the same “premium cheque”. The earlier cover note issued on 16.07.1990 was stated to have been cancelled at the request of the agent and the insured. It was brought out in evidence that the agent and the insured were close relatives and it must have been secured only after the accident. It was however, elicited in the cross-examination that Rajender Kumar had been appointed as an agent by the Company and he was attached under the Development Officer, who gave evidence. It was also suggested that the agent had the authority to issue the cover note. IV. Agent’s power to issue a cover note, a question of fact 4. In my view, the whole issue would settle on whether the FAO No.2394 of 1996 (O&M) - 6 - agent had an authority to issue a cover note or not. If it is admitted that he was an agent, then an act of agent acting within the realm of authority shall bind the Company as well. The affairs of the Company cannot be carried on without express instructions or rules and if it were to be contended that an agent did not have a power to issue a cover note and that only the Manager or the Development Officer had such authority, the Insurance Company was bound to produce such rules or instructions to say that an agent did not have an authority to issue a cover note. But, no such instructions or rules have been produced before the Court. The report of the investigator does not reveal the source of such an interdict. At the trial, if the insurer had shown that the proforma for R5 had not been issued to the agent and the whole document was a fabrication, it would have lent credence to a theory that the agent did not have an authority to issue a cover note. No such evidence was given. If we must assume that the agent did not have an authority and the Branch Manager had not been given him such an authority, even the Branch Manager was not examined. All told, there is no proof that the agent did not have a power to issue a cover note. V. Extent of power of Agent to bind the principal for dealings with 3 rd party 5. A contract of insurance is but a specie of contract and a person, who is held out as an agent, would have also a lawful authority to bind the principal in his transaction with the third party. Section 186 of the Indian Contract Act reads thus, “186. Agent's authority may be expressed or implied.-The authority of an agent may be expressed or implied.” FAO No.2394 of 1996 (O&M) - 7 - Section 187 contains the definitions of express or implied authority, which reads as follows:- “187 Definitions of express and implied authority.-An authority is said to be express when it is given by words spoken or written. An authority is said to be implied when it is to be inferred from the circumstances of the case; and things spoken or written, or the ordinary course of dealing, may be accounted circumstances of the case.” Section 188 refers to the extent of agent's authority, which reads as follows:- “188. Extent of agent's authority.-an agent having an authority to do an act has authority to do every lawful thing which is necessary in order to do such act. An agent having an authority to carry on a business, has authority to do every lawful thing necessary for the purpose, or usually done in the course, of conducting such business.” Section 211 deals with the agent's duty for conducting principal's business, which reads as under:- “211. Agent's duty in conducting principal's business.-An agent is bound to conduct the business of his principal according to the directions given by the principal, or in the absence of any such directions according to the custom which prevails in doing business of the same kind at the place where the agent conducts such business. When the agent acts otherwise, if any loss be sustained, he must make it good to his principal, and if any profit accrues, he must account for it.” If the agent enters into a contract and an obligation arises from such act, it may be enforced and it will have the same consequences as if the contract had been entered into by the principal in person. This principle FAO No.2394 of 1996 (O&M) - 8 - finds legislative expression through Section 226 which reads as follows:- “226. Enforcement and consequences of agent's contracts.- Contracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner, and will have the same legal consequences as if the contracts had been entered into the acts done by the principal in person.” An act of an agent, who does an act in excess of authority but it contains also parts which are within his authority which could be separated from the part which is beyond the authority, so much of what he does within the authority, will be binding between him and the principal. This principle expressed through Section 227 is to ascertain the inter se relationship between an agent and his principal and has no bearing to a rights of a third party, who comes under a benefit of a contract and who had no knowledge of the fact whether the agent has particular authority or not. Consequently, Section 228 which states that the principal would not be bound when an agent acts in excess of authority a right that the principal might have to repudiate, the transaction should be understood as controlling a situation between the principal and the agent and a third party could still show that he is entitled to obtain the benefit of contract if he had also suffered a detriment or paid a consideration for the same. Section 235 deals with the situation of a pretended agent who acts without authority and would make himself liable to a third party to a loss that he sustains by such pretension. The extent to which the principal is bound by an unauthorized act of an agent when a third party is led to believe that such agent is so authorized is governed by Section 237 and that is precisely the governing situation in this case. The Section 237 FAO No.2394 of 1996 (O&M) - 9 - reads as follows:- “237. Liability of principal inducing belief that agent's unauthorized acts were authorized.- When an agent has, without authority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts or obligations, if he has by his words or conduct induced such third persons to believe that such acts and obligations were within the scope of the agent's authority.” I am extracting Section 237, assuming for arguments sake that an agent did not have an authority to issue a cover note. I have already pointed out that the Insurance Company has not produced any specific rule or instruction putting the public on notice of the fact that the agent does not have a power to issue a cover note. Assuming he had not such power, even then the principal would be bound by an obligation created by or act done by an agent, if such a person is held out as a person competent to issue a cover note. A cover note does not come from the blue. It is no body's contention that Ex.R5 which had been issued by the agent did not bear the seal of the Insurance Company or that such a document had been forged or fabricated by the agent himself in connivance with the insured. The very custody of the document it his hand would be sufficient for a third party dealing with such agent to assume that he had such an authority. If the agent's duty was only to canvass business that was what precisely he was doing by collecting the cheque towards the premium and handing over to the insured a cover note. By the time the cancellation of cover note was made on 19.07.1990 and a fresh cover note issued after cancellation, the accident had already taken place. FAO No.2394 of 1996 (O&M) - 10 - VI. Third party’s right of enforcement of claim unfettered by non- receipt of premium 6. The Motor Vehicles Act contains provisions for compulsory insurance for third party risk through Sections 146 and 147. Section 146 states that no owner shall ply his motor vehicle without having an insurance to cover the risk for third party for death or bodily injury. Section 147 deals with the situations where compulsory insurance are necessary that includes persons, who are not strictly third parties such as, passengers in a public service vehicle, owners of goods travelling along with the goods in a goods carriage and workmen, who are required to be covered under the Workmen's Compensation Act. In England where the provisions of Road Traffic Act of 1988 are applicable, Insurance Companies are made liable by express provision of Section 155(5) that an insurer shall be liable notwithstanding the fact that the insurer may be entitled to avoid or cancel or may have avoided or cancelled the policy. Even without a specific legislative provision similar to the provision in UK law, as referred to above, the Hon'ble Supreme Court has brought about a similar situation to bind an insurer even in cases where the policy was cancelled for non-payment of premium or by dishonour of cheque issued towards the premium. The leading decision on this aspect is governed by the Hon'ble Supreme Court in Oriental Insurance Company Versus Inderjeet Kaur-1998(1) SCC 371. The Hon'ble Supreme Court came to similar result in the decisions in National Insurance Company Versus Rula-2000(3) SCC 195 and National Insurance Company Limited Versus Abhaysing Pratapsing Waghella and others-2008(9) Supreme Court Cases 133. A cancellation of cover FAO No.2394 of 1996 (O&M) - 11 - note was issued in this case on 19.07.1990, when the accident had taken place on 17.07.1990. The cheque had been received again on 16.07.1990 but encashed subsequently. These decisions have reconciled the provisions of Section 64 VB of the Insurance Company that mandates that an insurer cannot undertake the liability unless the premium is paid by a purposive interpretation that a third party cannot come to any harm, even if the premium was not paid or encashed. It shall be noticed that the cancellation of the policy itself had not taken place before the accident and a due information had not been given even to a public authority like a Regional Transport Officer as well as to the insured himself. Therefore it can be seen that what is specifically statutorily enacted in UK through the Road Traffic Act of 1988 has been interpreted to result in a similar situation with reference to Sections 146 and 147 of the Motor Vehicles Act through the decisions of the Hon'ble Supreme Court referred to above. These decisions comprehensively therefore brings a solution to one part of the enigma that none of the claimants could be denied his/her compensation against the insurer. VII. In the absence of lack of proof of agent’s authority, insured entitled to indemnity 7. If there had been a fraud by the agent in collusion with the insured, it may give rise to an independent action for the insurer to recover the amount after satisfying the award to the respective claimants. I have already pointed out that there was no proof in the first place that the agent did not have an authority to issue a cover note. If he had such an authority, then issuance of such a cover note on 16.07.1990 to the insured cannot be faulted. If the document itself is ante-dated, then the FAO No.2394 of 1996 (O&M) - 12 - examination of a situation whether the agent had an authority to issue a cover note or not does not arise. If it was ante-dated, no matter he had an authority or not, it will not be valid to secure a right of enforcement for the insured. I cannot come such a conclusion of the document having been ante-dated by the only reason that an investigator came to such a conclusion. The evidence of the Branch Manager is not before the Tribunal. There is nothing intrinsically wrong about the policy to obtain such a suspicion that the document was ante-dated. Even the alleged proximity of relationship between the agent and the insured is not established. VIII. Conclusion 8. The ultimate dispensation therefore shall be (i) there is no proof that the agent did not have an authority to issue a cover note which decision I have come on the basis of lack of evidence for such a contention; (ii) even if he had no such authority, the Insurance Company has held out of such a person to issue a cover note by giving him the custody of a cover note to make it possible for him to issue one to a third party; (iii) so long as it is seen on the basis of a record that a cover note had been issued prior to the accident and it was purported to have cancelled only subsequent to the accident, a third parties' right to enforce the claim against the insurer is clearly made out; (iv) if the cover note had been brought about by collusion of fraud, the insurer would have a right of recovery from the insured for the amount of loss sustained by it in satisfaction of the awards; and (v) the right of recovery, however, will not be available in a case where the fraud or collusion is not proved. The FAO No.2394 of 1996 (O&M) - 13 - Insurance Company, under the circumstances, shall be liable in the manner found by the Tribunal and all the appeals filed by the insurer are dismissed. (K.KANNAN) JUDGE 22 .09.2010 sanjeev