In the High Court of Judicature at Madras Dated: 04.08.2010 Coram The Honourable Mrs.JUSTICE CHITRA VENKATARAMAN Civil Miscellaneous Appeal No.1755 of 2008 & M.P.Nos.1 and 2 of 2008 The National Insurance Co. Ltd., Mettur .... Appellant/Respondents 3 in lower Court Vs. 1. Thiru. Shanmugam 2. Thiru. V.Rathinam 3. Thiru. S.Rajendran 4. Thiru. Boopathiraj 5. Thiru. K.Murugesan 6. The New India Assurance Co. Ltd., Parimalam Complex, E.V.N.Road, Erode – 11. .... Petitioner & Respondent 1,2,4 to 6 in lower Court APPEAL under Section 173 of the Motor Vehicles Act, 1988 against the judgment and decree dated 20.11.2007 in M.C.O.P.No.170 of 2007 on the file of the Motor Accident Claims Tribunal, Additional District Judge, Fast Track Court No.IV of Bhavani, Erode District. For Appellant : Mr.J.Chandran For Respondents: Mr.R.Neelakandan – R1 Mr.R.Sivakumaran – R6 No appearance – R2 & R4 J U D G M E N T The Insurance Company is on appeal as against the award in a case of injury, where the Tribunal granted a relief of awarding compensation at Rs.68,806/- payable with interest at 7.5% per annum by the Insurance Company to be recovered from the owner of the vehicle. The accident had occurred on 31.7.2005. 2. Admittedly, as on the date of the accident, a policy was there in existence; however, the policy contained a clause that in https://hcservices.ecourts.gov.in/hcservices/ case of dishonour of cheque on the premium paid, the policy would stand automatically cancelled ab initio. The insured had paid the premium through Cheque No.039617 dated 8.7.2005. 3. As far as the present case is concerned, the defence taken by the Insurance Company is that the owner of the vehicle, who had gone in for Insurance with the appellant herein, issued a cheque for a sum of Rs.10,958/-. Unfortunately, the cheque given by the insured got dishonoured by Syndicate Bank, Bangalore. Ex.R.5 is the return memo from the Bank and Ex.R.6, the advise slip. The Insurance Company sent a notice to the owner of the vehicle, the insured, under Ex.R.7 dated 1.8.2007. The letter sent was, however, returned as unclaimed. In the context of the cheque dishonoured, going by the clause in the insurance policy, the policy came to an end; automatically.Consequently, the question of any policy coverage by the Insurance Company did not arise. Even though the date of cancellation was 01.08.2005, with dishonouring of the cheque, the contract had also become void ab initio as per the terms of the contract; consequently, with the date of the accident as on 31.7.2005, the appellant insurance company is not liable to make the payment. 4. In support of the said contention, learned counsel for the appellant placed reliance on the decision reported in 2001 ACJ 638 (National Insurance Co. Ltd., V. Seema Malhotra and others) that when the insured failed to pay the premium promised, the Insurance Company need not perform its part of the promise and that the agreement made without consideration is void. If the insured makes up a premium even after the cheque was dishonoured, but before the date of accident, since the policy is in existence, the question of the Insurance Company refusing to meet the liability does not arise. Hence, in a case of a premium paid through cheque, it being Bill of Exchange drawn on a specified banker, it involves a promise to make the payment. When the insured fails to pay the premium or the cheque was returned dishonoured by the Bank concerned, the insurer need not perform his part of the promise; consequently, the corollary is that the insured cannot claim performance from the insurer in such a situation. 5. In the background of this, learned counsel appearing for the appellant pointed out that on the facts of this case, the cheque was presented on 10.7.2005 and the bank informed the Insurance Company on 13.7.2005 that the same was returned on account of want of funds. This led to the cancellation of the policy. Hence, the question of a liability, as such, being imposed on the Insurance Company did not arise. Consequently, the Insurance Company is not bound to make the payment. https://hcservices.ecourts.gov.in/hcservices/ 6. Per contra, learned counsel appearing for the first respondent/claimant placed reliance on the decision reported in (1988) 1 SCC 371 (Oriental Insurance Co. Ltd., V. Inderjit Kaur and others) as well as the decision of the Full Bench of the Kerala High Court reported in I (2006) ACJ 38 (FB) (Oriental Insurance Company Limited V. A.B.Sivankuty & Ors.) in support of the contention that as far as the situation like the one on hand is concerned, the third party not having any knowledge about what transpired between the insured and the insurer, the benefit of the award granted under the beneficial legislation like the Motor Vehicles Act, could not be denied at all. Consequently, going by the decision of the Full Bench of the Kerala High Court that the claimant was a third party claiming damages, the liability has to be met by the Insurance Company. Even if the policy is cancelled for non-payment of the premium and the accident had taken place after cancellation, the liability would still enure to be borne by the Insurance Company with the only right to recover from the insured. 7. Objecting to such a contention, learned counsel appearing for the appellant pointed out that when there is no contract between the insured and the insurer, the question of pay and recover did not arise in this case. Consequently, the decision of the Apex Court covers the issue. 8. A perusal of the judgment of the Apex Court reported in 2001 ACJ 638 (National Insurance Co. Ltd., V. Seema Malhotra and others) shows that the case therein related to dishonour of cheque on 20.1.1994. The Insurance Company informed the insured as regards the dishonour of the cheque leading to the cancellation of the policy. In a claim for compensation made by the claimant in a fatal accident, the Insurance Company repudiated its claim before the Consumer Protection Commission on the ground that there was no policy existing to bear the liability. While considering the issue as regards the liability of the Insurance Company, the Apex Court considered the decision reported in 1998 ACJ 123 (Oriental Insurance Co. Ltd. V. Inderjit Kaur) and 2000 ACJ 630 (SC) (New India Assurance Co. Ltd., V. Rula) only to point out that the issue, as was raised, was not considered in the said decisions. 9. The Supreme Court referred to Section 64-VB of the Insurance Act as well as to Section 51, 52 and 54 of the Indian Contract Act and pointed out that in a contract of insurance, when an insured gives a cheque towards payment of premium or part of the premium, such a contract consists of a reciprocal promise. If 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 his part of the promise. When a contract becomes void as per Section 65 of the https://hcservices.ecourts.gov.in/hcservices/ Indian Contract Act, any person who has received any advantage under such contract is bound to restore it to the person from whom he received it. Hence, 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. 10. On the facts of the case, the Apex Court pointed out that since the insured did not make up the premium even after the cheque was dishonoured before the date of accident, the Insurance Company was justified legally in refusing to pay the amount claimed by the claimants. 11. In the decision reported in (1998) 1 SCC 371 (Oriental Insurance Co. Ltd. Vs. Inderjit Kaur and Ors.), the Apex Court pointed out that when the authorised insurer already issued a policy of insurance even before receiving the premium and in the meantime an accident occurs, by reason of the provisions of Section 147(5) and 149(1) of the Motor Vehicles Act, the Insurance Company became liable to indemnify third parties in respect of the liability which that policy covered. The Court held that the Insurance Company was not absolved of its obligation to third parties under the policy because it did not receive the premium. The Apex Court pointed out that the remedy in this behalf lay only against the insured. The facts in that case point out that the policy of insurance was issued on 30.11.1989. The letter intimated the insured about the dishonour of the cheque sent on 23.1.1990. In the meantime, the premium was paid for the policy on 2.5.1990. In the meantime, the accident took place on 19.4.2010. 12. In considering the issue as to the liability of the Insurance Company in such circumstances, considering the liability of the Insurance Company, the Supreme Court held that a policy of insurance, by reason of this provision, must be a policy which is issued by a person who is an authorised insurer. 13. Referring to Section 149 of the Act, the Supreme Court pointed out that with the duty of the insurer to satisfy the judgment and awards against persons insured in respect of third party risk, 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 without 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 indemnify third parties in respect of the liability which that policy covered and to satisfy awards of compensation in respect thereof notwithstanding its entitlement to avoid or cancel the policy for the reason that the cheque issued in payment of the https://hcservices.ecourts.gov.in/hcservices/ premium thereon had not been honoured. 14. On the facts, the Apex Court pointed out that the Insurance Company issued a policy on receipt of a cheque towards the premium in contravention of Section 64-VB of the Insurance Act. The public interest that the policy of insurance serves must clearly prevail over the interest of the appellant Insurance Company. As far as the decision reported in 2001 ACJ 638 (National Insurance Co. Ltd. Vs. Seema Malhotra) is concerned, The accident happened on 31.12.1993. On 10.1.1994, the cheque was issued by the insured. The Insurance Company was informed about the dishonour of the cheque. On 20.1.1994, the Insurance Company informed the insured about the cancellation of the policy forthwith. 15. In the decision reported in 2009 (1) TN MAC 608 (Oriental Insurance Co. Ltd. Vs. M.Pushpan), after considering the catena of decisions of the Apex Court, a Division Bench of this Court pointed out that to the decision reported in 2000 ACJ 630 (SC) (New India Assurance Co. Ltd., V. Rula), wherein the Apex Court pointed out to Chapter 11 of the Motor Vehicles Act that a third party not a signatory to the contract of insurance,is nevertheless protected by such a contract. Further, the payment of premium is not a concern of the third party and that the claim can be maintained by the third party against the insured on the basis of the policy issued. It was further held in the said decision that if on the date of the accident there was a policy of Insurance in respect of the vehicle in question, the third party can claim compensation against the Insurance Company and the owner of the vehicle would have to be indemnified in respect of the claim of that party and any subsequent cancellation of the Insurance Policy on the ground of non payment of premium would not affect the rights already accrued in favour of the third party. So the relevant aspect herein is not as regards the payment of premium or non-payment thereof, but as to whether the policy was alive or cancelled. 16. Thus, applying the decision of the Full Bench of this Court reported in 2009 (1) TN MAC 1 (Branch Manager, United India Insurance Co. Ltd. Vs. Nagammal), that the doctrine of pay and recover had not been applied in all cases by the Apex Court in respect of matters not strictly covered under Section 149(4) and 149(5) of the Act, that the application of the doctrine depended upon the facts and circumstances of the particular case. This Court held that the Insurance Company was not diligent enough to inform the insured about the dishonour of the cheque and the cancellation was made after the accident. Following the Apex Court decision reported in 2008 (2) TN MAC 138 (Deddappa & others Vs. The Branch Manager, National Insurance Co. Ltd.), this Court https://hcservices.ecourts.gov.in/hcservices/ held that if the cancellation is after the accident, third party risk has to be covered and the Insurance Company cannot deny their liability. 17. As far as the present case is concerned, the accident occurred on 31.7.2005. The cheque was issued by the Insurance Company on 08.07.2005. The Insurance Company intimated about the dishonour of the cheque by the bank memo dated 13.7.2007. It informed the insured of the said fact in its letter dated 01.08.2007 and that the contract of insurance had become void ab initio. In the background of the said facts, as rightly pointed out by the learned counsel appearing for the first respondent, the law declared by the Full Bench of this Court, following the catena of decisions of the Supreme Court, assumes significance. With the insurance policy alive as far as the third party is concerned, no exception could be taken to the award passed by the Tribunal by applying the doctrine of pay and recover. 18. As far as the present case is concerned, as on the date of the accident, with a third party justified in his bona fide belief as to the existence of the policy coverage, the question as to whether the cheque is honoured or dishonoured is a matter purely between the insurer and the insured. The dishonour of the cheque paid towards the premium and the cancellation clause is not of any consequence as far as the third party is concerned. Even though the policy of the Insurance Company points out that on dishonour of the cheque, the Insurance Company would not be mulcted with any liability on any supposed reasoning of contract proceedings between the insured and the insurer, with the insured remaining ex parte in this case, the concept of beneficial legislation like the Motor Vehicles Act has to be looked into. 19. It is no doubt true that the decision reported in 2001 ACJ 638 (National Insurance Co. Ltd., V. Seema Malhotra and others) considered the decision reported in (1988) 1 SCC 371 (Oriental Insurance Co. Ltd., V. Inderjit Kaur and others) only to hold that the issue on the dishonour of cheque was not considered therein. But nevertheless, as held in the subsequent decision of the Apex Court, when the cancellation of the policy comes only after the accident had occurred, I am constrained to agree with the submission of the learned counsel for the first respondent. In a similar situation, the Kerala High Court considered the decision, which was relied on by the first respondent herein. In paragraph 5 of the judgment, the Kerala High Court considered the decision reported in (1988) 1 SCC 371 (Oriental Insurance Co. Ltd., V. Inderjit Kaur and others) and 2000 ACJ 630 (SC) (New India Assurance Co. Ltd., V. Rula) as well as the decision of the Kerala High Court in the case of India Assurance Co. Ltd., V. Shamshed reported in 2000 (2) KLT 67. https://hcservices.ecourts.gov.in/hcservices/ 20. The Full Bench of the Kerala High Court pointed out that the situation therein is not one of a similarity to a case where the owner of the vehicle did not take insurance at all as on the date of the accident. When the liability of the Insurance Company to pay damages to the third party continued for the entire period covered by the policy, in spite of the dishonour of cheque issued towards payment of premium and the policy was cancelled subsequent thereto, the only remedy available to the Insurance Company is to proceed against the insured to have the compensation paid for third party risks and thereafter get the same reimbursed. On the premise that pay and recover concept is still having relevance therein, the Full Bench of the Kerala High Court thought it fit to grant the relief to the claimant therein. 21. As far as the present case is concerned, even though learned counsel appearing for the appellant submitted that the concept of pay and recover would have relevance to a case of policy violation and this is a case of no policy at all, the said concept did not have any relevance. 22. I am constrained to hold herein that having regard to the date of the accident and even though the policy condition might state that the policy stands automatically cancelled ab initio, the intimation as to the cancellation of policy coming after the accident had happened, I do not find, the contention of the learned counsel appearing for the appellant could be accepted. 23. In the light of the facts herein and the decision of the Apex Court and this Court, the award stands confirmed and the appeal stands dismissed. No costs. Consequently, M.P.Nos. 1 and 2 of 2008 are closed. It is seen that by order dated 25.6.2008, this Court directed the appellant to deposit the entire award amount to the credit of the MCOP. If the amount had already been deposited, the claimant is permitted to withdraw the same together with accrued interest thereon. If the amount is not deposited, the appellant is directed to deposit the amount within a period of four weeks from the date of receipt of a copy of the order. On such deposit being made, the claimant is permitted to withdraw the same. Sd/- Asst.Registrar. /true copy/ Sub Asst.Registrar. sl https://hcservices.ecourts.gov.in/hcservices/ To 1.The Additional District Judge, Fast Track Court No.IV The Motor Accident Claims Tribunal, Bhavani, Erode District. 2. The Record Keeper VR Section, High Court, Madras 1 cc to M/s. R. Neelakandan, Sr. 56879 1 cc to M/s. J. Chandran, Sr. 56855 1 cc to M/s. R. Sivakumaran,, Sr. 56859 C.M.A.No.1755 of 2008 & M.P.Nos.1 and 2 of 2008 RV (CO) kk 25/10 https://hcservices.ecourts.gov.in/hcservices/