IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE A.K.BASHEER & THE HONOURABLE MR. JUSTICE P.Q.BARKATH ALI WEDNESDAY, THE 30TH JUNE 2010 / 9TH ASHADHA 1932 MACA.No. 134 of 2004 ----------------------------------- OPMV.1180/1993 of ADDL.MOTOR ACCIDENT CLAIMS TRIBUNAL, KOLLAM .................... APPELLENT/3RD RESPONDENT -------------------------------------------------- THE MANAGER,UNITED INDIA INSURANCE COMPANY LIMITED, THIRUNELVELI NOW REPRESENTED BY ITS MANAGER,THIRD PARTY CLAIMS CELL,M.G.ROAD, KOCHI-16 BY ADV. SRI.MATHEWS JACOB, SENIOR ADVOCATE RESPONDENTS : RESPONDENTS/PETITIONER AND 2ND RESPONDENT ---------------------------------------------------------------------------------------------------------------- 1. JAYALAKSHMI,W/O LATE RAMANKUTTY NAIR, HARIMANDIRAN,VALLIKKEEZHU,KAVANADU,KOLLAM. 2. SIMI,D/O LATE RAMANKUTTY NAIR,-DO- -DO- 3. SURAJ,S/O LATE RAMANKUTTY NAIR, -DO- -DO- 4. K.LEKSHMYKUTTY AMMA,KOCHAYYATHU VEEDU, CHERUSSERY BHAGOM,SANKARAMANGALAM,CHAVARA. 5. A.SALAHUDEEN,S/O ABDUL RAHUMAN KUNJU, RAHIM MANZIL,PLAPPUZHA MURI,HARIPPADU. ADV. SRI.K.K.JOHN FOR R1,2,3. THIS MOTOR ACCIDENT CLAIMS APPEAL HAVING COME UP FOR ADMISSION ON 30/06/2010, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: 'CR' A.K.BASHEER & P.Q.BARKATH ALI, JJ. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - M.A.C.A.No.134 OF 2004 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 30th day of June 2010 JUDGMENT Basheer, J. The short but interesting question that arises for consideration in this appeal is whether the appellant/insurance company is entitled to be exonerated from the liability to indemnify the insured/owner of the vehicle on the plea that as on the date of the accident the cover note issued in respect of the vehicle had been rendered ineffective and invalid since the cheque issued by the latter towards premium was dishonoured due to insufficiency of funds. The Tribunal, after considering the relevant materials available on record, negatived the above plea raised by the appellant and held that the appellant was liable to indemnify the insured. The said award passed by the Tribunal is under challenge in this appeal. 2. Shorn of unnecessary details, the facts which are necessary for disposal of this appeal may be briefly noticed. 3. A tourist bus owned by respondent No.5 herein knocked down a pedestrian causing fatal injuries to him at about 5 a.m. on October 20, 1992. The legal representatives of the deceased victim claimed compensation from the owner, driver and insurer of the bus. The Motor Accidents Claims Tribunal, after considering the claim and the rival contentions of the insurance company, held that the claimants were entitled to get a sum of M.A.C.A.No.134 OF 2004 :: 2 :: Rs.5,31,984/- as compensation from the owner, driver and the insurer. The appellant/insurance company was directed to indemnify the owner, since it was found that as on the date of the accident there was a valid insurance policy in respect of the vehicle. 4. Sri.Mathews Jacob, learned Senior counsel who appears for the appellant, submits that the cover note issued by the company was for the period from September 4, 1992 to September 18, 1992 only. The above cover note was issued on the basis of a proposal form submitted by the owner of the vehicle along with a cheque for Rs.5123/- towards premium. The proposal form was returned to the owner, since certain defects were noted therein, and he was requested to resubmit the form after curing the defects. However, the appellant admittedly retained the cheque with it. It is on record that the cheque was presented for encashment on September 30, 1992. According to the appellant, the cheque was dishonoured due to insufficiency of funds in the account of the owner (respondent No.5) and an intimation in this regard was received from the bank on October 20, 1992, the date on which the accident took place. 5. Appellant contended before the Tribunal that on the same day the appellant had sent a communication to respondent No.5 intimating him about the dishonour of the cheque and since the factum of dishonour and cancellation of the cover note had been intimated to respondent No.5, the appellant would not be liable to indemnify him. M.A.C.A.No.134 OF 2004 :: 3 :: 6. However, the Tribunal repelled the above contention and held that since there was no evidence to show that the appellant/insurance company had informed the insured/owner about the dishonour of the cheque as well as cancellation of the cover note before the accident occurred, the insurance company would be liable to indemnify the owner. 7. It is contended by the learned senior counsel that the appellant had never issued any valid insurance policy as such. But he conceded that the appellant had issued a cover note which had validity for a period of two weeks starting from September 4, 1992. It is pointed out by the learned senior counsel that as on the date of the accident viz. October 20, 1992 the vehicle was not covered under a policy. The validity of the cover note had expired on September 18, 1992. Thus it is contended by the learned senior counsel that there was no privity of contract between the appellant and respondent No.5 as on the date of the accident and therefore the appellant cannot be mulcted with the liability to indemnify respondent No.5. 8. At first blush, the above contention may appear to be quite attractive. But it has to be noticed that the appellant had admittedly retained the cheque issued by respondent No.5 towards premium, though proposal form was returned due to certain defects. It is also admitted by the appellant that the said cheque was presented for encashment on September 30, 1992. That means the appellant had accepted the proposal for issue of a policy cover in respect of the vehicle. It may be true that the cheque got dishonoured on M.A.C.A.No.134 OF 2004 :: 4 :: presentation before the accident occurred. But still the fact that the appellant presented the cheque issued by respondent No.5 for encashment indicates that the appellant had accepted the proposal for issue of a policy cover. More importantly, the contention of respondent No.5 that the proposal form was re- presented after curing the defects had not been disputed by the appellant. In fact admittedly a cover note was also issued by the appellant. In that view of the matter, it has to be held that the appellant had in fact accepted the proposal made by respondent No.5. 9. In this context, it may also be noticed that respondent No.5 had a specific case that the cover note issued by the appellant after accepting the proposal form and cheque was taken back by one Sri.Rajendran, Development Officer of the company. He made this assertion in the course of his examination in the case as PW9. Therefore, the materials available on record will clearly show that while accepting the proposal form along with the cheque from respondent No.5, the appellant had issued a cover note. Thus, there existed a privity of contract between the appellant and respondent No.5. 10. 'Cover note' which is also called an interim protection note is usually issued by the insurance company on receipt of a proposal. In practice it is a note issued by the insurance company on payment of premium. It is usually treated as a deposit receipt. In General Assurance Society v. Chandmull [AIR 1966 SC 1644], Hidayatulla J. observed thus: M.A.C.A.No.134 OF 2004 :: 5 :: “A contract of insurance is a species of commercial transaction and there is a well established commercial practice to send cover notes even prior to the completion of a proper proposal or while the proposal is being considered or a policy is in preparation for delivery. It is a temporary and limited agreement. It may be self contained or it may incorporate by reference the terms and conditions of the future policy.” 11. It is undoubtedly true that the cheque issued by respondent No.5 got dishonoured. More importantly, respondent No.5 did not have a case that he had paid the premium to the appellants later. But still, in our view, the appellant cannot be exonerated from the liability to pay compensation to the claimants for the following reasons. 12. The appellant has no case that the cover note was cancelled prior to the accident. It is true that the appellant had raised a contention before the Tribunal that the factum of dishonour of the cheque and cancellation of the cover note had been intimated to respondent No.5 on October 20, 1992 itself. But the Tribunal found that the above contention remained unsubstantiated. In this context, it may be noticed that the accident occurred at 5 a.m. on October 20, 1992. Even assuming the appellant had sent any communication to respondent No.5 on that date, this could have been done only during the office hours on that day and not, at any rate, before the accident occurred. The cover note never saw the light of the day. In that view of the matter also, we have no hesitation to hold that as on the day of the accident the privity of contract in M.A.C.A.No.134 OF 2004 :: 6 :: respect of the vehicle continued to subsist. 13. We are fortified to take such a view by the decision of their Lordships of the Supreme Court in National Insurance Co. v. Abhaysing P. Waghela [2008 (4)KLT 657 (SC)]. It has been stressed by their Lordships that the liability of the insurance company which comes within the purview of Section 146 and 147 is aimed at subserving a constitutional goal, namely, social justice. It was observed that a contract of insurance covering third party risk, must, therefore, be viewed differently vis-a-vis a contract of insurance qua contract. 14. In the above case that came up before the apex court, the accident took place on the 3rd day after acceptance of the cheque towards premium by the Insurance company. In the meanwhile the cheque was dishonoured. However, two days after the accident the owner of the vehicle remitted the premium amount. Later, the policy was cancelled by the insurance company, but of course only after the accident. The Tribunal as well as the High Court held that since a cover note had been issued by the insurance company and also since the said cover note had not been cancelled, the insurance company was liable to satisfy the claim of the 3rd party. The apex court held that if the cover note had been issued, it will remain valid till it was cancelled. The above decision fortifies the view taken by us above. 15. Learned senior counsel has invited our attention to two decisions of the apex court, namely, United India Insurance Co. Ltd. V. Ayeb M.A.C.A.No.134 OF 2004 :: 7 :: Mohammed and others [1991 ACJ 650] and National Insurance Co. Ltd. V. Yellamma [2008 (2) KLT 1006 (SC)]. 16. In Ayeb Mohammed (supra), the insurance company had issued a cover note while accepting the payment of premium through a cheque. But the cheque happened to be dishonoured on presentation which information was conveyed by the company to the insured. The vehicle met with an accident. In response to the claim made by the injured, the company contended that it was not liable to indemnify the owner/insured. The Tribunal repelled the above contention and awarded compensation holding the company liable. The above award was confirmed by the High Court. But the Supreme Court held that failure of the company to take steps for cancellation of the cover note was immaterial, since the factum of dishonour of the cheque would have been within the knowledge of the insured and therefore notice need not have been issued to him. It was noticed by their lordships that immediately after dishonour of the cheque, the company had issued notice to the registering authority and the owner informing about the dishonour and that the liability of the company had ceased to exist. It was in the above facts and circumstances that the apex court had held that if intimation regarding dishonour had been sent before the accident occurred, it would be sufficient, even in the absence of any further steps to cancel the cover note. 17. In Yellama's case (supra) the owner of the vehicle had issued a third party cheque towards payment of insurance premium. The company had M.A.C.A.No.134 OF 2004 :: 8 :: accepted the cheque by mistake and a cover note was issued under the assumption that the cheque was that of the insured himself. Though the owner took back the cheque on a direction issued by the company, the premium was not paid. The original cover note was also returned by the owner. However, the vehicle met with an accident in the meanwhile. It was in the above circumstances that the apex court held that no privity of contract came into being between the insurer and the insured. Though Ayeb Mohammed's case (supra) may have some relevance we are of the view that in the facts and circumstances of the case on hand, the contention raised by the appellant cannot be sustained. The decision in Waghela's case (supra) covers the issue on all fours. 18. Therefore, while confirming the order passed by the Tribunal directing the appellant to pay compensation awarded in favour of the claimants, we hold that the appellant will be entitled to recover the same from respondent No.5 who has not chosen to appear before this court though notice has been served on him through special messenger. The appeal is disposed of in the above terms. A.K.BASHEER, JUDGE P.Q.BARKATH ALI, JUDGE jes