Case: H.P. State Forest Company Ltd Vs. M/s. United India Insurance Co. Ltd

2. In October 1987, a meeting was convened by the Managing Director of the appellant with representatives of various Insurance Companies in Shimla with a proposal to insure the timber lying in several forest areas of the State. A proposal was also made to the National Insurance Company on 26th October 1987 to act as a lead company while the other Insurance Companies were to be co-sharers. After negotiations, the respondent agreed (on the 30th October 1987) to insure the timber lying in the South Zone in the value of Rs.3.42 Crores and also issued a cover note dated 7th November 1987 followed subsequently by a policy dated 16th November 1987 to be valid from 6th November 1987 to 5th November 1988. The appellant also deposited a sum of Rs.2,43,504 as the tentative premium subject to the approval by the Tariff Advisory Commission. It appears that on account of heavy rains in the Shimla region in September 1988 and consequent large scale flooding in the South Zone, the insured timber was washed away. This fact was conveyed to the respondent by several letters between 3rd October 1988 and 31st September 1989. The case of the appellant is that instead of meeting its contractual obligations, the respondent refuted its liability to pay on the 13th October 1988 on the pretext that the policy had, in fact, been issued for a period of 8 months only starting from 6th November 1987 and ending on 5th July 1988 and the period of one year mentioned in the policy was on account of a typographical mistake. It also appears that after prolonged negotiations, some additional premium was paid with respect to the aforesaid policy. It is the grievance of the appellant that despite having accepted the additional premium even after the policy had been repudiated on 13th October 1988, the respondent-company still refused to make good the loss. The appellant accordingly issued a legal notice dated 7th May 1992 followed by another dated 7th December 1992 but to no avail, and on the contrary, the respondent vide its communication dated 24th December 1992 yet again repudiated the appellant claim. Faced with this situation, the appellant through its Advocate, issued a notice dated 18th April 1993 to the respondent under clause 13 of the Insurance Policy calling for the appointment of an arbitrator. In its reply dated 19th May 1993, the Insurance Company refused to accept this proposal as well. Frustrated thereby, the appellant filed a complaint before the National Consumer Redressal Forum (hereinafter called the Commission) on 18th April 1994 on which notice was issued to the respondent. Several objections such as the complaint being belated as the claim had been repudiated by letter dated 13th October 1988, and that the insurance covered only a period of 8 months, were taken by the respondent. A rejoinder affidavit was thereafter filed by the appellant controverting the pleas raised by the respondent. The Commission, however, after prolonged hearing by its order dated 15th February 1996 relegated the appellants to the remedy of a civil court. This order was challenged and was set aside by this Court on 13th March 1997 and a direction was issued to the Commission to examine the complaint on merits. The Commission accordingly went in to the matter and dismissed the complaint on 16th August 2000 holding that the issues were covered against the appellant by the judgment of this Court in National Insurance Co.Ltd. vs. Sujir Ganesh Nayak & Co. & Anr. (1997) 4 SCC 366  in which it had been held that the complaint could not be entertained as it was time barred having been brought before the Commission after the expiry of the period fixed by Clause 6(ii) of the Insurance Policy. It is against this order that the present appeal has been filed.

Reasoning:
In view of the above observations, we find that the second issue with regard to the implications of clause 6 (ii) of the policy vis-à-vis Section 28 is really academic, but as the learned counsel for the parties have addressed us on this score, we have chosen to deal with it as well. We see from the order of the Commission that it has relied upon Sujir Ganesh Nayaks case (supra) to hold that the complaint could not be entertained as being time barred. The counsel for the appellant had, however, argued before the Commission as before us, that as Section 28 of the Contract Act had undergone significant amendments, the aforesaid judgment required a re-appraisal. This submission had been rejected by the Commission by observing that it was bound by the judgment in Sujir Ganesh Nayaks case and that the appellant could agitate the question as to its correctness before the Supreme Court. The matter was, accordingly, adjourned by us to enable the parties to find out if the amendment had, indeed, been made and, if so, to what effect. During the resumed hearing, the learned counsel for the appellant candidly admitted that the amendment had been made but had thereafter been repealed and the matter would, thus, have to be examined under Section 28 of the Contract Act, as originally placed. We have, accordingly, chosen to deal with this matter under that provisionWhile construing this provision vis-à-vis Section 28 of the Contract Act and the cases cited above and several other cases, in addition, this is what the Court ultimately concluded:16. From the case-law referred to above the legal position that emerges is that an agreement which in effect seeks to curtail the period of limitation and prescribes a shorter period than that prescribed by law would be void as offending Section 28 of the Contract Act. That is because such an agreement would seek to restrict the party from enforcing his right in Court after the period prescribed under the agreement expires even though the period prescribed by law for the enforcement of his right has yet not expired. But there could be agreements which do not seek to curtail the time for enforcement of the right but which provide for the forfeiture or waiver of the right itself if no action is commenced within the period stipulated by the agreement. Such a clause in the agreement would not fall within the mischief of Section 28 of the Contract Act. To put it differently, curtailment of the period of limitation is not permissible in view of Section 28 but extinction of the right itself unless exercised within a specified time is permissible and can be enforced. If the policy of insurance provides that if a claim is made and rejected and no action is commenced within the time stated in the policy, the benefits flowing from the policy shall stand extinguished and any subsequent action would be time-barred. Such a clause would fall outside the scope of Section 28 of the Contract Act. This, in brief, seems to be the settled legal position. We may now apply it to the facts of this caseThe clause before this Court in Food Corpn. case extracted hereinbefore can instantly be compared with the clause in the present case. The contract in that case said that the right shall stand extinguished after six months from the termination of the contract. The clause was found valid because it did not proceed to say that to keep the right alive the suit was also required to be filed within six months. Accordingly, it was interpreted to mean that the right was required to be asserted during that period by making a claim to the Insurance Company. It was therefore held that the clause extinguished the right itself and was therefore not hit by Section 28 of the Contract Act. Such clauses are generally found in insurance contracts for the reason that undue delay in preferring a claim may open up possibilities of false claims which may be difficult of verification with reasonable exactitude since memories may have faded by then and even ground situation may have changed. Lapse of time in such cases may prove to be quite costly to the insurer and therefore it would not be surprising that the insurer would insist that if the claim is not made within a stipulated period, the right itself would stand extinguished. Such a clause would not be hit by Section 28 of the Contract ActIn the light of the fact that Food Corporations case has been considered in Sujir Nayaks case, no further argument remains in the present matter, as Clause 6(ii) and Condition 19 are, in their essence, pari materia