ORIENTAL INSURANCE CO, LTD.

A v.

'""_°'!''

INDERJIT KAUR AND ORS.

DECEMBER 8, 1997 B -...._

(AM. AHMADI, CJ., S.P. BHARUCHA AND S.C. SEN, JJ.]

Insurance Act, 1938-Section 64 VB-Accident Compensation Claius collided with Tntck 011 19.4.9(}-Death of Tmck D1ive,.......Premiwn amount for insurance of the bus paid by cheque disho11oured-Subsequently c premium amount paid in cash on 2.5.199(}-Denial of claim by the Insura11ce Company as Premium was not paid in adva11ce---Tribunal awarded compe11sation--On appeal, held, insurance company not absolved of its obligation to pay compensatio11 on the grou11d that it did not receive the premium

amount-Public interest to prevail over interest of the Insurance Com- D pany--Hence Insurance Company is liable to pay compensation-Motor Vehicles Act, 1988-Sections 147(5) and 149( 1).

" A bus was insured with the appellant Company on 30th November

1989. The premium for the policy was paid by cheque which was dishonoured. The appellant sent a letter stating that as the cheque was dishonoured they were not at risk. Thereafter, the premium was paid in E

cash on 2nd May, 1990. In the meantime, on 19th April 1990, the bus collided with a truck and the driver of the truck died. The respondents, widow and minor sons of the deceased filed a claim petition. The appellant denied the claim on the ground that under the terms of Section 64-VB of the Insurance Act, 1938 no risk was assumed by an insurer unless the F premium had been paid in advance. The Motor Accident Claims Tribunal rejected the appellant's contention and awarded compensation to the claimants alongwith interest. The appeal filed before the High Court was

~ dismissed. Hence the present appeal.

i G The contention of the appellant was 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 t premium had been paid. It was also contended that the decision of this Court in *United India Insurance Co. was misread by the Tribunal as well as by the High Court.

H 255

A Dismissing the appeal, this Court

HELD : 1. The appellant Insurance Company was not absolved of its obligation to third parties under the policy because it did not receive the premium. Its remedies in this behalf lay against the insured. The policy of insurance that the appellant issued was a representation upon which B authorities and third parties were entitled to act. [261-C-D]

Montreal Street Railway Co. v. Nonnandin, AIR (1917) Privy Council 142, referred to.

2. It was the appellant Company itself which was responsible for its C predicament. It had issued the policy of Insurance upon receipt only of a chec1ue towards the Premium in contravention of the provisions of section 64VB of the Insurance Act 1938. The public interest that a policy of Insurance serves must, clearly, prevail over the interest of the appellant.

Despite the bar created by section 64-VB of the Insurance Act, the appel- D lant, an authorised insurer, issued a policy of insurance to cover the bus without receiving the premium thereof. By reason of the provisions of section 147(5) and 149(1) of the Motor Vehicles Act, 1988 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 entitlewent to avoid or cancel the policy for the reason E that the cheque issued in payment of the premium thereon had not been honoured. [261-A-C; G-H)

*United India Insurance Co. Ltd. v.Ayeb Mohammed & Ors., (1991) 2 ACJ 650, dissented from.

F CIVIL APPELLATE JURISDICTION : Civil Appeal No. 8570 of 1997.

From the Judgment and Order dated 30.11.93 of the Punjab & Haryana High Court in F.A.O. No. 1819 of 1993.

G Jitendra Sharma, B.K. Pal and Parmanand Gaur for the Appellant.

The Judgment of the Court was delivered by

BHARUCHA, J. Leave granted.

H This appeal is heard by a Bench of 3 Judges because learned counsel

• j "'

for the appellant, the Oriental Insurance Co. Ltd., had submitted that the A decision of this Court in United India Insurance Co. Ltd. v. Ayeb Mohammed & Ors., (1991) 2 AC.I 650, had been misread by the Motor Accic.lent 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 of the question, an B 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 issuec.l by the appellant on 30th November, 1989. The premium for the policy was paid by cheque. The cheque was dishonourec.l. A letter stating that it had been C dishonoured was sent by the appellant to the insurec.l on 23rd January,

1990. The letter claimed that, as the cheque had not not been encashec.l, the premium on the policy had not been received and that, therefore, the appellant was not at risk. The premium was paic.l in cash on 2nd May, 1990.

In the meantime, on 19th April, 1990, the aecic.lent took place; the bus D collie.led with a truck, whose driver died. The truck driver's 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 E appellant's 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 appe?I 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 1isk to be assumed unless premium is received in G 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 H

until deposit of such amount as may be prescribed, is made m advance in the prescribed manner.

(2) For the purposes of this section, in the case of risks for which 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 of account of cancellation of a policy or alteration in its terms of 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 of an insurer, he shall deposit with, or despatch by post to, the insurer, the 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 (I) in respect of particular categories of insurance polices."

Mr. Sharma submitted that, in view of the provisions of Section G 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 H and not liable to pay any part of the compensation that had been awarded.

0.l.C. LTD. v. INDERJIT KAUR [BHARUCHA, J.] 259

Mr. Sharma relied upon the decision in the case of United India A Insurance Co. Ltd. v. Ayeb Mohammed (ibid). The Orissa High Court had upheld the award of compensation in the sum of Rs. 15,000 against the insurer on the footing that it had issued a cover note undertaking the risk.

The insurer's stand was that the cheque covering the premium had bounced and, in the absence of payment, the cover note it had issued had B 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 insurer's 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 c 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 D 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 E 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 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 U11ited India I11sura11ce Company Ltd. v. 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 H

. A the High Court was in error in holding that, in the absence of steps to cancel the. cover note, the risk would subsist.

Chapter II of the Motor Vehicle 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 force 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 C 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 D 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 E awards against persons insured in respect of third party risks. Sub-section

(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, judg_ment 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 163AJ 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 A to interest on judgments."

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 without receiving the premium there- B for. 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 (upon which we do not express any opinio11) to avoid or cancel the policy for the reason that the cheque issued in payment of the premium thereon had not C 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 D 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 passage in the case of Montreal Street Railway Company v. Nonnandin, A.LR. (1917) Privy Cound E

"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 to persons who have no control over those F 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 it was the appellant itself who was G 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.

A We are of view, in the circumstances, that the observations in the

case of United India Insurance Co. Ltd. v.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.

S.V.K.I.

Appeal dismissed.