First Appeal No.771 of 2004

12th July, 2005

Petitioner Counsel: Mr. A. J. POPHALY,Mr. A. J. POPHALY
Respondent Counsel: Mr. A. V. BHIDE,Mr. A. V. BHIDE

Cases Cited:
National Insurance Co. Ltd. Vs. Seema Malhotra, 2001(3) ALL MR 521 (S.C.)=(2001)3 SCC 151 [Para 2,5]
Divisional Manager, National Insurance Co. Ltd. Vs. Tasri Pradhan, 2004(1) T.A.C. 781 (Ori) [Para 2]
Oriental Insurance Co. Ltd. Vs. Inderjit Kaur, 1998 ACJ 123 : 2000 SCC (Cri) 601 [Para 3]
New India Assurance Co. Ltd. Vs. Rula, 2000 SCC (Cri) 601 [Para 6]
Oriental Insurance Co. Ltd. Vs. Inderjit Kaur, 1999 SCC (Cri) 148 [Para 6]

JUDGMENT

JUDGMENT :- Heard Mr. Pophaly, learned counsel, for the appellant and Mr. A. V. Bhide, learned counsel, for respondents 1 to 3 finally.

This appeal takes an exception to the judgment and Award dated 28-07-2004 passed by the learned Member, Motor Accident Claims Tribunal, Yavatmal, in Claim Petition No.221 of 1994 whereby the appellant/insurance Company is also held liable along with other respondents jointly and severally to pay the amount of compensation to the legal representatives of the deceased.

2. Mr. Pophaly, learned counsel, for the appellant contended that the accident occurred on 28-01-1994 and the victim Sharad died as a result of accident arising out of the use of motor vehicle, i.e. Truck bearing registration No.MHG-6852. He contended that the Insurance Company has issued Cover Note on 08-09-1993 after receiving cheque on account of premium from respondent no.5. He contended that the cheque was dishonoured on 16-09-1993 and therefore the Cover Note was cancelled by issuing letter dated 16-09-1993 addressed to the Regional Transport Officer in view of the provisions of Sub-section (4) of Section 147 of the Motor Vehicles Act. He contended that since the cheque was dishonoured the premium remained unpaid and, therefore, there was no valid insurance policy in existence on the date of accident and consequently the Insurance Company is not liable to pay the compensation. In support of these submissions, he relied on the decision of apex court in National Insurance Co. Ltd. Vs. Seema Malhotra, (2001)3 SCC 151 : 2001(3) ALL MR 521 (S.C.) and also on the decision of Orissa High Court in the case of Divisional Manager, National Insurance Co. Ltd. Vs. Tasri Pradhan, 2004(1) T.A.C. 781 (Ori).

3. Mr. Bhide, learned counsel, for claimants/respondents 1 to 3 contended that despite the bar created by Section 64-VB, the Insurance Company issued the policy to cover the motor vehicle involved in the accident without receiving the premium and by reason of 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. In support of these submissions, he relied on a larger bench decision of the apex court in the case of Oriental Insurance Co. Ltd. Vs. Inderjit Kaur, 1998 ACJ 123 : 2000 SCC (Cri) 601.

4. This Court has given thoughtful consideration to the contentions canvassed by the learned counsel for the parties. It is not disputed that the Cover Note was issued on 08-09-1993 whereas the accident occurred on 28-01-1994. The risk was covered vide aforesaid Cover Note for the period 08-09-1993 to 07-09-1994. It is also not disputed that the owner of the motor vehicle had issued cheque on account of premium at the time of issuing the Cover Note which was dishonoured on 16-09-1993 and therefore on the same day a letter cancelling the Cover Note was issued by the Insurance Company which was addressed to the Regional Transport Officer.

5. The apex court in National Insurance Co. Ltd. Vs. Seema Malhotra, cited supra, held that by virtue of Section 64-VB of the Insurance Act, the insurer has no liability to the insured unless and until the premium payable is received by the insurer. As the premium can be paid in cash or by cheque, the Supreme Court also considered what is the position when the cheque issued to the insurer is dishonoured by the drawee bank? The Supreme Court held in paras 17, 18, 19 and 20 of the judgment as under :

"In a contract of insurance when the insured gives a cheque towards payment of premium or part of the premium, such a contract consists of reciprocal promise. The drawer of the cheque promises the insurer that the cheque, on presentation, would yield the amount in cash. It cannot be forgotten that a cheque is a bill of exchange drawn on a specified banker. A bill of exchange is an instrument in writing containing an unconditional order directing a certain person to pay a certain sum of money to a certain person. It invokes a promise that such money would be paid.

Thus, when 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. The corollary is that the insured cannot claim performance from the insurer in such a situation.

Under Section 25 of the Contract Act an agreement made without consideration is void. Section 65 of the Contract Act says that when a contract becomes void any person who has received any advantage under such contract is bound to restore it to the person from whom he received it. So, even 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.

However, if the insured makes up the premium even after the cheque was dishonoured but before the date of accident it would be a different case as payment of consideration can be treated as paid in the order in which the nature of transaction required it. As such an event did not happen in this case, the Insurance Company is legally justified in refusing to pay the amount claimed by the respondents."

6. In the aforesaid decision, the apex Court has also considered the judgments in (i) New India Assurance Co. Ltd. Vs. Rula, (2000) SCC (Cri) 601 and (ii) Oriental Insurance Co. Ltd. Vs. Inderjit Kaur, 1999 SCC (Cri) 148. Thus, the legal position that emerges is that when 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 and the corollary is that the insured cannot claim performance from the insurer in such a situation. This being the legal position, the contention of the learned counsel for the Insurance Company that the Insurance Policy was not in existence on the date of accident and as such is not liable to pay compensation has to be accepted.

7. The Tribunal has committed an error of law by making observations in para 27 that "from the evidence of witness of Insurance Company, it is crystal clear that the cover note Exh.52 was issued and even prior to issue of letter Exh.69 to N.A. No.2, the policy was issued." It is a fact that the insurance policy was not at all issued nor it has been produced on record and what was produced on record was only Cover Note which was treated as cancelled when the cheque was dishonoured. In such circumstances, the impugned judgment and Award passed by the Tribunal cannot be sustained in law and the appeal deserves to be allowed. In the result, the impugned judgment and Award holding the Insurance Company liable to pay the amount of compensation, is set aside. Needless to mention that the claimants would be entitled to recover the amount of compensation from the owner of the vehicle. Accordingly, the appeal is allowed.

Appeal allowed.