2007(3) ALL MR (JOURNAL) 26
(ANDHRA PRADESH HIGH COURT)
M. VENKATESWARA REDDY, J.
United India Insurance Co. Ltd., Kurnool Vs. A. Narayana Reddy & Ors.
C.M.A. No.340 of 20002
25th September, 2006
Petitioner Counsel: A.V.K.S. PRASAD
Respondent Counsel: T. NAGARJUNA REDDY,. RATHANGAPANI REDDY,C. PRAKASH REDDY
Motor Vehicles Act (1988), S.147 - Liability of Insurance Company - Insurance policy - Issue of - Cheque issued for, by insured/owner of vehicle towards premium, dishonoured - Policy cancelled - Accident occurred on 21-1-1997 i.e., exactly one week after cancellation letter sent to insured by registered post on 14-1-1997 - Insurance company, held not liable to indemnify insured in paying compensation to claimants/victims of accident - Insurance Company can repudiate contract when cheque issued in favour of payment of premium returned as dishonoured and it can be done so even after accident - Insured cannot demand insurer to present cheque once again. Insurance Act (1938), S.64VB. Contract Act (1872), Ss.51, 52, 53. (2000)3 SCC 195 - Relied. (Para 19)
Oriental Insurance Co. Ltd. Vs. Inderjit Kaur, AIR 1998 SC 588 [Para 7,8,12]
New India Assurance Co. Ltd. Vs. Rula, (2000)3 SCC 195 [Para 7,9]
National Insurance Co. Ltd. Vs. Seema Malhotra, 2001(3) ALL MR 521 (S.C.)=(2001) ACC 317 (SC) [Para 7,11,16]
United India Insurance Co. Ltd. Vs. Ayeb Mohammed, 1991(2) ACC CJ 650 [Para 8]
JUDGMENT :- C.M.A. Nos.340, 1761, 2087 and 2097 of 2000 arise out of a common order, dated 17-9-1999, in O.P.No.606 of 1997 and batch, on the file of the Motor Accidents Claims Tribunal (IV-Additional District Judge), Kurnool. The rest of the C.M.As., arise out of the common order dated 31-12-1999, in O.P.No.209 of 1997 and batch, on the file of the above said Tribunal. All-these C.M.As., were filed by the United India Insurance Company Limited.
2. The limited question that arises in all these 8 C.M.As., is, when the insurance company had issued the insurance policy and subsequent thereto the cheque given by the insured towards first premium was dishonoured and the insurer cancelled unilaterally the policy, whether the insurer is liable to pay compensation to the claimants in a motor accident case.
3. The insurance company is the appellant in all these cases. The claimants were awarded different sums of amount as compensation. The facts that are necessary for the purpose of disposal of these C.M.As. stated in a narrow compass are :
4. The insured i.e., the owner of the vehicle issued a cheque in favour of the insurer on 4-1-1997 towards the premium payable. A cover note bearing the even date was issued to him. Insurance policy, dated 6-1-1997, was also issued by the insurer. While so, the cheque was returned by the banker of the insurer. The banker of the insured i.e. Jalna People's Co-operative Bank Limited, Jalna sent back the cheque to the bank of Maharashtra, the banker of the insurer along with a memo, dated 8-1-1997, with the following endorsement :
"Funds expected. Please present again in 9-1-1997"
"Notwithstanding anything contained therein to the contrary it is hereby declared and agreed that the insurance under this policy stands cancelled as from inceptions i.e. 6-1-1997. Since the cheque paid by the insured towards payment of premium returned from our Bankers duly dishonoured, and in consequence whereof premium amounting to Rs.5,783/- is hereby written off."
6. The original registration receipt dated 14-1-1997 issued by the postal authorities was marked in one case and the Xerox copies in the rest of the cases. The insured i.e. the owner of the vehicle remained ex parte in all these cases. In view of the evidence of R.W.1 and the registration receipt filed into the Court and marked, it must be held that the cancellation order was received by the insured, the owner of the vehicle. In fact, the served postal acknowledgement was filed into the Court and was got marked. But it does not contain the date of receipt of the notice by the insured, owner of the vehicle. The accident covered by all these cases occurred on 21-1-1997 i.e., exactly one week after the cancellation letter was sent to the insured by registered post.
7. Three decisions of the Supreme Court have been cited before me by both sides in this context. The earliest one of them is Oriental Insurance Co. Ltd. Vs. Inderjit Kaur and others, AIR 1998 SC 588 and this is referred to in the latter two cases i.e., New India Assurance Co. Ltd., Vs. Rula and others, (2000)3 SCC 195 and National Insurance Co. Ltd. Vs. Seema Malhotra and others, I(2001) ACC 317 (SC) : [2001(3) ALL MR 521 (S.C.)].
8. An analysis of these three decisions would ultimately lead to an answer to the question raised in these C.M.As. In Inderjit Kaur's case (supra), the policy of insurance was issued by the insurer on 30-11-1989. The premium for the policy was paid by cheque. While so, the vehicle of the insured met with an accident on 19-4-1990. Thereafter, the insurance company addressed a letter to the insured stating that the cheque was dishonoured and therefore, the premium was not received. Thereafter, the premium was paid in cash on 2-5-1990. After discussing all the provisions of Section 64-VB of the Insurance Act (4 of 1938) and after adverting to a decision i.e. United India Insurance Co. Ltd. Vs. Ayeb Mohammed, 1991(2) ACC CJ 650, cited before their Lordships by the Counsel for the appellants, Sections 147 and 149 of the Motor Vehicles Act, 1988, and other related provisions of the M.V. Act, 1988, their Lordships held :
"7. 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 therefor. By reason of the provisions of Sections 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 there of notwithstanding its entitlement (upon which we do not express any opinion) to avoid or cancel the policy for the reason that the cheque issued in payment of the premium thereon had not been honoured.
8. 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 under the policy because it did not receive the premium. Its remedies in this behalf lay against the insured.
9. We may note in this connection the following passage in the case of Montreal Street Railway Company Vs. Normandin, AIR 1917 PC 142;
"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 thus duty would work serious general inconvenience or injustice to persons who have no control over those 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."
10. It must also be noted that it was the appellant itself who was 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 pubic interest that a policy of insurance serves must, clearly, prevail over the interest of the appellant.
11. We are of the view, in the circumstances, that the observations in the case of United India Insurance Co. Ltd. Vs. Ayeb Mohammed (supra), do not lay down good law.
12. The appeal is dismissed. The respondents not having appeared, there shall be no order as to costs."
9. In Rula's case (supra), a insured truck owner had obtained a insurance policy on the basis of a cheque, dated 8-11-1991, towards payment of premium. But the cheque was dishonoured on 16-11-1991, with the result the insurance policy itself was cancelled. It was contended that the policy of insurance represents a contract between the insurer and the insured, for consideration in the form of premium and when that premium is not paid, the contract would not be valid as there cannot be any contract without consideration. After making reference to Section 2(d),(e),(f) and (h) of the Contract Act, Sections 146, 147 and 149 of the M.V. Act, 1988 their Lordships ruled as under :
"10. The contract of insurance in respect of motor vehicles has, therefore, to be construed in the light of the above provisions. Section 146(1) contains a prohibition on the use of the motor vehicles without an insurance policy having been taken in accordance with Chapter 11 of the Motor Vehicles Act. The manifest object of this provision is to ensure that third party, who suffers injuries due to the use of the motor vehicle, may be able to get damages from the owner of the vehicle and recoverability of the damages may not depend on the financial condition or solvency of the driver of the vehicle who had caused the injuries.
11. Thus, any contract of insurance under Chapter II of the Motor Vehicles Act, 1988 contemplates a third party who is not a signatory or a party to the contract of insurance but is, nevertheless, protected by such contract. As pointed out by this Court in New Asiatic Insurance Co. Ltd. Vs. Pessumal Dhanama Aswani, AIR 1964 SC 1736, the rights of the third party to get indemnified can be exercised only against the insurer of the vehicle. It is thus clear that the third party is not concerned and does not come into the picture at all in the matter of payment of premium. Whether the premium has been paid or not is not the concern of the third party who is concerned with the fact that there was a policy issued in respect of the vehicle involved in the accident and it is on the basis of this policy that the claim can be maintained by the third party against the insurer.
12. It was in the background of the above statutory provisions that the provisions of Section 64-VB, upon which reliance has been placed by learned Counsel for the appellant, were considered by this Court in Oriental Insurance Co. Ltd. Vs. Inderjit Kaur, (1998)1 SCC 371, in which it was laid down as under :
"9. 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 therefor. By reason of the provisions of Sections 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 opinion) to avoid or cancel the policy for the reason that the cheque issued in payment of the premium thereon had not been honoured.
13. This decision, which is a three Judge Bench decision, squarely covers the present case also. The subsequent cancellation of the Insurance Policy in the instant case on the ground that the cheque through which premium was paid was dishonoured, would not affect the rights of the third party which had accrued on the issuance of the policy on the date on which the accident took place. If, on the date of accident, there was a Policy of Insurance in respect of the vehicle in question, the third party would have a claim against the insurance Company and the owner of the vehicle would have to be indemnified in respect of the claim of that party. Subsequent cancellation of Insurance Policy on the ground of non-payment of premium would not affect the rights already accrued in favour of the third party.
14. The above decision of this Court was relied upon by the High Court in negativing the contention raised by the appellant. The High Court, in the circumstances of the case, was fully justified in dismissing the appeals. We find no infirmity in the judgment of the High Court. Consequently the appeals are dismissed. There will be no order as to costs."
10. In this case, the cancellation was subsequent to the date of the accident. Their Lordships held that it would not affect the rights of the third parties which had accrued on the issuance of the insurance policy on the date on which the accident took place.
11. In Seema Malhotra's case [2001(3) ALL MR 521 (S.C.)] (supra), the insurance company entered into insurance contract on 21-12-1993, on the same day the insured gave a cheque towards the first installment of the premium and the insurance company issued cover note as contemplated under Section 149 of the M.V. Act, but unfortunately the last day in the year 1993 became last day of the insured as well as his Maruti car because the insured died and the car was completely damaged in an accident which occurred on 31-12-1993 i.e., on the 10th day after the above said insurance of the vehicle. Then insurance company, on 20-1-1994 donned the business concern of the insured as under :
"Notwithstanding anything contained to the contrary, it is hereby agreed and declared that your cheque has been dishonoured by the Bank. So we are cancelling the above said policy with immediate effect. The company is not at risk."
12. Thus, the cancellation was done 20 days after the accident as the cheque was dishonoured. Their Lordships have dealt with both the cases cited by me supra. With reference to Inderjit Kaur's case (supra), their Lordships held as under :
"Thus, the three-Judge Bench refrained from expressing any opinion on the question of insurer's entitlement to avoid or cancel the policy as against the insured when the cheque issued for payment of the premium was dishonoured."
"Subsequently, the same question was mooted before a two-Judge Bench of this Court in New India Assurance Co. Ltd. Vs. Rula and others, 2000(3) SCC 195 = II(2000) ACC 751 (SC) = II(2000) SLT 535 = II(2000) CLT 52 (SC), but the question of insurer's right to repudiate the claim as against the insurer in a similar situation did not arise therein and hence the Bench parried the question."
14. Therefore, dealing the question whether insurer can repudiate the claim as against the insured was considered by their Lordships with reference to the provisions of Section 64-VB of the Insurance Act, 1938 and Sections 51, 52 and 54 of the Indian Contract Act, 1872, their Lordships held :
"11. Thus the question has now to be considered as the same is the crux of the issue involved in this case. As pointed out earlier the insurance is a contract whereby one undertakes to indemnify another against loss, damage or liability arising from an unknown or contingent event and is applicable only to some contingency or act to occur in future. We have to consider how far the Legislature has controlled the insurance business. Section 2(9) of the Insurance Act defines "insurer", inter alia, as "any body corporate carrying on the business of insurance which is a body corporate incorporated under any law for the time being in force in India. Section 2(d) of the Act says that "every insurer shall be subject to all the provisions of this Act in relation to any class of insurance business so long as his liabilities in India in respect of business of that class remain unsatisfied or not otherwise provided for."
12. It is in the aforesaid context that we have to consider the impact of Section 64-VB of the Insurance Act. As sub-sections (1) and (2) of the said section alone are material for the purpose we extract them herein :
"(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 until deposit of such amount as may be prescribed, is made in 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."
13. Sub-section (1) is not applicable to cases in which premium is ordinarily payable outside India. In other words, 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, what is the position when the cheque issued to the insurer is dishonoured by the drawer-bank?
14. Sections 51, 52 and 54 of the Indian Contract Act can profitably be referred to for the purpose of deciding the point. They are subsumed under the sub-title "performance of reciprocal promises" in the said Act. Section 51 deals with a contract concerning reciprocal promises to be simultaneously performed and in such a contract the promises is absolved from performing his promise unless the promisor is ready or willing to perform his part of the promise. Section 52 says that where the order in which reciprocal promises are to be performed has not been expressly provided in the contract such promise shall be performed in that order which the nature of the transaction warrants it. Illustration (b) given to Section 52 highlights the utility of the provision. That illustration is as follows : A and B contract that A shall make over his stock-in-trade to B at a fixed price, and B promise to give security for the payment of the money. A's promise need not be performed until the security is given, for, the nature of transaction requires that A should have security before he delivers up his stock.
15. Section 54 of the Contract Act is to be read in that background. It is extracted below:
"When a contract consists of reciprocal promises, such that one of them cannot be performed, or that its performance cannot be claimed till the other has been performed, and the promisor of the promise last mentioned fails to perform it, such promisor cannot claim the performance of the reciprocal promise, and must make compensation to the other party to the contract for any loss which such other party may sustain by the non-performance of the contract."
16. In a contract of insurance when an insurer 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 involves a promise that such money would be paid.
17. 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.
18. 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, insurer is entitled to get the money back.
19. 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.
20. In the light of the above legal position we uphold the contention of the appellant-insurance company. We, therefore, allow this appeal and set aside the impugned judgment of the Division Bench of the High Court. The order passed by the State Consumer Commission will stand restored."
16. The learned Counsel Sri C. Prakash and Sri Ratangpani Reddy contended that the object of the Legislature in enacting Chapter XI of the Motor Vehicle Act is to protect the interest of the 3rd parties; that in the case on hand, the interest of third parties i.e., claimants was ignored when the cancellation of the insurance was done by the insured; that the authorities under the M.V. Act are bound to be carried away by the insurance policy issued by the insured since it does not bear any cancellation endorsement; that the interest of the public who are third parties will be effected and these aspects were not considered by the Supreme Court in Seema Malhotra's case [2001(3) ALL MR 521 (S.C.)] (supra). They have also drawn my attention to the provisions of Section 147(4) of the M.V. Act, 1988 which runs as under :
"147. Requirement of policies and limits of liability :-
(4) Where a cover note issued by the insurer under the provisions of this Chapter or the rules made thereunder is not followed by a policy of insurance within the prescribed time, the insurer shall, within seven days of the expiry of the period of the validity of the cover note, notify the fact to the registering authority in whose records the vehicle to which the cover note relates has been registered or to such other authority as the State Government may prescribe.
x x x"
18. The learned Counsel contend that common sense demands that the cancellation shall be notified to the registering authority and in this case it was not done. They submit that this aspect also was not considered by the Supreme Court.
19. When the Supreme Court laid down that the insurance company can repudiate the contract when the cheque issued in favour of payment of premium was dishonoured and it can be done so even after the accident, I cannot afford to go against the ruling of the Apex Court. In fact, in this case, the insurance company ought to have waited till realization of the cheque before issuing the policy, but it was haste in issuing the insurance policy. It is also contended that on cheque return endorsement that the cheque may be presented on the next day and that opportunity was not availed by the insurer. Nevertheless the fact remains that the cheque was dishonoured once. The insured cannot demand the insurer to present it once again.
20. For the foregoing reasons these C.M.As have got to be allowed holding that the insurer/appellant i.e., United India Insurance Company is not liable to indemnify the insured in paying the compensation.