First Appeal No.6889 of 1999

1st October, 2015.

Petitioner Counsel: Mr. DAKSHESH MEHTA
Respondent Counsel: Mr. P.V. NANAVATI, Mr. AMIT J SHAH, Mr. BHARAT JANI, Mr. J.V. JAPEE, Mr. R.K. MANSURI, Mr. VIBHUTI NANAVATI

Cases Cited:
Deddappa & Ors. Vs. Branch Manager, National Insurance Co. Ltd., 2008(1) ALL MR 968 (S.C.)=(2008) 2 SCC 595 [Para 3,11]
United India Insurance Company Limited Vs. Laxmamma, 2012 ALL SCR 1906=2012(5) SCC 234 [Para 4,10,11,14]
New India Assurance Co. Ltd. Vs. Rula & Ors., AIR 2000 SC 1082 [Para 9,10]

JUDGMENT

JUDGMENT :- This appeal is filed by the Insurance company to challenge the judgement and award of the MACT, Sabarkantha in MACP No.160/1989.

2. Brief facts are as under :

2.1. An accident took place on 10.3.1984 between an ambassador car insured by National Insurance Company Ltd., appellant herein, and a tractor trolley insured by the Union of India Insurance Company Ltd., opponent no.6 herein. In such accident one of the passengers of the car namely, one Shankar Chunilal Pandit received fatal injuries. His legal heirs therefore, filed the said claim petition seeking compensation of Rs.10 lacs from the drivers, owners and insurers of both the vehicles involved in the accident. Before the Claims Tribunal, the appellant Insurance company took two main defences. Firstly, that the insurance of ambassador car was taken by the owner by issuing cheque of Rs.1317/- dated 19.1.1984, pursuant to which the Insurance cover note (exh.113) was issued. However, upon presentation to the bank, such cheque bounced on or around 9.2.1984 and that therefore, the insurance was cancelled under an intimation to the owner dated 12.3.1984. According to the Insurance company, therefore, it was not liable to cover the risk of the owner of the ambassador car. The second defence of the Insurance company was that in any case its liability was limited. The passenger of the car was not a third party. The owner had paid additional premium of RS.60/- at the rate of Rs.12/- per passenger for five passengers. Consequently, the limit of the liability of the Insurance company was Rs.15,000/- per passenger.

2.2. The Claims Tribunal held that the accident occurred due to the sole negligence of the driver of the ambassador car. It was found that the car had dashed against the tractor trolley from behind and that therefore, there was no negligence of the tractor driver. The Insurance company of the tractor was therefore, exonerated. The Claims Tribunal did not accept the defences of the present appellant-Insurance company and saddled it with the full liability to pay compensation of Rs.8,25,000/- awarded by the Claims Tribunal.

3. In the present appeal, neither the question of negligence nor the quantification is at issue. Only ground on which the Insurance company has pressed this appeal is lack of or limit of liability. In this context, counsel for the appellant took me through the evidence on record to point out that the factum of issuance of cover note on the condition of realisation of cheque amount, the bouncing of the cheque on presentation and the cancellation of the insurance policy on account of such dishonour of cheque were duly established. Under the circumstances, the counsel contended that the Claims Tribunal committed a serious error in saddling the Insurance company with the liability when the premium was never paid by the owner. For the said purpose, the counsel relied on the decision of Supreme Court in case of Deddappa and others v. Branch Manager, National Insurance Co. Ltd. reported in (2008) 2 Supreme Court Cases 595 : [2008(1) ALL MR 968 (S.C.)]. In the alternative, the counsel contended that cheque of premium included additional premium of Rs.60/- for the risk of passengers at the rate of Rs.12 per passenger for five passengers and that therefore, as per the Insurance policy, the liability of the Insurance company would be limited to Rs.15,000/-. Counsel lastly submitted that even if the Insurance company was liable to pay compensation to the claimants, it may be allowed to recover it from the owner.

4. On the other hand, learned counsel Shri R.K. Mansuri for the claimants submitted that admittedly in the present case the insurance was cancelled after the accident took place. So far as claimants are concerned, therefore, the Insurance company cannot avoid its liability. In this context, he relied on decision in case of United India Insurance Company Limited v. Laxmamma reported in 2012(5) Supreme Court Cases 234 : [2012 ALL SCR 1906]. He further submitted that the Insurance company failed to produce original policy. In absence of such policy, there is no ground to believe that the liability of the Insurance company was limited. It was the duty of the Insurance company to establish the same by producing relevant documents. He pointed out that as per the witness of the Insurance company, entire record was lost. The insurance policy though issued was never produced.

5. Learned counsel for the owner submitted that in absence any documents on record, it would not be possible to hold that the owner had refused to pay the premium even after the intimation by the Insurance company that cheque had bounced.

6. Having thus heard learned counsel for the parties and having perused the materials on record, it may be noted that upon the owner having issued cheque dated 18.1.1984 for a sum of Rs.1317/-, the insurance cover note exh.113 was issued by the Insurance company on 19.1.1984. In fact exh.113 is a handwritten document which was apparently produced by the Insurance company. At mark 115/1, the same document but in printed format with relevant boxes filled by hand also records that upon a cheque dated 18.1.1984 being issued by the owner for a sum of Rs.1317/-, the insurance cover note was issued on 19.1.1984. This document records that "the period of validity of this Cover Note will expire on 4.2.1984".

7. On the premise that the cheque when presented was dishonoured, the Insurance company issued the memo of cancellation of policy on 12.3.1984, exh.87, in which it is stated that "Please note that our Receipt No.148764 dated 18.1.84 stands cancelled. Please also note that the Company is not on risk under Motor Pol No.6313270 issued to you till such time the remittance is received."

8. These documents are important because the witness of the Insurance company Ramchandra Dungaramji, exh.84 had stated before the Tribunal that he was unable to produce the original documents since due to frequent shifting of branch office, the record was lost. The stand of the Insurance company therefore, that no insurance policy was issued cannot be believed for two reasons. Firstly, as noted, the cover note dated 19.1.1984 had validity period upto 4.2.1984. If that be so, there was no need to cancel the insurance cover by issuing notification dated 12.3.1984. Secondly, this cancellation letter exh.87 refers to the cancellation of policy no.6313270. Thus it would appear that the Insurance company had issued the insurance policy. Its inability to produce original before the Tribunal obviously could not harm the claimants.

9. With this preamble if we revert to the facts of the case, admittedly, the insurance cover note was issued on the owner issuing cheque dated 18.1.1984. The accident took place on 10.3.1984. The insurance was cancelled only on 12.3.1984 on the ground that the cheque was not honoured. Whatever be the relations between the Insurance company and the owner, it simply cannot avoid its liability so far as the claimants are concerned. Very similar issue was decided by the Supreme Court in case of New India Assurance Co. Ltd. v. Rula and others reported in AIR 2000 Supreme Court 1082. The Insurance company had insured a truck on 8.11.1991 by issuing insurance policy. The same day at midnight, the vehicle met with an accident. Later on it was found that the cheque for premium was dishonoured on 16.11.1991 and as a result the insurance policy was cancelled. On such ground the Insurance company argued that it had no liability to cover the risk. The Supreme Court held and observed as under :

"9. Thus, any contract of insurance under Chapter 11 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 Dhanamal Aswani & Ors. 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.

10 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 & Ors. (1998) 1 SCC 371, :(1998 AIR SCW 183 : AIR 1998 SC 588)in which it was laid down as under (Para 7 of AIR)

"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 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 opinion) to avoid or cancel the policy for the reason that the cheque issued in payment of the premium thereon had not been honoured."

11. This decision, which is a 3-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."

10. The issue once again came up before the Supreme Court in case of United India Insurance Company Limited v. Laxmamma, [2012 ALL SCR 1906] (supra). In such case the accident took place on 11.5.2004. The policy was taken out on issuance of cheque which later on was dishonoured due to which intimation of cancellation was given to the owner on 21.5.2004. It was found that this would not absolve the Insurance company to pay compensation to the claimants for the accident which took place on 11.5.2004 i.e. prior to cancellation of the insurance policy. Decision of the Supreme Court in case of New India Assurance Co. Ltd. v. Rula and others (supra), was noted with approval as under :

"14. In New India Assurance Co. Ltd. v. Rula and others, (2000) 3 SCC 195 the Court was concerned with a question very similar to the question posed before us. That was a case where the insurance policy was issued by the New India Assurance Co. Ltd in terms of the requirements of the M.V. Act but the cheque by which the owner had paid the premium bounced and the policy was cancelled by the insurance company but before the cancellation of the policy, accident had taken place. A two-Judge Bench of this Court considered the statutory provisions contained in the M.V. Act and the judgment in Inderjit Kaur. In paragraph 13(at page 200), the Court held as under :

13......"

The Court concluded as under :

"19. In our view, the legal position is this : where the policy of insurance is issued by an authorized insurer on receipt of cheque towards payment of premium and such cheque is returned dishonoured, the liability of authorized insurer to indemnify third parties in respect of the liability which that policy covered subsists and it has to satisfy award of compensation by reason of the provisions of Sections 147(5) and 149(1) of the M.V. Act unless the policy of insurance is cancelled by the authorized insurer and intimation of such cancellation has reached the insured before the accident. In other words, where the policy of insurance is issued by an authorized insurer to cover a vehicle on receipt of the cheque paid towards premium and the cheque gets dishonored and before the accident of the vehicle occurs, such insurance company cancels the policy of insurance and sends intimation thereof to the owner, the insurance company's liability to indemnify the third parties which that policy covered ceases and the insurance company is not liable to satisfy awards of compensation in respect thereof.

20. Having regard to the above legal position, insofar as facts of the present case are concerned, the owner of the bus obtained policy of insurance from the insurer for the period April 16, 2004 to April 15, 2005 for which premium was paid through cheque on April 14, 2004. The accident occurred on May 11, 2004. It was only thereafter that the insurer cancelled the insurance policy by communication dated May 13, 2004 on the ground of dishonour of cheque which was received by the owner of the vehicle on May 21, 2004. The cancellation of policy having been done by the insurer after the accident, the insurer became liable to satisfy award of compensation passed in favour of the claimants.

21. In view of the above, the judgment of the High Court impugned in the appeal does not call for any interference. Civil appeal is dismissed. However, the insurer shall be at liberty to prosecute its remedy to recover the amount paid to the claimants from the insured. No order as to costs."

11. Decision in case of Deddappa and others v. Branch Manager, National Insurance Co. Ltd., [2008(1) ALL MR 968 (S.C.)] was rendered in a different factual situation. The facts were that the insurance was issued for the period between 17.10.1997 to 16.10.1998 upon issuance of cheque dated 15.10.1997 which was dishonoured on 21.10.1997 due to insufficiency of funds. The respondent company consequently cancelled the insurance policy and informed the vehicle owner about it. Much later on 6.2.1998 the accident took place. It was in this background the Court held that the Insurance company would not be liable to cover the risk. In fact this decision of Supreme Court in case of Deddappa and others v. Branch Manager, National Insurance Co. Ltd. (supra), was considered in later judgement in case of United India Insurance Company Limited v. Laxmamma, [2012 ALL SCR 1906] (supra) and distinguished on facts.

12. The sole surviving question is of the limit of liability of the Insurance company. In absence of any evidence at all in this regard, it is simply not possible to hold that the liability of the Insurance company was limited regarding the risk of passengers. As noted, the cover note demonstrated payment of additional premium for covering risk of the passengers. However, this would not automatically mean that there was any limit of liability of the Insurance company. If the Insurance company desired to establish this fact, the same had to be done either by producing the original policy or some reliable, irrefutable evidence which would link the quantum of additional premium with the limit of liability of the Insurance company. On the mere ipse dixit of the Insurance company, such limit of liability cannot be believed. As noted, the Insurance company failed to produce the original policy on a somewhat curious ground that on account of frequent shifting of the branch office, entire record was lost. The claimants hotly disputed this and contend that the policy was held back from the Tribunal since it provided for unlimited liability.

13. Be that as it may, in absence of any relevant documentary evidence, mere oral assertion of the witness of the Insurance company that its liability of the passenger of the vehicle was limited cannot be accepted. When the factum of Insurance, payment of additional premium for covering the risk of passengers was established, it was thereafter, heavy duty of Insurance company to prove that such liability though accepted was limited.

14. Coming to the question of pay and recover, in decision in case of United India Insurance Company Limited v. Laxmamma, [2012 ALL SCR 1906] (supra), the Supreme Court left the Insurance company to follow its remedies for recovery against the owner. I would also provide the same formula.

15. Under the circumstances, while dismissing the appeal it is left open for the Insurance company to follow remedy, if any, available under the law to seek recovery from the owner.

Ordered accordingly.