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Karnataka High Court · body

2010 DIGILAW 1103 (KAR)

The New India Assurance Co Ltd. v. Rudrappa

2010-10-23

ARAVIND KUMAR

body2010
Judgment : 1. These appeals are by the insurer questioning the correctness and legality of the order and award passed in WCA Nos. 266/2004 to 271/2004 dated 27.01.2005. 2. The facts in nut-shell leading to filing of these appeals are as under:- On 06.06.2004 the claimants namely driver, cleaner and hamalis respectively were proceeding towards Chirtradurga in a lorry bearing No. GA – 02/T-7057 in the course of their employment after loading sand and on account of collision with an on-coming vehicle from the opposite direction, claimants are said to have sustained injuries, on account of which, six claim petitions came to be filed before Workmen’s Compensation Commissioner seeking compensation. On service of notice, respondents appeared and filed their statement of objections. Respondents No. 1 / employer admitted the relationship of ‘employer’ and ‘employee’ as also the salary paid by him to the driver, cleaner and coolies. It was also admitted by the employer about the concurrence of accident in question and injuries sustained by claimants was in the course of employment. 3. The insurer independently contested the claim petitions and filed detailed statement of objections denying the averments made in claim petitions. The commissioner for Workmen’s Compensation on the basis of pleadings of parties framed issues for his consideration. Claimants got themselves examined and also examined the doctor who treated them and who had issued disability certificates. Ex.P-1 to Ex. P-23 came to be marked on behalf of claimants. The insurer produced two documents namely the insurance policy issued in respect of offending vehicle and copy of FIR which were marked as Ex.R-1 and Ex.R-7. The commissioner, on considering the pleadings and evidence on record and also on considering the arguments advanced by learned advocates appearing for parties, by his order and award dated 27.01.2005 allowed the claim petitions in part and awarded compensation as under:- 1764/2005. Heard the learned advocates appearing for parties. 5. It is the contention of Mr. The commissioner, on considering the pleadings and evidence on record and also on considering the arguments advanced by learned advocates appearing for parties, by his order and award dated 27.01.2005 allowed the claim petitions in part and awarded compensation as under:- 1764/2005. Heard the learned advocates appearing for parties. 5. It is the contention of Mr. V.R. Datar, learned counsel appearing for appellant/insurer, that Commissioner erred in not considering the fact that Cheque dated 03.11.2003 issued by the policy holder ‘Sociedade De Fomento’ came to be dishonoured, which was intimated by their bankers on 06.11.2003 and on the very next day i.e., on 07.11.2003, the said Sociedade De Fomento has been informed of the dishonor of the cheque and also cancellation of policy from the date it was issued, which fact was also proved by the insurer by producing outward register extract as per Ex. R-5 and Ex.R-6 and thus, liability of the insurer stood extinguished from the date of intimation. He would also contend that mere issuance of cheque would not allow the policy in question to come into effect since the very receipt issued by the insurer which came to be marked as Ex.R-7 would clearly go to show that same has been issued subject to realization of cheque and the cheque in question having been dishonoured and cancellation of the policy also having been intimated to the insured, the question of insurer indemnifying the insured does not arise. He would also elaborate his submission to contend that insured has also intimated the RTO about dishonour of the cheque and cancellation of the policy and as such, they are absolved form answering any claim either by the insurer or his transferee or third parties claiming under the said transferred policy. He would also draw attention of the Court to Section 50 and Section 157 of the Motor Vehicles Rules, 1988 and Rule 55 and 141 of the Central Motor Vehicles Rules, 1989 to contend that there are reciprocal promises which are required to be performed by the insurer and insured and non-performance of any one of the reciprocal promises by either of the parties, the contract becomes void and once the contract of insurance becomes void ab intio question of answering the claim under it does not arise. He would also contend that policy Ex.R-1, which is issued in favour of Respondent No.2 herein is a transferred policy and the rights and liabilities which was possessed by the insured would automatically get transferred to the transferee and explanation to Section 157 of Motor Vehicles Act makes it explicitly clear that transferee also takes the liabilities arising out of the policy and as such, he contends that insurer is not required to indemnify the claim arising out of the policy in question. He would also submit that notice namely Ex. R-4, came to be issued to the insured namely the person who had issued the cheque at the time of obtaining the policy on account of dishonour of cheque, as required under Negotiable Instruments Act to indemnify the insured or any transferee under him, since the policy issued earlier has only been transferred and there is no new policy that has been issued to the transferee. In support of his submissions, he relies upon the judgment of the Honorable Apex Court in the case of NATIONAL INSURANCE COMPANY LIMITED V/S. SEEMA MALHOTRA AND OTHERS reported in 2001 (3) SCC 151 . 6. Per contra, Sri. Ravi V. Hosamani, learned counsel appearing for the claimants would support the order and awards passed by the Commissioner for Workmen’s Compensation and contends that in the instant case, as per Ex. R-7, the policy ion question which had been issued earlier in favour of Sociedade De Formento came to be transferred on 06.11.2003 to the name of Sri Nagappa S. Patil which came into effect from 12.00 ‘O’ clock of 06.11.2003 to be in vogue upto 02.11.2004 and admittedly on the dishonour of the cheque and even the witness RW-1 who has been examined on behalf of the insurer has admitted in the cross examination that no such intimation has been given by the insurer to the ‘transferee’ and as such, he contends that the present claims which are 3rd party claims in the instant case arises out of statute and the insurer cannot contend that they are absolved from answering the statutory claim. He would also contend that in Seema Malhotra’s case, which is relied upon by the learned counsel for the appellant, the claim that arose was by to the legal heirs of the insured himself and the Honorable Apex Court therein has held that the insurance company had not disputed therein that “claim of a third party” would not absolve the insurer and as such, the judgment relied upon by Sri V.R.Datar is inapplicable to the facts and circumstances of the present case. In support of his contention he relies upon the following judgments; (a) (1998) 3 SCC 371: AIR 1998 SC 588 (b) 2000 (3) SCC 195 Oriental Insurance Company Limited V/s. Inderjit Kaur New India Assurance Company Ltd., V/s. Rula 7. The issue or substantial question of law, which would arise for consideration in these appeals, is as under: “Whether the commissioner was justified in fastening the liability on the insurance company when the policy issued by it had been cancelled before the accident on account of non-receipt of insurance premium?” 8. The facts which are not in dispute are as under: The appellant herein issued an insurance policy as per receipt dated 03.11.2003 in favour of “Sociedade De Fomento”, after receiving a cheque bearing No.500233 for Rs.11,087/- issued in favour of the appellant drawn on Tungabhadra Gramina Bank, Gandhinagar Branch, Bellary, Said cheque has beenmarked as Ex.R-1. The receipt issued by the appellant is marked as Ex. R-7. On 06.11.2003 the policy issued in favour of Sociedade De Fomento came to be transferred in favour of Mr. Nagappa S.Patil who is Respondent No.2 in these appeals. The said policy has come into effect from the midnight of 06.11.2003 to be in vogue upto the midnight of 02.11.2004. The cheque above referred to, when presented by the appellant has been returned by its bankers with an endorsement “funds insufficient” on 06.11.2003 as per Ex.R-2. There afterwards, the vehicle, to which the policy came to be issued, met with an accident on 06.06.2004, resulting in injuries to the claimants, on account of which they contended that they have suffered permanent physical disability and hence, claim petitions were filed. 9. On such claim petitions being registered by jurisdictional Commissioner for Workmen’s Compensation, notices came to be issued to respondents namely, the owner/employer of the vehicle as well as insurer. 9. On such claim petitions being registered by jurisdictional Commissioner for Workmen’s Compensation, notices came to be issued to respondents namely, the owner/employer of the vehicle as well as insurer. Respondent No.1/ employer appeared before the Commissioner and filed the statement of objections admitting the contentions raised in the claim petitions including that of the relationship of employer and employee. Respondent No.2 namely, the insurer also filed statement of objections and denied the contentions raised in the claim petitions and sought for dismissal of the claim petitions. The claimants got themselves examined as PW-1 to PW-6 and also examined the doctor as a witness and documents were got marked. On considering the pleadings, Commissioner awarded compensation as stated herein above. 10. The narrow issue with which these appeals are required to be considered is whether the insurer is liable to answer or indemnify the insured against third party claims when the cheque in question has been dishonoured and premium has not been received by the insurance company. 11. In order to consider the rival contentions raised it would be of relevance to extract section 64-VB of the Insurance Act, 1938 which reads as under:- “64-VB.NO RISK TO BE ASSUMED UNLESS PREMIUM IS RECEIVED IN 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 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. 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.” 12. 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.” 12. What would be the effect of cancellation of a Contract for Insurance Policy and in what manner it was required to be cancelled came-up for consideration before the Honorable Supreme Court and at this juncture itself, it would be necessary to extract these decisions of the Honorable Apex Court which are as follows: (a) AIR 2008 SC 767 DEDAPPA V/S. BRANCH MANAGER, NATIONAL INSURANCE CO. LTD. 26)……. If the contract of insurance has been cancelled and all concerned have been intimated thereabout, we are of the opinion, the insurance company would not be liable to satisfy the claim. (b) (2008) 7 SCC 526 NATIONAL INSURANCE COMPANY LTD., V/S. YELLAMMA AND ANOTHER 14)……..A distinction, however exists between the statutory liability of the insurance company vis-à-vis the third party in terms of Sections 147 and 149 of the Motor Vehicles act and its liability in other cases but it is clear that if the contract of insurance had been cancelled and all concerned had been intimated thereabout, the insurance company would not be liable to satisfy the claim. 13. Section 64-VB of the Insurance Companies Act provides for issuance of a valid policy only on receipt of payment of premium. The Honorable Apex Court ion Deddappa’s case while dealing with similar issue, which had come up for consideration before it examined the same after analyzing the judgments rendered by it in INDERJIT KAUR’S case as also the SEEMA MALHOTRA’S case (referred to supra) and in conclusion held the there is a scuttled difference between the statutory liability of the Insurance Company vis-à-vis third party in the context of Section 147 and 149 of the Motor Vehicles Act and its liability in other cases. In the event of contract of insurance has been issued and then cancelled and it has to be intimated to all the concerned persons, and only on such intimation the insurer would be entitled to claim form being absolved of its liability. In the event of contract of insurance has been issued and then cancelled and it has to be intimated to all the concerned persons, and only on such intimation the insurer would be entitled to claim form being absolved of its liability. There cannot be any dispute or issue on this proposition in as much as the Honorable Apex Court while considering similar contentions in SEEMA MALHOTRA’S Case has held to the following effect: 17.) 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 involves a promise that such money would be paid. 18.) Thus, when the insured fails to pay the premium promised, or when the cheque issued by him toward 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. 19.) ………… 20.) 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.” 14. As stated herein above, SEEMA MALHOTRA’S case also came to be considered by the apex court in DEDDAPPA’S Case and YELLAMMA’S case (referred to supra) and while concluding, it has been held that contract is based on reciprocal promises and for a contract to be valid contract, there should be consideration flowing to complete the contract. As stated herein above, SEEMA MALHOTRA’S case also came to be considered by the apex court in DEDDAPPA’S Case and YELLAMMA’S case (referred to supra) and while concluding, it has been held that contract is based on reciprocal promises and for a contract to be valid contract, there should be consideration flowing to complete the contract. Having not been stopped at that their Lordships have clearly held that it is only when the contract of insurance is cancelled and ‘all the concerned’ are intimated such cancellation would enure to the benefit of the insured otherwise not. In the light of the dicta laid down by the Apex court, when the facts are examined, it is noticed that on 03.11.2003, the receipt has been issued as per Ex. R-7 in favour of Sociedade De Fomento. Cheque has been accepted by the insurer and it has been presented for collection. Even before it could have been realized or dishonoured, as the case may be, it has ventured itself into issuing or transferring the policy in favour of Sri Nagappa S.Patil on 06.11.2003 at 15.12 hours (12 minutes past 3.00 p.m) by which time, the cheque had already been dishonoured according to insurer. If it was the case of the insurer that the cheque had been dishonoured on 06.11.2003 itself as contended it could have refused to transfer the policy in favour of Sri Nagappa S.Patil. It did not choose to do so. Consciously, it has transferred the policy and accepted to indemnify the third party claims contemplated under section 147 of the Motor Vehicles Act. 15. At this juncture itself, it would be of relevance to examine the evidence of RW-1 who was examined by the insurer on its behalf who in the cross-examination admits in unequivocal terms that insurance company has not issued any notice to the subsequent transferee. Though it is contended by Mr.Datar that contract was only between “Sociedade De Fomento” and the “insurance company”, it cannot be accepted for the simple reason that insurer itself had transferred the policy in favour of Sri Nagappa.S.Patil and transfer is also accepted by RW-1 both in the examination-in-chief and in his cross-examination. 16. The Honorable Apex Court in YELLAMMA’S Case has held that if the contract of insurance had been cancelled and ‘all concerned’ had been intimated thereof, insurance company would not be liable to satisfy the claim. 16. The Honorable Apex Court in YELLAMMA’S Case has held that if the contract of insurance had been cancelled and ‘all concerned’ had been intimated thereof, insurance company would not be liable to satisfy the claim. In the instant case, the insurer claims to have issued notice to “sociedade de femento” but not to the ‘transferee’ i.e., 2nd respondent herein. The insurer does not dispute that it has transferred the insurance policy in favour of Sri. Nagappa S Patil (2nd respondent herein) but contends that such transfer is subject to limitations as prescribed under explanation to section 157 which reads as under: “For the removal of doubts, it is hereby declared that such deemed transfer shall include transfer of rights and liabilities of the said certificate of insurance and policy of insurance” A reading of explanation to section 157 it would emerge that liabilities, if any, of the ‘transferor’ would also get ‘transferred’ to the ‘transferee’ and in such an event, it would be incumbent and obligatory on the party of the insurer to have issued notice to the transferee also. It is in this background their Lordships have used specifically the word ‘all concerned’in YELLAMMA’S Case as well as DEDDAPPA’S CASE (referred to supra) in as much as a contract cannot be cancelled unilaterally without intimation. It is also obvious that transferee was also required to be notified of such dishonor, in as much as he would have, in all probability, remitted the premium on such intimation of dishonor of cheque by his transferor being delivered. As rightly pointed out by Mr. Ravi Hosmani thought notice of dishonor was issued to “Sociedade De Femento”, nothing prevented them from issuing or notifying the subsequent transferee. In the instant case, from the date of dishonour of the cheque to the date of accident, thereis a gap of more than seven months and if there were to be an intimation delivered to the transferee, either the transferee would have remitted the premium or entered into a fresh contract of policy. Admittedly no such notice came to be issued. 17. Admittedly no such notice came to be issued. 17. In the case of Seema Malhotra, claim petition by widow and children of the insured was in respect of loss/damage of the vehicle was claimed by filing a complaint before the State Consumer Protection Commissioner and in the said background, issue regarding indemnification of the insurer regarding such claim came to be examined and was found that such a claim cannot be construed as a third party claim. In fact, their Lordships have specifically pointed out at paragraph 2 that insurer cannot have any qualms against third party claims and it is to the following effect: “2.)But the cheque was dishonoured by the drawee bank due to insufficiency of funds in the account of the drawer, is the insurer liable in such a situation to honour the contract of insurance? There is no dispute that the insurer is liable as against third parties because it is covered by the statutory provisions contained in Chapter XI of the Motor Vehicles Act, 1988. But the insurer vehemently disputed the liability when the claim is made by the insured himself or his legal heirs, without any third party being involve. To avoid confusion we may point out that the insurance company has no dispute that the claims, if any, made by the kith and kin of the insured for the injuries sustained by them in the accident including the clams made by the legal representatives of the deceased in such accident would also be treated as third-party claims.” (Emphasis supplied by me) 18. In this background, the issue came to be examined and claim came to be negatived by the Honorable Apex Court. Admittedly, claims in the instant case is by 3rd party i.e., driver, cleaner and hamalis. Thus, the principles enunciated therein would not be applicable as contended to the facts and circumstances of the present case, since the claimants are admittedly third parties in the instant case and principles laid down therein would come to the assistance of claimants. This Court is also of the considered view that contract of insurance said to have been cancelled by the insurer as per Ex. R-4, which is a letter of cancellation and intimation sent to Sociedade De Fomento is not to the transferee and insurer cannot contend that it is absolved from its liability. Even the outward register produced at Ex. R-5 and Ex. R-4, which is a letter of cancellation and intimation sent to Sociedade De Fomento is not to the transferee and insurer cannot contend that it is absolved from its liability. Even the outward register produced at Ex. R-5 and Ex. R-6 also does not depict that intimation of cancellation has been sent to Sri Nagappa S.Patil namely the transferee. In view of the above discussion, this Court is of the considered view that the judgment relied upon by the learned counsel appearing for the appellant would not be of assistance or aid to the insurer. Accordingly, substantial question of law formulated herein above is answered against the appellant and in favour of the respondent/claimants. 19. In view of the discussions made herein above, following order is passed:- ORDER (i) The appeals are dismissed and order and award passed by the Commissioner for Workmen’s Compensation in WCA Nos. 268 to 271 of 2004 dated 27.01.2005 are hereby confirmed. (ii) The amount in deposit shall be transferred to the jurisdictional Workmen’s Compensation forthwith by the Registry and on such transfer or receipt of the amount, the Commissioner would be entitled to disburse the same as per order and awards passed by him. (iii) No order as to costs. (iv) Registry to draw the awards accordingly.