Delhi District Court
Lee & Muirhead Private Limited vs The New India Assurance Company Limited on 30 January, 2008
IN THE COURT OF MANOJ JAIN: ADDL. DISTRICT JUDGE:
DELHI
Suit No. 27/06
In RE:
Lee & Muirhead Private Limited,
a company incorporated under the Companies
Act, 1956 having its Regional Office at E-9,
Cannaught House, Connaught Place, New
Delhi -11001 through its Finance Manager
...................Plaintiff.
Versus
The New India Assurance Company Limited,
a body corporate having one of its branch
office at J-129, D.C. House, Kirti Nagar, New
Delhi through its Branch Manager
Also at
C-2, Mahavir Bhavan, Karampura Commercial
Complex, New Delhi through its Divisional Manager
..............Defendant
Date of filing: :16.03.2006
Date on which judgment has been reserved :28.01.2008
Date of decision :30.01.2008
JUDGMENT
1 Controversy lies in a very constricted compass and it is to be seen whether defendant was justified in cancelling the policies, running as well as already expired, and appropriating and adjusting the refund. 1 (Suit No. 27/06) 2 Let me give brief backdrop of the case.
3 Plaintiff is engaged in, inter-alia the business of Custom House Agent and has insurable interest in various godowns used for said purpose. Such godowns were got insured from the defendant company from time to time. According to the plaintiff, complete and accurate particulars with respect to the premises and the goods to be stored in such godowns were furnished to the defendant and there was never any suppression of any fact whatsoever. Policies were, however, unilaterally and unjustifiably cancelled by the defendant vide letter dated 22.04.2003. Grouse of the plaintiff lies in such action of defendant. According to plaintiff, cancellation was unwarranted. Since even pro rata refund premium was not paid and adjusted towards alleged shortfall in premium, suit has been filed. 4 Suit has been resisted and stand of the defendant company is to the effect that it was perfectly justified in cancelling the policies because the policies were in contravention of mandatory provision of law i.e. Section 64 (UC) of Insurance Act, 1938. It has been claimed that rates could only have been charged as per the prescribed tariff and, therefore, the defendant company was justified in its action. Since such tariff was not paid by the plaintiff despite notice, defendant had no option but to cancel the policies. It is, however, admitted that after cancelling the policies, a sum of Rs.2,57,064/- was recovered by the insurance company by not making any payment of refundable premium. With respect to the insurance pertaining to two vehicles, it is not disputed that the claim of Rs.74,025/- 2 (Suit No. 27/06) was sanctioned. However, it has been claimed that defendant was entitled to adjustment thereof as well.
5 Following issues were framed on 26.09.2006: -
(i) Whether suit has been signed,
verified and instituted by a
duly authorized person? (OPP)
(ii) Whether suit is barred by
limitation? (OPD)
(iii) Whether defendant could have
recovered a sum of
Rs.2,57,064/- from the refundable
premium after cancelling
the policy running at the relevant
time ? (OPD)
(iv) Whether plaintiff is entitled to
recover suit amount as mentioned
in para 13 of the plaint ? (OPP)
(v) Relief
6 Since it was to be assessed whether the defendant company
was justified in cancelling the policies and recover the amount by way of adjustment, defendant company was asked to start with evidence. Defendant company has examined DW 1 Shri D.K. Khanna. From the side of the plaintiff, PW 1 Shri S.K. Aggarwal has entered into witness box. No other witness has been examined by either side.
7 I have carefully gone through the pleadings and documents proved by the parties and given my thoughtful consideration to the rival 3 (Suit No. 27/06) contentions.
8 My issue wise findings are as under:-
ISSUE NO.1 : Whether suit has been signed, verified and instituted by a duly authorized person ? (OPP)
9 Plaintiff is a company incorporated under Companies Act. Suit has been filed by the plaintiff company through Shri S.K.Aggarwal. Certificate of Incorporation has been proved as Ex. PW 1/1 and the Resolution in favour of Shri Aggarwal to file civil suit has also been proved as Ex. PW 1 /2. Except for the bare averment that the suit has not been signed, verified and instituted by a duly constituted person, no material has been disclosed as to how such assertion has any foundation. Suit has been filed by a duly authorized representative and since resolution in favour of Shri S.K. Aggarwal has been duly proved and since the plaint also contains proper verification, issue no. 1 is decided in favour of the plaintiff and against the defendant company.
ISSUE NO.2: Whether suit is barred by limitation ? (OPD) 10 This issue has been taken by the defendant company for the sake of raising an issue. Cause of action arose on 22.04.2003 when defendant company issued letter regarding cancellation of policies. Suit has been filed in the court on 16.03.2006 and thus the suit is found to be 4 (Suit No. 27/06) within prescribed period of limitation i.e. within three years from the accrual of cause of action. This issue is accordingly decided in favour of the plaintiff and against the defendant company. ISSUE NO.3: Whether defendant could have recovered a sum of Rs.2,57,064/- from the refundable premium after cancelling the policy running at the relevant time ? (OPD) and ISSUE NO.4 : Whether plaintiff is entitled to recover suit amount as mentioned in para 13 of the plaint ? (OPP) 11 Both the aforesaid issues are interwoven and, therefore, being taken together. It would be appropriate to have a look on the policies taken by the plaintiff company.
CHART ''A'' ( POLICIES WHICH HAD ALREADY EXPIRED Sl No. Policy No. Risk period Premium allegedly short charged 1 311701/11/01/00266 16.01.2002 to 1,21,275.00 15.01.2003 2 311701/11/01/00242 04.01.2002 to 20,213.00 03.01.2003 3 311701/11/02/00031 21.04.2002 to 1,21,275.00 20.04.2002 4 311701/11/02/30208 10.07.02 to 21,948.00 20.04.2003 ---------------------
TOTAL 2,84,711/-
5 (Suit No. 27/06) CHART ''B'' (POLICIES WHICH WERE IN OPERATION) Sl No. Policy No. Risk Period Refund amount 1 311701/11/02/00424 21.12.2002 to 17,515.00 20.12.2003 2 311701/11/02/00444 16.01.2003 to 45,826.00 15.01.2004 3 11-461 20.01.2003 to 8,749.00 19.01.2004 4 46-155 21.12.2002 11,581.00 to 20.12.2003 5 46-167 16.01.2003 23,215.00 to 15.01.2004 6 46-177 20.01.2003 2,836.00 to 19.01.2004
------------------ ---------------------
TOTAL 1,09,722.00 12 According to plaintiff, there were binding contracts between
the parties and defendant company was not justified in altering the terms and conditions of the contract unilaterally and asking for alleged short charged premium. As per plaintiff, godowns were inspected before issuance of the policies and the premium was rightly charged @ Rs.2.50 per mile as per Risk Code No.20 of All India Fire Tariff as recommended and approved by the Tariff Advisory Committee (hereinafter referred to as ''TAC''). Defendant company felt that tariff was to be paid @ 5.50 per mile as per clause No.23 and that due to slip-up, premium was charged @ Rs.2.50 per mile by erroneously invoking clause No. 20. Letter dated 22.04.2003 was sent by defendant to plaintiff asking them to pay the short 6 (Suit No. 27/06) charged premium and also informing about the cancellation of the policies. According to plaintiff, the policies mentioned in chart A had already come to an end and it was totally beyond the pale to cancel the same after expiry and policies as per chart B, which were in operation, could also not have been unilaterally and arbitrarily cancelled. Defendant company adjusted the part of the alleged short charged premium by appropriating the refund which otherwise to be paid back to the plaintiff. 13 Plaintiff has further grouse as well. It had two policies with respect to two vehicles and claim was lodged with respect to the aforesaid two policies. First such claim was settled by the plaintiff company for a sum of Rs.69,500/- and second claim was also approved for Rs.4,525/-. However, instead of making any such payment, aforesaid amount was also adjusted towards the alleged short charged premium. 14 Bare perusal of the charts would clearly reveal that four policies as mentioned in chart ''A'' had already expired before the issuance of letter dated 22.04.2003. Defendant company however, felt that the tariff levied was not as per TAC and, therefore, plaintiff was required to pay the premium calculated @ Rs. 5.50 per mile. Such deficient amount has been assessed as Rs.2,84,711/-.
15 Regarding six policies as mentioned in chart ''B'' these policies were in operation at that time and these were cancelled by the defendant company but defendant company instead of refunding the 7 (Suit No. 27/06) proportionate premium for the unexpired terms (which came to Rs. 1,09,722/-) adjusted the same against the aforesaid outstanding amount of Rs.2,84,711/-. According to the defendant company, it was to further recover a sum of Rs.1,74,989/- from the plaintiff towards balance short fall in the premium. It becomes important to note here that plaintiff has not paid anything extra from its pocket qua policies mentioned in chart ''A'' which had already come to an end. Whether cancellation of such four policies is justified or not is altogether a different thing. Even if, it is assumed that as per contractual terms, policies could have been cancelled any time, it is still to be seen whether instead of refunding the premium amount of Rs.1,09,722/-, same could have adjusted by defendant against alleged shortfall in premium. If plaintiff is able to prove its case then, naturally, it is entitled to recover the said refund amount of Rs.1,09,722/- with interest. It would be also important to mention here that plaintiff while replying to the legal notice, asked the defendant company to refund the aforesaid sum of Rs.1,09,722/- with interest. Such reply has been proved as Ex. PW 1/4.
16 It seems that under some wrong conception and out of sheer mistaken calculation, plaintiff has come up with the assertion in the plaint that such adjusted amount was Rs.2,57,064/- and not Rs.1,09,722/-. So much so even the defendant has, in its written statement, admitted that amount of Rs.2,57,064/- was recovered by the defendant company from refundable premium after cancelling the policies running at the relevant time.
8 (Suit No. 27/06) 17 Be that as it may, let me come to the controversy. 18 As per the stand of the insurance company, the policies were issued on the basis of premium tariff appearing at page 45 given in Risk Code No.19 of the All India Fire Tariff issued by TAC which was effective from 01.05.2000. Said Risk Code No.19 reads as under: -
Material Stored in Godowns/ Silos Open Rate Rate Rate Rate Code per Code per mile mile
19 Storage of Category I 09 2.50 19 6.00 Goods subject to warranty that goods listed in of Category II, III, Coir waste fibre, Caddies are not stored therein.
19 According to insurance company, tariff were revised w.e.f. 31.01.2001 by TAC and the aforesaid Risk Code No. 19 was retained in the new/revised tariff as Risk Code No.20 which reads as under:- 9 (Suit No. 27/06)
Material Stored in Godowns/ Silos Open Rate Rate Rate Rate Code per Code per mile mile 20 Storage of Category I 09 2.50 19 6.00 Goods subject to warranty that goods listed in of Category II, III, Coir waste fibre, Caddies are not stored therein.
20 Insurance Company has, however, asserted that the premium was computed on the basis of Risk Code No.20 whereas TAC had also added Risk Code No.23 in All India Fire Tariff at page 58 which covered godowns of transporters and also of clearing and forwarding agents. Said entry appearing in Risk Code No.23 escaped the attention of the insurance company due to some inadvertence and the tariff was liable to be charged as per Risk Code No.23 which reads as under:-
-------------------------------------------------------------------------------------------
Materials Stored in
Godowns/Silos Open
Rate Code Rate per mile Rate code Rate
per
mile
23 Transporter's godowns & 18 5.50 22 10.50
godowns of clearing &
forwarding agents
10 (Suit No. 27/06)
21 Counsel for the plaintiff has contended that there was never any
concealment of fact and the godowns were duly inspected and the parties had entered into agreement with absolute clarity of facts and, therefore, the insurance company was not at all justified in coming up with a new explanation with respect to nomenclature of godowns. It has also been argued that plaintiff is neither a transporter nor clearing and forwarding agent. On the other hand, it has been contended that it is merely a custom house agent and falls in the same old category and not under the revised category as mentioned in Risk Code No. 23. It has also been argued by counsel for the plaintiff that the services rendered by custom house agent are totally distinct and different from the services rendered by clearing and forwarding agents. I indeed find merit in the aforesaid contention. Plaintiff is neither a transporter nor clearing and forwarding agent. Only the godowns of transporters and of clearing and forwarding agents were covered under Risk Code No.23 but as far as godowns of custom house agent are concerned, those were not specifically included in the said head. These do not stand covered even by implication or inference and, therefore, were liable to be charged @Rs.2.50 per mile. Moreover, as a custom house agent, plaintiff company had virtually no control over the godowns in question and rather the space in such godowns was to be under the direct control of custom department and no one could enter such godowns without prior permission and consent of custom department. Role of the plaintiff company was simply as that of a record keeper.
11 (Suit No. 27/06) 22 Undoubtedly, the insurance company can terminate the policy on 15 days' notice but in such a case, such insurance company is also required to refund pro rata premium for the unexpired term from the date of cancellation. In the first place, insurance company was not justified in unilaterally cancelling the policies in the manner it had been done. If at all, the insurance company felt that a wrong premium had been charged, it could have, at best, terminated the policies and refunded the premium for the unexpired term. Defendant company was not justified, by any stretch of imagination, in appropriating the refund towards the alleged short charged premium. Its such one-sided action is in fact dubious. Moreover, as regards the policies mentioned in chart A, since those had already come to an end, insurance company was not at all justified in coming up with any novation or alternation. Novation, even otherwise, if permissible, can be done during the existence of the contract only.
23 As regards Section 64 UC of Insurance Act, it has been argued by ld counsel for the insurance company that TAC has been vested with powers to fix rate, terms and conditions for insurance policies. It has also been claimed that any insurance company has to abide by such tariff approved by TAC and can not charge premium lesser than what has been recommended and approved by TAC. It has also been claimed that in case of breach of any of such term, any such insurance policy can invite penal action and, therefore, insurance company was acting as per the statutory provision and tried to rectify the mistake in order to charge premium as per the recommendation of TAC. It has been argued that contract law is 12 (Suit No. 27/06) general law and insurance act is special law and, therefore, in case of any conflict, special law is bound to prevail over the general law. Admittedly, when there is a special statute, it more often than not prevails over the general law. However, that does not give unfettered and indiscriminate right to any insurer to terminate the policies abruptly on its own whims & fancies. If such attitude of the insurance company is affirmed by the Court of Law then very purpose of seeking insurance would stand frustrated and there would be erosion of faith in the minds of general public in such companies. I have also seen Sub section 5 of Section 64 (UC) as it has been argued that the insurer would have faced penal action in case of any violation of any prescribed rate. However, as per the proviso attached to the aforesaid clause, it becomes apparent that whenever it was not practicable to remove the contravention by recovering the deficiency in the premium, the insurance company was permitted to cancel the contract of insurance. In such a situation, offence was liable to be compounded on making inconsequential maximum fine of Rs. 1000/-. Thus, even as per the special enactment, defendant should have refunded the premium after cancelling the policies. It had no business to appropriate the refund.
Moreover, defendant company is in the field of insurance and is supposed to know the intricacies of the field of insurance and the law related to insurance. It can not be permitted to reap fruits out of its own ignorance by first luring any client to enter into a contract and then to say that the contract had been entered into on some erroneous assumption or that it was not in accordance with insurance law.
13 (Suit No. 27/06) 24 Counsel for plaintiff has placed his reliance upon one judgment dated 10.12.2004 given by Hon'ble National Commission in OP No. 69/1998 DCM Shriram Consolidated Limited v National Insurance Co. Ltd. Learned counsel for insurance company has, however, contended that said judgment is distinguishable and is not attracted to the present peculiar scenario. I have gone through the aforesaid judgment. In that case, insured had taken policies with respect to three factories/plants and has got insurance cover extended for one of the plants for flood risk as well. However, flood risk policy was not taken for the remaining two plants. Insurance company came up with the contention that the flood risk was liable to be extended to all the three factories/plants, as those were located in one compound/complex. It was also contended that additional premium was liable to be paid as corrective measure and it was also argued that it was in accordance with the tariff provisions. Hon'ble National Commission observed that it was the duty of the insurance company to follow special rules and if it failed to follow the same, it could not be said that insured was liable to pay the premium after a lapse of three years. It was also observed that if there was alleged mistake on the part of the insurance company, insurance company was to suffer but the insured could not be compelled to pay premium for which it had not taken insurance coverage. Admittedly, observations were given in altogether different context but fact remains that even in said judgment it was observed that if insurance company had issued the policies by mistake, insurance company itself was liable to suffer and insured could not be compelled to pay additional premium. 14 (Suit No. 27/06) 25 In the case of Modern Insulators Ltd., M/s. v. Oriental Insurance Co. Ltd."AIR 2000 SUPREME COURT 1014, it has been observed as under:
''It is the fundamental principle of insurance law that utmost good faith must be observed by the contracting parties and good faith forbids either party from non-disclosure of the facts which the parties known. The insured has a duty to disclose and similarly it is the duty of Insurance Company and its agents to disclose all material facts in their knowledge since obligation of good faith applies to both equally.''
26 In the case of United India Insurance Co. Ltd. V. M/s M.K.J. Corporation AIR 1997 SUPREME COURT 408, respondent was holding policies and due to employees' strike, leather in process was damaged to the spoilage. Claim was lodged and the payment was directed to be made. Insurance company challenged such order and it was contended that insurance did not cover loss or damages resulting from total or partial cessation of work. It was contended that as per recommendations of the Tariff Advisory Committee (TAC) such claim could not have been awarded in view of the specific exclusion clause as recommended by TAC. It was also contended that TAC was a statutory authority and insurance company was bound by the same and such recommendations were to be assumed as integral part of the policies. Such contention was repelled by the Hon'ble Supreme Court observing as under:
'..We are unable to agree with the learned counsel. It is true that the Advisory Committee is 15 (Suit No. 27/06) a statutory body which has gone in and recommended the policies for riot, strike and malicious damages. The clause would exclude the insurance company from the coverage, if the loss or damage resulted from total or partial cessation of work or the retarding or interruption or cessation of any process of operation or omissions of any kind which would include strike by its workers. This may be due to either the operational inconvenience due to non-supply of the electricity or strike by the employees or any cause but the insured the insured must be put on notice of this clause.
It is a fundamental principle of Insurance Law that utmost good faith must be observed by the contracting parties. Good faith forbids either party from concealing (non-disclosure) what he privately knows, to draw the other into a bargain, from his ignorance of that fact and his believing the contrary. Just as the insured has a duty to disclose, "similarly, it is the duty of the insurers and their agents to disclose all material facts within their knowledge, since obligation of good faith applies to them equally with the assured.
The duty of good faith is of a continuing nature. After the completion of the contract, no material alteration can be made in its terms except by mutual consent. The materiality of a fact is judged by the circumstances existing at the time when the contract is concluded. In the present case, the introduction of the Tariff Advisory Committee document materially affects the terms of the policy, resulting in the denial of the very indemnity of claim. And this was what the appellant sought to do, at the stage of clearing of the complaint. The Commission rightly rejected the appellant's plea. Notwithstanding this, on behalf of the appellant, it was insisted that the instructions of the Tariff Advisory Committee form part of the contract. Admittedly, the appellant-Insurer had not incorporated the above quoted clause as part of the policy undertaken with the insured. Consequently, the insured is not bound by this exclusionary clause of liability since the appellant-insurer, admittedly, had undertaken liability for the riot 16 (Suit No. 27/06) or strike, damage due to riot or strike.'
27 In the case of ALLAHABAD JAL SANSTHAN, M/S V STATE OF U.P. AIR 2004 ALLAHABAD 366, it has been observed by Hon'ble Allahabad High Court that rate of premium was not liable to be unilaterally changed by the insurer without the consent of the insured. 28 DW1 Sh. D.K. Khanna. in this cross-examination, claimed that premium was charged less by the concerned official due to oversight. He also claimed that no disciplinary action was taken against the concerned official. He also volunteered that such official was asked to recover the amount from the insured. It was further supplemented that no action was taken against said defendant. According to plaintiff, Sh. Ashok Puri was the concerned official and an action was initiated against him by the insurance company and a sum of Rs. 1,06,658/- was also recovered from Sh. Puri at the time of his voluntary retirement. It was, however, also later on admitted by Sh. Khanna that said official was found not at fault and his explanation was accepted. As regards the type of the godown, this official tried to avoid the answer and he though admitted that Risk code no. 23 applied to transporters godown and godown of clearing and forwarding agents yet when he was specifically asked whether such code was meant for custom house agent, he failed to give any specific and definite reply and rather claimed that he could answer only after seeing the policy. 17 (Suit No. 27/06) 29 In view of aforesaid discussion, I am of the firm opinion that insurance company was not justified in appropriating the refund amount. Admittedly, as per the terms of the policy, insurance company could have terminated the policy by giving 15 days' notice but it had no business to demand extra premium for the policies which had already come to an end and it had also no reason or occasion to appropriate the refund premium for the unexpired period of the remaining policies. Issue no. 3 and issue no. 4 are accordingly answered in favour of the plaintiff and against defendant and plaintiff is held entitled to following amount:
(i) Pro rata premium refund wrongly held
back
Rs. 1,09,722.00
(ii) Interest on Rs. 1,09,722 from 21.4.03
to 13.03.06 @ 12% per annum.
Rs. 37,624.00
(iii) Sum held back towards vehicular policies
Rs. 74,025.00
(iv) Interest on Rs. 74,025.00 @ 12% per
annum with effect from 22.2.2005 to
13.03.2006.
Rs. 9,369.74
Total Rs. 2,30,740.74
Relief
30 Suit is accordingly decreed for a total sum of Rs. 2,30,740.74
and plaintiff is also held entitled to interest @ 10 per cent per annum from 18 (Suit No. 27/06) the date of filing till realization. Suit is also decreed with costs. Let decree sheet be prepared accordingly.
31 File be consigned to record room.
Announced in the open Court On this 30th day of January 2008.
(MANOJ JAIN) ADDL. DISTRICT JUDGE: DELHI 19 (Suit No. 27/06)