Andhra HC (Pre-Telangana)
M. Nageswara Rao vs New India Assurance Company Limited And ... on 4 April, 2002
Equivalent citations: III(2003)ACC569, 2004ACJ1554, 2003(3)ALD397, 2003(3)ALT603
JUDGMENT B.S.A. Swamy, J.
1. The owner of the vehicle is the appellant before this Court. He filed this LPA assailing the order of the learned Single Judge in AAO No. 1904/89 dated 13.11.1997 wherein the order of the Tribunal apportioning the compensation payable by the owner and the Insurance Company to the third parties was reversed and the entire liability to pay the compensation was fastened on the insurer (i.e.) the owner of the vehicle.
2. The facts are not in dispute. The truck that was involved in the accident was insured with the 1st respondent under policy No. 4256106318 on 28.12.1985 and the same is in force up to 27.12.1986. Before expiry of the insurance policy the appellant herein issued a cheque on 28.12.1985 for a sum of Rs. 3343/- for renewal of the insurance policy by one more year. But the cheque seemed to have been returned by the bank with an endorsement "not arranged for" by its note dated 2.1.1986, which was marked Ex.B2. It is the case of the respondent insurance company that by its letter dated 8.1.1986, the insurer was informed that the cheque was dishonoured. It is interesting to note the last para of the note, which reads as follows:
"Please note that under the regulations we are not on risk in respect of the above policy in the absence of valid payment of premium.
Please remit us immediately the premium to enable us to assume risk subject to your confirmation that there has been no loss so far,"
3. It is also interesting to note on the top of this note the following words are found "Registered/Ad". It is the further case of the Insurance company that on 27.12.1986 having informed the insurer that the abovementioned policy is cancelled from the inception since the premium cheque was bounced. The endorsement is issued for our accounting purpose only."
4. Having filed the Xerox copies of these documents Exs.B3 and B4, the insurance company did not adduce any evidence to show that these two letters were served on the insurer by the insurance company.
5. In this factual background, it seems that the vehicle met with an accident at 9 a.m., on 23.5.1986 at Bhoodevi Cheruvu and one Demudu who was working in the lorry died. The legal heirs of Demudu filed M.V. O.P. No. 15/87 against the owner of the vehicle as well as the insurance company. The Tribunal in its order dated 27th July, 1989 having awarded compensation of Rs. 28,500/- with 12% p.a. from the date of petition observed that the amount be paid by the owner of the vehicle as well as the insurance company jointly and severally. Since we are not concerned with the rest of the decree, we are not referring to that aspect.
6. Aggrieved by the said order the insurance company filed CMA No. 1904/89 before the learned Single Judge. The main contention raised by the insurance company was that since the cheque issued by the appellant herein towards premium for issuance of the insurance policy was bounced there is no valid contract between the insurance company and the insurer to indemnify him as and when the vehicle meets with an accident during the substance of the policy. This was found favour with the learned Single Judge and allowed the CMA filed by the insurance company. Aggrieved by the said order and decree the owner of the vehicle filed this appeal.
7. Mr. Subba Rao, learned Counsel appearing for the insurance-company placed reliance on a judgment of the Supreme Court in "National Insurance Company Ltd v. Seema Malhotra", , wherein the Division Bench of the Supreme Court has taken the view that since the cheque involves promise to pay money and the insurer failed to pay the premium promised, the insurance company need not perform its part of promise. Their Lordships further held that an agreement made without consideration is void. In that view of the matter their Lordships held that mere issuance of cheque will not create an obligation on the part of the insurance company when the cheque issued by the insurer towards premium is dishonoured. Their Lordships referred to a judgment of three Judges Bench in Oriental Insurance Company Ltd. v. Inderjit Kaur", , and also the Division Bench judgment in "New India Assurance Co., Ltd. v. Rula" 2000 ACJ 630.
8. We have perused this judgment as well as the judgment cited by the learned Counsel for the insurance company. We have a feeling that the learned Judges dealing with Seema Malhotra 's case (supra) has taken portion of those two judgments in support of their view. But they have not adverted to the provisions of Chapter XI of the M.V. Act, which specifically deals with insurance of all motor vehicles against third party risks and in particular Sections 146, 147(5) and 149 of 1988 Act corresponding to Sections 94, 95 and 96 of 1939 Act which are in pari meteria contained the same language.
9. It is useful to extract these three sections herein:
"Section 146. Necessity for insurance against third party risks :--(1) No person shall use, except as a passenger, or cause or allow any other person to use, a motor vehicle in a public place, unless there is in force in relation to the use of the vehicle by that person or that other person, as the case maybe, a policy of insurance complying with the requirements of this Chapter.
Section 147(5): Notwithstanding anything contained in any law for the time being in force, an insurer issuing a policy of insurance under this section shall be liable to indemnify the person or classes of persons specified in the policy in respect of any liability which the policy purports to cover in the case of that person or those classes of persons.
Section 149. Duty of insurers to satisfy Judgments and awards against persons insured in respect of third party risks :--If, after a certificate of insurance has been issued under Sub-section (3) of Section 147 in favour of the person by whom a policy has been effected, judgment or award in respect of any such liability as is required to be covered by a policy under Clause (b) of Sub-section (1) of Section 147 (being a liability covered by the terms of the policy) or under the provisions of Section 163(A) is obtained against any person insured by the policy then notwithstanding that the insurer may be entitled to avoid or cancel or may have avoided or cancelled the policy, the insurer shall, subject to the provisions of this section, pay to the person entitled to the benefit of the decree sum not exceeding the sum assured payable thereunder, as if he were the judgment debtor, in respect of the liability, together with any amount payable in respect of costs and any sum payable in respect of interest on that sum by virtue of any enhancement relating to interest on judgments."
10. From the above it is seen that under Section 146 of the Act no owner of the vehicle shall allow or cause to allow use of any motor vehicle in a public place without a policy of insurance complying with the requirement of the Chapter XI and under Section 147(5) of the Act corresponding to Section 95(5) of the Old Act, the liability of the insurance company to indemnify the person or class of persons specified in the policy in respect of any liability which the policy purports to cover in the case of that person or those classes of persons notwithstanding anything contained in any law for the time being in force and under Section 149 a duty is cast on the insurer to satisfy judgments and awards against persons insured in respect of third party risks.
11. In the case of New India Assurance Co. Ltd v. Rula and Ors. (supra), their Lordships of the Supreme Court while interpreting Section 147 of the Act in the above case observed as follows:--
"subsequent cancellation of insurance policy on the ground that the cheque through which the premium was paid was dishonoured would not affect the rights of the third parties 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 policy of insurance in respect of the vehicle in question 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 third party."
12. Later in Indrajit Koul 's case (supra) the three Judge Bench of the Supreme Court rejected the contention of the insurance company that under Section 64-VB of the Insurance Act when once the premium is not paid the policy issued stands cancelled from the date of issue. After referring to the provisions of Chapter IV of the M.V. Act their lordships observed as follows:
"We have, therefore, this position despite the bar created by Section 64-VB of the Insurance Act, the appellant, an authorised insurer, had 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. Therefore their Lordships held that 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 obligation to third parties under the policy because it did not receive the premium. It's remedy in this behalf lay against the insured.
14. In Seema Malhotra's case (supra) the learned Judges having interpreted the observations (i.e.,) policy covered and to satisfy the 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 premium thereon had not been honoured, observed that, thus the three Judge Bench had 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, to avoid or cancel policy as against the insurer when the cheque issued in payment of premium was dishonoured.
15. On a careful reading of the judgment in Indrajit Koul's case (supra) we have a feeling that the Court observed on the facts and circumstances of the case that they do not want to express any opinion on the entitlement of the insurance company to avoid or cancel policy on the ground that the cheque issued in payment of premium was not honoured. In other words in that case since insurance company did not cancel the policy on the ground of dishonouring the cheque their Lordships presumed that the policy is not in force and made such an observation with regard to the power of the insurance company to cancel the policy.
16. In fact even in Seema Malhotra's case (supra), their Lordships of the Supreme Court rejected the similar contention raised on behalf of the Insurance Company in the following words:
"When the respondents (legal heirs of the insured) moved the High Court of Jammu and Kashmir, the Division Bench heard the matter, reversed the order passed by the State Consumer Commission and held the insurance company liable to honour the claim. The Division Bench directed the State Commission to assess the compensation accordance with law and pay the same after deducting the amount of premium (as the cheque was dishonoured). The following reasoning was mainly adopted by the learned judge of the Division Bench for holding that the insurance company is liable on the fact situation:
'While ordering the cancellation of the policy in question, respondent insurance company instead of cancelling the same due to dishonour of cheque of the premium from the date it was issued, i.e., 21.12.1993, chose to cancel it 'with immediate effect'. This clearly indicates that till the issuance of this communication respondent insurance company itself treated the policy subsisting. Besides this, it had not chosen to treat the same cancelled from the date of issue. In the face of this position, this case need not detain us any further and for this reason the argument addressed on behalf of the insurance company based on Section 64-VB of the Insurance Act also does not hold good. There was nothing which prevented the insurance company to have informed the appellants that the policy stood cancelled from the date of its issuance and as such it is not liable for the payment of any compensation."
17. From this it is evident that the right of the Insurance Company to avoid the liability or cancel the policy as long as such an action as contemplated under Section 64-VB of the Insurance Act was taken. Otherwise, it has to be presumed that the policy issued by the Insurance Company is in force. Viewed from that angle, in the case on hand the Insurance Company claimed to have issued Exs.B-3 and B-4 dated 8,1.1986 and 27.12.1986, whereunder the Insurance Company while informing the insured that cheque was dishonoured, directed him to remit the premium immediately to enable the Company to assume the risk subject to the confirmation of the insured, if there is no loss till that date. Ex.B4, dated 27.12.1986 is issued cancelling the policy after the period for which the vehicle was insured expired. It is interesting to note that in Ex.B2 note it is mentioned that the said endorsement is issued for their accounting purpose only. But, at the same time, no evidence was let in by the Insurance Company that any of these two documents (i.e.,) Exs.B3 and B4 are served on the insured. Hence, following the judgment in Oriental Insurance Company Limited v. Inderjit Kaur's case (supra) and New India Assurance Company Limited v. Rula's case: (supra), we are inclined to hold that the Insurance Company cannot be absolved of its obligation to pay compensation to the third parties covered by the policy issued by it, on the ground that it did not receive premium, instead of following the judgment in Seema Malhotra's case (supra), which proceeded on the provisions of the Indian Contract Act without reference to Chapter-II of the Motor Vehicles Act dealing with the Insurance Policy to be obtained by the owners of the vehicle before putting them as in public place for use. It is interesting to note that in para 20 of Seema Malhotra's case (supra) their Lordships observed that "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 respondent". From the above it is seen that their Lordships are of the view that if the insured makes up the premium before the accident took place, then the Insurance Company is under obligation to pay the compensation awarded in favour of the third parties.
18. Nextly, the learned Counsel for the respondents strenuously contends that the insurer is duty bound to see whether the cheque issued by him is encashed or not. In support of his contention he relied upon a decision reported in Pradeep Kumar Jain v. Citi Bank, 1999 (5) ALT 14 (SC), their Lordships observed in para 5 as follows:
"5. Under Section 146 of the Act there is an obligation on the owner of a vehicle to take out an insurance policy as provided under Chapter XI of the Act. If any vehicle is driven without obtaining such an insurance policy it is punishable under Section 196 of the Act, The policy may be comprehensive or only covering third parties or liability may be limited. Thus, when the obligation was upon the appellant to obtain such a policy, merely by passing of a cheque to be sent to the insurance company would not obviate his liability to obtain such policy....."
19. But the learned Judges neither indicated the procedure to be followed in case the cheque is dishonoured nor the consequences of such dishonour both under the Negotiable Instruments Act or even under Banking Act. A detailed procedure is contemplated when the cheque issued by the individual was dishonoured, and the drawer has to be informed about the dishonour of the cheque and give him an opportunity to make good the loss sustained by the drawee.
20. Admittedly, it is not the case of the Insurance Company in this case that the Insurance Policy issued by it automatically stands cancelled under Section 64-VB of the Insurance Act and in fact their specific case is that after the cheque was dishonoured a notice was sent to the insurer informing about the dishonour of the cheque and also expressed its willingness to continue the policy if the premium is paid and if any loss is sustained, the liability cannot be fastened on the insurance company before payment of the premium amount the liability is fastened on the insurance company. From this it, is crystal clear that the insurance company waived its right to cancel the policy. On the other hand, in so many words the insurance company expressed its willingness to continue the policy if the premium amount is paid before any liability is fastened on the insurance company. Likewise it is the case of the insurance company that they have cancelled the insurance policy from the date of commencement of the policy in exercise of its powers under Section 64-VB of the Insurance Act, but at the fag end of the expiry of the policy and long after the accident has taken place. Even this letter was also not communicated to the insurer. So the Judgments cited by the Mr. Subba Rao, learned Counsel for the Insurance Company cannot come to his aid because the drawer is not informed about the dishonour of the cheque given by him and he is not given an opportunity to remit the premium amount as expressed in its letter dated 8-1-1986.
21. We are also of the firm view that even for an administrative action by a public sector undertaking the principle audi alterant partem has to be applied. In this case, though the insurance company produced Exs.B3 and B4 said to have been issued by them, it failed to prove that they served these notices on the insurer. Hence, we express our inability to follow the Judgment in National Insurance Company Ltd. v. Seema Malhotra's case (supra) for the reasons given supra. We are inclined to follow the other two judgments, namely Oriental Insurance Co. Ltd v. Inderjit Kaur (supra) and New India Assurance Co. Ltd, v. Rula (supra) wherein their Lordships specifically dealt with the provisions of Chapter-II of the Motor Vehicles Act dealing with the insurance policies of the vehicles to be put to use in public places and the consequences that will emanate from such a policy. Even assuming for a moment that the principle laid down in Seema Malhotra's case (supra) is to be accepted in the light of the observations of their Lordships in para 20 of the Judgment. Those observations are squarely applicable to the facts of the case as the insurer was not given opportunity to remit the premium amount for cheque that is dishonoured.
22. In the light of the foregoing reasons, the LPA is allowed and the order of the learned single Judge in CMA 1904 of 1989 is set aside and the findings of the Tribunal in MVOP No. 15 of 1987 are confirmed. The Counsel for the insurance Company relying on a judgment of the Supreme Court in Kaushnuma Begum v. New India Assurance Company Limited, , requests this Court to reduce the interest awarded by the Courts below. But there being no appeal filed by the insurance company, we cannot interfere with the award of the Tribunal with regard to grant of interest. No costs.