Karnataka High Court
The Oriental Insurance Co., Ltd. vs R.H. Narayanappa And Ors. on 11 October, 1996
Equivalent citations: ILR1997KAR2173, 1997 A I H C 2008, (1998) 1 CIVLJ 160 (1998) 1 TAC 70, (1998) 1 TAC 70
Author: M.P. Chinnappa
Bench: M.P. Chinnappa
JUDGMENT M.P. Chinnappa, J.
1. Being aggrieved by the Judgment and Award dated 29.7.1988 in M.V.C.No. 572/86 on the file of the MACT Bangalore Rural district, directing the insurance comapany to satisfy the award of Rs. 59,500/ - with interest at 12% in favour of the claimant, the insurance company has preferred this appeal.
2. The claimant also preferred cross-objections claiming for enhancement of compensation.
3. Heard the learned advocates appearing for the respective parties.
4. The brief facts leading to this appeal are : that the Tribunal has come to the conclusion that the claimant has sustained injuries due to the rash and negligent driving of the lorry No. CAA 5199 driven by its driver on 12.5.86 at 12.20 p.m., while he was moving as the pillion of the motor cycle No. MYK 1535 driven by R.W.1, and awarded a compensation as stated above. The insurance company has contended that it is not liable to pay as there was no coverage of insurance as on the date of the accident. However, the Tribunal has repelled the contention of the insurance company and refused to accept the evidence adduced by the insurance company to prove that there is no concluded contract and the insurance company is not liable to pay the compensation, awarded by the Tribunal. Hence this appeal,
5. In view of the arguments advanced, the only point involved in this appeal is whether there is a concluded contract of insurance so as to foist liability upon the insurance company - the appellant herein. To answer this point, it is now necessary to succinctly put the case of the appellant herein. On 10.5.86 at 3 p.m. the owner of the vehicle Nanda Kumar has issued a cheque in favour of the insurance company after signing proposal form Ex.R-1 to insure his vehicle with the appellant. The appellant has issued a receipt dated 13.5.86 for having received a cheque for Rs. 4,714 only. The said receipt is marked as Ex.R-3. This receipt is subject to the following condition, namely:
"For payment by cheque, receipt will be valid subject to realisation of cheque".
On the basis of this cheque, the appellant issued a cover note dated 10.5.86 marked as Ex.R-2. This cover note also is subject to the condition stipulated on the over-leaf. The relevant conditions are (2) & (3) which read :
"No liability for loss or damage under this Temporary Cover note will be admitted unless the premium as shown overleaf has been received by the Co., within the period stipulated by Section 64VB of the Insurance Act, 1938, r/w Rules 58 and 59 of the Insurance Rule 1939.
This Cover note is issued pending the preparation of Policy and on payment to the Company the premium within the time mentioned in 2 above for which a separate premium Receipt will be issued."
Ex.R-1 is the proposal form signed by the respondent owner of the vehicle. Thereafter, the insurance Co., sent debit advice Ex. R-5 on 16.5.86 drawn on the Janatha Co-op. Bank Ltd. and the said bank issued Ex.R-4 the Memorandum with a shara "account closed with us". From this it is clear that the cheque was not encashed. Thereafter, immediately on 22.5.86, the insurance company informed the Regional Transport Officer, Yeshwanthapur Branch, Bangalore, that the cheque No. 4014 drawn on the Janatha Co-op, Bank Ltd., tendered by the insured towards the premium in respect of the above vehicle was returned to them uncleared by their bankers. They have informed the insured by regd. letter about the dishonour of cheque and requested him to remit the premium in cash or D.D. to which there was no response from the insured. Therefore, they requested the authority to return the certificate of insurance issued in respect of the above vehicle. That certificate was not valid and no liability whatsoever arising out of any accident to the above vehicle attached to the company. That letter is marked as Ex.R-6. Subsequently, the insurance company also issued a letter to the said Nanda Kumar the owner of the vehicle as per Ex.R-7 informing him that the cheque has been returned unpaid and he was asked to pay the amount of Rs. 4,714/- which was accounted for the policy mentioned therein. Even after receipt of this letter, the respondent/owner of the vehicle has not paid any amount. In view of this, learned counsel for the appellant has vehemently argued that the amount of premium was not paid by the owner of the vehicle, and therefore, there is no concluded contract binding the appellant to pay the compensation.
6. In support of these documents, the insurance company has examined R.W. 2 the Administrative Officer of the 1st respondent. This evidence also was considered by the learned Tribunal. However, it has come to the conclusion as stated earlier that if at all the cheque issued by R-2 had bounced back, a duty was cast upon the insurance company to recover the amount which they have not done, and collusive action on the part of R-1 and R-2 will not and cannot be allowed to be detrimental to the interest of the claimant as far as this Tribunal is concerned. Therefore, there is no conclusive evidence to believe that as on the date of the accident there was no coverage over the risk by R-1 in favour of R-2 specially when it had issued the cover note referred earlier at Ex.R-2. This finding is questioned by the insurance company.
7. It may be recalled here that the respondent No.2 remained exparte and he has not even filed the written statement. Even before this Court also he did not appear. The learned Counsel for the claimant however submitted that the finding of the Tribunal does not call for interference. He also submitted that the cover note clearly established the liability of the insurance company.
8. The learned counsel for the appellant further contended that the dispute is between the owner of the vehicle and the insurance company and it has nothing to do with the claimant. The claimants are entitled for 'the compensation awarded by the Tribunal but the question is who is liable to pay the compensation. Under these circumstances, much credence cannot be attached to the argument of the learned Counsel for the claimant respondent in this case, notwithstanding the fact that the Tribunal has awarded a compensation directing the insurance co. to pay the same in view of the dispute interse. With this background, it is now necessary to consider the decisions relied upon by the learned Counsel for the appellant.
9. The Division Bench of this Court in ORIENTAL INSURANCE CO. LTD. v. SMT. K. GOWRAMMA AND OTHERS 1988 (2) Kar.L.J. 237. has held that the policy issued by way of cover note will be as effective as the certificate of insurance for purposes of Ch. relating to Insurance of Motor Vehicles Act, 1939. A cheque obtained from insured as valid payment towards premium for cover note issued - non-presentment of cheque by insurer would not absolve the insurer of liability under cover note issued pursuant to receipt of such cheque. In this case as stated earlier, the cheque was presented and the same was returned with an endorsement "account closed with us". Further, the insurance company has also issued a letter to the R.T.O. and also the 2nd respondent cancelling the cover note. Therefore, the facts of the case on hand are not applicable to this case.
10. In ORIENTAL FIRE & GENERAL INSURANCE CO. LTD. v. PANVEL INDUSTRIAL CO-OPERATIVE ESTATES LTD 1992 ACJ 503. the Bombay High Court was held that mere acceptance of premium by an agent from the insurer does not amount to concluded contract of insurance so as to foist liability upon the insurance company as the matter was still under negotiation and no binding contract resulted. Even there was no interim contract for limited period in the form of cover-note and there was no implied or express acceptance of the proposal.
11. The Division Bench of this Court in ORIENTAL INSURANCE CO. LTD. v. RUKMINI BAI held :
"Like all contracts, a contract of Insurance is governed by the general Law of Contract. Though Indian Contract Act 1872 (Act 9 of 72 Central Act) does not deal with the rights and liabilities arising out of a contract between the insurer and the insured, yet the contract in Insurance is based on the rudimentary principles of Law of Contract.... in order to make a proposal into a promise, there must be an absolute & unqualified acceptance by express terms in the usual form by the acceptor... In the absence of a conclusive contract, Exhibit R-1 cover note is of no assistance as it has no binding character.... Payment of premium is a condition precedent and unless the premium paid even cover note cannot be issued. Allowance of time for 15 days or whatever it may be is only for the purpose of completing certain formalities by the Company for issue of a full fledged policy. If the cover note is issued in accordance with law, it like a policy, binds the insurer to compensate for the risk undertaken by him. But, in this case, the cover note has not been issued in conformity with the requirement of Section 64VB. Therefore, it cannot be acted upon.
OBITER The Insurance Company reposing confidence in their agents entrusts them signed blank cover notes to do business of the Company and those agents not being regular employees thereof, it cannot take disciplinary action against them as per Rules in case some of them do something unbecoming on their part in order to oblige certain parties. Therefore, we hope that earnest steps will be taken by the Companies to prevent those dishonest and unscrupulous employees working as Agents of the Company from committing such acts of mischief in future."
In UNITED INDIA INSURANCE CO, LTD. v. AYEB MOHAMMED AND OTHERS 1991 ACJ 650. the brief facts of the case are : the motor insurance company issued a cover note insuring the vehicle the premium of which was remitted by a cheque. The said cheque was dishonoured & the insurance company informed this fact to the registering authority and the insured. The said vehicle met with an accident. Despite the plea of the insurance company that the cheque had bounced and in the absence of payment, the cover note had become ineffective, the Tribunal awarded a sum of Rs. 15,000/- holding the insurance company liable. The High Court up-held the award on the footing that the insurance Company had issued a cover note undertaking the risk and had failed to take steps to cancel the cover note. The Supreme Court held that the High Court was not right in holding that insurance company had failed to take steps for cancellation of cover note and in the absence of steps for cancellation of the cover note, the risk would be subsisting; the fact of dishonour of the cheque is within the knowledge of the insured and no special notice to the insured is required; liability of insurance company ceases.
In this case as stated earlier, the owner had drawn a cheque on a bank wherein, he had closed his account. This fact was very much within his knowledge. From this it is clear that intentionally he had issued a cheque on a bank where he did not have account and that cheque also was returned dishonoured as per the endorsement referred to above. Even thereafter, the insurance company issued notice to him. Still the owner did not choose to remit the amount payable under the receipt. The cover note also was issued subject to realisation of the cheque and the insurance company has not accepted the proposal of the 2nd respondent. That proposal was under consideration. Even till the expiry of the time the owner has not paid the premium.. For that matter, the learned counsel submitted that for the entire year he did not offer to pay the amount.
12. in LIFE INSURANCE CORPORATION OF INDIA v. RAJA VASI REDDY KOMALAVALLI KAMBA AND OTHERS . Their Lordships have held that mere filling in proposal for insurance and depositing first premium with the LIC do not create a binding contract between the LIC and the proposer so as to enable the heirs of the proposer after his death to claim the amount covered by the proposed policy. It is further held that mere receipt and retention of premia until after the death of the appellant or mere preparation of the policy document is not acceptance and therefore, do not give rise to a contract. The general rule is that the contract of insurance will be concluded only when the party to whom an offer has been made accepts it unconditionally and communicates his acceptance to the person making the offer. Whether the final acceptance is that of the assured or insurers, however, depends on the way in which negotiations for an insurance have progressed. Mere delay in giving an answer cannot be construed as an acceptance. Though in certain human relationships silence to a proposal might convey acceptance but in the case of insurance proposal, silence does not denote consent and no binding contract arises until the person to whom an offer is made says or does something to signify his acceptance.
13. It is not known as to whether the owner issued anti dated cheque after the accident to make the insurance company liable. Anyway, it is not necessary to delve on that question in the absence of any pleading or evidence. From the above discussion and also materials available on record, it is abundantly clear that the owner did not pay the premium and the insurance company has not accepted the proposal made by the owner as per Ex.R-1. Such being the position, I have no hesitation to hold that there was not a concluded contract of insurance so as to foist a liability upon the insurance company the appellant herein. Therefore, the finding of the Tribunal that if at all the cheque issued by R-2 has bounced back, a duty was cast upon the insurance company to recover the amount is contrary to the well established principle of contract between the insurer and the insured which requires absolute and unqualified acceptance by express terms. It is further made clear that mere issuance of cheque towards premium and the cover note issued subject to the realisation of the amount under the cheque is not binding on the insurance company. Further, even if the premium amount is received unless the proposal is accepted by the insurance company, there is no binding and concluded contract between the insurance company and the proposer. Therefore, the direction issued to the appellant to pay the amount awarded under the impugned order is liable to be set aside. Accordingly, I answer the point in the negative.
14. In this case the claimant has preferred cross-object ions for enhancement of .compensation. It is well settled law that in an appeal preferred by the insurance company, no cross-objections are entertainable. Besides that, there is no reason to enhance the compensation as the compensation awarded by the Tribunal is just and reasonable. Therefore, the cross-objections are liable, to be rejected.
15. For the reasons stated above, the appeal is allowed. The impugned order is set aside so far as it relates to the liability of the insurance company to pay the amount awarded by the Tribunal and the cross-objection is dismissed. The other portion of the order is left undisturbed.