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IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
ANIL KSHETARPAL, J.
United India Insurance Company Ltd. - Appellant
Versus
Pepsu Road Transport Corporation and Others - Respondents
RSA No.1138 of 1998 (O&M)
Decided On : 25-02-2019
For the Appellant :Mr. Neeraj Khanna, Advocate, for Mr. L.M. Suri, Advocate
For the Respondent:Mr. Anupam Singla, Advocate, Mr. Vishwajit Bedi, Advocate
The insurance contract of indemnity can be terminated, and a suit for declaration on revocation of the contract may not be maintainable.
Headnote:
Insurance Contract - General Insurance - Motor Vehicle Act, 1988 - Section 147 - Specific Relief Act, 1963
Fact of the Case:
The plaintiff, a transportation company, entered into an insurance contract with the defendant insurance company for a fleet of buses. The insurance company later revoked the contract, leading to a legal dispute.
Finding of the Court:
The Court found that the suit for declaration on revocation of the insurance contract was not maintainable, and the insurance contract of indemnity could be terminated. The Court held in favor of the defendant-insurance company, setting aside the judgment of the First Appellate Court.
Issues: 1. Maintainability of a suit for declaration on revocation of an insurance contract. 2. Termination of a general insurance contract before the expiry of the term.
Ratio Decidendi: The Court determined that the suit for declaration was not maintainable, and the insurance contract of indemnity could be terminated before the expiry of the term.
Final Decision: The judgment of the First Appellate Court was set aside, and that of the trial Court was restored.
ANIL KSHETARPAL, J.
1. Defendant-appellant is in the regular second appeal against the judgment passed by the First Appellate Court reversing the judgment of the trial Court while granting declaration that action of the insurance company revoking the insurance policy is illegal and arbitrary.
2. In the considered view of this Court, the following questions of law needs determination:-
1. Whether a suit for declaration shall be maintainable on revocation of a contract of insurance by the insurer or only suit for damages for wrongful termination of the contract of insurance would be maintainable?
2. Whether contract of general insurance can be terminated before expiry of the term for which it was issued?
3. Some facts are required to be noticed. Plaintiff-respondent/ Pepsu Road Transport Corporation, a company which runs a fleet of buses for transportation, invited expression of interest for setting insurance of large number of buses from various insurance companies. After negotiations, offer made by two insurance companies was accepted. It was decided that the appellant-company will be the leading company and 60% of the business would be handled by the appellant-company whereas 40% would be handled by M/s New India Assurance Company, Patiala. The premium of Rs.64,93,222/- on account of insurance of 1050 buses from 28.08.1991 to 27.08.1992 was sent through a cheque which was accepted by the appellant-insurance company and a cover note dated 27.08.1991 was issued indicating that the insurance is of 1050 buses owned by PRTC have been insured for a period of one year w.e.f. 28.08.1991 to 27.08.1992. The insurance was for damage to the third party as well as property as also for insuring passengers travelling the buses. However, vide communication dated 18.09.1991, insurance company intimated to the plaintiff-respondent that cover note/insurance policy shall stand cancelled on seven days notice i.e. midnight of 25.09.1991. It was also intimated that the premium on prorata basis for unexpired period of cover note shall be refunded for which a refund voucher was forwarded which was required to be signed enabling the company to issue cheque.
4. This communication dated 18.09.1991 was challenged by the plaintiff-respondent by filing a suit for declaration that the aforesaid communication is illegal, null and void, inoperative and arbitrary. On notice issued, the suit was contested by the defendant-insurance company by pleading that as per the clause in the policy, the insurance company is well within its right to terminate the contract of the insurance. It was further pleaded that the suit in the present form is not maintainable.
5. Learned trial Court on appreciation of evidence dismissed the suit whereas learned First Appellate Court has reversed the judgment of the trial Court resulting in decree. Learned First Appellate Court has broadly recorded the following reasons to reverse the judgment of the trial Court:-
1. The third party insurance is compulsory under Section 147 of the Motor Vehicle Act, 1988 and therefore, a statutory insurance which cannot be permitted to be terminated in between the period for which insurance contract was entered into.
2. Public interest must prevail over the interest of the insurance company.
3. Cancellation of the contract was not justified.
4. The suit for declaration is maintainable.
6. This Court has heard learned counsel for the parties and with their able assistance gone through the judgments passed by the Courts below and the record.
7. At the outset, it must be noticed that attention of this Court has not been drawn to any special provision which differentiates between a normal contract with respect to the consequences of its breach and an insurance contract. The contract of insurance is basically a contract of indemnity as defined in Section 124 of the Contract Act which is extracted as under:-
“124. 'Contract of indemnity' defined. - A contract by which one party promises to save the other from l
