1. Insurance policy issued for motor vehicle — Premium cheque dishonoured — Accident occurred before cash payment — Claim filed under Motor Vehicles Act. (Para 3 )
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1997 Supreme(SC) 1612
1997(10) Supreme 289
SUPREME COURT OF INDIA
J.S. Verma, CJI., S.P. Bharucha, S.C. Sen, JJ.
Oriental Insurance Co. Ltd. -Appellant
versus
Inderjit Kaur & Ors. -Respondents
Civil Appeal No. 8570 of 1997
(Arising out of SLP (Civil) No. 3007 of 1994)
Decided on 8-12-1997
Counsel for the Parties :
For the Appellant, Jitendra Sharma, Sr. Advocate, B.K. Pal, Parmanand Gaur, Advocates.
Important Points
VERY IMPORTANT POINT
Insurance Company is not absolved of its obligation to third parties under the policy because it did not receive the premium.
Insurance Company is not absolved of its obligation to third parties under the policy because it did not receive the premium.
Subject
Insurance Law - Motor Vehicle Insurance
Act Referred
Headnote
Insurance Act, 1938-Section 64-VB-Motor Vehicles Act, 1988-Sections 147(5) and 149(1)-Policy of insurance for offending bus was issued on 30th Nov., 1989-Cheque issued towards payment of premium was dishonoured-Premium was paid in cash on 2nd May, 1990-Bus meanwhile caused accident on 19th April, 1990-Liability of insurer-Insurance Company was not absolved of its obligation to third parties under the policy because it did not receive the premium.
Held : We have, therefore, this position. Despite the bar created by Section 64-VB of the Insurance Act, the appellant, an authorised insurer, issued a policy of insurance to cover the bus without receiving the premium therefor. By reason of the provisions of Section 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.
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 obligations to third parties under the policy because it did not receive the premium. Its remedies in this behalf lay against the insured.
We may note in this connection the following passage in the case of Montreal Street Railway Company v. Normandin, AIR 1917 Privy Council 142 :
"When the provisions of a statute relate to the performance of a public duty and the case is such that to hold null and void acts done in neglect of this duty would work serious general inconvenience or injustice to persons who have no control over those entrusted with the duty and at the same time would not promote the main object of the Legislature, it has been the practice to hold such provisions to be directory only, the neglect of them, though punishable, not affecting the validity of the acts done."
It must also be noted that it was the appellant itself who was responsible for its predicament. It had issued the policy of insurance upon receipt only of a cheque towards the premium in contravention of the provisions of Section 64-VB of the Insurance Act. The public interest that a policy of insurance serves must, clearly, prevail over the interest of the appellant.
(Paras 8 to 11)
Legal Category Hierarchy
Table of Contents
2. Insurer contends no risk was assumed under Section 64-VB of the Insurance Act due to dishonoured premium cheque. (Para 4 )
3. Issuance of policy creates a representation to third parties; public interest in third-party insurance outweighs the insurer's failure to collect premium. (Para 8 , 9 , 10 , 11 )
4. Under Sections 147(5) and 149(1) of the Motor Vehicles Act, insurers must satisfy third-party claims notwithstanding entitlement to avoid the policy for non-payment of premium. (Para 8 )
5. Appeal dismissed. (Para 13 )
6. Does a dishonoured premium cheque absolve an insurer from third-party liability under the Motor Vehicles Act?
No. Under Sections 147(5) and 149(1) of the Motor Vehicles Act, an authorized insurer is liable to indemnify third parties and satisfy awards regardless of its entitlement to avoid or cancel the policy due to non-payment of premium. (Para 8 )
7. How does Section 64-VB of the Insurance Act interact with the Motor Vehicles Act regarding third-party claims?
While Section 64-VB prohibits assuming risk without advance premium, the public interest served by the Motor Vehicles Act prevails, making the insurer liable to third parties despite the contravention of the Insurance Act. (Para 8 , 11 )
8. What is the remedy for an insurer that has issued a policy but failed to receive the premium?
The insurer is not absolved of its obligations to third parties by the non-receipt of premium; its legal remedies lie against the insured. (Para 9 )
JUDGMENT
Bharucha, J.-Leave granted.
2. This appeal is heard by a Bench of 3 Judges because learned counsel for the appellant, the Oriental Insurance Co. Ltd., had submitted that the decision of this Court in United India Insurance Co. Ltd. v. Ayed Mohammed & Ors.1, had been misread by the Motor Accident Claims Tribunal and the High Court and that, while the appellant would pay the amount of compensation awarded in this matter, it desired, in view of the general importance of the question, an authoritative pronouncement.
3. For the purposes of the appeal, therefore, very few facts are relevant. A bus met with an accident. Its policy of insurance was issued by the appellant on 30th November, 1989. The premium for the policy was paid by cheque. The cheque was dishonoured. A letter stating that it had been dishonoured was sent by the appellant to the insured on 23rd January, 1990. The letter claimed, that, as the cheque had not been encashed, the premium on the policy had not been received and that, therefore, the appellant was not at risk. The premium was paid in cash on 2nd May, 1990. In the meantime, on 19th April, 1990, the accident took place: the bus collided with a truck, whose driver died. The truck driver s widow and minor sons filed the claim petition. The appellant denied the claim asserting that under the terms of Section 64-VB of the Insurance Act, 1938, no risk was assumed by an insurer unless the premium thereon had been received in advance. The Motor Accident Claims Tribunal rejected the appellant s contention and awarded the claimants compensation in the sum of Rs. 96,000/- with interest at the rate of 12 per cent per annum from the date of the petition, to be paid by the insured and the appellant jointly and severally. The appeal filed by the appellant before the High Court of Punjab & Haryana was summarily dismissed, and it is that order which is now under challenge.
4. Mr. Jitender Sharma, learned counsel for the appellant, relied upon Section 64-VB of the Insurance Act. It reads thus :
"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 Indian 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.
(3) Any refund of premium which may become due to an insured on account of cancellation of a policy or alteration in its terms and conditions or otherwise shall be paid by the insurer directly to the insured by a crossed or order cheque or by postal money order and a proper receipt shall be obtained by the insurer from the insured, and such refund shall in on case be credited to the account of the agent.
(4) Where an insurance agent collects a premium on a policy of insurance on behalf of an insurer, he shall deposit with, or despatch by post to, the insurer, the premium so collected in full without deduction of his commission within twenty-four hours of the collection excluding bank and postal holidays.
(5) The Central Government may, be rules, relax the requirements of sub-section (1) in respect of particular categories of insurance policies.
Mr. Sharma submitted that, in view of the provisions of Section 64-VB of the Insurance Act, the appellant could not in law have assumed any risk under the policy of insurance covering the bus unti
