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SUPREME COURT OF INDIA
11th September 1964.
A.K. SARKAR, RAGHUBAR DAYAL AND J.R. MUDHOLKAR, JJ.
The Central Bank of India, Ltd., Amritsar, Appellant
Versus
The Hartford Fire Insurance Co. Ltd., Respondent.
Civil Appeal No. 409 of 1961.
Advocates appeared
Mr. G. S. Pathak, Senior Advocate. (Mr. C. M. Mehta Advocate and Mr. V. J. Merchant, Advocate of M/s. Gagral and Co, with him), for Appellant; Mr. C.B. Agarwala, Senior Advocate, (M/s. F. C. Bedi and A. G. Ratnaparkhi, Advocates, with him), for Respondent.
INSURANCE - Termination of Policy - Clause 10 of the Policy - Interpretation - Right of Insurer to Terminate at Will - Implied Term - Reasonableness - Contra Proferentem Rule - Repugnancy - Cancellation Clause - Effect on Liability Already Incurred - Nelson v. James Nelson - Shindler v. Northern Raincoat Co. - Stirling v. Maitland - Interest on Judgment.
Fact of the Case:
The appellant, a mortgagee, and the owner of the insured goods, filed a suit against the respondent, an insurance company, claiming compensation for the loss of goods due to looting and fire. The policy was subject to various conditions and stipulations, including clause 10, which allowed either party to terminate the insurance at any time. The respondent terminated the policy on August 7, 1947, and the appellant argued that the termination was invalid.
Finding of the Court:
The court held that clause 10 gave the respondent the right to terminate the policy at will and that there was nothing unreasonable or capricious about this provision. The court also rejected the appellant's arguments based on the contra proferentem rule, the repugnancy rule, and the principle that a cancellation clause cannot affect liability already incurred.
Issues: 1. Whether clause 10 of the policy gave the respondent the right to terminate the policy at will? 2. Whether the termination of the policy was invalid because it was unreasonable or capricious? 3. Whether the contra proferentem rule applied to the interpretation of clause 10? 4. Whether the repugnancy rule applied to clause 10 and the term fixing the tenure of the policy at one year? 5. Whether the cancellation clause in clause 10 could affect liability already incurred? 6. Whether the appellant was entitled to interest on the judgment?
Ratio Decidendi: 1. The court interpreted clause 10 of the policy as giving the respondent the right to terminate the policy at will. The court found that the language of the clause was clear and unambiguous and that there was no room for implying a term that the termination could only be for a reasonable cause. 2. The court rejected the appellant's argument that the termination of the policy was invalid because it was unreasonable or capricious. The court held that the respondent was free to decide whether to take up a risk and for how long, and that the appellant could not complain of unreasonableness, caprice, or even abuse of power if the respondent was prepared to take it up only on the condition that it would be free to change its mind as to the future. 3. The court rejected the appellant's argument that the contra proferentem rule applied to the interpretation of clause 10. The court held that the rule has no application where there is no ambiguity in the words in the standard form contract. 4. The court rejected the appellant's argument that the repugnancy rule applied to clause 10 and the term fixing the tenure of the policy at one year. The court held that the two clauses were not repugnant because they could stand together, with clause 10 operating as a proviso to the term fixing the tenure of the policy. 5. The court rejected the appellant's argument that the cancellation clause in clause 10 could affect liability already incurred. The court held that clause 10 only affected liability in the future and did not annul liability already incurred. 6. The court declined to interfere with the High Court's order denying interest on the judgment, finding that the respondent had deposited the amount of the decree in court soon after the trial court's judgment.
Final Decision: The appeal was dismissed with costs.
Judgment
SARKAR, J. : By a policy dated May. 1, 1947 the respondent insured the appellant as the mortgagee and a firm of the name of Bombay Import and Export Agency as the owner; against loss suffered by the destruction of or damage to certain goods by fire between March 20, 1947 and, March 20, 1948. For the period covered by the policy prior to its date presumably there existed provisional policies but with these, if any, we shall not be concerned. The Insurance was subject to various conditions and stipulations printed in the policy of which cl. 10 was in the following terms :
"10. This Insurance may be terminated at any time at the request of the Insured, in which case the Company will retain the customary short period rate for the time the Policy has been in force. This Insurance may also at any time be terminated at the option of the Company, on notice to that effect being given to the insured, in which case the Company shall be liable to repay on demand a rateable proportion on the premium for the unexpired terms from the date of the concealment."
The word "Company"in this clause refers to the insurer the respondent. Originally the policy did not afford any insurance against loss caused by persons taking part in riot or civil commotion but by subsequent agreements made from time to time it was extended to cover these riot risks. One of such agreements covered the riot risks occurring between July 18, 1947 and August 17, 1947.
2. It is not in dispute that from early 1947 the whole of Punjab including the town of Amritsar was disturbed by the serious riots and civil commotion which preceded the partition of India. On or about July 23, 1947, the godown at Bakarwana Bazar in Amritsar in which the insured goods were stored was looted and some of the goods were removed. Information of this loss was given by the appellant to the respondent and thereafter on August 7, 1947, the respondent wrote to the owners of the goods as follows
Please remove the goods........... lying in godown at Bazar Bakarwana Amritsar to a safe locality. These stocks may be removed to any safe place in Amritsar before the 10th August, 1947 and on receipt of your information we will issue our necessary endorsement but under any circumstances we would not be on risk after the 10th instant by 4 p.m. which please note."
A copy of this letter was on the same day sent to the appellant along with an endorsement reading, "please take necessary action and inform accordingly otherwise we would not be on risk after the 10th (tenth) August, 1947 by 4 p.m." The letter also stated that in case the goods were removed to a safe locality, the respondent would be prepared to sanction the removal without which sanction the benefit of the policy would on such removal have been forfeited under cl. 8 of the policy. In fact, however, the goods were not removed from the Bakarwana Bazar godown and were lost as the godown was burnt down by roiters on August 15, 1947.
3. The appellant filed a suit against the respondent on the policy making a claim in respect of the loss suffered by the looting of the goods on July 23, 1947 and the destruction of the goods by fire through the action of rioters on August 15, 1947. The respondent denied liability altogether, contending that there had been no looting of the goods by rioters but there was an ordinary theft which was not covered by the policy and that as it had terminated the policy with effect from August 10, 1947, by its letter of August 7, 1947 it was not liable for any subsequent loss of the goods by fire caused by rioters. The claim in respect of the looted goods was decreed by the trial court and the decree was upheld by the High Court of Punjab on appeal and is no longer in dispute. The trial court also decreed the claim in respect of the loss by fire but that decree was set aside by the High Court. The appellant has now appealed from the judgment of the High Court.
4. The main question in this appeal is whether the policy had been term
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