Deokar Exports Pvt. Ltd vs New India Assurance Company Ltd

Deokar Exports Pvt. Ltd. .... Appellant

Versus

New India Assurance Company Ltd. ....Respondent

O R D E R

R. V. Raveendran J.

The appellant imported a De-hydration Machine financed

by Maharashtra State Finance Corporation (for short

'MSFC'). The machine was insured by the appellant with the

respondent (also referred to as the `Insurer') through

MSFC, against the risk of fire for the period 12.9.1986 to

12.3.1988. Long after the expiry of the policy, on

25.8.1988, MSFC sent a cheque for Rs.3,135/- on behalf of

the appellant for renewal of the policy. A formal stamped

receipt was issued by the insurer confirming the receipt of

the cheque on 26.8.1988.

2. By letter dated 7.4.1989, the insurer informed the 2

appellant that it had received the premium amount from

MSFC, but as no proposal had been received from appellant,

it was not in a position to issue the fire insurance

policy. The insurer sent a standard proposal form to the

appellant along with the said letter. The appellant filled

and signed proposal form and delivered it to the insurer on

16.6.1989. In the said proposal, the appellant stated that

insurance cover was required for the period 12.3.1988 to

12.9.1989. But the insurer issued an insurance policy dated

30.6.1989 extending insurance cover for the period

26.8.1988 to 25.8.1989. The Insurer sent the insurance

policy to MSFC as required. MSFC did not raise any

objection about the period of cover when the policy was

received by it. Nor was the policy renewed beyond

25.8.1989.

3. On 10.2.1990, the machine was damaged in a fire

accident. On 17.2.1990, the appellant lodged a claim for

Rs.26,91,139/- with the insurer, in regard to the said

damage. The insurer rejected the claim on the ground that

there was no insurance cover on 10.2.1990. Feeling

aggrieved, the appellant approached the National Consumer

Disputes Redressal Commission (`Commission' for short)

complaining deficiency in service by the Insurer. The said

complaint was dismissed on 23.9.1992 on the ground that the 3

complaint involved decision on complex issues of fact and,

therefore, the appropriate remedy was by way of suit. The

appellant thereafter filed a civil suit on 29.3.1993

claiming Rs.26,91,130/-, being the value of the damaged

machine, with interest etc. The appellant submitted that

the suit was in time, if the period spent in prosecuting

the claim before the Commission was excluded under section

14 of Limitation Act, 1963.

4. The Trial Court by judgment and decree dated 16.9.1999

dismissed the suit. It upheld the contention of the

appellant that the insurance cover could only be

prospective, that is for a period of one year from the date

of issue of the policy; and that as the insurance policy

was issued on 30.6.1989, it should be deemed to have been

issued to cover a period of one year commencing from that

date; and that therefore, as on the date of the fire

accident - 10.2.1990, the machine must be deemed to have

been insured. However, the trial court dismissed the suit

as barred by limitation. It refused to exclude the time

spent in prosecuting the complaint before the National

Consumer Redressal Commission for purposes of limitation.

Feeling aggrieved, the appellant filed an appeal before the

Bombay High Court contending that the finding regarding

limitation was erroneous. The insurer filed cross- 4

objections challenging the finding that the insurance was

in force on the date of fire accident. The High Court by

its judgment dated 9.3.2001 dismissed the appeal by the

appellant and allowed the cross-objections of the insurer.

The High Court held the suit was not barred by limitation.

But it held that the suit was liable to be rejected on

merits, as there was no insurance cover on 10.2.1990. It

held that the date of insurance policy was immaterial and

what was material was the date of assumption of risk; and

as the insurer had assumed risk with effect from 26.8.1988

for a period of one year upto 25.8.1989, it cannot be made

liable for a fire accident which occurred after the expiry

of the policy. The High Court also noted that when the

policy was sent to MSFC, which was acting on behalf of the

appellant, no objection was raised in regard to the period

of insurance cover.

5. The said decision of the High Court is challenged in

this appeal by special leave. The appellant contended that

a contract of insurance, unless otherwise mutually agreed,

shall always be prospective in its operation, that is from

the date of issuance of the policy of insurance or cover

note. It was submitted that as the proposal by the

appellant required insurance cover for the period 12.3.1988

to 12.9.1989, the insurer could have issued the policy 5

assuming risk from the required date, that is, 12.3.1988.

If that was not possible, for whatever reason, the policy

should have assumed risk prospectively from the date of

issue of the policy, and not from some retrospective date

chosen by the insurer. It was further submitted that as the

insurer had sent the policy to MSFC, the appellant could

not point out the error relating to the period of insurance

cover. The appellant contended that in the circumstances,

the policy should be treated as having been issued

prospectively for one year effective from 30.6.1989; and if

so, the machine was deemed to have been insured on the date

of the accident.

6. On the contentions urged, the following questions

arise for our consideration :

(i) Where the insurance company is not able to issue a

policy of insurance, for the period required in the

proposal, whether the alternative is only to issue

the policy to be effective prospectively from the

date of issue.

(ii) Whether the insurer was justified in issuing the

policy showing the period of insurance cover as

26.8.1988 to 25.8.1989?

(iii) Whether the policy should be treated as one covering 6

the machine against tie risk during the period

30.6.1989 to 29.6.1990?

7. The contention and grievance of the appellant is not

that the insurance policy should have covered the risk

during the period specified in its proposal. Its contention

is that the policy of insurance ought to have covered the

risk for a period of one year with effect from the date of

issue of the policy of insurance, and not for the period

stipulated in the policy, nor for the period mentioned in

its proposal.

8. Section 64 VB of The Insurance Act, 1938 (`Act' for

short) provides that no risk can be assumed unless premium

is received in advance. Sub-sections (1) and (2) of the

said section, relevant for our purpose, are extracted below:

"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 India 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 inusrer.

Explanation - Where the premium is tendered by 7

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."

(Emphasis supplied)

Two things emerge from the said section. The first is that

the insurer cannot assume risk unless and until premium is

received or guaranteed or deposited. The second is that a

policy issued can assume the risk from a retrospective date

provided such date is not earlier than the date on which

premium had been paid in cash or by cheque to the insurer.

9. In this case, the proposal sent by the appellant was

received by the insurer on 16.6.1989. It required that the

period of insurance cover should be for the period

12.3.1988 to 12.9.1989. The reason why the respondent

wanted the insurance cover retrospectively from 12.3.1988

is obvious. The initial insurance policy expired on

12.3.1988. Under the terms of finance between MSFC and the

appellant, apparently it was necessary to have an

uninterrupted and continuous insurance cover during the

period the machine was secured in favour of MSFC.

Therefore, the appellant wanted the insurance cover to be

continued by way of renewal for the period 12.3.1988 to

12.9.1989. But the premium amount for one year was received

by the insurer only on 26.8.1988. Having regard to the bar 8

contained in Section 64-VB of the Act, the insurer could

not accept the request of the appellant to grant insurance

cover with retrospective effect from a date prior to

26.8.1988 when it received the premium. Therefore, the

insurer adopted the standard, logical and obvious course of

issuing the insurance policy with effect from the date on

which it received the premium amount by cheque that is

with effect from 26.8.1988. As the premium paid was for one

year and the standard term of fire policy was one year, the

policy was issued assuming risk for the period 26.8.1988 to

25.8.1989. Non-issue of the policy for the period

commencing from 12.3.1988 required by the appellant, was

for a good and valid reason. There was also nothing

illogical or arbitrary about the insurance of a policy

specifying the period of insurance cover as one year

effective from the date of receipt of the premium, that is

from 26.8.1988 to 25.8.1989. If the appellant wanted

insurance cover prospectively it should have so specified

in the proposal. Having failed to do so and having sought

retrospective cover, the appellant cannot make a grievance

when the insurance cover is issued retrospectively from the

date of receipt of the premium.

10. Another aspect which requires to be noticed is that

when the policy was sent by the insurer to MSFC, there was 9

no protest or objection from MSFC that the policy was

issued for a wrong period. Nor did it return the policy to

the insurer with a request to make it prospective from the

date of the policy. The appellant did not choose to

examine the policy or cross-check with MSFC about the

currency of the insurance policy or about the need to

further renewal of the policy. In fact, it would appear

from the record that MSFC had written on 31.7.1989 to the

appellant that the insurance policy was due to expire in

August, 1989. It is, thus, clear that both the appellant

and MSFC were aware of the fact that the insurance cover

under the policy was for the period 26.8.1988 to 25.8.1989

but neither of them objected to it. Nor was any premium

paid for further renewal of the policy beyond 25.8.1989.

Obviously, therefore, the insurer cannot be made liable for

the loss which occurred on account of a fire accident on

10.2.1990.

11. A policy of insurance is a contract based on an offer

(proposal) and an acceptance. The appellant made a

proposal. The respondent accepted the proposal with a

modification. Therefore, it was a counter proposal. The

appellant had three choices. The first was to refuse to

accept the counter-proposal, in which event there would

have been no contract. The second was to accept either 10

expressly or impliedly, the counter-proposal of the

respondent (that is respondent's acceptance with

modification) which would result in a concluded contract in

terms of the counter proposal. The third was to make a

counter proposal to the counter-proposal of the respondent

in which event there would have been no concluded contract

unless the respondent agreed to such counter-counter-

proposal. But the appellant definitely did not have the

fourth choice of propounding a concluded contract with a

modification neither proposed nor agreed to by either

party. If the appellant did not agree to the policy

covering the period 26.8.1988 to 25.8.1989 instead of the

period 12.3.1988 to 12.9.1989, the result would never

create an insurance contract effective from 30.6.1989 or

any other date.

12. The contention of the learned counsel for the

appellant that an equitable view must be taken is

untenable. In a contract of insurance, rights and

obligations are strictly governed by the policy of

insurance. No exception or relaxation can be made on the

ground of equity.

12. We, therefore, find no reason to interfere with the

judgment of the High Court. The appeal is dismissed with 11

costs quantified at Rs.10,000/-.

...........................J. (R.V. RAVEENDRAN)

...........................J. (LOKESHWAR SINGH PANTA) New Delhi September 23, 2008