National Insurance Co. Ltd. Vs. Indirabai - Court Judgment

Rama Jois, J.

1. In this Appeal presented by the National Insurance Company against an order made under Section 92-A of the Motor Vehicles Act, 1939 awarding interim compensation of Rs. 15,000/- to the respondent-claimant, the following important question of law arises for consideration:

Whether an insurance policy issued by an Insurance Company on any day expressly specifying the date and time of issue on cover note or the policy, covers the risk in respect of the accident caused earlier on the same day, by the vehicle in respect of which such policy is issued, even though the insurance premium was paid and policy was issued, after the accident?

2. Brief facts of the case are these:- Respondent No. 1 presented a claim petition under Section 110-D of the 1939 Act seeking compensation of Rs. 3,55,000/- towards death of her husband Kallappa in a motor accident. During the pendency of the said claim petition the 1st respondent made an application under Section 92A of the Act for awarding compensation of Rs. 15,000/- on the basis of No Fault Liability. Before fixing no fault liability on the Insurance Company, according to the Full Bench Decision of this Court in UNITED INDIA INSURANCE COMPANY v. AMINASAB NADAF, the Tribunal is required to record findings on two issues:-

(1) That the vehicle in question was involved in the accident and

(2) The risk in respect of the claim made was covered by the Insurance Policy.

On the first question the Tribunal has recorded a finding that the vehicle in question was involved in the accident. There is no controversy about that. On the next question as to whether the risk was covered by the Insurance Policy, the Insurance Company contended that as the accident in question had occurred in the early hours of the same day, namely, at 4 A.M. the vehicle was not insured with the appellant at the time of the accident, and therefore the risk : AIR1990Kant156 was not covered by the policy. As against this, it was contended on behalf of the owner that according to the policy it was effective from 27-2-1989 to 26-2-1990, both days inclusive and on this basis submitted that the policy commenced immediately after the expiry of the mid-night of 26-2-1989 and the commencement of the date 27-2-1989 and not from 5-30 P.M. on 27-2-1989. In support of the contention of the claimant reliance was placed on the Decision in JAIKRISHANDAS v. CHRIRUTHAI AMMAL and ANR. In the said case after noticing that the policy had been obtained at 5.30 P.M. and the accident had occurred at 10.30 P.M. on 30th September 1986, rejecting the similar contention of the Insurance Company, the Court held that the risk was covered by the policy. Following the said Decision, the Tribunal held that notwithstanding the fact that the accident had taken place earlier, the Insurance Company was liable to pay the compensation. Aggrieved by the said order, the appellant has presented this appeal.

3. On 27-3-1991 when the matter came up for hearing, after hearing the learned Counsel on both sides, we considered it necessary to call upon the parties to file an authenticated copy of the cover note and the Insurance Policy etc. On 12-4-1991, the learned Counsel for the Insurance Company has produced the quadruplicate copy of the cover note and the insurance policy. In the cover note at Column No. 3, the effective date of commencement of insurance for the purpose of the Act is mentioned as 27-2-1989; against Column No. 4 - date of expiry of insurance, the date given is 26-2-1990. As against Column date of issue - time, it is mentioned as follows:-

'Date of Issue 27-2-1989, Time 5.30 P.M.'

It also records the receipt of premium of Rs. 164/-. Subsequently, on 8-8-1991 the learned Counsel for the appellant has also produced photo copy of the proposal form which bears the date 27-2-1989. As the accident had taken place at 4 A.M. on the same date, it is not disputed that the proposal form presented and premium was paid at the appellant's office after the opening of the office and it was subsequent in point of time. On the basis of the specification of not only the date but also the time of the issue on the cover note, the learned Counsel for the Insurance Company contended that the risk commenced only from 5.30 P.M. and not earlier on the same date. He submitted that in view of Section 64-VB of the Insurance Act, the Insurance Company is debarred from covering any risk prior to the date and time of receiving the premium.

4. In support of this contention, the learned Counsel relied on the Judgment of this Court in ASMA BEGUM v. NISAR AHMED. In the said case on facts it was established that the insurance premium was paid on 17-11-1983 at 11 A.M. and the policy was also issued to be effective from 17-11-1983 till 16-11-1984. On this basis it was contended for the Insurance Company that it did not cover the risk arising out of the accident which had taken place at 10 A.M. on 17-11 -1983. The relevant portion of the Judgment reads:-

'9. There is an additional ground urged by the learned Counsel for the Insurance Company which leads to the same result. It is based on Section 64-VB of the Insurance Act. Relevant part of the Section reads:-

'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 insurer.'

In view of the above provision the risk of the Insurance Company commences only on the payment of the premium either in cash or by cheque. In the present case, as can be seen from the receipt Exhibit R-2 the amount of premium of Rs. 256/- was received at 11 a.m. as expressly stated in the receipt. Therefore, it is beyond doubt that the premium amount was accepted after the accident which had occurred at 10 a.m. Therefore, the risk of the insurer commenced after the accident, and therefore did not cover the risk arising out of the accident. The words 'renewal policy' written on the receipt does not, in our opinion, give the policy a retrospective effect, but is only to indicate that the amount of premium taken is after giving due rebate in consideration of no insurance claim in the previous year.

10. To sum up, our conclusions are:

(i) A motor vehicle insurance policy is effective only for the period specified in the policy and not from the date of expiry of an earlier policy, if any, in respect of the same vehicle, issued by the same insurer.

(ii) In view of Section 64-VB of the Insurance Act the risk on the part of the insurer commences only on the payment of the premium by the insured.

(iii) In the present case the premium was paid at 11 a.m. on 17- 11-1983 and the policy was also issued to be effective from 11 a.m. on 17-11-1983 till 16-11-1984 and therefore it did not cover the risk arising out of the accident which took place at 10 a.m. on 17-11-1983.'

The above Judgment fully supports the contention urged for the appellant - Insurance Company in its favour.

5. Sri Ashok Kalyanshetty, the learned Counsel for the claimant, however, relied on the Judgment of the Supreme Court in NEW INDIA ASSURANCE CO. v. RAM DAYAL in which after noticing that the accident had taken place earlier in the morning and the Insurance Policy was taken after the commencement of the office hours in the after-noon, the Supreme Court held that as the date commenced immediately after the mid-night of the previous day ended, the policy covered the risk, notwithstanding the fact that the accident had occurred earlier. The relevant portion of the Judgment reads:-

'2. The insurer repudiated its liability by maintaining that the policy had been taken after the accident and, therefore, it had no liability to meet the award of compensation against the owner. The Tribunal accepted this stand and rejected the claim against the insurer. In appeal, the High Court took the view relying upon certain decisions that the insurance policy obtained on the date of the accident became operative from the commencement of the date of insurance, i.e., from the previous midnight and since the accident took place on the date of the policy the insurer became liable.

3. Apart from the Judgment under appeal, we find that this view is supported by two Judgments of the Madras High Court and an earlier decision of the Punjab and Haryana High Court. Two Division Benches of the Madras High Court have taken the view after discussing the law at length that the policy taken during any part of the day becomes operative from the commencement of that day. Besides these Judgments, a Division Bench decision of the Allahabad High Court in Jaddoo Singh v. Malti Devi 1983 ACJ 747 (Allahabad), supports this view on principle.

4. There is evidence in this case that the vehicle was insured earlier upto 31-8-1984 and the same was available to be renewed but instead of obtaining renewal, a fresh insurance was taken from 28th of September, 1984, which is the date of the accident. We are inclined to agree with the view indicated in these decisions that when a policy is taken on a particular date, its effectiveness is from the commencement of the date and, therefore, the High Court, in our opinion, was right in holding that the insurer was liable in terms of the Act to meet the liability of the owner under the award.'

Learned Counsel for the claimant contended that the above Judgment fully supports the case of the claimant.

6. The learned Counsel for the Insurance Company, however, submitted that the ratio of the above Judgment was distinguishable for two reasons.

(1) The provisions of Section 64-VB has not been brought to the notice of the Court and the same has not been interpreted.

(2) In the said case no time was specified on the cover note or the insurance policy.

The learned Counsel submitted that the ratio of the Division Bench Decision of this Court in Asma Begum in which the precise question arising for consideration has been answered in favour of the insurance Company was binding on this Court. The learned Counsel for the claimant submitted that according to the explanation below Section 64-VB of the Act, the Insurance Company can assume liability from the date on which the envelope containing the cheque towards payment of the amount of premium was posted. The Explanation reads:

'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.'

He submitted that once the Insurance Company mentioned the date of commencement, the risk even if it had taken place earlier to the time at which the insurance was taken, it stands covered by the insurance policy issued though subsequent in point of time. The learned Counsel stressed that what was of importance was the date and not time when the premium was paid or the cover note or the policy was issued and that Section 64-VB also refers only to date and not time.

7. Had the Insurance Company failed to mention the time on the cover note, the contention urged for the appellant is fully covered by the ratio of the Decision of the Supreme Court. But as in the present case time is mentioned on the cover note, the question whether the liability in respect of an accident which took place earlier to that time stands covered arises for consideration. In this regard, the ratio of the Judgment of this Court in Asma Begum is binding on us. In that Decision, this Court has held that in view of Section 64-VB of the insurance Act an Insurance Company can assume liability only after the receipt of premium and therefore if time of receipt of premium is mentioned on the receipt, the risk commences from the time so specified and does not cover the liability in respect of an accident which had taken place earlier to that time on the same date.

8. The learned Counsel for the claimant contended that as Section 64-VB of the Act refers only to date, the question of mentioning time of issue of cover note or policy does not arise and the Insurance Company has no authority to specify any time and therefore even if the time is mentioned, it should be ignored.

9. The question as to whether the word 'date' could also be understood as having reference to time, having due regard to the context in which it is used, we have the pronouncement of the Supreme Court in the case of NARENDRA KHENI v. MANIK RAO. That case arose under the following circumstances. Section 23(3) of the Representation of People Act, 1950, prohibits the inclusion of any name in the Voters' List after the last date fixed for filing nomination at an election to either House of Parliament or either House of State Legislature. In the said case, the names of as many as 15 persons were included in the Voters' List for election to the Legislative Council of this State from a local authorities constituency to the State Legislative Council after 3 P.M. on the last date fixed for filing the nomination which was 17-4-1974. The question for consideration by the Supreme Court was as to whether the inclusion of the names in the Voters' List, though it had been done after 3 P.M. could be regarded as valid, as it had been done on the last date fixed for filing the nomination. Rejecting the contention advanced in the case that as Section 23(3) of the Act refers only to date and not time the inclusion made after 3 P.M. on 17-4-1974 the last date fixed for filing nomination was valid, the Supreme Court held as follows:-

'21. Section 23 of the 1950 Act does state that the inclusion of the names in the electoral roll can be carried out till the last date for making nominations for an election in the concerned constituency. What, then, is the last date? When does the last date cease to be? If the purpose of the provision were to illumine its sense, if the literality of the text is to be invigorated by a sense of rationality, if conscionable commonsense were an attribute of statutory construction, there can hardly be any doubt that the expression 'last date for making nominations' must mean that the last hour of the last date during which presentation of nomination papers is permitted under Section 33 of the 1951 Act.'

In our opinion, the above reasoning applies equally to the interpretation of the word 'date' in Section 64-VB of the Insurance Act. Just as time was considered of utmost importance for interpreting the word 'date' used in Section 23(3) of the Representation of People Act, 1950, it is of great importance in interpreting the word 'date' in Section 64-VB of the Insurance Act. In our opinion, rationality and commonsense must come into play in interpreting the word 'date' used in Section 64-VB of the Act, for, an accident insurance policy is meant to cover liability incurred by the owner of a vehicle or property as a result of accident taking place in future and not in respect of an accident which had already taken place. To illustrate:

(i) Take the case of a fire insurance policy taken on any date after the property was burnt and the Insurance Company specifies the date and time of issue. Can it be said the insurance policy covers the risk as the accident had taken place on the same day, though at the time when the premium was paid and policy was issued the property sought to be insured itself did not exist?

(ii) Take a case in which by the time a owner of a vehicle approaches the Insurance Company on any date for insuring his vehicle, an accident had already taken place on that date. The owner of the vehicle pays the premium and then discloses that the accident had already taken place; which he is bound to disclose as the contract of Insurance is a contract of UBERIMA FIDE; can it be said that the Insurance Company is helpless and has to issue an insurance policy putting the said date and once it does so it covers the risk which had already taken place?

10. In our opinion, the answer to these question must be in the negative. Insurance Company in such circumstances has the right to mention the time of commencement of the insurance cover. It has also a duty to do so as they are bound by the mandate of Section 64-VB of the Act to assume liability only after the premium is received. The position cannot be different if the party fails to disclose that the accident had already taken place. The Insurance Company can by way of abundant caution certainly not only specify the date but also the time with effect from which the risk commences i.e., immediately after receiving the premium. Otherwise, it will give scope for unscrupulous owners of the vehicles to play fraud on the Insurance Company. Therefore, in our opinion, the provisions of the Act should not be interpreted in a manner which results in such mischief. In fact, it is the duty of the Insurance Company in the case in which the owner of the vehicle seeks an insurance policy in respect of any motor vehicle for the first time with the Insurance Company concerned or for renewal of an earlier policy after the expiry of the earlier policy, to require the owner of the vehicle to produce the vehicle to ensure that no accident had taken place earlier to the date on which or the, time at which the persons concerned is seeking an insurance policy. It is only by this method, the Insurance Company can safeguard itself against persons seeking insurance cover after the accident had taken place and by that process pass on their personal liability to the Insurance Company.

11. The Explanation to Section 64-VB(2) of the Act which provides that the Insurance Company may assume liability from the date on which the cheque was posted does not also advance the case of the respondent-claimant. If the insurance premium is received by the Insurance Company through cheque by post, the Insurance Company has the right and duty to enquire as to whether the vehicle and already met with ah accident or not, before issuing the policy. If the Insurance Company finds that the vehicle had met with an accident on the date the cheque was posted, the Insurance Company can, had has the duty to further enquire about the time at which the accident took place. If the Insurance Company is convinced that the cheque was posted earlier to the accident, Section 64-VB read with the Explanation confers power on the Insurance Company to cover the risk, but if the Insurance Company finds that actually the cheque was posted subsequent to the accident it can refuse to cover the liability also. To illustrate, if an accident had taken place at 4 A.M. in the morning and a cheque is posted on the same date, unless the contrary is proved, one has to assume that the cheque was posted after the accident. Therefore, the question as to whether the Insurance Company should assume the risk in cases where the accident had taken place on the same date on which the cheque was posted, depends upon the facts and circumstances of the case.

12. As far as this case is concerned, on facts there is no controversy at all. It is only after the accident occurred in the early morning, after the office of the Insurance Company opened the respondent approached the appellant-Insurance Company for issuing the insurance policy covering the risk of the vehicle and paid the premium in cash. According to the clear entry made on the cover note regarding the date and time of its issue, it is 27-2-1989 - 5.30 P.M. The learned Counsel for the claimant submitted that the time was not entered on the insurance policy but only date of commencement was mentioned. It is true that no time is mentioned on the insurance policy, but the insurance policy is issued in continuation of the cover note which is issued immediately after receiving the premium. One cannot be read in isolation. Both should be read together, for, it would be incongruous to say that according to the cover note the risk covered was from 5.30 P.M. on 27-2-1989 and after the issue of policy the said time stands proponed to 12 'O' clock and 1 minute of the same day.

13. In the result, we answer the question set out first as follows:-

No Insurance Policy issued by an Insurance Company on any day expressly specifying the date and time of issue on the cover note or the policy, covers the risk in respect of the accident caused by the vehicle earlier on the same day, in respect of which such policy is issued if the premium was paid and the insurance policy was taken/issued, after the accident.

14. The learned Counsel for the claimant had submitted that even in the event of our answering the question of law in favour of the appellant - Insurance Company, we should direct the Insurance Company to pay the amount of Rs. 15,000-00 to the claimants, as the claimants had lost the sole bread earner, and for the reason that it would take considerable time for recovering the said amount from the owner of the vehicle, and as the claimants have been put to considerable hardship. In the circumstances, we are of the view that in the interest of justice, notwithstanding the allowing of the appeal, the appellant - Insurance Company, should be directed to pay a sum of Rs. 15,000-00 to the claimants in order to give an immediate relief to the claimants and that we should direct the Tribunal that while making final award the Tribunal should pass an award against the order and in favour of the appellant - Insurance Company, for Rs. 15,000-00.

15. Before concluding, we are constrained to observe that in several cases which have come before us, we have found that insurance policy is taken after the accident, on the date of the accident. Therefore, it is desirable that the Insurance Company should make the production and inspection of the vehicle compulsory before issuing a fresh policy by the Insurance Company concerned or a renewal policy, if the renewal is sought for after the previous policy had expired and to issue cover note or policy after making sure that the vehicle was not involved in any accident on that day and also to specifically incorporate the time of commencement of the policy in all the connected documents, such as Receipt acknowledging the receipt of premium, Cover Note and the Insurance Policy.

16. In the result, we make the following order:-

(i) The Appeal is allowed.

(ii) The order made by the Tribunal is set aside.

(iii) The Insurance Company shall, however, pay to the claimants the amount of Rs. 15,000-00 immediately.

(iv) The Tribunal is directed to pass an Award against the owner and in favour of the appellant - Insurance Company, for a sum of Rs. 15,000-00 while making the final Award.