United India Insurance Co. Ltd. Vs. Ratansingh and ors. - Court Judgment

Excerpt:
- - the payment takes effect from the delivery of the cheque but is defeated by the happening of the condition, i.s.k. dubey, j. 1. this order shall also govern disposal of misc. petition nos. 896/ 1992 (united india insurance co. ltd. v. mahila katori), 897 of 1992 (united india insurance co. ltd. v. mahila, javitri), 898/1992 (united india insurance co. ltd. v. udhalsingh); 899/1992 (united india insurance co. ltd. v. chotu); 900/1992 (united india insurance co. ltd. v. mahila veermati); 901/1992 (united india insurance co. ltd. v. smt. kiran); 902/1992 (united india insurance co. ltd. v. smt. sudamabai), 905/1992 (united india insurance co. ltd. v. mahila meena); 906/1992 (united india insurance co. ltd. v. mahila rajabeti); 907/1992 (united india insurance co. ltd. v. mangaliya) and 908/1992 (united india insurance co. ltd. v. smt. mayadevi). 2. all the aforesaid petitions under article 227 of the constitution of india arise out of the interim award passed under section 140 of the motor vehicles act 1988 (for short, the 'act') by the motor accidents claims tribunal, morena (for short, the tribunal) directing payment of fixed sum of compensation of rs. 25,000/- in respect of nine cases of death and rs. 12,000/- in respect of three cases of disablement on the principle of 'no fault liability.' 3. the facts giving rise to these petitions are thus : on 8-8-1991 at about 5-30 p.m. the deceased and the injured persons were travelling as passengers in tempo no. mpg 9947 which was going from morena to kadhiyahar on morena-ambah road; truck no. cpw 7506, owned by m/s agrawal construction company, morena, driven by one lochan-singh, was coming from the opposite direction, which dashed against the said tempo causing severe multiple injuries to 16 passengers travelling in the tempo. out of sixteen passengers, 10 died as a result of the said accident. the legal representatives of the deceased persons and three injured persons presented 12 separate claim applications under section 166 of the act before the tribunal against the owner, driver and the insurer of the truck. the petitioner and the respondent, national insurance company (for short, 'nico') were impleaded as insurers of the truck. except in claim case no. 64/1991, out of which m.p. no. 907/1992 has arisen, the owner, driver and the insurer of the tempo were not made parties to the other claim cases. along with the application under section 166, the claimants also filed applications under section 140 for interim award of a fixed compensation on the principle of 'no fault liability.' 4. the owner of the truck claimed indemnity because of insurance of the vehicle (truck). the petitioner/company in reply to the application under section 140 stated that the truck (no. cpw 7506) was not insured with the company; the cover note covering the risk was void from its inception, as the insured owner gave cheque no. 974397 of rs. 5,574/- towards premium of insurance of the truck, ofwhich a receipt and a cover note were issued; the cheque was sent for collection and encashment by the state bank of indore, morena branch, to u.co. bank, moorabad branch, which returned the cheque to state bank of indore vide their memo dated 5-8-1991 with the remark 'jis seema tak ki vyavstha ki gayi hai us se adhik.' on receipt of it, the petitioner/company sent a letter dated 8-8-91 to the insured regarding dishonour of the cheque, informing that in view of the non-payment of the premium the cover note issued stands concelled from its inception and, consequently, receipt no. 18219 issued to the owner/insured for payment as also acceptance advice stand cancelled. this letter was delivered to the insured on 12-8-1991 as is evident from the certification of the postal authorities. in between the owner also got the vehicle insured with the nico for the period from 8-8-1991 to 7-8-1992 after making payment of premium of rs. 5,574/- of which nico issued policy no. 030706/91, but the owner umesh agrawal for insured agrawal construction co. ltd., applied on 9-8-1991 vide annexure r-8(1) to nico that as the vehicle was insured from 25-6-1991 to 24-6-1992 with petitioner, the amount of premium so paid be returned. in response to the application, nico refunded the amount vide annexure r-8(2) stating thus: 'at the request of the assured vide his letter dated 09-8-1991, it is hereby agreed and declared that the competent authority has 'cancelled' the above-mentioned policy since inception. hence a refund of premium of rs. 5573/- (less rs. 01 /- stamp duty) is hereby allowed to the insured.' 5. the tribunal after hearing parties passed interim awards in cases of death, of rs. 25,000/- and in case of permanent disablement rs. 12,000/-, with interest at the rate of 12% per annum, and directed the petitioner/company to pay. it is this interim award passed in all the claim cases that has been challenged by separate aforesaid 12 petitions under article 227 of the constitution. 6. shri b, n. malhotra, counsel for petitioner; shri n. d. singhal, counsel forclaimants; shri d. k. katarc, counsel for the owner and driver of the truck, and shri s. s. bansal, counsel for nico, were heard. 7. shri malhotra placing reliance on section 64vb of the insurance act, 1938 (for short, the 'insurance act') and a decision of the apex court in case of united india insurance co. ltd. v. ayab mohammed, 1991 acj 650 : 1991 (2) tac 375 and a single bench decision of this court in united india insurance co. v. babu shah, 1991 (2) mpwn 124, raised an important question whether before saddling any liability on the insurer the tribunal was required to consider if the vehicle was duly insured in accordance with law, and whether mere issuance of cover note was sufficient to cover the risk or whether the risk is covered only when premium is received, as is provided in section 64vb of the insurance act. it was contended that as the cheque issued against the cover note was dishonoured, there was no payment and no risk, and in such circumstances, insurer is not liable to pay either the amount of interim or final award. 8. in our opinion, the contention raised is of vital importance and deserves consideration. before we deal with the question, we may make it clear that it is not a case where the insurer is avoiding the liability covered by the terms of the policy on any of the defences available under section 149(2) of the act (correspondent to section 96 of the old act). where a plea of avoiding the liability or the cancellation of the policy is raised on any or more of the grounds as contemplated under section 149(2) of the act, the insurer/company has to pay the amount of the award forthwith and any objection to the ultimate liability of the insurance company may, thereafter, be investigated and enquired into while dealing with the main application and making the award in terms of section 168 of the act (corresponding to section 110-b of the old act) including the liability of the insurance company, which is the consistent view of this court. see mohammed ilias v. bodhani bai, 1991 jlj 2 : (air 1991 mp 5), national insurance company v. radhelal, 1990 (ii) mpwn 131 : (air 1990 mp 383) and dwarika v. biso, 1990 (ii) mpwn 173 : (air 1990 mp 258).9. but the question involved in the petitions relates to section 64vb of the insurance act, which is extracted in extenso : '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, 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 the 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 no case be credited to the account of the agent. (4) whether 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, by rules, relax the requirements of sub-section (1) in respect of particular categories of insurancepolicies.' 10. a bare reading of the section showsthat the object of the section is to secure advance payment of the premium by the insurance company before the assumption of risk. section 64vb places a prohibition upon the insurer that unless and until it receives the payment of premium or the same is guaranteed to be paid in a particular manner and within a particular time as may be prescribed in advance, there can be assumption of risk on the part of the insurer. sub-section (2) lays down that 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 case of those risks for which premium can be ascertained in advance. the explanation to this sub-section further makes it clear that the premium may be tendered by postal money order or by cheque sent through the post and the risk may be assumed on the date on which the said money order is booked or the cheque is posted. therefore, it is clear that in terms of the mandate of section 64vb the liability is assumed only after the premium is received in advance. 11. the contention that the cheque in compliance with section 64vb was paid and, therefore, the petitioner/company having issued cover note assumed the risk, cannot be accepted. can the cheque which has been dishonoured because of the insured's insufficiency of funds in the bank account bind the petitioner/company? a cheque is a negotiable instrument under section 13 of the negotiable instruments act, which under section 6 of the said act is defined as : 'cheque' is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise on demand. it is clear from the definition that the touchstone by which a cheque is tested is that it must be payable instantly on demand. a cheque, unless dishonoured, is payment. the payment takes effect from the delivery of the cheque but is defeated by the happening of the condition, i.e., non-payment at maturity. see commissioner of income-tax v. ogale glass works ltd., air 1954 sc 429. therefore, for the purposes of section 64vb a cheque would be a cheque, if, on presentation, it is encashed immediately and is not returned for insufficiency of funds or balance. therefore, the risk can only be assumed on the part of theinsurer or, in other words, the risk commences only on payment of the premium by the insured in advance by a cheque or in cash, which is a condition precedent for assuming the risk. 12. in case of ayab mohammed (supra), wherein the insurance company placing reliance on chandan v. kanwarlal, 1989 acj 816 (delhi) contended that the cheque covering the premium had bounced and in the absence of payment, the cover note had become ineffective and there was no policy which obliged the insurer to pay the compensation, the apex court in para 4 observed thus: 'in the impugned judgment the high court has taken the view that in the absence of steps taken for cancelling the cover note the insurer's liability continued, although the bouncing of the cheque and steps taken by the insurer cancelling the right note have been found as a fact. in fact, the insurer had issued notice to the registering authority and parties that the cheque bounced and the liability ceases but the high court has recorded a finding that the notice of cancellation has not been served on the insured. the fact that the cheque had bounced was a matter within the knowledge of the insured. at any rate, there would be that presumption and, therefore, in ordinary circumstances no special notice would be required.' 13. therefore, in view of section 64vb and the law laid down by the apex court in case of ayeb mohammed (supra), the vehicle (truck) was not insured, as, for assuming the risk, the premium was not received by the petitioner/ company because of bouncing of the cheque; on mere issuance of cover note against the cheque so issued, there was no risk nor contract, as there was no payment. in such circumstances, the petitioner/company cannot be made liable to pay any amount of compensation either interim or final. 14. the cases relied on by shri n.d. singhal, counsel for the claimants viz., mohammed iliyas (supra); radhelal (supra), dwarika (supra); new india assurance company v. laxmansingh, 1990 (ii) mpwn197; oriental insurance company v. band-han, 1988 (ii) mpwn 104; hafiz mohammed v. kalloo, 1987 (ii) mpwn 160; new india assurance co. ltd. v. member, motor accidents claims tribunal, 1988 acj 612; national insurance co. ltd. v. surjit singh, 1988 acj 1122 : (air 1989 noc 83 (j&k) national insurance co. ltd. v. savithri (1990) ii acc 505; oriental insurance co. ltd. v. k. gowramma (1989) i acc 200; national insurance company ltd. v. haidar ali, 1992 (l) tac 214, are distinguishable. in the decision of karnataka high court in case of k. gowramma (supra) the insurance company after the receipt of cheque as valid payment towards premium from the insured for the cover note issued, did not present the cheque for encashment; therefore, it was observed therein that the insurance company cannot contend that the cheque was not presented for encashment and non-presentation of the cheque cannot have the effect of absolving the insurer of the liability under the cover note issued pursuant to the receipt of such cheque. the decision of this court in case of hafiz mohammad (supra) is also of no help to the claimants, as in that case though the defence was raised that the vehicle involved in the accident was not insured with the insurer, the court observed that it has to be decided at the time of final decision, and the amount of interim compensation is to be paid by the insurer, but for that defence raised, from the facts of the case, it is clear, that the insurance company did not even file any reply to the application under section 140 nor placed any material, and the owner of the truck filed a photostat copy of the cover note of the insurance policy. in the said background of the facts, the court observed that as the insurance company did not avail of the opportunity to file reply to the said application, there was nothing on record to assume that the said truck was not insured at the time when the accident took place. the other decisions relied are not on the point and are of no help to the claimants. 15. the contention about violation of section 147(4) of the act, raised by shri singhal, counsel for the claimants, in our opinion, has also no merit. even if there was a lapse on thepare of the petitioner/company or not informing the registering authority of not issuing the policy of insurance after the issue of cover note within seven days of the expiry of the period of the cover note, as required under section 147(4), that would not amount to assuming of the risk by the insurance company/petitioner in the absence of receipt of premium, as the object of sub-section (4) of section 147 is entirely different, which relates to issuance of policy after the issue of cover note by the insurer. 16. true, the provisions contained in chapter v of the act being beneficial are meant for the hapless and helpless claimants, who being the legal representatives of the deceased as also the victims who are perma' nently disabled, are paid expeditiously the limited amount by way of compensation, but the petitioner/company, which has not assumed the risk, cannot be forced to pay in the absence of the contract of insurance, as it is not a case where the petitioner/company after covering the risk claims to avoid or cancel the policy of insurance on any of the grounds available to it under section 149(2) of the act. 17. the contention that section 144, which lays down that the provisions of chapter x shall have effect notwithstanding anything contained in any other provision of the act or of any other law for the time being in force, also contest in the way of petitioner/company, cannot also be accepted as there was no premium paid nor there was any contract of insurance and, hence, there was no assumption of the risk. certainly, the position would have been different, if the petitioner/ company after covering the risk would have avoided the liability or cancelled the policy on any of the defence available to it. 18. as a result of the aforesaid discussion, the awards passed in all the cases directing the petitioner/company to pay the limited amount by way of compensation cannot be sustained and are hereby quashed. consequently, all the cases have to go back to the tribunal for determining the liability of the owner of the offending truck and to nico, as we have not expressed any opinion about theliability of nico on the effect of issue of policy and its subsequent cancellation, which will have to be decided by the tribunal afresh after hearing parties in accordance with law. 19. let the parties appear before the tribunal on 21-9-1992, for which no fresh notices need be issued by the tribunal to parties, as they have been noticed here. on that date the tribunal shall hear parties and decide the applications under section 140 fixing liability jointly or severally and direct deposit of the amount of interim compensation forthwith with accrued interest at the rate of 12% per annum. 20. in the circumstances of the case, parties to bear their own costs of these petitions.