Deokar Exports Pvt. Ltd. v. New India Assurance Company Ltd.

A # [2008] 14 S.C.R. 1 # DEOKAR EXPORTS PVT. LTD. _v._ NEW INDIA ASSURANCE COMPANY LTD. (Civil Appeal No. 5103 of 2002) -I SEPTEMBER 23, 2008 # [R.V. **RAVEENDRAN AND LOKESHWAR SINGH PANTA, JJ.]** B _Insurance Act, 1938:_ S. _64 VB_ - _Insurance contract_ - _Effective date_ - _Held.:_ c _Insurer cannot_ assume _risk unless and until premium_ is _re-_ · ' _ceived/guaranteedldeposited_ - _A policy can_ assume _the risk from_ a _retrospective date provided such date_ is _not earlier than the date on which premium_ was _paid in cash or by cheque to insurer_ - _On facts, initial insurance policy expired on_ D _12.3.1988_ - _Prf?mium amount for one year received by insurer only on 26._ 8. _1988_ - _Under the terms of finance between the borrower and lender-MSFC, uninterrupted and continuous insurance cover_ was _necessary during the period the machine_ was _secured in favour of MSFC_ - _In view of the bar contained_ E _in_ s. _64 VB, insurw could not provide insurance cover with retrospective effect from_ a _date prior to 26._ 8. _1988_ - As _the premium_ was _for one year, policy_ was _rightly issued assuming risk for the period 26._ 8. _1988 to 25._ 8. _1989·- Both, the borrower and MSFC were aware that the insurance cover under the policy_ was _for the period 26._ 8. _1988 to 25._ 8. _1989 but neither of them_ F _objected to it_ - _Therefore, insurer cannot be made liable for the_ loss _occurred on 10. 2. 1990_ - _Contract. [Para 9_ - _1 OJ_ ## · _CONTRACT_ _Insurance contract_ - _Held: In_ a _contract of insurance,_ G _rights and obligations are strictly governed by the policy of insurance_ - _No exception or relaxation can be made on the ground of equity- A policy of insurance_ is a _contract based on an offer (proposal) and an acceptance_ - _In the instant_ case, 1 H SUPREME COURT REPORTS [2008] 14 S.C.R. 2 A _the insured made_ a _proposal_ - _The insurer accepted the proposal with_ a _modification_ - _Therefore, it was_ a _counter-proposal and the insured could have refused to accept the same or could have either expressly or impliedly accepted it and in that event it would have resulted in a concluded contract in terms of the_ B _counter proposal, or the insured could h.ave made a counter proposal to the counter-proposal of the insurer in which event there would have been no concluded contract unless the insurer agreed to such counter-counter-proposal- But the insured definitely did not have the fourth choice of propounding a con-_ e _eluded contract with a modification neither proposed nor agreed to by either party_ - _If the insured 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_ - D _Insurance Act, 1938- S.64 VB_ - _Equity [Para 11]_ CIVILAPPELLATE JURISDICTION: Civil Appeal No. 5103 of 2002 From the final Judgment and Order dated 9.3.2001 of the High Court of Judicature at Bombay in First Appeal No. 102 of E 2000 Shekhar Nephade, Arun R. Pednekar and S.K. Nandy for the Appellant. · F Pramod.Dayal and Nikunj Dayal for the Respondent. _y_ The Order of the Court was delivered by R. V. **RAVEEN,DRAN** J. 1. The appellant imported a Dehydration Machine firtanced by Maharashtra State Finance Corporation (for short 'MSFC'). The machine was insured by the G 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 ~fter the expiry of the policy, on 25.8.1988, MSFC sent a c~eque for Rs.3, 135/- on behalf of the appellant for renewal of the policy. A formal stamped receipt was issued H by the insurer confirming the receipt of the cheque on 26.8.1988. -\ DEOKAR EXPORTS PVT. LTD. _v._ NEW INDIA ASSURANCE COMPANY LTD. [R. V. RAVEENDRAN J.] / -~ ---i \ 2. By letter dated 7.4.1989, the insurer informed the apA pellant ti1at 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 B delivered it to the insurer on 16.6.1989. In the said proposal, the appellant stated that insurance cover was required for the period 12.3.1988to12.9.1989. 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 c 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 D 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 E in service by the Insurer. The said complaint was dismissed on 23.9: 1992 on the ground that the 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 F 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 G 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 H [2008] 14 S.C.R. ## 4 ## SUPREME COURT REPORTS A one year commencing from that date; and that therefore, as on the date of the fire accident - 10.2.1990, the machine must be deemeq 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 complai.nt before the National Consumer s 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-objections challenging the finding that the insurance was in force on the date of fire accident. c 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 0 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 E 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 tha~ a conF tract of insurance, unless otherwise mutually agreed, shall always be prospective in its qperation, that is from the date of issuance of the policy ef 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 G have issued the policy 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 H DEOKAR EXPORTS PVT. LTD. _v._ NEW INDIA ASSURANCE COMPANY LTD. [R. V. RAVEENDRAN J.] 5 ---\ out the error relating to the period of insurance cover. The apA pellant contmded 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 1 for our consideration : 8 - (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 c 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? D - (iii) Whether the policy should be treated as one covering the machine against tie risk dudng the period 30.6.1989 to 29.6.1990? 7. The contention and grievance of the appellant is not that E 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 F 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: G "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 ~rdinarily payable outside India _unless_ H SUPREME COURT REPORTS 6 [2008] 14 S.C.R. A B _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._ c 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." D _(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 E 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 F 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 G 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 H only on 26.8.1988. Having regard to the bar contained in Sec- DEOKAR EXPORTS PVT. LTD. _v._ NEW INDIA 7 ASSURANCE COMPANY LTD. [R. V. RAVEENDRAN J.] ~ tion 64-VB of the Act, the insurer could not accept the request A 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 efB feet 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 is... sued assuming risk for the period 26.8.1988 to 25.8.1989. Nonissue of the policy for the period commencing from 12.3.1988 required by the appellant, was for a good and valid reason. There c 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 0 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 no E 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 F 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 G 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. E H SUPREME COURT REPORTS [2008] 14 S.C.R. 8 A 11. A policy of im~urance is a contract based on an offer _)r-_ (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, B in which event there would have been no contract. The second was to ac;_cept either expressly or impliedly, the counter-proposal of the respondent (that is respondent's acceptance with modifi\cation) which would result in a concluded contract in terms of the counter proposal. The third was to make a counter proposal · C 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 0 the period 26.8.1988 to 25.8.1989 instead of the period 12.3.1988to12.9.1989, 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 E 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 judgF ment of the High Court. The appeal is dismissed with costs _r_ quantified at Rs.10,000/-. R.P. Appeal dismissed.