CANARA BANK vs J.M.ZUBAIR

THIS appeal is directed against the order passed by the District Forum, Ernakulam, in O.P. No. 506/1994. The Opposite Party is the appellant.

BRIEFLY stated, the allegations in the complaint are as follows: The appellant is the owner of a fishing vessel and it was purchased by availing a loan from the first Opposite Party Bank and it was insured with the second Opposite Party. As part of the loan transaction, the vessel had been insured in the name of the first Opposite Party under account of the complainant and the premium had been paid by the first Opposite Party Bank and premium amount is debited in the loan account of the complainant. The vessel met with an accident on 10.7.1993 and the complainant submitted a claim with the second Opposite Party who ordered a survey but subsequently they intimated the complainant that there was no insurance coverage on the date of the accident due to non-payment of the third instalment of the premium of that year. It is common ground that in the case of Marine Hull Insurance Policy it was issued after valuation and the premium is paid in three instalments, that is 40% of the amount on taking the policy and 30% each at the intervals of three months and on payment of the third instalment the policy will be effective for the remaining six months period. In this case a policy was issued on 6.11.1991 and that was extended upto 5.11.1992. On 6.11.1992 the first Opposite Party Bank paid a sum of Rs. 7,373/ as the 40% of the premium for the next year. However, according to the Opposite Party when the Surveyor was deputed for valuing the vessel he reported that it was undergoing repairs and hence not sea worthy and as such the vessel could not be covered under Marine Hull Policy. It is alleged by the second Opposite Party that they had informed the Bank about this and fire policy was issued for the period from 6.11.1992 to 5.11.1993 and after obtaining a valuation re port on the expiry of the fire policy when the vessel was undergoing repairs, a policy was issued covering the period of three months from 7.1.1993 to 6.4.1994 and obviously the premium paid by the Bank on 6.11.1992 was adjusted towards the same. The premium for the fire policy was collected directly from the complain ant and it was issued on 7.1.1993 with retrospective effect from 6.11.1992 to 5.1.1993 and according to the first Opposite Party they were not aware of the issuance of the fire policy until very late. It is admitted that the first Opposite Party had paid the second instalment of the premium of Rs. 5,489/ on 2.4.1993. However, it was con tended by the first Opposite Party that at the time of handing of Demand Draft the Development Officer, Mr. Xavier told that the policy will be valid till 5.10.1993 and on the basis of this they made entries noting 5.10.1993 as the due date of the payment. It is stated in Ext. B 1 letter dated 13.9.93 and it was also alleged that inspite of repeated requests the second Opposite Party had not forwarded the renewal endorsement to them. However, it has come out that the first Opposite Party has not paid the instalment of the premium which was due on 7.7.1993 and the stand taken by the second Opposite Party is that there was no coverage after 7.7.1993 and in the circumstances the insurer is not liable to indemnify the complainant for the damage sustained due to the accident. The complainant alleged that the non-payment of the third instalment which resulted in the repudiation of claim made by the complainant by the second Opposite Party would amount to deficiency in service on the part of the first Opposite Party and in the circumstance they were liable to indemnify the complainant for the loss sustained by him. In the version filed by the first Opposite Party they contended that the insurer had not forwarded the renewed policy to them and, therefore, they did not know when the premium had to be paid and the fire policy was taken without their knowledge and that was done by the insurer without any request from the Bank and as such they are not responsible for what had happened subsequently. It was also contended that the Development Officer Mr. Xavier in formed the Bank that the third instalment of premium was due only on 5.10.1993 and that was the reason why no payment was made on 5.7.1993. They are, therefore, not liable for the claim made by the complainant and the default is on the part of the insurer them selves.

The second Opposite Party filed a version stating that though the Bank paid the first instalment on 7.11.1992 they could not issue the Marine Hull Policy since the vessel was under going repairs and the only policy which could be given for that period was the fire policy and the Bank had been informed accordingly. After the repair was over, the premium paid by the Bank earlier had been adjusted towards the first 40% instalment and the Bank had paid the second instalment on the due date and, therefore, they cannot pretend ignorance about the date on which the third instalment was payable. As a result of the non payment of the third instalment premium, the insurance policy was not in force on the date of the accident and, therefore, they are not liable to settle the claim made by the complainant.

THE District Forum relied on the judgment of the Kerala High Court in appeal against O.S. No. 564/1983 on the file of the Subordinate Judge''s Court, Thiruvananthapuram and also decision of the Division Bench of Kerala High Court in A.F.A. 85 of 1992 which arose against the judgment of Single Judge holding that the Bank has got primary liability to pay the premium regularly and that if they have committed any default and caused damage to the plaintiffs, the Bank is liable to reimburse the damage caused to the plaintiffs. In that view the District Forum passed an order directing the first Opposite Party Bank to pay to the complainant a sum of Rs. 82,680.80 which is stated to the actual loss sustained by the complainant. Feeling aggrieved by the said order, this appeal has been preferred.

THE learned Counsel appearing for the appellant heavily relied on the provisions of Ext. B 1 agreement executed by the complainant and the first Opposite Party in regard to the loan sanctioned by the Bank. Paragraph 1(IV) therein relied states: "THE borrowers shall forthwith effect or cause to be effected and endorse over to and deposit with Bank Insurance Policies of Companies approved by the Bank covering risk of every usual description including War Risk on the vessel/s for an amount as may be prescribed by the Bank and shall also enter the vessels in protection and indemnity Associations and shall keep the vessel/s so entered, during the continuance of this security".

Paragraph 1(V) states: "THE borrowers shall not less than one week before the expiration of the above mentioned policies and from time to time thereafter during the continuance of this security not less than one week before the expiration of the policies next hereinafter mentioned effect or cause to be effected with Insurance Companies approved by the Bank policies covering the vessels from risk of every usual description including war risk for such amount as may be pre scribed by the Bank and endorse over to and deposit with the Bank all the above Policies".

Paragraph 1(VI) states: "THE borrowers shall allow the Bank to effect insurance on the vessel/s for such amounts as may be prescribed by the Bank and also to enter the vessel/s in protection and Indemnity Associations if the borrowers fail to perform their obligations under paragraphs (I) to (V) of this clause or if any reason of the failure of any insurance officer or underwriters or from other causes all or any of the insurance for the time being in force shall at any time lapse or become deficient and the borrowers do not within 7 days effect fresh approved insurance so as to keep the vessel/s at all times insured as aforesaid".

On the basis of the above clauses it was argued that the primary responsibility is that of the complainant. As per the loan agreement the Bank company was paying premium and debiting the amount in the account of the complainant. They had an obligation to keep the vessel under valid insurance coverage. The State Commission, Lakshadweep had occasion to consider a similar question in Ammini Pattakal Attakoya v. Gen eral Manager, Syndicate Bank, Karnataka & Others (1996 (4) CTJ 622 SCDRC). In that case the agreement cast obligation on the borrower to keep the vessel under insurance coverage and it was also provided if the complainant fails the Bank has option to keep the vessel under valid insurance coverage. It was found that through out, the Bank remitted the premium amount and kept the vessel under the insurance. In this context the State Commission, Lakshadweep also considered the practices followed by the Bank in this regard and reference was also made to pages 456 and 457 of Law of Banking Practice by Tannon, 18th Edition. The relevant passage reads as follows: "The service of the Bank is classified into two: (a) Agency services, (b) Miscellaneous or general utility ser vice. Agency service has been further explained as follows: "Besides the collection and payment of cheques and bills, the modern Bank Acts as a special agent of its customer in the performance of the following important functions: (i) Payment of subscriptions, premia, rent, etc. and collection of promissory notes, coupons, dividends, salaries, pensions etc., (ii) purchase and sale of stocks and shares; (iii) acting as trustee, executor and attorney; (iv) service as correspondent and representative of its customers, other Banks and financial corporations".

It is further stated that: "When a person has to make payments in respect of subscriptions, insurance premia, rents etc., or to receive salary or pensions or moneys due on promissory notes, coupons, dividends, interest warrants, rents etc., he generally entrust the work to his Bankers. It will be seen at a glance that these functions, which a modem Banker usually undertakes to perform on behalf of his customer, are similar in nature to the payment and collection of cheques, a function which the Banker is legally bound to perform for his customers. These services earn for the Bank not only some commission but also the goodwill of its customers and are then an important though indirect, asset in promoting its business. In either case, the Banker acts as or agent of his customer. Moreover it will mean unnecessary expense to a customer to employ a separate agent for this kind of work, when his Banker is prepared to do it for a nominal charge".

IN Appeal No. 241 /80 to which we have already made reference, a Single Judge of the Kerala High Court and appeal against the judgment in the said appeal of the Kerala High Court also took the view that it is primarily the obligation of the Bank to pay the premium in such cases. The Division Bench confirming judgment of the Single Judge observed as follows: "We feel that the Bank was naturally interested in keeping the security safe. IN these circumstances, it has to be held that the Bank has got the primary liability to pay the premium regularly".

THE Division Bench ultimately held that the Bank has committed any default and caused damage and, therefore, was liable to reimburse the damages. In the case before the Lakshadweep Commission, it was found that the Bank alone was paying the insurance amount and the Bank also debited the premium amount before the date of renewal but the premium was sent long after due date and after the peril occurred. In these circumstances the State Commission of Lakshadweep held that the Bank was liable to indemnify the complainant and in that view passed an order directing the Opposite Party to pay Rs. 9,50,000/ together with interest @ 18%.

In this case also we find that throughout the Bank was paying premium for Marine Hull Policy from November, 1986 onwards. It is also seen that the first instalment of Rs. 7,376/ was paid by the Bank on 2.11.1992 and obtained receipt on 6.11.1992. They also paid the second instalment of Rs. 5,489/ on 2.4.1993 and the amounts were debited in the account of the complainant. According to the first Opposite Party they could not pay the third instalment firstly because no policy was issued by the Insurance Company in spite of payment of first instalment and secondly because Mr. Xavier, the Development Officer of the Insurance Company told the Bank that third premium was due only on 5.10.1993. The due date was really 7.7.1993. As pointed out by the District Forum there is no acceptable evidence to show that Mr. Xavier, Development Officer gave any information to the first Opposite Party that due date of payment of third instalment was 5.10.1993. As pointed out in the decision of the Kerala High Court and also in the State Commission, Lakshadweep, the primary duty is on the Bank to keep the vehicle under valid insurance. It is true that in the agreement it is stated that the borrower should keep the vessel under valid insurance during the loan period and the first Opposite Party has only reserved its right to pay the premium in the event of default made by the borrower. However, the practice followed right from the beginning is that the Bank itself pays the premium in regard to Marine Hull Policy. In this case the first Opposite Party sent the first and second instalments of the premium and debited the amounts in the ac count of the complainant and, therefore, they cannot plead that they had no obligation to remit the third instalment because of instructions given by Xavier the Development Officer that the third instalment was due only on 5.10.1993. Payments were made by first Opposite Party and details of payments are also with them and it is meaning less to say that the Development Officer told them that the due date is 5.10.1993.

LEARNED Counsel appearing for the appellant pointed out that the complainant himself has taken fire policy. That policy was not seen taken in the name of the Bank. We are not at the question whether the borrower could have taken the policy, but whether there is any deficiency committed by first Opposite Party in not remit ting the third instalment of the Marine Hull Policy. We are of the view that primary obligation is on the part of the first Opposite Party to remit the premium and the first Opposite Party committed deficiency in this regard which resulted in the loss. Coming to the actual amount to be reimbursed, we find that the complainant has claimed an amount of Rs. 82,680.80, which is stated to be the actual loss sustained by the complainant. In the version filed by the Opposite Parties this allegation has not been denied and the District Forum held that the complainant is entitled to this compensation. We, therefore, do not find any ground to interfere with the order passed by the District Forum in this regard.

IN the result, the appeal fails and it is accordingly dismissed. We direct the parties to bear their respective costs here. Appeal dismissed. ______________