HOTEL SOUTHERN (P) LTD. vs NATIONAL INSURANCE CO. LTD.

THIS appeal is directed against the order dated 17.12.93 passed by the State Commission, Tamil Nadu at Madras, dismissing the complaint against the Opposite Parties.

THE facts are not in dispute. The Appellant herein had obtained a policy of insurance from the National Insurance Co. Ltd. for his Car No. TN 27-A 4905 for a sum of Rs. 4,50,000/- for the period 26.4.91 to 25.4.92. He sought renewal of this insurance for the period 27.4.92 to 26.4.93 and sent a cheque for Rs. 7,839/''- towards the premium for the said policy. The National Insurance Co. Ltd. issued a policy bearing No. 501006/ 31/92/61/01135, but the contract of insurance was subject to the encashment of the said cheque. The said cheque on due presentation to the Bank was dishonoured and returned with the remarks "Funds expected. Please present again". The National Insurance Co. Ltd. sent letter dated 6.5.92 to the Complainant under registered cover informing him of this fact and also cancelling the above said policy. It latter transpired that the Complainant deposited a sum of Rs. 8,000/- with Salem Branch of Union Bank of India, Opposite Party No. 2. The Complainant alleged that he had given instructions that the money should be transferred to Union Bank of India, Valapady Branch of the Bank on which the said cheque for Rs. 7,839/- was issued, but the amount was not transferred when the Complainant received the said letter dated 6.5.92, he made enquiries and got the amount transferred and then requested Opposite Party No. 1 by letter dated 22.5.92 to present the cheque again. Opposite Party No. 1 presented the said cheque again on 3.7.92 when it was cashed. In the meanwhile the said vehicle met with an accident on 29.4.92 and the claim was lodged with Opposite Party No. 2 which repudiated the claim by its letter dated 15.3.93 on the ground that there was no valid insurance on the date of accident because the policy was void ab initio for want of consideration as also it was cancelled by way of abundant caution and the amount of Rs. 7,839/- was refunded.

THE Complainant then filed the complaint under Section 17 read with Section 12 of the Consumer Protection Act, 1986 against the Opposite Parties alleging that the Complainant has paid on 27.4.92 the renewal premium of Rs. 7,839/- by cheque drawn on Opposite Party No. 2 who returned with the remarks "Fund expected. Please present again", that due to communication gap the funds which are available with Opposite Party No. 3 could not be transferred to the Complainant''s account with Opposite Party No. 2 and hence the cheque could not be honoured. Subsequently, on the request of the Complainant the cheque was represented and amount realised and the policy was reinstated on 8.7.90. The Complainant alleged that the repudiation in the letter dated 15.3.93 was wrong mala fide as the policy was in force and thus negligence on the part of the Opposite Party No. 1 in settling a genuine claim and amounts to deficiency in service. Opposite Party Nos. 2 and 3 in their joint version stated that the Complainant remitted Rs. 8000/- with the third Opposite Party only on 29.4.1992 by 11.00 a.m. and even then no instructions were given to transfer the amount to the second Opposite Party, that only on 9.5.92 the Complainant''s representative came and requested the transfer of this amount from the third Opposite Party to the second Opposite Party, and that the non-transfer of Rs. 8,000/-was only due to want of instructions of the Complainant and thus there was no deficiency of service on the part of the Opposite Party Nos. 2 and 3.

THE Opposite Party No. 1 reiterated that the cheque for Rs. 7,839/- dated 27.4.92 drawn on the Union Bank of India Valapady was dishonoured on presentation and so the policy issued on 27.4.92 was void ab initio but by way of abundant caution the policy was cancelled from the inception and the Complainant and the Regional Transport Officer were duly intimated of the same by registered post. The cheque was represented at the request of the Complainant and encashed to be used only for fresh policy and there was no reinstatement of the original policy issued on 27.4.92. It is reiterated that the claim was repudiated on valid grounds and there is no deficiency in service. The State Commission found that the cheque for the premium of Rs. 7,839/- has been returned unpaid for insufficient funds and that Receipt No. 911128 dated 27.4.92 stood cancelled and the Insurance Company is not on risk under Policy No. 501006/31/92/61/01135 which is Exhibit A-2 of the renewal policy. The State Commission also found that it is clear from the record that on the date of issue of cheque on 27.4.92, the Complainant had no funds either with the Valapady branch of the Union Bank of India or with the Salem Branch of Union Bank of India and as the cheque has been dishonoured the Opposite Party No. 1 was well within its right to cancel the policy and it had been conveyed under Exhibit B-2 communication dated 6.5.92. Relying on the judgment of the Supreme Court in United India Insurance Company Ltd. v. Ayeb Mohammed and Ors., (1991) ACJ 650, wherein it was held that when the Insurance Company issues a cover note insuring the vehicle the premium of which jvas remitted by cheque and the cheque was dishonoured, the policy is void ab initio. The fact of the dishonoured cheque is well within the knowledge of the insured and no special notice is required for the cancellation of the cover note of the risk/ policy. The State Commission found that this case is stronger as under Exhibit B2 dated 6.5.92 the Insurance Co. cancelled the risk under the policy on the dishonour of the cheque. With these findings the complaint was dismissed after holding that there is no deficiency in service.

WE have heard the learned Counsel for the parties and perused the records. Mr. R.K. Aggarwal, Authorised Representative of the Appellant does not dispute the factual position as found by the State Commission except the finding of the State Commission that the cheque which was represented and encashed was meant to be used only for fresh policy. His submission is that when the cheque had been encashed after being represented again, the Insurance Co. accepted the premium and they themselves reinstated the policy from the original date i.e., 27.4.92 as per their endorsement dated 8.7.92 and this information is intentionally withheld by the Opposite Party No. 1. His further submission is that in the language of Section 92 of the Negotiable Instruments Act, a cheque is dishonoured only when the drawer of the cheque makes default in payment on being duly required to pay this amount and in this case what the Banker of the Appellant said was that the funds were expected and the cheque should be presented again. Silcher Bank v. Pioneer Bank, AIR 1951 Assam 127 wherein it was held that the Bank did not say that it would not make the payment on the contrary it asserted that the funds were expected and the payment will be made.

IT is clearly established on record that the cheque for the premium of Rs. 7,839/- was issued on 27.4.92. It is manifest that there were not sufficient funds either with the Valapady Branch on which the cheque was issued or at the Salem Bank Branch''s account of the Appellant on that date and in fact a sum of Rs. 8,000/- was deposited by the Appellant only on 29.4.92. This clearly establishes that on the date when the cheque was issued to the Insurance Company, there was not sufficient balance in both the Banks'' Accounts and the cheque of premium could not have been encashed /honoured even if the statement of the Appellant about advices to Salem Branch for transfer of funds of Valapady Branch is accepted. The bank did not honour the cheque because of insufficiency of the funds. The acceptance of the risk by Opposite Party was conditional on the encashment of the cheque which was not encashed for one reason and another. The question that arose in the case relied upon by Mr. Aggarwal did not relate to a contract of insurance. In that case ''A'' drew a cheque on ''B, in favour of ''C on 20.3.45. ''C presented the cheque to ''B'' for payment on 21.3,1945, but it was returned with the endorsement that it would be honoured after collection of assets of drawer. ''C then negotiated the cheque with plaintiff-Bank and received full payment. The plaintiff then presented the cheque to ''B'' on 26.5.45, but it was dishonoured on the ground that the payment had been stopped by the drawer. It is on these facts that an observation was made by the Assam High Court that the endorsement does not amount to dishonour of the cheque. This runs counter to the statutory provisions which lays down that a cheque is said to be dishonoured by non-payment when the drawee of the cheque makes default in payment upon being duly required to pay the same. The intention of the Legislature has been made abundantly clear by insertion of Section 138 in the Negotiable Instruments Act w.e.f. 1.4.89 which provides that where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the Bank unpaid, either because of the amount of money standing to the credit of that account is sufficient to honour the cheque or that it exceeds the amount arranged to be paid, such person shall be deemed to have committed of an offence. The insurance company in this case received back the cheque as unpaid and opted to cancel the contract of insurance as void-ab-ini-tio for want of consideration, because the receipt of the premium and the policy issued was subject to encashment of cheque. As the Bank did not honour the cheque which was duly presented for payment of the consideration of the contract of insurance, the Insurance Company rightly treated it as dishonour by non-payment. There is no obligation on the part of the Insurance Company to present the cheque again and again. The policy of insurance that was issued was cancelled because of non-payment of the premium and thus risk was not covered on 29.4.92, when the loss occurred. In the present case, on facts it is found that on 27th April, 1992 there were no funds either with Opposite Party No. 2 or Opposite Party No. 3 and the cheque was dishonoured on presentation because of insufficient funds. The case is squarely covered against the Appellant by the judgment of the Supreme Court United India Insurance Co. Ltd. v. Ayeb Mohammed and Ors., 1991 0 ACJ 650 The policy of insurance was void ab initio in the absence of the consideration for the policy and in fact it was cancelled from the inception for non-payment of premium and thus there was no risk covered on the date of the accident on 29.4.92.

IT appears an endorsement may have been prepared by the Branch Office of the Insurance Company on 8.7.1992 but after the Branch Office sought instructions from Divisional Officer for issue of endorsement, it was cancelled and no endorsement was in fact issued. The Appellant has not produced the original endorsement if it was in his possession. At the appellant stage the Authorised Representative of the Appellant sought permission of this Commission to file photo copy of the Motor Control Register of Opposite Party No. 1. It shows that a sum of Rs. 7,839/- was received from the Complainant on 8.7.92 and an endorsement was purported to be issued but cancelled. It subsequently recorded "endorsement cancelled". The Appellant did not raise the question of issue of endorsement before the State Commission and no endorsement has been produced even at the appellate stage. A mere proposal to issue an endorsement which was cancelled on the receipt of the instructions from the Divisional Office cannot be considered as a revival of the policy which was void ab initio. Such a policy could not also be issued on 8.7.92 as the insurable interest had been lost in the accident on 29.4.92 and there was nothing left to be insured and therefore neither any policy was issued nor could be issued. In the result, the appeal fails and is hereby dismissed with costs. The finding and the conclusion of the State Commission are upheld. The Appellant shall pay Rs. 2,000/- as costs to Opposite Party No. 1.