JOSEPH SEBASTIAN vs DIVISIONAL MANAGER, NATIONAL INSURANCE CO.LTD

THIS appeal is directed against the order passed by the District Forum, Kottayam, in O.P. No. 734 of 1992. The complainant is the appellant.

SHORTLY stated, the allegations in the complaint are as follows : The complainant insured his vehicle with the first Opposite Party''s branch at Palai for comprehensive policy and paid the premium of Rs. 12,530/-. The policy was valid for the period from 26.4.1991 to 25.4.1992. On 26.4.1991 the vehicle met with an accident and got damaged. The matter was reported to the first Opposite Party and as instructed by the first Opposite Party the vehicle was repaired and a sum of Rs. 9,843.15 was given by the complainant to M/s. T.V.S. Limited. A claim was submitted to the first Opposite Party. But it was repudiated by the first Opposite Party without any reason. The complainant claimed Rs. 99,660/- as compensation from the first Opposite Party. The first Opposite Party filed their version. It was admitted that the first Opposite Party issued a policy covering the period from 26.4.1991 to 25.4.1992. A cover note was also issued on 25.4.1991 at 4 p.m. and a cheque for Rs. 12,530/-was given as premium. On 29.4.1991 the complainant sent a letter to the first Opposite Party stating that the vehicle met with an accident and a claim form was issued to the complainant by the opposite party. The complainant returned the same duly filled, from which it was understood that the accident occurred on 26.4.1991 at 5 p.m., the day on which the policy was supposed to be effective. On verification of the entire papers it was found that the cheque for Rs.12,530/- given by the complainant on 25.4.1991 as premium was dishonoured on 26.4.1991 for reasons'' insufficient funds and only on 27.4.1991 the cheque amount was credited into the first opposite party''s account. So, actually at the time of accident, the premium amount was not paid and hence under Section 54V.B. of the Insurance Act, 1938, the Insurance Company is not liable to compensate the insured for any peril happened and the claim was repudiated.

The Indian Bank, Palai, was impleaded as the second opposite party and they filed their version contending that a cheque drawn on the State Bank of India, Palai Branch, for Rs. 12,530/- was presented before the second Opposite Party by the first Opposite Party on 26.4.1991 and the second Opposite Party sent the same for collection to the State Bank of India, Palai Brach, but the same was dishonoured and returned for valid reasons. As requested by the party the second Opposite Party again sent the cheque for collection on the next day i.e., 27.4.1991 and on that day the cheque was honoured and he collected the amount for the first Opposite Party.

THE State Bank of India, Palai was also impleaded as third Opposite Party and they also filed a version contending that no reliefs were sought against them and they are not liable to pay any compensation. The District Forum took the view that at the time of accident there was no existing policy coverage for the vehicle and, therefore, the repudiation was valid.

IN this appeal the finding entered by the District Forum has been challenged. The District Forum has relied on Section 64 V.B. of the INsurance Act, 1938. It reads as follows : " (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 purpose 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) Where 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 24 hours of the collection excluding bank and postal holidays".

In the instant case the cheque was delivered and on the basis of explanation, it is argued that as the cheque is delivered the risk in assumed. In this case the cheque was sent for collection on 26.4.1991 but it was dishonoured on 26.4.91. But on 27.4.1991 the cheque was represented and amount was credited into the first Opposite Party''s account. It was admitted in the version filed by the Opposite Party that the first Opposite Party issued a policy covering the period from 26.4.1991 to 25.4.1992. In the above circumstances it was strenuously contended that it cannot be said that by virtue of Section 64 V.B. no risk is assumed. Learned Counsel appearing for the respondent invited our attention to a decision of Madhya Pradesh High Court in United India Insurance Company Limited v. Retna Singh and Others, (AIR 1993 Madhya Pradesh 197). That was a case where a cheque was issued but it was dishonoured for insufficiency of funds. The Division Bench held the risk commences only on payment of the premium by the insured in advance by a cheque or in cash. The Division Bench held that premium was not received by the Insurance Company because of the bouncing of cheque and the issue of cover note cannot create the insurance coverage of the vehicle and the insurer would not be liable to pay any amount of compensation either interim or final on mere issuance of the cover note against the cheque so issued.

LEARNED Counsel also invited our attention to the decision of the National Commission in Dr. Siba Prasad Das v. United India Insurance Company Limited, I (1991) CPJ 615 (NC) where the National Commission has held that the dispute raised by the complainant was regarding the existence or non-existence of the policy and, therefore, no question of deficiency arises.

ANOTHER decision relied on by the Counsel for the respondent is one decided by the State Commission of Punjab, Chandigarh in Bam Dev v. United India Insurance Company Limited, II (1994) CPJ 599=1994 (3) CPR 175 In that case the complainant had drawn a cheque for Rs. 7,861/- which was delivered to the Insurance Company towards their premium and that cheque was forwarded to Behdala Branch of the Punjab National Bank on 22.8.1990 and the same was dishonoured by the said Bank on 25.9.1990 for lack of funds. However it was later encashed on 8.10.1990, i.e., one day after the alleged theft on 7.10.1990. On the basis of these facts the Punjab State Commission took the view that there is contract only from 8.10.1990, the date on which the cheque was encashed and not earlier and since theft took place on 7.10.1990 there is no valid contract and, therefore, the complainant had no cause of action. Another decision cited by learned Counsel for appellant is that of the Karnataka High Court in Oriental Insurance Company Limited v. Syaribai and Others, II (1994) ACC 688. In that case the cheque was dishonoured. The insured requested the Insurance Company to represent the cheque on a particular date. The cheque was represented on that date and the same was honoured. The vehicle met with an accident before that date. Explanation to Section 64 V.B. was pressed into service before the Division Bench and it was contended that since the cheque was delivered, before the peril, the risk has to be assumed. Karnataka High Court took the view that explanation does not deal with the case where the cheque is bounced and, therefore, the explanation cannot be applied to the facts of the case.

Considerable reliance also has been placed on the decision of the Supreme Court in Commissioner of Income Tax, Bombay South, Bombay v. Messrs Ogale Glass Works Limited, Ogale Wadi, (AIR 1954 SC 429) where the Supreme Court observed that issue of a cheque is payment unless dishonoured. It held that payment takes effect from the delivery of the cheque but it was defeated by the happening of the condition, i.e., non-payment at maturity. The Supreme Court observed that a payment by negotiable instrument is a conditional payment and what is meant by that expression is that such payment is subject to a condition subsequent that if the negotiable instrument is dishonoured on presentation the creditor may consider it as waste paper and resort to his original demand.

RELIANCE also has been placed on the decision of the Supreme Court in United India Insurance Company Ltd. v. Ayeb Mohammed and Others (1991 ACJ 650). In that case the question of liability of the Insurance Company in a motor insurance arose. The High Court took the view in the absence of any steps taken for cancelling the cover note, the insurer''s liability continued, although the cheque was bounced and reversed. The Supreme Court held the risk cannot be assumed as the cheque was bounced. In the instant case cheque was bounced on 26.4.1991 and the accident occurred on that day. The cheque was represented only on 27.4.92. As the cheque was dishonoured no risk could be assumed on 26.4.91 and the insurer cannot be held liable to compensate the insured on the strength of the policy. The foregoing decision would show that the view taken by the District Forum is correct and does not call for interference. We accordingly dismiss the appeal. Appeal dismissed.