Karur Vysya Bank vs Pullugujju Venu Madhav & Anr.

This revision petition has been filed by the petitioner, Karur Vysya Bank against the order dated 19 12.2011 of the State Consumer Disputes Redressal Commission, Andhra Pradesh, (in short ''the State Commission'') passed in FA/781/2010 & 516/2010. 2. Brief facts of the case are that the complainant purchased Toyota Innova car in the year 2006. The car was being insured with the opposite party No. 1 and was insured till the year 2008. For the next year Insurance, the complainant issued a cheque for Rs. 13,000 dated 11.4.2009 to the opposite party No. 1, which issued the policy valid from 13.4.2009 to 12.4.2010. The vehicle met with an accident on 18.5.2009. The surveyor was appointed by the Insurance Company, who assessed the loss to be Rs. 1,90,022. However, the insurance claim was repudiated by the Insurance Company on the ground that the policy was not in force due to non-realisation of premium amount. 3. The complainant then filed a consumer complaint No. 116/2009 before the District Consumer Forum, Praksam District at Ongole, (In short ''the District Forum''). The complaint was resisted by opposite party No. 1/respondent No. 2. Insurance Company on the ground that they are not liable for any claim because they never received the premium amount and therefore, the policy was a nullity. The petitioner herein/opposite party No. 2 also resisted the complaint on the basis that they were not the insurer and cannot be held liable for any insurance amount. The District Forum passed the following order on 8.1.2010: "15. In the result, the complaint is allowed in part directing the 1st opposite party to pay Rs. 1,66,253 covered under the bill and Rs, 5,000 for costs of litigation to the complainant within one month from the date of order. Failing which the amount carries interest at 12% p.a. till realization. Case against the 2nd opposite party is dismissed without costs." 4. Aggrieved with the aforesaid order of the District Forum, the complainant as well as the Insurance Company/opposite party No. 1 preferred appeals before the State Commission, which were decided by a common order dated 19.12.2011 as under: "In the result the appeal preferred by the Insurance Company F.A. 516/2010 is allowed setting aside the order of the Dist. Forum against it. Consequently the complaint against OP1 Insurance Company is dismissed but without costs. The appeal preferred by the complainant FA. 781/2010 is allowed in part directing OP2 bank to pay Rs. 1,90,142 with interest @ 9% p.a., from the date of complaint viz., 18.6,2009 till the date of realization together with costs of Rs. 5,000. Time for compliance four weeks." 5. Hence the present revision petition by opposite party No. 2/petitioner. 6. Heard the learned Counsel for the parties and perused the record. 7. Learned Counsel for the petitioner stated that the petitioner bank had earlier informed to the Insurance Company vide letter dated 20.5.2009 clearly mentioning the circumstances under which the cheque w as dishonoured. In fact there was a double debiting of a cheque of amount of Rs. 1,684.64 on 28.3.2009 and 31.3.2009 due to some fault in the computer system of the bank which resulted in less money in the account of the complainant and therefore, the cheque in question was dishonoured. At that time the computerisation work was in progress in the bank and all the systems were not in place and hence due to double debiting of another cheque, this fault has occurred. The learned Counsel further drew our attention to Section 147 (Explanation No. 4) of The Motor Vehicles Act, 1988 which reads as follows: "(4) Where a cover note issued by the insurer, under the provisions of this Chapter or the rules made there under is not followed by a policy of insurance within the prescribed time, the insurer shall, within seven days of the expiry of the period of the validity of the cover note, notify the fact to the registering authority in whose records the vehicle to which the cover note relates has been registered or to such other authority as the State Government may prescribe." 8. The learned Counsel argued that in the present case, the Insurer did not inform the concerned Registering Authority within one week of the expiry of the cover note. Hence, the Insurance Company is liable to pay the insurance claim. 9. The learned Counsel for the petitioner also argued that the only deficiency on the part of the petitioner bank is that due to fault in the computer system one cheque of Rs. 1.684,64 was debited twice and hence the cheque in question was dishonoured due to insufficient balance in the account. Even if this deficiency is accepted, the bank cannot be held responsible to pay the full insurance claim. 10. Learned Counsel for the respondent No. 1/complainant stated that this policy was perfectly valid, had the cheque of Rs. 13,000 relating to premium stood paid. The complainant had sufficient balance to clear this cheque of premium. It was due to deficiency of the petitioner bank that some other cheque was double debited making the balance in the account less than the cheque account and thereby dishonouring of the cheque happened. The Insurance Company/respondent No. 2 has also defaulted in not intimating the complainant timely about the dishonouring of the cheque otherwise, the complainant could have paid premium from some other account or in cash. In any case, there is no fault on the part of the complainant and he deserves full indemnification of the loss suffered under the insurance policy and it does not really matter whether petitioner pays the amount or the respondent No. 2 pays the amount. 11. Learned Counsel for respondent No. 2 mentioned that the contract of the policy would be treated as never concluded because the consideration amount was never received by the Insurance Company. Though, the policy was issued under good faith and with an understanding that the cheque issued by the complainant would be made good, however, the cheque bounced and the premium stood unpaid which rendered the policy void. Hence, there is no question of payment of claim under the policy. The Insurance Company/respondent No. 2 is not concerned about the cause of non-payment of the premium. Insurance policy is a contract between insurer and the insured and if insured has failed to fulfil his promise to pay the premium, the Insurance Company is not bound to perform its obligation wider the policy as policy has become inoperative and void. 12. The learned Counsel for the respondent No. 2 further submitted that Section 147 of the Motor Vehicles Act, 1988 referred by the learned Counsel for the petitioner is a Section under Chapter XI of the Motor Vehicles Act, 1988, which relates to Insurance of Motor Vehicle against third party risks. The present complaint is not related to any third party claim, rather it is regarding own damage for which Section 147 is not applicable. 13. In support of his arguments, learn ed Counsel cited the following judgments: 1. United India Insurance Co. Ltd. v. Khairati Ram Salwan and Ors., II (2016) CPJ 63 (NC)=Revision Petition No. 1588 of 2013, decided on 15.12.2015 (NC) . It has been held that: "10. The main point for consideration in the case is whether the policy can be stated to be in force on the day of incident, because intimation about dishonour of the cheque was not given to the complainant/respondent No. 1, or the Insurance Company received such intimation from the Bank on 20.8.2007, although the accident had taken place on 17.8.2007. It is true that the Bank sent a communication to the Insurance Company on 3.8.2007, intimating them about the dishonour of the cheque on account of difference in signatures of the drawer, but the said intimation was receive by them on 20.8.2007 and communicated to the complainant/respondent No. 1 on 29.8.2007. Following the ratio of the judgments given in National Insurance Co. Ltd. v. Seema Malhotra (supra) and Divisional Manager, Oriental Insurance Co. Ltd. v. Sanjay Kumar Panigrahi (supra), it can be safely concluded that the insured is not liable to be given the claim amount under the insurance policy, because the said policy became void ab initio because of the dishonour of the cheque. It shall not be legally justifiable to hold that the insurance policy was valid till intimation about the dishonour of cheque was given to the complainant/respondent No. 1. By no stretch of imagination, the insurance policy can be stated to be in force for a period of certain days, during which the matter regarding realisation of the premium amount remanded under correspondence between the Insurance Company and the Bank. There is no valid reason, therefore, to agree with the conclusion arrived at by the State Commission that there was deficiency in service on the part of the petitioner as they withheld information about the dishonour of the cheque from the Complainant/respondent No. 1 for a number of days and that the insurance policy was valid on the day the accident took place. It is held, therefore, that there was no valid contract between the parties, because an agreement made without consideration is void under Section 25 of the Indian Contract Act and further under Section 65 of the said Act, when a contract becomes void, any person, who has received any advantage under the said contract is bound to restore it to the person from whom he received it." 2. National Insurance Company Ltd. v. Seema Malhotra and Others, II (2001) SLT 229=1 (2001) ACC 317 (SC)=AIR 2001 SC 1197 . It has been held that: "2. Under a contract of insurance the insured gave a cheque to the insurer towards the first premium amount, but the cheque was dishonoured by the drawee bank due to insufficiency of funds in the account of the drawer. Is the insurer liable in such a situation to honour the contract of insurance?............ 8. The direction that Insurance Company can now deduct the premium amount from the compensation to be fixed is no solace to the insurer. The essence of the insurance business is the coverage of the risk by undertaking to indemnify the insured against loss or damage. They agree to pay the damages arising out of any accident by taking a chance that no accident might happen. Motivation of the insurance business is that the premium would turn to be the profit of the business in case no damage occurs. Such business of the Insurance Company can be carried on only with the premium paid by the insured persons on the insurance policy. The only profit, if at all the Insurance Company makes, of the insurance business is the premium paid when no accident or damage occurs. But to ask the Insurance Company to bear the entire loss of damages of somebody else without the company receiving a pie towards premium is contrary to the principles of equity, though the insurance companies are made liable to third parties on account of statutory compulsions due to the initial agreement, entered between the insured and the company concerned. 17. In a contract of insurance when an insurer gives a cheque towards payment of premium or part of the premium, such a contract consists of reciprocal promise. The drawer of the cheque promises the insurer that the cheque, on presentation, would yield the amount in cash. It cannot be forgotten that a cheque is a Bill of Exchange drawn on a specified banker. A Bill of Exchange is an instrument in writing containing an unconditional order directing a certain person to pay a certain sum of money to a certain person. It involves a promise that such money would be paid ........ 18. Thus, when the insured fails to pay the premium promised, or when the cheque issued by him towards the premium is returned dishonoured by the bank concerned the insurer need not perform his part of the promise. The corollary is that the insured cannot claim performance from the insurer in such a situation. 19. Under Section 25 of the Contract Act an agreement made without consideration is void. Section 65 of the Contract Act says that when a contract becomes void any person who has received any advantage under such contract is bound to restore it to the person from whom he received it. So, even if the insurer has disbursed the amount covered by the policy to the insured before the cheque was returned dishonoured, insurer is entitled to get the money back. 20. However, if the insured makes up the premium even after the cheque was dishonoured but before the date of accident it would be a different case as payment of consideration can be treated as paid in the order in which the nature of transaction required it. As such an event did not happen in this case the Insurance Company is legally justified in refusing to pay the amount claimed by the respondents. 21. In the light of the above legal position we uphold the contention of the appellant Insurance Company. We, therefore, allow this appeal and set aside the impugned judgment of the Division Bench of the High Court. The order passed by the State Consumer Commission will stand restored." 3. Bam Dev v. United India Insurance Co, Ltd., II (1997) CPJ 74 (NC) . The National Commission has held as follows: The contention of the respondent is that the receipt of the premium issued by it clearly mentioned that the receipt is valid subject to realisation of cheque and in the event of dishonour of cheque, insurance cover provided under the document automatically stands cancelled from inception irrespective of whether separate communication is sent or not. The respondent pointed out that the Punjab National Bank, Nangal Branch was never in the picture and filed a letter dated 7.7 92 from their Bank viz., Punjab and Sind Bank, Nangal Branch which also conveyed that the cheque was realised on 16.10.90. Thus the fact that the cheque for the premium could be encashed only after 7.10.90, the day of the incident stands undisputed. In the result, we concur with the finding of the State Commission that there was no valid insurance contract on the day of the incident and that the repudiation of the claim by the respondent did not constitute any deficiency of service on its part. The appeal is devoid of merits. We, therefore, uphold the order of the State Commission and dismiss the Appeal. No costs." 4. Oriental Fire and General Insurance Co. Ltd. v. Panvel Industrial Co-operative Estates Ltd., AIR 1992 Bom. 107 . The following legal position has emerged: "The case debated on whether there was a concluded contract of insurance between the parties. It was held that mere payment of the premium amount and its acceptance by agent could not amount to a concluded contract of insurance and assumption of risk on the part of Insurance Company. The High Court of Bombay held: "Further in my view, if it is held that there was acceptance on the part of the appellant merely because cheque towards premium was paid, without any further positive conduct on the part of appellant, then it may lead to mischief and malpractice and is brought with danger of depriving the Insurance Company by collection between the agent and assured." 5. Bihar State Sugar Corpn. Ltd. v. State Bank of India & Anr., I (2007) CPJ 91 (NC)=Original Petition No. 284 of 1997, decided on 5.12.2006 (NC) . It has been held that: "On 6.5.1997 Complainant got information on telephone that the cheque which was issued by the Corporation for the premium was returned by Bettiah Branch of the State Bank of India on the ground that there was no balance at Lauriya account. The cheque was dishonoured despite sufficient funds due to the blunder of officer of the State Bank of India. Dishonour of cheque: For the deficiency in service by the Opp. Party. State Bank of India, there is no dispute that the cheque was dishonoured despite there being sufficient funds in the account of the complainant. In the written version filed by Opp. Party, it has been specifically stated that it was true that on 17.4.1997 there were sufficient funds in the account of the complainant to enable the Bank to honour the cheque and for the payment to be made. However, the policy for which the cheque was issued was not covering the damage, in question, namely, explosion of the mollases tanks. In our view, for this negligent discharge in service, the complainant is entitled to get sufficient and reasonable damages including punitive damages as provided under Section 14(1)(d). But, the first question would be whether complainant is entitled to the reimbursement as claimed? In our view, for the loss suffered by the complainant, there is no insurance coverage. So dishonour of cheque by the Bank has not resulted in loss of reimbursement from the Insurance Company ........ Therefore it would be difficult for us to arrive at the conclusion that complainant is entitled to recover the damages suffered by it from the Bank which has negligently dishonoured the cheque despite sufficient funds in the account of the complainant Considering this aspect, in our view, complainant is not entitled to be reimbursed by the State Bank of India for loss suffered by it. For the time being if we assume that the insurance policy covers the damage to the molasses and if the cheque for the premium is dishonoured, the Insurance Company would not reimburse the Complainant. That means a wrongful dishonour of the cheque would result in loss to the Petitioner for more than Rs. 25 lakh. Keeping this aspect in view, in our view, it would be just and reasonable to award punitive damages (as provided under Section 14(1)(d) of the Consumer Protection Act, 1986) for a sum of Rs. 5 lakh so that the banks in general would keep in mind the statutory norms before dishonouring the cheque of verifying properly, particularly, cheque of reputed bodies, including the Government and semi-government bodies. Accordingly, we direct that the Opposite Party-State Bank of India shall pay an amount of Rs. 5 lakh as damages including costs, to the Complainant within a period of six weeks from the date of this order. The complaint is disposed of as above." 14. From the above judgments, the learned Counsel emphasised that if the cheque was dishonoured due to any reason, the Insurance Company was not liable to pay the insurance claim because the contract of policy would be treated as never concluded for want of consideration amount. 15. We have carefully considered the arguments advanced by learned Counsel for the parties and have examined the record. We do not find any force in the arguments of the learned Counsel for the petitioner that as per Section 147 of Motor Vehicles Act, 1988, the Insurance Company is liable to pay the insurance amount. It is very clear that this section falls under Chapter XI of the Motor Vehicles Act, 1988, which is totally related to third party claims. Hence, this section is not applicable to the present case as this is relating to own damage. There is no doubt that the cheque of premium in question bounced due to insufficient balance in the account of the complainant, which was caused due to double debiting of one cheque of Rs. 1,684.64 which rendered the account insufficient for clearing the cheque. Though, the bank/petitioner has claimed that double debiting had occurred due to computerisation that was in initial stages at that time in the bank, however, it is clear that the account of complainant had sufficient fund for clearing of the cheque of premium but cheque was not cleared due to fault on the part of the bank. The bank should not have started operation of the computerised programme, if its computerisation was not complete and fool proof. There is no doubt that the bank has been deficient in this regard for which the complainant had to suffer huge loss. On the other hand, it is to be considered that the bank was not insurer and there is force in the arguments of the learned Counsel of the bank that bank is not responsible to pay the insurance amount. In this situation, we rely on the judgment of this Commission in the case of Bihar State Sugar Corpn. Ltd. v. State Bank of India & Anr. (supra) wherein, in a similar case this Commission has not ordered the bank to pay the insurance amount, rather, only the punitive damage was ordered to be paid to the complainant. Relying on this judgment we feel that interest of justice would be served, if the bank/petitioner is ordered to pay punitive damage of Rs. 60,000 to the complainant. 16. It is true that the cheque bounced and premium could not be realized by the Insurance Company. Thus, the contract of insurance did not conclude. Relying on the various judgements of the Hon''ble Supreme Court and of this Commission mentioned by the learned Counsel for the Insurance Company/respondent No. 2 it is clearly established that the Insurance Company is not liable to discharge its obligations under the policy and the claim is not payable by the Insurance Company. However, the Insurance Company did not immediately inform the complainant after getting information about the dishonour of the cheque. The Insurance Company has, though, asserted that an intimation dated 8.5,2009 was sent to the complainant, the receipt of which was denied by the complainant. It is seen from the material on record that this letter is said to have been posted under certificate of posting dated 16.5.2009. The District Forum has also questioned its authenticity. It is also admitted that the Insurance Company appointed the surveyor on receiving the information of the accident of the insured vehicle on the same day. Thus, it is implied that the Insurance Company had not taken note of dishonour of the cheque and had not cancelled the policy by the date of accident. Had the intimation of bounced cheque been sent to the complainant before the date of accident, the Insurance Company would not have appointed the surveyor.Thus, there is also a deficiency on the part of the Insurance Company for not informing timely the fact of dishonour of cheque of premium and cancellation of the policy, which might have entitled the complainant to reclaim the policy and the benefits of the same by depositing fresh cheque of premium or by paying in cash before the date of accident. Thus, the complainant is entitled to get some compensation from the Insurance Company for this deficiency. In the circumstances of the case, we deem it appropriate to direct the Insurance Company/ respondent No. 2 to pay a sum of Rs. 25,000 (Rupees twenty five thousand only) to the complainant as compensation for deficiency on their part. 17. Based on the above discussion, we partly allow the revision petition and the order dated 19.12.2011 of the State Commission is modified to the extent that the Karur Vysya Bank/petitioner is liable to pay only Rs. 60,000 (Rupees Sixty Thousand only) to the complainant instead of Rs. 1,90,142 as ordered by the State Commission. Additionally, respondent/opposite party/ICICI Lombard General Insurance is also directed to pay Rs. 25,000 (Rupees Twenty Five Thousand Only) to the complainant. This order be complied within 30 days from the date of this order, failing which the petitioner and the respondent No. 2 shall be liable to pay interest on the ordered amounts @ 9% p.a. from the date of this order till actual payment. Revision Petition Partly Allowed.