National Insurance Co. Ltd. vs Geetha and Others

K. Govindarajan, J.—The Insurance Company has filed the above Appeals questioning the common award passed in M.C.O.P.Nos. 100,

101, 102, 239 and 301 of 2001, on the file of the Motor Accidents Claims Tribunal, Dharmapuri at Krishnagiri on the ground that the Insurance

Company is not liable to pay the compensation.

To decide the said issue we need not traverse all the facts in detail. But the relevant facts are given below:

Admittedly, the accident took place on 15.6.1998 at about 5.30 a.m., involving the car bearing Regn.No. TMG 2770 owned by the 2nd

respondent herein and insured with the appellant-Insurance company, and an insurance policy was issued to the said vehicle from 15.6.1998,

10.00 a.m. to the midnight of 14.6.1999.

On the basis of the above said fact, learned counsel for the appellant-Insurance Company submitted that since the insurance policy covers only

for the period from 15.6.1998, 10.00 a.m. and the accident took place at about 5.30 a.m. on 15.6.1998, they are not liable to pay the

compensation on the basis of the insurance policy.

According to the learned counsel for the 1st respondent, they gave the cheque, towards premium for getting the insurance policy on 12.6.1998.

The Tribunal also has come to such a conclusion in paragraph 30 of the order. On that basis, learned counsel further submitted that since they have

paid the premium anterior to the accident, the appellant-insurance company is liable to pay the compensation.

So, the question to be decided is as to when the liability of the appellant-Insurance company starts, either from date of the receipt of the cheque

by the appellant-insurance company towards the premium paid to get the policy or from the time and date mentioned in the policy itself.

Learned counsel for the 1st respondent relying on the decision of the Division Bench of this Court in United India Insurance Company v. S.

Viswanathan, 2003 (2) CTC 72, submitted that the insurance policy became effective on the date when the premium was paid by the owner or the

vehicle. It is relevant to mention that the said case deals with renewal of policy. In the said case, the accident took place on 23.2.1992 whereas the

insurance policy expired on 20.2.1992. Subsequently the cheque for the policy amount was handed over on 20.2.1992, for renewal. But the

policy was issued only on 2.3.1992 and on that basis, the insurance company submitted that on the date of the accident, there was no valid

insurance policy for the vehicle in question. The Tribunal on the basis that it is a renewal of the insurance policy found that the cheque was issued

for renewal even before the accident took place. So, the Division Bench of this Court held that the vehicle was validly insured on the date of the

accident. In the above said decision, on the basis of payment of the policy amount on 20.2.1992, the policy was renewed on 23.2.1992, No

material is available in the said case to show whether any time limit is mentioned in the policy.

In the present case, it is a fresh policy and no material is available before us to come to the conclusion that the policy is for renewal. The policy

is marked as Ex.R2 in which time and date of effect of the policy has been specifically mentioned. So, the said decision United India Insurance

Company v. S. Viswanathan, 2003(2) CTC 72 cannot be made applicable to the facts of the present case.

Learned counsel for the 1st respondent-insurance company further referred to the decision in Oriental Insurance Co. Ltd. v. Inderjit Kaur, AIR

1998 S.C. 588. In the said case, the insurer issued policy of insurance to cover bus without receiving premium therefor. The Apex Court held that

in spite of that fact, the insurer became liable to indemnify third parties in respect of the liability which that policy covered and to satisfy the award

of compensation in respect thereof notwithstanding its entitlement to avoid or cancel the policy for the reason that the cheque issued in payment of

the premium thereon had not been honoured. So, even the said decision is not applicable to the facts of the present case.

Equally, the decision in New India Assurance Co. Ltd. Vs. Rula and Others, , cited by the learned counsel for the lst respondent has no

application to the facts of the present case, as it deals with the effect of subsequent cancellation of insurance policy on the ground of non-payment

of premium.

According to Section 64VB of the Insurance Act, 1938, hereinafter called the Act, no risk to be assumed unless premium is received in

advance. To appreciate the said provision, it is beneficial to extract the same, which is 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 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 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 twenty four hours of the collection excluding bank and postal

holidays.

(5) The Central Government may, by rules, relax the requirements of Sub-section (1) in respect of particular categories in insurance policies.

So, Sub-section (1) of Section 64VB of the Act provides that unless and until the Insurance Company receives the payment of premium or is

guaranteed to be paid, the Insurance Company is not liable to meet the risk. Learned counsel for the 1st respondent submitted that according to

Sub-section (4) of Section 64VB of the Act, if an insurance agent collects a premium on a policy of insurance on behalf of an insurer, the insurer is

liable to pay the compensation. The said provision does not speak so and does not create any such obligation on the insurer. On a reading of the

said provision, the argument of the learned counsel that the policy was issued on the basis of the payment of premium and the risk starts from the

said time onwards irrespective of the fact the date and time as mentioned in the policy, cannot be accepted.

The Indian Contract Act, 1872 covers the relationship between the parties to an insurance contract generally except in regard to some of its

special features. So, unless the Insurance Company accepts and issue policy, the person who paid the premium cannot come forward with the plea

that the Insurance Company is having an obligation to pay the compensation, especially when the premium was paid to get a new policy. In the

present case, it is not in dispute that in the policy issued on the basis of the premium paid by the owner of the vehicle, it is specifically mentioned

that the insurance policy covers for the period from 15.6.1998 10.00 a.m. But the accident took place about 5.30 a.m. on the said date.

The Division Bench of this Court in the judgment in The Oriental Insurance Co. Ltd. v. Vedathal and Ors., delivered on 12.11.2002, in

L.P.A.No. 190/1999, held as follows:

The assumption of liability by an insurer is only after the receipt of the premium. Neither the Motor Vehicles Act, nor the Insurance Act require

that the Insurer assume liability the moment the premium is tendered. The policy issued provides for specifying ""effective date of commencement of

insurance for the purpose of the Act from .... ... .O'' Clock on .... to midnight of ..... "" The date of issue of the policy, therefore, is not decisive as to

the date of the commencement and the date and time with effect from which the insurer assumes the risk. If no time is mentioned, but a mere date

is mentioned, the insurer would be presumed to have assumed the risk from the commencement of the day. If, however, besides specifying the

date, the time is also specified, the insurer''s liability would be only from the date and time specified, and not earlier, The Supreme Court in the case

of Oriental Insurance Co. Ltd. Vs. Sunita Rathi and Others, , has held to that effect.

In this case, the date specified in the policy is the effective date of commencement, which is subsequent to the date of the occurrence of the

accident. It was open to the insurer to specify such a date, as the law does not mandate that the risk should be assumed on the date on which the

premium is received. The Insurer''s liability, therefore, can only be regarded as having commenced from the date specified in the policy as the

effective date of commencement of the insurance, and not earlier.

The Apex Court in the decision in M/s. National Insurance Co. Ltd. Vs. Smt. Jijubhai Nathuji Dabhi and others, , following the earlier decision

of the Apex Court in New India Assurance Co. Ltd. Vs. Ram Dayal and Others, , held as follows:

This Court in New India Assurance Co. Ltd. Vs. Ram Dayal and Others, , had held that in the absence of any specific time mentioned in that

behalf, the contract would be operative from the midnight of the day by operation of provisions of the General Clauses Act, 1897. But in view of

the special contract mentioned in the insurance policy, namely, it would be operative from 4.00 p.m., on 25.10,1983 and the accident had

occurred earlier thereto, the insurance coverage would not enable the claimant to seek recovery of the amount from the appellant company.

While dealing with similar issue, the Apex Court in the decision in Oriental Insurance Co. Ltd. v. Sunita Rathi and Ors. 1998 (1) L.W. 14, has

taken the view that the insurer cannot be held liable on the basis of the policy in which time and date of commencement of the insurance has been

expressly mentioned. If the accident occurred before the said time and date and further held as follows:

The motor accident occurred on 10th December, 1991 at 2.20 PM. It was only thereafter the same day at 2.55 PM that the insurance policy

and the cover note were obtained by the insured, owner of the motor vehicle, involved in the accident. There is express mention in the cover note

that the effective date and time of commencement of the insurance for the purpose of the Act was 10th December, 1991 at 2.55 PM. The

applicability of the decision in Ram Dayal''s case, (supra) has to be considered on these facts. In our opinion the decision in Ram Dayal''s case,

(supra) is distinguishable and has no application to the facts of this case. The facts of that decision show that the time of issuance of the policy was

not mentioned therein and the question, therefore, was of presumption when the date alone was mentioned and not the time at which the insurance

was to become effective on that date. In such a situation, it was held In Ram Dayal''s case, (supra) that in the absence of any specific time being

mentioned, the logical inference to draw was that the insurance became effective from the previous mid-night and, therefore, for an accident which

took place on the date of the policy, the insurer became liable. There is no such difficulty in the present case in view of the clear finding based on

undisputed facts that the accident occurred at 2.20 PM and the cover note was obtained only thereafter at 2.55 PM in which it was expressly

mentioned that the effective date and the time of commencement of the insurance for the purpose of the Act was 10,12.1991 at 2.55 PM. The

reliance on Ram Dayal''s case, (supra) by the Tribunal and the High Court was, therefore, misplaced. We find that in a similar situation, the same

view which we have taken, was also the view in M/s. National Insurance Co. Ltd. Vs. Smt. Jijubhai Nathuji Dabhi and others, wherein Ram

Dayal''s case, (supra) was distinguished on the same basis.

It follows that the insurer cannot be held liable on the basis of the above policy in the present case and, therefore, the liability has to be of the

owner of the vehicle. However, we find that the High Court, without assigning any reason, has simply assumed that the owner of the vehicle was

not liable and that the insurer alone was liable in the present ease. This conclusion, reached by the High Court is clearly erroneous. The liability of

the insurer arises only when the liability of the insured has been upheld for the purpose of indemnifying the insured under the contract of insurance.

There is, thus, a basic fallacy In the conclusion reached by the High Court on this point.

In view of the above settled principles of law, the appellant-insurance company is correct in challenging the award of the Tribunal on the

ground that they are not liable as the insurance policy was issued with the specific mention of the time and date of commencement of the insurance

and the accident took place before the said time mentioned in the policy. There is, thus, a basic fallacy in the conclusion reached by the Tribunal on

this point.

For all the reasons stated above, we set aside the award dated 26.2.2002 passed by the Tribunal as it is against the appellant-Insurance

company and these Appeals are allowed. The claimants can take steps to recover the compensation amount from the owner of the vehicle and the

Insurance Company is entitled to withdraw the amount deposited with interest accrued thereon. No costs.