ROLLATAINERS LTD. PAPER BOARD DIVISION, KUNDLI vs UNITED INDIA INSURANCE COMPANY LTD

WHETHER Section 64VB of the Insurance Act renders a concluded contract of insurance, void ab- initio on the ground of a marginal shortage in the amount of premium duly paid and accepted? This is the case question of some significance in this complaint. In view of the above, the facts merit notice with relevance to the question aforesaid with relative brevity. M/s. Rollatainers Limited, a Corporation of considerable repute had admittedly taken out a comprehensive machinery break down insurance policy including that for Gen. No KVA-100, Model KTA, GP 1-0343, M- 84, Engine No. 25141813 for a period of one year with effect from the April 1991 (Annexure C-2). On the night intervening the 9 & 10th of May, 1991 at about 4 a.m. despite all precaution an engine seizure of the said machinery took place and on dismentling the same it was later discovered that the crank shaft turbo charges, piston etc. were seriously damaged requiring a complete over-haul. The complainant''s case is that this break down was fully covered under the insurance policy. It is the case that the manufacturers also after investigation identified it as a major damage and break down and accordingly the insurers were notified thereof. M/s. D.K. Taneja and Associates were appointed as Surveyor and loss assessor by the opposite party and they submitted their survey report dated 16th of August, 1991 assessing the claim for Rs. 7.68 lakhs against the complainants'' claim of Rs. 19.68 lakhs. Despite the disparity, it is the case that the complainants are agreeable to accept the loss as assessed by the Surveyor to avoid any further delay in the settlement of the claim. The opposite party sought certain clarifications which were duly made vide Annexures C-3 and C-4, but despite that there was prolonged procrastination compelling the complainants to serve a registered notice on the insurers dated the 15th of October, 1992 (Annexure C-5). Getting no meaningful response even to this notice, the present complaint has been filed seeking a direction to the opposite party to pay Rs. 7.68 lakhs alongwith interest @ 24% p.a.

IN the written statement filed by the opposite party a number of preliminary objections were taken to which reference is unnecessary because these were never pressed before us. On merits the broad factual position was admitted. But the main plea taken in the defence was that in the renewal of Policy No. 041000/44/35/ 062/91, a notice was sent claiming a premium of Rs. 1,15,633/-. However, the complainants who maintained a deposit account with the insurers remitted sum of Rs. 87,000/- only. Even though a cover note was given and subsequently a formal policy was issued, the stand taken is that by virtue of Section 64-B of the INsurance Act, the opposite party could not assume a risk unless the total premium stands paid and, therefore, the insurance contract was void ab-initio by virtue of the said provision. It was the categoric averment that the concluded contract of insurance stood automatically cancelled from the date of its inception. Somewhat ambivalently, it was further pleaded that the assessment of the Surveyors duly appointed by the insurers was not correct and it is reiterated that the claim of the complainant is not payable because he had not remitted the full premium due and, therefore, all liability stands denied.

In support of their case, the complainants relied on the affidavit of Shri Ranjan Multani, Secretary of the Company who in his detailed affidavit supported the case and the averments in the complaint to the hilt. Additional documents apart from those annexed to the complaint were placed on the record, the authenticity whereof was not challenged on behalf of the opposite party. The deponent Shri Multani was cross-examined somewhat sketchily without eliciting anything in favour of the opposite party.

IN rebuttal the prima reliance of the opposite party is on the affidavit of Shri Arvind Nanda. The Divisional Manager, Faridabad, apart from the adduced documents, the authenticity whereof is again not assailed on behalf of the complainant. Shri Nanda aforesaid was cross- examined on behalf of the complainants at considerable length making gaping holes thereby in the defence. Mr. J.R. Mittal, the learned Senior Counsel of the complainants in an able and incisive argument had taken up a twin stand. It was first contended that infact there was no shortage at all in the premium due and paid because of the admitted existence of a deposit account maintained with the insurers in which they debited the relevant amount of premium as assessed by them. It was pointed out that the insurers had themselves indicated a premium of Rs. 87,000/- and duly debited this sum to the complainant''s accounts and given a cover note and later issued the formal insurance policy. It was the stand that the insurers are not estopped from wriggling out of the said deed on the puerile plea of the shortage of premium.

IN the alternative Mr. Mittal had contended that the main plank of the insurers'' defence now is untenable. The submission was that Section 64-VB does not in any way invalidate a concluded contract of insurance on the basis of a shortage of premium discovered later. There appears to be patent merit in the twin submissions aforesaid. Adverting first to the factual aspect, it deserves highlighting that it is the admitted position that the complainants and the opposite parties had a long standing relationship of client and customer and had maintained a deposit account for the insurance premia. It is not in dispute that a number of insurance policies were taken out by the complainants with their insurers and the latter calculated and debited the premia to the said account. Credit and debit entries in the said account were made accordingly and apparently the account was squared up at reasonable intervals. It deserve highlighting that the existence of such a deposit account is the admitted and undisputed position betwixt the parties. Shri Ranjan Multani in his affdavit categorically sworn that the complainant concern maintained a deposit account with the insurers and all the payments made to them or any rebate on account of special-rating were credited in the said account and the premium payable on renewal of policies was adjusted yet again from the said deposit amount was specifically sworn to in the affidavit. In terms the particular policy number 44/35/62/91 had been renewed by debiting Rs. 87,000/- as its premium in the said account. The cross-examination of this deponent would show that the insurers admitted the factum of this deposit account and not a single question on this issue was directed against Shri Ranjan Multani. However, what is conclusive is the fact that the star witness of the insurers in his cross-examination forth-rightly conceded as follows : "The complainant has been obtaining different insurance policies from time to time. The complainant maintained a deposit account with us, for this purpose. Whenever instructions are received for the renewal of a policy the amount of premium is debited to the deposit account in case amount is available in the account. Any refund or other benefits accrues to the insure were also credited by us in the deposit account. It is correct that an amount of Rs. Three lakhs was received on 27.3.91 in the above referred deposit account. It is also correct that a sum of Rs. 87,000/- was debited against this policy provisionally to the despot account. Another sum of Rs. 160,000/- was received in the deposit account on 15.5.1991. The amount is credited to the account immediately on the receipt of a cheque without waiting for its encashment."

IT is plain that the aforesaid statement of the insurer''s witness virtually concludes the matter against them. What is however of further significance is the fact that Annexure C-2, which is the formal machinery insurance policy admittedly issued for the period of the 1st of March, 1991 to the 31st of March, 1992 in terms mentioned the annual premium, therefor at Rs. 87,000/- in the schedule annexed to the said policy. IT would bear repetition that this policy was in renewal of the earlier existing one and it is common ground that the formal policy document was issued much later on the 14th of August, 1991 and it was only then that the insurers intimated to the complainant that an additional premium of Rs. 23,340/- was being debited to the insured''s deposit account vide relevant intimation letter which is admitted.

WHAT is next of significance in this context is the fact that at no stage whatsoever did the insurers, even claimed that there was any shortage of premium due or asked for the payment thereof or suggest that the insurance cover was defective for any such reason. On a claim being lodged the insurers themselves referred the matter to the Surveyor Shri D.K. Taneja for the assessment of the loss. Obviously, if at that stage it was even remotely the stand that the policy stood cancelled because of the shortage of premium, no question of having the loss assessed would arise. Significantly the Surveyor assessed the loss and never opined or hinted that the validity of the policy was in any way in doubt on this score. It is common ground that the insurance policy C 2 has at no stage been cancelled by the insurers. Equally the large amount of the premium received against the same to the tune of Rs. one lakh has never been either refunded or even differed to be so refunded. Shri Ranjan Multani was categoric in his affidavit that during all the period betwixt the loss and the filing of the complaint and even much later, any question of the admissibility of the claim being disputed on the ground of deficiency in premium was raised at all by the insurers. It was only for the first time apparently as a counter blast that in reply to the present complaint, the ghost of deficiency in the payment of premium was raised. Significantly, Mr. Multani was not at all challenged on this point and no document and any other title of evidence has been put in by the insurers that prior to the taking of the plea in the written statement, they had ever repudiated the claim on the basis of the shortage of premium.

It seems unnecessary to further overly elaborate the matter. It is somewhat manifest on the present record that the belated plea of a shortage of premium raised for the first time on the 10th of February, 1993 (a full nine months after the date of loss on the 10th of May, 1991) is a puerile one and is being raised as a counter blast in the absence of any other plausible defence by the insurers.

ONCE it is held as above, it is obvious that on the factual aspect alone, the complainants are entitled to succeed, However, the matter does not rest at that because it seems that the complainants are even on the firmer ground on the same aspect as well. The major and virtually the only plank of the insurers is that the concluded insurance contract by way of renewal was void ab-initio or stood automatically cancelled from the date of its inception by virtue of Section 64 VB of the Insurance Act. Since the controversy would revolve around the language of the same, it is apt to notice the relevant part thereof in extenso : 64 VB. ''No risk to be assumed unless premium is received in advance : (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."

In construing the aforesaid section, the history of the legislation in this context is not without significance. It is somewhat manifest that Section 64-VB was not part of the original statute and has been only inserted subsequently by way of amendment. The preceding Part II-B to the Part II-C (in which the present section finds place) was added by Section 29 of the Amendment Act 1962 of 1968 with effect from the 1st of June, 1969. It would appear that Part II-C was inserted either later or at that time.

NOW a broad look at Section 64 VB would indicate that it casts a duty upon the insurer to decline to assume any risk in India unless and until the premium payable is received by such insurer with the conditions attached thereto in the said section. What perhaps deserves highlighting on the wider perspective is that the intent of the Legislature is to impose a duty on the Insurance Company to act in accordance therewith and any infraction thereof would necessarily be visited by the sanctions provided in the statute on such insurers or their officials. This section is not on the face of it intended to cast a burden on the insured that every penny of the due premium has been paid-where infact the insurers have duly accepted the same and issued a policy. It appears to us that any violation of the provisions of Section 64-VB would visit the insurer with the necessary consequences but not to penalise the innocent insured, who infact may not be over aware of the precise amount of premium payable or any alleged shortage therein. To sum up on the larger perspective, the section casts a duty on the Insurance Company and not any impossible burden on the insured with regard to its compliance. With the aforesaid schematic approach, to the statute what next calls for pointed notice is the fact that the bar of not assuming the risk without the premium having been received is not an absolute one. The other conditionality attached is that where such premium is not received in full, it may be only guaranteed to be paid by the insured in the manner and time as prescribed. Yet another condition is where deposit of such amount as may be prescribed is made in advance in the prescribed manner. It is unnecessary to elaborate the matter because a reading of the section would indicate that it is not in terms of an absolute prohibition, but one which is hedged by a number of qualifications. What is perhaps of equal significance is the fact that the language of the section does not even remotely indicate that where the insurers themselves assume the risk and issue formal policies of coverage, the same would be become non-est on the alleged ground of some shortage in the premium paid. That the said section is to be construed favourably and liberally towards the insured is then evident from the explanation. This provides that where the premium is tendered by money order or a cheque by post, the risk may be assumed on the date on which the money order is booked and the cheque as is posted. In the case of a cheque this is irrespective of the fact whether the same is finally received and as would appear from a subsequent precedent referred to, that the dishonouring of such a cheque may not invalidate the policy at all.

IN the light of the explanation, the complainants are again factually on reachable ground. It is the admitted position that a cheque for Rs. 1,60,000/- dated the 3rd of May, 1991 was duly forwarded to the insurers by posting it on the 3rd of May, 1991. Taking that date as the terminus point, the coverage of risk would be completely covered much before the date of the actual loss. It was exceded that the said cheque was not only subsequently received by the insurer, was duly credited to the admitted deposit account of the insured maintained by the insurers. On this added ground also, the insurers cannot now be allowed to wriggle out of the contract under Section 64-VB which in terms provides for the acceptance of such cheques when posted and the consequent coverage of risk from the said date.

IT would seem that Sub-section (3) of Section 64-VB again boomings somewhat strongly on the insurers who have attempted to place reliance on this provision. IT casts a duty upon the insurer to refund the premium promptly to be insured in the event of the cancellation of a policy or alternations in its terms and conditions which further mandate that this must be tendered to the insured and in no case to be credited to the accounts of the agents. IT is common ground that in the present case neither any cancellation of the policy issued was ever made nor any refund of premium to the tune of Rs. one lakh even offered. IT is somewhat strange that the insurers in this case would wish to have their cake and eat it too by retaining the premium of nearly Rs. one lakh, but denying the coverage of risk on the other. What has been said on the basis of the language of the provision and on other principle is born out by the only direct precedent cited before us in 1992 Gujarat Law Reported 1587 "United India Insurance Company Ltd. v. Thakor Ji Dhira Ji & Others". Therein it has been observed as under : "Explanation to Sub-section (2) of Section 64-VB of the Act provides that where the premium is tendered by the 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. Thus, mere tendering of premium either by sending it is post by postal money order or cheque is enough of the purpose of covering the risk and it will start from the day on which the premium is sent by postal money order or by cheque." In this case though the amount of premium in cash was received by the Insurance Company on 12.6.79, Insurance Company has covered the risk from 11.4.79. If it is a case of renewal of Insurance Policy, then it could have been only from the date on which the policy expired i.e. from 9.4.79."

It is unnecessary to multiply authorities, but observations to a same nor have been made in I.L.R. 1983 Bombay 1430.

WITHIN the consumer jurisdiction Section 64-VB fell for consideration before the National Commission in I (1993) CPJ 56 (NC), "Ramasehasya Raw and Boiled Rice Mill v. The United India Insurance Company Ltd." That a deficiency in the payment of premium would not in any way invalidate the contract ab-initio, is manifest from the following observations therein : "There will be accordingly an order directing the respondent to pay the Compensation of Rs. 19,63,142.50 with interest as specified above to the complainant within a period of two months from today. In case there be any amount due to the respondent-Company from the complainant firm on account of any deficiency in the premium charged and collected in respect of the two policies dated 2.5.90 while issuing the cover note dated 3.5.90 endorsing the additional risks of floods and cyclone that may be deducted by the respondent from the principal amount specified by us as payable by it to the complainant".

It would be plain from the above that in the event of any deficiency in the premium the same is at best recoverable from the payment of the insurer''s claim.

IN all fairness we must also notice Mr. R.J. Mittal''s reliance on I (1993) CPJ 124=(1993) CPC 417 "Consumer Education Research Society v. L.I.C. However, it appears to us that the observations in the said order do not in any way substantially advance the case of the complainants. In view of the aforesaid discussion, the answer to the legal issue posed at the out-set has to be rendered in the negative. It is held that Section 64-VB of the Insurance Act does not in any way render a concluded contract void ab- initio on the ground of any shortage in the amount of premium duly paid and accepted. Once the aforesaid conclusion is arrived at, it necessarily follows that the complainants succeed on the legal aspect as well. It has to be cummulatively held that the insurers have been patently guilty of deficiency in insurance service undertaken to be rendered by facetiously denying their liability both on the allegedly factual and the legal grounds. The rejection or denial of the complainant''s insurance claim was thus wholly arbitrary and hardly bonafide. The complainants are consequently clearly entitled to relief within the consumer jurisdiction.

COMING to the qualification of the same, it is perhaps noticeable that the complainants are somewhat modest in their claim. Though, the total claim lodged was to the tune of Rs. 19.68 lakhs, they have stated that they are agreeable to accept the Surveyor''s assessment thereof for Rs. 6.68 lakhs only in order to avoid any further delay in the settlement of the claim. It was not disputed before us that the insurers own Surveyors had assessed the loss at the aforesaid figure. The complainants are thus entitled to the said sum of Rs. 7.68 lakhs alongwith interest there on. This Commission has firmly taken the view in Complaint Case No. 92 of 1992 "Girdhari Lal Bansal of Chandigarh v. Oriental Insurance Co. Ltd. and Another (1993 CPC 588) decided on 8th of July, 1993 that the terminus for indemnifying the insured is from the date of the loss itself. Consequently, the complainants are entitled to interest @ 18% on the said sum with effect from the 10th of May, 1991 till the date of realisation. They are equally entitled to their costs which are assessed at a sum of Rs. 5000/- only.

TO conclude this complaint is hereby allowed with costs with the following reliefs : The opposite party M/s. United India Insurance Company shall pay the sum of Rs. 7.68 lakhs with interest thereon at the rate of 18% from the 10th of May, 1991 till the date of realisation. They shall also tender the quantified costs at Rs. 5000/- along therewith. The said amounts shall be paid within one month from today, failing which compliance would be enforced under the stringent provisions of Section 27 of the Act. Complaint allowed.