State of Andhra Pradesh vs United India Insurance Co. Ltd.

K.B. Siddappa, J.—This appeal is directed against the judgment and decree passed in O.S. No. 86 of 1987 on the file of the Subordinate Judge, Rajampet.

The State of Andhra Pradesh, represented by the divisional forest officer, Rajampet, is the plaintiff. The case of the plaintiff as reflected in the plaint is as follows :

The red sanders and other varieties of wood are stocked in the central depot of the Forest Department consisting of six godowns. The red sanders also include confiscated wood involved in forest offences. The godowns are valued at Rs. 3,00,000 and the red sanders and other timber were valued at Rs. 35,05,000 for the purpose of insurance against fire under a policy. A premium of Rs. 11,605 was paid for the period from February 24, 1984, to February 24, 1985. It is further stated that on August 17, 1984, between 8 a.m. and 9 a.m., hundreds of hooligans and unsocial elements entered the central depot and set fire to the godowns and the stock inside the godowns. The Forest Department staff could not thwart the illegal activity. Consequently, six godowns were extensively damaged. The red sanders and other varieties of wood were also gutted. The damage to the godowns is estimated at Rs. 3,00,000. The red sanders burnt is of the magnitude of 741.211 metric tons which is valued at Rs. 1,39,74,928.20. About this incident the Divisional Forest Officer gave a complaint and a case was registered in Crime No. 78 of 1984 of Rajampet police station. The loss suffered by the plaintiff to the extent of Rs. 38,05,000 is covered by the insurance policy. The plaintiff got issued notices dated June 15, 1985, and September 21, 1985, claiming the said amount. The defendant denied the liability stating that the policy does not cover the fire caused by mob violence. Therefore, the suit was filed to recover the said amount with costs and future interest.

The defendant reiterated the stand taken in the reply notice. They admitted the coverage up to the value of Rs. 35,05,000 and the rate of premium. However, they stated that the plaintiff has to prove that the stock worth about the amount claimed was burnt in the incident. The surveyor appointed by the company gave a report that the damage is not to the extent claimed. Further, they have stated that the cause of loss is outside the scope of the policy. Clause 6(d) of the policy is clear on this aspect. Therefore, the question of assessing the extent of damage does not arise.

They have also taken the ground that the suit is barred by limitation. As per clause 19, the claim has to be made within 12 months from the date of occurrence. In this case, the suit was filed on August 13, 1987, i.e., after two years, eleven months and twenty-six days, from the date of occurrence. Therefore, on this ground also, according to the defendant for the plaintiff is to be non-suited.

On the above pleadings, the trial court framed the following issues :

(1) Whether the insurance policy does not cover the fire caused by the mob violence ?

(2) Whether the suit is barred by limitation ?

(3) Whether the plaintiff is entitled to the amount claimed for ?

(4) To what relief ?

PWs-1 and 2 were examined on behalf of the plaintiffs. They marked exhibits A-1 to A-11. The defendant examined DW-1 and marked exhibits B-1 to B-5.

Considering both the oral and documentary evidence the learned subordinate judge held all the issues in favour of the defendant. Consequently, the suit was dismissed with a direction to each party to bear their own costs.

Hence, the appeal.

The learned special Government pleader attached to the office of the advocate-general vehemently contended that admittedly the fire accident is covered by the policy. The said accident occurred not through any mediation of the insured. The unruly mob set fire to the godowns and the red sanders and other varieties of wood stocked in the godown. This incident happened beyond the control of the insured. Therefore, it should be treated as an accident, covered by the policy, as the plaintiff is not instrumental in causing the fire accident.

We cannot accede to the contention of the learned Government pleader. The plain dictionary meaning of the word "accident" means, the occurrence of things by chance and an event that is without apparent cause or is unexpected. It is the cardinal principle of interpretation of statutes that the plain meaning of the words should be taken into consideration. Thus taken, there should not be any mediation of any human agency to bring it into the ambit of the word "accident". In this case, the rioting mob set fire to the godowns and the wood therein. This action cannot be termed as an "accident". Under clause 6(d) of the policy (exhibit A-2), the cases of arson and destruction due to rioting are excluded. It is an admitted fact that no additional premium is paid to cover the risk of rioting. Therefore, the lower court was right in holding that the policy does not cover the loss caused by mob violence. We confirm the finding of the lower court on this aspect.

Coming to the second point, namely, "limitation" the learned Government pleader vehemently and convincingly put forth his case that clause 19 of the policy does not stand in the way of the plaintiff to file the suit within three years by virtue of article 44(b) of the Schedule of the Limitation Act. He submitted that the general law of limitation prevails and the condition, if any, contrary to that is not applicable.

In support of his contention, the learned Government pleader relied upon the Bench judgment of the Karnataka High Court in the Taluka Agricultural Produce Co-operative Marketing Society Ltd. v. New India Assurance Co. Ltd. AIR 1988 Kar 185:[1989] 65 Comp Cas 109 wherein it was held :

"However, we proceed to make the observation that the learned civil judge has committed an error of law in holding that the suit has been filed twelve months after the occurrence of the loss due to fire, contrary to clause No. 19 of the policy and, therefore, the suit was barred by time. We must state the correct position in law. Perhaps the insurance forms were all printed long prior to the coming into force of the present Limitation Act on April 1, 1964. Under article 44(b) of the Schedule to the Limitation Act, a three-year period is provided for filing a suit to recover damages sustained on account of any loss under an insurance policy. The time starts running against the plaintiff only on the date of the occurrence causing the loss or the date on which the claim is denied by the insurance company. Therefore, the view expressed by the learned civil judge is not sustainable in law, as well as on the ground that the defendants did not plead that nor was the issue raised for the trial court to come to a conclusion."

The learned Government pleader also relied upon a Bench judgment of the Kerala High Court in Sujir Ganesh Nayak and Co., Quilon Vs. National Insurance Co. Ltd., Calcutta and Another, . In that case it was held (page 537) :

"In the instant case, clause 19 of the contract of insurance only states that the insured shall enforce his claim before the expiration of twelve months of the date of happening of the damage. It does not expressly prohibit the insured from filing a suit beyond that period. Under the Limitation Act, there is a specific article for filing a suit for damage due under the contract of insurance. Any clause in the contract of insurance curtailing the period of limitation will be hit by section 28 of the Contract Act. If clause 19 of the contract of insurance is construed in such a way, it limits the period of limitation to twelve months from the date of happening of the loss or damage and it would seriously prejudice the rights of the insured. The insurer can very well defeat the claim of the insured by rejecting the claim after the period of twelve months from the date of happening of the loss. Under article 44(b) of the Limitation Act, the period of limitation runs from the date of rejection of the claim. Therefore, it is clear that clause 19 of the contract of insurance only prescribes the period during which the claim to be preferred by the insured before the insurance company and it does not, in any way, curtail the period of limitation prescribed under the Limitation Act for filing a suit of that nature".

Reliance was also placed on the Bench judgment of the Calcutta High Court in Rajendra Kumar Arya Vs. Messrs New India Assurance Co. Ltd. Unit : The Commonwalth Assurance Co. Ltd., . In that case, it was held that the suit filed within three years from the denial of claim is not barred by limitation.

Further, learned counsel strongly relied upon the judgment in The Food Corporation of India Vs. The New India Assurance Co. Ltd. and others, . In that case, the interpretation of fidelity insurance guarantee under which the claim has to be made within six months from the date of termination of the contract was under consideration. The agreement was in the following terms (page 221) :

"..... subject, however, that the Corporation shall have no rights under this bond after the expiry of (period) six months from the date of termination of the contract."

The trial court decreed the suit filed by the corporation. On appeal, the High Court reversed the finding on the ground that the terms of the fidelity insurance guarantee did not entitle the corporation to file a suit against the insurer after the expiry of six months from the date of termination. The three judges of the Bench concurrently held that the High Court was not right in holding that the "restriction" in the clause of the bond did not enable the corporation to file a suit against the insurance company for non-honouring its claim after the lapse of the period of six months from the date of termination of the contract and consequently in setting aside the decrees of the trial court on that account. It was also held that (headnote of The Food Corporation of India Vs. The New India Assurance Co. Ltd. and others, :

"The fidelity insurance guarantee bond in this case only puts embargo on the right of the appellant to make its claim known not later than six months from the date of termination of contract. It is in keeping with the principle that the insurance companies should not be kept in dark for long and they must be appraised of their liabilities immediately both for facility and certainty. It cannot be construed as giving up the right of enforceability of its claim after six months. Since, the period is provided under the agreement the appellant had to move within this period asserting its right and appraising the company of the breach or violation by the miller to enable it either to pay or to persuade the miller to pay itself. It can at most be construed as a condition precedent for filing the suit that the appellant should have exercised the right within the period agreed to between the parties".

It was further held (headnote of SCC) :

"This cannot be construed as curtailing the normal period of limitation provided for filing the suit. If it is construed so it may run the risk of being violative of section 28 of the Contract Act. From the agreement it is clear that it does not contain any clause which would be said to be contrary to section 28 of the Contract Act nor it imposes any restriction to file a suit within six months from the date of termination of the contract."

It is held that the phraseology of section 28 is explicit and strikes a the very root by declaring any agreement curtailing the normal statutory period of limitation to be void. It is further held that the intention and objective being clear the courts'' primary responsibility is to construe and interpret it in a manner so as to advance the objective and protect the interest of the party who might be frustrated by too technical and expensive an approach in such matters. Further, the courts should lean in favour of the construction which keeps the remedy alive. Ultimately it was held that the suit filed by the appellant was within time.

In this case a number of judgments including Baroda Spinning and Weaving Co. Ltd. v. Sathyanarayana Marine and Fire Insurance Co. Ltd. [1914] ILR 38 Bom 344: AIR 1914 Bom 225 and G. Rainey v. Burma Fire and Marine Insurance Co. Ltd. AIR 1926 Rang 3, were considered.

The submission of the learned Government pleader deserves acceptance. At the same time we cannot lose sight of the other side of the case. The lower court took into consideration the judgments in Hirabhai Narotamdas Vs. The Manufacturers Life Insurance Company, and also Ghose v. Reliance Insurance Co. AIR 1934 Rang 15, and the observation of the Supreme Court in The Vulcan Insurance Co. Ltd. Vs. Maharaj Singh and Another, , wherein it was held that the clause (page 115 of 46 Comp Cas) : "In no case whatever shall the company be liable for any loss or damage after the expiration of twelve months from the happening of the loss or damage unless the claim is the subject of pending action or arbitration" was held to be not hit by section 28 of the Contract Act and was valid. Consequently, the lower court held that the suit is also barred by limitation as prescribed in clause 19 of the insurance policy.

At this juncture, it becomes relevant to see whether clause 19 is couched in the same words as the clause which was considered in the judgment The Vulcan Insurance Co. Ltd. Vs. Maharaj Singh and Another, . It is evident that there is no reference to a "suit" in the clause therein. Clause 19 in the present case is in the following words :

"19. In no case whatsoever shall the company be liable for any loss or damage after the expiration of twelve months from the happening of the loss or damage unless the claim is the subject of pending action or arbitration; it being expressly agreed and declared that if the company shall disclaim liability for any claim hereunder and such claim shall not within twelve calendar months from the date of the disclaimer have been made the subject-matter of a suit in a court of law then the claim shall for all purposes be deemed to have been abandoned and shall not, thereafter, be recoverable hereunder."

The language indicates that the suit is also barred, if filed after twelve calendar months from the date of disclaimer. This part of clause 19, on the basis of the ratio of the judgment referred to - The Food Corporation of India Vs. The New India Assurance Co. Ltd. and others, is certainly opposed to public policy and consequently hit by section 28 of the Contract Act. No party can agree to abridge the limitation period granted under article 44(b) of the Schedule to the Limitation Act. The other part of the clause, namely, "In no case whatsoever shall the company be liable for any loss or damage after the expiration of twelve months from the happening of the loss or damage unless the claim is subject of pending action or arbitration; it being expressly agreed and declared that if the company shall disclaim liability for any action hereunder", in the light of the above Supreme Court in The Vulcan Insurance Co. Ltd. Vs. Maharaj Singh and Another, , is valid as it does not pertain to the limitation for filing the suit. For making a claim from the company, the period of twelve months may be agreed upon by the parties. That condition may not offend public policy. The opinion of the judges of the Supreme Court in The Food Corporation of India Vs. The New India Assurance Co. Ltd. and others, is very emphatic and the parties cannot agree to curtailing the normal statutory period of limitation in violation of section 28 of the Contract Act. Therefore, the latter part of clause 19, indicated above, is struck down as violative of section 28 of the Contract Act. We are in entire agreement with the ratio decidendi of the Karnataka and Kerala High Courts laid down in the judgments The Secretary, Taluka Agricultural Produce Co-operative Marketing Society Ltd. Vs. The Custodian, New India Assurance Co. Ltd. and Another, and Sujir Ganesh Nayak and Co., Quilon Vs. National Insurance Co. Ltd., Calcutta and Another, . At the same time, we venture to record our dissent as far as the ratio decidendi of the judgments, Hirabhai Narotamdas Vs. The Manufacturers Life Insurance Company, and Ghose v. Reliance Insurance Co. AIR 1934 Rang 15. As a matter of fact, Justice Beaman in Baroda Spinning and Weaving Co. Ltd. v. Sathyanarayana Marine and Fire Insurance Co. Ltd. [1914] ILR 38 Bom 344, expressed doubt about the correctness of the ratio decidendi of the judgment in Hirabhai Narotamdas Vs. The Manufacturers Life Insurance Company, , in the following words :

"It is enough for me to say that after having given the reasoning of the learned judges in that case my fullest and most careful attention, I am still of the opinion with greatest deference that there is room for very grave doubt whether the case was rightly decided .... I must, therefore, hold however reluctantly that the condition in clause 12 is not void u/s 28 of the Contract Act".

Consequently, the suit filed by the State of Andhra Pradesh, represented by the Divisional Forest Officer, Rajampet, is within time and the finding of the lower court on this point is set aside.

However, on point No. 1, we hold that the risk is not covered by the policy. Therefore, the plaintiff cannot succeed. Accordingly, the appeal filed by the State of Andhra Pradesh is dismissed, and in the circumstances, without costs.