REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.  5305 OF 2008 (Arising out of SLP (C) No.18068 of 2006)

National Insurance Co. Ltd.          … Appellant

Versus

Abhaysing Pratapsing Waghela & Ors.          … Respondents

J U D G M E N T

S.B. Sinha, J.

1. Leave granted.

2. What  would  the  effect  of  dishonour  of  a  cheque  when

subsequently the amount of premium has been accepted in cash by the

insurer is the question involved herein.

3. First respondent was driving a moped on 27.1.1995.  An accident

took place on the said date as the said vehicle was hit by a truck bearing

registration No.GJ 6T 7000 which was allegedly being driven in a rash

and  negligent  manner.   The  said  truck  first  dashed  against  an

Ambassador car and then hit the moped which was being driven by the

respondent as a result whereof he suffered severe injuries.

4. For the purpose of getting the said truck insured,  a cheque was

tendered  to  the  officers  of  the  appellant  company  on  23.1.1995.   As

noticed hereinbefore the accident took place on 27.1.1995.  The cheque

when presented to the bank for clearance was allegedly dishonoured.  On

30.1.1995,  however,  the  amount  of  premium  was  paid  in  cash  and

received.   

5. The  Motor  Vehicle  Accident  Claims  Tribunal  as  also  the  High

Court, however, opined that having regard to the fact that a cover note

had been issued by the appellant, it was legally obligated to reimburse

the claim of a third party.

6. Ms. Pankaj Bala Verma, learned counsel  appearing on behalf of

the  appellant,  would  submit  that  in  terms  of  Section  64VB  of  the

Insurance Act, a contract of insurance issued would be valid only when

the cheque issued towards payment of the premium is honoured.  The

learned  counsel  would  urge  that  cheque  is  an  instrument  in  terms

whereof payment is guaranteed and it is accepted as a valid payment only

on that premise but when it is dishonoured, the contract being without

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consideration need not be performed.  It was furthermore contended that

the learned Tribunal  as also the High Court committed a serious error

insofar  as  they  failed  to  correctly  read  the  Motor  Input  Advice  cum

Receipt  showing  that  the  insurance  was  valid  from  23.1.1995  to

22.1.1996.  It was submitted that no cover note, in fact, was issued; and

what was issued was merely a money receipt which itself shows that the

same was valid subject to the realization of the amount.

7. Strong reliance in this behalf was placed on Deddappa & Ors. V.

Branch Manager, National Insurance Company Ltd. [(2008) 2 SCC 595].

8. Mr.  Jatin  Zaveri,  learned  counsel  appearing  on  behalf  of  the

respondent, on the other hand, contended that a cover note, in fact, was

issued  on  23.1.1995  in  favour  of  the  insurer.   The  learned  counsel

submitted that not only the said fact was admitted in the pleadings of the

insurance  company  but  also  the  witness  examined  on  behalf  of  the

appellant took the same stand before the Tribunal as also before the High

Court.  Our attention in this behalf has also been drawn to the grounds of

appeal taken in the Special Leave Petition.

9. The objection taken by the appellant in its written statement reads

as under :

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“It  is  hereby  submitted  that  in  this  case applicant  had  not  produced  any  documentary evidence  pertaining  to  policy  of  involved vehicle except Cover Note, and in legal sense cover  note  is  not  authentic  document,  more over this cover note which was produced by the applicant shows cheque payment and if cheque does not realized then the contract of insurance does  not  exists  and  hence  replying  opponent does  not  liable  to  pay compensation  and it  is established principal  that if replying opponent does not received premium that its liability does not  exists.   And  in  this  regard  replying opponent reserves it all right without prejudice this averments.”

10. Appellant, therefore, proceeded on the basis that a cover note was,

in fact, issued.  Yet again, a similar contention has been raised before the

Tribunal as would appear from the following excerpts from the award:

“However, as per the contention raised by the Ld. Advocate for the applicant, the contract of insurance and policy the  alleged vehicle were not  in  existence  as  on  the  date/date  of occurrence;  that  the  cheque  issued  was dishonoured  and,  therefore,  the  cover  note  it had issued becomes ineffective and as such, no policy obliging to pay the compensation by the insurer  exists  on  the  day  of  occurrence  and therefore,  the  opponent  No.3  cannot  be  held liable  to  indemnify  the  third  party  and/or  the Insurer be absolved of its  obligations  to  third party because of non-receiving of the premium. In  support  thereof,  the  Ld.  Advocate  for  the opponent  No.3  placed  strong  reliance  on  the propositions of law laid down in 2002 (1) AJR 168, 1991 ACJ 650.”

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Apart from the same, even before us in the Special Leave Petition,

the appellant, after quoting a decision of the Madhya Pradesh High Court

in  United India Insurance Company Ltd. V.  Rattan Singh & Ors. [AIR

1993 MP 197], stated the following :

“Similar  is  the  case  in  hand  and  is  squarely covered  by  this  judgment.   It  is  also  a  case where  it  had  not  issued  any  policy  but  was cover note and that too was cancelled when the cheque was bounced and also prior to the date of accident itself.”

11. A bare perusal of the receipt would show that not only the same

contains  a  column  relating  to  “Class  Code”  but  also  a  “Cover  Note

Number”.  No contention had been raised that the number purported to

be  noted  against  the  column  of  “Cover  Note  Number”,  in  fact,

represented the class code.  “Class code” has been stated within a box

being 217, The purported “Cover Note” said to be bearing no. 279106 is

rubber stamped.  It is not within the box meant to state the “Class Code”.

No  material  has  been  placed  before  the  Tribunal  to  state  the  “Class

Code”  number  would  not  only  be  contained  within  the  box  but  also

would be rubber stamped separately.   

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12. We might have accepted the explanation of the appellant before us

that the said number 279106 is,  in fact,  continuation of the class code

No.217, but, as indicated hereinbefore, the stand taken by the appellant

not only before the courts below but also before us is otherwise.   

13. The Motor Vehicles Act, 1988 (for short, “the Act”) was enacted

to consolidate and amend the law relating to motor vehicles.  Chapter XI

of the Act provides for insurance of motor vehicles against third party

risks.   

Section 145 of the Act is the definition section; clause (b) whereof

defines  ‘certificate  of  insurance’  to  mean  a  certificate  issued  by  an

authorized insurer  in  pursuance  of  sub-section (3)  of  Section 147 and

includes  a  cover  note  complying  with  such  requirements  as  may  be

prescribed,  and  where  more  than  one  certificate  has  been  issued  in

connection  with  a  policy,  or  where  a  copy  of  a  certificate  has  been

issued, all those certificates or that copy, as the case may be.   

Clause (d) of Section 145 defines ‘policy of insurance’ to include

‘certificate of insurance’.

Section  146  of  the  Act  mandates  that  no  person,  except  as  a

passenger, shall use or cause or allow any other person to use, a motor

vehicle in a public place, unless there is in force in relation to the use of

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the vehicle by that  person or that other person,  as the case may be,  a

policy of insurance complying with the requirements of this Chapter.   

Section 147 provides for the requirements of policies and limits of

liability in the following terms :

“(a) is issued by a person who is an authorised insurer; or

(b)  insurer  the  person  or  classes  of  persons specified in the policy to the extent specified in sub-  section (2)-

(i) against any liability which may be incurred by  him  in  respect  of  the  death  of  or  bodily injury  to  any  person,  including  owner  of  the goods or his  authorised representative   carried in the vehicle or damage to any property of a third party caused by or arising   out of the use of the vehicle in a public place;

(ii) against the death of or bodily injury to any passenger of a public service vehicle  caused by or  arising  out  of  the  use  of  the  vehicle  in  a public place.”

A proviso has been appended thereto, which reads as under :

“Provided that a policy shall not be required-

(i)  to  cover  liability  in  respect  of  the  death, arising  out  of  and  in  the  course  of  his employment,  of   the  employee  of  a  person insured  by  the  policy  or  in  respect  of  bodily injury sustained by such   an employee arising out  of  and  in  the  course  of  his  employment other  than  a  liability  arising   under  the

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Workmen's  Compensation  Act,  1923  (8  of 1923)  in  respect  of  the  death  of,  or  bodily  injury to, any such employee-

(a) engaged in driving the vehicle, or

(b) if it is a public service vehicle engaged as conductor  of  the  vehicle  or  in  examining  tickets on the vehicle, or

(c) if it is a goods carriage, being carried in the vehicle, or

(ii) to cover any contractual  liability.”

14. An insurance company, however, is entitled to deny its liability to

indemnify the owner of the vehicle on limited grounds as provided for

under sub-section (2) of Section 149 thereof.   

15. One of the grounds which are available to the insurance company

to  deny  its  statutory  liability  as  envisaged  under  sub-section  (2)  of

Section 149 of the Act is that the policy is void on the ground that it was

obtained by the non-disclosure of a material fact or by a representation of

fact which was false in some material particulars.

16. Indisputably, the first respondent is a third party in relation to the

contract of insurance which had been entered into by and between the

appellant  and  the  owner  of  the  vehicle  in  question.  We have  noticed

hereinbefore that  a document was produced before the Tribunal.  Even

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according to the appellant, although it was only a Motor Input Advice

cum Receipt, it contained the Cover Note No. 279106.  We, therefore,

have to suppose that a Cover Note had, in fact, been issued. If a Cover

Note had been issued which in terms of clause (b) of sub-Section 1 of

Section 145 of the Act would come within the purview of definition of

certificate of  insurance;  it  also would come within the purview of the

definition of a insurance policy.  If a Cover Note is issued, it  remains

valid till it is cancelled.  Indisputably, the insurance policy was cancelled

only after the accident took place. A finding of fact, therefore, has been

arrived at that prior to the deposit of the premium of insurance in cash by

the owner of the vehicle, the cover note was not cancelled.   

17. It is in the aforementioned situation, we are of the opinion, that the

judgment of the High Court cannot be faulted.  No doubt, a contract of

insurance is to be governed by the terms thereof, but a distinction must

be borne in mind between a contract of insurance which has been entered

into  for  the  purpose  of  giving  effect  to  the  object  and  purport  of  the

statute and one which provides for reimbursement of the liability of the

owner of the vehicle strictly in terms thereof.  In that limited sense, a

contract  of  insurance  entered into  for  the  purpose of  covering  a  third

party risk would not be purely contractual.  We may place on record that

an ordinary contract of insurance does not have a statutory flavour.  The

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Act merely imposes an obligation on the part of the insurance company

to reimburse the claimant both in terms of the Act as also the Contract.

So far as the liability of the insurance company which comes within the

purview of  Sections  146 and  147 is  concerned,  the  same subserves  a

constitutional  goal,  namely,  social  justice.   A  contract  of  insurance

covering the third party risk must, therefore, be viewed differently vis-à-

vis a contract of insurance qua contract.

18. In  National  Insurance Co. Ltd.  v.  Laxmi Narain Dhut  [(2007) 3

SCC 700], this Court opined:

“23. As noted above, there is no contractual relation between the third  party and the  insurer.  Because  of the statutory intervention in terms of Section 149, the same becomes operative in essence and Section 149 provides complete insulation.  

24. In the background of the statutory provisions, one thing is crystal clear i.e. the statute is beneficial one  qua  the  third  party.  But  that  benefit  cannot  be extended to the owner of the offending vehicle. The logic of fake license has to be considered differently in respect of third party and in respect of own damage claims.”

The same view was reiterated  in  Oriental  Insurance Co. Ltd.  v.

Meena Variyal & Ors. [(2007) 5 SCC 428] stating:

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“14. The object of the insistence on insurance under Chapter  XI  of  the  Act  thus  seems  to  be  to compulsorily  cover  the  liability  relating  to  their person or properties of third parties and in respect of employees of the insured employer, the liability that may arise  under  the  Workmen's  Compensation  Act, 1923 in respect of the driver, the conductor and the one carried in a goods vehicle carrying goods.”  

This Court in Oriental Insurance Co. Ltd.v. Sudhakaran K.V. and

Ors. [2008 (8) SCALE 402] held:

“14. The provisions of the Act and, in particular, Section  147  of  the  Act  were  enacted  for  the purpose  of  enforcing  the  principles  of  social justice. It,  however,  must  be  kept  confined  to  a third party risk. A contract of insurance which is not  statutory  in  nature  should  be  construed  like any other contract.”

This Court in Oriental Insurance Co. Ltd. v. Inderjeet Kaur [(1998)

1  SCC  71]  held  that  once  a  certificate  of  insurance  is  issued,  the

insurance  company would  not  be  absolved  of  its  obligations  to  third

parties

Yet  again  in  Deddappa  &  Ors. V.  Branch  Manager,  National

Insurance Co. Ltd. [(2008) 2 SCC 595], having regard to the provisions

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contained  in  Section  54(v)  of  the  Insurance  Act,  1938,  in  the  fact

situation obtaining therein, it was opined :

“A  contract  is  based  on  reciprocal  promise. Reciprocal  promises  by  the  parties  are condition  precedents  for  a  valid  contract.   A contract  furthermore  must  be  for consideration.”

19. We,  therefore,  in  the  facts  and  circumstances  of  the  case,  are

unable  to  agree  with  the  contention  of  the  learned  counsel  for  the

appellant.  

In any event, this is a case where this Court should not exercise its

discretionary jurisdiction under Article 136 of the Constitution of India

as only a sum of Rs.46,000/- is awarded in favour of respondent No.1.   

20. In  our  opinion,  the  impugned  judgment  does  not  warrant  any

interference.  The Appeal is dismissed with costs.  Counsel’s fee assessed

at Rs.25,000/-.  

….…………………….J. [S.B. Sinha]

….…………………….J. [Cyriac Joseph]

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New Delhi; August 29, 2008

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