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CASE NO.: Appeal (civil)  6113 of 2000

PETITIONER: National Insurance Co. Ltd.

RESPONDENT: M/s Ishar Das Madan Lal

DATE OF JUDGMENT: 20/02/2007

BENCH: S.B. Sinha & Markandey Katju

JUDGMENT: J U D G M E N T

S.B. SINHA , J :

       Appellant insurer is before us questioning the correctness or otherwise  of a judgment and order dated 10.09.1999 passed by a Division Bench of the  High Court of Jammu & Kashmir in CIMA 21 of 1998 allowing the appeal  preferred by the respondent herein from a judgment and order dated  16.12.1997 passed by the Jammu & Kashmir Consumers Protection  Commission.   

       Respondent herein carries on  business in jewellery   It obtained a  policy known as ’Jeweller Block Policy’.  A theft of 140 gms of jewellery  worth of Rs.63,000/- occurred in  his business premises.  A First Information  Report was lodged therefor.  Respondent also lodged  a claim with the  appellant herein.  The same having not been  settled for a long time, an  application was filed before the State Consumers Protection Commission  constituted under the J & K Consumers Protection Act, 1987.   

       The question raised before the Commission was as to whether the loss  in question was covered by the insurance policy.  Appellant contended that  the claim of the respondent is covered by an exclusion clause contained in  the policy, which reads as under :

"8.     Loss or damage occasioned by theft or dishonesty  or any attempt there at committed by or where such loss  or damage has been expedited or in any way sustained or  brought about by :

(a)     any of the insured’s family members;

(b)     any servant or traveler or messenger in the  exclusive employment of the insured;

(c)     any customer or broker or their customer or  angadias or cutters or goldsmiths in respect of the  property hereby insured entrusted to them by the insured  his or their servants or agents."

       The Commission by reason of  its order dated 16.12.1997, inter alia,  found the said claim to be not sustainable on the ground that the loss was not  covered by the said policy, stating :

"\005It appears to us that while preparing the insurance  agreement the insurer was aware of the fact that this  could be the easiest way for any Jeweller to raise claims  against the insurance companies and that is why this  clause has been deliberately introduced and theft by

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customer if any has been put in exclusive clause of the  policy\005"

       The High Court, as indicated hereinbefore, by reason of its judgment  and order dated 10.09.1999,  did not agree therewith.  It was held  :

       "What is meant by the term ’entrustment’ does  handing over of jewellery to a customer amounts to  entrustment.  The dictionary meaning of the word  ’entrust’ would be to give to another for care, protection  or to commit something trustfully or plays trust upon a  person’.   If a customer enters the premises of a  shopkeeper and examines some movable property and  takes away the same, then there hardly arises any  occasion for entrustment to such a customer.  In the  present case a customer entered the business premises  and removed 140 gms. of Jewellery.  There was no  entrustment on the part of the owner to the customer.   The act of removal of the goods by the customer is  nothing but a plain theft.  This is a dishonest taking and  removing the property by the customer with the intent of  permanently depriving the owner."                     A short question which, thus, arises for our consideration is as to  whether  clause 8 of the policy is applicable to the facts and circumstances  of the present case.

       It is not in dispute that an insurance cover against theft was granted by  the appellant.  The insurance policy, thus, covered  the risk of theft also.  An  insurer determines the extent of its risk.  It  floats the policy knowing fully  well the risk it seeks to cover.  Having regard to the determination of the risk  only he fixes the quantum of premium.  The insured while entering into a  contract of insurance must precisely know the extent of his cover so that he  may take out additional insurance if it is so required.   

       However, there may be an express clause excluding the applicability  of insurance cover. Wherever such exclusionary clause is contained in a  policy, it would be for the insurer to show that the case falls within the  purview thereof.  In a case of ambiguity, it is trite, the contract of insurance  shall be construed in favour of the insured.  [See United India Insurance Co.  Ltd. v. Pushpalaya Printers   (2004) 3 SCC 694],  M/s Peacock Plywood Pvt.  Ltd. v. The Oriental Insurance Co. Ltd. [2006 (14) SCALE 300] and United  India Insurance Co. Ltd. v. Kiran Combers & Spinners [(2007) 1 SCC 368].

       Clause 8 of the contract of insurance would be attracted only where  the offences specified therein are committed by any of the persons  mentioned therein.  For defeating the claim of the respondent, it was, thus,  obligatory on the part of the appellant to establish that the conditions  prescribed therein were satisfied.

       Keeping in view the aforementioned legal aspect of the matter, we  may advert to the meaning of the word ’entrust’.  Its ordinary meaning,  would  mean  "to charge or invest with a trust; to commit to another with a  certain confidence regarding his care" [See Advanced Law Lexicon by P.  Ramanatha Aiyar \026 3rd Edn. \026Book 2 \026 page1613].   

       It requires no elaboration that offences of ’breach of trust’ and ’theft’  contain different ingredients.  Whereas theft has been defined in Section 378  of the Indian Penal Code; breach of trust has been defined in Section 405  thereof, which read as under :

"378. Theft.- Whoever, intending to take dishonestly any  moveable property out of the possession of any person  without that person’s consent, moves that property in  order to such taking, is said to commit theft."

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       Illustration (d) appended thereto reads as under :

"(d) A, being Z’s servant, and entrusted by Z with the  care of Z’s plate, dishonestly runs away with the plate,  without Z’s consent.  A has committed theft."   

"405. Criminal breach of trust.-Whoever, being in any  manner entrusted with property, or with any dominion  over property, dishonestly misappropriates or converts to  his own use that property, or dishonestly uses or disposes  of that property in violation of any direction of law  prescribing the mode in which such trust is to be  discharged, or of any legal contract, express or implied,  which he has made touching the discharge of such trust,  or willfully suffers any other person so to do, commits  "criminal breach of trust""

       The word ’entrust’ would imply giving responsibility to a person upon  whom the owner has confidence.  It envisages establishment of a  relationship.  When a customer enters into a jewellery shop,  as of necessity,  the owner or his agent must allow him to inspect the merchandise, the  customer intends to purchase.  For the said purpose possession in the legal  sense is not handed over.  The owner or his agent does not loose complete  control thereover.   

       For the purpose of arriving at a conclusion as to whether the exclusion  clause is attracted or not, loss or damage must be occasioned, inter alia, by a  customer in respect of the property entrusted to him.  The word ’customer’  contained in clause 8 (c) of the Insurance Policy must be read ejusdem  generis.  A customer contemplated thereunder must have to be one who  would be a man of trust.  If a customer is not a man of trust or the property  had not been entrusted to him, the exclusion clause would not apply.  The  customer who committed theft of jewellery was an unknown person.  It was  so categorically stated in the First Information Report.  There was, thus, no  occasion for the respondent to entrust the jewellery to him.

       Mr. Vishnu Mehra, the learned counsel appearing for the appellant has  relied upon the meaning of the word  ’entrust’ as contained in Black’s Law  Dictionary, 8th Edn. and Webster’s Universal Dictionary.  

        In Black’s Law Dictionary, the word ’entrust’ has been defined as  under :

"To give  (a person) the responsibility for something after  establishing a confidential relationship."

       In Webster’s Universal Dictionary meaning of the word ’entrust’  reads as under :

"To confer as a responsibility, duty etc. to place,  something in another’s care."  

       Apart from the fact that the said meaning of the term ’entrustment’  goes  against the submission Mr. Mehra, we may notice that in Black’s  Law  Dictionary the word ’entrusting’ in commercial law has been described as  "The transfer of possession of goods to a merchant who deals in goods of  that type and who may in turn transfer the goods and all rights to them to a  purchaser in the ordinary course of business."  Transfer of possession of

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goods, therefore, is a sine qua non  for entrustment.  The person must be  handed over the possession of the property.  Illustration (d) appended to  Section 378 IPC envisages a situation of this nature.   It by no stretch of  imagination would have contemplated a situation where an unknown  customer would have committed theft.

       The word ’entrustment’, moreover,  must be read in the context in  which it has been used.   

       In  Colinvaux’s Law of Insurance, 7th Edn., by Robert Merkin at page  50, it is stated :

"Words in context

       The above generality is not applicable when it is  clear from the context that the words are not used in a  colloquial popular sense.  Thus the word "flood" in the  phrase "strom, tempest or floor" does not cover a case  where a house-holder’s bathroom is affected by upward  seepage of water to a depth of three inches, as the context  of the word requires an event violent, sudden or  abnormal.  Similarly, heavy rain is not in itself likely to  constitute a storm.  It has also been held that the phrase  "sum actually paid" in a reinsurance agreement referred  to a sum which the reinsured is merely liable to pay, as  the agreement read as a whole was against liability rather  than actual payment."        

       In The State of Gujarat  v.  Jaswant Lal Natha Lal [(1968) 2 SCR  408], this Court held :

"\005The expression ’entrustment’ carries  with it the  implication that the person handing over any property or  on whose behalf that property is handed over to another,  continues to be its owner.  Further the person handing  over the property must have confidence in the person  taking the property so as to create a fiduciary relationship  between them.  A mere transaction of sale cannot amount  to an entrustment\005"

                In Superintendent and Remembrancer of Legal Affairs, W.B. v. S.K.  Roy [AIR 1974 SC 794], this Court held : "12. To constitute an offence under Section 409 IPC, it is  not required that misappropriation must necessarily take  place after the creation of a legally correct entrustment or  dominion over property. The entrustment may arise in  any manner whatsoever. That manner may or may not  involve fraudulent conduct of the accused. Section 409  IPC, covers dishonest misappropriation in both types of  cases; that is to say, those where the receipt of property is  itself fraudulent or improper and those where the public  servant misappropriates what may have been quite  properly and innocently received. All that is required is  what may be described as entrustment or acquisition of  dominion over property in the capacity of a public,  servant who, as a result of it, becomes charged with a  duty to act in a particular way, or, atleast honestly."

       Yet again in Ram Narayan Popli etc. v. Central Bureau of  Investigation etc. [(2003) 3 SCC 641], it was held : "361. To constitute an offence of criminal breach of trust,  there must be an entrustment, there must be  misappropriation or conversion to one’s own use, or use

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in violation of a legal direction or of any legal contract;  and the misappropriation or conversion or disposal must  be with a dishonest intention. When a person allows  others to misappropriate the money entrusted to him, that  amounts to a criminal breach of trust as defined by  Section 405. The section is relatable to property in a  positive part and a negative part. The positive part deals  with criminal misappropriation or conversion of the  property and the negative part consists of dishonestly  using or disposing of the property in violation of any  direction and of law or any contract touching the  discharge of trust. 362. In Jaswantrai Manilal Akhaney v. State of Bombay   it was held that if the Managing Director of the Bank  entrusted with securities owned by the pledgor disposes  of their securities against the stipulated terms of the  contract entered into by the parties with an intent to cause  wrongful loss to the pledgor and wrongful gain to the  Bank, there can be no question but that the Managing  Director has necessarily mens rea required by Section  405. 363. The term entrustment is not necessarily a term of  law. It may have different implications in different  contexts. In its most general signification all it imports is  the handing over possession for some purpose which may  not imply the conferring of any proprietary right at all. 364. When a person misappropriates to his own use the  property that does not belong to him, the  misappropriation is dishonest even though there was an  intention to restore it at some future point of time."

       We, therefore, are clearly of the opinion that the view taken by the  High Court was correct.  The High Court’s judgment is upheld.  The appeal  is dismissed.  We, in the facts and circumstances of this case, also direct the  appellant to pay and bear the cost of the respondent throughout.  Counsel’s  fee in this appeal is assessed at Rs.50,000/-.