Reportable  IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 5103  OF 2002

Deokar Exports Pvt. Ltd. .... Appellant  Versus New India Assurance Company Ltd. ....Respondent

O R D E R

R. V. Raveendran J.

The appellant imported a De-hydration Machine financed by  Maharashtra  State  Finance  Corporation  (for  short 'MSFC').  The machine was insured by the appellant with the respondent  (also  referred  to  as  the  ‘Insurer’)  through MSFC, against the risk of fire for the period 12.9.1986 to 12.3.1988.  Long  after  the  expiry  of  the  policy,  on 25.8.1988, MSFC sent a cheque for Rs.3,135/- on behalf of the appellant for renewal of the policy. A formal stamped receipt was issued by the insurer confirming the receipt of the cheque on 26.8.1988.

2. By  letter  dated  7.4.1989,  the  insurer  informed  the

appellant  that  it  had  received  the  premium  amount  from MSFC, but as no proposal had been received from appellant, it  was  not  in  a  position  to  issue  the  fire  insurance policy. The insurer sent a standard proposal form to the appellant along with the said letter.  The appellant filled and signed proposal form and delivered it to the insurer on 16.6.1989.  In the said proposal, the appellant stated that insurance cover was required for the period 12.3.1988 to 12.9.1989. But the insurer issued an insurance policy dated 30.6.1989  extending  insurance  cover  for  the  period 26.8.1988  to  25.8.1989.  The  Insurer  sent  the  insurance policy  to  MSFC  as  required.  MSFC  did  not  raise  any objection about the period of cover when the policy was received  by  it.  Nor  was  the  policy  renewed  beyond 25.8.1989.  

3. On  10.2.1990,  the  machine  was  damaged  in  a  fire accident.  On 17.2.1990, the appellant lodged a claim for Rs.26,91,139/-  with  the  insurer,  in  regard  to  the  said damage.  The insurer rejected the claim on the ground that there  was  no  insurance  cover  on  10.2.1990.   Feeling aggrieved, the appellant approached the National Consumer Disputes  Redressal  Commission  (‘Commission’  for  short) complaining deficiency in service by the Insurer.  The said complaint was dismissed on 23.9.1992 on the ground that the

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complaint involved decision on complex issues of fact and, therefore, the appropriate remedy was by way of suit. The appellant  thereafter  filed  a  civil  suit  on  29.3.1993 claiming  Rs.26,91,130/-,  being  the  value  of  the  damaged machine, with interest etc.  The appellant submitted that the suit was in time, if the period spent in prosecuting the claim before the Commission was excluded under section 14 of Limitation Act, 1963.

4. The Trial Court by judgment and decree dated 16.9.1999 dismissed  the  suit.   It  upheld  the  contention  of  the appellant  that  the  insurance  cover  could  only  be prospective, that is for a period of one year from the date of issue of the policy; and that as the insurance policy was issued on 30.6.1989, it should be deemed to have been issued to cover a period of one year commencing from that date;  and  that  therefore,  as  on  the  date  of  the  fire accident – 10.2.1990, the machine must be deemed to have been insured. However, the trial court dismissed the suit as barred by limitation. It refused to exclude the time spent  in  prosecuting  the  complaint  before  the  National Consumer Redressal Commission for purposes of limitation. Feeling aggrieved, the appellant filed an appeal before the Bombay  High  Court  contending  that  the  finding  regarding limitation  was  erroneous.   The  insurer  filed  cross-

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objections challenging the finding that the insurance was in force on the date of fire accident. The High Court by its  judgment  dated  9.3.2001  dismissed  the  appeal  by  the appellant and allowed the cross-objections of the insurer. The High Court held the suit was not barred by limitation. But it held that the suit was liable to be rejected on merits, as there was no insurance cover on 10.2.1990. It held that the date of insurance policy was immaterial and what was material was the date of assumption of risk; and as the insurer had assumed risk with effect from 26.8.1988 for a period of one year upto 25.8.1989, it cannot be made liable for a fire accident which occurred after the expiry of  the  policy. The High  Court also noted  that when the policy was sent to MSFC, which was acting on behalf of the appellant, no objection was raised in regard to the period of insurance cover.   

5. The said decision of the High Court is challenged in this appeal by special leave. The appellant contended that a contract of insurance, unless otherwise mutually agreed, shall always be prospective in its operation, that is from the date of issuance of the policy of insurance or cover note.  It  was  submitted  that  as  the  proposal  by  the appellant required insurance cover for the period 12.3.1988 to  12.9.1989,  the  insurer  could  have  issued  the  policy

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assuming risk from the required date, that is, 12.3.1988. If that was not possible, for whatever reason, the policy should  have  assumed  risk  prospectively  from  the  date  of issue of the policy, and not from some retrospective date chosen by the insurer. It was further submitted that as the insurer had sent the policy to MSFC, the appellant could not point out the error relating to the period of insurance cover. The appellant contended that in the circumstances, the  policy  should  be  treated  as  having  been  issued prospectively for one year effective from 30.6.1989; and if so, the machine was deemed to have been insured on the date of the accident.  

6. On  the  contentions  urged,  the  following  questions arise for our consideration :  

(i) Where the insurance company is not able to issue a policy of insurance, for the period required in the proposal, whether the alternative is only to issue the policy to be effective prospectively from the date of issue.  

(ii) Whether  the  insurer  was  justified  in  issuing  the policy  showing  the  period  of  insurance  cover  as 26.8.1988 to 25.8.1989?

(iii) Whether the policy should be treated as one covering

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the  machine  against  tie  risk  during  the  period 30.6.1989 to 29.6.1990?  

7. The contention and grievance of the appellant is not that  the  insurance  policy  should  have  covered  the  risk during the period specified in its proposal. Its contention is that the policy of insurance ought to have covered the risk for a period of one year with effect from the date of issue of the policy of insurance, and not for the period stipulated in the policy, nor for the period mentioned in its proposal.

8. Section 64 VB of The Insurance Act, 1938 (‘Act’ for short) provides that no risk can be assumed unless premium is received in advance.  Sub-sections (1) and (2) of the said section, relevant for our purpose, are extracted below:

"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 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 inusrer. Explanation  -  Where  the  premium  is  tendered  by

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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."  

(Emphasis supplied)

Two things emerge from the said section. The first is that the insurer cannot assume risk unless and until premium is received or guaranteed or deposited. The second is that a policy issued can assume the risk from a retrospective date provided such date is not earlier than the date on which premium had been paid in cash or by cheque to the insurer.   

9. In this case, the proposal sent by the appellant was received by the insurer on 16.6.1989. It required that the period  of  insurance  cover  should  be  for  the  period 12.3.1988  to  12.9.1989.  The  reason  why  the  respondent wanted the insurance cover retrospectively from 12.3.1988 is  obvious.  The  initial  insurance  policy  expired  on 12.3.1988. Under the terms of finance between MSFC and the appellant,  apparently  it  was  necessary  to  have  an uninterrupted  and  continuous  insurance  cover  during  the period  the  machine  was  secured  in  favour  of  MSFC. Therefore, the appellant wanted the insurance cover to be continued by way of renewal for the period 12.3.1988 to 12.9.1989. But the premium amount for one year was received by the insurer only on 26.8.1988. Having regard to the bar

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contained in Section 64-VB of the Act, the insurer could not accept the request of the appellant to grant insurance cover  with  retrospective  effect  from  a  date  prior  to 26.8.1988  when  it  received  the  premium.   Therefore,  the insurer adopted the standard, logical and obvious course of issuing the insurance policy with effect from the date on which it received the premium amount by cheque  that is with effect from 26.8.1988. As the premium paid was for one year and the standard term of fire policy was one year, the policy was issued assuming risk for the period 26.8.1988 to 25.8.1989.  Non-issue  of  the  policy  for  the  period commencing from 12.3.1988 required by the appellant, was for  a  good  and  valid  reason.  There  was  also  nothing illogical  or  arbitrary  about  the  insurance  of  a  policy specifying  the  period  of  insurance  cover  as  one  year effective from the date of receipt of the premium, that is from  26.8.1988  to  25.8.1989.  If  the  appellant  wanted insurance cover prospectively it should have so specified in the proposal. Having failed to do so and having sought retrospective cover, the appellant cannot make a grievance when the insurance cover is issued retrospectively from the date of receipt of the premium.   

10. Another aspect which requires to be noticed is that when the policy was sent by the insurer to MSFC, there was

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no  protest  or  objection  from  MSFC  that  the  policy  was issued for a wrong period. Nor did it return the policy to the insurer with a request to make it prospective from the date  of  the  policy.   The  appellant  did  not  choose  to examine  the  policy  or  cross-check  with  MSFC  about  the currency  of  the  insurance  policy  or  about  the  need  to further renewal of the policy. In fact, it would appear from the record that MSFC had written on 31.7.1989 to the appellant that the insurance policy was due to expire in August, 1989. It is, thus, clear that both the appellant and MSFC were aware of the fact that the insurance cover under the policy was for the period 26.8.1988 to 25.8.1989 but neither of them objected to it.  Nor was any premium paid for further renewal of the policy beyond 25.8.1989. Obviously, therefore, the insurer cannot be made liable for the loss which occurred on account of a fire accident on 10.2.1990.

11. A policy of insurance is a contract based on an offer (proposal)  and  an  acceptance.  The  appellant  made  a proposal.  The  respondent  accepted  the  proposal  with  a modification.  Therefore,  it  was  a  counter  proposal.  The appellant had three choices. The first was to refuse to accept  the  counter-proposal,  in  which  event  there  would have  been  no  contract.  The  second  was  to  accept  either

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expressly  or  impliedly,  the  counter-proposal  of  the respondent  (that  is  respondent’s  acceptance  with modification) which would result in a concluded contract in terms  of  the counter proposal.  The third was  to make a counter proposal to the counter-proposal of the respondent in which event there would have been no concluded contract unless  the  respondent  agreed  to  such  counter-counter- proposal.  But  the  appellant  definitely  did  not  have  the fourth choice of propounding a concluded contract with a modification  neither  proposed  nor  agreed  to  by  either party.  If  the  appellant  did  not  agree  to  the  policy covering the period 26.8.1988 to 25.8.1989 instead of the period  12.3.1988  to  12.9.1989,  the  result  would  never create an insurance contract effective from 30.6.1989 or any other date.    

12. The  contention  of  the  learned  counsel  for  the appellant  that  an  equitable  view  must  be  taken  is untenable.   In  a  contract  of  insurance,  rights  and obligations  are  strictly  governed  by  the  policy  of insurance.  No exception or relaxation can be made on the ground of equity.

12. We, therefore, find no reason to interfere with the judgment of the High Court. The appeal is dismissed with

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costs quantified at Rs.10,000/-.

...........................J.        (R.V. RAVEENDRAN)

...........................J.        (LOKESHWAR SINGH PANTA)

New Delhi September 23, 2008

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