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PETITIONER: ORIENTAL INSURANCE CO.LTD.

       Vs.

RESPONDENT: INDERJIT KAUR & ORS.

DATE OF JUDGMENT:       08/12/1997

BENCH: CJI, S.P. BHARUCHA, S.C. SEN

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T BHARUCHA,J.      Leave granted.      This appeal  is heard  by a  Bench of  3 Judges because learned counsel  for the  appellant, the  Oriental Insurance Co. Ltd.,  had submitted  that the decision of this Court in United India Insurance Co.Ltd, vs Ayeb Mohammed & Ors., 1991 (2) ACJ  650, had  been misread by the Motor Accident Claims Tribunal and  the High  Court and  that, while the appellant would pay  the amount of compensation awarded in this matter it desired,  in  view  of  the  general  importance  or  the question, an authoritative pronouncement.      For the  purposes of  the appeal,  therefore, very  few facts are  relevant, A  bus met with an accident, Its policy of insurance  was issued  by the appellant on 30th November, 1989. The  premium for  the policy  was paid  by cheque. The cheque was  dishonoured. A  letter stating  that it had been dishonoured was sent by the appellant to the insured on 23rd January, 1990.  The letter  claimed that,  as the cheque had not been  encashed, the  premium on  the policy had not been received and that, therefore, the appellant was not at risk, The premium  was paid  in cash  on 2nd  May,  1990.  In  the meantime, on  19th April, 1990, the accident took place: the bus collided  with a  truck, whose  driver died.  The  truck drivers widow  and minor  sons filed the claim petition. The appellant denied the claim asserting that under the terms of Section 64-VB  of the  Insurance  Act,  1938,  no  risk  was assumed by  an insurer  unless the  premium thereon had been received in  advance. The  Motor  Accident  Claims  Tribunal rejected the appellants contention and awarded the claimants compensation in  the sum of Rs.96,000/- with interest at the rate of 12 per cent per annum from the date of the petition, to be  paid by  the insured  and the  appellant jointly  and severally. The appeal filed by the appellant before the High Court of Punjab & Haryana was summarily dismissed, and it is that order which is now under challenge.      Mr.Jitender Sharma,  learned counsel for the appellant, relied upon  Section 64-VB  of the  Insurance Act.  It reads thus:      ’’64-VB.  No  risk  to  be  assumed

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    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 p  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  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.      (4)  where   an   insurance   agent      collects a  premium on  a policy of      insurance on  behalf on an insurer,      he shall  deposit with, or despatch      by post  to,  the  insurer,  the  p      premium  so   collected   in   full      without deduction of his commission      within  twenty-four  hours  of  the      collection   excluding   bank   and      postal holidays.      (5) The  Central Government may, by      rules, relax  the  requirements  of      sub-section  (1)   in  respect   of      particular categories  of insurance      policies.      Mr. Sharma submitted that, in view of the provisions of Section 64-VB  of the Insurance Act, the appellant could not in law  have assumed  any risk under the policy of insurance covering the  bus until  the  premium  had  been  paid.  The premium had  not been  paid inasmuch  as the cheque that had been given to the appellant by the insured in payment of the premium had  been dishonoured. The appellant was, therefore, not  at   risk  and  not  liable  to  pay  any  any  of  the compensation that had been awarded.      Mr.Sharma relied  upon the  decision  in  the  case  of

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United India  Insurance Co.Ltd.  vs Ayeb Mohammed (ibid. The Orissa High  Court had  upheld the  award of compensation in the sum  of Rs15,000/-  against the  insurer on  the footing that it  had issued  a cover  note undertaking the risk. The insurers stand  was that the cheque covering the premium had bounced and,  in the  absence of  payment, the cover note it had issued  had become  ineffective and  there was no policy which obliged  it to  pay the  compensation. The view of the High Court  was that,  in the absence of steps to cancel the cover note,  the insurers  liability continued  although the bouncing of  the cheque  and the  steps taken by the insurer cancelling the risk note had, this court said, been found as a fact.  The insurer  had issued a notice to the registering authority and  the parties  that the  cheque had bounced and the liability  had ceased  but the High Court had recorded a finding that  the notice of cancellation had not been served on the insured. This Court then said:      "The  fact   that  the  cheque  had      bounced was  a  matter  within  the      knowledge of  the insured.  At  any      rate,   there    would   be    that      presumption  and,   therefore,   in      ordinary circumstances  no  special      notice would be required.      5. Since  Mr.Madan had  told us  at      the commencement  of the hearing of      the matter  that the  amount  being      small  he  was  not  interested  in      disputing the  liability to  pay in      this case  but  the  insurer  would      like to  have the  principle of law      decided, we  do  not  think  it  is      necessary to  issue notice  to  the      respondents.      6. In  the setting indicated we are      of the view that the High Court was      not right  in holding  that in  the      absence of  steps for  cancellation      of the  cover note,  the risk would      be subsisting  but as  Mr.Madan has      himself stated, we do not interfere      with the decision of the High Court      requiring the sum of Rs.15,000/- to      be paid by the insurer.’’      We find  it is  difficult to conclude that the judgment in the  case of  United India Insurance Company Ltd. vs.Ayeb Mohammed decides  a principle  of law  because no notice had been issued on the special leave petition. At the same time, the opinion is expressed in the judgment that the High Court was in  error in  holding that,  in the  absence of steps to cancel the cover notre, the risk would subsist.      Chapter 11  of the  Motor Vehicles  Act, 1988, provides for the  insurance of  motor vehicles  against  third  party risks. Section  146 thereunder  states that  no person shall use or  cause or  allow any  other person  to  use  a  motor vehicle in  a public  place unless  there is  in  forced  in relation to  the use  of the  vehicle a  policy of insurance that complies  with the requirements of the Chapter. Section 147 sets  out the requirements of policies and the limits of liability.  A   policy  of  insurance,  by  reason  of  this provision, must  be a policy which is issued by a person who is an authorised insurer. Sub-section 5 reads thus:      ’’(5)   Notwithstanding    anything      contained in  any law  for the time      being in  force, an insurer issuing

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    a policy  of insurance  under  this      section   shall    be   liable   to      indemnify the  person or classes of      persons specified  in the policy in      respect of  any liability which the      policy purports  to  cover  in  the      case  of   that  person   or  those      classes of persons.’’      Section 149  refers to  the duty of insurers to satisfy judgments and  awards against  persons insured in respect of third party risks. Subsection (1) thereof reads thus:      ’’(1) If,  after a  certificate  of      insurance  has  been  issued  under      sub-section (3)  of section  147 in      favour of  the  person  by  whom  a      policy has  been effected, judgment      or award  in respect  of  any  such      liability  as  is  required  to  be      covered by  a policy  under  clause      (b) of  sub-section (1)  of section      147 (being  a liability  covered by      the terms  of the policy) (or under      the provisions  of section 163A) is      obtained against any person insured      by      the      policy,      then,      notwithstanding  that  the  insurer      may be  entitled to avoid or cancel      or   may have  avoided or cancelled      the  policy,   the  insurer  shall,      subject to  the provisions  of this      section, pay to the person entitled      to the  benefit of  the decree  any      sum not  exceeding the  sum assured      payable thereunder  as if  he  were      the judgment  debtor, in respect of      the liability,  together  with  any      amount payable  in respect of costs      and any  sum payable  in respect of      interest on  that sum  by virtue of      any enactment  relating to interest      on judgment.’’      We have,  therefore, this  position.  Despite  the  bar created  by   Section  64-VB   of  the  Insurance  Act,  the appellant,  an   authorised  insurer,  issued  a  policy  of insurance to  cover the  bus with  out receiving the premium therefor.  By reason of the provisions of Section 147(5) and 149(1) of  the Motor  Vehicles Act  , the  appellant  became liable to identify third parties in respect of the liability which  that   policy  covered   and  to  satisfy  awards  of compensation  in   respect   thereof   notwithstanding   its entitlement (upon  which we  do not  express any opinion) to avoid or  cancel the  policy for  the reason that the cheque issued in  payment of  the  premium  thereon  had  not  been honoured.      The policy of insurance that the appellant issued was a representation upon  which the authorities and third parties were entitled  to act. The appellant was not absolved of its obligations to third parties under the policy because it did not receive  the premium.  Its remedies  in this  behalf lay against  the insured.      We may note in this connection the following massage in the case  of Montreal  Street Railway  Company vs.Normandin, A.I.R.1917 Privy Council 142;      ’’When the  provisions  of  a  statute  relate  to  the performance of  a public  duty and  the case is such that to

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hold null  and void  acts done in neglect of this duty would work serious  general inconvenience  or injustice go persons who have  no control  over those entrusted with the duty and at the  same time  would not  promote the main object of the Legislature,  it   has  been   the  practice  to  hold  such provisions to be directory only, the neglect of them, though punishable, not affecting the validity of the acts done.’      It must  also be noted that is was the appellant itself who was  responsible for  its predicament. It had issued the policy of  insurance upon  receipt only  of a cheque towards the premium  in contravention  of the  provisions of Section 64-VB of  the Insurance  Act. The  public  interest  that  a policy of  insurance serves  must, clearly, prevail over the interest of the appellant.      We  are   of  view,  in  the  circumstances,  that  the observations in  the case  of United India Insurance Co.Ltd. vs Ayeb Mohammed do not lay down good law.      The appeal  is dismissed.  The respondents  not  having appeared, there shall be no order as to costs.