Co. Ltd. Vs. Abhaysing Pratapsing Waghela & Ors.  INSC 1469 (29
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
S.B. Sinha, J.
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
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 2 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.
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.
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.
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 3 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.
reliance in this behalf was placed on Deddappa & Ors. V. Branch Manager,
National Insurance Company Ltd. [(2008) 2 SCC 595].
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.
objection taken by the appellant in its written statement reads as under :
4 "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
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."
5 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."
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
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.
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 7 the vehicle by that person or that other person,
as the case may be, a policy of insurance complying with the requirements of
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
(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 8 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
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.
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.
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 9 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.
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 1 Act merely imposes an obligation on the part of the
insurance company to reimburse the claimant both in terms of the Act as also
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-`- vis a contract of insurance qua
National Insurance Co. Ltd. v. Laxmi Narain Dhut [(2007) 3 SCC 700], this Court
"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
The same view was
reiterated in Oriental Insurance Co. Ltd. v. Meena Variyal & Ors. [(2007) 5
SCC 428] stating:
1 "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
This Court in
Oriental Insurance Co. Ltd.v. Sudhakaran K.V. and Ors. [2008 (8) SCALE 402]
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 1 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.
by the parties are condition precedents for a valid contract. A contract
furthermore must be for consideration."
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.
our opinion, the impugned judgment does not warrant any interference. The
Appeal is dismissed with costs. Counsel's fee assessed at Rs.25,000/-.