DEOKAR EXPORTS PVT. LTD.versusNEW INDIA ASSURANCE COMPANY LTD.

                           [2008] 14 S.C.R. 1


                   DEOKAR EXPORTS PVT. LTD.                           A
                                   v.
             NEW INDIA ASSURANCE COMPANY LTD.
                 (Civil Appeal No. 5103 of 2002)
                        SEPTEMBER 23, 2008
                                                                      B
-I       [R.V. RAVEENDRAN AND LOKESHWAR SINGH
                             PANTA, JJ.]
          Insurance Act, 1938:
          S. 64 VB - Insurance contract - Effective date - Held.:     c
     Insurer cannot assume risk unless and until premium is re- · '
     ceived/guaranteedldeposited - A policy can assume the risk
     from a retrospective date provided such date is not earlier than
     the date on which premium was paid in cash or by cheque to
     insurer - On facts, initial insurance policy expired on D
     12.3.1988 - Prf?mium amount for one year received by in-
     surer only on 26. 8. 1988 - Under the terms of finance between
     the borrower and lender-MSFC, uninterrupted and continuous
     insurance cover was necessary during the period the machine
     was secured in favour of MSFC - In view of the bar contained
     in s. 64 VB, insurw could not provide insurance cover with ret- E
     rospective effect from a date prior to 26. 8. 1988 - As the pre-
     mium was for one year, policy was rightly issued assuming
     risk for the period 26. 8. 1988 to 25. 8. 1989·- Both, the borrower
     and MSFC were aware that the insurance cover under the policy
     was for the period 26. 8. 1988 to 25. 8. 1989 but neither of them F
     objected to it - Therefore, insurer cannot be made liable for
     the loss occurred on 10. 2. 1990 - Contract. [Para 9 - 1OJ
        · CONTRACT
           Insurance contract - Held: In a contract of insurance, G
     rights and obligations are strictly governed by the policy of
     insurance - No exception or relaxation can be made on the
     ground of equity- A policy of insurance is a contract based on
     an offer (proposal) and an acceptance - In the instant case,
                                    1                                 H
    2        SUPREME COURT REPORTS                 [2008] 14 S.C.R.


A the insured made a proposal - The insurer accepted the pro-
  posal with a modification - Therefore, it was a counter-proposal
  and the insured could have refused to accept the same or could
  have either expressly or impliedly accepted it and in that event
  it would have resulted in a concluded contract in terms of the
B counter proposal, or the insured could h.ave made a counter
  proposal to the counter-proposal of the insurer in which event
  there would have been no concluded contract unless the in-
  surer agreed to such counter-counter-proposal- But the insured
  definitely did not have the fourth choice of propounding a con-
e eluded contract with a modification neither proposed nor agreed
  to by either party - If the insured did not agree to the policy
  covering the period 26. 8. 1988 to 25. 8. 1989 instead of the pe-
  riod 12.3.1988 to 12.9.1989, the result would never create an
  insurance contract effective from 30. 6. 1989 or any other date -
D Insurance Act, 1938- S.64 VB - Equity [Para 11]
         CIVILAPPELLATE JURISDICTION: Civil Appeal No. 5103
    of 2002
       From the final Judgment and Order dated 9.3.2001 of the
  High Court of Judicature at Bombay in First Appeal No. 102 of
E 2000

         Shekhar Nephade, Arun R. Pednekar and S.K. Nandy for
    the Appellant.                 ·
         Pramod.Dayal and Nikunj Dayal for the Respondent.            y

F
         The Order of the Court was delivered by
        R. V. RAVEEN,DRAN J. 1. The appellant imported a De-
  hydration Machine firtanced by Maharashtra State Finance Cor-
  poration (for short 'MSFC'). The machine was insured by the
G 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 ~fter the expiry of the policy, on 25.8.1988,
  MSFC sent a c~eque for Rs.3, 135/- on behalf of the appellant
  for renewal of the policy. A formal stamped receipt was issued
H by the insurer confirming the receipt of the cheque on 26.8.1988.
                      DEOKAR EXPORTS PVT. LTD. v. NEW INDIA                      3
                   ASSURANCE COMPANY LTD. [R. V. RAVEENDRAN J.]
     -\
                      2. By letter dated 7.4.1989, the insurer informed the ap-       A
                pellant ti1at 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        B
                delivered it to the insurer on 16.6.1989. In the said proposal,
       /
                the appellant stated that insurance cover was required for the
                period 12.3.1988to12.9.1989. But the insurer issued an insur-
                ance policy dated 30.6.1989 extending insurance cover for the
                period 26.8.1988 to 25.8.1989. The Insurer sent the insurance         c
                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 ac-
     -~
                cident. On 17 .2.1990, the appellant lodged a claim for               D
                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 appel-
                lant approached the National Consumer Disputes Redressal
                Commission ('Commission' for short) complaining deficiency
                in service by the Insurer. The said complaint was dismissed on
                                                                                      E

                23.9: 1992 on the ground that the complaint involved decision
                on complex issues of fact and, therefore, the appropriate rem-
                edy 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         F
                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 G
     ---i       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 H
    4         SUPREME COURT REPORTS                   [2008] 14 S.C.R.


A   one year commencing from that date; and that therefore, as on
    the date of the fire accident - 10.2.1990, the machine must be
    deemeq 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 complai.nt before the National Consumer
s   Redressal Commission for purposes of limitation. Feeling ag-
    grieved, the appellant filed an appeal before the Bombay High
    Court contending that the finding regarding limitation was erro-
    neous. The insurer filed cross-objections challenging the find-
    ing that the insurance was in force on the date of fire accident.
c   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 limita-
    tion. 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
0
    was the date of assumption of risk; and as the insurer had as-
    sumed 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
E   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 tha~ a con-
F tract of insurance, unless otherwise mutually agreed, shall al-
  ways be prospective in its qperation, that is from the date of
  issuance of the policy ef insurance or cover note. It was submit-
  ted that as the proposal by the appellant required insurance
  cover for the period 12.3.1988 to 12.9.1989, the insurer could
G have issued the policy 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 in-
  surer had sent the policy to MSFC, the appellant could not point
H
               DEOKAR EXPORTS PVT. LTD. v. NEW INDIA                      5
            ASSURANCE COMPANY LTD. [R. V. RAVEENDRAN J.]
---\
         out the error relating to the period of insurance cover. The ap-      A
         pellant contmded 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      8
 1       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    c
                     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?                                             D
              (iii) Whether the policy should be treated as one covering
                    the machine against tie risk dudng the period
                    30.6.1989 to 29.6.1990?
               7. The contention and grievance of the appellant is not that    E
         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   F
         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 re-
         ceived-in advance. Sub-sections (1) and (2) of the said section,
         relevant for our purpose, are extracted below:                        G
              "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 ~rdinarily payable outside India unless           H
    6        SUPREME COURT REPORTS                   [2008] 14 S.C.R.


A        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.
B        (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.
c
         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."
D                                              (Emphasis supplied)
          Two things emerge from the said section. The first is that
    the insurer cannot assume risk unless and until premium is re-
    ceived or guaranteed or deposited. The second is that a policy
E   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 re-
  ceived by the insurer on 16.6.1989. It required that the period of
F 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 be-
  tween MSFC and the appellant, apparently it was necessary to
G have an uninterrupted and continuous insurance cover during
  the period the machine was secured in favour of MSFC. There-
  fore, 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
H only on 26.8.1988. Having regard to the bar contained in Sec-
             DEOKAR EXPORTS PVT. LTD. v. NEW INDIA                       7
          ASSURANCE COMPANY LTD. [R. V. RAVEENDRAN J.]

~       tion 64-VB of the Act, the insurer could not accept the request       A
        of the ·appellant to grant insurance cover with retrospective ef-
        fect 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 ef-       B
        feet 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 is-
    ... sued 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     c
        was also nothing illogical or arbitrary about the insurance of a
        policy specifying the period of insurance cover as one year ef-
        fective 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
                                                                              0
        failed to do so and having sought retrospective cover, the appel-
        lant cannot make a grievance when the insurance cover is is-
        sued 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 no E
       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 F
       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 ap-
        pellant 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 G
       for the period 26.8.1988 to 25.8.1989 but neither of them ob-
       jected to it. Nor was any premium paid for further renewal of the
      . policy beyond 25.8.1989. Obviously, therefore, the insurer can-
        not be made liable for the loss which occurred on account of a
       fire accident on 10.2.1990.
                                                                              H
     8         SUPREME COURT REPORTS                 [2008] 14 S.C.R.


 A        11. A policy of im~urance is a contract based on an offer )r-
    (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,
  B in which event there would have been no contract. The second
    was to ac;_cept either expressly or impliedly, the counter-proposal
    of the respondent (that is respondent's acceptance with modifi- \-
    cation) which would result in a concluded contract in terms of
    the counter proposal. The third was to make a counter proposal
· C 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 defi-
    nitely 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
  0
    the period 26.8.1988 to 25.8.1989 instead of the period
    12.3.1988to12.9.1989, the result would never create an insur-
    ance contract effective from 30.6.1989 or any other date.
           12. The contention of the learned counsel for the appellant
 E   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 judg-
 F   ment of the High Court. The appeal is dismissed with costs r
     quantified at Rs.10,000/-.
     R.P.                                        Appeal dismissed.