NEW INDIA ASSURANCE CO. LTDversusRULA AND ORS.

A                      NEWINDIAASSURANCE CO. LTD.
                                   v.
                             RULA AND ORS.

                                   MARCH7, 2000

B                   [S. SAGHIRAHMAD AND R.P. SETHI, JJ.]


          Motor Vehicles Act, 1988 :

          Chapter II-Section 146, 147and149-lnsurance of Motor Vehicles-
    Liability of Insurance Company towards third party.
c
          Insurance Act, 1938: Seciion 64-VB.

         Insurance Company-Liability towards third parlies-non-payment of
    premium-Would not affect their rights.

D         Contract Act : Sections 2(d) ( e) (f) and (h).

          Insurance Contract-Consideration for-Relevancy of

            Insurance-Policy issued by company in respect of a truck-Accident-
    Death ofa cleaner and two labourers-Claim by dependants-Denial of liabil-
E   ity by. company-Ground subsequent cancellation ofpolicy as premium cheque
    was dishonoured-Held Insurance Company was liable to pay compensation-
    Principles of contract of insurance relating to motor vehicles-Should be
    understood in the light of provisions contained in Chapter II of Act.

          In terms of the requirements of the Motor Vehicles Act, 1988, the
F   appellant-Insurance Company issued an Insurance Policy on 8.11.1991 in
    respect of a truck. On the same day the said truck met with an accident in
    which a cleaner and two labourers lost theit lives. Their dependants filed
    claims for compensation. The Insurance Company denied its liability on
    the ground that the policy issued was subsequently cancelled because the
G   cheque paid by the insured towards premium was dishonoured. However,
    the Tribunal decreed all the three claims and directed the Insurance Com-
    pany to pay compensation. There awards were unsuccessfully challenged
    before the High Court.

        In appeals to this Court it was contended on behalf of the Insurance
H   Company that (i) a policy of insurance being a contract between the
                                       148
                   NEW INDIA ASSURANCE CO. v. RULA                       149
insured and insurer its premium was consideration; due to dishonour of          A
cheque there was failure of consideration and consequently no contract of
insurance came into existence; (ii) in view of the provisions contained in
Section 64-VB of the Insurance Act, 1938 no risk could be assumed unless
premium was received in advance•.

      Dismissing the appeals, this Court                                        B

       HELD : 1. The High Court, in the circumstance of the case, was fully
justified in dismissing the appeals. There is no infirmity in the judgment of
the High Court. [154-G]

      2. The subsequent cancellation of the Insurance Policy in the instant
                                                                                c
case on the ground that the cheque through which premium was paid was
dishonoured, would not affect the rights of the third party which had
accrued on the issuance of the Policy on the date of which the accident took
place. If on the date of accident, there was a policy of insurance in respect
of the vehicle in question, the third party would have a claim against the      D
Insurance Company and the owner of the vehicle would have to be indem-
nified in respect of the claim of that party. Subsequent cancellation of
Insurance Policy on the ground of non-payment of premium would not
affect the rights already accrued in favour of the third party. [154-E-F]

      Oriental Insurance Co. Ltd. v. lnderjit Kaur & Ors., [1998] SCC 371,      E
applied.

      3. A contract of insurance, like any other contract, is concluded by
offer and acceptance. Normally, a liability under the contract of insurance
would arise only on payment of premium if such payment was made a
                                                                                F
condition precedent to the Insurance Policy taking effect. But such a
condition which is intended for the benefit of the insurer can be waived by
the insurer. These are the principles relating to an ordinary contract of
insurance, but a contract of insurance relating to motor vehicles has to be
understood in the light of Sections 146, 147(5) and 149, contained in
Chapter 11 of the Motor Vehicles Act, 1988, dealing with insurance of           G
motor vehicles against third party risks. Thus, any contract of insurance
under Chapter 11 of the Motor Vehicles Act, 1988 contemplates a third
party who is not a signatory or a party to the contract of insurance but is,
neyertheless, protected by such contract. The rights of the third party to
get indemnified can be exercised only against the insurer of the vehicle.       H
    150                     SUPREME COURT REPORTS                 [2000] 2 S.C.R.
A   The third party is not concerned and does not come into the picture at all
    in the matter of payment of premium. Whether the premium has been paid
    or not is not the concern of the third party who is concerned with the fact
    that there was a policy issued in respect of the vehicle involved in the
    accident and it is on the basis of this policy that the claim can be main-
    tained by the third party against the insurer. [152-A-C; 153-G-H]
B
          Abdul A.dz & Co. v. National Insurance Co. Ltd., AIR (1954) Mad. 520;
    Ocean Accident & Guarantee Corporation Company v. Patkar, AIR (1935)
    Bombay 236; Equitable Fire & Accident Office v. Ching Wo Hong, (1907)
    A.C. 96 and New Asiatic Insurance Co. v. Pessumal Dhanamal Aswani and
c   Ors., AIR (1964) SC 1736, referred to.

          CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1985-1987
    of 2000.

         From the Judgment and Order dated 28.9.98 of the Madhya Pradesh
D   High Court in M.A. Nos. 251-253 of 1996.

          S.L. Gupta, K.K. Mishra and J.S. Attri for the Appellant.

          The Judgment of the Court was delivered by

          S. SAGHIR AHMAD, J. Leave granted.
E
           The appellant had insured Truck No. CII-7928 on 8.11.1991 and issued
    an Insurance Policy in terms of the requirements of the Motor Vehicles Act,      -,
     1988. The Insurance Policy, which h~s been filed as Annexure P-1 to this
    petition, is headed as "MOTOR VEHICLES ACT, 1988 (GOODS CARRY-
F   ING VEHICLE), SCHEDULE - POLICY 'A' (Act only) - Certificate No.
    006424 Policy No. 3145070606875". The same day, at midnight, it met with
    an accident, in which three occupants, namely, Tetia @ Ramlal (Cleaner) and
    two labourers, Bada and Bhalda, died. Their dependants filed three Claim
    Cases, viz. Nci.156/91, 157/91 and 158/91 before the Motor Accident Claims
    Tribunal, Barwani, M.P., which were contested by the appellant on the
G   ground, inter alia, that the truck was not covered by any insurance policy,
    inasmuch as the truck-owner had obtained the Insurance Policy on the basis
    of a cheque dated 8.11.1991 towards payment of premium, but this cheque
    was dishonoured on 16.11.1991 with the result that the Insurance Policy itself
    was cancelled. The contention of the appellant was not accepted by the
H   Tribunal, which decreed all the three claims by its award dated 25.1.1996,
l

           NEW INDIA ASSURANCE CO. v. ROLA [S. SAGHIR AHMAD, J.]                151
    directing payment of Rs.48,200 as compensation in Case No. 156/91;                  A
    Rs.1,16,000 in Case No. 157/91 and Rs.67,600 in Case No. 158/91. These
    awards were challenged by means of three appeals filed in the High Court
    which, by its judgment dated 28.9.1998, dismissed the appeals. Now, the
    present appeals.

          We have heard learned counsel for the appellant whose principal
                                                                                        B
    contention has been that the Policy of Insurance represents a contract between
    the insurer and the insured, for consideration in the form of premium. It is
    contended that if premium is not paid, the contract would not be valid as there
    cannot be any contract without consideration. Reliance for this purpose has
    been placed by learned counsel for the appellant on various provisions of the       c
    Contract Act, 1872 and it is contended that since the cheque through which
    premium was sought to be paid to the appellant was dishonow·ed by the bank
    when it was presented for encashment, there was a failure of c_onsideration
    and as such no contract of insurance came into existence as between the
    insurer and the insured. It is also contended that under Section 64-VB of the
                                                                                        D
    Insurance Act, 1938, no risk would be assumed unless premium was received
    in advance. These contentions cannot be accepted.

          According to Clause (d) of Section 2 of the Contract Act, consideration
    is spoken of thus :
                                                                                        E
             "(d) When, at the desire of the promisor, the promisee or any other
             person had done or abstained from doing, or does or abstains from
             doing, or promises to do or to abstain from doing, something, such
             act or abstinence or promise is called a consideration for the promise."

             Similarly, Clauses (e) and (f) provide as under :                          F

             "(e) Every promise and every set of promises, forming the considera-
             tion for each other, is an agreement.

             (f) Promises which form the consideration or part of the consideration     G
             for each other are called reciprocal promises."

          It is further provided by Clause (h) that an agreement enforceable by
    law is a contract.

          Now, a contract of insurance, like any other contract, is concluded by        H
      152                     SUPREME COURT REPORTS                   (2000] 2 S.C.R.
A   .offer and acceptance. Normally, a liability under the contract of insurance
     would arise only on payment of premium if such payment was made a
     condition precedent to the Insurance Policy taking effect. But such a condition
     which is intended for the benefit of the insurer can be waived by the insurer
     as laid down in Abdul Azeez & Co. v. National Insurance Co. Ltd., AIR
     (1954) Madras 520=AIR (1953) 2 Madras Law Journal 714, in which a
B
     decision of the Bombay High Court in Ocean Accident & Guarantee Corpo-
     ration Company v. Patkar, AIR (1935) Bombay 236 was followed. To the
     same effect is an old decision in Equitable Fire & Accident Office v. Ching
     Wo Hong, (1907) AC 96. These are the principles relating to an ordinary
     contract of insurance, but the contract of insurance relating to motor vehicles
·c has to be understood in the light of the various provisions ·contained in the
     Motor Vehicles Act, 1988. Chapter 11 of the Motor Vehicles Act deals with
     insurance of motor vehicles against third party risks. Section 146(1), inter
   · alia, provides as under :

               "146. Necessity for insurance against third party risk.
D
               (1) No person shall use, except as a passenger, 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 the vehicle by that person or that
               other person, as the case may be, a policy of insurance complying
E            · with the requirements of this Chapter."

               Section 147 (5) provides as under :
                                                                                 /

               "(S) Notwithstanding anything contained in any law for the time
F              being in force, an insurer issuing 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."

G           Section 149 casts a duty on the insurer to satisfy judgments and awards
      against persons insured in respect of third party risks. Sub-section (1) of
      Section 149 is quoted below :

               "149. Duty of insurers to satisfy judgments and awards against
H              person insured in respect of third party risks -
       NEW INDIA ASSURANCE CO. v. RULA [S. SAGHIR AHMAD, J.]                153
        (1) If, after a certificate of insurance has been issued under sub-         A
        section (3) of section 147 in favour of the person by whom a policy
        has be~n 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           B
        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
        exceedin~ the sum assured payable thereunder, as if he were the
        judgment-debtor, in respect of the liability, together with any amount      c
        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
        judgments."

       The contract of insurance in respect of motor vehicles has, therefore, D
to be construed in the light of the above provisions. Section 146(1) contains
a prohibition on the use of the motor vehicles without an insurance policy
having been taken in accordance with Chapter 11 of the Motor Vehicles Act.
The manifest object of this provision is to ensure that third party, who suffers ·
injuries due to the use of the motor vehicle, may be able to get damages from E
the owner of the vehicle and recoverability of the damages may not depend
on the financial condition or solvency of the driver of the vehicle who had
caused the injuries.

      Thus, any contract of insurance under Chapter 11 of the Motor
                                                                                    F
Vehicles Act, 1988 contemplates a third party who is not a signatory or a
party to the contract of insurance but is, nevertheless, protected by such
contract. As pointed out by this Court in New Asiatic Insurance Co. Ltd. v.
Pessumal Dhanamal Aswani & Ors., AIR (1964) SC 1736, the rights of the
third party to get indemnified can be exercised only against the insurer of
the vehicle. It is thus clear that the third party is not concerned and does not    G
come into the picture at all in the matter of payment of premium. Whether
the premium has been paid or not is not the concern of the third party who
is concerned with the fact that there was a policy issued in respect of the
vehicle involved in the accident and it is on the basis of this policy that rhe
claim can be maintained by the third party against the insurer.                     H
    154                     SUPREME COURT REPORTS                  (2000] 2 S.C.R
A         It was in the background of the above statutory provisions that the
    provisions of Section 64-VB, upon which reliance has been placed by learned
    counsel for the appellant, were considered by this Court in Oriental Insurance
    Co. Ltd. v. lnderjit Kaur & Ors,, (1998] 1 sec 371, in which it was laid down
    as under :

B            "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 without receiving the
             premium therefor. By reason of the provisions of Sections 147(5) and
             149(1) of the Motor Vehicles Act, the appellant became liable to
c            indemnify 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."

D          This decision, which is a 3-Judge Bench decision, squarely covers the
    present case also. The subsequent cancellation of the Insurance Policy in the
    instant case on the ground that the cheque through which premium was paid



E
    was dishonoured, would not affect the rights of the third party which had
    accrued on the issuance of the Policy on the date on which the accident took
    place .. If, on the date of accident, there was a Policy of Insurance in respect
    of the vehicle in question, the third party would have a claim against the
                                                                                       -
                                                                                       {




    Insurance Company and the owner of the vehicle would have to be indem-
    nified in respect of the claim of that party. Subsequent cancellation of
    Insurance Policy on the ground of non-payment of premium would not affect
    the rights already accrued in favour of the third party.
F
          The above decision of this Court was relied upon by the High Court
    in negativing the contention raised by the appellant. The High Court, in the
    circumstances of the case, was fully justified in dismissing th!! appeals. We
    find no infirmity in the judgment of the High Court. Consequently, the
    appeals are dismissed. There will be no order as to costs.
G
    T.N.A.                                                     Appeals dismissed.