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Supreme Court of India
Shree Ambica Medical Stores vs The Surat Peoples Co-Operative … on 28 January, 2020Author: Hon’Ble Dr. Chandrachud
Bench: Hon’Ble Dr. Chandrachud, Ajay Rastogi
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal No 562 of 2020
(Arising out of SLP(C) No 4362 of 2016)
Shree Ambica Medical Stores & Ors …Appellants
Versus
The Surat People’s Co-operative Bank Limited & Ors …Respondents
JUDGMENT
Dr Dhananjaya Y Chandrachud, J
1 The National Consumer Disputes Redressal Commission 1 allowed an
appeal instituted by the first respondent and set aside the decision of the State
Consumer Disputes Redressal Commission of Gujarat 2. The State Commission
found substance in the consumer complaint of the appellants and decreed their
claim for compensation in the amount of Rs 53,66,877 with interest at 9 percent
per annum. In addition, the State Commission awarded Rs 25,000 towards
mental agony and Rs 5,000 towards litigation costs. The claim of the appellants
arose under an insurance cover pertaining to goods hypothecated by the
appellants with the first respondent under a cash credit facility. The insurer, New
India Assurance Company Limited, repudiated the claim of the appellants. As a
Signature Not Verified
Digitally signed by
SANJAY KUMAR
Date: 2020.01.28
12:19:15 IST
Reason:
1 “National Commission”
2 “State Commission”
1
consequence of the order of the National Commission which is challenged in the
present appeal, the claim of the appellants stands rejected.
2 On 31 May 1998, the appellants and the first respondent entered into an
agreement for a cash credit facility. In terms of clause 15 of the agreement, the
appellants were under an obligation to insure the goods which were
hypothecated to the bank. Clause 15 also contained a stipulation that in the event
that the appellants failed to insure the goods, it was open to the bank to secure a
cover of insurance for the goods and to recover the expenses incurred along with
the premium from the appellants. The clause is extracted below:
“(15) We have to insure the goods given in hypothecation
to the Bank against fire etc. at our own costs in favour of
the Bank and if we fail to take insurance then the Bank
can take the insurance and can recover all the expenses
incurred and also the premium amount borne by them
from us as the Bank has Right as per this Document.”
3 The first respondent bank has stated that it was acting as a corporate
agent of the insurer and, as a matter of routine practice, obtained policies for all
its borrowers. As a practice, the first respondent upon receipt of an intimation,
would remit the premium payable on behalf of the borrowers. The same course of
action was followed by the first respondent under the lending facility granted to
the appellants. The first respondent obtained the first insurance policy for the
period 1998-99 in the sum of Rs 60 lakhs from the insurer, who is the third
respondent to the appeal. The insurance policy covered a specific location of the
borrower where the goods were stored, namely:
“12/1123-1124, Basement, Meghdoot Apartment, Surat”
2
4 The policies of insurance for the succeeding years 1999-2000, 2000-2001
and 2001-02 covered the goods of the borrower stored at the above premises.
From 2001, the insurance policy was renamed as a ‘Standard Fire and Special
Perils Policy’. The perils insured included those occasioned by storm, tornado,
flood and inundation. These together are referred to as “STFI Perils”. In 2001-02
the value of the insurance cover was enhanced by an amount of Rs 25 lakhs so
as to increase the total sum insured to Rs 85 lakhs. For 2002-03, the insurer
issued a policy covering a sum insured of Rs 25 lakhs in terms of the same
location at Meghdoot Apartment, Surat noted above. However, a separate
insurance cover in the amount of Rs 60 lakhs was issued in respect of the goods
stored at following location:
“B-205, Plot No 17-B, Village Karnaj”
5 Similarly, for 2003-04 and 2004-05 there were two insurance covers; one in
the amount of Rs 25 lakhs in respect of the location at Meghdoot Apartment,
Surat and the second in the amount of Rs 60 lakhs covering the location at B-
205, Plot 17-B, Village Karnaj. For 2005-06 and 2006-07, the position of the
insurance cover is reflected in an extract from a tabulated chart filed by the
insurer:
Year Policy No Policy Period Location Sum Insured
Rs
2005-06 2293 4.8.2005 to (A) 12/1123- 25 lakhs
3.8.2006 1124;
Basement,
Meghdoot
Apartment,
Surat
2298 1.8.2005 to (A) 12/1123- 60 lakhs
3
31.7.2006 1124; (Changed to
Basement, Location A)
Meghdoot
Apartment,
Surat
2006-07 2537 4.8.2006 to (A) 12/1123- 25 lakhs
3.8.2007 1124;
Basement,
Meghdoot
Apartment,
Surat
1884 1.8.2006 to (A) 12/1123- 60 lakhs
31.7.2007 1124;
Basement,
Meghdoot
Apartment,
Surat
6 For 2005-06, the location contained in the policy with a sum insured of Rs
60 lakhs was changed from B-295, Plot 17-B, Village Karnaj to 12/1123-1124,
Basement, Meghdoot Apartment, Surat. Thus, both the policies for 2005-06
covered the same location. For 2006-07, the same position continued for both the
insurance covers.
7 On 3 August 2005, the first respondent while filling up the proposal form
handed over a cheque of Rs 29,038 to the insurer for a cover which would also
extend to STFI perils. On 26 September 2005, the premium of Rs 992 covering
STFI perils was refunded by the insurer to the bank by a cheque which was
deposited by the bank in the appellants’ account. Hence for 2005-06, the policy
cover of Rs 60 lakhs extended to fire and allied perils but specifically excluded
STFI perils.
4
8 On 7 August 2006, the city of Surat was hit by floods. The appellants claim
that as a result of the floods the goods which were stored in their premises were
destroyed. The appellants made a claim to the insurer for an alleged loss of Rs
78,66,857. A surveyor was appointed by the insurer to inspect the extent of
damage. The insurer accepted and paid the claim of Rs 23 lakhs under the policy
cover of Rs 25 lakhs but repudiated the entire claim under the policy cover of Rs
60 lakhs. There was an exchange of correspondence between the bank and the
insurer. The bank, by its letter dated 11 November 2006, submitted that it was
surprised as to how the policy cover of Rs 60 lakhs had contained an exclusion of
STFI perils despite the fact that both the policies had been renewed under a
common proposal form and through a single cheque. An affidavit dated 6
September 2007 of the Manager of the bank was filed stating that the bank was a
corporate agent and was working on behalf of the insurer. The insurer repudiated
the claim of the appellants on 24 June 2008.
9 A consumer complaint was instituted by the appellants on 26 July 2008
before the State Commission, Gujarat alleging that the insurer had committed an
unfair trade practice by repudiating the claim under the insurance cover of Rs 60
lakhs.
10 In its written statement before the State Commission, the bank stated that
according to the terms of the agreement governing the grant of credit facilities,
the primary duty of obtaining a cover of insurance for the hypothecated goods
was that of the appellants as borrowers. For 2005-06, the bank had renewed the
policies of Rs 60 lakhs and Rs 25 lakhs. However, the insurer had excluded STFI
5
perils while issuing a policy cover of Rs 60 lakhs. According to the bank, a copy
of the policy was given to the appellants from which the exclusion of STFI perils
would have been evident. Moreover, a part of the premium which was returned by
the insurer was deposited by the bank in appellant’s account, which should have
been in the knowledge of the appellants. The bank therefore denied that it was
guilty of any deficiency of service. The bank, however, stated that it had not been
served with any notice by the insurer explaining why the STFI perils were
excluded from the policy of Rs 60 lakhs. The bank denied that its officers or staff
had mistakenly indicated the location of the place of business in the proposal
form associated with the policy cover where STFI perils had been excluded.
11 The defence of the insurer was that for the period between 1 August 2005
and 31 July 2006 the policy cover of Rs 60 lakhs specifically excluded STFI perils
from the coverage. The insurer stated that upon receiving the claim, it had
appointed a surveyor and the claim on account of damage due to flooding had
been accepted in respect of the policy cover of Rs 25 lakhs. However, the policy
cover of Rs 60 lakhs specifically excluded the STFI perils and the insurer had
refunded the premium of Rs 992 paid for an STFI cover by a cheque dated 26
September 2005 which had been accepted and deposited by the bank in the
appellant’s account without any protest. The insurer denied its liability on the
ground that the policy cover of Rs 60 lakhs excluded STFI perils.
12 The State Commission, by its order dated 14 February 2019, allowed the
complaint only against the bank and its manager, who were directed to pay an
amount of Rs 55,66,877 together with interest of 9 percent per annum and
6
damages on account of mental agony of Rs 25,000. The State Commission held
that the insurer could not be held liable since STFI perils had been excluded from
the policy cover of Rs 60 lakhs and the excess premium of Rs 992 had been
refunded to the bank on 26 September 2005. The bank was however, held liable
on the ground that it had deposited the cheque of Rs 992 for return of the
premium amount without making enquiries from the insurer. The State
Commission further held that the bank had made an error in filling up the
proposal form sent to the insurer and as a consequence the bank was liable to
compensate the appellant.
13 The National Commission reversed the judgment of the State Commission.
It observed that the bank had sought an insurance cover to the extent of Rs 85
lakhs which covered STFI perils and had also deposited a cheque of Rs 29,038
towards the premium of the policy. The National Commission observed that
though it had been argued by the bank as well as the complainant that the insurer
could not have excluded the STFI cover while renewing the policy, no rule or
regulation mandating the insurer to accept the entire proposal had been brought
to its notice. Before the National Commission, reliance was sought to be placed
on the general rules and regulations framed by the Tariff Advisory Committee
which came into force on 31 March 2001. The regulations, in so far as is material,
provided that it is permissible to exclude STFI perils at the inception of the policy.
The National Commission noted that even according to these regulations,
deletion of STFI perils from a policy was permissible when a new policy was
issued. The National Commission held that since a new address of the location
7
was contained in the proposal form submitted for 2004-05, a fresh policy was
issued, and the insurance company was entitled to exclude the STFI cover. The
National Commission also noted that the policy of Rs 25 lakhs which at the time
of renewal contained the same location, the STFI perils had specifically not been
excluded.
14 The National Commission noted that there was no protest either from the
bank or the borrower to the exclusion of STFI perils by the insurer. It noted that
no loss was sustained in the first year of the exclusion of STFI perils and it was
only in the subsequent year that the loss was sustained. Consequently, the
National Commission held that having accepted the policy without the STFI
cover, both the bank and the borrower were estopped from questioning the terms
of the policy. The National Commission held that the bank had specifically stated
in its reply before the State Commission that a copy of the insurance policy was
given to the borrowers and that the premium amount which was returned back by
the insurance company had been credited to their account. It noted that the
receipt of the insurance policy had not been specifically denied in the rejoinder
filed by the complainants before the State Commission though there was a vague
denial of the averments in the corresponding paragraph of the reply. In this
background, the National Commission observed that the appellants did not take
up the issue of the exclusion of the STFI perils with the insurer nor did they call
upon the bank to do so. It was noted that though the appellants received the
premium amount in their account, they did not seek any explanation in regard to
8
the refund of the premium. In this view of the matter, the National Commission
allowed the appeal filed by the bank and set aside the State Commission’s order.
15 Mr Mehul Shah, learned counsel appearing on behalf of the appellants
submitted that clauses 3(2) and 4(1) of the notification issued by the Insurance
Regulatory and Development Authority on 16 October 2002 provides as follows:
“3(2) An insurer or its agents or other intermediatory shall
provide all material information in respect of a proposed
cover to the prospect to enable the prospect to decide on
the best cover that would be in his or her interest.”
“4(1) Except in cases of a marine Insurance cover, where
current market practices do not insist on a written
proposal form in all cases, a proposal for grant of a cover,
either for life business or for general business, must be
evident by a written document. It is the duty of an insure
to furnish to the insured free of charge, within 30 days of
the acceptance of a proposal, a copy of the proposal
form.”
16 Learned counsel submitted that the insurer did not intimate the exclusion
of STFI perils at the time of the renewal of the policy either in 2005-06 or 2006-
07. Moreover, the proposal form was not remitted either to the bank or to the
appellants within a period of 30 days, or at any time. It was urged on behalf of the
appellants that the policy issued in 2005-06 was in the nature of a renewal and
though the proposal form indicated that the risk would commence on 3 August
2005 and not on 2 August 2006, the policy of Rs 60 lakhs was issued on 1 August
2005. The grievance of the appellants is that the proposal form for 2005-06 had
been signed by the Manager of the bank and the appellants were not aware of
the proposal by the bank which was acting as the corporate agent of the insurer.
It was urged that the cheque of Rs 29,038 dated 1 August 2005 was duly
encashed by the insurer and it was only on 26 September 2005 that an amount of
9
Rs 992 was returned to the bank without a written intimation about the exclusion
of STFI perils by the insurer. Learned counsel submitted that the policies for
2005-06 and 2006-07 were not new policies but renewals and hence the insurer
could not have excluded the STFI perils. In this context, reliance was placed on
the judgment of this Court in Biman Krishna Bose v United India Insurance Co
Ltd3.
17 On the other hand, Mr Sukumar Pattjoshi, learned Senior Counsel
appearing on behalf of the first respondent bank submitted that there was no
deficiency of service on the part of the bank. It was argued that under the terms
of the hypothecation agreement, the duty of obtaining an insurance cover was
primarily that of the appellants as borrowers. Supporting the findings of the
National Commission, it was urged that the bank had specifically denied having
entered an incorrect address or a different address in the proposal form. Mr
Pattjoshi urged that the bank had specifically stated that a copy of the policy had
been furnished to the insured. The appellants could not, hence, disavow
knowledge of the fact that STFI perils stood excluded from the insurance cover.
18 Mr K K Bhat, learned counsel appearing on behalf of the third respondent
urged that the insurance cover of Rs 60 lakhs did not cover STFI perils. Though
the bank had remitted the entire premium, the insurer had returned a part of the
premium covering STFI perils. The cheque returning the premium amount of Rs
992 was deposited by the bank in the account of the appellants. Mr Bhat
submitted that it was a commercial decision of the insurer to exclude STFI perils
3 (2001) 6 SCC 477
10
from the insurance cover of Rs 60 lakhs and therefore, the insurer could not be
made liable. It was urged that since the appellants received the policy from the
bank, it was not open to them to disclaim knowledge of the exclusion or of the
deposit of the premium into their account.
19 The rival submissions fall for consideration.
20 This Court, while interpreting the contract of insurance must interpret the
words of the contract by giving effect to the meaning and intent which emerges
from the terms of the agreement. In a Constitution Bench decision of this Court in
General Assurance Society Ltd v Chandumull Jain4, it was observed thus:
“11. …In interpreting documents relating to a contract of
insurance, the duty of the court is to interpret the words in
which the contract is expressed by the parties, because it
is not for the court to make a new contract, however
reasonable, if the parties have not made it themselves…”
The court through its interpretative process cannot rewrite or create a new
contract between the parties. The court has to simply apply the terms and
conditions of the agreement as agreed between the parties.
21 In the present case, the policy of insurance with a cover of Rs 60 lakhs for
the period 2004-05 was issued for the location at B 205, Plot No 17-B, Village
Karnaj. The insurance policy for 2005-06 was sought for different premises
situated at 12/1123-1124, Basement, Meghdoot Apartment, Surat. The address
mentioned in the policy for 2004-05 differs from that of 2005-06. The insurer
proceeded on the basis that this was a ‘fresh contract of insurance’. The
4 AIR 1966 SC 1644
11
insurance policy for 1 August 2005 to 31 July 2006 was issued with the exclusion
of STFI perils. This is clear from the use of words “Warranted that STFI risk is
excluded from the risk” in the above insurance policy. The terms of the policy will
govern the contract between the parties. The STFI risks were specifically
excluded from the coverage of the policy. The extra premium of Rs 992 was
refunded by the insurer to bank and the bank deposited the amount in the
appellants’ account.
22 Section 64(VB) of the Insurance Act 1938 provides as follows:
“64VB. 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
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 the 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.
12
(4) Where an insurance agent collects a premium on a
policy of insurance on behalf of an insurer, he shall
deposit with, or dispatch by post to, the insurer, the
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 in insurance policies.
(6) The Authority may, from time to time, specify, by the
regulations made by it, the manner of receipt of premium
by the insurer.”
23 The above provision states that no risk can be assumed by the insurer
unless the premium payable is received in advance. Sub-Section (3) of Section
64 (VB) provides for refund of the premium amount to the insured in case of
cancellation or alteration of the terms and conditions of the policy. In the present
case, the premium of Rs 992 to cover STFI perils was refunded by the insurer to
the bank and the amount was deposited in the insured’s account. The proposal
does not conclude the contract. A contract postulates an agreement between the
parties. In the present case, the insurer while issuing the new policy at a fresh
location specifically excluded STFI perils and refunded the premium. The insured
at the time when the loss occurred was covered by a policy that excluded STFI
perils. Therefore, the insurer cannot be held to be liable. To hold to the contrary
would be rewriting the agreement between the parties and creating a fresh
contract to which the parties had not agreed.
24 The bank in its written statement filed before the State Commission,
specifically averred in paragraph 2 that:
“..The real fact is that one copy of the Policy is given to
the Complainant and from this the Complainant can know
13
the fact. One copy of the said Policy was given to them.
Moreover, the Premium Amount which was returned back
was debited in their Account. They could have inquired
from this that what this Premium Amount was returned by
the Insurance Company.”
The appellants in their rejoinder did not specifically deny the averment that they
were furnished with a copy of the policy. The appellants have also not denied the
fact that the premium on account of STFI perils which was refunded by the
insurer was credited to their account. This being the position, it is not open to the
appellants to disavow knowledge of the exclusion of the STFI perils in the
insurance cover of Rs 60 lakhs which was issued for 2005-06 and renewed for
2006-07.
25 The appellants have placed reliance on the decision of this Court in Biman
Krishna Bose v United India Insurance Co Ltd5, where this court while dealing
with a mediclaim policy, observed:
“5. A renewal of an insurance policy means repetition
of the original policy. When renewed, the policy is
extended and the renewed policy in the identical
terms from a different date of its expiration comes
into force. In common parlance, by renewal, the old
policy is revived and it is sort of a substitution of
obligations under the old policy unless such policy
provides otherwise. It may be that on renewal, a new
contract comes into being, but the said contract is on
the same terms and conditions as that of the original
policy. Where an insurance company which has exclusive
privilege to carry on insurance business has refused to
renew the mediclaim policy of an insured on extraneous
and irrelevant consideration, any disease which an
insured had contacted during the period when the policy
was not renewed, such decease cannot be covered under
a fresh insurance policy in view of the exclusion clause.
The exclusion clause provides that the pre-existing
diseases would not be covered under the fresh insurance
policy. If we take the view that the mediclaim policy cannot
be renewed with retrospective effect, it would give handle
to the insurance company to refuse the renewal of the
5 (2001) 6 SCC 477
14
policy on extraneous consideration thereby deprive the
claim of insured for treatment of diseases which have
appeared during the relevant time and further deprive the
insured for all time to come to cover those diseases under
an insurance policy by virtue of the exclusion clause. This
being the disastrous effect of wrongful refusal of renewal
of the insurance policy, the mischief and harm done to the
insured must be remedied. We are, therefore, of the view
that once it is found that the act of an insurance company
was arbitrary in refusing to renew the policy, the policy is
required to be renewed with effect from the date when it
fell due for its renewal.”
(Emphasis supplied)
26 The above case, as the extract indicates, dealt with a situation where the
act of the insurer in refusing to renew the mediclaim policy was held to be
arbitrary. This Court noted the serious consequence flowing out of the arbitrary
refusal to renew the contract since it would result in the exclusion of the cover
and the rejection of the claim in respect of a disease which the insured had
contracted during the period when the policy was not renewed. The situation in
the present case is clearly distinguishable. The terms and conditions of the new
policy specifically excluded STFI perils and evidently there was a change in the
obligations of the insurer. There was no renewal but the issuance of a new policy.
The change in the location of the premises in the present case led to the
issuance of a new policy. It was open to the insurer to specifically exclude STFI
perils as a commercial decision. The appellants had knowledge of the exclusion
of the STFI perils as they were provided with a copy of the policy and also
received the refund of the premium. Having lodged no protest with the insurer
during 2005-06 or in the renewed term of 2006-07, the insured cannot lay a claim
that they had no knowledge that the STFI cover was excluded from the insurance
15
cover. Nothing prevented the appellants from either approaching the insurer or
any other insurance company for obtaining a policy that covered STFI perils.
27 For the above reasons, we are of the view that there is no merit in the
present appeal. The appeal shall, accordingly, stand dismissed but with no order
as to costs.
…….……..………………….……………………..J.
[DR DHANANJAYA Y CHANDRACHUD]
……….…..…….………..……………….………..J.
[AJAY RASTOGI]
New Delhi;
January 28, 2020
16
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