1. This Civil Miscellaneous Appeal has been preferred by the Insurance Company against the order of the Motor Accident Claims Tribunal, West Godavari at Eluru in O.P No. 150 of 1997. The responds dents-claimants filed an application under Section 166 of the Motor Vehicle Act, 1899 claiming compensation of Rs. 1,00,000/- due to the death of a lady by name Abbisetti Varalakshmi, a student aged about 19 years. The Tribunal awarded compensation of Rs. 1,00,000/- as prayed for, making the owner of the vehicle and the insurance company liable to pay the compensation amount.
2. Being aggrieved by the same, the Insurance Company preferred the present appeal contending that there was no insurance coverage to the accident vehicle as on the date of accident. The Insurance Company further contended that long prior to the accident, the owner of the vehicle issued a cheque towards premium for the policy and the cheque was bounced and the amount was not paid towards premium at any time subsequently. Therefore, there was no valid insurance coverage as on the date of accident. Therefore, the insurance company is not liable to indemnify the loss of the owner of the vehicle on account of cancellation of the insurance policy issued in favour of the owner of the vehicle on account of non-payment of the premium. The said plea was raised before the Tribunal. But, the Tribunal rejected the same by relying on a judgment in New India Assurance Co. Ltd. v. Rula, AIR 2000 SC 1082, wherein the Supreme Court held as follows:
“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 indemnified 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.”
3. In the case covered by the above decision, the claimants made a claim for compensation due to a motor accident against the insurance company. The claim was allowed by the Tribunal as well as the High Court making the insurance company liable. In the said case, the insurance company insured the vehicle on 8-11-1991 and issued a policy. On the night of the same day, the vehicle met with an accident resulting in death of three persons travelling in the same. The owner of the truck gave a cheque towards the premium of the policy, but the cheque was dishonoured on 8-11-1991. In those circumstances, the Supreme Court held as indicated above.
4. In the case on hand, the insurance company relied on Exs. B.1 to B.3 documents. Ex. B.1 is the attested xerox copy of receipt dated 14-2-1996 for Rs. 4,758/-. Ex. B.2 is the attested xerox copy of advice, dated 16-2-1996 of the State Bank of Hyderabad informing that there is no amount in the account. Ex. B.3 is the attested xerox copy of the cheque for Rs. 4,758/-. The accident occurred on 20-5-1996. The accident took place about three months after bouncing of the cheque. It is contended by the Insurance Company that the policy issued by the company is the result of contract between the owner of the vehicle and the insurance company. The Tribunal, while observing that Section 2(d) of the Indian Contract Act defined a term ‘consideration’, which is an act in pursuance of the promise made by the promissor to constitute consideration, held that it cannot be said that the insurance company is not at all liable to pay any compensation. The Tribunal further observed that since there was valid fitness certificate and permit to the truck and the driver of the truck was having valid licence as on the date of accident, the insurance company cannot avoid the liability. Having issued the insurance policy believing the promise made by the owner of the vehicle about the payment of premium and after making the payment, the insurance company can proceed against the owner of the vehicle.
5. The learned counsel for the appellant/insurance company relied on a judgment in National Insurance Company Limited v. Seema Malhotra, 2001 (2) ALD 68 (SC) : AIR 2001 SC 1197, wherein the Supreme Court held while referring the Section 149 of the Motor Vehicle Act and Section 64-VB of the Insurance Act, 1938 observed as follows:
“When the insured fails to pay the premium promised, or when the cheque issued by him towards the premium is returned dishonoured by the Bank concerned the insurer need not perform his part of the promise. The corollary is that the insured cannot claim performance from the insurer in such a situation.
Under Section 25 of the Contract Act an agreement made without consideration is void. Section 65 of the Contract Act says that when a contract becomes void any person who has received any advantage under such contract is bound to restore it to the person from whom he received it. So even if the insurer has disbursed the amount covered by the policy to the insured before the cheque was returned dishonoured, insurer is entitled to get the money back.
However, if the insured makes up the premium even after the cheque was dishonoured but before the date of accident it would be a different case as payment of consideration can be treated as paid in the order in which the nature of transaction required it. As such an event did not happen in this case the insurance company is legally justified in refusing to pay the amount claimed by the respondents.”
6. In the case covered by the above decision, the owner of the vehicle gave a cheque to the insurance company towards first premium amount, but the cheque was dishonoured by the drawee bank due to insufficiency of funds in the account of the drawee. The insurance company entered into a contract on 21-12-1993 by insuring his car for a sum of Rs. 1,50,000/-. On the same day, the owner of vehicle/insured gave a cheque for Rs. 4,492/- towards the first instalment of the premium and the insurance company issued a cover note as contemplated in Section 149 of the Motor Vehicles Act. But, unfortunately the last day of the year 1993 i.e, on 31-12-1993 the accident occurred. On 10-1-1994 the bank sent an intimation to the insurance company that the cheque was dishonoured and there were no funds in the account of the insured. On 20-1-2004 the insurance company informed the business concern of the insured, which reads as follows:
“Notwithstanding anything contained in the contrary, it is hereby agreed and declared that your cheque has been dishonoured by the Bank. So we are canceling the above said policy with immediate effect. The company is not at risk.”
When the widow and children of the owner who is the driver of the vehicle, claimed compensation for the damage caused to the vehicle, the claim was repudiated.
7. Section 64-VB of the Insurance Act reads as follows:
“(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 purpose of this section, in the case of risks for which premium can be ascertained in advance, the risk may be assumed to earlier than the date on which the premium has been paid in cash or by cheque to the insurer.”.
8. Sections 51, 52 and 54 of the Indian Contract Act can profitably be referred to for the purpose of deciding the point. They are subsumed under the sub-title “Performance of reciprocal promises” in the said Act. Section 51 deals with a contract concerning reciprocal promises to be simultaneously performed and in such a contract the promisee is absolved from performing his promise unless the promissor is ready or willing to perform his part of the promise. Section 52 says that where the order in which reciprocal promises are to be performed has not been expressly provided in the contract such promise shall be performed in that order which the nature of the transaction warrants it. Illustration (b) given to Section 52 highlights the utility of the provision. The illustration is as follows: A and B contract that A shall make over his stock-in-trade to B at a fixed price, and B promises to give security for the payment of the money. A's promise need not be performed until the security is given, for the nature of transition requires that A should have security before he delivers up his stock.
9. Section 54 of the Contract Act is to be read in that background. It is extracted below.
“When a contarct consists of reciprocal promises, such that one of them cannot be performed, or that its performance cannot be claimed till the other has been performed, and the promissor of the promise last mentioned fails to perform it, such promissor cannot claim the performance of the reciprocal promise, and must make compensation to the other party to the contract for any loss which such other party may sustain by the non-performance of the contract.”
10. In a contract of insurance when an insurer gives a cheque towards payment of premium or part of the premium, such a contract consists of reciprocal promise. The drawer of the cheque promises the insurer that the cheque, on presentation, would yield the amount in cash. It cannot be forgotten that a cheque is a Bill of Exchange drawn on a specified banker. A bill of exchange is an instrument in writing containing an unconditional order directing a certain person to pay a certain sum of money to a certain person. It involves a promise that such money would be paid.
11. The learned counsel for the insurance company submits that in the light of the above proposition of law, the insurance company cannot be made liable to pay the compensation since the accident occurred three months after the date of bouncing of the cheque.
12. The learned counsel for the claimants relied on a judgment of a Division Bench of this Court in M. Nageswara Rao v. New India Assurance Co. Ltd., 2004 (3) ACJ 1554 wherein it was held that in view of the provisions covered by Section 147(5) and 149(1) of the Motor Vehicles Act, the insurance company cannot be exempted from liability when the procedure contemplated by the law is not followed by giving opportunity to the owner of the vehicle to make good the loss sustained by the drawee and when the insurance company failed to produce any evidence that the notices were served on the insured.
13. In Seema Malhotra's case (supra) the Supreme Court laid down the principle by taking into consideration the communication sent by the insurance company to the owner of the vehicle. But, in the present case, no material has been placed by the insurance company to prove that after bouncing of the cheque, the policy was cancelled and an intimation was received by the owner of the vehicle to that effect. Therefore, the principle laid down in the case, covered by the above decision is not applicable.
14. In M. Nageswara Rao's case (supra), a Division Bench of this Court while referring the following cases expressed a view that when the insurance company failed to prove that notices were served on the insured informing that they cancelled the policy, the insurance company cannot avoid liability as they failed to give opportunity to the owner of the vehicle to remit the premium amount from the cheque dishonoured by the bank.
i) Rula's case (supra).
ii) Seema Malhotra's case (supra).
iii) Oriental Insurance Co. Ltd. v. Inderjit Kaur, 1998 ACJ 123 (SC) : AIR 1998 SC 588.
iv) Pradeep Kumar Jain v. Citi Bank, 1999 ACJ 1516 (SC) : AIR 1999 SC 3119.
15. In the light of the above judgment of the Division Bench of this Court and in the facts and circumstances of the case, the Tribunal was justified in making the insurance company liable to indemnify the loss of the owner of the vehicle. Therefore, there are no grounds to interfere with the order of the Tribunal.
16. In the result, the Civil Miscellaneous Appeal is dismissed. However, the insurance company is at liberty to recover the amount from the owner of the vehicle according to law. No order as to costs.
17. Appeal dismissed.