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PETITIONER:

NEW INDIA ASSURANCE CO. LTD.

Vs.

RESPONDENT:

RULA & ORS.

DATE OF JUDGMENT: 07/03/2000

BENCH:

R.P.Sethi, S.S.Ahmad

JUDGMENT:

S. SAGHIR AHMAD, J. Leave granted. 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 has been

filed as Annexure P-1 to this petition, is headed as "MOTOR

VEHICLES ACT, 1988 (GOODS CARRYING 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 Bhakla, died. Their

dependants filed three Claim Cases, viz. No.156/91, 157/91

and 158/91 before the Motor Accident Claims Tribunal,

Barwani, M.P., which were contested by the appellant on the

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 Tribunal, which decreed

all the three claims by its award dated 25.1.1996, directing

payment of Rs.48,200/- as compensation in Case No. 156/91;

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 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 Contract Act,

1872 and it is contended that since the cheque through which

premium was sought to be paid to the appellant was

dishonoured by the bank when it was presented for

encashment, there was a failure of consideration 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 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 : "(d) When, at the desire of the promisor, the

promisee or any other person had done or abstained from

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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 : "(e)

Every promise and every set of promises, forming the

consideration for each other, is an agreement. (f) Promises

which form the consideration or part of the consideration

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 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 decision of the Bombay High Court in Ocean Accident

& Guarantee Corporation Company vs. Patkar AIR 1935 Bombay

236 was followed. To the same effect is an old decision in

Equitable Fire & Accident Office vs. 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 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. (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 with the requirements of

this Chapter." Section 147 (5) provides as under : "(5)

Notwithstanding anything contained in any law for the time

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." 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

person insured in respect of third party risks -- (1) If,

after a certificate of insurance has been issued under

sub-section (3) of section 147 in favour of the person by

whom a policy has been 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 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 exceeding the sum assured payable thereunder, as if

he were the judgment-debtor, in respect of the liability,

together with any amount 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,

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therefore, 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 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

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. vs. 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 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

maintained by the third party against the insurer. 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. vs. Inderjit

Kaur & Ors. (1998) 1 SCC 371, in which it was laid down as

under : "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 Section 147(5) and

149(1) of the Motor Vehicles Act, the appellant became

liable to 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." 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

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 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. 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 the 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.

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