2026 INSC 876 1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 7687-7688 OF 2025

THE NEW INDIA ASSURANCE

COMPANY LIMITED & ORS. … APPELLANT(S)

VERSUS

M/S LOUIS DREYFUS COMMODITIES

INDIA PVT. LTD. …RESPONDENT(S)

J U D G M E N T

SANJAY KAROL, J.

1. These appeals under Section 23 of the Consumer Protection Act, 1986

1

challenge the correctness of the final judgment and order dated 21.05.2025,

passed by the National Consumer Disputes Redressal Commission

2

in Complaint

No.259 of 2012 and 396 of 2014.

2. The two appeals before us arise out of two separate incidents involving the

very same parties. For convenience, we may refer to the facts of the Complaint

Case No.259 of 2012 only.

1

Hereinafter ‘the Act’.

2

‘NCDRC’ for short.

2

3. The respondent, being an ongoing business concern involved in the trade

of commodities, secured from the appellants a Marine Cargo Annual Turnover

Policy, bearing Policy No.350200/21/09/14/00000369 extending to INR 1200

Crores for the period 01.01.2010 to 31.12.2010. The premium thereon was

payable in two equal instalments. About halfway through the year, the expected

turnover of the respondent increased, and as such they set about communicating

with the appellants regarding enhancement of the insurance coverage. There was

apparently an assurance that coverage would continue as long as the instalments

were paid on time. The incident germane to the present dispute was that a fire

broke out at the Container Freight Station on 07.11.2010, when the respondent

had received 41,481 cotton bales and stored them. Smoke was seen emanating

from the heaps, and while attempts were made to quell the fire, the appellants

were informed about such incidents on the same day.

4. The surveyor appointed by the appellants assessed the damages at

Rs.22,01,29,271/-. However, the appellants appointed a second surveyor, which

was allegedly without the approval of the Insurance Regulatory and Development

Authority

3

. The Report produced by such second surveyor is alleged to have not

been furnished to the respondents. The appellants, vide email dated 14.12.2010,

sought the payment of additional premium to the tune of Rs.86,86,125/- to

enhance the coverage to INR 1500 Crores. The said payment was made on

3

‘IRDA’ for short.

3

17.12.2010. The claim made by the respondent was eventually repudiated vide

letter dated 27.07.2012, leading to the filing of the complaint before NCDRC.

5. The case of the appellants before the NCDRC, in opposing the complaint,

primarily was that the respondent’s turnover as on 30.06.2010 was INR 1016.35

Crores, which was well beyond INR 600 Crores coverage for the first half of the

year. The second instalment was paid on 01.07.2010, but on the 10

th

of that month

itself, the turnover had crossed INR 1200 Crores, i.e., the total amount of the

coverage, and on the date of the incident, the said turnover was INR 1724.12

Crores. Since the respondent had not paid any additional premium for the excess

amount, on the said date there was no active coverage. This position was

contended as per Section 64 VB of the Insurance Act, 1938

4

. The premium was

eventually paid six weeks after the alleged incident, apparently trying to

retrospectively regularise the policy. Further, the email dated 14.12.2010 on the

basis of which the additional premium was paid was sent by an officer without

the requisite approval and, therefore, it did not bind the appellants. The

respondent, inter alia, rejected the appellant’s reliance on Section 64 VB of the

Insurance Act, since the Special Condition No.4 of the Insurance Agreement

states that the premium is subject to the annual Turnover and will be charged as

per actual turnover in the Policy Period and also because the payment of

additional premium had been accepted without any objection.

4

Hereinafter the ‘Insurance Act’.

4

6. The NCDRC allowed the petition, ordering the appellants to pay the

amount as assessed by the surveyor appointed by the appellants on account of the

fact that the clarification regarding the policy issued by the appellants dated

17.05.2010, in response to the respondent’s email dated 15.05.2010, clearly stated

that the insurance coverage would continue till the end date irrespective of the

turnover exceeding the insured amount i.e. INR 1200 Crores.

7. Certain documents are essential to the decision in this case:

7.1. Marine Cargo – Annual Turnover Policy dated 01.01.2010:

“THE NEW INDIA ASSURANCE COMPANY LIMITED

DO II SCO 104-106, Sector 34A, Chandigarh

MARINE CARGO – ANNUAL TURN OVER POLICY

FOR

ANNUAL SALES TURNOVER POLICY EXPECTED

TURNOVER RS.1200 CRORES

(PREMIUM ON HALF YEARLY BASIS)

Of

Louis Dreyfus Commodities India Pvt. Ltd.

(Policy No. 350200/21/09/14/0000369)

Issued by

The New India Assurance Co. Ltd.

(A Government of India Enterprises)

DO II

(SCO 104-106, Sector 34A, Chandigarh)

Tele Fax: +91 172 2601036

… … …

SUM INSURED

Annual Turnover Rs.l200 Crores

Half Yearly Turnover Rs. 600 Crores.

… … …

5

SPECIAL CONDITIONS

1. Warranted that the dispatches should be by closed wagon or closed

/ tarpaulin covered lorries or any other waterproof material to avoid

ingress of water.

2. Rain Water, Fresh Water, River Water and Lake Water damage is

covered and excess will be policy excess.

3. Consignment is covered on Warehouse to Warehouse basis.

4. Premium is subject to the annual Turnover and will be charged as

per actual turnover in the Policy Period.

5. Loading - unloading covered.”

(emphasis supplied)

7.2. Email dated 15.05.2010:

“From: Santosh K Sinha <santoshksinha®kmddelhi.com>

Subject: Queries in sales turnover policy

To: "rameshkaul" <fannyria@yahoo.com>

Cc: "raman" <raman@kmddelhi.com>,

"dinesh Mangla, NIA" <dkmangla@gmail.com>

Date: Saturday, May 15, 2010, 4:09 AM

Dear Ramesh,

We forward the mail received from the Client raising certain specific

queries under STOP Policy. Our opinion is in the red as follows:

• Do we need to enhance our STOP policy If we cross 600 crones

before six months. No. Premium will be adjusted based on

Balance Sheet Figures after the expiry of the Policy.

• Our all transits are covered till six months whether our turnover

crosses 600 crores in six months. Yes.

• Enhancement can be done anytime before consuming 1200

crores. There is no need of payment during the Policy period.

Even if the value exceeds Rs.l200 Crores during the Policy

Period, premium will be payable only after the expiry of the

Policy based on certified Balance Sheet figures- extra payment or

refund as the case may be.

Please confirm, for the sake of good order and records, whether our

understanding is right.”

7.3. Email dated 17.05.2010:

“From: "ramesh kaur' <fannyria@yahoo.com>

To: "Santosh K Sinha" santoshksinha@kmddelhi.com

Sent: Monday, May 17, 2010 11:54 AM

Subject: Re: Queries in sales turnover policy

6

Dear Santosh,

Against point no.one, we want to clarify that we are taking premium

in two instalments hence we have to increase the sum insured to 1200

crores by paying 2nd instalment i.e.in the month of July,2010. Alter

payment of 2nd instalment, all the transits are covered till the expiry

of policy even if it crosses 1200 crores.

If we take total premium in advance, then there is no need to enhance

the sum insured during the currency of policy provided the sum

insured is based on last years balance sheet.

regards,

DR. RAMESH KAUL

DIVISIONAL MANAGER

THE NEW INDIA ASSURANCE CO. LTD.”

7.4. Email 14.12.2010:

“From: “Dinesh Mangla” <dkmangla@gmail.com>

To: "Santosh K Sinha" <santoshksinha@kmddelhi.com>

CC: "Raman" <raman@kmddelhi.com> ; “fannyria”

<fannyria@yahoo.com>

Sent: Tuesday, December 14, 2010 6:59 PM

Subject: SALES TURN OVER POLICY A/C LD

Dear Mr.Santosh,

As you know we have issued Turnover policy to LD for estimated

turnover of Rs.1300 crores and with the growth of the company

turnover has increased many fold, hence as on date it might have

exhausted the estimated turnover. you are requested to release

another instalment based on the current turnover.

Pl take this on priority as incase of any claim, the competent

authority will raise this question and to avoid any ambarrassment at

the time of claim, we should regularise the turnover.

regards,

..

DINESH K. MANGLA

RELATIONSHIP MANAGER

THE NEW INDIA ASSURANCE CO. LTD.

S.C.O.-104-106, SECTOR-34-A,

CHANDIGARH-160022.

TELEFAX- 0172-2609107,2667306

MOB. 098147-13251”

7

7.5. Endorsement dated 17.12.2010:

“THE NEW INDIA ASSURANCE CO. LTD.

(Wholly owned by the Govt. of India)

ADDITIONAL ENDORSEMENT DOCUMENT

Open Policy

Insured Name: Louis Dreyfus Commodities India Pvt. Ltd.

(P006056330)

Address: Ilnd Floor, Tower 98, DLF Phase III, Gurgaon, Haryana,

122001

Telephone

Fax

Email

Insurer Office Code: SCO-104-106, Sector 34A, Chandigarh (350200)

Address: SCO 104-106, Sector 34A, Chandigarh

Telephone: 2501036/2504450

Fax: 2609107

Email

Endorsement attached to the forming

part of the Policy No.: 35020021091400000363

Department: Marine Cargo

Cover: Open Policy Cover Policy

Period of Insurance: From 01/01/2010 06.13.33 PM to 31/12/2010

11.59.59 PM

Endorsement No.

Effective Date 17 December 2010

Date Signed 13/12/2010

Additional Premium including ST INR 8,686,125.00

Sum insured (INR)

Premium (INR) N/A

It is hereby understood and agreed that with effect from 17 December

2010.

Reason

In witness whereof the policy was issued at.

For and on behalf of

The New India Assurance Co. Ltd.

Authorized Signatory

Date 17.12.2010”

7.6. Repudiation letter dated 27.07.2012:

“THE NEW INDIA ASSURANCE CODMPANY LIMITED

DIVISIONAL OFFICE - II

S.C.O. 104-106, Sector 34-A, Chandigarh - 160 022

Registered A/D

8

Without Prejudice

27

th

July 2012

M/s. Louis Dreyfus Commodities India Pvt. Ltd.

8

th

Floor, Tower A, Building No. 5,

Cyber City, DLF Phase-ill,

Gurgaon— 122 002 (Haryana).

Re Fire loss amounting to Rs. 20,65,60,422/- to cotton consignments on

07.11.2010 Marine Cargo Claim No. 350200/21/09/14/90000135,

Annual Turnover Policy No. 350200/21/09/14/0000369 (Period from

01.01.2010 to 31.12.2010)

Dear Sirs,

… … …

While we value our longstanding relationship with you and have

examined the claim from all possible angles on this major loss, we

hereby repudiate liability on the following grounds.

As evident from the survey report, the cotton stock of hazardous nature

was stored in the open and that the total value of the cotton stored at

Container Freight Station at the time of the loss was Rs.66,10,90,120.10

as against the value of Rs. 25 crore being the limit per location under

the policy. As your sales turnover during the policy period had exceeded

the amount declared by you, to ascertain the exact magnitude of the

sales turnover, we have got your books of account verified by the C.A.

firm, M/s. P. R. Shah & Co. According to their report, your total sales

turn over from Jan. 2010 to Dec. 2010 was Rs. 2,734.30 crore and the

cumulative sales turnover from Jan. 2010 to May 2010 was Rs. 794.07

crore i.e. it exceeded the initial sum insured of Rs. 600 crore in May

2010 itself only for which the premium had been paid by you at the

inception. The cumulative sales turnover from Jan. 2010 to July 2010

was Rs. 1,264.02 crore. Even if the enhancement of the sum insured by

another Rs. 600 crore is considered w.e.f. 01.07.2010, the sum insured

was exhausted in the first week of Oct. 2010, because the sales turn over

from July to Sept. 2010 itself is Rs. 598.33 crore. In fact there was no

balance of premium to cover the risk after the first week of October

2010 while the loss has taken place on 07.11.2010.

Being a big corporate house and represented by the well-known &

qualified brokers M/s. K. M. Dastur, you and your Brokers ought to

have been aware of the provisions of Section 64V(B) of Insurance Act

and the principles of utmost good faith and duty of disclosure. If there

is no premium, the insurance company can not go on/assume the risk.

You should have paid the premium in advance and maintained the

adequacy of the sum insured in order to keep the coverage in place. The

e-mails exchanged between your Broker & the Divisional Manger

9

cannot be in violation of the Sec.64V(B) of the Insurance Act in any

way. The Premium Adjustment Clause in the policy can be interpreted

only for downward adjustment of the premium in view of the provisions

of the Sec. 64V(B) of the Insurance Aet & can not be interpreted in

breach of it. It is surprising that even while raising a query about the

possible exhaustion of the sum insured, the exact amount of the sales

turnover achieved as on the date of seeking clarification by e-mail (i.e.

on 15.05.2010) was not disclosed for the reasons best known to

you/your broker.

The sales turnover during the policy period from 01.01.2010 to

31.12.2010 was Rs. 2,734.30 crore, which should have been insured for

at least by Rs. 2,734.30 crore + 10%. As against this, the fair estimate

of the sales turnover of only Rs. 1,200/- crore was given to us. Such

downward variation was not substantiated by reasons. It is improbable

for any corporate to run the same operation with less than half the

turnover of the previous year. The broker's action amounts to breach of

utmost good faith and willful mis-declaration of material information

and an attempt to defer payment of premium.”

8. We have heard Mr. Salil Paul, learned counsel for the appellants, and Mr.

Joy Basu, learned senior counsel for the respondent.

9. Section 64VB of the Insurance Act reads as under:

“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 [it]

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 [or by any online mode], the risk may be assumed

on the date on which the money order is booked or the cheque is posted

[or the money is received in insurer’s bank account], 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

10

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.

(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.]”

10. A perusal of the above reveals that there is a statutory embargo on an

insurer assuming risk if the premium has not been paid to them, either prior to

such assumption or within the stipulated time period in which it is guaranteed to

be paid. Sub-section (2) also makes this clear that the risk cannot be assumed

earlier than the date on which the premium has been paid. [See: Deokar Exports

(P) Ltd. v. New India Assurance Co. Ltd.

5

] Sub-sections (3) and (4) are

procedural stipulations regarding refund, and the latter accounts for a situation

where an agent collects the premium on behalf of the insurer. Sub-sections (5)

and (6) grant power to the Central Government to relax requirements and for the

Authority to specify the manner of receipt of payment by the insurer, respectively.

11. We are of the considered view that Section 64 VB of the Insurance Act

would be attracted in the present case. In the policy secured by the respondent

i.e., the Marine Cargo Annual Turnover Policy, the turnover of the respondent

5

(2008) 14 SCC 598.

11

was a central aspect in the functioning of the insurance cover so provided. The

agreement was extended to INR 1200 Crores and was adjustable, under the

special conditions, in accordance with the actual turnover. The amount for which

the respondent stood insured was exceeded in terms of turnover on 10.07.2010

itself, well before the incident. It was, therefore, incumbent upon the respondent,

in view of the clear stipulation under Section 64VB, to either extend the coverage

by paying the amount based on estimated turnover or at least guaranteeing to pay

the same within a particular time period.

12. Undisputedly, the extent of the insurance coverage was extended post the

incident. As the endorsement dated 17.12.2010 extracted supra shows, the

responsibility of the appellants accrues from the said date. As per the respondent,

it is not so, for, one of the grounds pressed into service by the respondent was the

email dated 17.05.2010 assuring the respondents that coverage would continue

even if the turnover would exceed the insured amount. This was accepted by the

NCDRC, but we find it difficult to do so. The appellants have placed on record

guidelines of the company issued on 16.10.2006 by the Head Office to all its

Regional Offices clearly stating that – “6. Premium adjustment to be done only

downwards, in view of the provisions of Section 64VB.” While it is a settled

position of law that a principal is liable for the actions of its agents, it is also trite

that the same should be done in accordance with the rules and regulations of the

principal or, in other words, in the regular course of duty by the agent. It can only

12

be expected, and reasonably so, by the appellants that its agent would be

cognizant of the directives issued by it. In that view of the matter, no occasion

arose for the Divisional Manager of the appellants to assure the respondent of

extension of coverage. In Harshad J. Shah v. LIC of India,

6

it has been provided

that an authority to an agent need not be expressed and it may be implied from

circumstances. Granted that an agent of the appellant was dealing with the

respondent’s case and would ordinarily have the authority, but in view of the clear

directive of 2006, the circumstances do not permit such authority. [See also: State

of Orissa v. United India Insurance Co. Ltd.

7

and State Bank of India v. Shyama

Devi

8

]

13. Another argument must be dealt with that since the appellants had accepted

the payment of additional premium, it is now estopped from refusing to cover the

incident. This argument cannot be accepted for two reasons. It is a position in law

that if an insurer does a particular act for their own convenience, such as taking

the premium in instalments, they cannot hide behind Section 64VB but this

situation would have been applicable to the present case if the additional amount

paid was a part of the original coverage of INR 1200 Crores for which payments

in instalments was agreed to be accepted by the appellants. But since this payment

directly links to turnover and would in effect make the appellant liable for an

6

(1997) 5 SCC 64.

7

(1997) 5 SCC 512.

8

(1978) 3 SCC 399.

13

incident that took place at a time when the coverage based on the turnover had

already been surpassed, it has to be hit by Section 64VB, which provides no

possibility for post facto regularisation. The rule of estoppel has been discussed

in Shyam Telelink Ltd. v. Union of India,

9

but it is well settled that the same

cannot apply against or in contravention of a statute. [See: Electronics Corpn. of

India Ltd. v. Secy., Revenue Deptt., Govt. of A.P.

10

and State of W.B. v. Gitashree

Dutta

11

] As such, since the Section clearly enjoins the assumption of risk by

insurance companies such as the appellants before the amount is paid, the

statement by the employee of the appellants would not have any value.

Furthermore, the additional endorsement issued by the appellants accepting the

additional premium paid by the respondent on 17.12.2010 clearly states that the

effect of such acceptance would accrue from the said date. Accordingly, the

argument by the respondent that a condition for the benefit of the insurer (Section

64 VB) can be, and has been in the present case, waived by conduct has to be

negated because the appellants have assumed the risk arising out of the payment

of additional premium only from the date of its payment and not prior thereto.

9

(2010) 10 SCC 165.

10

(1999) 4 SCC 458.

11

(2022) 19 SCC 388.

14

14. For all the aforesaid reasons, both the appeals are allowed. Pending

application(s), if any, shall stand disposed of.

……… ……………………………………J.

(SANJAY KAROL)

..…………………………………………….J.

(NONGMEIKAPAM KOTISWAR SINGH )

NEW DELHI;

AUGUST 18, 2026

Page 1 of 16

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOs.7687 -7688 OF 2025

THE NEW INDIA ASSURANCE

CO. LTD. & ORS. …APPELLANT(S)

VERSUS

M/s LOUIS DREYFUS COMMODITIES

INDIA PVT. LTD. …RESPONDENT(S)

J U D G M E N T

NONGMEIKAPAM KOTISWAR SINGH, J.

1. I have gone through the judgment penned by my esteemed

Brother Sanjay Karol, J., and I have taken the privilege to make

certain observations into the relationship of agent and principal

which will have a bearing on the decision in this case.

Page 2 of 16

Principal and Agent relationship

2. The Respondent relies upon the email dated 17 May 2010

addressed by the Divisional Manager of the Appellant insurer to

the insurance broker as an assurance that, after payment of the

second installment of premium, all transits would remain

covered until expiry of the policy even if the turnover crossed

₹1,200 crore. The Appellants contend that the Divisional

Manager had no authority to enlarge this risk undertaken under

the policy. The issue therefore, has to be examined in the

statutory light of the existence of agency, scope of its authority,

and the legal capacity of an agent to bind the principal.

3. Section 182 of the Indian Contract Act, 1872 (“Act” for

short) defines “agent” and “principal” and their relationship in

the following terms:

“182. An ‘agent’ is a person employed to do any act

for another, or to represent another in dealings with

third persons. The person for whom such act is done,

or who is so represented, is called the ‘principal’.”

Sections 186 and 187 of the Act provide that the authority

of an agent may be express or implied, and that implied

authority may be inferred from the circumstances, the things

spoken or written, or the ordinary course of dealing.

Page 3 of 16

Section 188 of the Act explains the extent of such

authority:

“188. An agent, having an authority to do an act, has

authority to do every lawful thing which is necessary

in order to do such act. An agent having an authority

to carry on a business, has authority to do every

lawful thing necessary for the purpose, or usually

done in the course, of conducting such business.”

These provisions make two principles clear. First, an

officer may be an employee of the company and, at the same

time, be its agent for the purpose of representing it in dealings

with policyholders. Secondly, the authority attached to an agent

extends to acts which are necessary, usual and lawful in the

conduct of the authorised business and it does not extend

merely because the act relates generally to the employer’s

business. Thus, a Divisional Manager entrusted with

administration of a policy may ordinarily communicate with the

insured, explain the policy and call for premium, but that does

not establish authority to create a new risk, enlarge the sum

insured or enlarge the scope of liability of the insurer or dispense

with a statutory precondition for attachment of risk.

4. The consequence of an act performed within authority is

stated in Section 226 of the Act, which reads as follows :

Page 4 of 16

“226. Contracts entered into through an agent, and

obligations arising from acts done by an agent, may

be enforced in the same manner, and will have the

same legal consequences, as if the contracts had been

entered into and the acts done by the principal in

person.”

However, where the actual authority is absent, the

question shifts to apparent or ostensible authority as

conceptualized in Section 237 of the Act. Section 237 of the Act

embodies the doctrine of holding out or agency by estoppel and

provides:

“237.When an agent has, without authority, done acts

or incurred obligations to third persons on behalf of his

principal, the principal is bound by such acts or

obligations, if he has by his words or conduct induced

such third persons to believe that such acts and

obligations were within the scope of the agent’s

authority.”

5. In Harshad J. Shah v. Life Insurance Corporation of

India, (1997) 5 SCC 64, this Court explained that actual

authority proceeds from the principal’s manifestation to the

agent, whereas apparent authority proceeds from the principal’s

manifestation to the third party. The Court observed that

apparent authority is ‘the authority of an agent as it appears to

others’ and is essentially confined to the relationship between

the principal and the third party. The agent cannot create such

authority by his own assertion and the representation must be

Page 5 of 16

traceable to the words, conduct, course of dealing or

organisational position conferred by the principal.

Para 13 and 14 of the Harshad J. Shah (supra)

concerning the above analysis is reproduced hereunder:

“13.Actual authority results from a manifestation of

consent that he should represent or act for the

principal made by the principal to the agent himself. It

may be express if it is given wholly or in part by means

of words or writing or it may be implied when it is

regarded by the law as the principal having given him

because of the interpretation put by the law on the

relationship and dealings of the two parties. Implied

authority may arise in the form of incidental authority,

i.e., authority to do whatever is necessarily or

normally incidental to the activity expressly

authorised, or usual authority, i.e., authority to do

whatever an agent of the type concerned would

usually have authority to do, or customary authority,

i.e., authority to act in accordance with such

applicable business customs as are reasonable. The

authority of the agent may also be implied from the

circumstances of the particular case.

14.The authority of the agent is apparent where it

results from a manifestation made by the principal to

third parties. The doctrine of apparent authority

involves the assumption that there is in fact no

authority at all. It is the authority of an agent as it

appears to others. Under this doctrine where a

principal represents, or is regarded by law as

representing, that another has authority, he may be

bound as against a third party by the acts of that other

person within the authority which that person appears

to have though he had not in fact given that person

such authority or had limited the authority by

instructions not made known to the third party. The

notion of apparent authority is essentially confined to

the relationship between the principal and the third

party. (See: Bowstead on Agency, 15th Edn., Article

22, pp. 92 to 94.)”

Page 6 of 16

This Court in Harshad J. Shah (supra) also held that

where statutory regulations expressly prohibited the agent from

collecting premium, neither implied authority nor apparent

authority could be inferred merely from the agent’s conduct. In

paras 17 and 18 of the said decision, this Court held:

“17. In the instant case, it cannot be said that

respondent No.3 had the express authority to receive

the premium on behalf of the LIC because in the letter

of appointment dated December 5, 1962 there was a

condition expressly prohibiting him from collecting the

premium on behalf of the LIC. Nor can it be said that

respondent No.3 had an implied authority to collect the

premium on behalf of the LIC because in 1972 the LIC

has made a regulation [Regulation 8(4)], which in 1981

became a rule, prohibiting the agents from collecting

premium on behalf of the LIC…”

“18. …it cannot be said that the LIC induced the

insured to believe that respondent No.3 had been

authorised by the LIC to receive premium on behalf of

the LIC. We are, therefore, unable to hold that the

doctrine of apparent authority underlying Section 237

of the Indian Contract Act can be invoked in the facts

of this case especially when the LIC has been careful

in making an express provision in the

Regulations/Rules, which are statutory in nature,

indicating that the agents are not authorised to collect

any moneys or accept any risk on behalf of the LIC

and they collect so only if they are expressly

authorised to do so.”

6. The principle in Harshad J. Shah (supra) was considered

by this Court subsequently in Delhi Electric Supply

Undertaking v. Basanti Devi & Anr., (1999) 8 SCC 229 . The

case arose under the Salary Savings Scheme of the Life

Insurance Corporation of India (“LIC”), under which the

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employer, Delhi Electric Supply Undertaking (“DESU”), was

entrusted with deducting the premium from the salary of the

insured employee and remitting it to LIC. Although DESU was

not an “insurance agent” appointed under the Insurance Act and

the applicable Regulations, this Court held that its relationship

with LIC was nevertheless required to be examined under the

general law of agency contained in the Contract Act. In para 12

of the said decision in Basanti devi (supra), this Court held:

“12. ‘Agent’ in Section 182 means a person employed

to do any act for another, or to represent another in

dealings with third persons and the person for whom

such act is done, or who, is so represented, is called

the principal. Under Section 185 no consideration is

necessary to create an agency. As far as Bhim Singh

is concerned, there was no obligation cast on him to

pay premium direct to LIC. Under the agreement

between LIC and DESU, premium was payable to

DESU who was to deduct every month from the salary

of Bhim Singh and to transmit the same to LIC. DESU

had, therefore, implied authority to collect premium

from Bhim Singh on behalf of LIC. There was, thus,

valid payment of premium by Bhim Singh. Authority of

DESU to collect premium on behalf of LIC is implied. In

any case, DESU had ostensible authority to collect

premium from Bhim Singh on behalf of LIC. So far as

Bhim Singh is concerned DESU was agent of LIC to

collect premium on its behalf.”

The significance of Basanti Devi (supra) lies further in the

fact that LIC relied upon its internal arrangement with DESU

under which DESU was described as the agent of the employee

and not as the agent of LIC. This Court declined to allow such

an undisclosed arrangement to determine the position of the

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insured. While distinguishing Harshad J. Shah (supra), the

Court observed in para 14:

“14. We do not think the decision of this Court in

Harshad J. Shah v. Life Insurance Corporation of

India, (1997) 5 SCC 64 has any application in the

present case before us. Formation of the contract of

insurance is between the Life Insurance Corporation

and the employee of the DESU. The Scheme has been

introduced by the Life Insurance Corporation purely on

business considerations… Though in the pro forma

letter written by the DESU to the Life Insurance

Corporation it is mentioned that the DESU would be an

agent of its employee and not that of the Life Insurance

Corporation this understanding between the Life

Insurance Corporation and the DESU was not

communicated or made known to the employee. As far

as the employee is concerned he is told that the

premium will be deducted from his salary every month

and remitted by the DESU to the Life Insurance

Corporation under an agreement between the Life

Insurance Corporation and the DESU. For the

employee of the DESU, therefore, the DESU h ad

implied authority as an agent of the Life Insurance

Corporation to collect the premium on its behalf and

then pay it to the Life Insurance Corporation. There is

nothing on the record to show that Bhim Singh was

ever made aware of the fact that the DESU was not

acting as agent of the Life Insurance Corporation.

Rather in the nature of the Scheme, the employee was

made to believe that it is the duty of the employer… to

collect the premium… and to remit the same to the Life

Insurance Corporation… As to wha t is the

arrangement between the Life Insurance Corporation

and the DESU the employee is not concerned.”

Basanti Devi (supra) thus makes the distinction between

actual authority and ostensible authority particularly clear. The

actual authority concerns the authority which the principal has

in fact conferred upon the agent and may be circumscribed by

internal instructions. The ostensible authority concerns the

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authority which, by the principal’s own words, conduct,

business arrangement or the position in which the agent has

been placed, the third party is reasonably led to believe that the

agent possesses. An internal restriction upon the officer’s

authority is therefore relevant to the relationship between the

principal and the agent, but however, if such restriction was

never communicated to the third party, its mere existence

cannot defeat an otherwise established case of ostensible

authority under Section 237 of the Act. That is precisely why

Basanti Devi (supra) distinguished Harshad J. Shah (supra),

where in Harshad J. Shah (supra), there was no material to

show any holding out by LIC that the insurance agent was

authorised to receive premium, whereas in Basanti Devi

(supra), the very arrangement created by LIC placed DESU in a

position in which the insured was entitled to regard it as

authorised to receive premium. The judgment itself records that

Harshad J. Shah (supra) involved an insurance agent whose

governing Regulations expressly prohibited collection of

premium, whereas DESU’s authority arose from LIC’s own

scheme and conduct.

The principle in Basanti Devi (supra), however, must be

applied with regard to the particular act for which authority is

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asserted. There, LIC had itself entrusted DESU with the very

function which was in issue, namely, collection and remittance

of premium, something the agent would normally perform. The

finding of ostensible authority therefore related to an act which

formed part of the arrangement created by the principal itself in

the mind of the insured. The present case stands differently

insofar as the disputed portion of the email is relied upon not

merely as an act of policy administration, but as authority for

continuation of insurance risk beyond the extent which, for the

reasons recorded in the main judgment, could lawfully attach

without further compliance with Section 64VB of the Insurance

Act, 1938. Basanti Devi (supra) does not hold that an

undisclosed limitation upon an agent’s authority enables the

agent to undertake an act which the principal itself could not

lawfully undertake in that manner.

7. At this stage, it would also be apposite to notice Section

64VB of the Insurance Act, 1938, which places the statutory

restriction upon the insurer itself. The relevant portion reads

thus:

“64-VB. No risk to be assumed unless premium is

received in advance.—

(1) No insurer shall assume any risk in India… unless

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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.”

It is not in dispute that the statutory command is directed

to the insurer as principal. Consequently, for the reasons

recorded in the main judgment, assumption or continuation of

the additional risk required compliance with Section 64VB, an

agent cannot, by invoking actual or ostensible authority, confer

upon the insurer a capacity which the statute itself withholds.

8. Further, in Dilawari Exporters v. Alitalia Cargo & Ors.,

(2010) 5 SCC 754, this Court held that where a party seeks to

bind the principal under Section 237 of the Contract Act on the

basis of an agent’s act, the burden lies upon that party to

establish that the act was within the agent’s actual authority or

within the ostensible or apparent authority which the principal

had held out the agent as possessing. Mere proof that the person

was an employee or agent of the principal is, by itself,

insufficient.

Page 12 of 16

9. While applying the above principles to the present case,

the Divisional Manager’s mail cannot be treated as a purely

private communication unrelated to the insurer. The email was

issued by the Divisional Manager of the policy-issuing office, in

response to a query concerning the operation of an existing

policy, and dealt with premium and coverage. The officer,

therefore, possessed at least the usual and implied authority to

correspond concerning and explain the policy. The

communication is consequently relevant as a contemporaneous

representation of the issuing office and cannot be discarded

merely because it was sent by an employee.

That conclusion, however, does not answer the distinct

question whether the officer had authority to alter the

contractual risk. Authority to administer or explain an existing

policy is not equivalent to authority to rewrite it. Section 188 of

the Contract Act deliberately confines incidental and usual

authority to every ‘lawful’ thing necessary or usually done in

conducting the authorised business. An agent cannot acquire,

by implication, authority to do that which the principal has not

authorised, or to undertake a liability which the governing

statute does not permit the principal to assume in that manner.

Page 13 of 16

The respondent has, therefore, established that the

Divisional Manager possessed authority to correspond

concerning and administer the policy, but what it has not

established, as required by Dilawari Exporters (supra), is that

the appellant had, by its words, conduct or course of dealing,

held the Divisional Manager out as possessing authority

independently to enlarge the turnover-based risk undertaken

under the policy or to dispense with the statutory requirement

governing attachment of such additional risk.

10. The decision in State of Orissa v. United India

Insurance Co. Ltd., (1997) 5 SCC 512 is directly instructive.

The Branch Manager had incorporated in an insurance policy a

guarantee relating to non-supply of bulldozers. This Court held

that the High Court has recorded the finding that the Branch

Manager of the Insurance Company exceeded his authority as

an agent by underwriting in the policy the guarantee for the non-

supply of bulldozers. The principal is not bound by such an

undertaking, by operation of Section 237 of the Contract Act.

This Court, thereafter, concluded that, the Manager

having no authority to undertake such liability by subsequent

incorporation into the policy, the insurance company was not

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bound by his act. The ratio is that a managerial designation does

not, by itself, confer authority to add an undertaking which lies

outside the policy and outside the authority held out by the

insurer.

11. Section 227 of the Contract Act also permits the

authorised part of an agent’s act to be separated from the excess.

It provides that where an agent does more than he is authorised

to do, and the authorised part can be separated from the

unauthorised part, ‘so much only of what he does as is within

his authority is binding’. Accordingly, the email may be

recognised as a valid clarification insofar as it concerned

payment of the scheduled instalments and operation of the

policy within the sum lawfully insured. It cannot, however,

merely by reason of the same communication, be treated as an

independent undertaking of unlimited or retrospectively

enlarged cover.

12. The Respondent also relies upon the subsequent

demand and acceptance of additional premium. Section 196 of

the Act provides that where an act is done on behalf of another

without authority, the person on whose behalf it was done ‘may

elect to ratify or to disown such acts’, and that ratification gives

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the act the same effect as if originally authorised. Ratification,

however, must be a conscious adoption of the very act in

question. Here, the endorsement enhancing the sum insured

expressly took effect from 17 December 2010. Its prospective

commencement is inconsistent with an intention to ratify,

retrospectively, an assurance that additional cover had already

been attached before the losses occurred earlier in November

2010. Further, ratification may cure an absence of authority, but

it cannot be employed to defeat a mandatory statutory

requirement governing the assumption of insurance risk.

13. We accordingly hold that the email dated 17 May 2010

was issued in the course of the insurer’s business and is relevant

to the contemporaneous understanding of the policy. It binds the

insurer only to the extent that it concerned matters falling within

the Divisional Manager’s actual or apparent authority. It cannot,

however, operate as an independent source of additional or

unlimited insurance, nor can the subsequent endorsement,

expressly effective from 17 December 2010, retrospectively ratify

such an undertaking. Therefore, the principle qui facit per alium

facit per se applies to acts within the agent’s authority, however,

it does not enable an agent to confer upon the Principal a liability

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which the agent was neither authorised nor legally competent to

assume on its behalf.

14. With these supplementary observations, I respectfully

concur with the reasoning, the conclusions, and the judgment

by my learned Brother, Sanjay Karol, J.

…………………….................................J.

(NONGMEIKAPAM KOTISWAR SINGH)

NEW DELHI;

AUGUST 18, 2026.